As filed with the Securities and Exchange Commission on April 26, 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. 41
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 29
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 May 1, 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. The Registrant filed its Rule
24f-2 notice for the fiscal year ended July 31, 1995 on September
21, 1995. The Registrant now declares its intention to register
an indefinite number of shares of the S&P 500 Index Fund pursuant
to Rule 24f-2(a)(1) under the Act. The S&P 500 Index Fund is a
"feeder fund" within a "master-feeder structure." This Post-Effective
Amendment No. 41 includes a manually executed signature page for the
master fund, Equity 500 Index Portfolio.
Exhibit Index on Pages 75-76
Page 1 of 184
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 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
May 1, 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 7.
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 12.
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 14.
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 AND 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 10.
If you would like more information, a STATEMENT OF
ADDITIONAL INFORMATION (SAI) of the Fund, dated May 1,
1996, is available upon request and without charge by
writing to USAA MUTUAL FUND, INC., 9800 Fredericksburg
Rd., San Antonio, TX 78288, or by calling 1-800-531-8181.
The SAI has been filed with the Securities and Exchange
Commission and is incorporated by reference into this 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
Performance Information 4
USING MUTUAL FUNDS
USAA Family of No-Load Mutual Funds 5
Using Mutual Funds in an Investment Program 6
INVESTMENT PORTFOLIO INFORMATION
Investment Objective and Policies 7
Additional Information 23
SHAREHOLDER INFORMATION
Purchase of Shares 12
Redemption of Shares 14
Conditions of Purchase and Redemption 15
Exchanges 16
Other Services 17
Share Price Calculation 18
Dividends, Distributions and Taxes 18
Management of the Company and Portfolio 19
Service Providers 22
Description of Shares 22
Telephone Assistance Numbers 25
FEES AND EXPENSES
The following table provides a summary of expenses
relating to purchases and sales of the 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 of the Fund. These
expenses are 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 (ANA))
- ----------------------------------------------------------------------------
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
Fund's annual expenses to .18% of its ANA for the Fund's
first year of operations and will reimburse the Fund for
all expenses in excess of the limitation. In addition,
the investment adviser and the administrator and
servicing agent to the Portfolio, Bankers Trust Company,
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%, .33% and
.43%, respectively.
Example of Effect of Fund Expenses
- ----------------------------------------------------------------------------
An investor would pay the following expenses on a $1,000
investment, 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 an investor's total
expenses will be substantially lower in percentage terms
than this illustration implies.
1 year 3 years
$12 $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 19.
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 5001. 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
each of 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 10 herein.
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 duplicate 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.
The Adviser utilizes a two-stage sampling approach in
seeking to obtain 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: (i) short-term obligations of the
U.S. Government, its agencies, instrumentalities, authorities or
political subdivisions; (ii) 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; (iii) commercial paper; (iv) bank
obligations, including negotiable certificates of
deposit, time deposits and bankers' acceptances; and (v)
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 index should
concentate 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 HEREIN.
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 rate for the years
ended December 31, 1995 and 1994 was 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 in 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 (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 Securities and Exchange Commission,
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 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 Board of Directors of the Company would
consider what action 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 or the retaining of an investment
adviser to manage the Fund's assets in accordance with
the investment policies described below with respect to
the Portfolio.
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
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. If the Fund
receives your request prior to the close of the New York
Stock Exchange on a day on which the Exchange is open,
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 4
to 6 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 deducted from
via a bank account, paycheck, income-producing investment or from
Electronic a USAA money market account. Sign up for these services when
Funds opening an account or call 1-800-531-8448 to add these
Transfer services.
(EFT) * Purchases through payroll deduction ($25 minimum each pay
period with no 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 a
1-800-531-8448 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.
Through a * To open a new account through your USAA Asset Management
USAA AMA Account, call USAA Brokerage Services at 1-800-531-8343.
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 New York Stock Exchange 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
Securities and Exchange Commission.
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 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, 210-456-7202.
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.
Through a * Call USAA Brokerage Services at 1-800-531-8343 for more
USAA AMA information.
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. The 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) redemptions
via EFT 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 the shareholder
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 adequate 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
Systematic Investment Plans - you may establish a
systematic 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:
i) a reinvested dividend, or
ii) a payment you make under the InvesTronic(registered
trademark), Direct Purchase Service, Automatic
Purchase Plan, or Directed Dividends investment
plans, or
iii) 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 New York Stock Exchange, 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. Any net capital gain 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 net
asset value 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.
USAA Shareholder Account Services
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 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
capital gains tax, based on the difference between the
cost of shares held and the price received upon sale.
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, USAA Investment Management Company
(IMCO), 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
$29 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 Securities
and Exchange Commission 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
MANAGEMENT OF THE COMPANY AND PORTFOLIO 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 L.L.P., 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 classes, or Funds. The Fund described
in this Prospectus is being offered to the public. 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 Investment Company Act of 1940. 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 net asset value of the
shares. For matters affecting an individual fund, a
separate vote of the shareholders of that fund is required.
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 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, rather
than movements in the price of a particular stock.
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 establishing 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 will
not enter into any Futures Contracts or Options on
Futures Contracts if immediately thereafter its margin
deposits on its outstanding Futures Contracts and
premiums paid on outstanding Options on Futures Contracts
owned by the Portfolio 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 210-456-7211
For account servicing, exchanges or redemptions:
1-800-531-8448
In San Antonio 210-456-7202
RECORDED 24 HOUR SERVICE
MUTUAL FUND PRICE QUOTES
(From any phone)
1-800-531-8066
In San Antonio 210-498-8066
MUTUAL FUND TOUCHLINE(registered trademark)
(From Touchtone phones only)
For account balance, last transaction or fund prices:
1-800-531-8777
In San Antonio 210-498-8777
Part B
Statement of Additional Information for the
S&P 500 Index Fund
is included herein
[Logo of USAA STATEMENT OF
USAA MUTUAL ADDITIONAL INFORMATION
Eagle is FUND, INC. May 1, 1996
here]
- --------------------------------------------------------------------
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.
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.
A Prospectus for the Fund dated May 1, 1996, which provides
the basic information you should know before investing in the
Fund, may be obtained without charge upon written request to USAA
Mutual Fund, Inc., 9800 Fredericksburg Rd., San Antonio, TX
78288, or by calling toll free 1-800-531-8181. 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 Portfolio Performance
23 Appendix B - Dollar-Cost Averaging
24 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 (i) 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
(ii) 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 Fund and the Portfolio each reserve 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 Fund, or the Portfolio, as the case may be, and valued as
they are for purposes of computing the Fund's or the Portfolio's
NAV, as the case may be (a redemption in kind). If payment is
made to a Fund shareholder in securities, the shareholder may
incur transaction expenses in converting these securities into
cash. The Fund and the Portfolio each have elected, however, to
be governed by Rule 18f-1 under the 1940 Act as a result of which
the Fund and the Portfolio each are obligated to redeem shares or
beneficial interests, as the case may be, 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 Fund or the Portfolio,
as the case may be, at the beginning of the period.
The Portfolio has agreed to make a redemption in kind to the
Fund whenever the Fund wishes to make a redemption in kind and
therefore shareholders of the Fund that receive redemptions in
kind will receive portfolio securities of the Portfolio, and in
no case will they receive a security issued by the Portfolio.
