As filed with the Securities and Exchange Commission on April 21, 1997.
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. 44
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 32
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, 1997) 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 1940 Act). With respect to these
Funds, the Registrant filed its Rule 24f-2 notice for the fiscal year ended July
31, 1996 on September 26, 1996. The Registrant has heretofore registered an
indefinite number of shares of the S&P 500 Index Fund pursuant to Rule 24f-2
under the 1940 Act. With respect to the S&P 500 Index Fund, the Registrant filed
its Rule 24f-2 notice for the fiscal year ended December 31, 1996 on February
20, 1997. The S&P 500 Index Fund is a "feeder fund" within a "master-feeder
structure."
Exhibit Index on Pages 65
Page 1 of 152
<PAGE>
USAA MUTUAL FUND, INC.
CROSS REFERENCE SHEET
Part A
FORM N-1A ITEM NO. SECTION IN PROSPECTUS
1. Cover Page....................................... Same
2. Synopsis......................................... Fees and Expenses
3. Condensed Financial
Information................................... Financial Highlights
Performance Information
Additional Information
4. General Description
of Registrant................................. Investment Objective and
Policies Description of
Shares
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
<PAGE>
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 Advisor
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
<PAGE>
Part A
Prospectus for the
S&P 500 Index Fund
is included herein
<PAGE>
USAA S&P 500 INDEX FUND
May 1, 1997 PROSPECTUS
USAA S&P 500 Index Fund (the Fund) is one of eight no-load mutual funds offered
by USAA Mutual Fund, Inc. (the Company). The Fund is managed by USAA Investment
Management Company (the Manager).
WHAT IS THE INVESTMENT OBJECTIVE?
The Fund's investment objective is to seek to provide investment results that,
before expenses, correspond to the total return of common stocks publicly traded
in the United States, as represented by the Standard & Poor's 500 Composite
Stock Price Index (S&P 500 or Index). Page 8.
HOW DO YOU BUY?
Fund shares are sold on a continuous basis at the net asset value per share
without a sales charge. Make your initial investment directly with the Manager
by mail, in person, or in certain instances, by telephone. Page 13.
HOW DO YOU SELL?
You may redeem Fund shares by mail, telephone, fax, or telegraph on any day
that the net asset value is calculated. Page 15.
This Prospectus, which should be read and retained for future reference,
provides information regarding the Company and the Fund that you should know
before investing.
Shares of the USAA S&P 500 Index Fund are not deposits or other obligations
of, or guaranteed by, the USAA Federal Savings Bank, are not insured by the FDIC
or any other Government Agency, and are subject to investment risks, including
possible loss of the principal amount invested.
The USAA S&P 500 Index Fund seeks to achieve its investment objective by
investing all of its investable assets in the Equity 500 Index Portfolio (the
Portfolio), which is a separate mutual fund advised by Bankers Trust Company
with an identical investment objective. The investment performance of the Fund
will correspond directly to the investment performance of the Portfolio. Page
11.
If you would like more information about the Fund, you may call
1-800-531-8181 to request a free copy of the most recent financial report and/or
the Fund's Statement of Additional Information (SAI), dated May 1, 1997. The SAI
has been filed with the Securities and Exchange Commission (SEC) and is
incorporated by reference into this Prospectus (meaning it is legally a part of
the Prospectus).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS
Page
SUMMARY DATA
Fees and Expenses............................................. 3
Financial Highlights.......................................... 4
Performance Information....................................... 5
USING MUTUAL FUNDS
USAA Family of No-Load Mutual Funds........................... 6
Using Mutual Funds in an Investment Program................... 7
INVESTMENT PORTFOLIO INFORMATION
Investment Objective and Policies............................. 8
Additional Information........................................ 23
SHAREHOLDER INFORMATION
Purchase of Shares............................................ 13
Redemption of Shares.......................................... 15
Conditions of Purchase and Redemption......................... 16
Exchanges..................................................... 17
Other Services................................................ 18
Share Price Calculation....................................... 19
Dividends, Distributions and Taxes............................ 19
Management of the Company and Portfolio....................... 20
Description of Shares......................................... 22
Service Providers............................................. 25
Telephone Assistance Numbers.................................. 25
2
<PAGE>
FEES AND EXPENSES
The following table provides a summary of expenses relating to purchases and
sales of shares of the Fund, and the aggregate annual operating expenses of the
Fund and the Equity 500 Index Portfolio (the Portfolio) for the year ended
December 31, 1996, as a percentage of average net assets (ANA) of the Fund. 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
Annual Fund Operating Expenses (as a percentage of ANA)
- --------------------------------------------------------------------------------
Investment Advisory Fees, net of reimbursements............. .08%
12b-1 Fees.................................................. None
Other Expenses, net of reimbursements....................... .10%
----
Total Operating Expenses, net of reimbursements............. .18%
====
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* A shareholder who requests delivery of redemption proceeds by wire
transfer will be subject to a $10 fee.
See Redemption of Shares - Bank Wire.
The Manager is entitled to receive fees from the Fund only to the extent
that the aggregate annual operating expenses of the Fund and the Portfolio do
not exceed .18% of the Fund's ANA and the Manager will reimburse the Fund for
any expenses in excess of this limitation. In addition, Bankers Trust Company
(Bankers Trust), which provides various services to the Portfolio, has
voluntarily agreed to limit the Portfolio's expenses to .08% of the Portfolio's
ANA. The Investment Advisory Fees, Other Expenses and Total Operating Expenses
reflect all such commitments by the Manager and Bankers Trust. Absent such
commitments, the amount of Investment Advisory Fees, Other Expenses and Total
Operating Expenses as a percentage of the Fund's ANA would have been .10%, .23%
and .33%, respectively.
USAA Shareholder Account Services assesses an annual account maintenance
fee of $10 to allocate part of the fixed costs of maintaining shareholder
accounts equally to all accounts. This fee will be waived for shareholders with
an account balance of $10,000 or more. The fee is deducted from the dividends
paid to each shareholder at a rate of $2.50 per quarter. See Dividends,
Distributions and Taxes.
3
<PAGE>
Example of Effect of Fund Expenses
- --------------------------------------------------------------------------------
You would pay the following expenses on a $1,000 investment in the Fund,
assuming (1) 5% annual return and (2) redemption at the end of the periods
shown. The example excludes the $10 account maintenance fee.
1 year - $2 3 years - $6
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 20.
FINANCIAL HIGHLIGHTS
The following per share operating performance for a share outstanding throughout
the eight-month period ended December 31, 1996, has been audited by Coopers &
Lybrand L.L.P. This table should be read in conjunction with the Fund's
financial statements for the year ended December 31, 1996, and the accountants'
report thereon, that appear in the Fund's Annual Report. Further performance
information is contained in the Annual Report and is available upon request
without charge.
EIGHT-MONTH
PERIOD ENDED
DECEMBER 31, 1996*
PER SHARE OPERATING PERFORMANCE
Net Asset Value at Beginning of Period $ 10.00
-----------
Income from Investment Operations:
Net Investment Income .12
Net Realized and Unrealized Gain on Securities
and Futures Transactions 1.57
-----------
Total from Investment Operations 1.69
Distributions from Net Investment Income (.12)
-----------
Net Asset Value at End of Period $ 11.57
-----------
-----------
Total return ** 16.90%
SUPPLEMENTAL DATA AND RATIOS
Net Assets at End of Period (000) $179,073
Ratio to Average Net Assets:
Net Investment Income 2.09%(a)
Expenses, including Expenses of the Equity 500
Index Portfolio .18%(a)
Decrease Reflected in Above Expense Ratio Due
to Absorption of Expenses by Bankers Trust and
the Manager .15%(a)
- --------------
(a) Annualized. The ratio is not necessarily indicative of 12 months
of operations.
* Fund commenced operations May 1, 1996.
** Assumes reinvestment of all dividend income distributions during the
period; does not reflect $10 annual account maintenance fee.
4
<PAGE>
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 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.
5
<PAGE>
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. 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.
6
<PAGE>
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.
7
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT OBJECTIVE
The Fund seeks to provide investment results that, before expenses, correspond
to the total return (i.e., the combination of capital changes and income) of
common stocks publicly traded in the United States, as represented by the
S&P 500(1). The Fund offers investors a convenient means of diversifying their
holdings of common stocks while relieving those investors of the administrative
burdens typically associated with purchasing and holding these instruments.
The Company seeks to achieve the investment objective of the Fund by
investing all the Assets of the Fund in the Portfolio, which has the same
investment objective as the Fund. There can be no assurances that the investment
objective of either the Fund or the Portfolio will be achieved. The investment
objective of both the Fund and the Portfolio is not a fundamental policy and may
be changed upon notice to, but without the approval of, the Fund's shareholders
or the Portfolio's investors, respectively. See Special Information Concerning
Master-Feeder Fund Structure on page 11.
Since the investment characteristics of the Fund will correspond directly
to those of the Portfolio, the following is a discussion of the various
investments and investment policies of the Portfolio. Additional information
about the investment policies of the Portfolio appears in the SAI.
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
- --------------
1 "Standard & Poor's(R)," "S&P(R)," "Standard & Poor's 500," "S&P 500(R)," and
"500" are trademarks of The McGraw-Hill Companies, Inc. and have been licensed
for use by Bankers Trust Company. Portfolio, utilizing a "passive" or "indexing"
investment approach, attempts to replicate, before expenses, the performance of
the S&P 500.
Under normal conditions when the Portfolio's assets are above $10 million,
the Portfolio will invest at least 80% of its assets in common stocks of
companies which compose the S&P 500. In seeking to replicate the performance of
the S&P 500, Bankers Trust, the Portfolio's investment adviser, will attempt
over time to allocate the Portfolio's portfolio of investments among common
stocks in approximately the same weightings as the S&P 500, beginning with the
heaviest-weighted stocks that make up a larger portion of the Index's value.
Over the long term, Bankers Trust seeks a correlation between the performance of
the Portfolio, before expenses, and that of the S&P 500 of 0.98 or better (0.95
or better if Portfolio asset levels are below $10 million). A figure of 1.00
would indicate perfect correlation. In the unlikely event that the targeted
correlation is not achieved, the Portfolio's Board of Trustees will consider
alternative structures.
Bankers Trust utilizes a two-stage sampling approach in seeking to achieve
its objective. Stage one, which encompasses large cap stocks, maintains the
stock holdings at or near their benchmark weights. Large capitalization stocks
are defined as those securities which represent 0.10% or more of the Index. In
stage two, smaller stocks are analyzed and selected using risk characteristics
and industry weights in order to match the sector and risk characteristics of
the smaller companies in the S&P 500. This approach helps to maximize portfolio
liquidity while minimizing costs.
8
<PAGE>
Bankers Trust generally will seek to match the composition of the S&P 500,
but usually will not invest the Portfolio's stock portfolio to mirror the Index
exactly. Because of the difficulty and expense of executing relatively small
stock transactions, the Portfolio may not always be invested in the less heavily
weighted S&P 500 stocks, and may at times have its portfolio weighted
differently from the S&P 500, particularly if the Portfolio has a low level of
assets. When the Portfolio's size is greater, Bankers Trust expects to purchase
more of the stocks in the S&P 500 and to match the relative weighting of the S&P
500 more closely, and anticipates that the Portfolio will be able to mirror,
before expenses, the performance of the S&P 500 with little variance at asset
levels of $10 million or more. In addition, the Portfolio may omit or remove any
S&P 500 stock from the Portfolio if, following objective criteria, Bankers Trust
judges the stock to be insufficiently liquid or believes the merit of the
investment has been substantially impaired by extraordinary events or financial
conditions. Bankers Trust will not purchase the stock of Bankers Trust New York
Corporation, which is included in the Index, and instead will overweight its
holdings of companies engaged in similar businesses.
Under normal conditions, Bankers Trust will attempt to invest as much of
the Portfolio's assets as is practical in common stocks included in the S&P 500.
However, the Portfolio may maintain up to 20% of its assets in short-term debt
securities and money market instruments hedged with stock index futures and
options to meet redemption requests or to facilitate the investment in common
stocks. See Additional Information for further information.
When the Portfolio has cash from new investments in the Portfolio or holds
a portion of its assets in money market instruments, it may enter into stock
index futures or options to attempt to increase its exposure to the stock
market. Strategies the Portfolio could use to accomplish this include purchasing
futures contracts, writing put options, and purchasing call options. When the
Portfolio wishes to sell securities, because of shareholder redemptions or
otherwise, it may use stock index futures or options thereon to hedge against
market risk until the sale can be completed. These strategies could include
selling and buying futures contracts, writing call options, and purchasing put
options.
Bankers Trust will choose among futures and options strategies based on its
judgment of how best to meet the Portfolio's goals. In selecting these
derivative instruments, Bankers Trust will assess such factors as current and
anticipated stock prices, relative liquidity and price levels in the options and
futures markets compared to the securities markets, and the Portfolio's cash
flow and cash management needs. If Bankers Trust judges these factors
incorrectly, or if price changes in the Portfolio's futures and options
positions are not well correlated with those of its other investments, the
Portfolio could be hindered in the pursuit of its objective and could suffer
losses. The Portfolio could also be exposed to risk if it could not close out
its futures or options positions because of an illiquid secondary market. A
description of the futures and options that the Portfolio may use and some of
their associated risks is found under Additional Information.
Short-Term Instruments - The Portfolio intends to stay invested in the
securities described above to the extent practical in light of its objective and
long-term investment perspective. However, the Portfolio's assets may be
invested in short-term instruments with remaining maturities of 397 days or less
to meet anticipated redemptions and expenses or for day-to-day operating
purposes. Short-term instruments consist of: (1) short-term obligations of the
U.S. Government, its agencies, instrumentalities, authorities or political
subdivisions; (2) other short-term debt securities rated Aa or higher by
9
<PAGE>
Moody's Investors Service, Inc. (Moody's) or AA or higher by Standard & Poor's
Ratings Group (S&P) or, if unrated, of comparable quality in the opinion of
Bankers Trust; (3) commercial paper; (4) bank obligations, including negotiable
certificates of deposit, time deposits and bankers' acceptances; and (5)
repurchase agreements. At the time the Portfolio invests in commercial paper,
bank obligations or repurchase agreements, the issuer or the issuer's parent
must have outstanding debt rated Aa or higher by Moody's or AA or higher by S&P
or outstanding commercial paper or bank obligations rated Prime-1 by Moody's or
A-1 by S&P; or, if no such ratings are available, the instrument must be of
comparable quality in the opinion of Bankers Trust.
ADDITIONAL INVESTMENT LIMITATIONS
As a diversified fund, no more than 5% of the assets of the Portfolio may be
invested in the securities of any one issuer (other than U.S. Government
securities), except that up to 25% of the Portfolio's assets may be
invested without regard to this limitation. The Portfolio will not invest
more than 25% of its assets in the securities of issuers in any one
industry. In the unlikely event that the S&P 500 should concentrate to an
extent greater than that amount, the Portfolio's ability to achieve its
investment objective may be impaired. These are fundamental investment
policies of the Portfolio which may not be changed without shareholder
approval. No more than 15% of the Portfolio's net assets may be invested in
illiquid or not readily marketable securities (including repurchase agreements
and time deposits with remaining maturities of more than seven calendar
days). Additional investment policies of the Portfolio are contained in the SAI.
ABOUT THE S&P 500 INDEX
The S&P 500 is a well-known stock market index that includes common stocks
of 500 companies from several industrial sectors representing a
significant portion of the market value of all common stocks publicly traded
in the United States, most of which are listed on the New York Stock Exchange
Inc. (the NYSE). Stocks in the S&P 500 are weighted according to their market
capitalization (i.e., the number of shares outstanding multiplied by the
stock's current price). Bankers Trust believes that the performance of
the S&P 500 is representative of the performance of publicly traded common
stocks in general. The composition of the S&P 500 is determined by S&P and is
based on such factors as the market capitalization and trading activity of each
stock and its adequacy as a representation of stocks in a particular industry
group, and may be changed from time to time.
The Fund and the Portfolio are not sponsored, endorsed, sold or promoted by
S&P. S&P makes no representation or warranty, express or implied, to the owners
of the Fund or the Portfolio or any member of the public regarding the
advisability of investing in securities generally or in the Fund and the
Portfolio particularly or the ability of the S&P 500 to track general stock
market performance. S&P does not guarantee the accuracy and/or the completeness
of the S&P 500 or any data included therein.
S&P makes no warranty, express or implied, as to the results to be obtained
by the Fund or the Portfolio, owners of the Fund or the Portfolio, or any other
person or entity from the use of the S&P 500 or any data included therein. S&P
makes no express or implied warranties and hereby expressly disclaims all such
warranties of merchantability or fitness for a particular purpose or use with
respect to the S&P 500 or any data included therein.
The following table shows the performance of the S&P 500 for the ten years
from 1987 through 1996. 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
10
<PAGE>
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
- --------------------------------------------------------------------------------
1996 740.74 20.26% 2.68% 22.94%
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%
- --------------------------------------------------------------------------------
*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
both favorable and unfavorable. The Fund's share price, yield and total return
will fluctuate and your investment may be worth more or less than your original
cost when you redeem your shares.
The ability of the Fund and the Portfolio to meet their investment
objective depends to some extent on the cash flow experienced by the Fund and by
the other investors in the Portfolio, since investments and redemptions by
shareholders of the Fund will generally require the Portfolio to purchase or
sell securities. Bankers Trust will make investment changes to accommodate cash
flow in an attempt to maintain the similarity of the Portfolio to the S&P 500.
You should also be aware that the performance of the S&P 500 is a hypothetical
number which does not take into account brokerage commissions and other costs of
investing, unlike the Portfolio which must bear these costs. Finally, since the
Portfolio seeks to track the S&P 500, Bankers Trust generally will not attempt
to judge the merits of any particular stock as an investment.
PORTFOLIO TURNOVER
The frequency of portfolio transactions -- the Portfolio's turnover rate -- will
vary from year to year depending on market conditions and the Portfolio's cash
flows. The Portfolio's annual turnover rate is not expected to exceed 100%. The
Portfolio's turnover rates for the years ended December 31, 1996 and 1995 were
15% and 6%, respectively.
SPECIAL INFORMATION CONCERNING MASTER-FEEDER FUND STRUCTURE
Unlike other mutual funds which directly acquire and manage their own portfolio
securities, the Fund seeks to achieve its investment objective by investing all
of its Assets in the Portfolio, a separate registered investment company with
the same investment objective as the Fund. Therefore, an investor's interest in
the Portfolio's securities is indirect. In addition to selling a beneficial
interest to the Fund, the Portfolio may sell beneficial interests to other
mutual funds or institutional investors. Such investors will invest in the
Portfolio under the same terms and conditions and will pay a proportionate share
of the Portfolio's expenses. However, the other investors investing in the
Portfolio are not required to sell their shares at the same public offering
price as the Fund due to variations in sales commissions and other operating
expenses. Therefore, investors in the Fund should be aware that these
differences may result in differences in returns experienced by investors in the
different funds that invest in the Portfolio.
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Such differences in returns are also present in other mutual fund structures.
Information concerning other holders of interests in the Portfolio is available
from Bankers Trust at 1-800-368-4031.
Smaller funds investing in the Portfolio may be materially affected by the
actions of larger funds investing in the Portfolio. For example, if a large fund
withdraws from the Portfolio, the remaining funds may experience higher pro rata
operating expenses, thereby producing lower returns (however, this possibility
exists as well for traditionally-structured funds which have large institutional
investors). Additionally, the Portfolio may become less diverse, resulting in
increased portfolio risk. Also, funds with a greater pro rata ownership in the
Portfolio could have effective voting control of the operations of the
Portfolio.
Except as permitted by the SEC, whenever the Fund is requested to vote on
matters pertaining to the Portfolio, the Fund will hold a meeting of its
shareholders and will cast all of its votes in the same proportion as the votes
of its shareholders. The percentage of the Company's votes representing the
Fund's shareholders not voting will be voted by the Directors or officers of the
Company in the same proportion as the Fund's shareholders who do, in fact, vote.
Certain changes in the Portfolio's investment objective, policies or
restrictions may require the Fund to withdraw its interest in the Portfolio. Any
such withdrawal could result in a distribution "in kind" of portfolio securities
(as opposed to a cash distribution from the Portfolio). If securities are
distributed, the Fund generally would incur brokerage, tax or other charges in
converting the securities to cash. In addition, the distribution in kind may
result in a less diversified portfolio of investments or adversely affect the
liquidity of the Fund.
The Fund may withdraw its investment from the Portfolio at any time, if the
Board of Directors of the Company determines that it is in the best interest of
the shareholders of the Fund to do so. Upon any such withdrawal, the Manager
would become responsible for directly managing the Assets of the Fund. In
addition, the Board of Directors of the Company may consider other actions that
might be taken, including the investment of all the Assets of the Fund in
another pooled investment entity having the same investment objective as the
Fund.
The Fund's investment objective is not a fundamental policy and may be
changed upon notice to, but without the approval of, the Fund's shareholders. If
there is a change in the Fund's investment objective, the Fund's shareholders
should consider whether the Fund remains an appropriate investment in light of
their then-current needs. The investment objective of the Portfolio is also not
a fundamental policy. Shareholders of the Fund will receive 30 days' prior
written notice with respect to any change in the investment objective of the
Fund or the Portfolio. See Investment Objective and Policies - Additional
Investment Limitations for a description of the fundamental policies of the
Portfolio that cannot be changed without approval by the holders of "a majority
of the outstanding voting securities" (as defined in the Investment Company Act
of 1940, as amended (1940 Act)) of the Portfolio.
For descriptions of the investment objective, policies and restrictions of
the Portfolio, see Investment Objectives and Policies herein and in the SAI. For
descriptions of the management and expenses of the Portfolio, see Management of
the Company and Portfolio herein and Investment Adviser and Administrator in the
SAI.
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PURCHASE OF SHARES
OPENING AN ACCOUNT
You may open an account and make an investment by any of the following methods.
A complete, signed application is required together with a check for each new
account.
TAX ID NUMBER
We require that each shareholder named on the account provide the Company with a
social security number or tax identification number to avoid possible tax
withholding requirements.
EFFECTIVE DATE
When you make a purchase, your purchase price will be the net asset value (NAV)
per share next determined after the Fund receives your request in proper form.
The NAV of the Fund is determined at the close of the regular trading session of
the NYSE each day on which the Exchange is open. If the Fund receives your
request prior to that time, your purchase price will be the NAV per share
determined for that day. If the Fund receives your request after the time at
which the NAV per share is calculated, the purchase will be effective on the
next business day.
Because of the more lengthy clearing process and the need to convert
foreign currency, a check drawn on a foreign bank will not be deemed received
for the purchase of shares until such time as the check has cleared and the
Manager has received good funds, which may take up to four to six weeks.
Furthermore, a bank charge may be assessed in the clearing process, which will
be deducted from the amount of the purchase. To avoid a delay in the
effectiveness of your purchase, the Manager suggests that you convert your
foreign check to U.S. dollars prior to investment in the Fund.
Purchase of Shares
Minimum Investments
Initial Purchase (non-IRA): $3,000
Additional Purchases: $50
Initial Purchase - IRA: $2,000
Additional Purchases: $50
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How to Purchase:
Mail o To open an account, send your application and check to:
USAA Investment Management Company
9800 Fredericksburg Rd., San Antonio, TX 78288
o 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
o To exchange by mail, call 1-800-531-8448 for instructions.
In Person o 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 o Additional purchases on a regular basis can be deducted
via from a bank account, paycheck, income-producing
Electronic investment or from a USAA money market account. Sign up
Funds for these services when opening an account or call
Transfer 1-800-531-8448 to add these services.
(EFT) o Purchases through payroll deduction ($25 minimum each
pay period with $3,000 initial investment) can be
made by any employee of USAA, its subsidiaries or
affiliated companies.
Bank Wire o 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 o If you have an existing USAA account and would like
1-800-531-8448 to open a new account or if you would like to exchange to
another USAA fund, call for instructions. The new account
must have the same registration as your existing account.
o To add to an account, intermittent (as-needed) purchases
can be deducted from your bank account through our Buy/Sell
Service. Call for instructions.
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REDEMPTION OF SHARES
You may redeem shares of the Fund by any of the following methods on any day the
NAV per share is calculated. Redemptions will be effective on the day on which
instructions are received in accordance with the requirements set forth below.
However, if instructions are received after the NAV per share calculation,
redemption will be effective on the next business day.
REDEMPTION PROCEEDS
Redemption proceeds are distributed within seven days after the effective date
of redemption. Payment for redemption of shares purchased by check or electronic
funds transfer will not be disbursed until the purchase check or electronic
funds transfer has cleared, which could take up to 15 days from the purchase
date. If you are considering redeeming shares soon after purchase, you should
purchase by bank wire or certified check to avoid delay.
In addition, the Company may elect to suspend the redemption of shares or
postpone the date of payment during any period that the NYSE is closed, or
trading in the markets the Company normally utilizes is restricted, or during
any period that redemption is otherwise permitted to be suspended by the SEC.
How to Redeem:
Written, o Send your written instructions to:
Fax, or USAA Shareholder Account Services
Telegraph 9800 Fredericksburg Rd., San Antonio, TX 78288
o Send a signed fax to 1-800-292-8177, or send a telegram to
USAA Shareholder Account Services.
Written redemption requests must include the following: (1) a letter of
instruction or stock assignment, and stock certificate (if issued), specifying
the Fund and the number of shares or dollar amount to be redeemed; (2)
signatures of all owners of the shares exactly as their names appear on the
account; (3) other supporting legal documents, if required, as in the case of
estates, trusts, guardianships, custodianships, partnerships, corporations, and
pension and profit-sharing plans; and (4) method of payment.
Phone o Call toll free 1-800-531-8448, in San Antonio, 456-7202.
Telephone redemption is automatically established when you complete your
application. The Fund will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine; and if it does not, it may
be liable for any losses due to unauthorized or fraudulent instructions.
Information is obtained prior to any discussion regarding an account including:
(1) USAA number or account number, (2) the name(s) on the account registration,
and (3) social security number or tax identification number for the account
registration. In addition, all telephone communications with a shareholder are
recorded, and confirmations of all account transactions are sent to the address
of record.
Redemption by telephone, fax, or telegraph is not available for shares
represented by stock certificates.
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Methods of Payment:
Bank Wire o Allows redemptions to be sent directly to your bank account.
Establish this service when you apply for your account, or later upon
request. If your account is at a savings bank, savings and loan association, or
credit union, please obtain precise wiring instructions from your institution.
Specifically, include the name of the correspondent bank and your institution's
account number at that bank. USAA Shareholder Account Services (Transfer Agent)
deducts a wire fee from the account for the redemption by wire. The fee as of
the date of this Prospectus is $10 ($25 for wires to a foreign bank) and is
subject to change at any time. The fee is paid to State Street Bank and Trust
Company and the Transfer Agent for their services in connection with the wire
redemption. Your bank may also charge a fee for receiving funds by wire.
Automatically o Systematic (regular) or intermittent (as-needed) redemptions can
via EFT credited to your bank account.
Establish any of our electronic investing services when you apply for your
account, or later upon request.
Check o A check payable to the registered shareholder(s) will be
Redemption mailed to the address of record.
This check redemption privilege is automatically established when your
application is completed and accepted. There is a 15-day waiting period before a
check redemption can be processed following a telephone address change. Should
you wish to redeem shares within the 15 days following a telephone address
change, you may do so by providing written instructions by mail or facsimile.
CONDITIONS OF PURCHASE AND REDEMPTION
NONPAYMENT
If any order to purchase shares is cancelled due to nonpayment or if the Company
does not receive good funds either by check or electronic funds transfer, the
cancellation will be treated as a redemption of shares purchased; and you will
be responsible for any resulting loss incurred by the Fund or the Manager. If
you are a shareholder, shares can be redeemed from any of your account(s) as
reimbursement for all losses. In addition, you may be prohibited or restricted
from making future purchases in any of the USAA Family of Funds. A $15 fee is
charged for all returned items, including checks and electronic funds transfers.
