As filed with the Securities and Exchange Commission on February 26, 1998.
19 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. 47
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 _X_
Amendment No. 35
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 March 1, 1998 pursuant to paragraph (b)
___ 60 days after filing pursuant to paragraph (a)(1)
___ on (date) pursuant to paragraph (a)(1)
___ 75 days after filing pursuant to paragraph (a)(2)
___ on (date) pursuant to paragraph (a)(2)
If appropriate, check the following box:
___ This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Exhibit Index on Pages 77-80
Page 1 of 141
<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
4. General Description
of Registrant..................... Fund Investments
Description of Shares
Appendix A
5. Management of the Fund............. Fund Management
Back Cover Page
6. Capital Stock and Other
Securities........................ Shareholder Information
Description of Shares
7. Purchase of Securities
Being Offered..................... How to Invest
Important Information About Purchases
and Redemptions
Exchanges
Shareholder Information
8. Redemption or Repurchase........... How to Invest
Important Information About Purchases
and Redemptions
Exchanges
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
14. Management of the
Registrant........................ Directors and Officers of the Company
15. Control Persons and
Principal Holders
of Securities..................... Directors and Officers of the Company
16. Investment Advisory and
Other Services.................... Directors and Officers of the Company
The Company's Manager
General Information
17. Brokerage Allocation and
Other Practices................... Portfolio Transactions
18. Capital Stock and Other
Securities........................ Further Description of Shares
19. Purchase, Redemption and
Pricing of Securities
Being Offered..................... Valuation of Securities
Conditions of Purchase and Redemption
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
Prospectuses for
Science & Technology Fund and
First Start Growth Fund
are included herein
Not included in this Post-Effective Amendment
are the Prospectuses for the
Aggressive Growth Fund, Growth Fund, Growth & Income Fund,
Income Stock Fund, Income Fund, Short-Term Bond Fund,
Money Market Fund, and S&P 500 Index Fund.
<PAGE>
Part A
Prospectus for the
Science & Technology Fund
is included herein
<PAGE>
USAA SCIENCE &
TECHNOLOGY FUND
PROSPECTUS
MARCH 1, 1998
The Fund is a no-load mutual fund offered by USAA Investment Management
Company. USAA will seek long-term capital appreciation by investing the Fund's
assets in equity securities of companies expected to benefit from the
development and use of scientific and technological advances and improvements.
SHARES OF THIS 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, ARE SUBJECT TO INVESTMENT RISKS, AND MAY LOSE VALUE.
AS WITH OTHER MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION (SEC) NOR HAS THE SEC
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
TABLE OF CONTENTS
Who Manages the Fund?.............. 2
What is the Investment Objective?.. 2
Is This Fund for You?.............. 2
How Do You Buy?.................... 2
Fees and Expenses.................. 3
Financial Highlights............... 3
Performance Information............ 4
Will the Value of Your
Investment Fluctuate?............ 4
A Word About Risk.................. 5
Fund Investments................... 5
Fund Management.................... 7
Using Mutual Funds in an
Investment Program................. 8
How to Invest...................... 9
Important Information About
Purchases and Redemptions........ 12
Exchanges.......................... 13
Shareholder Information............ 14
Description of Shares.............. 16
Appendix A......................... 17
Appendix B......................... 18
<PAGE>
THIS PROSPECTUS CONTAINS INFORMATION YOU SHOULD KNOW BEFORE YOU INVEST IN THE
FUND. PLEASE READ IT AND KEEP IT FOR FUTURE REFERENCE.
WHO MANAGES THE FUND?
USAA Investment Management Company manages the Fund. For easier reading, USAA
Investment Management Company will be referred to as "we" throughout the
Prospectus.
WHAT IS THE INVESTMENT OBJECTIVE?
The Fund's investment objective is long-term capital appreciation. See FUND
INVESTMENTS on page 5 for more information.
IS THIS FUND FOR YOU?
This Fund might be appropriate as part of your investment portfolio if . . .
o You are looking for significant growth.
o You are willing to accept very high risk.
o You are looking for a long-term investment.
This Fund MAY NOT be appropriate as part of your investment portfolio if . . .
o You need steady income.
o You are unwilling to take greater risk for long-term goals.
o You are unable or reluctant to invest for a period of seven years or more.
o You need an investment that provides tax-free income.
If you feel this Fund is not the one for you, refer to APPENDIX B on page 18
for a complete list of the USAA Family of No-Load Mutual Funds.
HOW DO YOU BUY?
You may make your initial investment directly by mail, in person or, in certain
instances, by telephone. Generally, the minimum initial investment is $3,000
[$500 for Uniform Gifts/Transfers to Minors Act (UGMA/UTMA) accounts and $250
for IRAs] and can be made by check or by wire. If you participate in one of our
automatic investment plans, your minimum initial investment may be less. There
is more information about how to purchase Fund shares on page 9.
2
<PAGE>
FEES AND EXPENSES
This summary shows what it will cost you directly or indirectly to invest in
the Fund.
Shareholder Transaction Expenses -- Fees You Pay Directly
There are no fees charged to your account when you buy or sell Fund shares.
However, if you sell shares and request your money by wire transfer, you will
pay a $10 fee. (Your bank may also charge a fee for receiving wires.)
Annual Fund Operating Expenses -- Fees You Pay Indirectly
Fund expenses come out of the Fund's assets and are reflected in the Fund's
share price and dividends. "Other Expenses" such as custodian and transfer
agent fees have been estimated for the Fund's first year of operation. The
figures below are calculated as a percentage of average net assets.
Management Fees .75% 12b-1 FEES-
12b-1 Fees None SOME MUTUAL FUNDS
Other Expenses (estimated) .60% CHARGE THESE FEES TO
----- PAY FOR ADVERTISING
Total Fund Operating Expenses 1.35% AND OTHER COSTS OF
===== SELLING FUNDS SHARES.
Example of Effect of Fund Operating 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.
1 year.............. $ 14
3 years............. 43
THIS EXAMPLE IS NOT A REPRESENTATION OF PAST OR FUTURE EXPENSES AND ACTUAL
EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS
Please read the Fund's Semiannual Report furnished with this Prospectus. The
Semiannual Report contains the Fund's unaudited financial statements, including
the Fund's financial highlights, which are legally a part of this Prospectus.
The Semiannual Report includes messages from the President and the Fund's
portfolio manager, a listing of the Fund's investments, and additional
performance information that you may wish to review.
3
<PAGE>
PERFORMANCE INFORMATION
Please consider performance information in light of the Fund's investment
objective and policies and market conditions during the reported time periods.
Remember, historical performance does not necessarily indicate what will happen
in the future. The value of your shares may go up or down. For the most current
price and return information for this Fund, you may call TouchLINE(R) at
1-800-531-8777. Press 1 for the Mutual Fund Menu, press 1 again for prices and
returns. Then, press 31# when asked for a Fund Code.
[TELEPHONE GRAPHIC]
TouchLINE (R)
1-800-531-8777
PRESS
1
THEN
1
THEN
3 1 #
NEWSPAPER SYMBOL
SCITECH
TICKER SYMBOL
USSCX
You can also find the most current price of your shares in the business section
of your newspaper in the mutual fund section under the heading "USAA Group" and
the symbol "SciTech." If you prefer to obtain this information from an on-line
computer service, you can do so by using the ticker symbol "USSCX."
You may see the Fund's total return quoted in advertisements and reports. All
mutual funds must use the same formula to calculate total return. Total return
measures the price change in a share assuming the reinvestment of all dividend
income and capital gain distributions. You may also see a comparison of the
Fund's performance to that of other mutual funds with similar investment
objectives and to stock or relevant indexes.
For the period from the Fund's inception on August 1, 1997, through January 31,
1998, the Fund's cumulative total return was:
(5.50%)
The figure on page 5 is different because it is for a period which ended
December 31, 1997.
WILL THE VALUE OF YOUR
INVESTMENT FLUCTUATE?
Yes, it will. The value of your investment will fluctuate with the changing
market value of the Fund's portfolio. The Fund's portfolio consists of
companies whose value is highly dependent on scientific and technological
developments. Many of the products and services of these companies are subject
to short life cycles and competitive pressures. Therefore, the market value of
the Fund's portfolio and the Fund's price per share are likely to fluctuate
significantly. The table shown on the next page illustrates how the Fund's
cumulative total return since inception compares to that of a broad-based
securities market index. Again, remember historical performance does not
necessarily indicate what will happen in the future.
4
<PAGE>
===============================================================================
Cumulative Total Returns Since Fund's Inception
(for the period ending December 31, 1997) on August 1, 1997
- -------------------------------------------------------------------------------
Science & Technology Fund (9.30%)
- -------------------------------------------------------------------------------
S&P 500 Index 2.43%
===============================================================================
THE S&P 500 INDEX IS A BROAD-BASED COMPOSITE UNMANAGED INDEX THAT REPRESENTS
THE AVERAGE PERFORMANCE OF A GROUP OF 500 WIDELY-HELD, PUBLICLY-TRADED STOCKS.
TOTAL RETURN
MEASURES THE PRICE
CHANGE IN A SHARE
ASSUMING THE REINVESTMENT
OF ALL DIVIDEND INCOME
AND CAPITAL GAIN DISTRIBUTIONS.
A WORD ABOUT RISK
Portions of this Prospectus describe the risks you will face as an investor in
the Fund. Keep in mind that generally investments with a higher potential
reward also have a higher risk of losing money. The reverse is also generally
true: the lower the risk, the lower the potential reward. However, as you
consider an investment in the Fund, you should also take into account your
tolerance for the daily fluctuations of the financial markets and whether you
can afford to leave your money in this investment for long periods of time to
ride out down periods.
[CAUTION LIGHT GRAPHIC]
Look for this symbol throughout the Prospectus. We use it to mark detailed
information about the main risks that you will face as a Fund shareholder.
FUND INVESTMENTS
Investment Policies and Risks
Q What is the Fund's investment policy?
A Under normal conditions, we will invest at least 80% of the Fund's net
assets in equity securities that we expect will benefit from the
development and use of scientific and technological advances and
improvements. Most of these assets will be invested in U.S. securities;
however, we may also invest the Fund's assets in foreign securities when
they are in line with the Fund's investment objective. For convenience,
this Prospectus refers to common stocks, preferred stocks, convertible
securities, and securities which carry the right to buy common stocks
collectively as "equity securities."
As a temporary defensive measure, we may invest up to 100% of the Fund's
assets in high-quality, short-term debt instruments.
We generally will not trade the Fund's assets in securities for
short-term profits; however, if circumstances warrant, we may purchase
and sell securities without regard to the length of time held. The
5
<PAGE>
Fund's portfolio turnover rate will vary from year to year depending on
market conditions, and is not expected to exceed 150%. A high turnover
rate increases transaction costs and may increase taxable capital gains;
therefore, we will carefully weigh the anticipated benefits of trading.
Q In what industries will the Fund's assets be invested?
A We will invest at least 80% of the Fund's net assets in industries such
as, but not limited to, biotechnology, computer hardware, software and
services, communication and telecommunication equipment and services,
electronics, health care, drugs, medical products and supplies,
specialized health care services, aerospace and defense, and other
industries that we believe may benefit indirectly from research and
development in the science and technology fields. We may invest the
Fund's remaining assets in any other industry.
Q What are the Fund's potential risks?
A Some of the potential risks of investing in this Fund include:
[CAUTION LIGHT GRAPHIC]
INDUSTRY RISK. A mutual fund portfolio consisting of investments related
to the fields of science and technology is likely to be more volatile
than a portfolio that is more widely diversified in other economic
sectors. Because of the competitiveness and rapid changes in the fields
of science and technology, many of the companies in the Fund's portfolio
are subject to distinctive risks. The products and services of these
companies may not be economically successful or may quickly become
outdated. In addition, many of these companies must comply with
significant governmental regulations and may need governmental approval
of their products and services.
[CAUTION LIGHT GRAPHIC]
MARKET RISK. Because this Fund invests in equity securities, it is
subject to stock market risk. Stock prices in general may decline over
short or even extended periods, regardless of the success or failure of
an individual company's operations. The stock market tends to run in
cycles, with periods when stock prices generally go up known as "bull"
markets and periods when stock prices generally go down referred to as
"bear" markets. Equity securities tend to go up and down more than
bonds.
[CAUTION LIGHT GRAPHIC]
FOREIGN INVESTING. Investing in foreign securities poses unique risks:
currency exchange rate fluctuations; foreign market illiquidity;
increased price volatility; exchange control regulations;
6
<PAGE>
foreign ownership limits; different accounting, reporting, and
disclosure requirements; and difficulties in obtaining legal judgments.
In the past, equity and debt instruments of foreign markets have been
more volatile than equity and debt instruments of U.S. securities
markets.
For additional information about other securities in which we may invest the
Fund's assets, see APPENDIX A on page 17.
Investment Restrictions
The following restrictions may only be changed with shareholder approval:
o The Fund may not invest 25% or more of its total assets in one industry.
o The Fund may not invest more than 5% of its total assets in any one issuer
or own more than 10% of the outstanding voting securities of any one
issuer. This limitation does not apply to U.S. Government securities, and
only applies to 75% of the Fund's total assets.
o The Fund may borrow only for temporary or emergency purposes in an amount
not exceeding 33 1/3% of its total assets.
You will find a complete listing of the precise investment restrictions in the
Fund's Statement of Additional Information.
FUND MANAGEMENT
The Board of Directors of USAA Mutual Fund, Inc. (Company), of which the Fund
is a series, supervises the business affairs of the Company. The Company has
retained us, USAA Investment Management Company, to serve as the manager and
distributor for the Company.
We are an affiliate of United Services Automobile Association (USAA), a large,
diversified financial services institution. As of the date of this Prospectus,
we had approximately $36 billion in total assets under management. Our mailing
address is 9800 Fredericksburg Road, San Antonio, TX 78288.
We provide management services to the Fund pursuant to an Advisory Agreement.
We are responsible for managing the Fund's portfolio (including placement of
brokerage orders) and its business affairs, subject to the authority of and
supervision by the Board of Directors. For our services, the Fund pays us an
annual fee. The fee, three-fourths of one percent (.75%) of average net assets,
is accrued daily and paid monthly. We also provide services related to selling
the Fund's shares and receive no compensation for those services.
In addition to the fees paid pursuant to the Advisory Agreement, the Fund pays
operating expenses which generally consist of transfer agent and custodian
7
<PAGE>
charges, auditing and legal expenses, certain expenses of registering and
qualifying shares for sale, fees of Directors who are not affiliated with us,
and costs of printing and mailing the Prospectus, Statement of Additional
Information, and periodic reports to existing shareholders.
Although our officers and employees, as well as those of the Company, may
engage in personal securities transactions, they are restricted by the
procedures in a Joint Code of Ethics adopted by the Company and us.
Portfolio Transactions
USAA Brokerage Services, our discount brokerage service, may execute purchases
and sales of equity securities for the Fund's portfolio. The Board of Directors
has adopted procedures to ensure that any commissions paid to USAA Brokerage
Services are reasonable and fair.
Portfolio Manager
Curt Rohrman, Assistant Vice President of Equity Investments since September
1996, has managed the Fund since August 1997. He has ten years investment
management experience and has worked for us for three years. Prior to joining
us, Mr. Rohrman worked for CS First Boston Corporation from June 1988 to March
1995. He earned the Chartered Financial Analyst designation in 1991 and is a
member of the Association for Investment Management and Research and the San
Antonio Financial Analysts Society, Inc. He holds an MBA from the University of
Texas at Austin and a BBA from Texas Christian University.
[PHOTOGRAPH OF PORTFOLIO MANAGER]
Curt Rohrman
USING MUTUAL FUNDS
IN AN INVESTMENT PROGRAM
I. The Idea Behind Mutual Funds
Mutual funds provide small investors some of the advantages enjoyed by wealthy
investors. A relatively small investment can buy part of a diversified
portfolio. That portfolio is managed by investment professionals, relieving you
of the need to make individual stock or bond selections. You also enjoy
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,
you own an investment that in earlier times would have been available only to
very wealthy people.
8
<PAGE>
II. Using Funds in an Investment Program
In choosing a mutual fund as an investment vehicle, you are giving up some
investment decisions, but must still make others. The decisions you don't have
to make are those involved with choosing individual securities. We will perform
that function. In addition, we will arrange for the safekeeping of securities,
auditing the annual financial statements, and daily valuation of the Fund, as
well as other functions.
You, however, retain at least part of the responsibility for an equally
important decision. This decision involves determining a portfolio of mutual
funds that balances your investment goals with your tolerance for risk. It is
likely that this decision may include the use of more than one fund of the USAA
Family of Funds.