The Portfolio has advised the Company that the Portfolio will
not redeem in kind except in circumstances in which the Fund is
permitted to redeem in kind or unless agreed to between the
Portfolio and Fund.
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.
Systematic 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, with a monthly transaction minimum of
$50. The minimum initial investment requirement for the other
USAA mutual fund must be satisfied before the first transfer.
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 systematic 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 net asset value 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 a 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: (i) the Portfolio
must receive at least 100 percent cash collateral or equivalent
securities from the borrower; (ii) the borrower must increase
this collateral whenever the market value of the securities
including accrued interest rises above the level of the
collateral; (iii) the Portfolio must be able to terminate the
loan at any time; (iv) 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; (v) the Portfolio may pay only reasonable custodian
fees in connection with the loan; and (vi) 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
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 or 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. Due to 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 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 Indexes. 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.
The Portfolio may engage in over-the-counter options
transactions with broker-dealers who make markets in these
options. At present, approximately ten broker-dealers, including
several of the largest primary dealers in U.S. Government
securities, make these markets. The ability to terminate
over-the-counter option positions is more limited than with
exchange-traded option positions because the predominant market
is the issuing broker rather than an exchange, and may involve
the risk that broker-dealers participating in such transactions
will not fulfill their obligations. To reduce this risk, the
Portfolio will purchase such options only from broker-dealers who
are primary government securities dealers recognized by the
Federal Reserve Bank of New York and who agree to (and are
expected to be capable of) entering into closing transactions,
although there can be no guarantee that any such option will be
liquidated at a favorable price prior to expiration. Bankers
Trust will monitor the creditworthiness of dealers with whom the
Portfolio enters into such options transactions under the general
supervision of the Portfolios' Trustees.
The absence of a liquid secondary market to close out
options positions on securities indices is more likely to occur,
although the Portfolio generally will only purchase or write such
an option if Bankers Trust believes the option can be closed out.
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
Investment Company Act of 1940, as amended (the 1940 Act), and as
used in this SAI and the Prospectus, means, the lesser of (i) 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 (ii) 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 Investment Company Act of
1940, as amended (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 (i) 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), (1) waives
the investment advisory fee with respect to assets invested
in other open-end investment companies and (2) 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 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 nationally recognized statistical rating agency 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 corresponding 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
Portfolios', 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 classes, 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 25% 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 Internal Revenue Code of 1986, as
amended (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 recognizing any gain or
loss for Federal income tax purposes, except that: (i) 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; (ii) 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 (iii) 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); 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);
and Executive Vice President, Property & Casualty Operations,
USAA (1/90-8/91). 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: 54
Chief Executive Officer, IMCO (10/93-present); President,
Director and Vice Chairman of the Board of Directors, IMCO (1/90-
present); Director, USAA Federal Savings Bank (12/83-8/91). 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: 77
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, 5
2710 Hopeton
San Antonio, TX 78230
Director
Age: 60
Assistant General Manager for Finance, San Antonio City Public
Service Board (1976-present). 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: 52
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, 5
200 Patterson #1008
San Antonio, TX 78209
Director
Age: 51
President, Postal Addvantage (7/92-present); Consultant, Nancy
Harkins Stationer (8/91-present); Merchandise Manager, Nancy
Harkins Stationer (7/82-8/91). 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: 47
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);
Assistant Vice President, Real Estate Accounting, USAA Real
Estate Company (5/90-7/91). 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: Mark H. Wright, President,
Chief Executive Officer, Director and Vice Chairman, USAA Federal
Saving Bank; Josue Robles, Jr., Senior Vice President, Chief Financial
Officer/Controller, USAA; Bradford W. Rich, Senior Vice President,
General Counsel and Secretary, USAA; 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, 1995.
Name Aggregate Total Compensation
of Compensation from the USAA
Director from the Company Family of Funds (c)
- -------- ---------------- -------------------
C. Dale Briscoe* $4,612 $18,500
George E. Brown (a) 4,612 18,500
Barbara B. Dreeben 4,612 18,500
Howard L. Freeman, Jr. 4,612 18,500
Hansford T. Johnson* None (b) None (b)
Michael J.C. Roth None (b) None (b)
John W. Saunders, Jr. None (b) None (b)
Richard A. Zucker 4,612 18,500
- ----------------
* 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
$20,481. 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 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) Hansford T. Johnson, 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, 1995, the USAA Family of Funds consisted of 4
registered investment companies offering 29 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 March 31, 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.
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 37) - Secretary; Senior Vice President
and Associate General Counsel, SFG (since November, 1989);
Assistant Secretary, Signature (since February, 1991); Attorney,
Ropes & Gray (prior to November, 1989).
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. none $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 $29 billion, of which approximately $17 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 annual expenses of the Fund 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: (i) 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; (ii) manage the Portfolio in accordance with the
Portfolio's investment objective, restrictions and policies;
(iii) make investment decisions for the Portfolio; and (iv) 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 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 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 Agreement), 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
Agreement provides that Signature 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
received $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 Funds' 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
USAA Shareholder Account Services (SAS) 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 L.L.P., 1100 Main Street, Suite 900, Kansas
City, Missouri 64105, has been selected as the Independent
Accountants for the Fund and the Portfolio.
Financial Statements
The Fund's commencement of operations is May 1, 1996, therefore,
this SAI does not include any financial statements of the Fund.
Audited Financial Statements as of December 31, 1995 of the Portfolio
are included on page 24 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 indexes 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
Securities Act of 1933 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
$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.
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
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
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
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
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
28083-0596
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 (Prospectuses
and Statement of Additional Information) of this
Registration Statement:
With respect to the S&P 500 Index Fund, the Unaudited
Financial Statements to be included in Part B will be
filed by amendment.
Audited Financial Statements and Independent Accountants'
Report to the Equity 500 Index Portfolio for the fiscal
year ended December 31, 1995 are on page 24 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 (filed herewith)
2 Bylaws, as amended March 12, 1996 (filed herewith)
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 (filed herewith)
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) Form of Management Agreement with respect to the S&P 500
Index Fund (filed herewith)
(d) Form of Administration Agreement 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) Form of Letter Agreement adding S&P 500 Index Fund
(filed herewith)
Exhibit No. Description of Exhibits
- ---------- -----------------------
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) Form of Custodian Agreement with respect to the S&P 500 Index
Fund (filed herewith)
(j) Form of Subcustodian Agreement with respect to the S&P 500
Index Fund (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) Form of Third Party Feeder Fund Agreement with respect to
the S&P 500 Index Fund (filed herewith)
(g) Form of Letter Agreement to Transfer Agency Agreement adding
S&P 500 Index Fund (filed herewith)
(h) Form of Transfer Agency Agreement Fee Schedule for S&P 500
Index Fund (filed herewith)
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) Form of Subscription and Investment Letter for S&P 500 Index
Fund (3)
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 - Not Applicable
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.
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
March 31, 1996, of each class of securities of the Registrant.
Title of Class Number of Record Holders
-------------- ------------------------
Aggressive Growth Fund 45,717
Growth Fund 88,843
Income Stock Fund 107,878
Income Fund 78,297
Money Market Fund 114,297
Growth & Income Fund 29,752
Short-Term Bond Fund 7,026
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, indirectly 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
Bradford W. Rich Director None
9800 Fredericksburg Rd.
San Antonio, TX 78288
Josue Robles, Jr. Director None
9800 Fredericksburg Rd.
San Antonio, TX 78288
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.