TRANSFER OF SHARES
Fund shares may be transferred to another person by sending written instructions
to the Transfer Agent. The account must be clearly identified, and you must
include the number of shares to be transferred, the signatures of all registered
owners, and all stock certificates, if any, which are the subject of transfer.
You also need to send written instructions signed by all registered owners and
supporting documents to change an account registration due to events such as
divorce, marriage, or death. If a new account needs to be established, an
application must be completed and returned to the Transfer Agent.
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ACCOUNT BALANCE
The Board of Directors may cause the redemption of an account with a balance of
less than 10 shares of the Fund, subject to certain limitations described in
Additional Information Regarding Redemption of Shares in the SAI.
COMPANY RIGHTS
The Company reserves the right to:
(1) reject purchase or exchange orders when in the best interest of the
Company;
(2) limit or discontinue the offering of shares of any portfolio of the Company
without notice to the shareholders;
(3) impose a redemption charge of up to 1%of the net asset value of shares
redeemed if circumstances indicate a charge is necessary for the protection
of remaining investors (for example, if excessive market-timing share
activity unfairly burdens long-term investors);provided, however, this 1%
charge will not be imposed upon shareholders unless authorized by the
Board of Directors and the required notice has been given to shareholders;
(4) require a signature guarantee for purchases, redemptions, or changes in
account information in those instances where the appropriateness of a
signature authorization is in question. The section Additional Information
Regarding Redemption of Shares in the SAI contains information on
acceptable guarantors.
EXCHANGES
EXCHANGE PRIVILEGE
The Exchange Privilege is automatically established when you complete your
application. You may exchange shares among Funds in the USAA Family of Funds,
provided you do not hold these shares in stock certificate form and that the
shares to be acquired are offered in your state of residence. Exchange
redemptions and purchases will be processed simultaneously at the share prices
next determined after the exchange order is received. For federal income tax
purposes, an exchange between Funds is a taxable event. Accordingly, a capital
gain or loss may be realized.
The Fund has undertaken certain procedures regarding telephone
transactions. See Redemption of Shares - Phone.
EXCHANGE LIMITATIONS,
EXCESSIVE TRADING
To minimize Fund costs and to protect the Funds and their shareholders from
unfair expense burdens, the Funds restrict excessive exchanges. Exchanges out of
any Fund in the USAA Family of Funds are limited for each account to six per
calendar year except that there is no limitation on exchanges out of the
Short-Term Bond Fund, Tax Exempt Short-Term Fund, or any of the money market
funds in the USAA Family of Funds.
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OTHER SERVICES
INVESTMENT PLANS Automatic Investment Plans - You may establish an automatic
investment plan by completing the appropriate forms. At the time you sign up for
any of the following investment plans that utilize the electronic funds transfer
service, you will choose the day of the month (the effective date) on which you
would like to regularly purchase shares. When this day falls on a weekend or
holiday, the electronic transfer will take place on the last business day before
the effective date. Call the Manager to obtain instructions. More information
about these preauthorized plans is contained in the SAI.
o InvesTronic(R) - The regular purchase of additional shares through electronic
funds transfer from a checking or savings account. You may invest as little as
$50 per month.
o Direct Purchase Service - The periodic purchase of shares through electronic
funds transfer from an employer (including government allotments), an income-
producing investment, or an account with a participating financial institution.
o 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.
o Buy/Sell Service - The intermittent purchase or redemption of shares through
electronic funds transfer to or from a checking or savings account.
o 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.
o 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.
o 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 purchase shares automatically in
another fund.
SHAREHOLDER STATEMENTS
AND REPORTS
You will receive a confirmation after each transaction in your account except:
(1) a reinvested dividend;
(2) a payment you make under the
InvesTronic(R), Direct Purchase Service,Automatic Purchase Plan, or
Directed Dividends investment plans; or
(3) a redemption you make under the Systematic Withdrawal Plan.
At the end of each quarter, you will receive a consolidated statement
for all of your mutual fund accounts,regardless of account activity.
The fourth quarter consolidated statement will reflect all account activity
for the prior tax year. There will be a $10 fee charged for copies of
historical statements for other than the prior tax year for any one account.
You will receive the Fund's financial statements with a summary of its
investments and performance at least semiannually.
In an effort to reduce expenses and respond to shareholders' requests to
reduce mail, the Company intends to consolidate mailings of Annual and
Semiannual Reports to households having multiple accounts with the same address
of record. One copy of each report will be furnished to that address. You may
request additional reports by notifying the Company.
TELEPHONE ASSISTANCE
Call our telephone assistance numbers for specific forms, a copy of the SAI, the
most recent Annual Report and/or Semiannual Report, or if you have any questions
concerning any of the services offered.
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SHARE PRICE CALCULATION
The price at which shares of the Fund are purchased and redeemed by shareholders
is equal to the NAV per share determined on the effective date of the purchase
or redemption.
WHEN
The NAV per share for the Fund is calculated at the close of the regular trading
session of the NYSE, which is usually 4:00 p.m. Eastern time. You may buy and
sell Fund shares at the NAV per share without a sales charge.
HOW
The NAV per share is calculated by adding the value of the Fund's assets (i.e.,
the value of its investment in the Portfolio and other assets), deducting
liabilities, and dividing by the number of shares outstanding. The Portfolio's
securities and other assets are valued primarily on the basis of market
quotations or, if quotations are not readily available, by a method which the
Portfolio's Board of Trustees believes accurately reflects fair value.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS Net investment income will be distributed to
shareholders quarterly. Net capital gains, if any, generally will be distributed
at least annually. The Fund intends to make such additional distributions as may
be necessary to avoid the imposition of any federal income or excise tax.
All income dividends and capital gain distributions are automatically
reinvested, unless the shareholder specifies otherwise. The share price will be
the NAV of the Fund shares computed on the ex-dividend date. Any income dividend
or capital gain distributions paid by the Fund will reduce the NAV per share by
the amount of the dividend or distribution. An investor should consider
carefully the effects of purchasing shares of the Fund shortly before any
dividend or distribution. Although in effect a return of capital, these
distributions are subject to taxes.
For those shareholders with an account balance of less than $10,000, the
Transfer Agent automatically deducts a $10 annual account maintenance fee from
the dividend income paid to each shareholder account. The $10 account
maintenance fee is deducted at a rate of $2.50 per quarter from the dividend. If
the dividend to be paid to an account is less than the fee to be deducted,
sufficient shares may be redeemed from an account to make up the difference. The
annual account maintenance fee may be changed upon not less than 30 days' notice
to account holders.
Any dividend or distribution payment returned to the Manager as not
deliverable will be invested in the shareholder's Fund account at the
then-current NAV per share. If any check for the payment of dividends or
distributions is not cashed within six months from the date on the check, it
becomes void. The amount of the check will then be invested in the shareholder's
Fund account at the then-current NAV per share.
FEDERAL TAXES
The following discussion relates only to generally applicable federal income tax
provisions in effect as of the date of this Prospectus. Therefore, shareholders
are urged to consult their own tax advisers about the status of distributions
from the Fund in their own states and localities.
Fund - The Fund intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the Code). By
complying with the applicable provisions of the Code, the Fund will not be
subject to
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federal income tax on its net investment income and net capital gains (capital
gains in excess of capital losses) distributed to shareholders.
In order to qualify as a regulated investment company under the Code, the
Fund must satisfy certain requirements relating to the sources of its income,
the distribution of its income, and the diversification of its assets. In
satisfying these requirements, the Fund will treat itself as owning its
proportionate share of the Portfolio's assets and is entitled to the income of
the Portfolio properly attributable to such share. As a partnership under the
Code, the Portfolio does not pay federal income or excise taxes.
Shareholder - Dividends from taxable net investment income and distributions of
net short-term capital gains are taxable to shareholders as ordinary income,
whether received in cash or reinvested in additional shares. A portion of these
dividends may qualify for the 70% dividends received deduction available to
corporations.
Distributions of net long-term capital gains are taxable as long-term
capital gains whether received in cash or reinvested in additional shares, and
regardless of the length of time the investor has held the shares of the Fund.
Redemptions, including exchanges, are subject to income tax, based on the
difference between the cost of shares when purchased and the price received upon
redemption or exchange.
Withholding - The Fund is required by federal law to withhold and remit to the
U.S. Treasury a portion of the income dividends and capital gain distributions
and proceeds of redemptions paid to any non-corporate shareholder who fails to
furnish the Fund with a correct tax identification number, who underreports
dividend or interest income, or who fails to certify that he is not subject to
withholding. To avoid this withholding requirement, you must certify on your
application, or on a separate Form W-9 supplied by the Transfer Agent, that your
tax identification number is correct and that you are not currently subject to
backup withholding.
Reporting - Information concerning the status of dividends and distributions for
federal income tax purposes will be mailed to shareholders annually.
MANAGEMENT OF THE COMPANY AND PORTFOLIO
The business affairs of the Company are subject to the supervision of its Board
of Directors, while the business affairs of the Portfolio are subject to the
supervision of its Board of Trustees. No Director of the Company also serves as
a Trustee of the Portfolio. For more information with respect to Directors of
the Company and Trustees of the Portfolio, see Directors and Officers of the
Company and Trustees and Officers of the Portfolio in the SAI.
INVESTMENT ADVISER
USAA Investment Management Company
The Manager serves as the manager and
investment adviser of the Fund, providing services under a Management
Agreement. Under the Management Agreement, the Manager is responsible for
monitoring the services provided to the Portfolio by Bankers Trust, subject
to the authority of and supervision by the Board of Directors. The Manager
receives no fee for providing these monitoring services. In the event the
Fund's Board of Directors determines it is in the best interests of the Fund's
shareholders to withdraw its investment in the Portfolio, the Manager would
become responsible for directly managing the assets of the Fund. In such
event, the Fund would pay the Manager an annual fee of .10% of the Fund's ANA,
accrued daily and paid monthly.
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The Manager was organized in May 1970 and is an affiliate of United
Services Automobile Association (USAA), a large diversified financial services
institution. As of the date of this Prospectus, the Manager had approximately
$32 billion in total assets under management. The Manager's mailing address is
9800 Fredericksburg Rd., San Antonio, TX 78288.
Officers and employees of the Manager are permitted to engage in personal
securities transactions subject to restrictions and procedures set forth in the
Joint Code of Ethics adopted by the Company and the Manager. Such restrictions
and procedures include substantially all of the recommendations of the Advisory
Group of the Investment Company Institute and comply with SEC rules and
regulations.
Bankers Trust Company
At the present time, the Company seeks to achieve the investment objective of
the Fund by investing all the Assets of the Fund in the Portfolio. The Portfolio
has retained the services of Bankers Trust as investment adviser. Mr. Frank
Salerno, Managing Director of Bankers Trust, is responsible for the day-to-day
management of the Portfolio. Mr. Salerno has been employed at Bankers Trust
since 1981 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 $227 billion in assets under management globally. Of that
total, approximately $92 billion are in U.S. equity index assets.
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.
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.
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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 an annual rate equal to the lesser of (1) .06% of the average
daily net assets of the Fund or (2) the amount that brings the total Fund and
Portfolio annual operating expenses as a percentage of the Fund's average net
assets up to .18%. Under the Administration Agreement with the Fund, the Manager
may delegate one or more of its responsibilities to others, at the Manager's
expense.
Under an Administration and Services Agreement with the Portfolio, Bankers
Trust calculates the value of the assets of the Portfolio and generally assists
the Board of Trustees of the Portfolio in all aspects of the administration and
operation of the Portfolio. The Administration and Services Agreement provides
for the Portfolio to pay Bankers Trust a fee, computed daily and paid monthly,
at the rate of .05% (before waiver) of the average daily net assets of the
Portfolio. Under the Administration and Services Agreement, Bankers Trust may
delegate one or more of its responsibilities to others, at Bankers Trust's
expense. For more information, see Administrator in the SAI.
OPERATING EXPENSES
The Fund bears its own expenses. Operating expenses for the Fund generally
consist of all costs not specifically borne by the Manager or Bankers Trust,
including administration and service fees, fees for necessary professional
services, and costs associated with regulatory compliance and maintaining legal
existence and shareholder relations. The Portfolio bears its own expenses.
Operating expenses for the Portfolio generally consist of all costs not
specifically borne by Bankers Trust, including investment advisory and
administration and services fees, fees for necessary professional services, the
costs associated with regulatory compliance and maintaining legal existence and
investor relations.
DESCRIPTION OF SHARES
The Company is an open-end management investment company incorporated under the
laws of the State of Maryland on October 14, 1980. The Company is authorized to
issue shares in separate series or Funds. Eight such Funds have been
established, one of which is described in this Prospectus. The Fund is
classified as a diversified investment company. Under the Company's charter, the
Board of Directors is authorized to create new Funds in addition to those
already existing without approval of the shareholders of the Company.
Under provisions of the Bylaws of the Company, no annual meeting of
shareholders is required. Ordinarily, no shareholder meeting will be held unless
required by the 1940 Act. The Directors may fill vacancies on the Board or
appoint new Directors provided that immediately after such action at least
two-thirds of the Directors have been elected by shareholders.
Shareholders are entitled to one vote per share (with proportionate voting
for fractional shares) irrespective of the relative NAV of the shares. For
matters affecting an individual fund, a separate vote of the shareholders of
that fund is required. As of March 31, 1997, USAA and its affiliates owned
approximately 33.5% of the Fund's shares.
The Portfolio, in which all the Assets of the Fund will be invested, is
organized as a trust under the laws of the State of New York. The Portfolio's
Declaration of Trust provides that the Fund and other entities investing in the
Portfolio (e.g., other investment companies, insurance company
22
<PAGE>
separate accounts, and common and commingled trust funds) will each be liable
for all obligations of the Portfolio. However, the risk of the Fund's incurring
financial loss on account of such liability is limited to circumstances in which
both inadequate insurance exists and the Portfolio itself was unable to meet its
obligations. Accordingly, the Company's Directors believe that neither the Fund
nor its shareholders will be adversely affected by reason of the Fund's
investing in the Portfolio.
ADDITIONAL INFORMATION
Repurchase Agreements - In a repurchase agreement the Portfolio buys a security
and simultaneously agrees to sell it back at a higher price. In the event of the
bankruptcy of the other party to either a repurchase agreement or a securities
loan, the Portfolio could experience delays in recovering either its cash or the
securities it lent. To the extent that, in the meantime, the value of the
securities repurchased had decreased or the value of securities lent had
increased, the Portfolio could experience a loss. In all cases, Bankers Trust
must find the creditworthiness of the other party to the transaction
satisfactory. A repurchase agreement is considered a collateralized loan under
the 1940 Act.
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 segregates with the Custodian 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
23
<PAGE>
indices, in an industry or market segment. Accordingly, successful use by the
Portfolio of options on stock indices will be subject to Bankers Trust's ability
to predict correctly movements in the direction of the stock market generally or
of a particular industry. This requires different skills and techniques than
predicting changes in the price of individual stocks.
Futures Contracts on Stock Indices - The Portfolio may enter into contracts
providing for the making and acceptance of a cash settlement based upon changes
in the value of an index of securities (Futures Contracts). This investment
technique is designed only to hedge against anticipated future changes in
general market prices which otherwise might either adversely affect the value of
securities held by the Portfolio or adversely affect the prices of securities
which are intended to be purchased at a later date for the Portfolio. A Futures
Contract may also be entered into to close out or offset an existing futures
position.
In general, each transaction in Futures Contracts involves the
establishment of a position which will move in a direction opposite to that of
the investment being hedged. If these hedging transactions are successful, the
futures positions taken for the Portfolio will rise in value by an amount which
approximately offsets the decline in value of the portion of the Portfolio's
investments that are being hedged. Should general market prices move in an
unexpected manner, the full anticipated benefits of Futures Contracts may not be
achieved or a loss may be realized.
Although Futures Contracts would be entered into for cash management
purposes only, such transactions do involve certain risks. These risks could
include a lack of correlation between the Futures Contracts and the equity
market being hedged, a potential lack of liquidity in the secondary market and
incorrect assessments of market trends which may result in poorer overall
performance than if a Futures Contract had not been entered into.
Brokerage costs will be incurred and "initial margin" will be required to
be posted and maintained as a good-faith deposit against performance of
obligations under Futures Contracts written for the Portfolio. The Portfolio may
not purchase or sell a Futures Contract or options thereon if immediately
thereafter its margin deposits on its outstanding Futures Contracts and its
premium paid on outstanding options thereon would exceed 5% of the market value
of the Portfolio's total assets.
Options on Futures Contracts - The Portfolio may invest in options on such
Futures Contracts for similar purposes.
Asset Coverage - The Portfolio will cover transactions in futures and related
options, as well as when-issued and delayed-delivery as required under
applicable interpretations of the SEC, either by owning the underlying
securities or segregating with the Portfolio's Custodian liquid securities in an
amount at all times equal to or exceeding the Portfolio's commitment with
respect to these instruments or contracts.
24
<PAGE>
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, serves as the Independent Accountants for the Fund and the Portfolio.
TELEPHONE ASSISTANCE
(Call toll free - Central Time)
Monday-Friday 8:00 a.m. to 8:00 p.m.
Saturday 8:30 a.m. to 5:00 p.m.
For further information on mutual funds:
1-800-531-8181
In San Antonio 456-7211
For account servicing, exchanges or redemptions:
1-800-531-8448
In San Antonio 456-7202
RECORDED 24 HOUR SERVICE
MUTUAL FUND PRICE QUOTES
(From any phone)
1-800-531-8066
In San Antonio 498-8066
MUTUAL FUND TOUCHLINE(R)
(From Touchtone phones only)
For account balance, last transaction or fund prices:
1-800-531-8777
In San Antonio 498-8777
25
<PAGE>
Part B
Statement of Additional Information for the
S&P 500 Index Fund
is included herein
<PAGE>
[Logo of USAA STATEMENT OF
USAA Eagle MUTUAL ADDITIONAL INFORMATION
appears here] FUND, INC. May 1, 1997
- --------------------------------------------------------------------------------
USAA MUTUAL FUND, INC.
S&P 500 Index Fund
USAA MUTUAL FUND, INC. (the Company) is a registered investment company offering
shares of eight no-load mutual funds, one of which is described in this
Statement of Additional Information (SAI): the S&P 500 Index Fund. The Fund is
classified as a diversified investment company and has its own investment
objective designed to meet its investment goals.
The Fund's investment objective is to seek to provide investment results
that, before expenses, correspond to the total return of common stocks publicly
traded in the United States, as represented by the Standard & Poor's 500
Composite Stock Price Index (S&P 500 or Index). As described in the Prospectus,
the Company seeks to achieve the investment objective of the Fund by investing
all the investable assets of the Fund in an open-end management investment
company having the same investment objective as the Fund. The investment company
is the Equity 500 Index Portfolio (the Portfolio) advised by Bankers Trust
Company (Bankers Trust).
Since the investment characteristics of the Fund will correspond directly
to those of the Portfolio in which the Fund invests all of its investable
assets, the following includes a discussion of the various investments of and
techniques employed by the Portfolio.
You may obtain a free copy of the Prospectus for the Fund dated May 1,
1997, by writing to USAA Mutual Fund, Inc., 9800 Fredericksburg Rd., San
Antonio, TX 78288, or by calling toll free 1-800-531-8181. The Prospectus
provides the basic information you should know before investing in the Fund.
This SAI is not a Prospectus and contains information in addition to and more
detailed than that set forth in the Fund's Prospectus. It is intended to provide
you with additional information regarding the activities and operations of the
Company and the Fund and should be read in conjunction with the Fund's
Prospectus.
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
Page
2 Valuation of Securities
2 Additional Information Regarding Redemption of Shares
3 Investment Plans
4 Investment Policies
8 Investment Restrictions
11 Portfolio Transactions and Brokerage Commissions
12 Further Description of Shares
13 Tax Considerations
14 Directors and Officers of the Company
17 Trustees and Officers of the Portfolio
18 Investment Adviser
19 Administrator
20 General Information
21 Calculation of Performance Data
21 Appendix A - Comparison of Fund Performance
23 Appendix B - Dollar-Cost Averaging
<PAGE>
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. (Eastern time or earlier if the
NYSE closes earlier) on each such day, the value of each investor's interest in
the Portfolio will be determined by multiplying the net asset value of the
Portfolio by the percentage representing that investor's share of the aggregate
beneficial interests in the Portfolio. Any additions or reductions which are to
be effected on that day will then be effected. The investor's percentage of the
aggregate beneficial interests in the Portfolio will then be recomputed as the
percentage equal to the fraction (1) the numerator of which is the value of such
investor's investment in the Portfolio as of the close of the NYSE on such day
plus or minus, as the case may be, the amount of net additions to or reductions
in the investor's investment in the Portfolio effected on such day and (2) the
denominator of which is the aggregate net asset value of the Portfolio as of
4:00 p.m. or the close of the NYSE on such day plus or minus, as the case may
be, the amount of net additions to or reductions in the aggregate investments in
the Portfolio by all investors in the Portfolio. The percentage so determined
will then be applied to determine the value of the investor's interest in the
Portfolio as of 4:00 p.m. or the close of the NYSE on the following day the NYSE
is open for trading.
ADDITIONAL INFORMATION REGARDING REDEMPTION OF SHARES
The value of a shareholder's investment at the time of redemption may be more or
less than the cost at purchase, depending on the value of the securities held in
the Portfolio. Requests for redemption which are subject to any special
conditions, or which specify an effective date other than as provided herein,
cannot be accepted. A gain or loss for tax purposes may be realized on the sale
of shares, depending upon the price when redeemed.
The Portfolio reserves the right, if conditions exist which make cash
payments undesirable, to honor any request for redemption or repurchase order by
making payment in whole or in part in readily marketable securities chosen by
the Portfolio and valued as they are for purposes of computing the Portfolio's
NAV (a redemption in kind). If payment is made to the Fund in securities, the
Fund may incur transaction expenses in converting these securities into cash.
The Portfolio has elected, however, to be governed by Rule 18f-1 under the
Investment Company Act of 1940, as amended (1940 Act) as a result of which the
Portfolio is obligated to redeem beneficial interests with respect to any one
investor during any 90-day period, solely in cash up to the lesser of $250,000
or 1% of the NAV of the Portfolio at the beginning of the period. For purposes
of determining compliance with Rule 18f-1, each shareholder of the Fund
redeeming shares of the Fund on a particular day will be treated as a direct
holder in the interest in the Portfolio being redeemed that day.
In the event the Company withdraws or redeems all of the Fund's interest
in the Portfolio, the Portfolio will effect such redemption in kind and in such
a manner that the securities delivered to the Fund will mirror, as closely as
practicable, the composition of the Portfolio immediately prior to such
redemption.
The Board of Directors may cause the redemption of an account with a
balance of less than 10 shares of the Fund provided (1) the value of the account
has been reduced, for reasons other than market action, below the minimum
initial investment in such Fund at the time of the establishment of the account,
(2) the account
2
<PAGE>
has remained below the minimum level for six months, and (3) 60 days' prior
written notice of the proposed redemption has been sent to the shareholder.
Shares will be redeemed at the NAV on the date fixed for redemption by the Board
of Directors. Prompt payment will be made by mail to the last known address of
the shareholder.
The Company reserves the right to suspend the right of redemption or
postpone the date of payment (1) for any periods during which the NYSE is
closed, (2) when trading in the markets the Company normally utilizes is
restricted, or an emergency exists as determined by the Securities and Exchange
Commission (SEC) so that disposal of the Company's investments or determination
of its NAV is not reasonably practicable, or (3) for such other periods as the
SEC by order may permit for protection of the Company's shareholders.
For the mutual protection of the investor and the Fund, a guarantee of
signature may be required by the Company. If required, each signature on the
account registration must be guaranteed. Signature guarantees are acceptable
from FDIC member banks, brokers, dealers, municipal securities dealers,
municipal securities brokers, government securities dealers, government
securities brokers, credit unions, national securities exchanges, registered
securities associations, clearing agencies and savings associations. A signature
guarantee for active duty military personnel stationed abroad may be provided by
an officer of the United States Embassy or Consulate, a staff officer of the
Judge Advocate General, or an individual's commanding officer.
INVESTMENT PLANS
The following investment plans are made available by the Company to shareholders
of the Fund. At the time you sign up for any of the following investment plans
that utilize the electronic funds transfer service, you will choose the day of
the month (the effective date) on which you would like to regularly purchase
shares. When this day falls on a weekend or holiday, the electronic transfer
will take place on the last business day before the effective date. You may
terminate your participation in a plan at any time. Please call the Manager for
details and necessary forms or applications.
Automatic Purchase of Shares
InvesTronic(R) - The regular purchase of additional shares through electronic
funds transfer from a checking or savings account. You may invest as little as
$50 per month.
Direct Purchase Service - The periodic purchase of shares through electronic
funds transfer from an employer (including government allotments), an income-
producing investment, or an account with a participating financial institution.
Automatic Purchase Plan - The periodic transfer of funds from a USAA money
market fund to purchase shares in another non-money market USAA mutual fund.
There is a minimum investment required for this program of $5,000 in the money
market fund, with a monthly transaction minimum of $50.
Buy/Sell Service - The intermittent purchase or redemption of shares through
electronic funds transfer to or from a checking or savings account.
Participation in these automatic purchase plans will permit a shareholder
to engage in dollar-cost averaging. For additional information concerning the
benefits of dollar-cost averaging, see Appendix B.
Systematic Withdrawal Plan
If a shareholder in a single investment account (accounts in different Funds
cannot be aggregated for this purpose) owns shares having a NAV of $5,000 or
more, the shareholder may request that enough shares to produce a fixed amount
of money be liquidated from the account monthly or quarterly. The amount of each
withdrawal must be at least $50. Using the electronic funds transfer service,
shareholders may choose to have withdrawals electronically deposited at their
bank or other financial institution. They may also elect to have checks mailed
to a designated address.
Such a plan may be initiated by depositing shares worth at least $5,000
with the Transfer Agent and by completing a Systematic Withdrawal Plan
application, which may be requested from the Manager. The shareholder may
terminate participation in the plan at any time. There is no charge to the
shareholder for withdrawals under the Systematic Withdrawal Plan. The Company
will not bear any expenses in administering the plan beyond the regular transfer
agent and custodian costs of issuing and redeeming shares. Any additional
expenses of administering the plan will be borne by the Manager.
3
<PAGE>
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. USAA Federal Savings Bank serves as Custodian for these
tax-deferred retirement plans under the programs made available by the Manager.
Applications for these retirement plans received by the Manager will be
forwarded to the Custodian for acceptance.
An administrative fee of $20 is deducted from the proceeds of a
distribution closing an account. Exceptions to the fee are: partial
distributions, total transfer within USAA, and distributions due to disability
or death. This charge is subject to change as provided in the various
agreements. There may be additional charges, as mutually agreed upon between the
investor and the Custodian, for further services requested of the Custodian.
Each employer or individual establishing a tax-deferred retirement plan is
advised to consult with a tax adviser before establishing the plan. Detailed
information about the plans may be obtained from the Manager.
INVESTMENT POLICIES
The investment objective of the Fund is described in the Fund's Prospectus.
There can, of course, be no assurance that the Fund will achieve its investment
objective.
The Fund seeks to achieve its investment objective by investing all of its
investable assets in the Portfolio. The Company may withdraw the Fund's
investment from the Portfolio at any time if the Board of Directors of the
Company determines that it is in the best interest of the Fund to do so.
Since the investment characteristics of the Fund will correspond directly
to those of the Portfolio, the following is a discussion of the various
investments of and techniques employed by the Portfolio.
Certificates of Deposit and Bankers' Acceptances. The Portfolio may invest
in certificates of deposit which 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. The Portfolio may invest in commercial paper which
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.
4
<PAGE>
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, Edgewood Services, Inc.
(Edgewood), the Portfolio's Distributor,` or their affiliates. By lending its
securities, a Portfolio can increase its income by continuing to receive
interest on the loaned securities as well as by either investing the cash
collateral in short-term securities or obtaining yield in the form of interest
paid by the borrower when U.S. Government obligations are used as collateral.