For example, assume you wish to invest in a widely-diversified, common stock
portfolio. You could combine an investment in the Science & Technology Fund
with investments in other mutual funds that invest in stocks of large and small
companies and high-dividend stocks. This is just one way you could combine
funds to fit your own risk and reward goals.
III. USAA's Family of Funds
We offer you another alternative with our asset strategy funds listed under
asset allocation on page 18. These unique mutual funds provide a professionally
managed diversified investment portfolio within a mutual fund. They are
designed for the individual who prefers to delegate the asset allocation
process to an investment manager and are structured to achieve diversification
across a number of investment categories.
Whether you prefer to create your own mix of mutual funds or use a USAA 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 assist you with your choices and to help you
craft a portfolio to meet your needs.
HOW TO INVEST
Purchase of Shares
OPENING AN ACCOUNT
You may open an account and make an investment as described below by mail, in
person, bank wire, electronic funds transfer (EFT), or phone. A complete,
signed application is required for each new account.
9
<PAGE>
TAX ID NUMBER
Each shareholder named on the account must provide a social security number or
tax identification number to avoid possible withholding requirements.
EFFECTIVE DATE
When you make a purchase, your purchase price will be the net asset value (NAV)
per share next determined after we receive your request in proper form as
described below. The Fund's NAV is determined at the close of the regular
trading session (generally 4:00 p.m. Eastern Time) of the New York Stock
Exchange (NYSE) each day the NYSE is open. If we receive your request prior to
that time, your purchase price will be the NAV per share determined for that
day. If we receive your request after the NAV per share is calculated, the
purchase will be effective on the next business day. If you plan to purchase
Fund shares with a foreign check, we suggest you convert your foreign check to
U.S. dollars prior to investment in the Fund to avoid a potential delay in the
effective date of your purchase of 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.
MINIMUM INVESTMENTS
INITIAL PURCHASE
[MONEY GRAPHIC]
o $3,000[$500 Uniform Gifts/Transfers to Minors Act (UGMA/UTMA) accounts and
$250 for IRAs] or no initial investment if you elect to have monthly
electronic investments of at least $50 each. We may periodically offer
programs that reduce the minimum amounts for monthly electronic
investments. Employees of USAA and its affiliated companies may open an
account through payroll deduction for as little as $25 per pay period with
no initial investment.
ADDITIONAL PURCHASES
o $50
HOW TO PURCHASE
MAIL
[ENVELOPE GRAPHIC]
o To open an account, send your application and check to:
USAA Investment Management Company
9800 Fredericksburg Road
San Antonio, TX 78288
10
<PAGE>
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 Road
San Antonio, TX 78288
IN PERSON
[PEOPLE GRAPHIC]
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, TX
BANK WIRE
[ENVELOPE WIRE GRAPHIC]
o 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 Science & Technology Fund
USAA Account Number: 69384998
Shareholder(s) Name(s)__________________________
Shareholder(s) Account Number___________________
ELECTRONIC FUNDS TRANSFER
[CALENDAR GRAPHIC]
o Additional purchases on a regular basis can be deducted from a bank
account, paycheck, income-producing investment, or USAA money market fund
account. Sign up for these services when opening an account or call
1-800-531-8448 to add these services.
PHONE 1-800-531-8448
[TELEPHONE GRAPHIC]
o If you have an existing USAA account and would like to open a new account
or exchange to another USAA fund, call for instructions. To open an account
by phone, the new account must have the same registration as your existing
account.
Redemption of Shares
You may redeem Fund shares by any of the methods described below on any day the
NAV per share is calculated. Redemptions are effective on the day instructions
are received in a manner as described below. However, if instructions are
received after the NAV per share calculation (generally 4:00 p.m. Eastern
Time), redemption will be effective on the next business day.
11
<PAGE>
Within seven days after the effective date of redemption, we will send you your
money. Payment for redemption of shares purchased by EFT or check is sent after
the EFT or check 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 in limited circumstances.
HOW TO REDEEM
WRITTEN, FAX, TELEGRAPH, OR TELEPHONE
[FAX MACHINE GRAPHIC]
o Send your written instructions to:
USAA Shareholder Account Services
9800 Fredericksburg Road
San Antonio, TX 78288
o Send a signed fax to 1-800-292-8177, or send a telegram to USAA Shareholder
Account Services.
o Call toll free 1-800-531-8448, in San Antonio, 456-7202.
Telephone redemption privileges are 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. Before
any discussion regarding your account, we obtain the following information: (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, we record all telephone communications with you and
send confirmations of account transactions to the address of record. Redemption
by telephone, fax, or telegram is not available for shares represented by stock
certificates.
IMPORTANT INFORMATION ABOUT PURCHASES AND REDEMPTIONS
[BOOK GRAPHIC]
Investor's Guide to USAA Mutual Fund Services
Upon your initial investment with us, you will receive the INVESTOR'S GUIDE to
help you get the most out of your USAA mutual fund account and to help you in
your role as an investor. In the INVESTOR'S GUIDE, you will find additional
information on purchases, redemptions, and methods of payment. You will also
find in-depth information on automatic investment plans, shareholder statements
and reports, and other useful information.
12
<PAGE>
Account Balance
Beginning in September 1998, and occurring each September thereafter, USAA
Shareholder Account Services (SAS), the Fund's transfer agent, will assess a
small balance account fee of $12 to each shareholder account with a balance, at
the time of assessment, of less than $2,000. The fee will reduce total transfer
agency fees paid by the Fund to SAS. Accounts exempt from the fee include: (1)
any account regularly purchasing additional shares each month through an
automatic investment plan; (2) any account registered under the Uniform
Gifts/Transfers to Minors Act (UGMA/UTMA); (3) all (non-IRA) money market fund
accounts; (4) any account whose registered owner has an aggregate balance of
$50,000 or more invested in USAA mutual funds; and (5) all IRA accounts (for
the first year the account is open).
Company Rights
The Company reserves the right to:
o reject purchase or exchange orders when in the best interest of the
Company;
o limit or discontinue the offering of shares of any portfolio of the Company
without notice to the shareholders;
o 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); 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;
o require a signature guarantee for transactions or changes in account
information in those instances where the appropriateness of a signature
authorization is in question. The Statement of Additional Information
contains information on acceptable guarantors;
o redeem an account with less than 10 shares, with certain limitations.
EXCHANGES
Exchange Privilege
The exchange privilege is automatic 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 the shares to be acquired are
offered in your state of residence. The Fund's transfer agent will
simultaneously process exchange redemptions and purchases at the share
13
<PAGE>
prices next determined after the exchange order is received. For federal income
tax purposes, an exchange between Funds is a taxable event; and as such, you
may realize a capital gain or loss.
The Fund has undertaken certain procedures regarding telephone transactions as
described on page 12.
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. The limit on
exchanges out of any Fund in the USAA Family of Funds for each account is six
per calendar year (except there is no limitation on exchanges out of the Tax
Exempt Short-Term Fund, Short-Term Bond Fund, or any of the money market funds
in the USAA Family of Funds).
SHAREHOLDER INFORMATION
Share Price Calculation
The price at which you purchase and redeem Fund shares is equal to the net
asset value (NAV) per share determined on the effective date of the purchase or
redemption. You may buy and sell Fund shares at the NAV per share without a
sales charge. The Fund's NAV per share is calculated at the close of the
regular trading session of the NYSE, which is usually 4:00 p.m. Eastern Time.
The NAV per share is calculated by adding the value of all securities and other
assets in the Fund, deducting liabilities, and dividing by the number of shares
outstanding.
NAV
EQUALS TOTAL ASSETS
MINUS LIABILITIES DIVIDED
BY # OF SHARES OUTSTANDING
Dividends and Distributions
The Fund pays net investment income dividends yearly. Any net capital gain
distribution usually occurs within 45 days of the July 31 fiscal year end,
which would be somewhere around the middle of September. The Fund will make
additional payments to shareholders, if necessary, to avoid the imposition of
any federal income or excise tax.
All income dividends and capital gain distributions are automatically
reinvested, unless we receive different instructions from you. The share price
will be the NAV of the Fund shares computed on the ex-dividend date. Any income
dividends or capital gain distributions paid by the Fund will reduce the NAV
per share by the amount of the dividend or distribution. These dividends and
distributions are subject to taxes.
We will invest any dividend or distribution payment returned to us in your
account at the then-current NAV per share. Dividend and distribution checks
become void six months from the date on the check. The amount
14
<PAGE>
of the voided check will be invested in your account at the then-current NAV
per share.
Federal Taxes
This tax information is quite general and refers to the federal income tax
provisions in effect as of the date of this Prospectus. Note that the recently
enacted Taxpayer Relief Act of 1997 and regulations that will likely be adopted
to implement the Act may affect the status and treatment of certain
distributions shareholders receive from the Fund. We urge you to consult your
own tax adviser about the status of distributions from the Fund in your own
state and locality.
FUND - The Fund intends to qualify as a regulated investment company (RIC)
under Subchapter M of the Internal Revenue Code of 1986, as amended. As a RIC,
the Fund will not be subject to federal income tax on its net investment income
and net capital gains distributed to shareholders. Net capital gains are those
gains in excess of capital losses.
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.
Regardless of the length of time you have held the Fund shares, distributions
of net long-term capital gains are taxable as long-term capital gains whether
received in cash or reinvested in additional shares.
Redemptions and 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 - Federal law requires the Fund 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:
o fails to furnish the Fund with a correct tax identification number,
o underreports dividend or interest income, or
o fails to certify that he or she 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 Fund's transfer agent, that your tax
identification number is correct and you are not currently subject to backup
withholding.
REPORTING - The Fund will report information to you concerning the tax status
of dividends and distributions for federal income tax purposes annually.
15
<PAGE>
DESCRIPTION OF SHARES
The Fund is a series of USAA Mutual Fund, Inc. (Company) and is diversified.
The Company is an open-end management investment company incorporated under the
laws of the State of Maryland. The Company is authorized to issue shares of
common stock of separate series, each of which is commonly referred to as a
mutual fund. There are ten mutual funds in the Company, including this Fund. As
of January 31, 1998, USAA and its affiliates owned approximately 27.5% of the
Fund's shares.
The Company does not hold annual or regular meetings of shareholders and holds
special meetings only as required by the Investment Company Act of 1940. The
Directors may fill vacancies on the Board or appoint new Directors if the
result is that at least two-thirds of the Directors have still been elected by
shareholders. Shareholders have one vote per share (with proportionate voting
for fractional shares) regardless of the relative net asset value of the
shares. If a matter affects an individual fund in the Company, there will be a
separate vote of that specific fund's shareholders. Shareholders collectively
holding at least 10% of the outstanding shares of the Company may request a
shareholder meeting at any time for the purpose of voting to remove one or more
of the Directors. The Company will assist in communicating to other
shareholders about the meeting.
16
<PAGE>
APPENDIX A
The following are descriptions of certain types of securities in which we may
invest the Fund's assets:
CONVERTIBLE SECURITIES
We may invest in convertible securities which are bonds, preferred stocks, and
other securities that pay interest or dividends and offer the buyer the option
of converting the security into common stock. The value of convertible
securities depends partially on interest rate changes and the credit quality of
the issuer. Because a convertible security affords an investor the opportunity,
through its conversion feature, to participate in the capital appreciation of
the underlying common stock, the value of convertible securities also depends
on the price of the underlying common stock.
MONEY MARKET INSTRUMENTS
We may hold a certain portion of the Fund's assets in high-quality, U.S.
dollar-denominated debt securities that have remaining maturities of one year
or less. Such securities may include U.S. Government obligations, commercial
paper and other short-term corporate obligations, repurchase agreements
collateralized with U.S. Government securities, certificates of deposit,
bankers' acceptances, bank deposits, and other financial institution
obligations. These securities may carry fixed or variable interest rates.
ILLIQUID SECURITIES
We may not invest more than 15% of the market value of the Fund's net assets in
securities which are illiquid. Illiquid securities are those securities that
cannot be disposed of in the ordinary course of business in seven days or less
at approximately the value at which the Fund has valued the securities.
FORWARD CURRENCY CONTRACTS
We may hold securities denominated in foreign currencies. The value of these
securities will be affected by changes in the exchange rate between the dollar
and the foreign currencies. In managing currency exposure, we may enter into
forward currency contracts. A forward currency contract is an agreement to
purchase or sell a specified currency at a specified future date or over a
specified time period at a price set at the time of the contract. We only enter
into forward currency contracts when the Fund enters into a contract for the
purchase or sale of a security denominated in foreign currency and desires to
"lock in" the U.S. dollar price of that security.
17
<PAGE>
APPENDIX B
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 you with the opportunity to formulate your 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 other Funds in the USAA Family
of Funds, including charges and expenses, call us for a Prospectus. Read it
carefully before you invest or send money.
FUND
TYPE/NAME VOLATILITY
===============================================================
CAPITAL APPRECIATION
- ---------------------------------------------------------------
Aggressive Growth Very high
Emerging Markets (1) Very high
First Start Growth Moderate to high
Gold (1) Very high
Growth Moderate to high
Growth & Income Moderate
International (1) Moderate to high
S&P 500 Index (2) Moderate
Science & Technology Very high
World Growth (1) Moderate to high
- ---------------------------------------------------------------
ASSET ALLOCATION
- ---------------------------------------------------------------
Balanced Strategy Moderate
Cornerstone Strategy (1) Moderate
Growth and Tax Strategy Moderate
Growth Strategy (1) Moderate to high
Income Strategy Low to moderate
- ---------------------------------------------------------------
INCOME - TAXABLE
- ---------------------------------------------------------------
GNMA Low to moderate
Income Moderate
Income Stock Moderate
Short-Term Bond Low
- ---------------------------------------------------------------
INCOME - TAX EXEMPT
- ---------------------------------------------------------------
Long-Term (3) Moderate
Intermediate-Term (3) Low to moderate
Short-Term (3) Low
State Bond/Income (3,4) Moderate
- ---------------------------------------------------------------
MONEY MARKET
- ---------------------------------------------------------------
Money Market (5) Very low
Tax Exempt Money Market (3,5) Very low
Treasury Money Market Trust (5) Very low
State Money Market (3,4,5) Very low
===============================================================
1 FOREIGN INVESTING IS SUBJECT TO ADDITIONAL RISKS, SUCH AS CURRENCY
FLUCTUATIONS, MARKET ILLIQUIDITY, AND POLITICAL INSTABILITY.
2 S&P(R) IS A TRADEMARK OF THE MCGRAW-HILL COMPANIES, INC., AND HAS BEEN
LICENSED FOR USE. THE PRODUCT IS NOT SPONSORED, SOLD OR PROMOTED BY STANDARD
& POOR'S, AND STANDARD & POOR'S MAKES NO REPRESENTATION REGARDING THE
ADVISABILITY OF INVESTING IN THE PRODUCT.
3 SOME INCOME MAY BE SUBJECT TO STATE OR LOCAL TAXES.
4 CALIFORNIA, FLORIDA, NEW YORK, TEXAS, AND VIRGINIA FUNDS ARE OFFERED ONLY TO
RESIDENTS OF THOSE STATES.
5 AN INVESTMENT IN A MONEY MARKET FUND IS NEITHER INSURED NOR GUARANTEED BY
THE U.S. GOVERNMENT AND THERE IS NO ASSURANCE THAT ANY OF THE FUNDS WILL BE
ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1 PER SHARE.
18
<PAGE>
NOTES
<PAGE>
If you would like more information about the Fund, you may call 1-800-531-8181
to request a free copy of the Fund's Statement of Additional Information (SAI),
dated March 1, 1998 or the Fund's Semiannual Report, dated January 31, 1998.
The SAI and the financial statements contained with the Fund's Semiannual
Report have been filed with the SEC and are legally a part of the Prospectus.
Investment Adviser, Underwriter and Distributor
USAA Investment Management Company
9800 Fredericksburg Road
San Antonio, Texas 78288
-----------------------------------------------
Transfer Agent Custodian
USAA Shareholder Account Services State Street Bank and Trust Company
9800 Fredericksburg Road P.O. Box 1713
San Antonio, Texas 78288 Boston, Massachusetts 02105
-----------------------------------------------
Telephone Assistance
Call toll free - Central Time
Monday - Friday 8:00 a.m. to 8:00 p.m.
Saturdays 8:30 a.m. to 5:00 p.m.
------------------------------------------------
For Additional 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 Mutual Fund Price Quotes
24-Hour Service (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
<PAGE>
Part A
Prospectus for the
First Start Growth Fund
is included herein
<PAGE>
USAA FIRST START
GROWTH FUND
PROSPECTUS
MARCH 1, 1998
The Fund is a no-load mutual fund offered by USAA Investment Management
Company. USAA will seek long-term capital appreciation by investing the Fund's
assets in the stocks of companies that provide goods or services that we
believe are familiar to young people. USAA designed the Fund as part of a
program to stimulate interest in long-term investing by young people.