The Registrant hereby undertakes with respect to the S&P 500
Index Fund to file financial statements which need not be
certified within four to six months from the date of the
commencement of operations.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933
and the Investment Company Act of 1940, the Registrant certifies
that it 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 26th day of April, 1996.
USAA MUTUAL FUND, INC.
*
------------------------
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)
* Chairman of the April 26, 1996
_____________________ Board of Directors
M. Staser Holcomb
* Vice Chairman of the Board April 26, 1996
- --------------------- of Directors and President
Michael J.C. Roth (Principal Executive Officer)
* Treasurer (Principal April 26, 1996
- --------------------- Financial and
Sherron A. Kirk Accounting Officer)
* Director April 26, 1996
- ---------------------
John W. Saunders, Jr.
* Director April 26, 1996
- ---------------------
George E. Brown
* Director April 26, 1996
- ----------------------
Howard L. Freeman, Jr.
* Director April 26, 1996
- ----------------------
Richard A. Zucker
* Director April 26, 1996
- ----------------------
Barbara B. Dreeben
* By: /s/Micheal D. Wagner
- ----------------------------
Micheal D. Wagner, Attorney-in-Fact, under Powers of Attorney dated November
8, 1993, September 12, 1995, and February 6, 1996, incorporated by reference
to Post Effective Amendments No. 38 and 40 filed with the Securities and
Exchange Commission on September 29, 1995 and February 15, 1996, respectively.
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 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 24th day of April, 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 April 24, 1996
- -------------------- (Principal Executive Officer)
Philip W. Coolidge
* Treasurer and Secretary April 24, 1996
- -------------------- (Principal Financial and
John R. Elder Accounting Officer)
* Trustee April 24, 1996
- --------------------
Charles P. Biggar
* Trustee April 24, 1996
- --------------------
S. Leland Dill
* Trustee April 24, 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 (filed herewith) 77
2 Bylaws, as amended March 12, 1996 (filed herewith) 81
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 (filed herewith) 93
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) Form of Management Agreement with respect to the S&P 500
Index Fund (filed herewith) 96
(d) Form of Administration Agreement with respect to the S&P
500 Index Fund (filed herewith) 102
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) Form of Letter Agreement adding S&P 500 Index Fund
(filed herewith) 107
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) Form of Custodian Agreement with respect to the S&P 500
Index Fund (filed herewith) 109
(j) Form of Subcustodian Agreement with respect to the S&P
500 Index Fund (filed herewith) 136
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) Form of Third Party Feeder Fund Agreement with respect to the
S&P 500 Index Fund (filed herewith) 149
(g) Form of Letter Agreement to Transfer Agency Agreement adding
S&P 500 Index Fund (filed herewith) 177
(h) Form of Transfer Agency Agreement Fee Schedule for S&P 500
Index Fund (filed herewith) 179
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) 181
11 Independent Accountants' Consent (filed herewith) 183
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) Form of Subscription and Investment Letter for S&P 500
Index Fund (3)
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 - Not Applicable
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.
- -------------------------------------------------
* Refers to sequentially numbered pages
EXHIBIT 1(w)
USAA MUTUAL FUND, INC.
Articles Supplementary
USAA Mutual Fund, Inc., a Maryland Corporation, having its
principal office in San Antonio, Texas (the "Corporation"),
hereby certifies to the State Department of Assessments and
Taxation of Maryland that:
FIRST: The Corporation is registered as an open-end
investment company under the Investment Company Act of 1940.
SECOND: (a) In accordance with Section 2-105(c) of the
Maryland General Corporation Law, the Board of Directors has
heretofore authorized the issuance of 5,000,000,000 shares of
capital stock of the Corporation ($.01 par value per share).
(b) In accordance with Section 2-105(c) of the Maryland
General Corporation Law and pursuant to authority expressly
vested in the Board of Directors by the Articles of Incorporation
of the Corporation, the Board of Directors hereby increases the
aggregate number of shares of stock of the class of shares
designated as the Aggressive Growth Fund by classifying an
additional 25,000,000 shares of the authorized and unissued stock
of the Corporation into the Aggressive Growth Fund.
THIRD: The additional shares of the Aggressive Growth Fund
shall have the preferences, rights, voting powers, restrictions,
limitations as to dividends, qualifications, and terms and
conditions as are described in Article VI of the Articles of
Incorporation.
FOURTH: (a) As of immediately before and after the increase
in the total number of shares classified as shares of the
Aggressive Growth Fund, the total number of shares of stock of
all classes that the Corporation had and has authority to issue
was and is 5,000,000,000 shares ($.01 par value per share).
(b) Before the increase in the total number of shares
classified as shares of the Aggressive Growth Fund, there were
classified 75,000,000 shares of the Growth Fund, 25,000,000
shares of the Aggressive Growth Fund, 135,000,000 shares of the
Income Stock Fund, 200,000,000 shares of the Income Fund,
2,250,000,000 shares of the Money Market Fund, 250,000,000 shares
of the Federal Securities Money Market Fund, 25,000,000 shares of
the Short-Term Bond Fund, 50,000,000 shares of the Growth &
Income Fund and 50,000,000 shares of the S&P 500 Index Fund.
(c) After the increase in the total number of shares
classified as shares of the Aggressive Growth Fund, there are
classified 75,000,000 shares of the Growth Fund, 50,000,000
shares of the Aggressive Growth Fund, 135,000,000 shares of the
Income Stock Fund, 200,000,000 shares of the Income Fund,
2,250,000,000 shares of the Money Market Fund, 250,000,000 shares
of the Federal Securities Money Market Fund, 25,000,000 shares of
the Short-Term Bond Fund, 50,000,000 shares of the Growth &
Income Fund and 50,000,000 shares of the S&P 500 Index Fund.
(d) As of immediately before and after the increase in the
total number of shares classified as shares of the Aggressive
Growth Fund, the aggregate par value of all shares of all classes
of stock authorized to be issued by the Corporation was and is
$50,000,000.
IN WITNESS WHEREOF, USAA Mutual Fund, Inc. has caused these
presents to be signed in its name and on its behalf by its
President and witnessed by its Secretary on March 12, 1996.
WITNESS: USAA MUTUAL FUND, INC.
/s/ Michael D. Wagner /s/ Michael J. C. Roth
- --------------------- -----------------------
Michael D. Wagner Michael J. C. Roth
Secretary President
THE UNDERSIGNED, President of USAA Mutual Fund, Inc., who
executed on behalf of the Corporation the foregoing Articles
Supplementary of which this certificate is made a part, hereby
acknowledges in the name and on behalf of said Corporation the
foregoing Articles Supplementary to be the corporate act of said
Corporation and hereby certifies that to the best of his
knowledge, information, and belief the matters and facts set
forth therein with respect to the authorization and approval
thereof are true in all material respects under the penalties of
perjury.
USAA MUTUAL FUND, INC.
/s/ Michael J. C. Roth
----------------------
Michael J. C. Roth
President
EXHIBIT 2
USAA MUTUAL FUND, INC.
BYLAWS
AS AMENDED March 12, 1996
ARTICLE I
OFFICES
SECTION 1.1. Principal Office. The principal office of the
Company in the State of Maryland shall be in the City of
Baltimore, State of Maryland.