There may be risks of delay in receiving additional collateral or risks of delay
in recovery of the securities or even loss of rights in the collateral should
the borrower of the securities fail financially. The Portfolio will adhere to
the following conditions whenever its securities are loaned: (1) the Portfolio
must receive at least 100% cash collateral or equivalent securities from the
borrower; (2) the borrower must increase this collateral whenever the market
value of the securities including accrued interest rises above the level of the
collateral; (3) the Portfolio must be able to terminate the loan at any time;
(4) the Portfolio must receive reasonable interest on the loan, as well as any
dividends, interest or other distributions on the loaned securities, and any
increase in market value; (5) the Portfolio may pay only reasonable custodian
fees in connection with the loan; and (6) voting rights on the loaned securities
may pass to the borrower; provided, however, that if a material event adversely
affecting the investment occurs, the Portfolio's Board of Trustees must
terminate the loan and regain the right to vote the securities.
Index Futures Contracts and Options on Index Futures Contracts and
Securities Indices
Futures Contracts. The Portfolio may enter into contracts for the purchase
or sale for future delivery of the Index. U.S. futures contracts have been
designed by exchanges which have been designated "contracts markets" by the
Commodity Futures Trading Commission (CFTC), and must be executed through a
futures commission merchant, or brokerage firm, which is a member of the
relevant contract market. Futures contracts trade on a number of exchange
markets, and, through their clearing corporations, the exchanges guarantee
performance of the contracts as between the clearing members of the exchange.
At the same time a futures contract on the Index is purchased or sold, the
Portfolio must allocate cash or securities as a deposit payment (initial
deposit). It is expected that the initial deposit would be approximately 1 1/2%
to 5% of a contract's face value. Daily thereafter, the futures contract is
valued and the payment of "variation margin" may be required, since each day the
Portfolio would provide or receive cash that reflects any decline or increase in
the contract's value.
Although futures contracts by their terms call for the actual delivery or
acquisition of securities, in most cases the contractual obligation is fulfilled
before the date of the contract without having to make or take delivery of the
securities. The offsetting of a contractual obligation is accomplished by buying
(or selling, as the case may be) on a commodities exchange an identical futures
contract calling for delivery in the same month. Such a transaction, which is
effected through a member of an exchange, cancels the obligation to make or take
delivery of the securities. Since all transactions in the futures market are
made, offset or fulfilled through a clearinghouse associated with the exchange
on which the contracts are traded, the Portfolio will incur brokerage fees when
it purchases or sells futures contracts.
5
<PAGE>
The ordinary spreads between prices in the cash and futures market, due to
differences in the nature of those markets, are subject to distortions. First,
all participants in the futures market are subject to initial deposit and
variation margin requirements. Rather than meeting additional variation margin
requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationship between the cash and
futures markets. Second, the liquidity of the futures market depends on
participants' entering into offsetting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures market could be reduced, thus producing distortion. Third, from
the point of view of speculators, the margin deposit requirements in the futures
market are less onerous than margin requirements in the securities market.
Therefore, increased participation by speculators in the futures market may
cause temporary price distortions. Because of the possibility of distortion, a
correct forecast of securities price trends by Bankers Trust may still not
result in a successful transaction.
In addition, futures contracts entail risks. Although Bankers Trust
believes that use of such contracts will benefit the Portfolio, if Bankers
Trust's investment judgment about the general direction of the Index is
incorrect, the Portfolio's overall performance would be poorer than if it had
not entered into any such contract. For example, if the Portfolio has hedged
against the possibility of a decrease in the Index which would adversely affect
the value of securities held in its portfolio and securities prices increase
instead, the Portfolio will lose part or all of the benefit of the increased
value of its securities which it has hedged because it will have offsetting
losses in its futures positions. In addition, in such situations, if the
Portfolio has insufficient cash, it may have to sell securities from its
portfolio to meet daily variation margin requirements. Such sales of securities
may be, but will not necessarily be, at increased prices which reflect the
rising market. The Portfolio may have to sell securities at a time when it may
be disadvantageous to do so.
Options on Index Futures Contracts. The Portfolio may purchase and write
options on futures contracts with respect to the Index. The purchase of a call
option on an index futures contract is similar in some respects to the purchase
of a call option on such an index. Depending on the pricing of the option
compared to either the price of the futures contract upon which it is based or
the price of the underlying securities, it may or may not be less risky than
ownership of the futures contract or underlying securities. As with the purchase
of futures contracts, when the Portfolio is not fully invested it may purchase a
call option on a futures contract to hedge against a market advance.
The writing of a call option on a futures contract with respect to the
Index constitutes a partial hedge against declining prices of the underlying
securities which are deliverable upon exercise of the futures contract. If the
futures price at expiration of the option is below the exercise price, the
Portfolio will retain the full amount of the option premium which provides a
partial hedge against any decline that may have occurred in the Portfolio's
holdings. The writing of a put option on an index futures contract constitutes a
partial hedge against increasing prices of the underlying securities which are
deliverable upon exercise of the futures contract. If the futures price at
expiration of the option is higher than the exercise price, the Portfolio will
retain the full amount of the option premium which provides a partial hedge
against any increase in the price of securities which the Portfolio intends to
purchase. If a put or call option the Portfolio has written is exercised, the
Portfolio will incur a loss which will be reduced by the amount of the premium
it receives. Depending on the degree of correlation between changes in the value
of its portfolio securities and changes in the value of its futures positions,
the Portfolio's losses from existing options on futures may to some extent be
reduced or increased by changes in the value of portfolio securities.
The purchase of a put option on a futures contract with respect to the
Index is similar in some respects to the purchase of protective put options on
the Index. For example, the Portfolio may purchase a put option on an index
futures contract to hedge against the risk of lowering securities values.
The amount of risk the Portfolio assumes when it purchases an option on a
futures contract with respect to the Index is the premium paid for the option
plus related transaction costs. In addition to the correlation risks discussed
above, the purchase of an option also entails the risk that changes in the value
of the underlying futures contract will not be fully reflected in the value of
the option purchased.
The Board of Trustees of the Portfolio has adopted the requirement that
index futures contracts and options on index futures contracts be used only for
cash management purposes as a hedge and not for speculation. The Portfolio will
not enter into any futures contracts or options on futures contracts if
immediately thereafter the amount of margin deposits on all the futures
contracts of the Portfolio and premiums paid on outstanding options on futures
contracts owned by the Portfolio would exceed 5% of the market value of the
total assets of the Portfolio.
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Options on Securities Indices. The Portfolio may write (sell) covered call
and put options to a limited extent on the Index (covered options) in an attempt
to increase income. Such options give the holder the right to receive a cash
settlement during the term of the option based upon the difference between the
exercise price and the value of the index. The Portfolio may forego the benefits
of appreciation on the Index or may pay more than the market price of the Index
pursuant to call and put options written by the Portfolio.
By writing a covered call option, the Portfolio foregoes, in exchange for
the premium less the commission (net premium), the opportunity to profit during
the option period from an increase in the market value of the Index above the
exercise price. By writing a covered put option, the Portfolio, in exchange for
the net premium received, accepts the risk of a decline in the market value of
the Index below the exercise price.
The Portfolio may terminate its obligation as the writer of a call or put
option by purchasing an option with the same exercise price and expiration date
as the option previously written.
When the Portfolio writes an option, an amount equal to the net premium
received by the Portfolio is included in the liability section of the
Portfolio's Statement of Assets and Liabilities as a deferred credit. The amount
of the deferred credit will be subsequently marked to market to reflect the
current market value of the option written. The current market value of a traded
option is the last sale price or, in the absence of a sale, the mean between the
closing bid and asked price. If an option expires on its stipulated expiration
date or if the Portfolio enters into a closing purchase transaction, the
Portfolio will realize a gain (or loss if the cost of a closing purchase
transaction exceeds the premium received when the option was sold), and the
deferred credit related to such option will be eliminated. If a call option is
exercised, the Portfolio will realize a gain or loss from the sale of the
underlying security and the proceeds of the sale will be increased by the
premium originally received. The writing of covered call options may be deemed
to involve the pledge of the securities against which the option is being
written. Securities against which call options are written will be segregated on
the books of the custodian for the Portfolio.
The Portfolio may purchase call and put options on the Index. The
Portfolio would normally purchase a call option in anticipation of an increase
in the market value of the Index. The purchase of a call option would entitle
the Portfolio, in exchange for the premium paid, to purchase the underlying
securities at a specified price during the option period. The Portfolio would
ordinarily have a gain if the value of the securities increased above the
exercise price sufficiently to cover the premium and would have a loss if the
value of the securities remained at or below the exercise price during the
option period.
The Portfolio would normally purchase put options in anticipation of a
decline in the market value of the Index (protective puts). The purchase of a
put option would entitle the Portfolio, in exchange for the premium paid, to
sell the underlying securities at a specified price during the option period.
The purchase of protective puts is designed merely to offset or hedge against a
decline in the market value of the Index. The Portfolio would ordinarily
recognize a gain if the value of the Index decreased below the exercise price
sufficiently to cover the premium and would recognize a loss if the value of the
Index remained at or above the exercise price. Gains and losses on the purchase
of protective put options would tend to be offset by countervailing changes in
the value of the Index.
The Portfolio has adopted certain other nonfundamental policies concerning
option transactions which are discussed below. The Portfolio's activities in
index options may also be restricted by the requirements of the Internal Revenue
Code of 1986, as amended (the Code), for qualification as a regulated investment
company.
The hours of trading for options on the Index may not conform to the hours
during which the underlying securities are traded. To the extent that the option
markets close before the markets for the underlying securities, significant
price and rate movements can take place in the underlying securities markets
that cannot be reflected in the option markets. It is impossible to predict the
volume of trading that may exist in such options, and there can be no assurance
that viable exchange markets will develop or continue.
Because options on securities indices require settlement in cash, Bankers
Trust may be forced to liquidate portfolio securities to meet settlement
obligations.
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INVESTMENT RESTRICTIONS
Certain investment restrictions of the Fund and the Portfolio have been adopted
as fundamental policies of the Fund or Portfolio, as the case may be. A
fundamental policy may not be changed without the approval of a majority of the
outstanding voting securities of the Fund or Portfolio, as the case may be.
Majority of the outstanding voting securities under the 1940 Act, and as used in
this SAI and the Prospectus, means, the lesser of (1) 67% or more of the
outstanding voting securities of the Fund or Portfolio, as the case may be,
present at a meeting, if the holders of more than 50% of the outstanding voting
securities of the Fund or Portfolio, as the case may be, are present or
represented by proxy or (2) more than 50% of the outstanding voting securities
of the Fund or Portfolio, as the case may be. Whenever the Company is requested
to vote on a fundamental policy of the Portfolio, the Company will hold a
meeting of the Fund's shareholders and will cast its vote as instructed by the
Fund's shareholders. The percentage of the Company's votes representing Fund
shareholders not voting will be voted by the Directors of the Company in the
same proportion as the Fund shareholders who do, in fact, vote.
As a matter of fundamental policy, the Fund may not (except that no
investment restriction of the Fund shall prevent the Fund from investing all of
its investable assets in an open-end investment company with substantially the
same investment objective):
(1) With respect to 75% of its total assets, purchase the securities of any
issuer (except U.S. Government Securities, as such term is defined in the
1940 Act) if, as a result, it would own more than 10% of the outstanding
voting securities of such issuer or it would have more than 5% of the
value of its total assets invested in the securities of such issuer.
(2) Borrow money, except for temporary or emergency purposes in an amount not
exceeding 33 1/3% of its total assets (including the amount borrowed) less
liabilities (other than borrowings).
(3) Concentrate its investments in any one industry although it may invest up
to 25% of the value of its total assets in any one industry; provided,
this limitation does not apply to securities issued or guaranteed by the
U.S. Government and its agencies or instrumentalities.
(4) Issue senior securities, except as permitted under the 1940 Act.
(5) Underwrite securities of other issuers, except to the extent that it may
be deemed to act as a statutory underwriter in the distribution of any
restricted securities or not readily marketable securities.
(6) Lend any securities or make any loan if, as a result, more than 331/3% of
its total assets would be lent to other parties, except that this
limitation does not apply to purchases of debt securities or to repurchase
agreements.
As a matter of fundamental policy, the Portfolio may not:
(1) borrow money or mortgage or hypothecate assets of the Portfolio, except
that in an amount not to exceed 1/3 of the current value of the
Portfolio's assets, it may borrow money as a temporary measure for
extraordinary or emergency purposes and enter into reverse repurchase
agreements or dollar roll transactions, and except that it may pledge,
mortgage or hypothecate not more than 1/3 of such assets to secure such
borrowings (it is intended that money would be borrowed only from banks
and only either to accommodate requests for the withdrawal of beneficial
interests (redemption of shares) while effecting an orderly liquidation of
portfolio securities or to maintain liquidity in the event of an
unanticipated failure to complete a portfolio security transaction or
other similar situations) or reverse repurchase agreements, provided that
collateral arrangements with respect to options and futures, including
deposits of initial deposit and variation margin, are not considered a
pledge of assets for purposes of this restriction and except that assets
may be pledged to secure letters of credit solely for the purpose of
participating in a captive insurance company sponsored by the Investment
Company Institute; for additional related restrictions, see clause (1)
under the caption "Additional 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;
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(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.
Additional Restrictions. In order to comply with certain statutes and
policies, the Fund and the Portfolio will not as a matter of operating policy
(except that no operating policy shall prevent the Fund from investing all of
its investable assets in an open-end investment company with substantially the
same investment objective):
(1) borrow money (including through dollar roll transactions) for any purpose
in excess of 10% of the Fund's (Portfolio's) total assets (taken at cost),
except that the Fund (Portfolio) may borrow for temporary or emergency
purposes up to 1/3 of its total assets;
(2) pledge, mortgage or hypothecate for any purpose in excess of 10% of the
Fund's (Portfolio's) total assets (taken at market value), provided that
collateral arrangements with respect to options and futures, including
deposits of initial deposit and variation margin, and reverse repurchase
agreements are not considered a pledge of assets for purposes of this
restriction;
(3) purchase any security or evidence of interest therein on margin, except
that such short-term credit as may be necessary for the clearance of
purchases and sales of securities may be obtained and except that deposits
of initial deposit and variation margin may be made in connection with the
purchase, ownership, holding or sale of futures;
(4) sell any security which it does not own unless by virtue of its ownership
of other securities it has at the time of sale a right to obtain
securities, without payment of further consideration, equivalent in kind
and amount to the securities sold and provided that if such right is
conditional the sale is made upon the same conditions;
(5) invest for the purpose of exercising control or management;
(6) purchase securities issued by any investment company except by purchase in
the open market where no commission or profit to a sponsor or dealer
results from such purchase other than the customary broker's commission,
or except when such purchase, though not made in the open market, is part
of a plan of merger or consolidation; provided, however, that securities
of any investment company will not be purchased for the Fund (Portfolio)
if such purchase at the time thereof would cause: (a) more than 10% of the
Fund's (Portfolio's) total assets (taken at the greater of cost or market
value) to be invested in the securities of such issuers; (b) more than 5%
of the Fund's (Portfolio's) total assets (taken at the greater of cost or
market value) to be invested in any one investment company; or (c) more
than 3% of the outstanding voting securities of any such issuer to be held
for the Fund (Portfolio); and provided further that, except in the case of
merger or consolidation, the Fund (Portfolio) shall not invest in any
other open-end investment company unless the Fund (Portfolio), (i) waives
the investment advisory fee with respect to assets invested in other
open-end investment companies and (ii) incurs no sales charge in
connection with the investment (as an operating policy, the Portfolio will
not invest in another open-end registered investment company);
(7) invest more than 15% of the Fund's (Portfolio's) net assets (taken at the
greater of cost or market value)in securities that are illiquid or not
readily marketable not including (a) Rule 144A securities that have been
determined to be liquid by the Board of Directors/Trustees; and (b)
commercial paper that is sold under section 4(2) of the 1933 Act which:
(i) is not traded flat or in default as to interest or principal; and
(ii) is rated in one of the two highest categories by at least two
nationally recognized statistical rating organizations (NRSROs) and the
Fund's (Portfolio's) Board of Directors/Trustees have determined the
commercial paper to be liquid; or (iii) is rated in one of the two
highest categories by one NRSRO and the Fund's (Portfolio's) Board of
Directors/Trustees have determined that the commercial paper is
equivalent quality and is liquid;
9
<PAGE>
(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.
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PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS
Bankers Trust is responsible for decisions to buy and sell securities, futures
contracts and options on such securities and futures for the Portfolio, the
selection of brokers, dealers and futures commission merchants to effect
transactions and the negotiation of brokerage commissions, if any.
Broker-dealers may receive brokerage commissions on portfolio transactions,
including options, futures and options on futures transactions and the purchase
and sale of underlying securities upon the exercise of options. Orders may be
directed to any broker-dealer or futures commission merchant, including to the
extent and in the manner permitted by applicable law, Bankers Trust or its
subsidiaries or affiliates. Purchases and sales of certain portfolio securities
on behalf of the Portfolio are frequently placed by Bankers Trust with the
issuer or a primary or secondary market-maker for these securities on a net
basis, without any brokerage commission being paid by the Portfolio. Trading
does, however, involve transaction costs. Transactions with dealers serving as
market-makers reflect the spread between the bid and asked prices. Transaction
costs may also include fees paid to third parties for information as to
potential purchasers or sellers of securities. Purchases of underwritten issues
may be made which will include an underwriting fee paid to the underwriter.
Bankers Trust seeks to evaluate the overall reasonableness of the
brokerage commissions paid (to the extent applicable) in placing orders for the
purchase and sale of securities for the Portfolio taking into account such
factors as price, commission (negotiable in the case of national securities
exchange transactions), if any, size of order, difficulty of execution and skill
required of the executing broker-dealer through familiarity with commissions
charged on comparable transactions, as well as by comparing commissions paid by
the Portfolio to reported commissions paid by others. Bankers Trust reviews on a
routine basis commission rates, execution and settlement services performed,
making internal and external comparisons.
Bankers Trust is authorized, consistent with Section 28(e) of the
Securities Exchange Act of 1934, as amended, when placing portfolio transactions
for the Portfolio with a broker to pay a brokerage commission (to the extent
applicable) in excess of that which another broker might have charged for
effecting the same transaction on account of the receipt of research, market or
statistical information. The term "research, market or statistical information"
includes advice as to the value of securities; the advisability of investing in,
purchasing or selling securities; the availability of securities or purchasers
or sellers of securities; and furnishing analyses and reports concerning
issuers, industries, securities, economic factors and trends, portfolio strategy
and the performance of accounts.
Consistent with the policy stated above, the Rules of Fair Practice of the
National Association of Securities Dealers, Inc. and such other policies as the
Trustees of the Portfolio may determine, Bankers Trust may consider sales of
shares of any investment company that invests in the Portfolio as a factor in
the selection of broker-dealers to execute portfolio transactions. Bankers Trust
will make such allocations if commissions are comparable to those charged by
nonaffiliated, qualified broker-dealers for similar services.
Higher commissions may be paid to firms that provide research services to
the extent permitted by law. Bankers Trust may use this research information in
managing the Portfolio's assets, as well as the assets of other clients.
Except for implementing the policies stated above, there is no intention
to place portfolio transactions with particular brokers or dealers or groups
thereof. In effecting transactions in over-the-counter securities, orders are
placed with the principal market-makers for the security being traded unless,
after exercising care, it appears that more favorable results are available
otherwise.
Although certain research, market and statistical information from brokers
and dealers can be useful to the Portfolio and to Bankers Trust, it is the
opinion of the management of the Portfolio that such information is only
supplementary to Bankers Trust's own research effort, since the information must
still be analyzed, weighed and reviewed by Bankers Trust's staff. Such
information may be useful to Bankers Trust in providing services to clients
other than the Portfolio's, and not all such information is used by Bankers
Trust in connection with the Portfolio. Conversely, such information provided to
Bankers Trust by brokers and dealers through whom other clients of Bankers Trust
effect securities transactions may be useful to Bankers Trust in providing
services to the Portfolio.
In certain instances there may be securities which are suitable for the
Portfolio as well as for one or more of Bankers Trust's other clients.
Investment decisions for the Portfolio and for Bankers Trust's other clients are
made with a view to achieving their respective investment objectives. It may
develop that a particular security is bought or sold for only one client even
though it might be held by, or bought or sold for, other clients. Likewise, a
particular security may be bought for one or more clients when one or more
clients are selling that same security. Some simultaneous transactions are
inevitable when several clients receive
11
<PAGE>
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, 1996, 1995, and 1994, the Portfolio paid
brokerage commissions in the amount of $289,791, $172,924, and $97,069,
respectively.
FURTHER DESCRIPTION OF SHARES
The Company is authorized to issue shares in separate series or Funds. Eight
such Funds have been established, one of which is described in this SAI. Under
the Articles of Incorporation, the Board of Directors is authorized to create
new Funds in addition to those already existing without shareholder approval.
The assets of the Fund and all income, earnings, profits, and proceeds
thereof, subject only to the rights of creditors, are specifically allocated to
such Fund. They constitute the underlying assets of the Fund, are required to be
segregated on the books of account, and are to be charged with the expenses of
such Fund. Any general expenses of the Company not readily identifiable as
belonging to a particular Fund are allocated on the basis of the Funds' relative
net assets during the fiscal year or in such other manner as the Board
determines to be fair and equitable. Each share of each Fund represents an equal
proportionate interest in that Fund with every other share and is entitled to
such dividends and distributions out of the net income and capital gains
belonging to that Fund when declared by the Board of Directors.
Under the provisions of the Bylaws of the Company, no annual meeting of
shareholders is required. Thus, there will ordinarily be no shareholder meeting
unless required by the 1940 Act. Under certain circumstances, however,
shareholders may apply for shareholder information in order to obtain signatures
to request a special shareholder meeting. Moreover, pursuant to the Bylaws of
the Company, any Director may be removed by the affirmative vote of a majority
of the outstanding Company shares; and holders of 10% or more of the outstanding
shares of the Company can require Directors to call a meeting of shareholders
for the purpose of voting on the removal of one or more Directors. On any matter
submitted to the shareholders, the holder of each Fund share is entitled to one
vote per share (with proportionate voting for fractional shares) regardless of
the relative NAVs of the Funds' shares. However, on matters affecting an
individual Fund, a separate vote of the shareholders of that Fund is required.
Shareholders of the Fund are not entitled to vote on any matter which does not
affect that Fund but which requires a separate vote of another Fund. Shares do
not have cumulative voting rights, which means that holders of more than 50% of
the shares voting for the election of Directors can elect 100% of the Company's
Board of Directors, and the holders of less than 50% of the shares voting for
the election of Directors will not be able to elect any person as a Director.
Shareholders of a particular Fund might have the power to elect all of the
Directors of the Company because that Fund has a majority of the total
outstanding shares of the Company. When issued, each Fund's shares are fully
paid and nonassessable, have no pre-emptive or subscription rights, and are
fully transferable. There are no conversion rights.
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TAX CONSIDERATIONS
The Fund intends to qualify as a regulated investment company under Subchapter M
of the Code. Accordingly, the Fund will not be liable for federal income taxes
on its taxable net investment income and net capital gains (capital gains in
excess of capital losses) that are distributed to shareholders, provided that
the Fund distributes at least 90% of its net investment income and net
short-term capital gain for the taxable year.
To qualify as a regulated investment company, the Fund must, among other
things, (1) derive in each taxable year at least 90% of its gross income from
dividends, interest, payments with respect to securities loans, gains from the
sale or other disposition of stock, securities or foreign currencies, or other
income derived with respect to its business of investing in such stock,
securities, or currencies (the 90% test); (2) derive in each taxable year less
than 30% of its gross income from the sale or other disposition of stock or
securities held less than three months (the 30% test); and (3) satisfy certain
diversification requirements, at the close of each quarter of the Fund's taxable
year.
The Code imposes a nondeductible 4% excise tax on a regulated investment
company that fails to distribute during each calendar year an amount at least
equal to the sum of (1) 98% of its taxable net investment income for the
calendar year, (2) 98% of its capital gain net income for the twelve-month
period ending on October 31, and (3) any prior amounts not distributed. The Fund
intends to make such distributions as are necessary to avoid imposition of the
excise tax.
Taxable distributions are generally included in a shareholder's gross
income for the taxable year in which they are received. Dividends declared in
October, November, or December and made payable to shareholders of record in
such a month will be deemed to have been received on December 31, if the Fund
pays the dividend during the following January. If a shareholder of the Fund
receives a distribution taxable as long-term capital gain with respect to shares
of the Fund and redeems or exchanges the shares before he has held them for more
than six months, any loss on the redemption or exchanges that is less than or
equal to the amount of the distribution will be treated as long-term capital
loss.
The Portfolio is not subject to federal income taxation. Instead, the Fund
and other investors investing in the Portfolio must take into account, in
computing their federal income tax liability, their share of the Portfolio's
income, gains, losses, deductions, credits and tax preference items, without
regard to whether they have received any cash distributions from the Portfolio.
Distributions received by the Fund from the Portfolio generally will not
result in the Fund's recognizing any gain or loss for federal income tax
purposes, except that: (1) gain will be recognized to the extent that any cash
distributed exceeds the Fund's basis in its interest in the Portfolio prior to
the distribution; (2) income or gain may be realized if the distribution is made
in liquidation of the Fund's entire interest in the Portfolio and includes a
disproportionate share of any unrealized receivables held by the Portfolio; and
(3) loss may be recognized if the distribution is made in liquidation of the
Fund's entire interest in the Portfolio and consists solely of cash and/or
unrealized receivables. The Fund's basis in its interest in the Portfolio
generally will equal the amount of cash and the basis of any property which the
Fund invests in the Portfolio, increased by the Fund's share of income from the
Portfolio, and decreased by the amount of any cash distributions and the basis
of any property distributed from the Portfolio.
Any gain or loss realized by a shareholder upon the sale or other
disposition of shares of the Fund, or upon receipt of a distribution in complete
liquidation of the Fund, generally will be a capital gain or loss which will be
long-term or short-term, generally depending upon the shareholder's holding
period for the shares. Any loss realized on a sale or exchange will be
disallowed to the extent the shares disposed of are replaced (including shares
acquired pursuant to a dividend reinvestment plan) within a period of 61 days
beginning 30 days before and ending 30 days after disposition of the shares. In
such a case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss. Any loss realized by a shareholder on a disposition of shares
held by the shareholder for six months or less will be treated as a long-term
capital loss to the extent of any distributions of net capital gains received by
the shareholder with respect to such shares.
13
<PAGE>
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.
Robert G. Davis 1, 2
Director and Chairman of the Board of Directors
Age: 50
President, Chief Executive Officer, Director and Vice Chairman of the Board of
Directors of USAA Capital Corporation and several of its subsidiaries and
affiliates (12/96-present); Director, Vice Chairman, Executive Vice President,
and Chief Operating Officer, USAA Financial Planning Network, Inc.
(9/96-Present); Special Assistant to Chairman, United Services Automobile
Association (USAA) (6/96-12/96); President and Chief Executive Officer, Banc One
Credit Corporation (12/95-6/96); and President and Chief Executive Officer, Banc
One Columbus, (8/91-12/95). Mr. Davis also serves as a Trustee and Chairman of
the Board of Trustees of USAA Investment Trust and USAA State Tax-Free Trust and
as a Director and Chairman of the Boards of Directors of USAA Investment
Management Company (IMCO), USAA Tax Exempt Fund, Inc., USAA Shareholder Account
Services, USAA Federal Savings Bank and USAA Real Estate Company.
Michael J.C. Roth 1, 2
Director, President and Vice Chairman of the Board of Directors
Age: 55
Chief Executive Officer, IMCO (10/93-present); President, Director and Vice
Chairman of the Board of Directors, IMCO (1/90-present). Mr. Roth 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: 62
Senior Vice President, Investments, IMCO (10/85-present); Director, BHC
Financial, Inc. and BHC Securities, Inc. (1/87-present). Mr. Saunders 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.