The USAA First Start Growth Fund is part of USAA First Start, a money
management plan for young people.
SHARES OF THIS 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, ARE SUBJECT TO INVESTMENT RISKS, AND MAY LOSE VALUE.
AS WITH OTHER MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION (SEC) NOR HAS THE SEC
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
TABLE OF CONTENTS
Who Manages the Fund?............. 2
What is the Investment Objective?. 2
Is This Fund for You?............. 2
How Do You Buy?................... 2
Fees and Expenses................. 3
Financial Highlights.............. 3
Performance Information........... 4
Will the Value of Your
Investment Fluctuate?............. 4
A Word About Risk................. 5
Fund Investments.................. 5
Fund Management................... 7
Using Mutual Funds in an
Investment Program................ 9
How to Invest..................... 10
Important Information About
Purchases and Redemptions......... 13
Exchanges......................... 14
Shareholder Information........... 14
Description of Shares............. 16
Appendix A........................ 17
Appendix B........................ 18
<PAGE>
THIS PROSPECTUS CONTAINS INFORMATION YOU SHOULD KNOW BEFORE YOU INVEST IN THE
FUND. PLEASE READ IT AND KEEP IT FOR FUTURE REFERENCE.
WHO MANAGES THE FUND?
USAA Investment Management Company manages the Fund. For easier reading, USAA
Investment Management Company will be referred to as "we" throughout the
Prospectus.
WHAT IS THE INVESTMENT OBJECTIVE?
The Fund's investment objective is long-term capital appreciation. See FUND
INVESTMENTS on page 5 for more information.
IS THIS FUND FOR YOU?
This Fund might be appropriate as part of your investment portfolio if . . .
o You are interested in learning about investments.
o You are willing to accept moderate to high risk.
o You are looking for a long-term investment.
This Fund MAY NOT be appropriate as part of your investment portfolio if . . .
o You need steady income.
o You are unwilling to take greater risk for long-term goals.
o You are unable or reluctant to invest for a period of five years or more.
o You need an investment that provides tax-free income.
If you feel this Fund is not the one for you, refer to APPENDIX B on page 18
for a complete list of the USAA Family of No-Load Mutual Funds.
HOW DO YOU BUY?
You may make your initial investment directly by mail, in person or, in certain
instances, by telephone. Generally, the minimum initial investment is $3,000
[$250 for IRAs] and can be made by check or by wire. To suit the needs of young
people, Uniform Gifts/Transfers to Minors Act (UGMA/UTMA) accounts may be
opened for as little as $250; or if you elect to have monthly electronic
investments of at least $20 each, there is no minimum required to open an
account. There is more information about how to purchase Fund shares on
page 10.
2
<PAGE>
FEES AND EXPENSES
This summary shows what it will cost you directly or indirectly to invest in
the Fund.
Shareholder Transaction Expenses -- Fees You Pay Directly
There are no fees charged to your account when you buy or sell Fund shares.
However, if you sell shares and request your money by wire transfer, you will
pay a $10 fee. (Your bank may also charge a fee for receiving wires.)
Annual Fund Operating Expenses -- Fees You Pay Indirectly
Fund expenses come out of the Fund's assets and are reflected in the Fund's
share price and dividends. "Other Expenses" such as custodian and transfer
agent fees have been estimated for the Fund's first year of operation. The
figures below are calculated as a percentage of average net assets.
Management Fees .75% 12B-1 FEES -
12b-1 Fees None SOME MUTUAL FUNDS
Other Expenses (estimated) .67% CHARGE THESE FEES TO
----- PAY FOR ADVERTISING
Total Fund Operating Expenses 1.42% AND OTHER COSTS OF
===== SELLING FUND SHARES.
Example of Effect of Fund Operating 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.
1 year.............. $14
3 years............. 45
THIS EXAMPLE IS NOT A REPRESENTATION OF PAST OR FUTURE EXPENSES AND ACTUAL
EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS
Please read the Fund's Semiannual Report furnished with this Prospectus. The
Semiannual Report contains the Fund's unaudited financial statements, including
the Fund's financial highlights, which are legally a part of this Prospectus.
The Semiannual Report includes messages from the President and the Fund's
portfolio manager, a listing of the Fund's investments, and additional
performance information that you may wish to review.
3
<PAGE>
PERFORMANCE INFORMATION
Please consider performance information in light of the Fund's investment
objective and policies and market conditions during the reported time periods.
Remember, historical performance does not necessarily indicate what will happen
in the future. The value of your shares may go up or down. For the most current
price and return information for this Fund, you may call TouchLINE(R) at
1-800-531-8777. Press 1 for the Mutual Fund Menu, press 1 again for prices and
returns. Then, press 32# when asked for a Fund Code.
[TELEPHONE GRAPHIC]
TouchLINE (R)
1-800-531-8777
PRESS
1
THEN
1
THEN
3 2 #
NEWSPAPER SYMBOL
FSTRTGR
TICKER SYMBOL
USSGX
You can also find the most current price of your shares in the business section
of your newspaper in the mutual fund section under the heading "USAA Group" and
the symbol "FStrtGr." If you prefer to obtain this information from an on-line
computer service, you can do so by using the ticker symbol "USFGX."
You may see the Fund's total return quoted in advertisements and reports. All
mutual funds must use the same formula to calculate total return. Total return
measures the price change in a share assuming the reinvestment of all dividend
income and capital gain distributions. You may also see a comparison of the
Fund's performance to that of other mutual funds with similar investment
objectives and to stock or relevant indexes.
For the period from the Fund's inception on August 1, 1997, through January 31,
1998, the Fund's cumulative total return was:
2.50%
The figure on page 5 is different because it is for a period which ended
December 31, 1997.
WILL THE VALUE OF YOUR
INVESTMENT FLUCTUATE?
Yes, it will. The value of your investment will fluctuate with the changing
market value of the Fund's portfolio. You may have a gain or loss when you sell
your shares. The table shown on the next page illustrates how the Fund's
cumulative total return since inception compares to that of a broad-based
securities market index. Again, remember historical performance does not
necessarily indicate what will happen in the future.
4
<PAGE>
===============================================================================
Cumulative Total Returns Since Fund's Inception
(for the period ending December 31, 1997) on August 1, 1997
- -------------------------------------------------------------------------------
First Start Growth Fund (.20%)
- -------------------------------------------------------------------------------
S&P 500 Index 2.43%
===============================================================================
THE S&P 500 INDEX IS A BROAD-BASED COMPOSITE UNMANAGED INDEX THAT REPRESENTS
THE AVERAGE PERFORMANCE OF A GROUP OF 500 WIDELY-HELD, PUBLICLY-TRADED STOCKS.
TOTAL RETURN
MEASURES THE PRICE
CHANGE IN A SHARE
ASSUMING THE REINVESTMENT
OF ALL DIVIDEND INCOME
AND CAPITAL GAIN DISTRIBUTIONS.
A WORD ABOUT RISK
Portions of this Prospectus describe the risks you will face as an investor in
the Fund. Keep in mind that generally investments with a higher potential
reward also have a higher risk of losing money. The reverse is also generally
true: the lower the risk, the lower the potential reward. However, as you
consider an investment in the Fund, you should also take into account your
tolerance for the daily fluctuations of the financial markets and whether you
can afford to leave your money in this investment for long periods of time to
ride out down periods.
[CAUTION LIGHT GRAPHIC]
Look for this symbol throughout the Prospectus. We use it to mark detailed
information about the main risks that you will face as a Fund shareholder.
FUND INVESTMENTS
Investment Policies and Risks
Q What is the Fund's investment policy?
A We will invest the Fund's assets in equity securities of companies that
provide goods or services that we believe are familiar to young people.
For convenience, this Prospectus refers to common stocks, preferred
stocks, convertible securities, and securities which carry the right to
buy common stocks collectively as "equity securities." Most of the
Fund's assets will be invested in U.S. securities; however, we may also
invest the Fund's assets in foreign securities when they are in line
with the Fund's investment objective.
We designed the Fund as part of a program to stimulate interest in
long-term investing by young people. Shareholders of the Fund may give
us their suggestions about the types of companies that they would like
us to consider for investment by the Fund. We
5
<PAGE>
invite shareholders to tell us the investment topics or the names of
stocks that they would like us to feature in the Fund's communications
to shareholders.
As a temporary defensive measure, we may invest up to 100% of the Fund's
assets in high-quality, short-term debt instruments.
Q In what industries will the Fund's assets be invested?
A We will invest the Fund's assets in many different industries. The Fund
is not a "sector" fund that focuses its investments in a specific
industry or sector of the economy. We believe that goods or services
that are likely to be familiar to young investors are provided by
companies engaged in many different types of industries. Such companies
may include computer hardware and software manufacturers, Internet
service providers, and companies in the apparel, automobile,
communications, entertainment, financial services, health services, and
travel industries, among others. We believe that the flexibility to
select equity securities of companies across a broad universe of
industries maximizes our opportunity to find attractive investments as
we pursue the Fund's objective of long-term capital appreciation.
Q Are the Fund's assets prohibited from being invested in any specific
industries?
A Yes. We will not invest the Fund's assets in companies whose primary
line of business is the production of tobacco products or alcoholic
beverages. Investments in firms primarily focused on gaming activities
are also prohibited.
Q What special services are provided to shareholders in this Fund?
A In addition to providing an investment opportunity for long-term capital
appreciation, shareholders will receive educational information targeted
to young people about the basic concepts of saving and investing.
Q What are the Fund's potential risks?
A Two potential risks of investing in this Fund include:
[CAUTION LIGHT GRAPHIC]
MARKET RISK. Because this Fund invests in equity securities, it is subject
to stock market risk. Stock prices in general may decline
6
<PAGE>
over short or even extended periods, regardless of the success or failure
of an individual company's operations. The stock market tends to run in
cycles, with periods when stock prices generally go up known as "bull
markets" and periods when stock prices generally go down referred to as
"bear" markets. Equity securities tend to go up and down more than bonds.
[CAUTION LIGHT GRAPHIC]
FOREIGN INVESTING. Investing in foreign securities poses unique risks:
currency exchange rate fluctuations; foreign market illiquidity; increased
price volatility; exchange control regulations; foreign ownership limits;
different accounting, reporting, and disclosure requirements; and
difficulties in obtaining legal judgments. In the past, equity and debt
instruments of foreign markets have been more volatile than equity and debt
instruments of U.S. securities markets.
For additional information about other securities in which we may invest the
Fund's assets, see APPENDIX A on page 17.
Investment Restrictions
The following restrictions may only be changed with shareholder approval:
o The Fund may not invest 25% or more of its total assets in one industry.
o The Fund may not invest more than 5% of its total assets in any one issuer
or own more than 10% of the outstanding voting securities of any one
issuer. This limitation does not apply to U.S. Government securities, and
only applies to 75% of the Fund's total assets.
o The Fund may borrow only for temporary or emergency purposes in an amount
not exceeding 33 1/3% of its total assets.
You will find a complete listing of the precise investment restrictions in the
Fund's Statement of Additional Information.
FUND MANAGEMENT
The Board of Directors of USAA Mutual Fund, Inc. (Company), of which the Fund
is a series, supervises the business affairs of the Company. The Company has
retained us, USAA Investment Management Company, to serve as the manager and
distributor for the Company.
We are an affiliate of United Services Automobile Association (USAA), a large,
diversified financial services institution. As of the date of this Prospectus,
we had approximately $36 billion in total assets under management. Our mailing
address is 9800 Fredericksburg Road, San Antonio, TX 78288.
7
<PAGE>
We provide management services to the Fund pursuant to an Advisory Agreement.
We are responsible for managing the Fund's portfolio (including placement of
brokerage orders) and its business affairs, subject to the authority of and
supervision by the Board of Directors. For our services, the Fund pays us an
annual fee. The fee, three-fourths of one percent (.75%) of average net assets,
is accrued daily and paid monthly. We also provide services related to selling
the Fund's shares and receive no compensation for those services.
In addition to the fees paid pursuant to the Advisory Agreement, the Fund pays
operating expenses which generally consist of transfer agent and custodian
charges, auditing and legal expenses, certain expenses of registering and
qualifying shares for sale, fees of Directors who are not affiliated with us,
and costs of printing and mailing the Prospectus, Statement of Additional
Information, and periodic reports to existing shareholders.
Although our officers and employees, as well as those of the Company, may
engage in personal securities transactions, they are restricted by the
procedures in a Joint Code of Ethics adopted by the Company and us.
Portfolio Transactions
USAA Brokerage Services, our discount brokerage service, may execute purchases
and sales of equity securities for the Fund's portfolio. The Board of Directors
has adopted procedures to ensure that any commissions paid to USAA Brokerage
Services are reasonable and fair.
Portfolio Manager
Curt Rohrman, Assistant Vice President of Equity Investments since September
1996, has managed the Fund since August 1997. He has ten years investment
management experience and has worked for us for three years. Prior to joining
us, Mr. Rohrman worked for CS First Boston Corporation from June 1988 to March
1995. He earned the Chartered Financial Analyst designation in 1991 and is a
member of the Association for Investment Management and Research and the San
Antonio Financial Analysts Society, Inc. He holds an MBA from the University of
Texas at Austin and a BBA from Texas Christian University.
[PHOTOGRAPH OF PORTFOLIO MANAGER]
Curt Rohrman
8
<PAGE>
USING MUTUAL FUNDS IN
AN INVESTMENT PROGRAM
I. The Idea Behind Mutual Funds
Mutual funds provide small investors some of the advantages enjoyed by wealthy
investors. A relatively small investment can buy part of a diversified
portfolio. That portfolio is managed by investment professionals, relieving you
of the need to make individual stock or bond selections. You also enjoy
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,
you own 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, you are giving up some
investment decisions, but must still make others. The decisions you don't have
to make are those involved with choosing individual securities. We will perform
that function. In addition, we will arrange for the safekeeping of securities,
auditing the annual financial statements, and daily valuation of the Fund, as
well as other functions.
You, however, retain at least part of the responsibility for an equally
important decision. This decision involves determining a portfolio of mutual
funds that balances your investment goals with your tolerance for risk. It is
likely that this decision may include the use of more than one fund of the USAA
Family of Funds.
For example, assume you wish to invest in a widely-diversified, common stock
portfolio. You could combine an investment in the First Start Growth Fund with
investments in other mutual funds that invest in stocks of large and small
companies and high-dividend stocks. This is just one way you could combine
funds to fit your own risk and reward goals.
III. USAA's Family of Funds
We offer you another alternative with our asset strategy funds listed under
asset allocation on page 18. These unique mutual funds provide a professionally
managed diversified investment portfolio within a mutual fund. They are
designed for the individual who prefers to delegate the asset allocation
process to an investment manager and are structured to achieve diversification
across a number of investment categories.
9
<PAGE>
Whether you prefer to create your own mix of mutual funds or use a USAA 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 assist you with your choices and to help you
craft a portfolio to meet your needs.
HOW TO INVEST
Purchase of Shares
OPENING AN ACCOUNT
You may open an account and make an investment as described below by mail, in
person, bank wire, electronic funds transfer (EFT), or phone. A complete,
signed application is required for each new account.
TAX ID NUMBER
Each shareholder named on the account must provide a social security number or
tax identification number to avoid possible withholding requirements.
EFFECTIVE DATE
When you make a purchase, your purchase price will be the net asset value (NAV)
per share next determined after we receive your request in proper form as
described below. The Fund's NAV is determined at the close of the regular
trading session (generally 4:00 p.m. Eastern Time) of the New York Stock
Exchange (NYSE) each day the NYSE is open. If we receive your request prior to
that time, your purchase price will be the NAV per share determined for that
day. If we receive your request after the NAV per share is calculated, the
purchase will be effective on the next business day. If you plan to purchase
Fund shares with a foreign check, we suggest you convert your foreign check to
U.S. dollars prior to investment in the Fund to avoid a potential delay in the
effective date of your purchase of 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.
MINIMUM INVESTMENTS
INITIAL PURCHASE
[MONEY GRAPHIC]
o $3,000 [$250 Uniform Gifts/Transfers to Minors Act (UGMA/UTMA) accounts
and $250 for IRAs] or no initial investment if you elect to have monthly
electronic investments of at least $20 each. We may periodically offer
programs that reduce the minimum amounts for monthly electronic
investments. Employees of USAA and its affiliated companies may open an
account through payroll deduction for as little as $25 per pay period with
no initial investment.