SECTION 1.2. Other Offices. The Company may also have
offices at such other places both within and without the State of
Maryland as the Board of Directors may from time to time
determine or the business of the Company may require, including
without limitation offices at San Antonio, Texas.
ARTICLE II
SHAREHOLDERS
SECTION 2.1. Place of Meetings. Meetings of shareholders
shall be held at the offices of the Company in the State of
Maryland, at the offices of the Company in the City of San
Antonio, Texas, or at any other place within the United States as
shall be designated from time to time by the Board of Directors
and stated in the notice of meeting or in a duly executed waiver
of notice thereof.
SECTION 2.2. Annual Meeting. The Company is not required to
hold an annual meeting of its stockholders in any year in which
the election of directors is not required to be acted upon under
the Investment Company Act of 1940 (the "1940 Act"). If the
Company is required by the 1940 Act to hold a meeting of
stockholders to elect directors, such meeting shall be held at a
date and time set by the Board of Directors in accordance with
the 1940 Act and no later than 120 days after the occurrence of
the event requiring the meeting. Any stockholders' meeting held
in accordance with the preceding sentence shall for all purposes
constitute the annual meeting of stockholders for the fiscal year
of the Company in which the meeting is held. Except as the
Charter or statute provides otherwise, any business may be
considered at an annual meeting without the purpose of the
meeting having been specified in the notice. Failure to hold an
annual meeting does not invalidate the Company's existence or
affect any otherwise valid corporate acts.
SECTION 2.3. Special Meetings. Special meetings of the
shareholders may be called by the Board of Directors or by the
President. Special meetings of shareholders shall be called by
the Secretary upon the written request of holders of shares
entitled to cast not less than ten percent of all the votes
entitled to be cast at such meeting. Such request shall state
the purpose or purposes of such meeting and the matters proposed
to be acted on thereat. The Secretary shall inform such
requesting shareholders of the reasonably estimated cost of
preparing and mailing such notice of the meeting and, upon
payment to the Company of such costs, the Secretary shall give
notice stating the purpose or purposes of the meeting to all
shareholders entitled to notice of such meeting. No special
meeting need be called to consider any matter which is
substantially the same as a matter voted upon at any special
meeting of the shareholders held during the preceding twelve
months unless requested by the holders of shares entitled to cast
a majority of all votes entitled to be cast at such meeting.
SECTION 2.4. Notice and Purpose. Not less than ten (10) nor
more then ninety (90) days before the date of every shareholders'
meeting, the Secretary shall give to each shareholder entitled to
vote at such meeting, and to each shareholder not entitled to
vote who is entitled by statute to notice, written or printed
notice stating the time and place of the meeting and the purpose
or purposes for which the meeting is called, either by mail or by
presenting it to him personally or by leaving it at his residence
or usual place of business. If mailed, such notice shall be
deemed to be given when deposited in the United States mail
addressed to the shareholder at his post-office address as it
appears on the records of the Company, with postage thereon
prepaid. Business transacted at any special meeting of
shareholders shall be limited to the purposes stated in the notice.
SECTION 2.5. Record Date. The Board of Directors may fix,
in advance, a date as the record date for the purpose of
determining shareholders entitled to notice of, or to vote at,
any meeting of shareholders or any adjournment thereof, or
entitled to receive payment of any dividend or the allotment of
any rights, or in order to make a determination of shareholders
for any other proper purpose. Such date in any case shall be not
more than ninety (90) days, and in case of a meeting of
shareholders, not less than ten (10) days, prior to the date on
which the particular action requiring such determination of
shareholders is to be taken.
SECTION 2.6. Quorum. The holders of a majority of the
shares entitled to vote, represented in person or by proxy, shall
constitute a quorum at a meeting of the shareholders, but, if a
quorum is not represented, a majority in interest of those
represented may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum
shall be present or represented. At such adjourned meeting, at
which a quorum shall be present or represented, any business may
be transacted which might have been transacted at the meeting as
originally notified.
SECTION 2.7. Voting. Any holder of shares of the Company
shall be entitled to vote to the extent provided in subsection
6.2(f) of the Articles of Incorporation, either in person or by
proxy executed in writing by him or by his duly authorized
attorney-in-fact. Any holder of fractional shares of the Company
shall have proportionally the same voting rights as are provided
for a full share. No proxy shall be valid after eleven months
from the date of execution, unless otherwise provided in the
proxy. Each proxy shall be revocable unless expressly provided
therein to be irrevocable or unless otherwise made irrevocable by
law. Proxies shall be delivered to the Secretary of the Company
before or at the time of such meeting. The vote of the holders
of a majority of the shares entitled to vote and represented at a
meeting at which a quorum is present shall be the act of the
shareholders meeting, unless the vote of a greater number is
required by law, the Articles of Incorporation or these Bylaws.
SECTION 2.8. Officers. The President shall preside at and
the Secretary shall keep the records of each meeting of
shareholders, and in the absence of either such officer, his
duties shall be performed by some person appointed by the
meeting.
SECTION 2.9. Order of Business. The business shall be
transacted in such order as the presiding officer shall
determine.
ARTICLE III
DIRECTORS
SECTION 3.1. General Powers. The business and property of
the Company shall be managed by its Board of Directors, and
subject to the restrictions imposed by law, by the Articles of
Incorporation, or by these Bylaws, they shall exercise all the
powers of the Company.
SECTION 3.2. Delegation. To the extent permitted by law,
the Board of Directors may delegate the duty of management of the
Company's assets and may delegate such other of its powers and
duties as are permitted by the Articles of Incorporation or these
Bylaws, (a) to the Executive Committee or other committees, or
(b) to another party to act as manager, investment adviser or
underwriter pursuant to a written contract or contracts to be
approved in the manner required by the Investment Company Act of 1940.
SECTION 3.3. Number. The Board of Directors shall consist
of seven (7) directors, but the number of directors may be
increased or decreased (provided such decrease does not shorten
the term of any incumbent director) from time to time by the
Board of Directors by amendment of the Bylaws, provided that the
number of directors shall not be more than twenty-one (21) nor
less than three (3).
SECTION 3.4. Election, Resignations, Term of Office and
Vacancies. Until the first meeting of shareholders or until
their successors are duly elected and qualified, the Board of
Directors shall consist of the persons named as such in the
Articles of Incorporation. Cumulative voting is not permitted.
Directors need not be residents of the State of Maryland or
shareholders of the Company. Each director, unless he sooner
resigns or is removed, shall hold office until his successor is
elected and shall have qualified. Any director may resign his
office at any time by delivering his resignation in writing to
the Company. The acceptance of such resignation, unless required
by the terms thereof, shall not be necessary to make such
resignation effective. Subject to compliance with Section 16(a)
of the Investment Company Act of 1940, as amended, any vacancies
occurring in the Board of Directors other than by reason of an
increase in the number of directors may be filled by the
affirmative vote of a majority of the remaining directors, even
though such majority is less than a quorum. A director elected
by the Board of Directors to fill a vacancy shall be elected for
the unexpired term of his predecessor in office. If a special
meeting of shareholders is required to fill a vacancy, the
meeting shall be held within sixty (60) days or such longer
period as may be permitted by the Securities and Exchange Commission.