Barbara B. Dreeben 3, 4, 5
200 Patterson #1008
San Antonio, TX 78209
Director
Age: 51
President, Postal Addvantage (7/92-present); Consultant, Nancy Harkins Stationer
(8/91-12/95). Mrs. Dreeben serves as a Trustee of USAA Investment Trust and
USAA State Tax-Free Trust and as a Director of USAA Tax Exempt Fund, Inc.
Howard L. Freeman, Jr. 2, 3, 4, 5
2710 Hopeton
San Antonio, TX 78230
Director
Age: 61
Retired. Assistant General Manager for Finance, San Antonio City Public Service
Board (1976-1996). Mr.Freeman serves as a Trustee of USAA Investment Trust and
USAA State Tax-Free Trust and as a Director of USAA Tax Exempt Fund, Inc.
14
<PAGE>
Robert L. Mason, Ph.D. 3, 4, 5
12823 Queens Forest
San Antonio, TX 78230
Director
Age: 50
Manager, Statistical Analysis Section, Southwest Research Institute
(8/75-Present). Dr. Mason serves as a Trustee of USAA Investment Trust and USAA
State Tax-Free Trust and as a Director of USAA Tax Exempt Fund, Inc.
Richard A. Zucker 3, 4, 5
407 Arch Bluff
San Antonio, TX 78216
Director
Age: 53
Vice President, Beldon Roofing and Remodeling (1985-present). Mr. Zucker serves
as a Trustee of USAA Investment Trust and USAA State Tax-Free Trust and as a
Director of USAA Tax Exempt Fund, Inc.
Michael D. Wagner 1
Secretary
Age: 48
Vice President, Corporate Counsel, USAA (1982-present). Mr. Wagner has held
various positions in the legal department of USAA since 1970 and 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: 47
Vice President, Compliance, IMCO (12/94-present); Vice President and Chief
Operating Officer, Commonwealth Shareholder Services (6/94-11/94); and Vice
President, Compliance, IMCO (12/91-5/94). Mr. Ciccone 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: 52
Vice President, Controller, IMCO (10/92-present); Vice President, Corporate
Financial Analysis, USAA (9/92- 10/92); Assistant Vice President, Financial
Plans and Support, USAA (8/91-9/92). Mrs. Kirk 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 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
15
<PAGE>
Between the meetings of the Board of Directors and while the Board is not
in session, the Executive Committee of the Board of Directors has all the powers
and may exercise all the duties of the Board of Directors in the management of
the business of the Company which may be delegated to it by the Board. The
Pricing and Investment Committee of the Board of Directors acts upon various
investment-related issues and other matters which have been delegated to it by
the Board. The Audit Committee of the Board of Directors reviews the financial
statements and the auditor's reports and undertakes certain studies and analyses
as directed by the Board. The Corporate Governance Committee of the Board of
Directors maintains oversight of the organization, performance, and
effectiveness of the Board and independent Directors.
In addition to the previously listed Directors and/or officers of the
Company who also serve as Directors and/or officers of the Manager, the
following individuals are Directors and/or executive officers of the Manager:
Harry W. Miller, Senior Vice President, Investments (Equity), Carl W. Shirley,
Senior Vice President, Insurance Company Portfolios; 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 December 31, 1996.
Name Aggregate Total Compensation
of Compensation from the USAA
Director from the Company Family of Funds (c)
- -------- ------------------- -------------------
George E. Brown (a)* $ 8,808 $ 32,600
Barbara B. Dreeben 7,808 31,600
Howard L. Freeman, Jr. 8,808 32,600
Robert G. Davis None (b) None (b)
Michael J.C. Roth None (b) None (b)
John W. Saunders, Jr. None (b) None (b)
Richard A. Zucker 8,808 32,600
- ----------------
*Effective January 1, 1997, Robert L. Mason replaced George E. Brown as a
Director on the Board of Directors. Mr. Brown retired on December 31,
1996.
(a) The USAA Family of Funds has accrued deferred compensation for Mr. Brown in
an amount (plus earnings thereon) of $21,984. The compensation deferred by
Mr. Brown pursuant to a non-qualified Deferred Compensation Plan, under
which deferred amounts accumulate interest quarterly based on the
annualized U.S. Treasury Bill rate in effect on the last day of the
quarter. Amounts deferred and accumulated earnings thereon are not funded
and are general unsecured liabilities of the USAA Family of Funds until
paid. The Deferred Compensation Plan was terminated in 1988 and no
compensation has been deferred by any Director/Trustee of the USAA Family
of Funds since the Plan was terminated.
(b) Robert G. Davis, 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 December 31, 1996, the USAA Family of Funds consisted of four registered
investment companies offering 33 individual funds. Each Director presently
serves as a Director or Trustee of each investment company in the USAA
Family of Funds. In addition, Michael J.C. Roth presently serves as a
Trustee of USAA Life Investment Trust, a registered investment company
advised by IMCO, consisting of five funds offered to investors in a fixed
and variable annuity contract with USAA Life Insurance Company. Mr.
Roth receives no compensation as Trustee of USAA Life Investment Trust.
All of the above Directors are also Directors/Trustees of the other funds
for which IMCO serves as investment adviser. No compensation is paid by any fund
to any Director/Trustee who is a director, officer, or employee of IMCO or its
affiliates. No pension or retirement benefits are accrued as part of fund
expenses. The Company reimburses certain expenses of the Directors who are not
affiliated with the investment adviser. As of March 31, 1997 , the officers and
Directors of the Company and their families as a group owned beneficially or of
record less than 1% of the outstanding shares of the Company.
As of March 31, 1997, USAA and its affiliates owned 8,165,669 shares
(33.5%) of the USAA S&P 500 Index Fund.
The Company knows of no other persons who, as of March 31, 1997 , held of
record or owned beneficially 5% or more of the voting stock of the Fund's
shares.
16
<PAGE>
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 Clearing Operations, P.O. Box 897, Pittsburgh, Pennsylvania,
15230-0897.
CHARLES P. BIGGAR (birthdate: October 13, 1930) - 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* (birthdate: September 2, 1951) - Trustee ; Chairman,
Chief Executive Officer and President, Signature Financial Group, Inc. (SFG)
(since December, 1988) and Signature (since April,1989). His address is 6 St.
James Avenue, Boston, Massachusetts 02116.
S. LELAND DILL (birthdate: March 28, 1930) - Trustee; Retired; Director,
Coutts Group; and Coutts (U.S.A.) International; Coutts Trust Holdings, Ltd;
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. (birthdate: October 11, 1935) - 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.
RONALD M. PETNUCH (birthdate: February 27, 1960) - President and
Treasurer; Senior Vice President; Federated Services Company ; formerly,
Director of Proprietary Client Services, Federated Administrative Services
(FAS),and Associate Corporate Counsel, Federated Investors (FI).
CHARLES L. DAVIS, JR. (birthdate: March 23, 1960)- Vice President and
Assistant Treasurer; Vice President, FAS.
JAY S. NEUMAN (birthdate: April 22, 1950) - Secretary; Corporate Counsel,
FI.
*Mr. Coolidge, by virtue of his current or former positions, is deemed to
be an "interested person" of the Equity 500 Index Portfolio as defined by
the 1940 Act.
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 Edgewood or any of
its affiliates will receive any compensation from the Portfolio for serving as
an officer or Trustee of the Portfolio and certain other investment companies
advised by Bankers Trust (the Fund Complex).
The following table reflects fees paid to the Trustees of the Portfolio
for the year ended December 31, 1996.
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 $3,204 $28,750
Trustee
S. Leland Dill $3,204 $28,750
Trustee
Philip Saunders, Jr. $3,204 $28,750
Trustee
Bankers Trust reimbursed the Portfolio for a portion of their Trustees
fees for the period above. See Investment Adviser and Administrator below.
17
<PAGE>
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 $32
billion, of which approximately $19 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).
From time to time the Manager may, without prior notice to shareholders,
waive all or any portion of fees or agree to reimburse expenses incurred by the
Fund. The Manager has voluntarily agreed to limit the aggregate annual operating
expenses of the Fund and the Portfolio to .18% of the Fund's ANA until May 1,
1998, and will reimburse the Fund for all expenses in excess of such limitation.
After May 1, 1998, any such waiver or reimbursement may be terminated by the
Manager at any time without prior notice to the shareholders.
Under the terms of the Portfolio's investment advisory agreement with
Bankers Trust (the Advisory Agreement), Bankers Trust manages the Portfolio
subject to the supervision and direction of the Board of Trustees of the
Portfolio. Bankers Trust will: (1) act in strict conformity with the Portfolio's
Declaration of Trust, the 1940 Act and the Investment Advisers Act of 1940, as
the same may from time to time be amended; (2) manage the Portfolio in
accordance with the Portfolio's investment objective, restrictions and policies;
(3) make investment decisions for the Portfolio; and (4) place purchase and sale
orders for securities and other financial instruments on behalf of the
Portfolio.
Bankers Trust bears all expenses in connection with the performance of
services under the Advisory Agreement. The Fund and the Portfolio each bear
certain other expenses incurred in its operation, including: taxes, interest,
brokerage fees and commissions, if any; fees of Trustees of the Portfolio or
Directors of the Company who are not officers, directors or employees of Bankers
Trust, Edgewood or any of their affiliates; 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, 1996, 1995 and 1994, Bankers Trust earned
$1,505,963, $770,530, and $428,346, respectively, as compensation for investment
advisory services provided to the Portfolio. During the same periods, Bankers
Trust reimbursed $870,024, $418,814, and $249,230, respectively, to the
Portfolio to cover expenses.
The Fund's Prospectus contains disclosures 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.
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,
18
<PAGE>
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.
ADMINISTRATOR
Under the terms of the Fund's administration agreement with the Manager, the
Manager is obligated on a continuous basis to provide such administrative
services as the Board of Directors of the Company reasonably deems necessary for
the proper administration of the Fund. The Manager will generally assist in all
aspects of the Fund's operations; supply and maintain office facilities,
statistical and research data, data processing services, clerical, accounting,
bookkeeping and recordkeeping services (including without limitation the
maintenance of such books and records as are required under the 1940 Act and the
rules thereunder, except as maintained by other agents), internal auditing,
executive and administrative services, and stationery and office supplies;
prepare reports to shareholders; prepare and file tax returns; supply financial
information and supporting data for reports to and filings with the SEC and
various state Blue Sky authorities; supply supporting documentation for meetings
of the Board of Directors; provide monitoring reports and assistance regarding
compliance with its Articles of Incorporation, by-laws, investment objectives
and policies and with federal and state securities laws; arrange for appropriate
insurance coverage; calculate net asset values, net income and realized capital
gains or losses; and negotiate arrangements with, and supervise and coordinate
the activities of, agents and others to supply services.
Pursuant to a sub-administration agreement between the Manager, Bankers
Trust and Investors Fiduciary Trust Company (IFTC) (the Sub-Administration
Agreement), IFTC performs such sub-administration duties for the Fund as from
time to time may be agreed upon by the Manager, Bankers Trust and IFTC. The
Sub-Administration Agreement provides that IFTC will receive such compensation
from Bankers Trust as from time to time may be agreed upon by the Manager,
Bankers Trust and IFTC.
Under the administration and services agreement between the Portfolio and
Bankers Trust, Bankers Trust is obligated on a continuous basis to provide such
administrative services as the Board of Trustees of the Portfolio reasonably
deems necessary for the proper administration of the Portfolio. Bankers Trust
will generally assist in all aspects of the Portfolio's operations; supply and
maintain office facilities (which may be in Bankers Trust's own offices),
statistical and research data, data processing services, clerical, accounting,
bookkeeping and recordkeeping services (including without limitation the
maintenance of such books and records as are required under the 1940 Act and the
rules thereunder, except as maintained by other agents), internal auditing,
executive and administrative services, and stationery and office supplies;
prepare reports to investors; prepare and file tax returns; supply financial
information and supporting data for reports to and filings with the SEC and
various state Blue Sky authorities; supply supporting documentation for meetings
of the Board of Trustees; provide monitoring reports and assistance regarding
compliance with its Declaration of Trust, by-laws, investment objectives and
policies and with federal and state securities laws; arrange for appropriate
insurance coverage; calculate net asset values, net income and realized capital
gains or losses; and negotiate arrangements with, and supervise and coordinate
the activities of, agents and others to supply services.
Pursuant to a sub-administration agreement between Bankers Trust and
Federated Services Company (FSC), FSC performs such sub-administration duties
for the Portfolio as from time to time may be agreed upon by Bankers Trust and
FSC. The Sub-Administration Contract provides that FSC will receive such
compensation as from time to time may be agreed upon by FSC and Bankers Trust.
All such compensation will be paid by Bankers Trust.
For the years ended December 31, 1996, 1995 and 1994, Bankers Trust earned
$752,981, $385,265 and $214,173, respectively, in compensation for
administrative and other services provided to the Portfolio.
19
<PAGE>
GENERAL INFORMATION
Underwriter
The Company has an agreement with the Manager for exclusive underwriting and
distribution of the Fund's shares on a continuing best efforts basis. This
agreement provides that the Manager will receive no fee or other compensation
for such distribution services.
Transfer Agent
The Transfer Agent performs transfer agent services for the Company under a
Transfer Agency Agreement. Services include maintenance of shareholder account
records, handling of communications with shareholders, distribution of Fund
dividends, and production of reports with respect to account activity for
shareholders and the Company.
Custodian
The Custodian is responsible for, among other things, safeguarding and
controlling the Company's cash and securities, handling the receipt and delivery
of securities, and collecting interest on the Company's investment in the
Portfolio. Bankers Trust serves as custodian for both the Fund and the
Portfolio. As custodian, it holds both the Fund's and the Portfolio's assets.
Bankers Trust will comply with the self-custodian provisions of Rule 17f-2 under
the 1940 Act.
Counsel
Goodwin, Procter & Hoar LLP, Exchange Place, Boston, MA 02109, will review
certain legal matters for the Company in connection with the shares offered by
the Prospectus. Willkie Farr & Gallagher, One Citicorp Center, 153 East 53rd
Street, New York, New York 10022-4669, serves as counsel to the Portfolio.
Independent Accountant
Coopers & Lybrand 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 financial statements for the USAA S&P 500 Index Fund and the Equity 500
Index Portfolio, and the Independent Accountants' Reports thereon for the fiscal
year ended December 31, 1996, are included in the Annual Report to Shareholders
of that date and are incorporated herein by reference. The Manager will deliver
a copy of the Fund's Annual Report free of charge with each SAI requested.
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
20
<PAGE>
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. For periods after December 31, 1996, performance does not reflect the
annual $10 account maintenance fee charged to accounts of less than $10,000. As
of December 31, 1996, the Fund's average account size was approximately $12,200.
The Fund's total return for the eight month period ended December 31, 1996 was
16.83%.
APPENDIX A - COMPARISON OF FUND PERFORMANCE
Occasionally, we may make comparisons in advertising and sales literature
between the Fund contained in this SAI and other Funds in the USAA Family of
Funds. These comparisons may include such topics as risk and reward, investment
objectives, investment strategies, and performance.
Fund performance also may be compared to the performance of broad groups
of mutual funds with similar investment goals or unmanaged indices of comparable
securities. Evaluations of Fund performance made by independent sources may also
be used in advertisements concerning the Fund, including reprints of, or
selections from, editorials or articles about the Fund. The Fund or its
performance may also be compared to products and services not constituting
securities subject to registration under the 1933 Act such as, but not limited
to, certificates of deposit and money market accounts. Sources for performance
information and articles about the Fund may include the following:
AAII Journal, a monthly association magazine for members of the American
Association of Individual Investors.
Arizona Republic, a newspaper which may cover financial and investment news.
Austin American-Statesman, a newspaper which may cover financial news.
Bank Rate Monitor, a service which publishes rates on various bank products such
as CDS, MMDAs and credit cards.
Barron's, a Dow Jones and Company, Inc. business and financial weekly that
periodically reviews mutual fund performance data.
Business Week, a national business weekly that periodically reports the
performance rankings and ratings of a variety of mutual funds.
Chicago Tribune, a newspaper which may cover financial news.
Consumer Reports, a monthly magazine which from time to time reports on
companies in the mutual fund industry.
Dallas Morning News, a newspaper which may cover financial news.
Denver Post, a newspaper which may quote financial news.
Financial Planning, a monthly magazine which may periodically review mutual fund
companies.
Financial Services Week, a weekly newspaper which covers financial news.
Financial World, a monthly magazine that periodically features companies in the
mutual fund industry.
Forbes, a national business publication that periodically reports the
performance of companies in the mutual fund industry.
Fortune, a national business publication that periodically rates the performance
of a variety of mutual funds.
Fund Action, a mutual fund news report.
Houston Chronicle, a newspaper which may cover financial news.
Houston Post, a newspaper which may cover financial news.
IBC/Donoghue's Moneyletter, a biweekly newsletter which covers financial news
and from time to time rates specific mutual funds.
IBC's Money Market Insight, a monthly money market industry analysis prepared by
IBC USA, Inc.
Income and Safety, a monthly newsletter that rates mutual funds.
InvesTech, a bimonthly investment newsletter.
21
<PAGE>
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 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.
22
<PAGE>
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 number of
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.
23
<PAGE>
28083-0597
24
<PAGE>
USAA MUTUAL FUND, INC.
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
Financial Statements included in Parts A and B (Prospectus and
Statement of Additional Information) of this Registration
Statement:
Financial Statements and Independent Accountants' Report
incorporated by reference to the S&P 500 Index Fund and Equity 500
Index Portfolio Annual Reports to Shareholders for the fiscal year
ended December 31, 1996.
(b) Exhibits:
Exhibit No. Description of Exhibits
1 (a) Articles of Incorporation dated October 10, 1980 (1)
(b) Articles of Amendment dated January 14, 1981 (1)
(c) Articles Supplementary dated July 28, 1981 (1)
(d) Articles Supplementary dated November 3, 1982 (1)
(e) Articles of Amendment dated May 18, 1983 (1)
(f) Articles Supplementary dated August 8, 1983 (1)
(g) Articles Supplementary dated July 27, 1984 (1)
(h) Articles Supplementary dated November 5, 1985 (1)
(i) Articles Supplementary dated January 23, 1987 (1)
(j) Articles Supplementary dated May 13, 1987 (1)
(k) Articles Supplementary dated January 25, 1989 (1)
(l) Articles Supplementary dated May 2, 1991 (1)
(m) Articles Supplementary dated November 14, 1991 (1)
(n) Articles Supplementary dated April 14, 1992 (1)
(o) Articles Supplementary dated November 4, 1992 (1)
(p) Articles Supplementary dated March 23, 1993 (1)
(q) Articles Supplementary dated May 5, 1993 (1)
(r) Articles Supplementary dated November 8, 1993 (1)
(s) Articles Supplementary dated January 18, 1994 (1)
(t) Articles Supplementary dated November 9, 1994 (1)
(u) Articles Supplementary dated November 8, 1995 (2)
(v) Articles Supplementary dated February 6, 1996 (3)
(w) Articles Supplementary dated March 12, 1996 (4)
(x) Articles Supplementary dated November 13, 1996 (filed herewith)
2 Bylaws, as amended March 12, 1996 (4)
3 Voting trust agreement - Not Applicable
4 Specimen certificates for shares of
(a) Growth Fund (1)
(b) Income Fund (1)
(c) Money Market Fund (1)
(d) Aggressive Growth Fund (1)
C-1
<PAGE>
Exhibit No. Description of Exhibits
(e) Income Stock Fund (1)
(f) Growth & Income Fund (1)
(g) Short-Term Bond Fund (1)
(h) S&P 500 Index Fund (4)
5 (a) Advisory Agreement dated September 21, 1990 (1)
(b) Letter Agreement dated June 1, 1993 adding Growth & Income
Fund and Short-Term Bond Fund (1)
(c) Management Agreement dated May 1, 1996 with respect to the
S&P 500 Index Fund (5)
(d) Administration Agreement dated May 1, 1996 with respect to
the S&P 500 Index Fund (5)
(e) Letter Agreement to the Management Agreement dated May 1,
1996 with respect to the S&P 500 Index Fund (5)
(f) Amendment to Administration Agreement dated May 1, 1997 with
respect to the S&P 500 Index Fund (filed herewith)
6 (a) Underwriting Agreement dated July 25, 1990 (1)
(b) Letter Agreement dated June 1, 1993 adding Growth & Income
Fund and Short-Term Bond Fund (1)
(c) Letter Agreement dated May 1, 1996 adding S&P 500 Index Fund(5)
7 Not Applicable
8 (a) Custodian Agreement dated November 3, 1982 (1)
(b) Letter Agreement dated April 20, 1987 adding Income Stock
Fund (1)
(c) Amendment No. 1 to the Custodian Contract dated October 30,
1987 (1)
(d) Amendment to the Custodian Contract dated November 3, 1988 (1)
(e) Amendment to the Custodian Contract dated February 6, 1989 (1)
(f) Amendment to the Custodian Contract dated November 8, 1993 (1)
(g) Letter Agreement dated June 1, 1993 adding Growth & Income
Fund and Short-Term Bond Fund (1)
(h) Subcustodian Agreement dated March 24, 1994 (3)
(i) Custodian Agreement dated May 1, 1996 with respect to the
S&P 500 Index Fund (5)
(j) Subcustodian Agreement with dated May 1, 1996 respect to the
S&P 500 Index Fund (5)
(k) Letter Agreement to the Custodian Agreement dated May 1, 1996
with respect to the S&P 500 Index Fund (5)
(l) Amendment to Custodian Contract dated May 13, 1996 (5)
9 (a) Articles of Merger dated January 30, 1981 (1)
(b) Transfer Agency Agreement dated January 23, 1992 (1)
(c) Letter Agreement dated June 1, 1993 to Transfer Agency
Agreement
adding Growth & Income Fund and Short-Term Bond Fund (1)
(d) Amendments dated May 3, 1995 to the Transfer Agency Agreement
Fee Schedules for Growth Fund, Aggressive Growth Fund, Income
Fund, Growth & Income Fund, Income Stock Fund, Money
Market Fund,
and Short-Term Bond Fund (1)
(e) Amendment No. 1 to Transfer Agency Agreement dated
November 14, 1995 (2)
(f) Third Party Feeder Fund Agreement dated May 1, 1996 with
respect to the S&P 500 Index Fund (5)
(g) Letter Agreement to Transfer Agency Agreement dated May 1, 1996
adding S&P 500 Index Fund (5)
C-2
<PAGE>
Exhibit No. Description of Exhibits
(h) Transfer Agency Agreement Fee Schedule dated May 1, 1996
for S&P 500 Index Fund (5)
(i) Master Revolving Credit Facility Agreement with USAA Capital
Corporation dated January 14, 1997 (filed herewith)
(j) Master Revolving Credit Facility Agreement with NationsBank
of Texas dated January 15, 1997 (filed herewith)
10(a) Opinion of Counsel with respect to the 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)
(d) Opinion and Consent of Counsel with respect to the Aggressive
Growth Fund (6)
(e) Consent of Counsel with respect Growth Fund, Income Fund,
Money Market Fund, Income Stock Fund, Growth & Income Fund,
and Short-Term Bond Fund (6)
11 Independent Accountants' Consent (filed herewith)
12 Financial Statements omitted from prospectus - Not Applicable
13(a) Subscription and Investment Letter for Growth & Income Fund
and Short-Term Bond Fund (1)
(b) Subscription and Investment Letter for S&P 500 Index Fund (5)
14 Prototype Plans
(a) USAA INVESTMENT MANAGEMENT COMPANY IRA Handbook (1)
(b) USAA INVESTMENT MANAGEMENT COMPANY SEP-IRA Handbook (1)
(c) USAA INVESTMENT MANAGEMENT COMPANY 403(b)(7) Handbook (1)
15 12b-1 Plans - Not Applicable
16 Schedule for Computation of Performance Quotation (1)
17 Financial Data Schedule
(a) Growth Fund (filed herewith)
(b) Aggressive Growth Fund (filed herewith)
(c) Income Fund (filed herewith)
(d) Money Market Fund (filed herewith)
(e) Income Stock Fund (filed herewith)
(f) Growth & Income Fund (filed herewith)
(g) Short-Term Bond Fund (filed herewith)
(h) S&P 500 Index Fund (filed herewith)
18 Plan Adopting Multiple Classes of Shares - Not Applicable
19 Powers of Attorney
(a) Powers of Attorney for Michael J.C. Roth, Sherron A. Kirk,
John W. Saunders, Jr., George E. Brown, Howard L. Freeman, Jr.,
and Richard A. Zucker dated November 8, 1993 (1)
(b) Power of Attorney for Barbara B. Dreeben dated
September 12, 1995 (1)
C-3
<PAGE>
Exhibit No. Description of Exhibits
(c) With respect to the S&P 500 Index Fund, Powers of Attorney for
Ronald M. Petnuch, Philip W. Coolidge, Charles P. Biggar,
S. Leland Dill, and Philip Saunders, Jr. Trusess of the
Equity 500 Index Portfolio, dated September 30, 1996 (filed
herewith)
(d) Power of Attorney for Robert G. Davis (filed herewith)
(e) Power of Attorney for Robert L. Mason (filed herewith)
(1) Previously filed with Post-Effective Amendment No. 38 of the
Registrant (No.2- 49560) filed with the Securities and Exchange
Commission on September 29, 1995.
(2) Previously filed with Post-Effective Amendment No. 39 of the
Registrant (No. 2-49560) filed with the Securities and Exchange
Commission on November 21, 1995.
(3) Previously filed with Post-Effective Amendment No. 40 of the
Registrant (No. 2-49560) filed with the Securities and Exchange
Commission on February 15, 1996.
(4) Previously filed with Post-Effective Amendment No. 41 of the
Registrant (No. 2-49560) filed with the Securities and Exchange
Commission on April 26, 1996.
(5) Previously filed with Post-Effective Amendment No. 42 of the
Registrant (No. 2-49560) filed with the Securities and Exchange
Commission on September 11, 1996.
(6) Previously filed with Post-Effective Amendment No. 43 of the
Registrant (No. 2-49560) filed with the Securities and Exchange
Commis sion on October 1, 1996.
C-4
<PAGE>
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 February
28, 1997, of each class of securities of the Registrant.
Title of Class Number of Record Holders
-------------- ------------------------
Aggressive Growth Fund 70,777
Growth Fund 93,409
Income Stock Fund 106,619
Income Fund 66,943
Money Market Fund 125,704
Growth & Income Fund 45,689
Short-Term Bond Fund 8,029
S&P 500 Index Fund 12,921
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
C-5
<PAGE>
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.
C-6
<PAGE>
Item 28. Business and Other Connections of Investment Adviser
Information pertaining to business and other connections of the
Registrant's investment adviser is hereby incorporated by
reference to the section of the Prospectus captioned "Management
of the Company" and to the section of the Statement of Additional
Information captioned "Directors and Officers of the Company."
Item 29. Principal Underwriters
(a) USAA Investment Management Company (the "Adviser") acts as
principal underwriter and distributor of the Registrant's shares
on a best-efforts basis and receives no fee or commission for its
underwriting services. The Adviser, wholly-owned by United
Services Automobile Association, also serves as principal
underwriter for USAA Tax Exempt Fund, Inc., USAA Investment Trust,
and USAA State Tax-Free Trust.
(b) Set forth below is information concerning each director and
executive officer of USAA Investment Management Company.
Name and Principal Position and Offices Position and Offices
Business Address with Underwriter with Registrant
- ------------------ -------------------- --------------------
Robert G. Davis Director and Chairman Director and
9800 Fredericksburg Rd. of the Board of Chairman of the
San Antonio, TX 78288 Directors Board of Directors
Michael J.C. Roth Chief Executive Officer, President, Director
9800 Fredericksburg Rd. President, Director, and and Vice Chairman of
San Antonio, TX 78288 Vice Chairman of the the Board of Directors
Board of Directors
John W. Saunders, Jr. Senior Vice President, Vice President and
9800 Fredericksburg Rd. Fixed Income Investments, Director
San Antonio, TX 78288 and Director
Harry W. Miller Senior Vice President, None
9800 Fredericksburg Rd. Equity Investments,
San Antonio, TX 78288 and Director
John J. Dallahan Senior Vice President, None
9800 Fredericksburg Rd. Investment Services
San Antonio, TX 78288
Carl W. Shirley Senior Vice President, None
9800 Fredericksburg Rd. Insurance Company Portfolios
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
C-7
<PAGE>
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.