10
<PAGE>
ADDITIONAL PURCHASES
o $20
HOW TO PURCHASE
MAIL
[ENVELOPE GRAPHIC]
o To open an account, send your application and check to:
USAA Investment Management Company
9800 Fredericksburg Road
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 Road
San Antonio, TX 78288
IN PERSON
[PEOPLE GRAPHIC]
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, TX
BANK WIRE
[ENVELOPE WIRE GRAPHIC]
o 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 First Start Growth Fund
USAA Account Number: 69384998
Shareholder(s) Name(s)_________________________
Shareholder(s) Account Number__________________
ELECTRONIC FUNDS TRANSFER
[CALENDAR GRAPHIC]
o Additional purchases on a regular basis can be deducted from a bank
account, paycheck, income-producing investment, or USAA money market fund
account. Sign up for these services when opening an account or call
1-800-531-8448 to add these services.
PHONE 1-800-531-8448
[TELEPHONE GRAPHIC]
o If you have an existing USAA account and would like to open a new account
or exchange to another USAA fund, call for instructions. To open an
account by phone, the new account must have the same registration as your
existing account.
11
<PAGE>
Redemption of Shares
You may redeem Fund shares by any of the methods described below on any day the
NAV per share is calculated. Redemptions are effective on the day instructions
are received in a manner as described below. However, if instructions are
received after the NAV per share calculation (generally 4:00 p.m. Eastern
Time), redemption will be effective on the next business day.
Within seven days after the effective date of redemption, we will send you your
money. Payment for redemption of shares purchased by EFT or check is sent after
the EFT or check 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 in limited circumstances.
HOW TO REDEEM
WRITTEN, FAX, TELEGRAPH, OR TELEPHONE
[FAX MACHINE GRAPHIC]
o Send your written instructions to:
USAA Shareholder Account Services
9800 Fredericksburg Road
San Antonio, TX 78288
o Send a signed fax to 1-800-292-8177, or send a telegram to USAA Shareholder
Account Services.
o Call toll free 1-800-531-8448, in San Antonio, 456-7202.
Telephone redemption privileges are 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. Before
any discussion regarding your account, we obtain the following information: (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, we record all telephone communications with you and
send confirmations of account transactions to the address of record. Redemption
by telephone, fax, or telegram is not available for shares represented by stock
certificates.
12
IMPORTANT INFORMATION ABOUT PURCHASES AND REDEMPTIONS
Investor's Guide to USAA Mutual Fund Services
[BOOK GRAPHIC]
Upon your initial investment with us, you will receive the INVESTOR'S GUIDE to
help you get the most out of your USAA mutual fund account and to help you in
your role as an investor. In the INVESTOR'S GUIDE, you will find additional
information on purchases, redemptions, and methods of payment. You will also
find in-depth information on automatic investment plans, shareholder statements
and reports, and other useful information.
Account Balance
Beginning in September 1998, and occurring each September thereafter, USAA
Shareholder Account Services (SAS), the Fund's transfer agent, will assess a
small balance account fee of $12 to each shareholder account with a balance, at
the time of assessment, of less than $2,000. The fee will reduce total transfer
agency fees paid by the Fund to SAS. Accounts exempt from the fee include: (1)
any account regularly purchasing additional shares each month through an
automatic investment plan; (2) any account registered under the Uniform
Gifts/Transfers to Minors Act (UGMA/UTMA); (3) all (non-IRA) money market fund
accounts; (4) any account whose registered owner has an aggregate balance of
$50,000 or more invested in USAA mutual funds; and (5) all IRA accounts (for
the first year the account is open).
Company Rights
The Company reserves the right to:
o reject purchase or exchange orders when in the best interest of the
Company;
o limit or discontinue the offering of shares of any portfolio of the Company
without notice to the shareholders;
o 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); 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;
13
<PAGE>
o require a signature guarantee for transactions or changes in account
information in those instances where the appropriateness of a signature
authorization is in question. The Statement of Additional Information
contains information on acceptable guarantors;
o redeem an account with less than 10 shares, with certain limitations.
EXCHANGES
Exchange Privilege
The exchange privilege is automatic 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 the shares to be acquired are
offered in your state of residence. The Fund's transfer agent will
simultaneously process exchange redemptions and purchases 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; and as such, you may
realize a capital gain or loss.
The Fund has undertaken certain procedures regarding telephone transactions as
described on page 12.
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. The limit on
exchanges out of any Fund in the USAA Family of Funds for each account is six
per calendar year (except there is no limitation on exchanges out of the Tax
Exempt Short-Term Fund, Short-Term Bond Fund, or any of the money market funds
in the USAA Family of Funds).
SHAREHOLDER INFORMATION
Share Price Calculation
The price at which you purchase and redeem Fund shares is equal to the net
asset value (NAV) per share determined on the effective date of the purchase or
redemption. You may buy and sell Fund shares at the NAV per share without a
sales charge. The Fund's NAV per share is calculated at the close of the
regular trading session of the NYSE, which is usually 4:00 p.m. Eastern Time.
The NAV per share is calculated by adding the value of all securities and other
assets in the Fund, deducting liabilities, and dividing by the number of shares
outstanding.
NAV
EQUALS TOTAL ASSETS
MINUS LIABILITIES DIVIDED
BY # OF SHARES OUTSTANDING
14
<PAGE>
Dividends and Distributions
The Fund pays net investment income dividends yearly. Any net capital gain
distribution usually occurs within 45 days of the July 31 fiscal year end,
which would be somewhere around the middle of September. The Fund will make
additional payments to shareholders, if necessary, to avoid the imposition of
any federal income or excise tax.
All income dividends and capital gain distributions are automatically
reinvested, unless we receive different instructions from you. The share price
will be the NAV of the Fund shares computed on the ex-dividend date. Any income
dividends or capital gain distributions paid by the Fund will reduce the NAV
per share by the amount of the dividend or distribution. These dividends and
distributions are subject to taxes.
We will invest any dividend or distribution payment returned to us in your
account at the then-current NAV per share. Dividend and distribution checks
become void six months from the date on the check. The amount of the voided
check will be invested in your account at the then-current NAV per share.
Federal Taxes
This tax information is quite general and refers to the federal income tax
provisions in effect as of the date of this Prospectus. Note that the recently
enacted Taxpayer Relief Act of 1997 and regulations that will likely be adopted
to implement the Act may affect the status and treatment of certain
distributions shareholders receive from the Fund. We urge you to consult your
own tax adviser about the status of distributions from the Fund in your own
state and locality.
FUND - The Fund intends to qualify as a regulated investment company (RIC)
under Subchapter M of the Internal Revenue Code of 1986, as amended. As a RIC,
the Fund will not be subject to federal income tax on its net investment income
and net capital gains distributed to shareholders. Net capital gains are those
gains in excess of capital losses.
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.
Regardless of the length of time you have held the Fund shares, distributions
of net long-term capital gains are taxable as long-term capital gains whether
received in cash or reinvested in additional shares.
15
<PAGE>
Redemptions and 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 - Federal law requires the Fund 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:
o fails to furnish the Fund with a correct tax identification number,
o underreports dividend or interest income, or
o fails to certify that he or she 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 Fund's transfer agent, that your tax
identification number is correct and you are not currently subject to backup
withholding.
REPORTING - The Fund will report information to you concerning the tax status
of dividends and distributions for federal income tax purposes annually.
DESCRIPTION OF SHARES
The Fund is a series of USAA Mutual Fund, Inc. (Company) and is diversified.
The Company is an open-end management investment company incorporated under the
laws of the State of Maryland. The Company is authorized to issue shares of
common stock of separate series, each of which is commonly referred to as a
mutual fund. There are ten mutual funds in the Company, including this Fund. As
of January 31, 1998, USAA and its affiliates owned approximately 85.7% of the
Fund's shares.
The Company does not hold annual or regular meetings of shareholders and holds
special meetings only as required by the Investment Company Act of 1940. The
Directors may fill vacancies on the Board or appoint new Directors if the
result is that at least two-thirds of the Directors have still been elected by
shareholders. Shareholders have one vote per share (with proportionate voting
for fractional shares) regardless of the relative net asset value of the
shares. If a matter affects an individual fund in the Company, there will be a
separate vote of that specific fund's shareholders. Shareholders collectively
holding at least 10% of the outstanding shares of the Company may request a
shareholder meeting at any time for the purpose of voting to remove one or more
of the Directors. The Company will assist in communicating to other
shareholders about the meeting.
16
<PAGE>
APPENDIX A
THE FOLLOWING ARE DESCRIPTIONS OF CERTAIN TYPES OF SECURITIES IN WHICH WE MAY
INVEST THE FUND'S ASSETS:
CONVERTIBLE SECURITIES
We may invest in convertible securities, which are bonds, preferred stocks, and
other securities that pay interest or dividends and offer the buyer the option
of converting the security into common stock. The value of convertible
securities depends partially on interest rate changes and the credit quality of
the issuer. Because a convertible security affords an investor the opportunity,
through its conversion feature, to participate in the capital appreciation of
the underlying common stock, the value of convertible securities also depends
on the price of the underlying common stock.
MONEY MARKET INSTRUMENTS
We may hold a certain portion of the Fund's assets in high-quality, U.S.
dollar-denominated debt securities that have remaining maturities of one year
or less. Such securities may include U.S. Government obligations, commercial
paper and other short-term corporate obligations, repurchase agreements
collateralized with U.S. Government securities, certificates of deposit,
bankers' acceptances, bank deposits, and other financial institution
obligations. These securities may carry fixed or variable interest rates.
ILLIQUID SECURITIES
We may not invest more than 15% of the market value of the Fund's net assets in
securities which are illiquid. Illiquid securities are those securities that
cannot be disposed of in the ordinary course of business in seven days or less
at approximately the value at which the Fund has valued the securities.
FORWARD CURRENCY CONTRACTS
We may hold securities denominated in foreign currencies. The value of these
securities will be affected by changes in the exchange rate between the dollar
and the foreign currencies. In managing currency exposure, we may enter into
forward currency contracts. A forward currency contract is an agreement to
purchase or sell a specified currency at a specified future date or over a
specified time period at a price set at the time of the contract. We only enter
into forward currency contracts when the Fund enters into a contract for the
purchase or sale of a security denominated in a foreign currency and desires to
"lock in" the U.S. dollar price of that security.
17
<PAGE>
APPENDIX B
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 you with the opportunity to formulate your 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 other Funds in the USAA Family
of Funds, including charges and expenses, call us for a Prospectus. Read it
carefully before you invest or send money.
FUND
TYPE/NAME VOLATILITY
===============================================================
CAPITAL APPRECIATION
- ---------------------------------------------------------------
Aggressive Growth Very high
Emerging Markets (1) Very high
First Start Growth Moderate to high
Gold (1) Very high
Growth Moderate to high
Growth & Income Moderate
International (1) Moderate to high
S&P 500 Index (2) Moderate
Science & Technology Very high
World Growth (1) Moderate to high
- ---------------------------------------------------------------
ASSET ALLOCATION
- ---------------------------------------------------------------
Balanced Strategy Moderate
Cornerstone Strategy (1) Moderate
Growth and Tax Strategy Moderate
Growth Strategy (1) Moderate to high
Income Strategy Low to moderate
- ---------------------------------------------------------------
INCOME - TAXABLE
- ---------------------------------------------------------------
GNMA Low to moderate
Income Moderate
Income Stock Moderate
Short-Term Bond Low
- ---------------------------------------------------------------
INCOME - TAX EXEMPT
- ---------------------------------------------------------------
Long-Term (3) Moderate
Intermediate-Term (3) Low to moderate
Short-Term (3) Low
State Bond/Income (3,4) Moderate
- ---------------------------------------------------------------
MONEY MARKET
- ---------------------------------------------------------------
Money Market (5) Very low
Tax Exempt Money Market (3,5) Very low
Treasury Money Market Trust (5) Very low
State Money Market (3,4,5) Very low
===============================================================
1 FOREIGN INVESTING IS SUBJECT TO ADDITIONAL RISKS, SUCH AS CURRENCY
FLUCTUATIONS, MARKET ILLIQUIDITY, AND POLITICAL INSTABILITY.
2 S&P(R) IS A TRADEMARK OF THE MCGRAW-HILL COMPANIES, INC., AND HAS BEEN
LICENSED FOR USE. THE PRODUCT IS NOT SPONSORED, SOLD OR PROMOTED BY STANDARD
& POOR'S, AND STANDARD & POOR'S MAKES NO REPRESENTATION REGARDING THE
ADVISABILITY OF INVESTING IN THE PRODUCT.
3 SOME INCOME MAY BE SUBJECT TO STATE OR LOCAL TAXES.
4 CALIFORNIA, FLORIDA, NEW YORK, TEXAS, AND VIRGINIA FUNDS ARE OFFERED ONLY TO
RESIDENTS OF THOSE STATES.
5 AN INVESTMENT IN A MONEY MARKET FUND IS NEITHER INSURED NOR GUARANTEED BY
THE U.S. GOVERNMENT AND THERE IS NO ASSURANCE THAT ANY OF THE FUNDS WILL BE
ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1 PER SHARE.
18
<PAGE>
NOTES
<PAGE>
If you would like more information about the Fund, you may call 1-800-531-8181
to request a free copy of the Fund's Statement of Additional Information (SAI),
dated March 1, 1998. The SAI and the financial statements contained with the
Fund's Semiannual Report have been filed with the SEC and are legally a part of
the Prospectus.
Investment Adviser, Underwriter and Distributor
USAA Investment Management Company
9800 Fredericksburg Road
San Antonio, Texas 78288
-----------------------------------------------
Transfer Agent Custodian
USAA Shareholder Account Services State Street Bank and Trust Company
9800 Fredericksburg Road P.O. Box 1713
San Antonio, Texas 78288 Boston, Massachusetts 02105
-----------------------------------------------
Telephone Assistance
Call toll free - Central Time
Monday - Friday 8:00 a.m. to 8:00 p.m.
Saturdays 8:30 a.m. to 5:00 p.m.
------------------------------------------------
For Additional 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 Mutual Fund Price Quotes
24-Hour Service (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
THIS IS THE END OF THE PROSPECTUS.
Please flip and turn the book over to read the Semiannual Report
<PAGE>
Part B
Statement of Additional Information for the
Science & Technology Fund and
First Start Growth Fund
is included herein
Not included in this Post-Effective Amendment
is the Statement of Additional Information for the
Aggressive Growth Fund, Growth Fund, Growth & Income Fund,
Income Stock Fund, Income Fund, Short-Term Bond,
Money Market Fund, and S&P 500 Index Fund
<PAGE>
USAA USAA STATEMENT OF
EAGLE MUTUAL ADDITIONAL INFORMATION
LOGO FUND, INC. May 1, 1998
_______________________________________________________________________________
USAA MUTUAL FUND, INC.
(Science & Technology Fund and First Start Growth Fund)
USAA MUTUAL FUND, INC. (the Company) is a registered investment company
offering shares of ten no-load mutual funds, two of which are described in this
Statement of Additional Information (SAI): the Science & Technology Fund and
the First Start Growth Fund (collectively, the Funds). Each Fund is classified
as diversified.
You may obtain a free copy of a Prospectus dated March 1, 1998, for either Fund
by writing to USAA Mutual Fund, Inc., 9800 Fredericksburg Road, 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 each Fund. This SAI is
not a Prospectus and contains information in addition to and more detailed than
that set forth in each Fund's Prospectus. It is intended to provide you with
additional information regarding the activities and operations of the Company
and the Funds and should be read in conjunction with each Fund's Prospectus.
_______________________________________________________________________________
TABLE OF CONTENTS
PAGE
2 Valuation of Securities
2 Conditions of Purchase and Redemption
3 Additional Information Regarding Redemption of Shares
3 Investment Plans
4 Investment Policies
6 Investment Restrictions
7 Portfolio Transactions
8 Further Description of Shares
8 Tax Considerations
9 Directors and Officers of the Company
11 The Company's Manager
12 General Information
13 Calculation of Performance Data
13 Appendix A - Long-Term and Short-Term Debt Ratings
16 Appendix B - Comparison of Portfolio Performance
19 Appendix C - Dollar-Cost Averaging
<PAGE>
VALUATION OF SECURITIES
Shares of each Fund are offered on a continuing best efforts basis through USAA
Investment Management Company (IMCO or the Manager). The offering price for
shares of each Fund is equal to the current net asset value (NAV) per share.
The NAV per share of each Fund is calculated by adding the value of all its
portfolio securities and other assets, deducting its liabilities, and dividing
by the number of shares outstanding.