SECTION 3.5. Place of Meeting. Meetings of the Board of
Directors may be held either within or without the State of
Maryland, at whatever place is specified by the officer calling
the meeting. In the absence of a specific place designation, the
meeting shall be held at the office of the Company in the City of
San Antonio, Texas.
SECTION 3.6. Organizational and Regular Meetings. Any newly
elected Board of Directors may hold its first meeting for the
purpose of organization and the transaction of business, if a
quorum is present, immediately following its election at a
meeting of the shareholders, at the place of such meeting. No
notice of such first meeting need be given to either old or new
members of the Board of Directors. Regular meetings may be held
at such other times as shall be designated by the Board of
Directors and notice of such regular meetings shall not be required.
SECTION 3.7. Special Meetings. Special meetings of the
Board of Directors may be held at any time upon the call of the
President or any two (2) directors of the Company. The Secretary
shall give notice of such special meeting by mailing the same at
least three (3) days or by telegraphing or telephoning the same
at least one (1) day before the meeting to each director. Notice
of the time, place and purpose of such meeting may be waived in
accordance with Article VI of these Bylaws. Attendance of a
director at such meeting shall also constitute a waiver of notice
thereof, except where he attends for the announced purpose of
objecting to the transaction of any business on the ground that
the meeting is not lawfully called or convened. Except as
otherwise herein provided, neither the business to be transacted
at, nor the purpose of, any regular or special meeting of the
Board of Directors need be specified in the notice or waiver of
notice of such meeting.
SECTION 3.8. Quorum and Manner of Acting. A majority of the
number of directors fixed by these Bylaws as from time to time
amended shall constitute a quorum for the transaction of
business, but a smaller number may adjourn from time to time
until they can secure the attendance of a quorum. The act of a
majority of the directors present at any meeting at which a
quorum is present shall be the act of the Board of Directors,
except as otherwise expressly required under the provisions of
the Investment Company Act of 1940, as amended, or where a larger
vote is required by law, the Articles of Incorporation or these
Bylaws. Any regular or special meeting of the Board of Directors
may be adjourned from time to time by those present, whether a
quorum is present or not.
SECTION 3.9. Removal of Directors. Any director may be
removed from office, either for or without cause, at any special
meeting of shareholders by the affirmative vote of a majority of
the outstanding shares entitled to vote for the election of
directors. The notice calling such meeting shall give notice of
the intention to act upon such matter, and if the notice so
provides, the vacancy caused by such removal may be filled at
such meeting by vote of a majority of the shares represented at
such meeting and entitled to vote for the election of directors.
SECTION 3.10. Action Without Meeting. Subject to the
provisions of the Investment Company Act of 1940, as amended, any
action permitted or required by law, these Bylaws or by the
Articles of Incorporation to be taken at a meeting of the Board
of Directors or any committee may be taken without a meeting if a
consent in writing, setting forth the action so taken, is signed
by all the members of the Board of Directors of such committee,
as the case may be. Such consent shall have the same force and
effect as a unanimous vote at a meeting, and may be stated as
such in any document or instrument filed with the Secretary of
State or State Department of Assessments and Taxation of Maryland.
ARTICLE IV
COMMITTEES
SECTION 4.1. Executive Committee. The Board of Directors
may, by resolution adopted by a majority of the entire Board of
Directors, designate an Executive Committee consisting of the
President and one or more of the directors of the Company, and
may delegate to such Executive Committee any of the powers of the
Board of Directors except:
a. the power to declare dividends or distributions on stock;
b. the power to recommend to the shareholders any action
which requires shareholder approval;
c. the power to amend the Bylaws;
d. the power to approve any merger or share exchange
which does not require shareholder approval; or
e. the power to issue stock, except as hereafter provided.
If the Board of Directors has given general authorization for the
issuance of stock of any class, the Executive Committee, in
accordance with a general formula or method specified by the
Board of Directors by resolution, may fix the terms of such class
and the terms on which any stock may be issued, to the extent
permitted by law and the Articles of Incorporation.
The Executive Committee shall keep written minutes of its
proceedings and shall report such minutes to the Board of
Directors. All such proceedings shall be subject to revision or
alteration by the Board of Directors; provided, however, that
third parties shall not be prejudiced by such revision or
alteration.
SECTION 4.2. Other Committees. The Board of Directors may,
by resolution or resolutions adopted by a majority of the entire
Board, designate one or more committees, each committee to
consist of two or more of the directors of the Company, which
committee shall have and may exercise the powers of the Board of
Directors in the management of the business and affairs of the
Company to the extent provided in said resolution or resolutions,
except where action of the Board of Directors is specified by
law. Such committee or committees shall have such name or names
as may be determined from time to time by resolution adopted by
the Board of Directors. The Board of Directors shall have the
power at any time to fill vacancies in, to change the size or
membership of, and to discharge any such committees.
SECTION 4.3. General. A committee shall fix its own rules of
procedure not inconsistent with these Bylaws and with any
directions of the Board of Directors. It shall meet at such
times and places and upon such notice as shall be provided by
such rules or by resolution of the Board of Directors. The
presence of a majority shall constitute a quorum for the
transaction of business, and in every case an affirmative vote of
a majority of the members of the committee present shall be
necessary for the taking of any action. A committee shall keep
regular minutes of its proceedings and report the same to the
Board of Directors when required.
ARTICLE V
OFFICERS
SECTION 5.1. Number. The officers of the Company shall be
chosen by the Board of Directors and shall be a Chairman of the
Board, a President, a Vice President, a Secretary and a
Treasurer. The Board of Directors may also choose additional
Vice Presidents, and one or more Assistant Secretaries and
Assistant Treasurers.
SECTION 5.2. Selection. The Board of Directors annually
shall choose a Chairman of the Board, a President, one or more
Vice Presidents, a Secretary and a Treasurer, none of whom, other
than the Chairman of the Board, need be a member of the Board.
Any two or more offices, except the offices of President and Vice
President, may be held by the same person, but no officer shall
execute, acknowledge or verify any instrument in more than one
capacity if such instrument is required by law, the Articles of
Incorporation or these Bylaws to be executed, acknowledged or
verified by two or more officers.
SECTION 5.3. Term of Office. The officers of the Company
shall hold office until their successors are chosen and
qualified. Any vacancy occurring in any office of the Company
shall be filled by the Board of Directors.
SECTION 5.4. Selection of Other Officers and Agents. The
Board of Directors may appoint such other officers and agents as
it shall deem necessary, who shall hold their offices for such
terms and shall exercise such powers and perform such duties as
shall be determined from time to time by the Board of Directors.
SECTION 5.5. Salaries. The salaries of all officers and
agents of the Company shall be fixed by the Board of Directors.
No officer shall be disqualified from receiving a salary by
reason of his also being a director of the Company.
SECTION 5.6. Suspension. Except for the Chairman of the
Board and the President of the Company, all officers shall be
subject to peremptory suspension by written order of the
President, subject to subsequent action of the Board of
Directors. The Chairman of the Board and the President of the
Company shall be subject to peremptory suspension by written
order of the Board of Directors.
SECTION 5.7. Removal. Any officer or agent of the Company
may be removed during his term by a majority vote of the Board of
Directors whenever, in its judgment, removal of such person would
serve the best interests of the Company. Such removal shall
terminate all of such person's authority as an officer of agent,
but his right to salary and any contract rights shall depend on
the terms of his employment and the circumstances of his removal.
Election or appointment of an officer or agent shall not of
itself create contract rights.