C-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this amendment
to its Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of San Antonio and State of Texas on the
day of March, 1997.
USAA MUTUAL FUND, INC.
/s/ Michael J.C. Roth
---------------------
Michael J.C. Roth
President
Pursuant to the requirements of the Securities Act of 1933, this
amendment to its Registration Statement has been signed below by the following
persons in the capacities and on the date indicated.
(Signature) (Title) (Date)
/s/ Robert G. Davis
- -------------------------- Chairman of the March 24, 1997
Robert G. Davis Board of Directors
/s/Michael J.C. Roth Vice Chairman of the Board March 24, 1997
- -------------------------- of Directors and President
Michael J.C. Roth (Principal Executive Officer)
/s/ Sherron A. Kirk Treasurer and (Principal March 24, 1997
- -------------------------- Financial and
Sherron A. Kirk Accounting Officer)
/s/ John W. Saunders, Jr. Director March 24, 1997
- --------------------------
John W. Saunders, Jr.
/s/ Robert L. Mason Director March 24, 1997
- --------------------------
Robert L. Mason
/s/ Howard L. Freeman, Jr. Director March 24, 1997
- --------------------------
Howard L. Freeman, Jr.
/s/ Richard A. Zucker Director March 24, 1997
- --------------------------
Richard A. Zucker
/s/ Barbara B. Dreeben Director March 24, 1997
- --------------------------
Barbara B. Dreeben
C-9
<PAGE>
SIGNATURES
Equity 500 Index has duly caused this Post-Effective Amendment No. 44 to
the Registration Statement on Form N-1A of USAA Mutual Fund, Inc., to be signed
on its behalf by the undersigned, thereunto duly authorized in the City of
Pittsburgh and the Commonwealth of Pennsylvania on the 4th day of April, 1997.
EQUITY 500 INDEX PORTFOLIO
By: /s/ Ronald M. Petnuch*
---------------------------
Ronald M. Petnuch
President
This Post Effective Amendment No. 44 to the Registration Statement of
Form N-1A of USAA Mutual Fund, Inc. has been signed below by the following
persons in the capacities indicated with respect to Equity 500 Index Portfolio
on April 4, 1997.
SIGNATURE TITLE
/s/ Philip W. Coolidge* Trustee
- --------------------------
Philip W. Coolidge
/s/ Charles P. Biggar* Trustee
- --------------------------
Charles P. Biggar
/s/ Philip Saunders, Jr.* Trustee
- --------------------------
Philip Saunders, Jr.
/s/ S. Leland Dill* Trustee
- --------------------------
S. Leland Dill
/s/ Ronald M. Petnuch* President and Treasurer
- -------------------------- (Chief Executive Officer,
Ronald M. Petnuch Principal Financial and
Accounting Officer)
*By: /s/ Jay S. Neuman
---------------------------
Jay S. Neuman, Secretary of Equity 500 Index Portfolio,
as Attorney-in-Fact pursuant to a Power of Attorney filed
herewith.
C-10
<PAGE>
Exhibit Index
Exhibit Item Page No. *
1 (a) Articles of Incorporation dated October 10, 1980 (1)
(b) Articles of Amendment dated January 14, 1981 (1)
(c) Articles Supplementary dated July 28, 1981 (1)
(d) Articles Supplementary dated November 3, 1982 (1)
(e) Articles of Amendment dated May 18, 1983 (1)
(f) Articles Supplementary dated August 8, 1983 (1)
(g) Articles Supplementary dated July 27, 1984 (1)
(h) Articles Supplementary dated November 5, 1985 (1)
(i) Articles Supplementary dated January 23, 1987 (1)
(j) Articles Supplementary dated May 13, 1987 (1)
(k) Articles Supplementary dated January 25, 1989 (1)
(l) Articles Supplementary dated May 2, 1991 (1)
(m) Articles Supplementary dated November 14, 1991 (1)
(n) Articles Supplementary dated April 14, 1992 (1)
(o) Articles Supplementary dated November 4, 1992 (1)
(p) Articles Supplementary dated March 23, 1993 (1)
(q) Articles Supplementary dated May 5, 1993 (1)
(r) Articles Supplementary dated November 8, 1993 (1)
(s) Articles Supplementary dated January 18, 1994 (1)
(t) Articles Supplementary dated November 9, 1994 (1)
(u) Articles Supplementary dated November 8, 1995 (2)
(v) Articles Supplementary dated February 6, 1996 (3)
(w) Articles Supplementary dated March 12, 1996 (4)
(x) Articles Supplementary dated November 13, 1996
(filed herewith) 69
2 Bylaws, as amended March 12, 1996 (4)
3 Voting trust agreement - Not Applicable
4 Specimen certificates for shares of
(a) Growth Fund (1)
(b) Income Fund (1)
(c) Money Market Fund (1)
(d) Aggressive Growth Fund (1)
(e) Income Stock Fund (1)
(f) Growth & Income Fund (1)
(g) Short-Term Bond Fund (1)
(h) S&P 500 Index Fund (4)
5 (a) Advisory Agreement dated September 21, 1990 (1) (b)
Letter Agreement dated June 1, 1993 adding Growth &
Income Fund and Short-Term Bond Fund (1)
(c) Management Agreement dated May 1, 1996 with respect
to the S&P 500 Index Fund (5)
(d) Administration Agreement dated May 1, 1996 with
respect to the S&P 500 Index Fund (5)
(e) Letter Agreement to the Management Agreement dated
May 1, 1996 with respect to the S&P 500 Index Fund (5)
(f) Amendment to Administration Agreement dated May 1,
1997 with respect to the S&P 500 Index Fund
(filed herewith) 73
C-11
<PAGE>
Exhibit Item Page No. *
6 (a) Underwriting Agreement dated July 25, 1990 (1)
(b) Letter Agreement dated June 1, 1993 adding Growth
& Income Fund and Short-Term Bond Fund (1)
(c) Letter Agreement dated May 1, 1996 adding S&P 500
Index Fund (5)
7 Not Applicable
8 (a) Custodian Agreement dated November 3, 1982 (1)
(b) Letter Agreement dated April 20, 1987 adding Income
Stock Fund (1)
(c) Amendment No. 1 to the Custodian Contract dated
October 30, 1987 (1)
(d) Amendment to the Custodian Contract dated November 3,
1988 (1)
(e) Amendment to the Custodian Contract dated February 6,
1989 (1)
(f) Amendment to the Custodian Contract dated November 8
1993 (1)
(g) Letter Agreement dated June 1, 1993 adding Growth &
Income Fund and Short-Term Bond Fund (1)
(h) Subcustodian Agreement dated March 24, 1994 (3)
(i) Custodian Agreement dated May 1, 1996 with respect
to the S&P 500 Index Fund (5)
(j) Subcustodian Agreement dated May 1, 1996 with
respect to the S&P 500 Index Fund (5)
(k) Letter Agreement to the Custodian Agreement dated
May 1, 1996 with respect to the S&P 500 Index Fund(5)
(l) Amendment to Custodian Contract dated May 13, 1996 (5)
9 (a) Articles of Merger dated January 30, 1981 (1)
(b) Transfer Agency Agreement dated January 23, 1992 (1)
(c) Letter Agreement dated June 1, 1993 to Transfer
Agency Agreement adding Growth & Income Fund and
Short-Term Bond Fund (1)
(d) Amendments dated May 3, 1995 to the Transfer Agency
Agreement Fee Schedules for Growth Fund, Aggressive
Growth Fund, Income Fund,Growth & Income Fund, Income
Stock Fund, Money Market Fund, and Short-Term Bond
Fund (1)
(e) Amendment No. 1 to Transfer Agency Agreement dated
November 14, 1995 (2)
(f) Third Party Feeder Fund Agreement dated May 1, 1996
with respect to the S&P 500 Index Fund (5)
(g) Letter Agreement to Transfer Agency Agreement
dated May 1, 1996 adding S&P 500 Index Fund (5)
(h) Transfer Agency Agreement Fee Schedule dated
May 1, 1996 for S&P 500 Index Fund (5)
(i) Master Revolving Credit Facility Agreement with USAA
Capital Corporation dated January 14, 1997
(filed herwith) 75
(j) Master Revolving Credit Facility Agreement with
NationsBank of Texas dated January 15, 1997
(filed herewith) 98
10 (a) Opinion of Counsel with respect to the 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) 126
(d) Opinion and Consent of Counsel with respect to the
Aggressive Growth Fund (6)
C-12
<PAGE>
Exhibit Item Page No. *
(e) Consent of Counsel with respect Growth Fund, Income
Fund,Money Market Fund, Income Stock Fund, Growth &
Income Fund,and Short-Term Bond Fund (6)
11 Independent Accountants' Consent (filed herewith) 128
12 Financial Statements omitted from prospectus -
Not Applicable
13(a) Subscription and Investment Letter for Growth &
Income Fund and Short-Term Bond Fund (1)
(b) Subscription and Investment Letter for S&P 500 Index
Fund (5)
14 Prototype Plans
(a) USAA INVESTMENT MANAGEMENT COMPANY IRA Handbook (1)
(b) USAA INVESTMENT MANAGEMENT COMPANY SEP-IRA Handbook(1)
(c) USAA INVESTMENT MANAGEMENT COMPANY 403(b)(7) Handbook(1)
15 12b-1 Plans - Not Applicable
16 Schedule for Computation of Performance Quotation (1)
17 Financial Data Schedule
(a) Growth Fund (filed herewith) 130
(b) Aggressive Growth Fund (filed herewith) 132
(c) Income Fund (filed herewith) 134
(d) Money Market Fund (filed herewith) 136
(e) Income Stock Fund (filed herewith) 138
(f) Growth & Income Fund (filed herewith) 140
(g) Short-Term Bond Fund (filed herewith) 142
(h) S&P 500 Index Fund (filed herewith) 144
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) With respect to the S&P 500 Index Fund, Powers of Attorney for
Ronald M. Petnuch, Philip W. Coolidge, Charles P. Biggar,
S. Leland Dill, and Philip Saunders, Jr. Trusess of the
Equity 500 Index Portfolio, dated September 30, 1996 (filed
herewith) 146
(d) Power of Attorney for Robert G. Davis (filed herewith) 149
(e) Power of Attorney for Robert L. Mason (filed herewith) 151
(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.
C-13
<PAGE>
(4) Previously filed with Post-Effective Amendment No. 41 of
the Registrant (No. 2-49560) filed with the Securities
and Exchange Commission on April 26, 1996.
(5) Previously filed with Post-Effective Amendment No. 42 of
the Registrant (No. 2-49560) filed with the Securities
and Exchange Commission on September 11, 1996.
(6) Previously filed with Post-Effective Amendment No. 43 of
the Registrant (No. 2-49560) filed with the Securities and
Exchange Commission on October 1, 1996.
* Refers to sequentially numbered pages
C-14
<PAGE>
EXHIBIT 1(x)
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 Growth Fund by
classifying an additional 25,000,000 shares of the authorized and unissued stock
of the Corporation into the Growth Fund.
THIRD: The additional shares of the 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 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 Growth Fund, there were 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.
<PAGE>
(c) After the increase in the total number of shares classified
as shares of the Aggressive Growth Fund, there are classified 100,000,000 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 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 November 13, 1996.
WITNESS: USAA MUTUAL FUND, INC.
/s/ Michael D. Wagner /s/ Michael J.C. Roth
- --------------------- ---------------------
Michael D. Wagner Michael J. C. Roth
Secretary President
<PAGE>
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
<PAGE>
contract\mf\articles\11-13-96.gf
EXHIBIT 5(f)
AMENDMENT TO ADMINISTRATION AGREEMENT
AGREEMENT made as of the 1st day of May, 1997, 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 Administrator and the Company are parties to an
Administration Agreement dated May 1, 1996 (the "Administration Agreement")
governing the terms and conditions under which the Administrator renders
administrative services to the USAA S&P 500 Index Fund ("Fund"), a series of the
Company; and
WHEREAS, the Company's Board of Directors has determined that the fees
charged by the Administrator in providing administrative services to the Fund
are fair and reasonable in light of the fees charged by others for services of
the same nature and quality;
NOW, THEREFORE, in consideration of the premises and covenants contained
herein, the Administrator and the Company hereby amend the Administration
Agreement by replacing paragraph 4(a) with the following:
(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 the lesser of (1) six hundredths of
one percent (.06%) of the Monthly Average Net Assets (defined below) of the Fund
for such calendar month, or (2) the amount that brings the Expense Ratio up to
eighteen hundredths of one percent (.18%). For purposes of this paragraph, the
term "Expense Ratio" means the sum of (i) the total Fund annual operating
expenses as a percentage of the Fund's average net assets and (ii) the total
annual operating expenses of any other Fund in which the Fund invests all of its
investable assets as a percentage of such Fund's aggregate average net assets.
IN WITNESS WHEREOF, the parties hereto have caused the Amendment to
Administration Agreement to be executed as of the date first set forth above.
USAA MUTUAL FUND, INC. USAA INVESTMENT MANAGEMENT COMPANY
By: /s/ Michael J.C. Roth By: /s/ John W. Saunders, Jr.
------------------------ -------------------------
MICHAEL J.C. ROTH JOHN W. SAUNDERS, JR.
President Senior Vice President
ATTEST: ATTEST:
/s/ Michael D. Wagner /s/ Alex M. Ciccone
------------------------- --------------------------------
MICHAEL D. WAGNER ALEX M. CICCONE
Secretary Assistant Secretary
EXHIBIT 9(i)
January 14, 1997
USAA Mutual Fund, Inc.,
USAA Investment Trust,
USAA Tax Exempt Fund, Inc., and
USAA State Tax-Free Trust, on behalf of and for the
benefit of the series
of funds comprising each such Borrower
as set forth on Schedule A hereto
9800 Fredericksburg Road
San Antonio, Texas 78288
Attention: Michael J.C. Roth, President
Gentlemen:
This Facility Agreement Letter (this "Agreement") sets forth the terms and
conditions for loans (each a "Loan" and collectively the "Loans") which USAA
Capital Corporation ("CAPCO") may from time to time make during the period
commencing January 14, 1997 and ending January 13, 1998 (the "Facility Period")
to USAA Mutual Fund, Inc., USAA Investment Trust, USAA Tax Exempt Fund, Inc.,
and USAA State Tax-Free Trust, and each investment company which may become a
party hereto pursuant to the terms of this Agreement (each a "Borrower" and
collectively the "Borrowers"), each of which is executing this Agreement on
behalf of and for the benefit of the series of funds comprising each such
Borrower as set forth on Schedule A hereto (as hereafter modified or amended in
accordance with the terms hereof) (each a "Fund" and collectively the "Funds"),
under a master revolving credit facility (the "Facility"). USAA Investment
Management Company is the Manager and Investment Advisor of each Fund. This
Agreement replaces in its entirety that certain Facility Agreement Letter dated
January 15, 1996, between the Borrowers and CAPCO. CAPCO and the Borrowers
hereby agree as follows:
1. Amount. The aggregate principal amount of the Loans which may be
advanced under this Facility shall not exceed, at any one time outstanding,
Seven Hundred Fifty Million Dollars ($750,000,000). The aggregate principal
amount of the Loans which may be borrowed by a Borrower for the benefit of a
particular Fund under this Facility shall not exceed the borrowing limit (the
"Borrowing Limit") on borrowings applicable to such Fund, as set forth on
Schedule A hereto.
2. Purpose and Limitations on Borrowings. Each Borrower will use the
proceeds of each Loan made to it solely for temporary or emergency purposes of
the Fund for whose benefit it is borrowing in accordance with such Fund's
Borrowing Limit (Schedule A) and prospectus in effect at the time of such Loan.
Portfolio securities may not be purchased by a Fund while there is a Loan
outstanding under the Facility or any other facility, if the aggregate amount of
such Loan and any other such loan exceeds 5% of the total assets of such Fund.
3. Borrowing Rate and Maturity of Loans. CAPCO may make Loans to a
Borrower and the principal amount of the Loans outstanding from time to time
shall bear interest at a rate per annum equal to the rate at which CAPCO obtains
funding in the capital markets plus a standard mark-up to cover CAPCO's
operating costs (not to exceed 8 basis points). Interest on the Loans shall be
calculated on the basis of a year of 360 days and the actual days elapsed but
shall not exceed the highest lawful rate. Each loan will be for an established
number of days agreed upon by the applicable Borrower and CAPCO. Notwithstanding
the above, all Loans to a Borrower shall be made available at a rate per annum
equal to the rate at which CAPCO would make loans to affiliates and
subsidiaries. Further, if the CAPCO rate exceeds the rate at which a Borrower
could obtain funds pursuant to the NationsBank of Texas, N.A. ("NationsBank")
364-day committed $100,000,000 Master Revolving Credit Facility, the Borrower
will in the absence of predominating circumstances, borrow from NationsBank. Any
past due principal and/or accrued interest shall bear interest at a rate per
annum equal to the aggregate of the Federal Funds Rate plus 1 percent (100 basis
points) and shall be payable on demand.
4. Advances, Payments, Prepayments and Readvances. Upon each Borrower's
request, and subject to the terms and conditions contained herein, CAPCO may
make Loans to each Borrower on behalf of and for the benefit of its respective
Fund(s) during the Facility Period, and each Borrower may at CAPCO's sole and
absolute discretion, borrow, repay and reborrow funds hereunder. The Loans shall
be evidenced by a duly executed and delivered Master Grid Promissory Note in the
form of Exhibit A. Each Loan shall be in an aggregate amount not less than One
Hundred Thousand United States Dollars (U.S. $100,000) and increments of One
Thousand United States Dollars (U.S. $1,000) in excess thereof. Payment of
principal and interest due with respect to each Loan shall be payable at the
maturity of such Loan and shall be made in funds immediately available to CAPCO
prior to 2 p.m. San Antonio time on the day such payment is due, or as CAPCO
shall otherwise direct from time to time and, subject to the terms and
conditions hereof, may be repaid with the proceeds of a new borrowing hereunder.
Notwithstanding any provision of this Agreement to the contrary, all Loans,
accrued but unpaid interest and other amounts payable hereunder shall be due and
payable upon termination of the Facility (whether by acceleration or otherwise).
5. Facility Fee. As this Facility is uncommitted, no facility
fee shall be charged by CAPCO.
6. Optional Termination. The Borrowers shall have the right
upon at least three (3) business days prior written notice to CAPCO, to
terminate the Facility.
7. Mandatory Termination of the Facility. The Facility, unless extended
by written amendment, shall automatically terminate on the last day of the
Facility Period and any Loans then outstanding (together with accrued interest
thereon and any other amounts owing hereunder) shall be due and payable on such
date.
8. Uncommitted Facility. The Borrowers acknowledge that the Facility is
an uncommitted facility and that CAPCO shall have no obligation to make any Loan
requested during the Facility Period under this Agreement. Further, CAPCO shall
not make any Loan if this Facility has been terminated by the Borrowers, or if
at the time of a request for a Loan by a Borrower (on behalf of the applicable
Fund(s)) there exists any Event of Default or condition which, with the passage
of time or giving of notice, or both, would constitute or become an Event of
Default with respect to such Borrower (or such applicable Fund(s)).
9. Loan Requests. Each request for a Loan (each a "Borrowing Notice")
shall be in writing by the applicable Borrower(s), except that such Borrower(s)
may make an oral request (each an "Oral Request") provided that each Oral
Request shall be followed by a written Borrowing Notice within one business day.
Each Borrowing Notice shall specify the following terms (Terms") of the
requested Loan: (i) the date on which such Loan is to be disbursed, (ii) the
principal amount of such Loan, (iii) the Borrower(s) which are borrowing such
Loan and the amount of such Loan to be borrowed by each Borrower, (iv) the Funds
for whose benefit the loan is being borrowed and the amount of the Loan which is
for the benefit of each such Fund, and (v) the requested maturity date of the
Loan. Each Borrowing Notice shall also set forth the total assets of each Fund
for whose benefit a portion of the Loan is being borrowed as of the close of
business on the day immediately preceding the date of such Borrowing Notice.
Borrowing notices shall be delivered to CAPCO by 9:00 a.m. San Antonio time on
the day the Loan is requested to be made.
Each Borrowing Notice shall constitute a representation to CAPCO by the
applicable Borrower(s) that all of the representations and warranties in Section
12 hereof are true and correct as of such date and that no Event of Default or
other condition which with the passage of time or giving of notice, or both,
would result in an Event of Default, has occurred or is occurring.
10. Confirmations; Crediting of Funds; Reliance by CAPCO.
Upon receipt by CAPCO of a Borrowing Notice:
(a) CAPCO shall provide each applicable Borrower written
confirmation of the Terms of such Loan via facsimile or telecopy, as soon as
reasonably practicable; provided, however, that the failure to do so shall not
affect the obligation of any such Borrower;
(b) CAPCO shall make such Loan in accordance with the Terms by
transfer of the Loan amount in immediately available funds, to the account of
the applicable Borrower(s) as specified in Exhibit B to this Agreement or as
such Borrower(s) shall otherwise specify to CAPCO in a writing signed by an
Authorized Individual (as defined in Section 11) of such Borrower(s); and
(c) CAPCO shall make appropriate entries on the Note or the
records of CAPCO to reflect the Terms of the Loan; provided, however, that the
failure to do so shall not affect the obligation of any Borrower.
CAPCO shall be entitled to rely upon and act hereunder pursuant to any Oral
Request which it reasonably believes to have been made by the applicable
Borrower through an Authorized Individual. If any Borrower believes that the
confirmation relating to any Loan contains any error or discrepancy from the
applicable Oral Request, such Borrower will promptly notify CAPCO thereof.
11. Borrowing Resolutions and Officers' Certificates. Prior to the
making of any Loan pursuant to this Agreement, the Borrowers shall have
delivered to CAPCO (a) the duly executed Note, (b) Resolutions of each
Borrower's Trustees or Board of Directors authorizing such Borrower to execute,
deliver and perform this Agreement and the Note on behalf of the applicable
Funds, (c) an Officer's Certificate in substantially the form set forth in
Exhibit D to this Agreement, authorizing certain individuals ("Authorized
Individuals"), to take on behalf of each Borrower (on behalf of the applicable
Funds) actions contemplated by this Agreement and the Note, and (d) the Opinion
of Counsel to USAA Investment Management Company, Manager and Advisor to the
Borrowers, with respect to such matters as CAPCO may reasonably request .
12. Representations and Warranties. In order to induce CAPCO to enter
into this Agreement and to make the Loans provided for hereunder, each Borrower
hereby makes with respect to itself, and as may be relevant, the series of Funds
comprising such Borrower, the following representations and warranties, which
shall survive the execution and delivery hereof and of the Note:
(a) Organization, Standing, etc. The Borrower is a corporation
or trust duly organized, validly existing, and in good standing under applicable
state laws and has all requisite corporate or trust power and authority to carry
on its respective businesses as now conducted and proposed to be conducted, to
enter into this Agreement and all other documents to be executed by it in
connection with the transactions contemplated hereby, to issue and borrow under
the Note and to carry out the terms hereof and thereof;
(b) Financial Information; Disclosure, etc. The Borrower has
furnished CAPCO with certain financial statements of such Borrower with respect
to itself and the applicable Funds, all of which such financial statements have
been prepared in accordance with generally accepted accounting principles
applied on a consistent basis and fairly present the financial position and
results of operations of such Borrower and the applicable Funds on the dates and
for the periods indicated. Neither this Agreement nor any financial statements,
reports or other documents or certificates furnished to CAPCO by such Borrower
or the applicable Funds in connection with the transactions contemplated hereby
contain any untrue statement of a material fact or omit to state any material
fact necessary to make the statements contained herein or therein in light of
the circumstances when made not misleading;
(c) Authorization; Compliance with Other Instruments. The
execution, delivery and performance of this Agreement and the Note, and
borrowings hereunder, have been duly authorized by all necessary corporate or
trust action of the Borrower and will not result in any violation of or be in
conflict with or constitute a default under any term of the charter, by-laws or
trust agreement of such Borrower or the applicable Funds, or of any borrowing
restrictions or prospectus or statement of additional information of such
Borrower or the applicable Funds, or of any agreement, instrument, judgment,
decree, order, statute, rule or governmental regulation applicable to such
Borrower, or result in the creation of any mortgage, lien, charge or encumbrance
upon any of the properties or assets of such Borrower or the applicable Funds
pursuant to any such term. The Borrower and the applicable Funds are not in
violation of any term of their respective charter, by-laws or trust agreement,
and such Borrower and the applicable Funds are not in violation of any material
term of any agreement or instrument to which they are a party, or to the best of
such Borrower's knowledge, of any judgment, decree, order, statute, rule or
governmental regulation applicable to them;
(d) SEC Compliance. The Borrower and the applicable Funds are
in compliance in all material respects with all federal and state securities or
similar laws and regulations, including all material rules, regulations and
administrative orders of the Securities and Exchange Commission (the ASEC") and
applicable Blue Sky authorities. The Borrower and the applicable Funds are in
compliance in all material respects with all of the provisions of the Investment
Company Act of 1940, and such Borrower has filed all reports with the SEC that
are required of it or the applicable Funds;
(e) Litigation. There is no action, suit or proceeding pending
or, to the best of the Borrower's knowledge, threatened against such Borrower or
the applicable Funds in any court or before any arbitrator or governmental body
which seeks to restrain any of the transactions contemplated by this Agreement
or which, if adversely determined, could have a material adverse effect on the
assets or business operations of such Borrower or the applicable Funds or the
ability of such Borrower and the applicable Funds to pay and perform their
obligations hereunder and under the Notes; and
(f) Borrowers' Relationship to Funds. The assets of each Fund
for whose benefit Loans are borrowed by the applicable Borrower are subject to
and liable for such Loans and are available (except as subordinated to
borrowings under the NationsBank committed facility) to the applicable Borrower
for the repayment of such Loans.
13. Affirmative Covenants of the Borrowers. Until such time as all
amounts of principal and interest due to CAPCO by a Borrower pursuant to any
Loan made to such Borrower is irrevocably paid in full, and until the Facility
is terminated, such Borrower (for itself and on behalf of its respective Funds)
agrees:
(a) To deliver to CAPCO as soon as possible and in any event
within ninety (90) days after the end of each fiscal year of such Borrower and
the applicable Funds, Statements of Assets and Liabilities, Statements of
Operations and Statements of Changes in Net Assets of each applicable Fund for
such fiscal year, as set forth in each applicable Fund's Annual Report to
shareholders together with a calculation of the maximum amount which each
applicable Fund could borrow under its Borrowing Limit as of the end of such
fiscal year;
(b) To deliver to CAPCO as soon as available and in any event
within seventy-five (75) days after the end of each semiannual period of such
Borrower and the applicable Funds, Statements of Assets and Liabilities,
Statement of Operations and Statements of Changes in Net Assets of each
applicable Fund as of the end of such semiannual period, as set forth in each
applicable Fund's Semiannual Report to shareholders, together with a calculation
of the maximum amount which each applicable Fund could borrow under its
Borrowing Limit at the end of such semiannual period;
(c) To deliver to CAPCO prompt notice of the occurrence of any
event or condition which constitutes, or is likely to result in, a change in
such Borrower or any applicable Fund which could reasonably be expected to
materially adversely affect the ability of any applicable Fund to promptly repay
outstanding Loans made for its benefit or the ability of such Borrower to
perform its obligations under this Agreement or the Note;
(d) To do, or cause to be done, all things necessary to
preserve and keep in full force and effect the corporate or trust existence of
such Borrower and all permits, rights and privileges necessary for the conduct
of its businesses and to comply in all material respects with all applicable
laws, regulations and orders, including without limitation, all rules and
regulations promulgated by the SEC;
(e) To promptly notify CAPCO of any litigation, threatened
legal proceeding or investigation by a governmental authority which could
materially affect the ability of such Borrower or the applicable Funds to
promptly repay the outstanding Loans or otherwise perform their obligations
hereunder; and
(f) In the event a Loan for the benefit of a particular Fund
is not repaid in full within 10 days after the date it is borrowed , and until
such Loan is repaid in full, to deliver to CAPCO, within two business days after
each Friday occurring after such 10th day, a statement setting forth the total
assets of such Fund as of the close of business on each such Friday.