Each 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, Martin Luther King Jr. 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 value of the securities of each Fund is determined by one or more of
the following methods:
(1) Portfolio securities, except as otherwise noted, traded primarily on a
domestic securities exchange are valued at the last sales price on that
exchange. Portfolio securities traded primarily on foreign securities
exchanges are generally valued at the closing values of such securities on
the exchange where primarily traded. If no sale is reported, the average
of the bid and asked prices is generally used depending upon local custom
or regulation.
(2) Over-the-counter securities are priced at the last sales price or, if not
available, at the average of the bid and asked prices at the time trading
closes on the NYSE.
(3) Debt securities purchased with maturities of 60 days or less are stated at
amortized cost which approximates market value. Repurchase agreements are
valued at cost.
(4) Other debt securities may be valued each business day by a pricing service
(the Service) approved by the Board of Directors. The Service uses the
mean between quoted bid and asked prices or the last sales price to price
securities when, in the Service's judgment, these prices are readily
available and are representative of the securities' market values. For
many securities, such prices are not readily available. The Service
generally prices those securities based on methods which include
consideration of yields or prices of securities of comparable quality,
coupon, maturity and type, indications as to values from dealers in
securities, and general market conditions.
(5) Securities which cannot be valued by the methods set forth above, and all
other assets, are valued in good faith at fair value using methods
determined by the Manager under the general supervision of the Board of
Directors.
Securities trading in foreign markets may not take place on all days on
which the NYSE is open. Further, trading takes place in various foreign markets
on days on which the NYSE is not open. The calculation of each Fund's NAV
therefore may not take place contemporaneously with the determination of the
prices of securities held by each Fund. Events affecting the values of
portfolio securities that occur between the time their prices are determined
and the close of normal trading on the NYSE on a day the Fund's NAV is
calculated will not be reflected in the Fund's NAV, unless the Manager
determines that the particular event would materially affect NAV. In such a
case, the Fund's Manager, under the supervision of the Board of Directors, will
use all relevant available information to determine a fair value for the
affected portfolio securities.
CONDITIONS OF PURCHASE AND REDEMPTION
NONPAYMENT
If any order to purchase shares is canceled due to nonpayment or if the Company
does not receive good funds either by check or electronic funds transfer, USAA
Shareholder Account Services (Transfer Agent) will treat the cancellation 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, the
Transfer Agent can redeem shares 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
You may transfer Fund shares 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,
you must complete and return an application to the Transfer Agent.
2
<PAGE>
ADDITIONAL INFORMATION REGARDING REDEMPTION OF SHARES
The value of your 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 each
Fund's 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 Board of Directors may cause the redemption of an account with a
balance of less than 10 shares of each Fund provided (1) the value of the
account has been reduced, for reasons other than market action, below the
minimum initial investment in the Fund at the time of the establishment of the
account, (2) the account has remained below the minimum level for six months,
and (3) 60 days' prior written notice of the proposed redemption has been sent
to you. 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 your last known
address.
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 net asset value 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 Funds, the Company may
require a signature guarantee. 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 Company makes available the following investment plans to shareholders of
each 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
INVESTART(R) - A no initial investment purchase plan. With this plan the
regular minimum initial investment amount is waived if you make monthly
additions of at least $50 through electronic funds transfer from a checking or
savings account for the Science & Technology Fund.
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 and social
security), 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 you to engage
in dollar-cost averaging. For additional information concerning the benefits of
dollar-cost averaging, see APPENDIX C.
SYSTEMATIC WITHDRAWAL PLANS
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, you may choose to have withdrawals electronically deposited at your
bank or other financial institution. You may also elect to have checks mailed
to a designated address.
3
<PAGE>
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. You may terminate
participation in the plan at any time. There is no charge to you 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. The Manager will bear any
additional expenses of administering the plan.
Withdrawals will be made by redeeming full and fractional shares on the
date you select 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 your
investment and eventually exhaust the account. Reinvesting dividends and
distributions helps replenish the account. Because share values and net
investment income can fluctuate, you 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 your income tax return. Therefore, you 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 you qualify for certain
types of retirement programs. For your convenience, the Manager makes available
various forms of IRA and 403(b)(7) accounts. The minimum initial investment in
each of these plans is $250. No minimum initial investment is required with a
monthly electronic investment in the Science & Technology Fund and First Start
Growth Fund of at least $50 and $20, respectively. You may make additional
investments of $50 or more in the Science & Technology Fund and $20 or more in
the First Start Growth Fund at any time. You may make investments in one or any
combination of the portfolios 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 Road,
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 money sent to you after
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 you 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. You may
obtain detailed information about the plans from the Manager.
INVESTMENT POLICIES
The section captioned FUND INVESTMENTS in each Fund's Prospectus describes the
fundamental investment objective and the investment policies applicable to each
Fund and the following is provided as additional information.
SECTION 4(2)COMMERCIAL PAPER AND RULE 144A SECURITIES
Each Fund may invest in commercial paper issued in reliance on the "private
placement" exemption from registration afforded by Section 4(2) of the
Securities Act of 1933 (Section 4(2) Commercial Paper). Section 4(2) Commercial
Paper is restricted as to disposition under the federal securities laws;
therefore, any resale of Section 4(2) Commercial Paper must be effected in a
transaction exempt from registration under the Securities Act of 1933 (1933
Act). Section 4(2) Commercial Paper is normally resold to other investors
through or with the assistance of the issuer or investment dealers who make a
market in Section 4(2) Commercial Paper, thus providing liquidity.
Each Fund may also purchase restricted securities eligible for resale to
"qualified institutional buyers" pursuant to Rule 144A under the 1933 Act (Rule
144A Securities). Rule 144A provides a non-exclusive safe harbor from the
registration requirements of the 1933 Act for resales of certain securities to
institutional investors.
LIQUIDITY DETERMINATIONS
The Board of Directors has established guidelines pursuant to which Section
4(2) Commercial Paper, Rule 144A Securities, and certain restricted debt
securities that are subject to unconditional put or demand features exercisable
within seven days (Restricted Put Bonds) may be determined to be liquid for
purposes of complying with the Funds' investment restrictions applicable to
investments in illiquid securities. In
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determining the liquidity of Section 4(2) Commercial Paper and Rule 144A
Securities, the Manager will consider the following factors, among others,
established by the Board of Directors: (1) the frequency of trades and quotes
for the security, (2) the number of dealers willing to purchase or sell the
security and the number of other potential purchasers, (3) dealer undertakings
to make a market in the security, and (4) the nature of the security and the
nature of the marketplace trades, including the time needed to dispose of the
security, the method of soliciting offers, and the mechanics of transfer. In
determining the liquidity of Restricted Put Bonds, the Manager will evaluate
the credit quality of the party (the Put Provider) issuing (or unconditionally
guaranteeing performance on) the unconditional put or demand feature of the
Restricted Put Bond. In evaluating the credit quality of the Put Provider, the
Manager will consider all factors that it deems indicative of the capacity of
the Put Provider to meet its obligations under the Restricted Put Bond based
upon a review of the Put Provider's outstanding debt and financial statements
and general economic conditions.
Certain foreign securities (including Eurodollar obligations) may be
eligible for resale pursuant to Rule 144A in the United States and may also
trade without restriction in one or more foreign markets. Such securities may
be determined to be liquid based upon these foreign markets without regard to
their eligibility for resale pursuant to Rule 144A. In such cases, these
securities will not be treated as Rule 144A Securities for purposes of the
liquidity guidelines established by the Board of Directors.
FORWARD CURRENCY CONTRACTS
Each Fund may enter into forward currency contracts in order to protect against
uncertainty in the level of future foreign exchange rates.
A forward contract is an agreement to purchase or sell a specific currency
at a specified future date or over a specified time period at a price set at
the time of the contract. These contracts are usually traded directly between
currency traders (usually large commercial banks) and their customers. A
forward contract generally has no deposit requirements, and no commissions are
charged.
Each Fund may enter into forward currency contracts under two
circumstances. First, when the Fund enters into a contract for the purchase or
sale of a security denominated in a foreign currency, it may desire to "lock
in" the U.S. dollar price of the security. By entering into such a contract,
the Fund will be able to protect itself against a possible loss resulting from
an adverse change in the relationship between the U.S. dollar and the foreign
currency from the date the security is purchased or sold to the date on which
payment is made or received. Second, when management of the Fund believes that
the currency of a specific country may deteriorate relative to the U.S. dollar,
it may enter into a forward contract to sell that currency. The Fund may not
hedge with respect to a particular currency for an amount greater than the
aggregate market value (determined at the time of making any sale of forward
currency) of the securities held in its portfolio denominated or quoted in, or
bearing a substantial correlation to, such currency.
The use of forward contracts involves certain risks. The precise matching
of contract amounts and the value of securities involved generally will not be
possible since the future value of such securities in currencies more than
likely will change between the date the contract is entered into and the date
it matures. The projection of short-term currency market movements is extremely
difficult and successful execution of a short-term hedging strategy is
uncertain. Under normal circumstances, consideration of the prospect for
currency parities will be incorporated into the longer term investment
strategies. The Manager believes it is important, however, to have the
flexibility to enter into such contracts when it determines it is in the best
interest of a Fund to do so. It is impossible to forecast what the market value
of portfolio securities will be at the expiration of a contract. Accordingly,
it may be necessary for the Fund to purchase additional currency (and bear the
expense of such purchase) if the market value of the security is less than the
amount of currency a Fund is obligated to deliver, and if a decision is made to
sell the security and make delivery of the currency. Conversely, it may be
necessary to sell some of the foreign currency received on the sale of the
portfolio security if its market value exceeds the amount of currency the Fund
is obligated to deliver.
Each Fund is not required to enter into such transactions and will not do
so unless deemed appropriate by the Manager.
Although each Fund values its assets each business day in terms of U.S.
dollars, it does not intend to convert its foreign currencies into U.S. dollars
on a daily basis. It will do so from time to time, and you should be aware of
currency conversion costs. Although foreign exchange dealers do not charge a
fee for conversion, they do realize a profit based on the difference (spread)
between the prices at which they are buying and selling various currencies.
Thus, a dealer may offer to sell a foreign currency to the Fund at one rate,
while offering a lesser rate of exchange should the Fund desire to resell that
currency to the dealer.
CONVERTIBLE SECURITIES
Convertible securities are bonds, preferred stocks, and other securities that
pay interest or dividends and offer the buyer the option of converting the
security into common stock. The value of convertible securities depends
partially on interest rate changes and the credit quality of the issuer.
Because a convertible
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security affords an investor the opportunity, through its conversion feature,
to participate in the capital appreciation of the underlying common stock, the
value of convertible securities also depends on the price of the underlying
common stock.
The convertible securities in which each Fund may invest could be rated
below investment grade as determined by Moody's Investors Service, Inc.
(Moody's) or Standard & Poor's Ratings Group (S&P), or unrated but judged by
the Manager to be of comparable quality (commonly called junk bonds). For a
more complete description of debt ratings, see APPENDIX A. Such securities are
deemed to be speculative and involve greater risk of default due to changes in
interest rates, economic conditions, and the issuer's creditworthiness. As a
result, their market prices tend to fluctuate more than higher-quality
securities. During periods of general economic downturns or rising interest
rates, issuers of such securities may experience financial difficulties which
could affect their ability to make timely interest and principal payments. Each
Fund's ability to timely and accurately value and dispose of lower-quality
securities may also be affected by the absence or periodic discontinuance of
liquid trading markets.
INVESTMENT RESTRICTIONS
The following investment restrictions have been adopted by the Company for each
Fund. These restrictions may not be changed for any given Fund without approval
by the lesser of (1) 67% or more of the voting securities present at a meeting
of the Fund if more than 50% of the outstanding voting securities of the Fund
are present or represented by proxy or (2) more than 50% of the Fund's
outstanding voting securities.
Each Fund may not:
(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) Invest 25% or more of the value of its total assets in any one industry;
provided, this limitation does not apply to securities issued or guaranteed
by the U.S. Government and its agencies or instrumentalities.
(4) Issue senior securities, except as permitted under the 1940 Act.
(5) Underwrite securities of other issuers, except to the extent that it may be
deemed to act as a statutory underwriter in the distribution of any
restricted securities or not readily marketable securities.
(6) Lend any securities or make any loan if, as a result, more than 33 1/3% of
its total assets would be lent to other parties, except that this
limitation does not apply to purchases of debt securities or to repurchase
agreements.
(7) Purchase or sell commodities, except that each Fund may invest in financial
futures contracts, options thereon, and similar instruments.
(8) Purchase or sell real estate unless acquired as a result of ownership of
securities or other instruments, except that each Fund may invest in
securities or other instruments backed by real estate or securities of
companies that deal in real estate or are engaged in the real estate
business.
With respect to each Fund's concentration policy as described above and in
its Prospectus, the Manager uses industry classifications based on categories
established by Standard & Poor's Corporation (Standard & Poor's) for the
Standard & Poor's 500 Composite Index, with certain modifications. Because the
Manager has determined that certain categories within, or in addition to, those
set forth by Standard & Poor's have unique investment characteristics,
additional industries are included as industry classifications.
ADDITIONAL RESTRICTION
The following restriction is not considered to be a fundamental policy of the
Funds. The Board of Directors may change this additional restriction without
notice to or approval by the shareholders.
Each Fund may not:
(1) Purchase any security while borrowings representing more than 5% of the
Fund's total assets are outstanding.
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PORTFOLIO TRANSACTIONS
The Manager, pursuant to the Advisory Agreement dated September 21, 1990, and
subject to the general control of the Company's Board of Directors, places all
orders for the purchase and sale of Fund securities. In executing portfolio
transactions and selecting brokers and dealers, it is the Company's policy to
seek the best overall terms available. The Manager shall consider such factors
as it deems relevant, including the breadth of the market in the security, the
financial condition and execution capability of the broker or dealer, and the
reasonableness of the commission, if any, for the specific transaction or on a
continuing basis. Securities purchased or sold in the over-the-counter market
will be executed through principal market makers, except when, in the opinion
of the Manager, better prices and execution are available elsewhere.
The Funds will have no obligation to deal with any particular broker or
group of brokers in the execution of portfolio transactions. The Funds
contemplate that, consistent with obtaining the best overall terms available,
brokerage transactions may be effected through USAA Brokerage Services, a
discount brokerage service of the Manager. The Company's Board of Directors has
adopted procedures in conformity with Rule 17e-1 under the 1940 Act designed to
ensure that all brokerage commissions paid to USAA Brokerage Services are
reasonable and fair. The Company's Board of Directors has authorized the
Manager, as a member of the Chicago Stock Exchange, to effect portfolio
transactions for the Funds on such exchange and to retain compensation in
connection with such transactions. Any such transactions will be effected and
related compensation paid only in accordance with applicable SEC regulations.
In the allocation of brokerage business, preference may be given to those
broker-dealers who provide research or other services to the Manager as long as
there is no sacrifice in obtaining the best overall terms available. Such
research and other services may include, for example: advice concerning the
value of securities, the advisability of investing in, purchasing, or selling
securities, and the availability of securities or the purchasers or sellers of
securities; analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy, and performance of accounts;
and various functions incidental to effecting securities transactions, such as
clearance and settlement. In return for such services, a Fund may pay to those
brokers a higher commission than may be charged by other brokers, provided that
the Manager determines in good faith that such commission is reasonable in
terms of either that particular transaction or of the overall responsibility of
the Manager to the Funds and its other clients. The receipt of research from
broker-dealers that execute transactions on behalf of the Company may be useful
to the Manager in rendering investment management services to other clients
(including affiliates of the Manager), and conversely, such research provided
by broker-dealers who have executed transaction orders on behalf of other
clients may be useful to the Manager in carrying out its obligations to the
Company. While such research is available to and may be used by the Manager in
providing investment advice to all its clients (including affiliates of the
Manager), not all of such research may be used by the Manager for the benefit
of the Company. Such research and services will be in addition to and not in
lieu of research and services provided by the Manager, and the expenses of the
Manager will not necessarily be reduced by the receipt of such supplemental
research. See THE COMPANY'S MANAGER.
Securities of the same issuer may be purchased, held, or sold at the same time
by the Company for any or all of its Funds, or other accounts or companies for
which the Manager acts as the investment adviser (including affiliates of the
Manager). On occasions when the Manager deems the purchase or sale of a
security to be in the best interest of the Company, as well as the Manager's
other clients, the Manager, to the extent permitted by applicable laws and
regulations, may aggregate such securities to be sold or purchased for the
Company with those to be sold or purchased for other customers in order to
obtain best execution and lower brokerage commissions, if any. In such event,
allocation of the securities so purchased or sold, as well as the expenses
incurred in the transaction, will be made by the Manager in the manner it
considers to be most equitable and consistent with its fiduciary obligations to
all such customers, including the Company. In some instances, this procedure
may impact the price and size of the position obtainable for the Company.