SECTION 5.8. Chairman of the Board. The Chairman of the
Board shall preside at meetings of the Board of Directors. He
shall have such other powers as are usually incident to the
office of Chairman of the Board and shall exercise such other
specific powers as the Board of Directors may from time to time
assign to him.
SECTION 5.9. President. Subject to the control of the Board
of Directors, the President shall be the chief operating officer
of the Company and shall preside at all meetings of the
shareholders. He shall assume general and active management of
the business of the Company and general and active supervision
and direction over the other officers, agents, and employees of
the Company and shall see that their duties are properly
performed. The foregoing shall not apply to any responsibilities
delegated by the Board of Directors to a manager, investment
adviser, underwriter, custodian, or transfer agent pursuant to
any written contract, as provided for in the Articles of
Incorporation or these Bylaws.
The President, either alone or (if so required by law, these
Bylaws or the Board of Directors) with the Secretary or any other
officer of the Company so authorized by the Board of Directors,
may sign certificates of shares of the Company or any deeds,
mortgages, bonds, contracts or other instruments that the Board
of Directors has authorized for execution, except when the
signing and execution thereof shall be expressly delegated by the
Board of Directors or by these Bylaws to some other officer or
agent of the Company or shall be required by law to be otherwise
signed or executed.
The President, in conjunction with the Secretary, may duly
authenticate the Company records or copies thereof for use as
evidence in any action or proceeding to which the Company may be
a party.
In general, the President shall perform all duties incident
to the office of President and such other duties as may be
prescribed by the Board of Directors from time to time.
SECTION 5.10. The Vice Presidents. The Vice President, or
if there shall be more than one, the Vice Presidents in the order
determined by the Board of Directors, shall be vested with all
the powers and required to perform all the duties of the
President in his absence or disability or refusal to act, and
when so acting shall have all the powers of and be subject to all
the restrictions upon the President. Each Vice President shall
perform such other duties and have such other powers as the
President or the Board of Directors may from time to time
prescribe.
SECTION 5.11. The Secretary and Assistant Secretaries. The
Secretary of the Company shall have the following powers and duties:
a. to keep the minutes of the meetings of shareholders,
of the Board of Directors, and of any committee
thereof in one or more books provided for that purpose;
b. to see that all notices are duly given, in accordance
with these Bylaws or as required by law;
c. to be custodian of the corporate records and the seal
of the Company;
d. to see that the seal of the Company is affixed to all
documents duly authorized for execution under seal on
behalf of the Company;
e. to keep or cause to be kept for the Company the stock
ledger described in Section 7.2 of these Bylaws;
f. to countersign certificates for Company shares, the
issuance of which have been authorized by resolution
of the Board of Directors;
g. to have general charge of the stock transfer books of
the Company;
h. to duly authenticate, in conjunction with the
President, the Company records or copies thereof to be
used as evidence in any action or proceedings to which
the Company may be a party and
i. to perform all duties incidental to the Office of
Secretary and such other duties as, from time to time,
may be assigned to the Secretary by the President or
Board of Directors.
The Assistant Secretary, or if there by more than one, the
Assistant Secretaries in the order determined by the Board of
Directors, shall, in the absence or refusal to act or disability
of the Secretary, perform the duties and exercise the powers of
the Secretary and shall perform such other duties as, from time
to time, may be assigned by the President, the Secretary or the
Board of Directors.
SECTION 5.12. The Treasurer and Assistant Treasurers. The
Treasurer shall:
a. have charge and custody of, and be responsible for,
all the funds and securities of the Company, except
those which the Company has placed in the custody of a
bank or trust company pursuant to a written agreement
designating such bank or trust company as custodian of
the property of the Company;
b. keep full and accurate accounts of the receipts and
disbursements in books belonging to the Company;
c. cause all monies and other valuables to be deposited
to the credit of the Company;
d. receive, and give receipts for, monies due and payable
to the Company from any source whatsoever;
e. disburse the funds of the Company and supervise the
investment of its funds as ordered or authorized by
the Board of Directors, taking proper vouchers
therefore; and
f. in general, perform all the duties incident to the
office of Treasurer and such other duties as from time
to time may be assigned to him by the President, or
the Board of Directors.
The Assistant Treasurer, or if there be more than one, the
Assistant Treasurers in the order determined by the Board of
Directors, shall, in the absence or refusal to act or disability
of the Treasurer, perform such other duties as, from time to
time, may be assigned by the President, the Treasurer or the
Board of Directors.
SECTION 5.13. Other Subordinate Officers. Other subordinate
officers and agents appointed by the Board of Directors shall
exercise such powers and perform such duties as may be assigned
by the President or may be delegated to them by the resolution
appointing them, or by subsequent resolutions adopted from time
to time by the Board of Directors.
SECTION 5.14. Bonding. The Board of Directors may require
any officer, agent or employee to give bond for the faithful
discharge of his duty and for the protection of the Company in
such sum and with such surety or sureties as the Board of
Directors may deem advisable.
ARTICLE VI
WAIVERS OF NOTICE
Whenever, under the provisions of any law, the Articles of
Incorporation of amendments thereto, or these Bylaws, any notice
is required to be given to any shareholder, director or committee
member, a waiver thereof in writing signed by the person or
persons entitled to such notice, whether before or after the time
stated therein, shall be equivalent to the giving of such notice.
Waivers given by telegram, radiogram, or cablegram shall be
deemed waivers in writing within the meaning of these Bylaws.
ARTICLE VII
CAPITAL STOCK
SECTION 7.1. Share Certificates. The Company will issue
upon written request certificates representing all full shares to
which shareholders are entitled. No certificate may be issued
until payment for the shares represented thereby has been made in
full. Such certificates shall be numbered and registered in the
order in which they are issued, shall be signed by the Chairman
of the Board, President or Vice President and countersigned by
the Secretary, any Assistant Secretary, the Treasurer or any
Assistant Treasurer, and may bear the seal of the Company or a
facsimile thereof. The signatures of such officers upon a
certificate may be facsimiles, if the certificate is
countersigned by a transfer agent. In case any officer who has
signed or whose facsimile signature has been placed upon such
certificate shall have ceased to be such officer before such
certificate is issued, it may be issued by the Company with the
same effect as if he were such officer at the date of its
issuance. Each share certificate shall include on its face the
name of the Company, the name of the shareholder and the class of
stock and number of shares represented by the certificate. In
addition it shall contain on its face or its back a statement
that the Company will furnish to any of the shareholders upon
request and without charge a full statement of the designations
and any preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends, qualifications, and
terms and conditions of redemption of the shares of each class
which the Company is authorized to issue and the authority of the
Board of Directors to designate new classes and determine such
matters with respect thereto.
SECTION 7.2. Stock Ledger and Record of Shareholders. The
Company shall maintain at its offices in the City of San Antonio,
State of Texas, or at the offices of a transfer agent, if one is
appointed, an original or duplicate stock ledger containing the
names and addresses of all shareholders and the number of shares
of each class held by each shareholder, and, if a certificate has
been issued, the certificate number, date of issue and whether it
was original issue or by transfer. The Board of Directors of the
Company may appoint one or more transfer agents of the stock of
the Company. Unless and until such appointment is made, the
Secretary of the Company shall maintain the stock ledger. The
names of shareholders as they appear on the stock ledger shall be
the official list of shareholders of record of the Company for
all purposes. The Company shall be entitled to treat the holder
of record of any shares of the Company as the owner thereof for
all purposes, and shall not be bound to recognize any equitable
or other claim to, or interest in, such shares or any rights
deriving from such shares, on the part of any other person,
including (but without limitation) a purchaser, assignee or
transferee, unless and until such other person becomes the holder
of record of such shares, whether or not the Company shall have
either actual or constructive notice of the interest of such
other person, except as otherwise provided by the laws of
Maryland.