14. Negative Covenants of the Borrowers. Until such time as all amounts
of principal and interest due to CAPCO by a Borrower pursuant to any Loan made
to such Borrower is irrevocably paid in full, and until the Facility is
terminated, such Borrower (for itself and on behalf of its respective Funds)
agrees:
(a) Not to incur any indebtedness for borrowed money (other
than pursuant to the One Hundred Million Dollar ($100,000,000) committed Master
Revolving Credit Facility with NationsBank and for overdrafts incurred at the
custodian of the Funds from time to time in the normal course of business)
except the Loans, without the prior written consent of CAPCO, which consent will
not be unreasonably withheld; and
(b) Not to dissolve or terminate its existence, or merge or
consolidate with any other person or entity, or sell all or substantially all of
its assets in a single transaction or series of related transactions (other than
assets consisting of margin stock), each without the prior written consent of
CAPCO, which consent will not be unreasonably withheld; provided that a Borrower
may without such consent merge, consolidate with, or purchase substantially all
of the assets of, or sell substantially all of its assets to, an affiliated
investment company or series thereof, as provided for in Rule 17a-8 of the
Investment Company Act of 1940.
15. Events of Default. If any of the following events
(each an "Event of Default") shall occur (it being understood that an Event
of Default with respect to one Fund or Borrower shall not constitute an Event
of Default with respect to any other Fund or Borrower):
(a) Any Borrower or Fund shall default in the payment of
principal or interest on any Loan or any other fee due hereunder for a period of
five (5) days after the same becomes due and payable, whether at maturity or
with respect to any Facility Fee at a date fixed for the payment thereof;
(b) Any Borrower or Fund shall default in the performance of
or compliance with any term contained in Section 13 hereof and such default
shall not have been remedied within thirty (30) days after written notice
thereof shall have been given such Borrower or Fund by CAPCO;
(c) Any Borrower or Fund shall default in the performance
of or compliance with any term contained in Section 14 hereof;
(d) Any Borrower or Fund shall default in the performance or
compliance with any other term contained herein and such default shall not have
been remedied within thirty (30) days after written notice thereof shall have
been given such Borrower or Fund by CAPCO;
(e) Any representation or warranty made by a Borrower or Fund
herein or pursuant hereto shall prove to have been false or incorrect in any
material respect when made;
(f) USAA Investment Management Company or any successor
manager or investment adviser, provided that such successor in a wholly-owned
subsidiary of CAPCO, shall cease to be the Manager and Investment Advisor of
each Fund; or
(g) An event of default shall occur and be continuing under
any other facility; then, in any event, and at any time thereafter, if any Event
of Default shall be continuing, CAPCO may by written notice to the applicable
Borrower or Fund (i) terminate the Facility with respect to such Borrower or
Fund and (ii) declare the principal and interest in respect of any outstanding
Loans with respect to such Borrower or Fund, and all other amounts due hereunder
with respect to such Borrower or Fund, to be immediately due and payable
whereupon the principal and interest in respect thereof and all other amounts
due hereunder shall become forthwith due and payable without presentment,
demand, protest or other notice of any kind, all of which are expressly waived
by the Borrowers.
16. New Borrowers; New Funds. So long as no Event of Default or
condition which, with the passage of time or the giving of notice, or both,
would constitute or become an Event of Default has occurred and is continuing,
and with the prior consent of CAPCO, which consent will not be unreasonably
withheld:
(a) Any investment company that becomes part of the same
"group of investment companies" (as that term is defined in Rule 11a-3 under the
Investment Company Act of 1940) as the original Borrowers to this Agreement,
may, by submitting an amended Schedule A and Exhibit B to this Agreement to
CAPCO (which amended Schedule A and Exhibit B shall replace the corresponding
Schedule and Exhibit which are, then a part of this Agreement) and such other
documents as CAPCO may reasonably request, become a party to this Agreement and
may become a "Borrower" hereunder; and
(b) A Borrower may, by submitting an amended Schedule A and
Exhibit B to this Agreement to CAPCO (which amended Schedule A and Exhibit B
shall replace the corresponding Schedule and Exhibit which are then a part of
this Agreement), add additional Funds for whose benefit such Borrower may borrow
Loans. No such amendment of Schedule A to this Agreement shall amend the
Borrowing Limit applicable to any Fund without the prior approval of CAPCO.
17. Limited Recourse. CAPCO agrees (i) that any claim, liability, or
obligation arising hereunder or under the Note whether on account of the
principal of any Loan, interest thereon, or any other amount due hereunder or
thereunder shall be satisfied only from the assets of the specific Fund for
whose benefit a Loan is borrowed and in any event in an amount not to exceed the
outstanding principal amount of any Loan borrowed for such Fund's benefit,
together with accrued and unpaid interest due and owing thereon, and such Fund's
share of any other amount due hereunder and under the Note (as determined in
accordance with the provisions hereof) and (ii) that no assets of any fund shall
be used to satisfy any claim, liability, or obligation arising hereunder or
under the Note with respect to the outstanding principal amount of any Loan
borrowed for the benefit of any other Fund or any accrued and unpaid interest
due and owing thereon or such other Fund's share of any other amount due
hereunder and under the Note (as determined in accordance with the provisions
hereof).
18. Remedies on Default. In case any one or more Events of Default
shall occur and be continuing, CAPCO may proceed to protect and enforce its
rights by an action at law, suit in equity or other appropriate proceedings,
against the applicable Borrower(s) and/or Fund(s), as the case may be. In the
case of a default in the payment of any principal or interest on any Loan or in
the payment of any fee due hereunder, the relevant Fund(s) (to be allocated
among such Funds as the Borrowers deem appropriate) shall pay to CAPCO such
further amount as shall be sufficient to cover the cost and expense of
collection, including, without limitation, reasonable attorney's fees and
expenses.
19. No Waiver of Remedies. No course of dealing or failure or delay on
the part of CAPCO in exercising any right or remedy hereunder or under the Note
shall constitute a waiver of any right or remedy hereunder or under the Note,
nor shall any partial exercise of any right or remedy hereunder or under the
Note preclude any further exercise thereof or the exercise of any other right or
remedy hereunder or under the Note. Such rights and remedies expressly provided
are cumulative and not exclusive of any rights or remedies which CAPCO would
otherwise have.
20. Expenses. The Fund(s) (to be allocated among the Funds as the
Borrowers deem appropriate) shall pay on demand all reasonable out-of-pocket
costs and expenses (including reasonable attorney's fees and expenses) incurred
by CAPCO in connection with the collection and any other enforcement proceedings
of or regarding this Agreement, any Loan or the Note.
21. Benefit of Agreement. This Agreement and the Note shall be binding
upon and inure for the benefit of and be enforceable by the respective
successors and assigns of the parties hereto; provided that no party to this
Agreement or the Note may assign any of its rights hereunder or thereunder
without the prior written consent of the other parties.
22. Notices. All notices hereunder and all written, facsimile or
telecopied confirmations of Oral Requests made hereunder shall be sent to
the Borrowers as indicated on Exhibit B and to CAPCO as indicated on
Exhibit C.
23. Modifications. No provision of this Agreement or the
Note may be waived, modified or discharged except by mutual written
agreement of all parties. THIS WRITTEN LOAN AGREEMENT AND THE NOTE REPRESENT
THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES. THERE ARE NO UNWRITTEN AGREEMENTS BETWEEN THE PARTIES.
24. Governing Law and Jurisdiction. This Agreement shall be
governed by and construed in accordance with the laws of the state of Texas
without regard to the choice of law provisions thereof.
25. Trust Disclaimer. Neither the shareholders, trustees, officers,
employees and other agents of any Borrower or Fund shall be personally bound by
or liable for any indebtedness, liability or obligation hereunder or under the
Note nor shall resort be had to their private property for the satisfaction of
any obligation or claim hereunder.
If this letter correctly reflects your agreement with us, please execute both
copies hereof and return one to us, whereupon this Agreement shall be binding
upon the Borrowers, the Funds and CAPCO.
Sincerely,
USAA CAPITAL CORPORATION
By: /s/ Laurie B. Blank
----------------------------
Laurie B. Blank
Assistant Vice President-Treasurer
AGREED AND ACCEPTED this 14th Day of January, 1997.
USAA MUTUAL FUND, INC., on behalf of and for the benefit of its series of Funds
as set forth on Schedule A to this Agreement
By: /s/ Michael J.C. Roth
----------------------------
Michael J.C. Roth
President
<PAGE>
USAA INVESTMENT TRUST, on behalf of and for the benefit of its series of Funds
as set forth on Schedule A to this Agreement
By: /s/ Michael J.C. Roth
----------------------------
Michael J.C. Roth
President
USAA TAX EXEMPT FUND, INC., on behalf of and for the benefit of its series of
Funds as set forth on Schedule A to this Agreement
By: /s/ Michael J.C. Roth
----------------------------
Michael J.C. Roth
President
USAA STATE TAX-FREE TRUST, on behalf of and for the benefit of its series of
Funds as set forth on Schedule A to this Agreement
By: /s/ Michael J.C. Roth
----------------------------
Michael J.C. Roth
President
<PAGE>
SCHEDULE A
FUNDS FOR WHOSE BENEFIT LOANS CAN
BE BORROWED UNDER FACILITY AGREEMENT
AND BORROWING LIMIT
Borrower Funds Borrowing Limit
USAA Mutual Fund, Inc. USAA Aggressive Growth 5% of Total Assets
USAA Growth & Income "
USAA Income Stock "
USAA Short-Term Bond "
USAA Money Market "
USAA Growth "
USAA Income "
USAA S&P 500 Index "
USAA Investment Trust USAA Cornerstone Strategy "
USAA Gold "
USAA International "
USAA World Growth "
USAA GNMA Trust "
USAA Treasury Money Market Trust "
USAA Emerging Markets "
USAA Growth and Tax Strategy "
USAA Balanced Strategy "
USAA Growth Strategy "
USAA Income Strategy "
USAA Tax Exempt Fund, Inc. USAA Long-Term "
USAA Intermediate-Term "
USAA Short-Term "
USAA Tax Exempt Money Market "
USAA California Bond "
USAA California Money Market "
USAA New York Bond "
USAA New York Money Market "
USAA Virginia Bond "
USAA Virginia Money Market "
USAA State Tax-Free Trust USAA Florida Tax-Free Income "
USAA Florida Tax-Free Money Market "
USAA Texas Tax-Free Income "
USAA Texas Tax-Free Money Market "
<PAGE>
EXHIBIT A
MASTER GRID PROMISSORY NOTE
U.S. $750,000,000 Dated: January 14, 1997
FOR VALUE RECEIVED, each of the undersigned (each a "Borrower" and
collectively the "Borrowers"), severally and not jointly, on behalf of and for
the benefit of the series of funds comprising each such Borrower as listed on
Schedule A to the Agreement as defined below (each a "Fund" and collectively the
"Funds") promises to pay to the order of USAA Capital Corporation ("APCO") at
CAPCO's office located at 9800 Fredericksburg Road, San Antonio, Texas 78288, in
lawful money of the United States of America, in immediately available funds,
the principal amount of all Loans made by CAPCO to such Borrower for the benefit
of the applicable Funds under the Facility Agreement Letter dated January 14,
1997 (as amended or modified, the "Agreement"), among the Borrowers and CAPCO,
together with interest thereon at the rate or rates set forth in the Agreement.
All payments of interest and principal outstanding shall be made in accordance
with the terms of the Agreement.
This Note evidences Loans made pursuant to, and is entitled to the
benefits of, the Agreement. Terms not defined in this Note shall be as set forth
in the Agreement.
CAPCO is authorized to endorse the particulars of each Loan evidenced
hereby on the attached Schedule and to attach additional Schedules as necessary,
provided that the failure of CAPCO to do so or to do so accurately shall not
affect the obligations of any Borrower (or the Fund for whose benefit it is
borrowing) hereunder.
Each Borrower waives all claims to presentment, demand, protest, and
notice of dishonor. Each Borrower agrees to pay all reasonable costs of
collection, including reasonable attorney's fees in connection with the
enforcement of this Note.
CAPCO hereby agrees (i) that any claim, liability, or obligation
arising hereunder or under the Agreement whether on account of the principal of
any Loan, interest thereon, or any other amount due hereunder or thereunder
shall be satisfied only from the assets of the specific Fund for whose benefit a
Loan is borrowed and in any event in an amount not to exceed the outstanding
principal amount of any Loan borrowed for such Fund's benefit, together with
accrued and unpaid interest due and owing thereon, and such Fund's share of any
other amount due hereunder and under the Agreement (as determined in accordance
with the provisions of the Agreement) and (ii) that no assets of any Fund shall
be used to satisfy any claim, liability, or obligation arising hereunder or
under the Agreement with respect to the outstanding principal amount of any Loan
borrowed for the benefit of any other Fund or any accrued and unpaid interest
due and owing thereon or such other Fund's share of any other amount due
hereunder and under the Agreement (as determined in accordance with the
provisions of the Agreement).
Neither the shareholders, trustees, officers, employees and other
agents of any Borrower or Fund shall be personally bound by or liable for any
indebtedness, liability or obligation hereunder or under the Note nor shall
resort be had to their private property for the satisfaction of any obligation
or claim hereunder.
Loans under the Agreement and this Note are subordinated to loans made
under the $100,000,000 364-day committed Mater Revolving Credit Facility
Agreement between the Borrowers and NationsBank of Texas, N.A. (NationsBank),
dated January 15, 1997, in the manner and to the extent set forth in the
Agreement among the Borrowers, CAPCO and NationsBank, dated January 15, 1997.
This Note shall be governed by the laws of the state of Texas.
USAA MUTUAL FUND, INC., on
behalf of and for the
benefit of its series of
Funds as set forth on
Schedule A to the Agreement
By: /s/ Michael J.C. Roth
---------------------
Michael J.C. Roth
President
USAA INVESTMENT TRUST,
on behalf of and for the benefit
of its series of Funds as set forth
on Schedule A to the Agreement
By: /s/ Michael J.C. Roth
---------------------
Michael J.C. Roth
President
<PAGE>
USAA TAX EXEMPT FUND, INC.,
on behalf of and for the
benefit of its series of
Funds as set forth on
Schedule A to the Agreement
By: /s/ Michael J.C. Roth
---------------------
Michael J.C. Roth
President
USAA STATE TAX-FREE TRUST,
on behalf of and for the
benefit of its series of
Funds as set forth on
Schedule A to the Agreement
By: /s/ Michael J.C. Roth
---------------------
Michael J.C. Roth
President
.16901
<PAGE>
LOANS AND PAYMENT OF PRINCIPAL
This schedule (grid) is attached to and made a part of the Promissory Note dated
January 14, 1997, executed by USAA MUTUAL FUND, INC., USAA INVESTMENT TRUST,
USAA TAX EXEMPT FUND, INC. AND USAA STATE TAX-FREE TRUST on behalf of and for
the benefit of the series of funds comprising each such Borrower payable to the
order of USAA CAPITAL CORPORATION.
[The following Information is Listed in Grid]
Date of Loan
Borrower and Fund
Amount of Loan
Type of Rate and Interest Rate on Date of Borrowing
Amount of Principal Repaid
Date of Repayment
Other Expenses
Notation made by
<PAGE>
EXHIBIT B
USAA CAPITAL CORPORATION
MASTER REVOLVING
CREDIT FACILITY AGREEMENT
BORROWER INFORMATION SHEET
BORROWER: USAA MUTUAL FUND, INC., USAA INVESTMENT TRUST, USAA TAX
EXEMPT FUND, INC. AND USAA STATE TAX-FREE TRUST
ADDRESS FOR NOTICES AND OTHER COMMUNICATIONS TO THE BORROWER:
9800 Fredericksburg Road
San Antonio, Texas 78288 (For Federal Express, 78240)
Attention: John W. Saunders, Jr.
Senior Vice President,
Fixed Income Investments
Telephone: (210) 498-7320
Telecopy: (210) 498-5689
Harry W. Miller
Senior Vice President,
Equity Investments
Telephone: (210) 498-7344
Telecopy: (210) 498-7332
ADDRESS FOR BORROWING AND PAYMENTS:
9800 Fredericksburg Road
San Antonio, Texas 78288
Attention: Dean R. Pantzar
Telephone: (210) 498-7472
Telecopy: (210) 498-0382 or 498-7819
Telex: 767424
INSTRUCTIONS FOR PAYMENTS TO BORROWER:
WE PAY VIA: X FED FUNDS CHIPS
<PAGE>
TO: (PLEASE PLACE BANK NAME, CORRESPONDENT NAME (IF APPLICABLE),
CHIPS AND/OR FED FUNDS ACCOUNT NUMBER BELOW)
State Street Bank and Trust Company, Boston, Massachusetts
ABA #011-00-0028
USAA MUTUAL FUND, INC.
USAA Aggressive Growth Fund Acct.# 6938-502-9
USAA Growth & Income Fund Acct.# 6938-519-3
USAA Income Stock Fund Acct.# 6938-495-6
USAA Short-Term Bond Fund Acct.# 6938-517-7
USAA Money Market Fund Acct.# 6938-498-0
USAA Growth Fund Acct.# 6938-490-7
USAA Income Fund Acct.# 6938-494-9
USAA S&P 500 Index Fund Acct.#6938-478-2
USAA INVESTMENT TRUST
USAA Cornerstone Strategy Fund Acct.# 6938-487-3
USAA Gold Fund Acct.# 6938-488-1
USAA International Fund Acct.# 6938-497-2
USAA World Growth Fund Acct.# 6938-504-5
USAA GNMA Trust Acct.# 6938-486-5
USAA Treasury Money Market Trust Acct.# 6938-493-1
USAA Emerging Markets Fund Acct.# 6938-501-1
USAA Growth and Tax Strategy Fund Acct.# 6938-509-4
USAA Balanced Strategy Fund Acct.# 6938-507-8
<PAGE>
USAA Growth Strategy Fund Acct.# 6938-510-2
USAA Income Strategy Fund Acct.# 6938-508-6
USAA TAX EXEMPT FUND, INC.
USAA Long-Term Fund Acct.# 6938-492-3
USAA Intermediate-Term Fund Acct.# 6938-496-4
USAA Short-Term Fund Acct.# 6938-500-3
USAA Tax Exempt Money Market Fund Acct.# 6938-514-4
USAA California Bond Fund Acct.# 6938-489-9
USAA California Money Market Fund Acct.# 6938-491-5
USAA New York Bond Fund Acct.# 6938-503-7
USAA New York Money Market Fund Acct.# 6938-511-0
USAA Virginia Bond Fund Acct.# 6938-512-8
USAA Virginia Money Market Fund Acct.# 6938-513-6
USAA STATE TAX-FREE TRUST
USAA Florida Tax-Free Income Fund Acct.# 6938-473-3
USAA Florida Tax-Free Money Market Fund Acct.# 6938-467-5
USAA Texas Tax-Free Income Fund Acct.# 6938-602-7
USAA Texas Tax-Free Money Market Fund Acct.# 6938-601-9
.16901
<PAGE>
EXHIBIT C
ADDRESS FOR USAA CAPITAL CORPORATION
USAA Capital Corporation
9800 Fredericksburg Road
San Antonio, Texas 78288
Attention: Laurie B. Blank
Telephone No.: (210) 498-0825
Telecopy No.: (210) 498-6566
.16901
<PAGE>
EXHIBIT D
OFFICER'S CERTIFICATE
The undersigned hereby certifies that he is the duly elected Secretary of USAA
Mutual Fund, Inc., USAA Investment Trust, USAA Tax Exempt Fund, Inc. and USAA
State Tax-Free Trust and that he is authorized to execute this Certificate on
behalf of USAA Mutual Fund, Inc., USAA Investment Trust, USAA Tax Exempt Fund,
Inc. and USAA State Tax-Free Trust. The undersigned hereby further certifies to
the following:
The following individuals are duly authorized to act on behalf of USAA Mutual
Fund, Inc., USAA Investment Trust, USAA Tax Exempt Fund, Inc. and USAA State
Tax-Free Trust, by transmitting telephonic, telex, or telecopy instructions and
other communications with regard to borrowing and payments pursuant to the
uncommitted Master Revolving Credit Agreement with USAA Capital Corporation. The
signature set opposite the name of each individual below is that individual's
genuine signature.
NAME OFFICE SIGNATURE
Michael J.C. Roth President /s/ Michael J.C., Roth
-------------------------
John W. Saunders, Jr. Senior Vice President,
Fixed Income Investments /s/ John W. Saunders, Jr.
-------------------------
Harry W. Miller Senior Vice President,
Equity Investments /s/ Harry W. Miller
-------------------------
Kenneth E. Willmann Vice President,
Mutual Fund Portfolios /s/ Kenneth E. Willmann
-------------------------
David G. Peebles Vice President,
Equity Investments /s/ David G. Peebles
-------------------------
Sherron A. Kirk Vice President,
Controller /s/ Sherron A. Kirk
-------------------------
Dean R. Pantzar Executive Director,
Mutual Fund Accounting /s/ Dean R. Pantzar
-------------------------
IN WITNESS WHEREOF, I have executed this Certificate as of this 14th day of
January, 1997.
/s/ Michael D. Wagner
----------------------
MICHAEL D. WAGNER
Secretary
<PAGE>
I, Michael J.C. Roth, President of USAA Mutual Fund, Inc., USAA Investment
Trust, USAA Tax Exempt Fund, Inc. And USAA State Tax-Free Trust hereby certify
that Michael D. Wagner is, and has been at all times since a date prior to the
date of this Certificate, the duly elected, qualified, and acting Secretary of
USAA Mutual Fund, Inc., USAA Investment Trust, USAA Tax Exempt Fund, Inc. And
USAA State Tax-Free Trust and that the signature set forth above is his true and
correct signature.
DATE: January 14, 1997 /s/ Michael J.C. Roth
-------------------------
MICHAEL J. C. ROTH
President
.16901
EXHIBIT 9(j)
January 15, 1997
USAA Mutual Fund, Inc.,
USAA Investment Trust,
USAA Tax Exempt Fund, Inc., and
USAA State Tax-Free Trust, on behalf
of and for the benefit of the series
of funds comprising each such Borrower
as set forth on Schedule A hereto
9800 Fredericksburg Road
San Antonio, Texas 78288
Attention: Michael J.C. Roth, President
Gentlemen:
This Facility Agreement Letter (this "Agreement") sets forth the terms and
conditions for loans (each a "Loan" and collectively the "Loans") which
NationsBank of Texas, N.A. (the "Bank") agrees to make during the period
commencing January 15, 1997 and ending January 14, 1998 (the "Facility Period")
to USAA Mutual Fund, Inc., USAA Investment Trust, USAA Tax Exempt Fund, Inc.,
and USAA State Tax-Free Trust, and each investment company which may become a
party hereto pursuant to the terms of this Agreement (each a "Borrower" and
collectively the "Borrowers"), each of which is executing this Agreement on
behalf of and for the benefit of the series of funds comprising each such
Borrower as set forth on Schedule A hereto (as hereafter modified or amended in
accordance with the terms hereof) (each a "Fund" and collectively the "Funds"),
under a master revolving credit facility (the "Facility"). This Agreement
replaces in its entirety that certain Facility Agreement Letter dated January
16, 1996, as heretofore amended or modified, between the Borrowers and the Bank.
The Bank and the Borrowers hereby agree as follows:
1. Amount. The aggregate principal amount of the Loans to be advanced
under this Facility shall not exceed, at any one time outstanding, One Hundred
Million United States Dollars (U.S. $100,000,000) (the "Commitment"). The
aggregate principal amount of the Loans which may be
<PAGE>
borrowed by a Borrower for the benefit of a particular Fund under the Facility
and the Other Facility (hereinafter defined) shall not exceed the percentage
(the "Borrowing Limit") of the total assets of such Fund as set forth on
Schedule A hereto.
2. Purpose and Limitations on Borrowings. Each Borrower will use the
proceeds of each Loan made to it solely for temporary or emergency purposes of
the Fund for whose benefit it is borrowing in accordance with such Fund's
Borrowing Limit and prospectus in effect at the time of such Loan. Portfolio
securities may not be purchased by a Fund while there is a Loan outstanding
under the Facility and/or a loan outstanding under the Other Facility for the
benefit of such Fund, if the aggregate amount of such Loan and such other loan
exceeds 5% of the total assets of such Fund. The Borrowers will not, and will
not permit any Fund to, directly or indirectly, use any proceeds of any Loan for
any purpose which would violate any provision of any applicable statute,
regulation, order or restriction, including, without limitation, Regulation U,
Regulation T, Regulation X or any other regulation of the Board of Governors of
the Federal Reserve System or the Securities Exchange Act of 1934, as amended.
If requested by the Bank, the Borrowers will promptly furnish the Bank with a
statement in conformity with the requirements of Federal Reserve Form U-1 as
referred to in Regulation U.
3. Borrowing Rate and Maturity of Loans. The principal amount of the
Loans outstanding from time to time shall bear interest at a rate per annum
equal to, at the option of the applicable Borrower(s), (i) the aggregate of the
Federal Funds Rate (as defined below) plus .125 of one percent (1%) (12.5 basis
points) or (ii) the aggregate of the London Interbank Offered Rate (as defined
below) plus 12.5 basis points. The rate of interest payable on such outstanding
amounts shall change on each date that the Federal Funds Rate shall change.
Interest on the Loans shall be calculated on the basis of a year of 360 days and
the actual days elapsed but shall not exceed the highest lawful rate. Each Loan
will be for an established number of days to be agreed upon by the applicable
Borrower(s) and the Bank and, in the absence of such agreement, will mature on
the earlier of three months after the date of such Loan or the last day of the
Facility Period. The term "Federal Funds Rate," as used herein, shall mean the
overnight rate for Federal funds transactions between member banks of the
Federal Reserve System, as published by the Federal Reserve Bank of New York or,
if not so published, as determined in good faith by the Bank in accordance with
its customary practices; and the term "London Interbank Offered Rate," as used
herein, shall mean the rate per annum at which United States dollar deposits are
offered by the Bank in the London interbank market at approximately 11:00 a.m.
London time two business days prior to the first day of the interest period (of
7 or 14 days or one, two or three months as selected by the Borrower(s)) for
which the London Interbank Offered Rate is to be in effect, as adjusted by the
Bank in good faith and in accordance with its customary practices for any
reserve costs imposed on the Bank under Federal Reserve Board Regulation D with
respect to "Euro-currency Liabilities". The London Interbank Offered Rate shall
not be available hereunder if it would be unlawful for the Bank to make or
maintain Loans based on such rate or if such rate does not, in the good faith
judgment of the Bank, fairly reflect the cost to the Bank of making or
maintaining Loans. The London Interbank Offered Rate shall not be available for
any interest period which, if such rate were available, would begin after the
occurrence and during the continuation of an Event of Default (as defined
below). Any past due principal and/or accrued interest shall bear interest at a
rate per annum equal to the aggregate of the Federal Funds Rate plus 1.125
percent (112.5 basis points) and shall be payable on demand. If the applicable
Borrowers do not affirmatively elect to have a Loan or Loans bear interest based
on the London Interbank Offered Rate at least two business days prior to the
first day of a possible interest period applicable thereto, such Loan or Loans
shall bear interest based on the Federal Funds Rate until such election is
affirmatively made.
4. Advances, Payments, Prepayments and Readvances. Upon each Borrower's
request, and subject to the terms and conditions contained herein, the Bank
shall make Loans to each Borrower on behalf of and for the benefit of its
respective Fund(s) during the Facility Period, and each Borrower may borrow,
repay and reborrow funds hereunder. The Loans shall be evidenced by a duly
executed and delivered Master Grid Promissory Note in the form of Exhibit A.