PORTFOLIO TURNOVER RATES
The rate of portfolio turnover will not be a limiting factor when the Manager
deems changes in each Fund's portfolio appropriate in view of each Fund's
investment objective. Although neither Fund will purchase or sell securities
solely to achieve short-term trading profits, each Fund may sell portfolio
securities without regard to the length of time held if consistent with each
Fund's investment objective. A higher degree of portfolio activity will
increase brokerage costs to a Fund.
The portfolio turnover rate is computed by dividing the dollar amount of
securities purchased or sold (whichever is smaller) by the average value of
securities owned during the year. Short-term investments such as commercial
paper, short-term U.S. Government securities, and variable rate securities
(those securities with put date intervals of less than one year) are not
considered when computing the turnover rate.
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FURTHER DESCRIPTION OF SHARES
The Company is authorized to issue shares in separate series or Funds. Ten
Funds have been established, two of which are 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.
Each Fund's assets 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 each Fund, are required to
be segregated on the books of account, and are to be charged with the expenses
of such Fund. Any general expenses of the Company not readily identifiable as
belonging to a particular Fund are allocated on the basis of each Fund's
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.
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 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 net asset values of the Fund's shares. However, on
matters affecting an individual Fund, a separate vote of the shareholders of
that Fund is required. Shareholders of a Fund are not entitled to vote on any
matter which does not affect that Fund but which requires a separate vote of
another Fund. Shares do not have cumulative voting rights, which means that
holders of more than 50% of the shares voting for the election of Directors can
elect 100% of the Company's Board of Directors, and the holders of less than
50% of the shares voting for the election of Directors will not be able to
elect any person as a Director.
Shareholders of a particular Fund might have the power to elect all of the
Directors of the Company because that Fund has a majority of the total
outstanding shares of the Company. When issued, each Fund's shares are fully
paid and nonassessable, have no pre-emptive or subscription rights, and are
fully transferable. There are no conversion rights.
TAX CONSIDERATIONS
Each Fund intends to qualify as a regulated investment company under Subchapter
M of the Internal Revenue Code of 1986, as amended (the Code). Accordingly,
each 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 each Fund
distributes at least 90% of its net investment income and net short-term
capital gain for the taxable year.
To qualify as a regulated investment company, each 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. Each
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 a Fund
receives a distribution taxable as long-term capital gain with respect to
shares of a Fund and redeems or exchanges the shares before he or she 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.
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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 Road, San
Antonio, TX 78288.
Robert G. Davis 1, 2
Director and Chairman of the Board of Directors
Age: 51
President, Chief Executive Officer, Director, and Vice Chairman of the Board of
Directors of USAA Capital Corporation and several of its subsidiaries and
affiliates (1/97-present); President, Chief Executive Officer, Director, and
Chairman of the Board of Directors of USAA Financial Planning Network, Inc.
(1/97-present); Executive Vice President, Chief Operating Officer, Director,
and Vice Chairman of the Board of Directors of USAA Financial Planning Network,
Inc. (9/96-1/97); 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 serves as a Trustee and Chairman of
the Boards 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: 56
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: 63
Senior Vice President, Fixed Income Investments, IMCO (10/85-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: 52
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: 62
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.
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Robert L. Mason, Ph.D. 3, 4, 5
12823 Queens Forest
San Antonio, TX 78230
Director
Age: 51
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: 54
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: 49
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: 48
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.
Mark S. Howard 1
Assistant Secretary
Age: 34
Assistant Vice President, Securities Counsel, USAA (2/98-present); Executive
Director, Securities Counsel, USAA (9/96-2/98); Senior Associate Counsel,
Securities Counsel, USAA (5/95-8/96); Attorney, Kirkpatrick & Lockhart LLP
(9/90-4/95). Mr. Howard serves as Assistant Secretary of USAA Investment Trust,
USAA State Tax-Free Trust, and USAA Tax Exempt Fund, Inc., and as Executive
Director, Securities Counsel for various other USAA subsidiaries and
affiliates.
Sherron A. Kirk 1
Treasurer
Age: 53
Vice President, Controller, IMCO (10/92-present). 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.
- -------------------------------------------------------------------------------
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
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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 auditors' 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 July 31, 1997.
NAME AGGREGATE TOTAL COMPENSATION
OF COMPENSATION FROM THE USAA
DIRECTOR FROM THE COMPANY FAMILY OF FUNDS (b)
- ---------------------- ---------------- -------------------
George E. Brown* $3,312 $13,400
Barbara B. Dreeben 8,873 35,900
Howard L. Freeman, Jr. 8,873 35,900
Robert L. Mason 5,561 22,500
Robert G. Davis None (a) None (a)
Michael J.C. Roth None (a) None (a)
John W. Saunders, Jr. None (a) None (a)
Richard A. Zucker 8,873 35,900
______________________
* Effective December 31, 1996, George E. Brown retired as a Director from
the Board of Directors.
(a) 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.
(b) At July 31, 1997, 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 seven 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
within the USAA Family of Funds. 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 January 31, 1998, 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 January 31, 1998, USAA and its affiliates owned 2,000,010 shares
(27.5%) of the Science & Technology Fund and 2,000,010 shares (85.7%) of the
First Start Growth Fund.
The Company knows of no other persons who, as of January 31, 1998, held of
record or owned beneficially 5% or more of the Science & Technology and First
Start Growth Funds' shares.
THE COMPANY'S MANAGER
As described in each Fund's Prospectus, USAA Investment Management Company is
the Manager and investment adviser, providing services under the Advisory
Agreement. The Manager was organized in May 1970 and has served as investment
adviser and underwriter for USAA Mutual Fund, Inc. from its inception.
In addition to managing the Company's assets, the Manager advises and
manages the investments for USAA and its affiliated companies as well as those
of USAA Tax Exempt Fund, Inc., USAA Investment Trust, and 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 $36 billion, of which
approximately $22 billion were in mutual fund portfolios.
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<PAGE>
ADVISORY AGREEMENT
Under the Advisory Agreement, the Manager provides an investment program,
carries out the investment policy, and manages the portfolio assets for each
Fund. The Manager is authorized, subject to the control of the Board of
Directors of the Company, to determine the selection, amount, and time to buy
or sell securities for each Fund. In addition to providing investment services,
the Manager pays for office space, facilities, business equipment, and
accounting services (in addition to those provided by the Custodian) for the
Company. The Manager compensates all personnel, officers, and Directors of the
Company if such persons are also employees of the Manager or its affiliates.
For these services under the Advisory Agreement, the Company has agreed to pay
the Manager a fee computed as described under FUND MANAGEMENT in each Fund's
Prospectus. Management fees are computed and accrued daily and are payable
monthly.
Except for the services and facilities provided by the Manager, each Fund
pays all other expenses incurred in its operation. Expenses for which each Fund
is responsible includes taxes (if any); brokerage commissions on portfolio
transactions (if any); expenses of issuance and redemption of shares; charges
of transfer agents, custodians, and dividend disbursing agents; costs of
preparing and distributing proxy material, costs of printing and engraving
stock certificates; auditing and legal expenses; certain expenses of
registering and qualifying shares for sale; fees of Directors who are not
interested persons (not affiliated) of the Manager; costs of printing and
mailing the Prospectus, SAI, and periodic reports to existing shareholders; and
any other charges or fees not specifically enumerated. The Manager pays the
cost of printing and mailing copies of the Prospectus, the SAI, and reports to
prospective shareholders.
The Advisory Agreement will remain in effect until June 30, 1998, for each
Fund and will continue in effect from year to year thereafter for each such
Fund as long as it is approved at least annually by a vote of the outstanding
voting securities of such Fund (as defined by the 1940 Act) or by the Board of
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 Advisory 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 in the 1940 Act).
UNDERWRITER
The Company has an agreement with the Manager for exclusive underwriting and
distribution of each 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. For its services under the Transfer Agency
Agreement, each Fund pays the Transfer Agent an annual fixed fee of $23.50 per
account. This fee is subject to change at any time.
The fee to the Transfer Agent includes processing of all transactions and
correspondence. Fees are billed on a monthly basis at the rate of one-twelfth
of the annual fee. In addition, each Fund pays all out-of-pocket expenses of
the Transfer Agent and other expenses which are incurred at the specific
direction of the Company.
GENERAL INFORMATION
CUSTODIAN
State Street Bank and Trust Company, P.O. Box 1713, Boston, MA 02105, is the
Company's 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
investments.
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.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP, 112 East Pecan, Suite 2400, San Antonio, TX 78205, is
the Company's independent auditor. In this capacity, the firm is responsible
for auditing the annual financial statements of each Fund and reporting
thereon.
FINANCIAL STATEMENTS
The unaudited Financial Statements for the Funds, as of January 31, 1998, are
included in the Semiannual Reports to Shareholders of that date and are
incorporated herein by reference. The Manager will deliver a copy of the Fund's
Semiannual Report free of charge with each SAI requested.
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CALCULATION OF PERFORMANCE DATA
Information regarding total return of each Fund is provided under PERFORMANCE
INFORMATION in its Prospectus. See VALUATION OF SECURITIES herein for a
discussion of the manner in which the Funds' price per share is calculated.
TOTAL RETURN
Each Fund may advertise performance in terms of average annual total return for
1-, 5-, and 10-year periods, or for such lesser periods as the Fund has been in
existence. Average annual total return is computed by finding the average
annual compounded rates of return over the periods that would equate the
initial amount invested to the ending redeemable value, according to the
following formula:
P(1 + T)N = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment
made at the beginning of the 1-, 5-, or 10-year periods
at the end of the year or period
The calculation assumes any charges are deducted from the initial $1,000
payment and assumes all dividends and distributions by the 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.
APPENDIX A - LONG-TERM AND SHORT-TERM DEBT RATINGS
1. LONG-TERM DEBT RATINGS:
MOODY'S INVESTORS SERVICE, INC. (MOODY'S)
Aaa Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally
referred to as "gilt edged." Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure.
While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are
generally known as high-grade bonds. They are rated lower than the
best bonds because margins of protection may not be as large as in Aaa
securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than in Aaa securities.
A Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper-medium-grade obligations. Factors
giving security to principal and interest are considered adequate, but
elements may be present which suggest a susceptibility to impairment
sometime in the future.
Baa Bonds which are rated Baa are considered as medium-grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate,
and thereby not well safeguarded during both good and bad times over
the future. Uncertainty of position characterizes bonds in this class.
B Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or
of maintenance of other terms of the contract over any long period of
time may be small.
Caa Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest.
Ca Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other
marked shortcomings.
C Bonds which are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.
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<PAGE>
STANDARD & POOR'S RATINGS GROUP (S&P)
AAA Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small
degree.
A Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher
rated categories.
BBB Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher
rated categories.
BB Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which
could lead to inadequate capacity to meet timely interest and
principal payments. The BB rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BBB-
rating.
B Debt rated B has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions will likely impair
capacity or willingness to pay interest and repay principal. The B
rating category is also used for debt subordinated to senior debt that
is assigned an actual or implied BB or BB- rating.
CCC Debt rated CCC has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial, and economic
conditions to meet timely payment of interest and repayment of
principal. In the event of adverse business, financial, or economic
conditions, it is not likely to have the capacity to pay interest and
repay principal. The CCC rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied B or
B- rating.
CC The rating CC typically is applied to debt subordinated to senior debt
that is assigned an actual or implied CCC rating. C The rating C
typically is applied to debt subordinated to senior debt which is
assigned an actual or implied CCC- debt rating. The C rating may be
used to cover a situation where a bankruptcy petition has been filed,
but debt service payments are continued.
CI The rating CI is reserved for income bonds on which no interest is
being paid.
D Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due
even if the applicable grace period has not expired, unless S&P
believes that such payments will be made during such grace period. The
D rating also will be used upon the filing of a bankruptcy petition if
debt service payments are jeopardized.
PLUS (+) OR MINUS (-): THE RATINGS FROM AA TO CCC MAY BE MODIFIED BY THE
ADDITION OF A PLUS OR MINUS SIGN TO SHOW RELATIVE STANDING WITHIN THE MAJOR
RATING CATEGORIES. FITCH INVESTORS SERVICE, INC. (FITCH)
AAA Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by
reasonably foreseeable events.
AA Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated AAA. Because
bonds rated in the AAA and AA categories are not significantly
vulnerable to foreseeable future developments, short-term debt of
these issuers is generally rated F-1+.
A Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes
in economic conditions and circumstances than bonds with higher
ratings.
BBB Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on
these bonds, and therefore, impair timely payment. The likelihood that
the ratings of these bonds will fall below investment grade is higher
than for bonds with higher ratings.
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<PAGE>
PLUS (+) MINUS(-) SIGNS ARE USED WITH A RATING SYMBOL TO INDICATE THE RELATIVE
POSITION OF A CREDIT WITHIN THE RATING CATEGORY. PLUS AND MINUS SIGNS, HOWEVER,
ARE NOT USED IN THE AAA CATEGORY.
DUFF & PHELPS (D&P)
AAA Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA High credit quality. Protection factors are strong. Risk is modest but
may vary slightly from time to time because of economic conditions.
A Protection factors are average but adequate. However, risk factors are
more variable and greater in periods of economic stress.
BBB Below-average protection factors but still considered sufficient for
prudent investment. Considerable variability in risk during economic
cycles.
2. SHORT-TERM DEBT RATINGS:
MOODY'S TAXABLE DEBT
Prime-1 Issuers rated Prime-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1
repayment ability will often be evidenced by many of the following
characteristics:
o Leading market positions in well-established industries.
o High rates of return on funds employed.
o Conservative capitalization structure with moderate reliance on
debt and ample asset protection.
o Broad margins in earnings coverage of fixed financial charges and
high internal cash generation.
o Well-established access to a range of financial markets and assured
sources of alternate liquidity.
Prime-2 Issuers rated Prime-2 (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This will
normally be evidenced by many of the characteristics cited above but
to a lesser degree. Earnings trends and coverage ratios, while sound,
may be more subject to variation. Capitalization characteristics,
while still appropriate, may be more affected by external conditions.
Ample alternate liquidity is maintained.
Prime-3 Issuers rated Prime-3 (or supporting institutions) have an acceptable
ability for repayment of senior short-term obligations. The effect of
industry characteristics and market compositions may be more
pronounced. Variability in earnings and profitability may result in
changes in the level of debt protection measurements and may require
relatively high financial leverage. Adequate alternate liquidity is
maintained.
MOODY'S MUNICIPAL
MIG 1/VMIG 1 This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support
or demonstrated broadbased access to the market for refinancing.
MIG 2/VMIG 2 This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.
MIG 3/VMIG 3 This designation denotes favorable quality. All security elements
are accounted for but there is lacking the undeniable strength of
the preceding grades. Liquidity and cash flow protection may be
narrow and market access for refinancing is likely to be less
well established.
MIG 4/VMIG 4 This designation denotes adequate quality. Protection commonly
regarded as required of an investment security is present and
although not distinctly or predominantly speculative, there is
specific risk.
S&P COMMERCIAL PAPER
A-1 This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus (+) sign
designation.
A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as
for issues designated A-1.
A-3 Issues carrying this designation have adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher
designations.
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S&P NOTES
SP-1 Strong capacity to pay principal and interest. Issues determined to
possess very strong characteristics are given a plus (+) designation.
SP-2 Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term
of the notes.
FITCH
F-1+ Exceptionally strong credit quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely
payment.
F-1 Very strong credit quality. Issues assigned this rating reflect an
assurance for timely payment only slightly less in degree than issues
rated F-1+.
F-2 Good credit quality. Issues assigned this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is
not as great as for issues assigned F-1+ and F-1 ratings.
F-3 Fair credit quality. Issues assigned this rating have characteristics
suggesting that the degree of assurance for timely payment is
adequate; however, near-term adverse changes could cause these
securities to be rated below investment grade.
DUFF & PHELPS INC.
D-1+ Highest certainty of timely payment. Short-term liquidity, including
internal operating factors and/or access to alternative sources of
funds, is outstanding, and safety is just below risk-free U.S.
Treasury short-term obligations.
D-1 Very high certainty of timely payment. Liquidity factors are excellent
and supported by good fundamental protection factors. Risk factors are
minor.
D-1- High certainty of timely payment. Liquidity factors are strong and
supported by good fundamental protection factors. Risk factors are
very small.
D-2 Good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may enlarge
total financing requirements, access to capital markets is good. Risk
factors are small.
D-3 Satisfactory liquidity and other protection factors qualify issues as
to investment grade. Risk factors are larger and subject to more
variation. Nevertheless, timely payment is expected.