SECTION 7.3. Transfers of Shares. The shares of the Company
shall be transferable on the stock certificate books of the
company upon appropriate authorization in person by the holder of
record thereof, or his duly authorized attorney or legal
representative, and, if a certificate was issued, upon
endorsement and surrender for cancellation of the certificate for
such shares. All certificates surrendered for transfer shall be
cancelled, and no new certificates shall be issued to the
transferee until a former certificate or certificates for a like
number of shares shall have been surrendered and cancelled,
except that in the case of a lost, destroyed or mutilated
certificate, a new certificate may be issued therefor upon such
conditions for the protection of the Company and any transfer
agent of the Company as the Board of Directors may prescribe.
SECTION 7.4. Account Maintenance Charges. The Board of
Directors may, in accordance with such terms and conditions as it
may from time to time prescribe, establish an account maintenance
charge to be paid by shareholders of the Company for maintenance
of their accounts. Any account maintenance charge established by
the Board of Directors of the Company may be charged against
income credited to a shareholder account and, to the extent there
is not sufficient income credited to a shareholder account in any
period to cover such charge, the Company may redeem sufficient
shares owned by a shareholder to cover such charges. A
shareholder charged with any maintenance charge pursuant to this
Section 7.4 as a result of having an account with a value less
than a specified amount shall be given prompt written notice at
the time of imposition of such charge.
ARTICLE VIII
CUSTODIAN
SECTION 8.1. Employment of Custodian. All assets of the
Company shall be held by one or more custodian banks or trust
companies meeting the requirements of the Investment Company Act
of 1940, as amended, and having capital, surplus and undivided
profits of at least $2,000,000 and may be registered in the name
of the Company, including a designation of the particular class
to which such assets belong, or any such custodian, or a nominee
of either of them. The terms of any custodian agreement shall be
determined by the Board of Directors, which terms shall be in
accordance with the provisions of the Investment Company Act of
1940, as amended. If so directed by vote of the holders of a
majority of the outstanding shares of a particular class or by
vote of the Board of Directors, the custodian of the assets
belonging to such class shall deliver and pay over such assets as
specified in such vote.
Subject to such rules, regulations and orders as the
Securities and Exchange Commission may adopt, the Company may
direct a custodian to deposit all or any part of the securities
owned by the Company in a system for the central handling of
securities established by a national securities exchange or a
national securities association registered with the Securities
and Exchange Commission, or otherwise in accordance with the
Investment Company Act of 1940, as amended, pursuant to which
system all securities of any particular class of any issuer
deposited within the system are treated as fungible and may be
transferred or pledged by bookkeeping entry without physical
delivery of such securities, provided that all such deposits
shall be subject to withdrawal only upon the order of the Company
or a custodian.
ARTICLE IX
INSPECTION OF BOOKS AND SHAREHOLDER LIST
SECTION 9.1. Inspection of Books. The Directors shall have
the power from time to time to determine whether and to what
extent, and at what times and places, and under what conditions
and regulations the accounts and books of the Company (other than
the stock ledger) or any of them shall be open to the inspection
of the shareholders. No shareholder shall have any right to
inspect any account or book or document of the Company except as
conferred by law or authorized by the Board of Directors or the
shareholders.
SECTION 9.2. Inspection of Shareholder List. Any one or
more persons, who together are and for at least six months have
been shareholders of record of at least 5% of the outstanding
shares of the Company, may submit (unless the Company at the
time of the request maintains a duplicate stock ledger at its
principal office in Maryland) a written request to any officer of
the Company or its resident agent in Maryland for a list of the
shareholders of the Company.
Within 20 days after such request, there shall be prepared and
filed at the Company's principal office in Maryland a list,
verified under oath by an officer of the Company or by its stock
transfer agent or registrar, which sets forth the name and
address of each shareholder and the number of shares of each
class which the shareholder holds.
ARTICLE X
MISCELLANEOUS
SECTION 10.1. Fiscal Year. The fiscal year of the Company
(except for the class designated the S&P 500 Index Fund) shall
begin on the first day of August and end on the thirty-first day
of July in each year. The fiscal year of the S&P 500 Index Fund
shall begin on the first day of January and end on the thirty-
first day of December in each year.
SECTION 10.2. Seal. The corporate seal shall have inscribed
thereon the name of the Company, the year of its organization and
the words "Corporate Seal, Maryland." The seal may be used by
causing it or a facsimile thereof to be impressed or affixed or
reproduced or otherwise.
SECTION 10.3. Annual Statement of Affairs. The President or
any Vice President or the Treasurer shall prepare annually a full
and correct statement of the affairs of the Company, to include a
balance sheet and a financial statement of operations for the
preceding fiscal year. The statement of affairs shall be placed
on file at the Company's principal office within 120 days after
the end of the fiscal year.
ARTICLE XI
AMENDMENT
SECTION 11.1. By Shareholders. These Bylaws may be amended,
altered, repealed or added to at any special meeting called for
that purpose by the affirmative vote of a majority of the shares
entitled to vote and represented at such meeting.
SECTION 11.2. By Directors. The Board of Directors may
alter and amend these Bylaws at any regular meeting of the Board,
or at any special meeting of the Board called for that purpose,
by the affirmative vote of a majority of such Board, except where
a vote of shareholders is required by law, the Articles of
Incorporation, or these Bylaws.
EXHIBIT 4(h)
Number USAA MUTUAL FUND, INC. Shares
S&P 500(registered trademark) INDEX FUND
Incorporated Under the Laws of the State of Maryland
Account No. Alpha Code CUSIP 903288-88-4
See Reverse Side for
Certain Definitions
THIS CERTIFIES that
is the owner of
fully paid and nonassessable shares of the common stock of the
par value of one cent per share of USAA MUTUAL FUND, INC.,
transferable on the books of the Corporation by the holder
thereof in person or by duly authorized attorney upon surrender
of this certificate properly endorsed. This certificate is not
valid unless countersigned by the Transfer Agent. Witness the
facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.
Dated:
/s/ Sherron Kirk PICTURE of /s/Michael J.C. Roth
- ---------------- --------------------
TREASURER USAA MUTUAL FUND, INC. PRESIDENT
SEAL 1980
Countersigned:___________________
USAA SHAREHOLDER ACCOUNT SERVICES
(San Antonio) TRANSFER AGENT
By
-------------------------------
AUTHORIZED SIGNATURE
The following abbreviations, when used in the inscription on
the face of this certificate, shall be construed as though they
were written out in full according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT -. . .Custodian. . .
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as jointtenants with the under Uniform Gifts to Minors
right of survivorship and Act . . . . . . . . . . . .
not as tenants in common (State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, I/We hereby sell, assign and transfer unto
Please Insert Social Security or Other
Taxpayer Identification Number of Assignee
_________________________________________________________________________
Please Print or Typewrite Name and Address of Assignee
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
____________________________________________(____________________)_______
shares of the Capital Stock represented by the within Certificate, and do
hereby irrevocably constitute and appoint _______________________________
attorney to transfer the said stock on the books of the within named
Corporation with full power of substitution in the premises.