Each Loan shall be in an aggregate amount not less than One Hundred Thousand
United States Dollars (U.S. $100,000) and increments of One Thousand United
States Dollars (U.S. $1,000) in excess thereof. Payment of principal and
interest due with respect to each Loan shall be payable at the maturity of such
Loan and shall be made in funds immediately available to the Bank prior to 2
p.m. Dallas time on the day such payment is due, or as the Bank shall otherwise
direct from time to time and, subject to the terms and conditions hereof, may be
repaid with the proceeds of a new borrowing hereunder. Notwithstanding any
provision of this Agreement to the contrary, all Loans, accrued but unpaid
interest and other amounts payable hereunder shall be due and payable upon
termination of the Facility (whether by acceleration or otherwise). If any Loan
bearing interest based on the London Interbank Offered Rate is repaid or prepaid
other than on the last day of an interest period applicable thereto, the Fund
which is the beneficiary of such Loan shall pay to the Bank promptly upon demand
such amount as the Bank determines in good faith is necessary to compensate the
Bank for any reasonable cost or expense incurred by the Bank as a result of such
repayment or prepayment in connection with the reemployment of funds in an
amount equal to such repayment or prepayment. Whenever the Bank seeks to assess
for any such cost or expense it will provide a certificate as the Borrower(s)
shall reasonably request.
5. Facility Fee. Beginning with the date of this Agreement and until such
time as all Loans have been irrevocably repaid to the Bank in full, and the Bank
is no longer obligated to make Loans, the Funds (to be allocated among the Funds
as the Borrowers deem appropriate) shall pay to the Bank a facility fee (the
"Facility Fee") in the amount of .05 of one percent (5 basis points) of the
amount of the Commitment, as it may be reduced pursuant to section 6. The
Facility Fee shall be payable quarterly in arrears beginning March 31, 1997, and
upon termination of the Facility (whether by acceleration or otherwise).
6. Optional Termination or Reduction of Commitment. The Borrowers shall
have the right upon at least three (3) business days prior written notice to the
Bank, to terminate or reduce the unused portion of the Commitment. Any such
reduction of the Commitment shall be in the amount of Five Million United States
Dollars (U.S. $5,000,000) or any larger integral multiple of One Million United
States Dollars (U.S. $1,000,000) (except that any reduction may be in the
aggregate amount of the unused Commitment). Accrued fees with respect to the
terminated Commitment shall be payable to the Bank on the effective date of such
termination.
7. Mandatory Termination of Commitment. The Commitment shall
automatically terminate on the last day of the Facility Period and any Loans
then outstanding (together with accrued interest thereon and any other amounts
owing hereunder) shall be due and payable on such date.
8. Committed Facility. The Bank acknowledges that the Facility is a
committed facility and that the Bank shall be obligated to make any Loan
requested during the Facility Period under this Agreement, subject to the terms
and conditions hereof; provided, however, that the Bank shall not be obligated
to make any Loan if this Facility has been terminated by the Borrowers, or if at
the time of a request for a Loan by a Borrower (on behalf of the applicable
Fund(s)) there exists any Event of Default or condition which, with the passage
of time or giving of notice, or both, would constitute or become an Event of
Default with respect to such Borrower (or such applicable Fund(s)).
9. Loan Requests. Each request for a Loan (each a "Borrowing Notice")
shall be in writing by the applicable Borrower(s), except that such Borrower(s)
may make an oral request (each an "Oral Request") provided that each Oral
Request shall be followed by a written Borrowing Notice within one business day.
Each Borrowing Notice shall specify the following terms ("Terms") of the
requested Loan: (i) the date on which such Loan is to be disbursed, (ii) the
principal amount of such Loan, (iii) the Borrower(s) which are borrowing such
Loan and the amount of such Loan to be borrowed by each Borrower, (iv) the Funds
for whose benefit the Loan is being borrowed and the amount of the Loan which is
for the benefit of each such Fund, (v) whether such Loan shall bear interest at
the Federal Funds Rate or the London Interbank Offered Rate, and (vi) the
requested maturity date of the Loan. Each Borrowing Notice shall also set forth
the total assets of each Fund for whose benefit a portion of the Loan is being
borrowed as of the close of business on the day immediately preceding the date
of such Borrowing Notice. Borrowing Notices shall be delivered to the Bank by
1:00 p.m. Dallas time on the day the Loan is requested to be made if such Loan
is to bear interest based on the Federal Funds Rate or by 10:00 a.m. Dallas time
on the second business day before the Loan is requested to be made if such Loan
is to bear interest based on the London Interbank Offered Rate.
Each Borrowing Notice shall constitute a representation to the Bank by the
applicable Borrower(s) that all of the representations and warranties in Section
12 hereof are true and correct as of such date and that no Event of Default or
other condition which with the passage of time or giving of notice, or both,
would result in an Event of Default, has occurred or is occurring.
10. Confirmations; Crediting of Funds; Reliance by the Bank. Upon
receipt by the Bank of a Borrowing Notice:
(a) The Bank shall send each applicable Borrower written
confirmation of the Terms of such Loan via facsimile or telecopy, as soon
as reasonably practicable; provided, however, that the failure to do so
shall not affect the obligation of any such Borrower;
(b) The Bank shall make such Loan in accordance with the Terms
by transfer of the Loan amount in immediately available funds, to the
account of the applicable Borrower(s) as specified in Exhibit B to this
Agreement or as such Borrower(s) shall otherwise specify to the Bank in a
writing signed by an Authorized Individual (as defined in Section 11) of
such Borrower(s) and sent to the Bank via facsimile or telecopy; and
(c) The Bank shall make appropriate entries on the Note or the
records of the Bank to reflect the Terms of the Loan; provided, however,
that the failure to do so shall not affect the obligation of any
Borrower.
The Bank shall be entitled to rely upon and act hereunder pursuant to any Oral
Request which it reasonably believes to have been made by the applicable
Borrower through an Authorized Individual. If any Borrower believes that the
confirmation relating to any Loan contains any error or discrepancy from the
applicable Oral Request, such Borrower will promptly notify the Bank thereof.
11. Borrowing Resolutions and Officers' Certificates; Subordination
Agreement. Prior to the making of any Loan pursuant to this Agreement, the
Borrowers shall have delivered to the Bank (a) the duly executed Note, (b)
resolutions of each Borrower's Trustees or Board of Directors authorizing such
Borrower to execute, deliver and perform this Agreement and the Note on behalf
of the applicable Funds, (c) an Officer's Certificate in substantially the form
set forth in Exhibit D to this Agreement, authorizing certain individuals
("Authorized Individuals"), to take on behalf of each Borrower (on behalf of the
applicable Funds) actions contemplated by this Agreement and the Note, (d) a
subordination agreement in substantially the form set forth in Exhibit E to this
Agreement, and (e) the opinion of counsel to USAA Investment Management Company,
manager and advisor to the Borrowers, with respect to such matters as the Bank
may reasonably request.
12. Representations and Warranties. In order to induce the Bank to enter
into this Agreement and to make the Loans provided for hereunder, each Borrower
hereby makes with respect to itself, and as may be relevant, the series of Funds
comprising such Borrower the following representations and warranties, which
shall survive the execution and delivery hereof and of the Note:
(a) Organization, Standing, etc. The Borrower is a corporation
or trust duly organized, validly existing, and in good standing under
applicable state laws and has all requisite corporate or trust power and
authority to carry on its respective businesses as now conducted and
proposed to be conducted, to enter into this Agreement and all other
documents to be executed by it in connection with the transactions
contemplated hereby, to issue and borrow under the Note and to carry out
the terms hereof and thereof;
(b) Financial Information; Disclosure, etc. The Borrower has
furnished the Bank with certain financial statements of such Borrower
with respect to itself and the applicable Funds, all of which such
financial statements have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis and fairly
present the financial position and results of operations of such Borrower
and the applicable Funds on the dates and for the periods indicated.
Neither this Agreement nor any financial statements, reports or other
documents or certificates furnished to the Bank by such Borrower or the
applicable Funds in connection with the transactions contemplated hereby
contain any untrue statement of a material fact or omit to state any
material fact necessary to make the statements contained herein or
therein in light of the circumstances when made not misleading;
(c) Authorization; Compliance with Other Instruments. The
execution, delivery and performance of this Agreement and the Note, and
borrowings hereunder, have been duly authorized by all necessary
corporate or trust action of the Borrower and will not result in any
violation of or be in conflict with or constitute a default under any
term of the charter, by-laws or trust agreement of such Borrower or the
applicable Funds, or of any borrowing restrictions or prospectus or
statement of additional information of such Borrower or the applicable
Funds, or of any agreement, instrument, judgment, decree, order, statute,
rule or governmental regulation applicable to such Borrower, or result in
the creation of any mortgage, lien, charge or encumbrance upon any of the
properties or assets of such Borrower or the applicable Funds pursuant to
any such term. The Borrower and the applicable Funds are not in violation
of any term of their respective charter, by-laws or trust agreement, and
such Borrower and the applicable Funds are not in violation of any
material term of any agreement or instrument to which they are a party,
or to the best of such Borrower's knowledge, of any judgment, decree,
order, statute, rule or governmental regulation applicable to them;
(d) SEC Compliance. The Borrower and the applicable Funds are in
compliance in all material respects with all federal and state securities
or similar laws and regulations, including all material rules,
regulations and administrative orders of the Securities and Exchange
Commission (the "SEC") and applicable Blue Sky authorities. The Borrower
and the applicable Funds are in compliance in all material respects with
all of the provisions of the Investment Company Act of 1940, and such
Borrower has filed all reports with the SEC that are required of it or
the applicable Funds;
(e) Litigation. There is no action, suit or proceeding pending
or, to the best of the Borrower's knowledge, threatened against such
Borrower or the applicable Funds in any court or before any arbitrator or
governmental body which seeks to restrain any of the transactions
contemplated by this Agreement or which, if adversely determined, could
have a material adverse effect on the assets or business operations of
such Borrower or the applicable Funds or the ability of such Borrower and
the applicable Funds to pay and perform their obligations hereunder and
under the Notes; and
(f) Borrowers' Relationship to Funds. The assets of each Fund
for whose benefit Loans are borrowed by the applicable Borrower are
subject to and liable for such Loans and are available to the applicable
Borrower for the repayment of such Loans.
13. Affirmative Covenants of the Borrowers. Until such time as all
amounts of principal and interest due to the Bank by a Borrower pursuant to any
Loan made to such Borrower is irrevocably paid in full, and until the Bank is no
longer obligated to make Loans to such Borrower, such Borrower (for itself and
on behalf of its respective Funds) agrees:
(a) To deliver to the Bank as soon as possible and in any event
within ninety (90) days after the end of each fiscal year of such
Borrower and the applicable Funds, Statements of Assets and Liabilities,
Statements of Operations and Statements of Changes in Net Assets of each
applicable Fund for such fiscal year, as set forth in each applicable
Fund's Annual Report to shareholders together with a calculation of the
maximum amount which each applicable Fund could borrow under its
Borrowing Limit as of the end of such fiscal year;
(b) To deliver to the Bank as soon as available and in any event
within seventy-five (75) days after the end of each semiannual period of
such Borrower and the applicable Funds, Statements of Assets and
Liabilities, Statements of Operations and Statements of Changes in Net
Assets of each applicable Fund as of the end of such semiannual period,
as set forth in each applicable Fund's Semiannual Report to shareholders,
together with a calculation of the maximum amount which each applicable
Fund could borrow under its Borrowing Limit at the end of such semiannual
period;
(c) To deliver to the Bank prompt notice of the occurrence of
any event or condition which constitutes, or is likely to result in, a
change in such Borrower or any applicable Fund which could reasonably be
expected to materially adversely affect the ability of any applicable
Fund to promptly repay outstanding Loans made for its benefit or the
ability of such Borrower to perform its obligations under this Agreement
or the Note;
(d) To do, or cause to be done, all things necessary to preserve
and keep in full force and effect the corporate or trust existence of
such Borrower and all permits, rights and privileges necessary for the
conduct of its businesses and to comply in all material respects with all
applicable laws, regulations and orders, including without limitation,
all rules and regulations promulgated by the SEC;
(e) To promptly notify the Bank of any litigation, threatened
legal proceeding or investigation by a governmental authority which could
materially affect the ability of such Borrower or the applicable Funds to
promptly repay the outstanding Loans or otherwise perform their
obligations hereunder; and
(f) In the event a Loan for the benefit of a particular Fund is
not repaid in full within 10 days after the date it is borrowed, and
until such Loan is repaid in full, to deliver to the Bank, within two
business days after each Friday occurring after such 10th day, a
statement setting forth the total assets of such Fund as of the close of
business on each such Friday.
14. Negative Covenants of the Borrowers. Until such time as all amounts
of principal and interest due to the Bank by a Borrower pursuant to any Loan
made to such Borrower is irrevocably paid in full, and until the Bank is no
longer obligated to make Loans to such Borrower, such Borrower (for itself and
on behalf of its respective Funds) agrees:
(a) Not to incur any indebtedness for borrowed money (other than
pursuant to a $750,000,000 uncommitted master revolving credit facility
with USAA Capital Corporation (the "Other Facility") and overdrafts
incurred at the custodian of the Funds from time to time in the ordinary
course of business) except the Loans, without the prior written consent
of the Bank, which consent will not be unreasonably withheld; and
(b) Not to dissolve or terminate its existence, or merge or
consolidate with any other person or entity, or sell all or substantially
all of its assets in a single transaction or series of related
transactions (other than assets consisting of margin stock), each without
the prior written consent of the Bank, which consent will not be
unreasonably withheld; provided that a Borrower may without such consent
merge, consolidate with, or purchase substantially all of the assets of,
or sell substantially all of its assets to, an affiliated investment
company or series thereof, as provided for in Rule 17a-8 of the
Investment Company Act of 1940.
15. Events of Default. If any of the following events (each an "Event of
Default") shall occur (it being understood that an Event of Default with respect
to one Fund or Borrower shall not constitute an Event of Default with respect to
any other Fund or Borrower):
(a) Any Borrower or Fund shall default in the payment of
principal or interest on any Loan or any other fee due hereunder for a
period of five (5) days after the same becomes due and payable, whether
at maturity or with respect to the Facility Fee at a date fixed for the
payment thereof;
(b) Any Borrower or Fund shall default in the performance of or
compliance with any term contained in Section 13 hereof and such default
shall not have been remedied within thirty (30) days after written notice
thereof shall have been given such Borrower or Fund by the Bank;
(c) Any Borrower or Fund shall default in the performance of or
compliance with any term contained in Section 14 hereof;
(d) Any Borrower or Fund shall default in the performance or
compliance with any other term contained herein and such default shall
not have been remedied within thirty (30) days after written notice
thereof shall have been given such Borrower or Fund by the Bank;
(e) Any representation or warranty made by a Borrower or Fund
herein or pursuant hereto shall prove to have been false or incorrect in
any material respect when made;
(f) USAA Investment Management Company or any successor manager
or investment adviser, provided that such successor is a wholly-owned
subsidiary of USAA Capital Corporation, shall cease to be the Manager and
investment advisor of each Fund; or
(g) An event of default shall occur and be continuing under the
Other Facility;
then, in any event, and at any time thereafter, if any Event of Default shall be
continuing, the Bank may by written notice to the applicable Borrower or Fund
(i) terminate its commitment to make any Loan hereunder, whereupon said
commitment shall forthwith terminate without any other notice of any kind with
respect to such Borrower or Fund and (ii) declare the principal and interest in
respect of any outstanding Loans with respect to such Borrower or Fund, and all
other amounts due hereunder with respect to such Borrower or Fund, to be
immediately due and payable whereupon the principal and interest in respect
thereof and all other amounts due hereunder shall become forthwith due and
payable without presentment, demand, protest or other notice of any kind, all of
which are expressly waived by the Borrowers.
16. New Borrowers; New Funds. So long as no Event of Default or condition
which, with the passage of time or the giving of notice, or both, would
constitute or become an Event of Default has occurred and is continuing, and
with the prior consent of the Bank, which consent will not be unreasonably
withheld:
(a) Any investment company that becomes part of the same "group
of investment companies" (as that term is defined in Rule 11a-3 under the
Investment Company Act of 1940) as the original Borrowers to this
Agreement, may, by submitting an amended Schedule A and Exhibit B to this
Agreement to the Bank (which amended Schedule A and Exhibit B shall
replace the Schedule A and Exhibit B which are then a part of this
Agreement) and such other documents as the Bank may reasonably request,
become a party to this Agreement and may become a "Borrower" hereunder;
and
(b) A Borrower may, by submitting an amended Schedule A and
Exhibit B to this Agreement to the Bank (which amended Schedule A and
Exhibit B shall replace the Schedule A and Exhibit B which are then a
part of this Agreement), add additional Funds for whose benefit such
Borrower may borrow Loans. No such amendment of Schedule A to this
Agreement shall amend the Borrowing Limit applicable to any Fund without
the prior consent of the Bank.
17. Limited Recourse. The Bank agrees (i) that any claim, liability, or
obligation arising hereunder or under the Note whether on account of the
principal of any Loan, interest thereon, or any other amount due hereunder or
thereunder shall be satisfied only from the assets of the specific Fund for
whose benefit a Loan is borrowed and in any event in an amount not to exceed the
outstanding principal amount of any Loan borrowed for such Fund's benefit,
together with accrued and unpaid interest due and owing thereon, and such Fund's
share of any other amount due hereunder and under the Note (as determined in
accordance with the provisions hereof) and (ii) that no assets of any Fund shall
be used to satisfy any claim, liability, or obligation arising hereunder or
under the Note with respect to the outstanding principal amount of any Loan
borrowed for the benefit of any other Fund or any accrued and unpaid interest
due and owing thereon or such other Fund's share of any other amount due
hereunder and under the Note (as determined in accordance with the provisions
hereof).
18. Remedies on Default. In case any one or more Events of Default shall
occur and be continuing, the Bank may proceed to protect and enforce its rights
by an action at law, suit in equity or other appropriate proceedings, against
the applicable Borrower(s) and/or Fund(s), as the case may be. In the case of a
default in the payment of any principal or interest on any Loan or in the
payment of any fee due hereunder, the relevant Fund(s) (to be allocated among
such Funds as the Borrowers deem appropriate) shall pay to the Bank such further
amount as shall be sufficient to cover the cost and expense of collection,
including, without limitation, reasonable attorney's fees and expenses.
19. No Waiver of Remedies. No course of dealing or failure or delay on
the part of the Bank in exercising any right or remedy hereunder or under the
Note shall constitute a waiver of any right or remedy hereunder or under the
Note, nor shall any partial exercise of any right or remedy hereunder or under
the Note preclude any further exercise thereof or the exercise of any other
right or remedy hereunder or under the Note. Such rights and remedies expressly
provided are cumulative and not exclusive of any rights or remedies which the
Bank would otherwise have.
20. Expenses. The Fund(s) (to be allocated among the Funds as the
Borrowers deem appropriate) shall pay on demand all reasonable out-of-pocket
costs and expenses (including reasonable attorney's fees and expenses) incurred
by the Bank in connection with the collection and any other enforcement
proceedings of or regarding this Agreement, any Loan or the Note.
21. Benefit of Agreement. This Agreement and the Note shall be binding
upon and inure for the benefit of and be enforceable by the respective
successors and assigns of the parties hereto; provided that no party to this
Agreement or the Note may assign any of its rights hereunder or thereunder
without the prior written consent of the other parties. The Bank may not sell
participations and subparticipations in all or any part of the Loans made
hereunder without the prior consent of the Borrowers, which consent shall not be
unreasonably withheld.
22. Notices. All notices hereunder and all written, facsimiled or
telecopied confirmations of Oral Requests made hereunder shall be sent to the
Borrowers as indicated on Exhibit B and to the Bank as indicated on Exhibit C.
Written communications shall be deemed to have been duly given and made as
follows: If sent by mail, seventy-two (72) hours after deposit in the mail with
first-class postage prepaid, addressed as provided in Exhibit B (the Borrowers)
and Exhibit C (the Bank); and in the case of facsimile or telecopy, when the
facsimile or telecopy is received if on a business day or otherwise on the next
business day.
23. Modifications. No provision of this Agreement or the Note may be
waived, modified or discharged except by mutual written agreement of all
parties. THIS WRITTEN LOAN AGREEMENT AND THE NOTE REPRESENT THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN AGREEMENTS BETWEEN THE PARTIES.
24. Increased Cost and Reduced Return. If at any time after the date
hereof, the Bank (which shall include, for purposes of this Section, any
corporation controlling the Bank) determines that the adoption or modification
of any applicable law regarding the Bank's required levels of reserves, other
than the reserve requirement taken into account when computing the London
Interbank Offered Rate as provided in Section 3, or capital (including any
allocation of capital requirements or conditions), or similar requirements, or
any interpretation or administration thereof by a governmental body or
compliance by the Bank with any of such requirements, has or would have the
effect of (a) increasing the Bank's costs relating to the Loans, or (b) reducing
the yield or rate of return of the Bank on the Loans, to a level below that
which the Bank could have achieved but for the adoption or modification of any
such requirements, the Funds (to be allocated among the Funds as the Borrowers
deem appropriate) shall, within fifteen (15) days of any request by the Bank,
pay to the Bank such additional amounts as (in the Bank's sole judgment, after
good faith and reasonable computation) will compensate the Bank for such
increase in costs or reduction in yield or rate of return of the Bank. Whenever
the Bank shall seek compensation for any increase in costs or reduction in yield
or rate of return, the Bank shall provide a certificate as the Borrower(s) shall
reasonably request. Failure by the Bank to demand payment within 90 days of any
additional amounts payable hereunder shall constitute a waiver of the Bank's
right to demand payment of such amounts at any subsequent time. Nothing herein
contained shall be construed or so operate as to require the Borrowers or the
Funds to pay any interest, fees, costs or charges greater than is permitted by
applicable law.
25. Governing Law and Jurisdiction. This Agreement shall be governed
by and construed in accordance with the laws of the state of Texas without
regard to the choice of law provisions thereof.
26. Trust Disclaimer. Neither the shareholders, trustees, officers,
employees and other agents of any Borrower or Fund shall be personally bound by
or liable for any indebtedness, liability or obligation hereunder or under the
Note nor shall resort be had to their private property for the satisfaction of
any obligation or claim hereunder.
If this letter correctly reflects your agreement with us, please execute both
copies hereof and return one to us, whereupon this Agreement shall be binding
upon the Borrowers, the Funds and the Bank.
Sincerely,
NATIONSBANK OF TEXAS, N.A.
By: /s/ Kate Salletly
-----------------
Title: Senior Vice President
AGREED AND ACCEPTED:
USAA MUTUAL FUND, INC., on behalf of and for the benefit of its series of Funds
as set forth on Schedule A to this Agreement
By: /s/ Michael J.C. Roth
---------------------
Michael J.C. Roth
President
USAA INVESTMENT TRUST, on behalf of and for the benefit of its series of Funds
as set forth on Schedule A to this Agreement
By: /s/ Michael J.C. Roth
---------------------
Michael J.C. Roth
President
USAA TAX EXEMPT FUND, INC., on behalf of and for the benefit of its series of
Funds as set forth on Schedule A to this Agreement
By: /s/ Michael J.C. Roth
---------------------
Michael J.C. Roth
President
USAA STATE TAX-FREE TRUST, on behalf of and for the benefit of its series of
Funds as set forth on Schedule A to this Agreement
By: /s/ Michael J.C. Roth
---------------------
Michael J.C. Roth
President
SCHEDULE A
FUNDS FOR WHOSE BENEFIT LOANS CAN
BE BORROWED UNDER FACILITY AGREEMENT
AND BORROWING LIMIT
Maximum Percent of the
Total Assets Which Can
Be Borrowed Under Facility
Borrower Funds Agreement and Other Facility
USAA Mutual Fund, Inc. USAA Aggressive Growth 25%
USAA Growth & Income 25
USAA Income Stock 25
USAA Short-Term Bond 25
USAA Money Market 25
USAA Growth 25
USAA Income 25
USAA S&P 500 Index 25
USAA Investment Trust USAA Cornerstone Strateg 25
USAA Gold 25
USAA International 25
USAA World Growth 25
USAA GNMA Trust 25
USAA Treasury Money Market Trust 25
USAA Emerging Markets 25
USAA Growth and Tax Strategy 25
USAA Growth Strategy 25
USAA Income Strategy 25
USAA Balanced Strategy 25
USAA Tax Exempt Fund, Inc. USAA Long-Term 15
USAA Intermediate-Term 15
USAA Short-Term 15
USAA Tax Exempt Money Market 15
USAA California Bond 15
USAA California Money Market 15
USAA New York Bond 15
USAA New York Money Market 15
USAA Virginia Bond 15
USAA Virginia Money Market 15
USAA State Tax-Free Trust USAA Florida Tax-Free Income 15
USAA Florida Tax-Free Money Market 15
USAA Texas Tax-Free Income 15
USAA Texas Tax-Free Money Market 15
<PAGE>
EXHIBIT A
MASTER GRID PROMISSORY NOTE
U.S. $100,000,000 Dated: January 15, 1997
FOR VALUE RECEIVED, each of the undersigned (each a "Borrower" and
collectively the "Borrowers"), severally and not jointly, on behalf of and for
the benefit of the series of funds comprising each such Borrower as listed on
Schedule A to the Agreement as defined below (each a "Fund" and collectively the
"Funds") promises to pay to the order of NATIONSBANK OF TEXAS, N.A. (the "Bank")
at the Bank's office located at 901 Main Street, Dallas, Dallas County, Texas
75202, in lawful money of the United States of America, in immediately available
funds, the principal amount of all Loans made by the Bank to such Borrower for
the benefit of the applicable Funds under the Facility Agreement Letter dated
January 15, 1997 (as amended or modified, the "Agreement"), among the Borrowers
and the Bank, together with interest thereon at the rate or rates set forth in
the Agreement. All payments of interest and principal outstanding shall be made
in accordance with the terms of the Agreement.
This Note evidences Loans made pursuant to, and is entitled to the
benefits of, the Agreement. Terms not defined in this Note shall be as set forth
in the Agreement.
The Bank is authorized to endorse the particulars of each Loan
evidenced hereby on the attached Schedule and to attach additional Schedules as
necessary, provided that the failure of the Bank to do so or to do so accurately
shall not affect the obligations of any Borrower (or the Fund for whose benefit
it is borrowing) hereunder.
Each Borrower waives all claims to presentment, demand, protest, and
notice of dishonor. Each Borrower agrees to pay all reasonable costs of
collection, including reasonable attorney's fees in connection with the
enforcement of this Note.
The Bank hereby agrees (i) that any claim, liability, or obligation
arising hereunder or under the Agreement whether on account of the principal of
any Loan, interest thereon, or any other amount due hereunder or thereunder
shall be satisfied only from the assets of the specific Fund for whose benefit a
Loan is borrowed and in any event in an amount not to exceed the outstanding
principal amount of any Loan borrowed for such Fund's benefit, together with
accrued and unpaid interest due and owing thereon, and such Fund's share of any
other amount due hereunder and under the Agreement (as determined in accordance
with the provisions of the Agreement) and (ii) that no assets of any Fund shall
be used to satisfy any claim, liability, or obligation arising hereunder or
under the Agreement with respect to the outstanding principal amount of any Loan
borrowed for the benefit of any other Fund or any accrued and unpaid interest
due and owing thereon or such other Fund's share of any other amount due
hereunder and under the Agreement (as determined in accordance with the
provisions of the Agreement).
Neither the shareholders, trustees, officers, employees and other
agents of any Borrower or Fund shall be personally bound by or liable for any
indebtedness, liability or obligation hereunder or under the Note nor shall
resort be had to their private property for the satisfaction of any obligation
or claim hereunder.
This Note shall be governed by the laws of the state of Texas.