THOMPSON BANKWATCH, INC.
TBW-1 The highest category; indicates a very high likelihood that principal
and interest will be paid on a timely basis.
TBW-2 The second highest category; while the degree of safety regarding
timely repayment of principal and interest is strong, the relative
degree of safety is not as high as for issues rated TBW-1.
TBW-3 The lowest investment grade category; indicates that while the
obligation is more susceptible to adverse developments (both internal
and external) than those with higher ratings, the capacity to service
principal and interest in a timely fashion is considered adequate.
IBCA INC.
A1 Obligations supported by the highest capacity for timely repayment.
Where issues possess a particularly strong credit feature, a rating of
A1+ is assigned.
A2 Obligations supported by a satisfactory capacity for timely repayment
although such capacity may be susceptible to adverse changes in
business, economic, or financial conditions.
A3 Obligations supported by an adequate capacity for timely repayment.
Such capacity is more susceptible to adverse changes in business,
economic, or financial conditions than for obligations in higher
categories.
B Obligations for which the capacity for timely repayment is susceptible
to adverse changes in business, economic, or financial conditions.
C Obligations for which there is a high risk of default or which are
currently in default.
APPENDIX B - COMPARISON OF PORTFOLIO PERFORMANCE
Occasionally, we may make comparisons in advertising and sales literature
between each 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.
16
<PAGE>
Fund performance also may be compared to the performance of broad groups
of mutual funds with similar investment goals or unmanaged indexes of
comparable securities. Evaluations of Fund performance made by independent
sources may also be used in advertisements concerning the Fund, including
reprints of, or selections from, editorials or articles about the Fund. Each
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 each Fund may include but are not
restricted to the following:
AAII JOURNAL, a monthly association magazine for members of the American
Association of Individual Investors.
ARIZONA REPUBLIC, a newspaper which may cover financial and investment news.
AUSTIN AMERICAN-STATESMAN, a newspaper which may cover financial news.
BANK RATE MONITOR, a service which publishes rates on various bank products
such as CDs, MMDAs and credit cards.
BARRON'S, a Dow Jones and Company, Inc. business and financial weekly that
periodically reviews mutual fund performance data.
BUSINESS WEEK, a national business weekly that periodically reports the
performance rankings and ratings of a variety of mutual funds.
CHICAGO TRIBUNE, a newspaper which may cover financial news.
CONSUMER REPORTS, a monthly magazine which from time to time reports on
companies in the mutual fund industry.
DALLAS MORNING NEWS, a newspaper which may cover financial news.
DENVER POST, a newspaper which may quote financial news.
FINANCIAL PLANNING, a monthly magazine which may periodically review mutual
fund companies.
FINANCIAL SERVICES WEEK, a weekly newspaper which covers financial news.
FINANCIAL WORLD, a monthly magazine that periodically features companies in the
mutual fund industry.
FORBES, a national business publication that periodically reports the
performance of companies in the mutual fund industry.
FORTUNE, a national business publication that periodically rates the
performance of a variety of mutual funds.
FUND ACTION, a mutual fund news report.
HOUSTON CHRONICLE, a newspaper which may cover financial news.
HOUSTON POST, a newspaper which may cover financial news.
IBC/DONOGHUE'S MONEYLETTER, a biweekly newsletter which covers financial news
and from time to time rates specific mutual funds.
IBC'S MONEY MARKET INSIGHT, a monthly money market industry analysis prepared
by IBC USA, Inc.
INCOME AND SAFETY, a monthly newsletter that rates mutual funds.
INVESTECH, a bimonthly investment newsletter.
INVESTMENT ADVISOR, a monthly publication directed primarily to the advisor
community; includes ranking of mutual funds using a proprietary methodology.
INVESTMENT COMPANY INSTITUTE, the national association of the American
investment company industry.
INVESTOR'S BUSINESS DAILY, a newspaper which covers financial news.
KIPLINGER'S PERSONAL FINANCE MAGAZINE, a monthly investment advisory
publication that periodically features the performance of a variety of
securities.
LIPPER ANALYTICAL SERVICES, INC.'S FIXED INCOME FUND PERFORMANCE ANALYSIS, a
monthly publication of industry-wide mutual fund performance averages by type
of fund.
LIPPER ANALYTICAL SERVICES, INC.'S MUTUAL FUND PERFORMANCE ANALYSIS, a monthly
publication of industry-wide mutual fund averages by type of fund.
LOS ANGELES TIMES, a newspaper which may cover financial news.
LOUIS RUKEYSER'S WALL STREET, a publication for investors.
MEDICAL ECONOMICS, a monthly magazine providing information to the medical
profession.
MONEY, a monthly magazine that features the performance of both specific funds
and the mutual fund industry as a whole.
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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.
ORLANDO SENTINEL, a newspaper which may cover financial news.
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.
Among the organizations cited above, Lipper Analytical Services, Inc.'s
tracking results may be used. A Fund will be compared to Lipper's appropriate
fund category according to fund objective and portfolio holdings. The Science &
Technology Fund will be compared to funds in Lipper's science and technology
funds category. The First Start Growth Fund will be compared to funds in
Lipper's growth funds category. Footnotes in advertisements and other marketing
literature will include the time period applicable for any ranking used.
For comparative purposes, unmanaged indexes of comparable securities or
economic data may be cited. Examples include the following:
- Ibbotson Associates, Inc., Stocks, Bonds, Bills, and Inflation Yearbook.
- NASDAQ Industrials, a composite index of approximately 3000 unmanaged
securities of industrial corporations traded over the counter.
- S&P 500 Index, a broad-based composite unmanaged index that represents
the average performance of a group of 500 widely-held, publicly-traded
stocks.
Other sources for total return and other performance data which may be
used by a Fund or by those publications listed previously are Morningstar,
Inc., Schabaker Investment Management, and Investment Company Data, Inc. These
are services that collect and compile data on mutual fund companies.
18
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APPENDIX C - 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.
<PAGE>
30229-0398
<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 (Prospectuses and
Statement of Additional Information) of this Registration
Statement:
Unaudited Financial Statements are incorporated by reference to
the USAA Science & Technology and First Start Growth Funds'
Semiannual Reports to Shareholders for the period ended January
31, 1998.
(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 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 (7)
(y) Articles Supplementary dated May 9, 1997 (8)
(z) Articles of Amendment dated July 9, 1997 (9)
(aa) Articles Supplementary dated November 12, 1997 (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)
(e) Income Stock Fund (1)
(f) Growth & Income Fund (1)
(g) Short-Term Bond Fund (1)
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<PAGE>
EXHIBIT NO. DESCRIPTION OF EXHIBITS
(h) S&P 500 Index Fund (4)
(i) Science & Technology Fund (9)
(j) First Start Growth Fund (9)
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 (7)
(g) Letter Agreement to the Advisory Agreement dated August 1, 1997
adding the Science & Technology Fund and First Start Growth
Fund (9)
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)
(d) Letter Agreement dated August 1, 1997 adding Science & Technology
Fund and First Start Growth Fund (9)
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)
(m) Letter Agreement to the Custodian Agreement dated August 1, 1997
with respect to the Science & Technology Fund and First Start
Growth Fund (9)
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)
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<PAGE>
EXHIBIT NO. DESCRIPTION OF EXHIBITS
(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 13, 1998 (filed herewith)
(j) Master Revolving Credit Facility Agreement with NationsBank of
Texas dated January 14, 1998 (filed herewith)
(k) Letter Agreement to Transfer Agency Agreement dated August 1,
1997 adding Science & Technology Fund and First Start Growth
Fund (9)
(l) Transfer Agency Agreement Fee Schedule for Science & Technology
Fund (9)
(m) Transfer Agency Agreement Fee Schedule for First Start Growth
Fund (9)
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 (7)
(d) Opinion of Counsel with respect to the Aggressive Growth Fund.(6)
(e) Consent of Counsel with respect to the Aggressive Growth Fund,
Growth Fund, Income Fund, Money Market Fund, Income Stock Fund,
Growth & Income Fund, and Short-Term Bond Fund (9)
(f) Opinion of Counsel with respect to the Science & Technology
Technology Fund and First Start Growth Fund (8)
(g) Consent of Counsel with respect to the Science & Technology Fund
and First Start Growth Fund (filed herewith)
11 Not Applicable
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)
(c) Subscription and Investment Letter for Science & Technology Fund
and First Start Growth Fund (9)
14 Prototype Plans
(a) USAA INVESTMENT MANAGEMENT COMPANY IRA Custodial Agreement (9)
(b) USAA INVESTMENT MANAGEMENT COMPANY SEP-IRA Custodial
Agreement (9)
(c) USAA INVESTMENT MANAGEMENT COMPANY 403(b)(7) Custodial
Agreement (9)
(d) USAA INVESTMENT MANAGEMENT COMPANY Simple IRA Custodial
Agreement (9)
15 12b-1 Plans - Not Applicable
16 Schedule for Computation of Performance Quotation (1)
17 Financial Data Schedule
(a) First Start Growth Fund (filed herewith)
(b) Science & Technology Fund (filed herewith)
18 Plan Adopting Multiple Classes of Shares - Not Applicable
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<PAGE>
EXHIBIT NO. DESCRIPTION OF EXHIBITS
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., Trustees of the Equity 500
Index Portfolio, dated September 30, 1996 (7)
(d) Power of Attorney for Robert G. Davis dated March 24, 1997 (7)
(e) Power of Attorney for Robert L. Mason dated March 24, 1997 (7)
___________________
(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 Commission on
October 1, 1996.
(7) Previously filed with Post-Effective Amendment No. 44 of the Registrant
(No. 2-49560) filed with the Securities and Exchange Commission on April
21, 1997.
(8) Previously filed with Post-Effective Amendment No. 45 of the Registrant
(No. 2-49560) filed with the Securities and Exchange Commission on May
16, 1997.
(9) Previously filed with Post-Effective Amendment No. 46 of the Registrant
(No. 2-49560) filed with the Securities and Exchange Commission on
September 30, 1997.
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 "Fund Management" in the Prospectus and the
section captioned "Directors and Officers of the Company" in the
Statement of Additional Information.
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<PAGE>
Item 26. NUMBER OF HOLDERS OF SECURITIES
Set forth below are the number of record holders, as of January
31, 1998, of each class of securities of the Registrant.
TITLE OF CLASS NUMBER OF RECORD HOLDERS
Aggressive Growth Fund 72,383
Growth Fund 94,489
Income Stock Fund 106,395
Income Fund 60,722
Money Market Fund 137,887
Growth & Income Fund 69,761
Short-Term Bond Fund 9,187
S&P 500 Index Fund 34,318
Science & Technology Fund 9,638
First Start Growth Fund 3,166
Item 27. INDEMNIFICATION
Protection for the liability of the adviser and underwriter and
for the officers and directors of the Registrant is provided by
two methods:
(a) THE DIRECTOR AND OFFICER LIABILITY POLICY. This policy covers all
losses incurred by the Registrant, its adviser and its
underwriter from any claim made against those entities or persons
during the policy period by any shareholder or former shareholder
of the Fund by reason of any alleged negligent act, error or
omission committed in connection with the administration of the
investments of said Registrant or in connection with the sale or
redemption of shares issued by said Registrant.
(b) STATUTORY INDEMNIFICATION PROVISIONS. Under Section 2-418 of the
Maryland General Corporation Law, the Registrant is authorized
to indemnify any past or present director, officer, agent or
employee against judgments, penalties, fines, settlements and
reasonable expenses actually incurred by him in connection with
any proceeding in which he is a party by reason of having served
as a director, officer, agent or employee, if he acted in good
faith and reasonably believed that, (i) in the case of conduct in
his official capacity with the Registrant, that his conduct was
in the best interests of the Registrant, or (ii) in all other
cases, that his conduct was at least not opposed to the best
interests of the Registrant. In the case of any criminal
proceeding, said director, officer, agent or employee must in
addition have had no reasonable cause to believe that his conduct
was unlawful. In the case of a proceeding by or in the right of
the Registrant, indemnification may only be made against
reasonable expenses and may not be made in respect of any
proceeding in which the director, officer, agent or employee
shall have been adjudged to be liable to the Registrant. The
termination of any proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent
creates a rebuttable presumption that the director, officer,
agent or employee did not meet the requisite standard of conduct
for indemnification. No indemnification may be made in respect of
any proceeding charging improper personal benefit to the
director, officer, agent or employee whether or not involving
action in such person's official capacity, if such person was
adjudged to be liable on the basis that improper personal benefit
was received. If such director, officer, agent or employee is
successful, on the merits or otherwise, in defense of any such
proceeding against him, he shall be indemnified against the
C-5
<PAGE>
reasonable expenses incurred by him (unless such indemnification
is limited by the Registrant's charter, which it is not).
Additionally, a court of appropriate jurisdiction may order
indemnification in certain circumstances even if the appropriate
standard of conduct set forth above was not met.
Indemnification may not be made unless authorized in the specific
case after determination that the applicable standard of conduct
has been met. Such determination shall be made by either: (i) the
board of directors by either (x) a majority vote of a quorum
consisting of directors not parties to the proceeding or (y) if
such a quorum cannot be obtained, then by a majority vote of a
committee of the board consisting solely of two or more directors
not at the time parties to such proceeding who were duly
designated to act in the matter by a majority vote of the full
board in which the designated directors who are parties may
participate; (ii) special legal counsel selected by the board of
directors or a committee of the board by vote as set forth in (i)
above, or, if the requisite quorum of the board cannot be
obtained therefore and the committee cannot be established, by a
majority vote of the full board in which directors who are
parties may participate; or (iii) the stockholders.
Reasonable expenses may be reimbursed or paid by the Registrant
in advance of final disposition of a proceeding after a
determination, made in accordance with the procedures set forth
in the preceding paragraph, that the facts then known to those
making the determination would not preclude indemnification under
the applicable standards provided the Registrant receives (i) a
written affirmation of the good faith belief of the person
seeking indemnification that the applicable standard of conduct
necessary for indemnification has been met, and (ii) a written
undertaking to repay the advanced sums if it is ultimately
determined that the applicable standard of conduct has not been
met.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers
and controlling persons of the Registrant pursuant to the
Registrant's Articles of Incorporation or otherwise, the
Registrant has been advised that, in the opinion of the
Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities
being registered, then the Registrant will, unless in the opinion
of its counsel the matter has been settled by a controlling
precedent, submit to a court of appropriate jurisdiction the
question of whether indemnification by it is against public
policy as expressed in the Act and will be governed by the final
adjudication of such issue.
Item 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Information pertaining to business and other connections of the
Registrant's investment adviser is hereby incorporated by
reference to the section of the Prospectus captioned "Fund
Management" and to the section of the Statement of Additional
Information captioned "Directors and Officers of the Company."
C-6
<PAGE>
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
San Antonio, TX 78288 Portfolios
Michael D. Wagner Vice President, Secretary Secretary
9800 Fredericksburg Rd. and Counsel
San Antonio, TX 78288
Sherron A. Kirk Vice President and Treasurer
9800 Fredericksburg Rd. Controller
San Antonio, TX 78288
Alex M. Ciccone Vice President, Assistant
9800 Fredericksburg Rd. Compliance Secretary
San Antonio, TX 78288
(c) Not Applicable
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<PAGE>
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 Road
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, if requested to do so by the
holders of at least 10% of the Registrant's outstanding shares,
to call a meeting of the shareholders for the purpose of voting
upon the question of removal of a Director or Directors and to
assist in communications with other shareholders as required by
Section 16(c) of the Investment Company Act of 1940.
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
12th day of February, 1998.
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 February 19, 1998
- ----------------------- Board of Directors
Robert G. Davis
/S/ MICHAEL J.C. ROTH Vice Chairman of the Board February 12, 1998
- ----------------------- of Directors and President
Michael J.C. Roth (Principal Executive Officer)
/S/ SHERRON A. KIRK Treasurer (Principal February 12, 1998
- ----------------------- Financial and Accounting
Sherron A. Kirk Officer)
/S/ JOHN W. SAUNDERS, Jr. Director February 12, 1998
- -----------------------
John W. Saunders, Jr.
/S/ ROBERT L. MASON Director February 13, 1998
- -----------------------
Robert L. Mason
/S/ HOWARD L. FREEMAN, JR. Director February 13, 1998
- -----------------------
Howard L. Freeman, Jr.
/S/ RICHARD A. ZUCKER Director February 13, 1998
- -----------------------
Richard A. Zucker
/S/ BARBARA B. DREEBEN Director February 13, 1998
- -----------------------
Barbara B. Dreeben
C-9
<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 (7)
(y) Articles Supplementary dated May 9, 1997 (8)
(z) Articles of Amendment dated July 9, 1997 (9)
(aa) Articles Supplementary dated November 12, 1997
(filed herewith) 81
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)
(i) Science & Technology Fund (9)
(j) First Start Growth Fund (9)
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 (7)
C-10
<PAGE>
EXHIBIT ITEM PAGE NO. *
(g) Letter Agreement to the Advisory Agreement dated
August 1, 1997 adding Science & Technology Fund and
First Start Growth Fund (9)
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)
(d) Letter Agreement dated August 1, 1997 adding Science &
Technology Fund and First Start Growth Fund (9)
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)
(m) Letter Agreement to the Custodian Agreement dated
August 1, 1997 with respect to the Science &
Technology Fund and First Start Growth Fund (9)
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 13, 1998 (filed
herewith) 85
(j) Master Revolving Credit Facility Agreement with
NationsBank of Texas dated January 14, 1998 (filed
herewith) 108
(k) Letter Agreement to Transfer Agency Agreement dated
August 1, 1997 adding Science & Technology Fund and
First Start Growth Fund (9)
<PAGE>
EXHIBIT ITEM PAGE NO. *
(l) Transfer Agency Agreement Fee Schedule for Science &
Technology Fund (9)
(m) Transfer Agency Agreement Fee Schedule for First Start
Growth Fund (9)
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 (7)
(d) Opinion of Counsel with respect to the Aggressive
Growth Fund (6)
(e) Consent of Counsel with respect to the Aggressive
Growth Fund, Growth Fund, Income Fund, Money Market
Fund, Income Stock Fund, Growth & Income Fund, and
Short-Term Bond Fund (9)
(f) Opinion of Counsel with respect to the Science &
Technology Fund and First Start Growth Fund (8)
(g) Consent of Counsel with respect to the Science &
Technology Fund and First Start Growth Fund (filed
herewith) 136
11 Not Applicable
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)
(c) Subscription and Investment Letter for Science &
Technology Fund and First Start Growth Fund (9)
14 Prototype Plans
(a) USAA INVESTMENT MANAGEMENT COMPANY IRA Custodial
Agreement(9)
(b) USAA INVESTMENT MANAGEMENT COMPANY SEP-IRA Custodial
Agreement(9)
(c) USAA INVESTMENT MANAGEMENT COMPANY 403 (b)(7)
Custodial Agreement (9)
(d) USAA INVESTMENT MANAGEMENT COMPANY Simple IRA
Custodial Agreement (9)
15 12b-1 Plans - Not Applicable
16 Schedule for Computation of Performance Quotation (1)
17 Financial Data Schedule
(a) First Start Growth Fund (filed herewith 138
(b) Science & Technology Fund (filed herewit) 140
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., Trustees of the Equity 500 Index
Portfolio, dated September 30, 1996 (7)
C-12
<PAGE>
(d) Power of Attorney for Robert G. Davis dated March 24,
1997 (7)
(e) Power of Attorney for Robert L. Mason dated March 24,
1997 (7)
- -------------------
(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 Commission on October
1, 1996.
(7) Previously filed with Post-Effective Amendment No. 44 of the Registrant
(No. 2-49560) filed with the Securities and Exchange Commission on April
21, 1997.
(8) Previously filed with Post-Effective Amendment No. 45 of the Registrant
(No. 2-49560) filed with the Securities and Exchange Commission on May 16,
1997.
(9) Previously filed with Post-Effective Amendment No. 46 of the Registrant
(No. 2-49560) filed with the Securities and Exchange Commission on
September 30, 1997.
* Refers to sequentially numbered pages
C-13
<PAGE>
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 S&P 500 Index Fund by classifying an additional
25,000,000 shares of the authorized and unissued stock of the Corporation into
the S&P 500 Index Fund.
THIRD: The additional shares of the S&P 500 Index 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 S&P 500 Index 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 S&P 500 Index Fund, there were 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, 3,000,000,000 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, 75,000,000 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 S&P 500 Index 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, 3,000,000,000 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, 75,000,000 shares of the Growth & Income Fund and
75,000,000 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 S&P 500 Index 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 12, 1997.
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>
EXHIBIT 9(i)
<PAGE>
January 13, 1998
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 13, 1998 and ending January 12, 1999 (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 14, 1997, 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
<PAGE>
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.
2
<PAGE>
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
3
<PAGE>
(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;
4
<PAGE>
(c) AUTHORIZATION; COMPLIANCE WITH OTHER INSTRUMENTS. The execution,
delivery and performance of this Agreement and the Note, and borrowings
hereunder, have been duly authorized by all necessary corporate or trust action
of the Borrower and will not result in any violation of or be in conflict with
or constitute a default under any term of the charter, by- laws or trust
agreement of such Borrower or the applicable Funds, or of any borrowing
restrictions or prospectus or statement of additional information of such
Borrower or the applicable Funds, or of any agreement, instrument, judgment,
decree, order, statute, rule or governmental regulation applicable to such
Borrower, or result in the creation of any mortgage, lien, charge or
encumbrance upon any of the properties or assets of such Borrower or the
applicable Funds pursuant to any such term. The Borrower and the applicable
Funds are not in violation of any term of their respective charter, by-laws or
trust agreement, and such Borrower and the applicable Funds are not in
violation of any material term of any agreement or instrument to which they are
a party, or to the best of such Borrower's knowledge, of any judgment, decree,
order, statute, rule or governmental regulation applicable to them;
(d) SEC COMPLIANCE. The Borrower and the applicable Funds are in
compliance in all material respects with all federal and state securities or
similar laws and regulations, including all material rules, regulations and
administrative orders of the Securities and Exchange Commission (the "SEC") and
applicable Blue Sky authorities. The Borrower and the applicable Funds are in
compliance in all material respects with all of the provisions of the
Investment Company Act of 1940, and such Borrower has filed all reports with
the SEC that are required of it or the applicable Funds;
(e) LITIGATION. There is no action, suit or proceeding pending or, to
the best of the Borrower's knowledge, threatened against such Borrower or the
applicable Funds in any court or before any arbitrator or governmental body
which seeks to restrain any of the transactions contemplated by this Agreement
or which, if adversely determined, could have a material adverse effect on the
assets or business operations of such Borrower or the applicable Funds or the
ability of such Borrower and the applicable Funds to pay and perform their
obligations hereunder and under the Notes; and
(f) BORROWERS' RELATIONSHIP TO FUNDS. The assets of each Fund for
whose benefit Loans are borrowed by the applicable Borrower are subject to and
liable for such Loans and are available (except as subordinated to borrowings
under the NationsBank committed facility) to the applicable Borrower for the
repayment of such Loans.
13. AFFIRMATIVE COVENANTS OF THE BORROWERS. Until such time as all
amounts of principal and interest due to CAPCO by a Borrower pursuant to any
Loan made to such Borrower is irrevocably paid in full, and until the Facility
is terminated, such Borrower (for itself and on behalf of its respective Funds)
agrees:
5
<PAGE>
(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 Funds
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.
(g) Upon the request of CAPCO which may be made by CAPCO from time to
time in the event CAPCO in good faith believes that there has been a material
adverse change in the capital markets generally, to deliver to CAPCO, within
two business days after such request, a statement setting forth the total
assets of each Fund for whose benefit a Loan is outstanding on the date of such
request.
6
<PAGE>
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
7
<PAGE>
pursuant hereto shall prove to have been false or incorrect in any material
respect when made;
(f) 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
9
<PAGE>
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
Vice President-Treasurer
AGREED AND ACCEPTED this 13th
Day of January, 1998.
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
10
<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 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
11
<PAGE>
SCHEDULE A
FUNDS FOR WHOSE BENEFIT LOANS CAN
BE BORROWED UNDER FACILITY AGREEMENT
BORROWER FUNDS BORROWING LIMIT
USAA Mutual Fund, Inc. USAA Aggressive Growth 5% of Total Assets
USAA Growth & Income "
USAA Income Stock "
USAA Short-Term Bond "
USAA Money Market "
USAA Growth "
USAA Income "
USAA S&P 500 Index "
USAA Science & Technology "
USAA First Start Growth "
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 13, 1998
FOR VALUE RECEIVED, each of the undersigned (each a "Borrower" and
collectively the "Borrowers"), severally and not jointly, on behalf of and for
the benefit of the series of funds comprising each such Borrower as listed on
Schedule A to the Agreement as defined below (each a "Fund" and collectively
the "Funds") promises to pay to the order of USAA Capital Corporation ("CAPCO")
at CAPCO's office located at 9800 Fredericksburg Road, San Antonio, Texas
78288, in lawful money of the United States of America, in immediately
available funds, the principal amount of all Loans made by CAPCO to such
Borrower for the benefit of the applicable Funds under the Facility Agreement
Letter dated January 13, 1998 (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
<PAGE>
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 14, 1998, in the manner and to the extent set forth in the
Agreement among the Borrowers, CAPCO and NationsBank, dated January 14, 1998.
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 13, 1998, 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.
[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: Caryl J. Swann
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 Science & Technology Fund Acct.# 6938-515-1
- -----------------------------------------------------------------
USAA First Start Growth Fund Acct.# 6938-468-3
- -----------------------------------------------------------------
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
-------------------------
Caryl J. Swann Manager,
Mutual Fund Accounting /s/ Caryl J. Swann
-------------------------
IN WITNESS WHEREOF, I have executed this Certificate as of this 13th day of
January, 1998.
/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 13, 1998 /s/ MICHAEL D. WAGNER
------------------------
MICHAEL J. C. ROTH
President
.16901
<PAGE>
EXHIBIT 9(j)
<PAGE>
January 14, 1998
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 14, 1998 and ending January 13, 1999 (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
15, 1997, 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
<PAGE>
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
<PAGE>
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, 1998, 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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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,
<PAGE>
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;
(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
<PAGE>
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;
and
(g) Upon the request of the Bank, which may be made by the Bank
from time to time in the event the Bank in good faith believes that there has
been a material adverse change in the capital markets generally, to deliver to
the Bank, within two business days after such request, a statement setting
forth the total assets of each Fund for whose benefit a Loan is outstanding on
the date of such request.
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 prio r 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):
<PAGE>
(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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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/ Mary P. Riggins
-------------------------
Title: 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
<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
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 Science & Technology 25
USAA First Start Growth 25
USAA Investment Trust USAA Cornerstone Strategy 25
USAA Gold 25
USAA International 25
USAA World Growth 25
USAA GNMA Trust 25
USAA Treasury Money Market Trust 25
USAA Emerging Markets 25
USAA Growth and Tax Strategy 25
USAA Growth Strategy 25
USAA Income Strategy 25
USAA Balanced Strategy 25
USAA Tax Exempt Fund, Inc. USAA Long-Term 15
USAA Intermediate-Term 15
USAA Short-Term 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 14, 1998
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 14, 1998 (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).
<PAGE>
Neither the shareholders, trustees, officers, employees and other agents
of any Borrower or Fund shall be personally bound by or liable for any
indebtedness, liability or obligation hereunder or under the Note nor shall
resort be had to their private property for the satisfaction of any obligation
or claim hereunder.
This Note shall be governed by the laws of the state of Texas.
USAA MUTUAL FUND, INC.,
on behalf of and for the benefit
of its series of Funds as set forth
on Schedule A to the Agreement
By: /s/ Michael J.C. Roth
-------------------------------
Michael J.C. Roth
President
USAA INVESTMENT TRUST,
on behalf of and for the benefit
of its series of Funds as set forth
on Schedule A to the Agreement
By: /s/ Michael J.C. Roth
-------------------------------
Michael J.C. Roth
President
USAA TAX EXEMPT FUND, INC.,
on behalf of and for the benefit
of its series of Funds as set forth
on Schedule A to the Agreement
By: /s/ Michael J.C. Roth
-------------------------------
Michael J.C. Roth
President
USAA STATE TAX-FREE TRUST,
on behalf of and for the benefit
of its series of Funds as set forth
on Schedule A to the Agreement
By: /s/ Michael J.C. Roth
-------------------------------
Michael J.C. Roth
President
<PAGE>
LOANS AND PAYMENT OF PRINCIPAL
This schedule (grid) is attached to and made a part of the Promissory Note
dated January 14, 1998, 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.
[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: Caryl J. Swann
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 Science & Technology Fund Acct.# 6938-515-1
- -------------------------------------------------------------------------
USAA First Start Growth Fund Acct.# 6938-468-3
- -------------------------------------------------------------------------
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
- -------------------------------------------------------------------------
<PAGE>
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
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USAA Florida Tax-Free Money Market Fund Acct.# 6938-467-5
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USAA Texas Tax-Free Income Fund Acct.# 6938-602-7
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USAA Texas Tax-Free Money Market Fund Acct.# 6938-601-9
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<PAGE>
EXHIBIT C
ADDRESS FOR THE BANK
NationsBank of Texas, N.A.
901 Main Street
66th Floor
Dallas, Texas 75202
Attention: Mary Pat Riggins
Telephone No.: (214) 508-0585
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
---------------------------
Caryl J. Swann Manager
Mutual Fund Accounting /s/ Caryl J. Swann
---------------------------
<PAGE>
IN WITNESS WHEREOF, I have executed the Certificate as of this 14th day of
January, 1998.
/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 14, 1998
/s/ Michael J.C. Roth
---------------------------
MICHAEL J. C. ROTH
President
<PAGE>
Subordination EXHIBIT E
NationsBank of Texas, N.A. Agreement
This is an agreement among: Dated: January 14, 1998
Name and Address of Lender (Including County):
NationsBank of Texas, N.A.
901 Main Street
Dallas, Dallas County, Texas 75202
(Lender)
Name and Address of Borrower:
USAA Mutual Fund, Inc.
USAA Investment Trust
USAA Tax Exempt Fund, Inc.
USAA State Tax-Free Trust
9800 Fredericksburg Road
San Antonio, Texas 78288
(Debtor)
Name and Address of Creditor:
USAA Capital Corporation
9800 Fredericksburg Road
San Antonio, Texas 78288
(Creditor)
1. Background. Debtor is or may be indebted to Lender pursuant to that
certain Facility Agreement Letter dated January 14, 1998 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
13, 1998 between Debtor and Creditor ("Subordinated Facility Agreement").
All debt (as hereinafter defined) under th e 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 o f 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/ Mary P. Riggins By /s/ Michael J.C. Roth By /s/ Laurie B. Blank
Its Vice President Its President Its Treasurer
<PAGE>
GOODWIN, PROCTER & HOAR
COUNSELLORS AT LAW
EXCHANGE PLACE
BOSTON, MASSACHUSETTS 02109-2881
Telephone (617) 570-1000
Telecopier (617) 523-1231
February 25, 1998
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. 47 (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 Science and Technology Fund and First Start Growth Fund
(previously known as the Young Investors Growth Fund) series of the Registrant,
which opinion was filed with Post-Effective Amendment No. 45 to the
Registration Statement.
We also hereby consent to the reference to this firm 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\603979.1
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<NAME> USAA MUTUAL FUND, INC.
<SERIES>
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<NAME> FIRST START GROWTH FUND
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<NUMBER-OF-SHARES-SOLD> 2,433
<NUMBER-OF-SHARES-REDEEMED> (98)
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<GROSS-EXPENSE> 148
<AVERAGE-NET-ASSETS> 18,602
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> (0.03)
<PER-SHARE-GAIN-APPREC> 0.28
<PER-SHARE-DIVIDEND> 0.00
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<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000102401
<NAME> USAA MUTUAL FUND, INC.
<SERIES>
<NUMBER> 11
<NAME> SCIENCE & TECHNOLOGY FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-END> JAN-31-1998
<INVESTMENTS-AT-COST> 69,755
<INVESTMENTS-AT-VALUE> 70,473
<RECEIVABLES> 2,216
<ASSETS-OTHER> 101
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 72,790
<PAYABLE-FOR-SECURITIES> 3,478
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 172
<TOTAL-LIABILITIES> 3,650
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 71,232
<SHARES-COMMON-STOCK> 7,313
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> (155)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2,655)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 718
<NET-ASSETS> 69,140
<DIVIDEND-INCOME> 87
<INTEREST-INCOME> 87
<OTHER-INCOME> 0
<EXPENSES-NET> (329)
<NET-INVESTMENT-INCOME> (155)
<REALIZED-GAINS-CURRENT> (2,655)
<APPREC-INCREASE-CURRENT> 718
<NET-CHANGE-FROM-OPS> (2,092)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 7,866
<NUMBER-OF-SHARES-REDEEMED> (553)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 69,140
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 170
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 329
<AVERAGE-NET-ASSETS> 43,488
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> (0.03)
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