Dated________________ Signature(s)_______________________________________
Signature Guaranteed By__________________________________________________
(The signature(s) to this assignment must correspond with
the name as written upon the face of this certificate, in
every particular, without alteration or enlargement, or any
change whatsoever.)
This certificate is transferable or redeemable at the
offices of the Transfer Agent, USAA Shareholder Account
Services, 9800 Fredericksburg Rd., San Antonio, TX 78288.
The Signature Guarantee must be by an authorized person of a
commercial bank or trust company which is a member of the FDIC, a
savings bank or savings and loan association which is a member of
the FSLIC, a credit union which is a member of the NCUA, or by a
member firm of a domestic stock exchange. A NOTARIZATION BY A
NOTARY PUBLIC IS NOT ACCEPTABLE.
EXHIBIT 5(c)
DRAFT
MANAGEMENT AGREEMENT
AGREEMENT made as of the ____ day of ____________, 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 paragraphs (a) and (c) 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:_________________________ BY:______________________________
President President
ATTEST:_____________________ ATTEST:_________________________
Secretary Secretary
EXHIBIT 5(d)
DRAFT
ADMINISTRATION AGREEMENT
AGREEMENT made as of the ____ day of _________, 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:_________________________ BY:______________________________
President President
ATTEST:_____________________ ATTEST:__________________________
Secretary Secretary
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:__________________ By:__________________________
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:___________________ By:___________________________
Assistant Secretary Senior Vice President
Dated: May 1, 1996
EXHIBIT 8(i)
CUSTODIAN AGREEMENT
AGREEMENT dated as of -------------, 199- 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,
unless such Subcustodian is chosen by the Customer, in which
event the Custodian is 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 initial fee
schedule is attached hereto as Exhibit C. 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 D,
attached hereto, and shall in connection therewith be subject to
the standard of care set forth in such Exhibit D. 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 ninety (90) 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 ninety (90)
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 ninety (90) 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 ninety (90) 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, prior to any distribution
thereof, copies of any material prepared for distribution to any
persons who are not parties hereto that refer in any way to the
Custodian. Customer shall not distribute or permit the
distribution of such materials if the Custodian reasonably
objects in writing within ten (10) business days of receipt
thereof (or such other time as may be mutually agreed) after
receipt thereof. 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. 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: --------------------------
Title: -----------------------
BANKERS TRUST COMPANY
By: --------------------------
Title: -----------------------
EXHIBIT A
To Custodian Agreement dated as of --------------, 199-
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.
Dated as of: USAA MUTUAL FUND, INC.
By: --------------------------
Title: -----------------------
BANKERS TRUST COMPANY
By: --------------------------
Title: -----------------------
EXHIBIT B
To Custodian Agreement dated as of -------------, 199-
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: USAA MUTUAL FUND, INC.
By: --------------------------
Title: -----------------------
BANKERS TRUST COMPANY
By: --------------------------
Title: -----------------------
EXHIBIT C
To Custodian Agreement dated as of --------------, 199-
between Bankers Trust Company and USAA Mutual Fund, Inc.
CUSTODY FEE SCHEDULE
This Exhibit C shall be amended upon delivery by the Custodian of
a new Exhibit C to the Customer and acceptance thereof by the
Customer and shall be effective as of the date of acceptance by
the Customer or a date agreed upon between the Custodian and the
Customer.
EXHIBIT D
To Custodian Agreement dated as of --------------, 199-
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: USAA MUTUAL FUND, INC.
By: --------------------------
Title: -----------------------
BANKERS TRUST COMPANY
By: --------------------------
Title: -----------------------
EXHIBIT 8(j)
USAA MUTUAL FUND, INC. DRAFT
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 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 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) 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
1020 N.E. Loop 410
San Antonio, Texas 78209
Attn: Jessica Jones
(ii) to the Custodian:
Bankers Trust Company
One Bankers Trust Plaza
New York, New York 10006
Attn:
(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:__________________________
BANKERS TRUST COMPANY
As Custodian
By:________________________________
Title:_____________________________
TEXAS COMMERCE BANK
As Subcustodian
By:_______________________________
Title:____________________________
USAA SHAREHOLDER ACCOUNT SERVICES
As Transfer Agent
By:_______________________________
Title:____________________________
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:________________________________
Title:_____________________________
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 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
________ __, 1996
AGREEMENT
---------
THIS AGREEMENT is made and entered into as of the ___ day of
_________, 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 New York
business trust (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:
THE INVESTMENT
--------------
.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.
CLOSING AND CLOSING DATE
------------------------
.2 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.
.3 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.
I
REPRESENTATIONS AND WARRANTIES
------------------------------
1.1 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-A, 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 $______ 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.
1.2 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 business 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 $____
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").
1.3 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.
1.4 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.
COVENANTS
1.5 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 $____.
(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.
1.6 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.
1.7 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) and prospectus supplements or 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
$_____.
(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.
1.8 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 losses, claims demands,
damages, liabilities or expenses 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.
1.9 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.
1.10 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.
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:
1.11 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.
1.12 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.
1.13 Investment Objective/Restrictions. The Fund shall have
the same investment objective and substantively the same
investment restrictions as the Portfolio.
ADDITIONAL AGREEMENTS
1.14 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.
1.15 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.
1.16 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.
1.17 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.
1.18 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.
1.19 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.
TERMINATION, AMENDMENT AND WAIVER
1.20 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.
1.21 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.
1.22 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.
DAMAGES
1.23 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.
GENERAL PROVISIONS
1.24 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 Portfolio Bankers Trust Company
or the Adviser: 4 Albany Street
2nd Floor
New York, New York 10006
Attn: Mr. Brian W. Wixted
Fax: (212) 250-6449
1.25 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.
1.26 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.
1.27 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.
1.28 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.
1.29 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.
1.30 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.
1.31 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.
1.32 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.
1.33 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.
1.34 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 __________________________
Name:________________________
Title:_______________________
USAA MUTUAL FUND, INC.
on behalf of itself and the
USAA S&P 500 INDEX FUND,
a series thereof
By___________________________
Name:________________________
Title:_______________________
EQUITY 500 INDEX PORTFOLIO
By __________________________
Name:________________________
Title:_______________________
BANKERS TRUST COMPANY
By __________________________
Name:________________________
Title:_______________________
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:_______________________ By:_________________________
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:______________________ By:_________________________
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:________________________ By:________________________
Michael J. C. Roth Joseph H. L. Jimenez
President Vice President
Date: May 1, 1996 Date: May 1, 1996
EXHIBIT 10(c)
GOODWIN, PROCTER & HOAR LLP
COUNSELLORS AT LAW
EXCHANGE PLACE
BOSTON, MASSACHUSETTS 02109-2881
TELEPHONE (617) 570-1000
TELECOPIER (617) 523-1231
April 24, 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. 41 (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 Number 41
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 the Equity 500
Index Portfolio, which report is included in the Post-Effective
Amendment to the Registration Statement.
Coopers & Lybrand L.L.P.
-----------------------
COOPERS & LYBRAND L.L.P.
Kansas City, Missouri
April 16, 1996