USAA MUTUAL FUND, INC., on
behalf of and for the
benefit of its series of
Funds as set forth on
Schedule A to the Agreement
By: /s/ Michael J.C. Roth
---------------------
Michael J.C. Roth
President
USAA INVESTMENT TRUST,
on behalf of and for the
benefit of its series of
Funds as set forth
on Schedule A to the
Agreement
By: /s/ Michale J.C. Roth
---------------------
Michael J.C. Roth
President
USAA TAX EXEMPT FUND, INC.,
on behalf of and for the
benefit of its series of
Funds as set forth on
Schedule A to the Agreement
By: /s/ Michael J.C. Roth
---------------------
Michael J.C. Roth
President
USAA STATE TAX-FREE TRUST,
on behalf of and for the
benefit of its series of
Funds as set forth on
Schedule A to the Agreement
By: /s/ Michael J.C. Roth
---------------------
Michael J.C. Roth
President
<PAGE>
LOANS AND PAYMENT OF PRINCIPAL
This schedule (grid) is attached to and made a part of the Promissory Note dated
January 15, 1997, executed by USAA MUTUAL FUND, INC., USAA INVESTMENT TRUST,
USAA TAX EXEMPT FUND, INC. AND USAA STATE TAX-FREE TRUST on behalf of and for
the benefit of the series of funds comprising each such Borrower payable to the
order of NATIONSBANK OF TEXAS, N.A.
[The following Information is Listed in Grid]
Date of Loan
Borrower and Fund
Amount of Loan
Type of Rate and Interest Rate on Date of Borrowing
Amount of Principal Repaid
Date of Repayment
Other Expenses
Notation made by
<PAGE>
EXHIBIT B
NATIONSBANK OF TEXAS, N.A.
MASTER REVOLVING
CREDIT FACILITY AGREEMENT
BORROWER INFORMATION SHEET
BORROWER: USAA MUTUAL FUND, INC., USAA INVESTMENT TRUST, USAA TAX
EXEMPT FUND, INC. AND USAA STATE TAX-FREE TRUST
ADDRESS FOR NOTICES AND OTHER COMMUNICATIONS TO THE BORROWER:
9800 Fredericksburg Road
San Antonio, Texas 78288
(for Federal Express, 78240)
Attention: John W. Saunders, Jr.
Senior Vice President,
Fixed Income Investments
Telephone: (210) 498-7320
Telecopy: (210) 498-5689
Harry W. Miller
Senior Vice President,
Equity Investments
Telephone: (210) 498-7344
Telecopy: (210) 498-7332
ADDRESS FOR BORROWING AND PAYMENTS:
9800 Fredericksburg Road
San Antonio, Texas 78288
(for Federal Express, 78240)
Attention: Dean R. Pantzar
Telephone: (210) 498-7472
Telecopy: (210) 498-0382 or 498-7819
Telex: 767424
INSTRUCTIONS FOR PAYMENTS TO BORROWER:
WE PAY VIA: X FED FUNDS CHIPS
<PAGE>
TO: (PLEASE PLACE BANK NAME, CORESPONDENT NAME (IF APPLICABLE), CHIPS
AND/OR FED FUNDS ACCOUNT NUMBER BELOW)
State Street Bank and Trust Company, Boston, Massachusetts
ABA #011-00-0028
USAA MUTUAL FUND, INC.
USAA Aggressive Growth Fund Acct.# 6938-502-9
USAA Growth & Income Fund Acct.# 6938-519-3
USAA Income Stock Fund Acct.# 6938-495-6
USAA Short-Term Bond Fund Acct.# 6938-517-7
USAA Money Market Fund Acct.# 6938-498-0
USAA Growth Fund Acct.# 6938-490-7
USAA Income Fund Acct.# 6938-494-9
USAA S&P 500 Index Fund Acct.# 6938-478-2
USAA INVESTMENT TRUST
USAA Cornerstone Strategy Fund Acct.# 6938-487-3
USAA Gold Fund Acct.# 6938-488-1
USAA International Fund Acct.# 6938-497-2
USAA World Growth Fund Acct.# 6938-504-5
USAA GNMA Trust Acct.# 6938-486-5
USAA Treasury Money Market Trust Acct.# 6938-493-1
USAA Emerging Markets Fund Acct.# 6938-501-1
USAA Growth and Tax Strategy Fund Acct.# 6938-509-4
USAA Growth Strategy Fund Acct.# 6938-510-2
USAA Income Strategy Fund Acct.# 6938-508-6
USAA Balanced Strategy Fund Acct.# 6938-507-8
USAA TAX EXEMPT FUND, INC.
USAA Long-Term Fund Acct.# 6938-492-3
USAA Intermediate-Term Fund Acct.# 6938-496-4
USAA Short-Term Fund Acct.# 6938-500-3
USAA Tax Exempt Money Market Fund Acct.# 6938-514-4
USAA California Bond Fund Acct.# 6938-489-9
USAA California Money Market Fund Acct.# 6938-491-5
USAA New York Bond Fund Acct.# 6938-503-7
USAA New York Money Market Fund Acct.# 6938-511-0
USAA Virginia Bond Fund Acct.# 6938-512-8
USAA Virginia Money Market Fund Acct.# 6938-513-6
USAA STATE TAX-FREE TRUST
USAA Florida Tax-Free Income Fund Acct.# 6938-473-3
USAA Florida Tax-Free Money Market Fund Acct.# 6938-467-5
USAA Texas Tax-Free Income Fund Acct.# 6938-602-7
USAA Texas Tax-Free Money Market Fund Acct.# 6938-601-9
<PAGE>
EXHIBIT C
ADDRESS FOR THE BANK
NationsBank of Texas, N.A.
901 Main Street
66th Floor
Dallas, Texas 75202
Attention: Greg Venker
Telephone No.: (214) 508-0584
Telecopy No.: (214) 508-0604
<PAGE>
EXHIBIT D
OFFICER'S CERTIFICATE
The undersigned hereby certifies that he is the duly elected Secretary of USAA
Mutual Fund, Inc., USAA Investment Trust, USAA Tax Exempt Fund, Inc. and USAA
State Tax-Free Trust and that he is authorized to execute this Certificate on
behalf of USAA Mutual Fund, Inc., USAA Investment Trust, USAA Tax Exempt Fund,
Inc. and USAA State Tax-Free Trust. The undersigned hereby further certifies to
the following:
The following individuals are duly authorized to act on behalf of USAA Mutual
Fund, Inc., USAA Investment Trust, USAA Tax Exempt Fund, Inc. and USAA State
Tax-Free Trust, by transmitting telephonic, telex, or telecopy instructions and
other communications with regard to borrowings and payments pursuant to the
Master Revolving Credit Facility Agreement with NationsBank of Texas, N.A. The
signature set opposite the name of each individual below is that individual's
genuine signature.
NAME OFFICE SIGNATURE
Michael J. C. Roth President /s/ Michael J.C. Roth
John W. Saunders, Jr. Senior Vice President
Fixed Income Investments /s/John W. Saunders, Jr.
Harry W. Miller Senior Vice President
Equity Investments /s/ Harry W. Miller
Kenneth E. Willmann Vice President
Mutual Fund Portfolios /s/ Kenneth E. Willmann
David G. Peebles Vice President
Equity Investments /s/ David G. Peebles
Sherron A. Kirk Vice President
Controller /s/ Sherron A. Kirk
Dean R. Pantzar Executive Director
Mutual Fund Accounting /s/ Dean R. Pantzar
<PAGE>
IN WITNESS WHEREOF, I have executed the Certificate as of this 15th day of
January, 1997.
/s/ Michael D. Wagner
---------------------
MICHAEL D. WAGNER
Secretary
I, Michael J. C. Roth, President of USAA Mutual Fund, Inc., USAA Investment
Trust, USAA Tax Exempt Fund, Inc. and USAA State Tax-Free Trust hereby certify
that Michael D. Wagner is, and has been at all times since a date prior to the
date of this Certificate, the duly elected, qualified, and acting Secretary of
USAA Mutual Fund, Inc., USAA Investment Trust, USAA Tax Exempt Fund, Inc. and
USAA State Tax-Free Trust and that the signature set forth above is his true and
correct signature.
DATE: January 15, 1997
/s/ Michael J.C. Roth
---------------------
MICHAEL J. C. ROTH
President
<PAGE>
EXHIBIT E
Subordination
NationsBank of Texas, N.A. Agreement
This is an agreement among:
Dated: January 15, 1997
- --------------------------------------------- ----------------------------------
Name and Address of Lender (Including County):
NationsBank of Texas, N.A.
901 Main Street
Dallas, Dallas County, Texas 75202
(Lender)
- ---------------------------------------------
Name and Address of Borrower:
USAA Mutual Fund, Inc.
USAA Investment Trust
USAA Tax Exempt Fund, Inc.
USAA State Tax-Free Trust
9800 Fredericksburg Road
San Antonio, TX 78288
(Debtor)
- ---------------------------------------------
Name and Address of Creditor:
USAA Capital Corporation
9800 Fredericksburg Road
San Antonio, Texas 78288
(Creditor)
- ---------------------------------------------
1. Background. Debtor is or may be indebted to Lender pursuant to that certain
Facility Agreement Letter dated January 15, 1997 between Debtor and Lender
("Senior Facility Agreement"). Debtor also is or may be indebted to Creditor
pursuant to that certain Facility Agreement Letter dated January 14, 1997
between Debtor and Creditor ("Subordinated Facility Agreement"). All debt
(as hereinafter defined) under the Senior Facility Agreement is hereinafter
referred to as "senior debt" and all debt (as hereinafter defined) under the
Subordinated Facility Agreement is hereinafter referred to as "subordinated
debt".
2. Definition of Debt. The term "debt" as used in the terms "senior debt" and
"subordinated debt" means all debts, obligations and liabilities, now or
hereafter existing, direct or indirect, absolute or contingent, joint or
several, secured or unsecured, due or not due, contractual or tortious,
liquidated or unliquidated, arising by operation of law or otherwise,
irrespective of the person in whose favor such debt may originally have been
created and regardless of the manner in which such debt has been or may
hereafter be acquired by Lender or Creditor, as the case may be, and
includes all costs incurred to obtain, preserve, perfect or enforce any
security interest, lien or mortgage, or to collect any debt or to maintain,
preserve, collect and enforce any collateral, and interest on such amounts.
3. Subordination of Debt. Until senior debt has been paid in full, Debtor will
not pay and Creditor will not accept any payment on subordinated debt at any
time that an Event of Default (as defined in the Senior Facility Agreement)
has occurred and is continuing in respect of senior debt. Anything of value
received by Creditor on account of subordinated debt in violation of this
agreement will be held by Creditor in trust and immediately will be turned
over to Lender in the form received to be applied by Lender on senior debt.
4. Remedies of Creditor. Until all senior debt has been paid in full, without
Lender's permission, Creditor will not be a party to any action or
proceeding against any person to recover subordinated debt. Upon written
request of Lender, Creditor will file any claim or proof of claim or take
any other action to collect subordinated debt in any bankruptcy,
receivership, liquidation, reorganization or other proceeding for relief of
debtors or in connection with Debtor's insolvency, or in liquidation or
marshaling of Debtor's assets or liabilities, or in any probate proceeding,
and if any distribution shall be made to Creditor, Creditor will hold the
same in trust for Lender and immediately pay to Lender, in the form received
to be applied on senior debt, all money or other assets received in any such
proceedings on account of subordinated debt until senior debt shall have
been paid in full. If Creditor shall fail to take any such action when
requested by Lender, Lender may enforce this agreement or as attorney in
fact for Creditor and Debtor may take any such action on Creditor's behalf.
Creditor hereby irrevocably appoints Lender Creditor's attorney in fact to
take any such action that Lender might request Creditor to take hereunder,
and to sue for, compromise, collect and receive all such money and other
assets and take any other action in Lender's own name or in Creditor's name
that Lender shall consider advisable for enforcement and collection of
subordinated debt, and to apply any amounts received on senior debt.
5. Modifications. At any time and from time to time, without Creditor's consent
or notice to Creditor and without liability to Creditor and without
releasing or impairing any of Lender's rights against Creditor or any of
Creditor's obligations hereunder, Lender may take additional or other
security for senior debt; release, exchange, subordinated or lose any
security for senior debt; release any person obligated on senior debt,
modify, amend or waive compliance with any agreement relating to senior
debt; grant any adjustment, indulgence or forbearance to, or compromise
with, any person liable for senior debt; neglect, delay, omit, fail or
refuse to take or prosecute any action for collection of any senior debt or
to foreclose upon any collateral or take or prosecute any action on any
agreement securing any senior debt.
6. Subordination of Liens. Creditor subordinates and makes inferior to any
security interests, liens or mortgages now or hereafter securing senior debt
all security interests, liens, or mortgages now or hereafter securing
subordinated debt. Any foreclosure against any property securing senior debt
shall foreclose, extinguish and discharge all security interests, liens and
mortgages securing subordinated debt, and any purchaser at any such
foreclosure sale shall take title to the property so sold free of all
security interest, liens and mortgages securing subordinated debt.
7. Statement of Subordination; Assignment by Creditor; Additional Instruments.
Debtor and Creditor will cause any instrument evidencing or securing
subordinated debt to bear upon its face a statement that such instrument is
subordinated to senior debt as set forth herein and will take all actions
and execute all documents appropriate to carry out this agreement. Creditor
will notify Lender not less than 10 days before any assignment of any
subordinated debt.
8. Assignment by Lender. Lender's rights under this agreement may be
assigned in connection with any assignment or transfer of any senior
debt.
9. Venue. Debtor and Creditor agree that this agreement is performable in the
county of Lender's address set out above.
10. Cumulative Rights; Waivers. This instrument is cumulative of all other
rights and securities of the Lender. No waiver by Lender of any right
hereunder, with respect to a particular payment, shall affect or impair its
rights in any matters thereafter occurring.
11. Successors and Assigns. This instrument is binding upon and shall inure to
the benefit of the heirs, executors, administrators, successors and assigns
of each of the parties hereto, but Creditor covenants that it will not
assign subordinated debt, or any part thereof, without making the rights and
interests of the assignee subject in all respects to the terms of this
instrument.
12. Termination. This agreement shall terminate upon the termination of the
Senior Facility Agreement and repayment in full of the senior debt.
(Lender) (Debtor) (Creditor)
NationsBank of Texas, N.A. USAA Mutual Fund, Inc. USAA Capital Corporation
USAA Investment Trust
USAA Tax Exempt Fund, Inc.
USAA State Tax-Free Trust
By /s/ Kate Salletly By /s/ Michael J.C. Roth By /s/ Laurie B. Blank
- --------------------- -------------------------- -----------------------
Its Senior Vice President Its President Its Treasurer
EXHIBIT 10(C)
GOODWIN, PROCTER, & HOAR LLP
COUNSELLORS AT LAW
EXCHANGE PLACE
BOSTON, MASSACHUSETTS 02109-2881
TELEPHONE (617) 670-1000
TELECOPIER (617) 523-1231
April 14, 1997
USAA Mutual Fund, Inc.
USAA Building
9800 Fredericksburg Road
San Antonio, Texas 78288
Ladies and Gentlemen:
We hereby consent to the reference in Post-Effective Amendment No. 44
(the "Amendment") to the Registration Statement (No. 2-49560) on Form N-1A of
USAA Mutual Fund, Inc. (the "Registrant"), a Maryland corporation, to our
opinion with respect to the legality of the shares of the Registrant
representing interests in the 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 the reference to this firm in the Prospectus
under the heading "Legal Counsel" and in the Statement of Additional Information
under the heading "General Information--Counsel" which form a part of the
Amendment and to the filing of this consent as an exhibit to the Amendment.
Very truly yours,
/s/ GOODWIN, PROCTER & HOAR LLP
-------------------------------
GOODWIN, PROCTER & HOAR LLP
DOCSC\506618.1
<PAGE>
EXHIBIT 11
CONSENT OF INDEPENDENT ACCOUNTANTS
------------------------------
We consent to the incorporation by reference in Post Effective Amendment No. 44
to the Registration Statement of USAA Mutual Fund, Inc. On Form N-1A of our
report dated January 27, 1997 on our audit of the financial statements and
financial highlights of USAA S&P 500 Index Fund which report is included in its
Annual Report to Shareholders for the year ended December 31, 1996 which is
incorporated by reference in the Post-Effective Amendment to the Registration
Statement. We also consent to the reference to our Firm in the Prospectus under
the caption "Service Providers" and in the Statement of Additional Information
under the captions "General Information" and "Independent Accountant".
/s/ COOPERS & LYBRAND L.L.P.
-----------------------------------
COOPERS & LYBRAND L.L.P.
Kansas City, Missouri
April 16, 1997
<PAGE>
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<DIVIDEND-INCOME> 17,525
<INTEREST-INCOME> 445
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<EXPENSES-NET> (6,343)
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<APPREC-INCREASE-CURRENT> 140,136
<NET-CHANGE-FROM-OPS> 221,375
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<DISTRIBUTIONS-OF-INCOME> (21,643)
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<EXPENSES-NET> (2,571)
<NET-INVESTMENT-INCOME> (1,690)
<REALIZED-GAINS-CURRENT> 3,034
<APPREC-INCREASE-CURRENT> 82,086
<NET-CHANGE-FROM-OPS> 83,430
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (12,865)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,338
<NUMBER-OF-SHARES-REDEEMED> (3,281)
<SHARES-REINVESTED> 392
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<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 53,323
<OTHER-INCOME> 0
<EXPENSES-NET> (4,333)
<NET-INVESTMENT-INCOME> 48,990
<REALIZED-GAINS-CURRENT> 0
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<NUMBER-OF-SHARES-SOLD> 1,309,151
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<ACCUMULATED-NII-CURRENT> 5,378
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 5,137
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 388,896
<NET-ASSETS> 1,987,894
<DIVIDEND-INCOME> 51,493
<INTEREST-INCOME> 1,268
<OTHER-INCOME> 0
<EXPENSES-NET> (6,444)
<NET-INVESTMENT-INCOME> 46,317
<REALIZED-GAINS-CURRENT> 37,116
<APPREC-INCREASE-CURRENT> 215,644
<NET-CHANGE-FROM-OPS> 299,077
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (43,334)
<DISTRIBUTIONS-OF-GAINS> (80,728)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 8,451
<NUMBER-OF-SHARES-REDEEMED> (9,383)
<SHARES-REINVESTED> 7,188
<NET-CHANGE-IN-ASSETS> 277,125
<ACCUMULATED-NII-PRIOR> 2,395
<ACCUMULATED-GAINS-PRIOR> 48,749
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 4,644
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 6,444
<AVERAGE-NET-ASSETS> 1,839,854
<PER-SHARE-NAV-BEGIN> 15.85
<PER-SHARE-NII> 0.41
<PER-SHARE-GAIN-APPREC> 2.28
<PER-SHARE-DIVIDEND> (0.39)
<PER-SHARE-DISTRIBUTIONS> (0.74)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 17.41
<EXPENSE-RATIO> 0.69
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000102401
<NAME> USAA MUTUAL FUND, INC.
<SERIES>
<NUMBER> 7
<NAME> USAA GROWTH & INCOME FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-END> JAN-31-1997
<INVESTMENTS-AT-COST> 438,862
<INVESTMENTS-AT-VALUE> 565,423
<RECEIVABLES> 6,937
<ASSETS-OTHER> 509
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 572,869
<PAYABLE-FOR-SECURITIES> 9,624
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 649
<TOTAL-LIABILITIES> 10,273
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 430,298
<SHARES-COMMON-STOCK> 35,397
<SHARES-COMMON-PRIOR> 27,628
<ACCUMULATED-NII-CURRENT> 405
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 5,332
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 126,561
<NET-ASSETS> 562,596
<DIVIDEND-INCOME> 5,113
<INTEREST-INCOME> 461
<OTHER-INCOME> 0
<EXPENSES-NET> (2,096)
<NET-INVESTMENT-INCOME> 3,478
<REALIZED-GAINS-CURRENT> 8,468
<APPREC-INCREASE-CURRENT> 81,413
<NET-CHANGE-FROM-OPS> 93,359
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (3,505)
<DISTRIBUTIONS-OF-GAINS> (13,136)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 8,898
<NUMBER-OF-SHARES-REDEEMED> (2,280)
<SHARES-REINVESTED> 1,151
<NET-CHANGE-IN-ASSETS> 190,795
<ACCUMULATED-NII-PRIOR> 432
<ACCUMULATED-GAINS-PRIOR> 10,000
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,397
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,096
<AVERAGE-NET-ASSETS> 461,501
<PER-SHARE-NAV-BEGIN> 13.46
<PER-SHARE-NII> 0.11
<PER-SHARE-GAIN-APPREC> 2.88
<PER-SHARE-DIVIDEND> (0.11)
<PER-SHARE-DISTRIBUTIONS> (0.45)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 15.89
<EXPENSE-RATIO> 0.90
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000102401
<NAME> USAA MUTUAL FUND, INC.
<SERIES>
<NUMBER> 8
<NAME> USAA SHORT-TERM BOND FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-END> JAN-31-1997
<INVESTMENTS-AT-COST> 114,010
<INVESTMENTS-AT-VALUE> 114,054
<RECEIVABLES> 1,731
<ASSETS-OTHER> 55
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 115,840
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 381
<TOTAL-LIABILITIES> 381
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 115,393
<SHARES-COMMON-STOCK> 11,630
<SHARES-COMMON-PRIOR> 10,323
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 22
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 44
<NET-ASSETS> 115,459
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3,563
<OTHER-INCOME> 0
<EXPENSES-NET> (270)
<NET-INVESTMENT-INCOME> 3,293
<REALIZED-GAINS-CURRENT> 451
<APPREC-INCREASE-CURRENT> 1,083
<NET-CHANGE-FROM-OPS> 4,827
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (3,293)
<DISTRIBUTIONS-OF-GAINS> (52)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,419
<NUMBER-OF-SHARES-REDEEMED> (2,401)
<SHARES-REINVESTED> 289
<NET-CHANGE-IN-ASSETS> 14,427
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (377)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 130
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 335
<AVERAGE-NET-ASSETS> 107,104
<PER-SHARE-NAV-BEGIN> 9.79
<PER-SHARE-NII> 0.30
<PER-SHARE-GAIN-APPREC> 0.15
<PER-SHARE-DIVIDEND> (0.30)
<PER-SHARE-DISTRIBUTIONS> (0.01)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 9.93
<EXPENSE-RATIO> 0.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000102401
<NAME> USAA MUTUAL FUND, INC.
<SERIES>
<NUMBER> 9
<NAME> S&P 500 INDEX FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 178,099
<RECEIVABLES> 1,145
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 179,244
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 171
<TOTAL-LIABILITIES> 171
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 162,470
<SHARES-COMMON-STOCK> 15,479
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 39
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,415
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 15,149
<NET-ASSETS> 179,073
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 1,546
<EXPENSES-NET> (62)
<NET-INVESTMENT-INCOME> 1,484
<REALIZED-GAINS-CURRENT> 1,415
<APPREC-INCREASE-CURRENT> 15,149
<NET-CHANGE-FROM-OPS> 18,048
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,445)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 16,887
<NUMBER-OF-SHARES-REDEEMED> (1,504)
<SHARES-REINVESTED> 96
<NET-CHANGE-IN-ASSETS> 179,073
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 133
<AVERAGE-NET-ASSETS> 114,585
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.12
<PER-SHARE-GAIN-APPREC> 1.57
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> (0.12)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 11.57
<EXPENSE-RATIO> 0.18
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
EXHIBIT 19(c)
POWER OF ATTORNEY
The undersigned Trustees and officers, as indicated respectively below,
of BT Investment Funds, BT Institutional Funds, BT Pyramid Mutual Funds, The
Leadership Trust, and BT Advisor Funds (each, a "Trust") and, Cash Management
Portfolio, Treasury Money Portfolio, Tax Free Money Portfolio, NY Tax Free Money
Portfolio, International Equity Portfolio, Utility Portfolio, Short/Intermediate
U.S. Government Securities Portfolio, Equity 500 Index Portfolio, Asset
Management Portfolio, Capital Appreciation Portfolio, Intermediate Tax Free
Portfolio, and BT Investment Portfolios (each, a "Portfolio Trust") each hereby
constitutes and appoints the Secretary and each Assistant Secretary of each
Trust and each Portfolio Trust and the Deputy General Counsel of Federated
Investors, each of them with full powers of substitution, as his true and lawful
attorney-in-fact and agent to execute in his name and on his behalf in any and
all capacities the Registration Statements on Form N-1A, and any and all
amendments thereto, and all other documents, filed by a Trust or a Portfolio
Trust with the Securities and Exchange Commission (the "SEC") under the
Investment Company Act of 1940, as amended, and (as applicable) the Securities
Act of 1933, as amended, and any and all instruments which such attorneys and
agents, or any of them, deem necessary or advisable to enable the Trust or
Portfolio Trust to comply with such Acts, the rules, regulations and
requirements of the SEC, and the securities or Blue Sky laws of any state or
other jurisdiction, and to file the same, with all exhibits thereto and other
documents in connection therewith, with the SEC and such other jurisdictions,
and the undersigned each hereby ratifies and confirms as his own act and deed
any and all acts that such attorneys and agents, or any of them, shall do or
cause to be done by virtue hereof. Any one of such attorneys and agent has, and
may exercise, all of the powers hereby conferred. The undersigned each hereby
revokes any Powers of Attorney previously granted with respect to any Trust or
Portfolio Trust concerning the filings and actions described herein.
IN WITNESS WHEREOF, each of the undersigned has hereunto set his hand
as of the 30th day of September, 1996.
SIGNATURES TITLE
/s/ Ronald M.Petnuch President and Treasurer
- ------------------------ (Chief Executive Officer,
Ronald M. Petnuch Principal Financial and
Accounting Officer)
of each Trust and Portfolio
Trust
/s/ Philip W. Coolidge Trustee of each Trust and
- ------------------------ Portfolio Trust
Philip W. Coolidge
/s/ Charles P. Biggar Trustee of each Portfolio
- ------------------------ Trust and BT Institutional
Charles P. Biggar Funds
<PAGE>
SIGNATURES TITLES
- ---------- ------
/s/ S. Leland Dill Trustee of each Portfolio
- ------------------------ Trust and BT Investment Funds
/S. Leland Dill
/s/ Philip Saunders, Jr. Trustee of each Portfolio
- ------------------------ Trust and BT Invsetment Funds
Philip Saunders, Jr.
<PAGE>
EXHIBIT 19(d)
POWER OF ATTORNEY
Know all men by these presents that the undersigned Director of USAA
MUTUAL FUND, INC., a Maryland Corporation (the "Company"), constitutes and
appoints Michael J.C. Roth, John W. Saunders, Jr. and Michael D. Wagner, and
each of them, as his true and lawful attorney-in-fact and agent, with full power
or substitution, for him and in his name, place and stead, in any and all
capacities to sign registration statements in his capacity as a Director of the
Fund on any form or forms filed under the Securities Act of 1933 and the
Investment Company Act of 1940 and any and all amendments thereto, with all
exhibits, instruments, and other documents necessary or appropriate in
connection with such filing and to file them with the Securities and Exchange
Commission or any other regulatory authority as may be necessary or desirable,
hereby ratifying and confirming all that said attorney-in-fact and agent or his
substitute, may lawfully do or cause to be done by virtue hereof.
/s/ Robert G. Davis March 24, 1997
- --------------------------------- ---------------------
Robert G. Davis, Director Date
<PAGE>
EXHIBIT 19(e)
POWER OF ATTORNEY
Know all men by these presents that the undersigned Director of USAA
MUTUAL FUND, INC., a Maryland Corporation (the "Company"), constitutes and
appoints Michael J.C. Roth, John W. Saunders, Jr. and Michael D. Wagner, and
each of them, as his true and lawful attorney-in-fact and agent, with full power
or substitution, for him and in his name, place and stead, in any and all
capacities to sign registration statements in his capacity as a Director of the
Fund on any form or forms filed under the Securities Act of 1933 and the
Investment Company Act of 1940 and any and all amendments thereto, with all
exhibits, instruments, and other documents necessary or appropriate in
connection with such filing and to file them with the Securities and Exchange
Commission or any other regulatory authority as may be necessary or desirable,
hereby ratifying and confirming all that said attorney-in-fact and agent or his
substitute, may lawfully do or cause to be done by virtue hereof.
/s/ Robert L. Mason March 24, 1997
- --------------------------------- ---------------------
Robert L. Mason, Director Date
<PAGE>
