Table of Contents
USAA Family of Funds 1
President's Message 2
Investment Review 4
Financial Information:
USAA S&P 500 Index Fund
Distributions to Shareholders 6
Statement of Assets and Liabilities 7
Statement of Operations 8
Statements of Changes in Net Assets 9
Financial Highlights 10
Notes to Financial Statements 11
Report of Independent Accountants 14
Equity 500 Index Portfolio
Schedule of Portfolio Investments 15
Statement of Assets and Liabilities 25
Statement of Operations 26
Statements of Changes in Net Assets 27
Financial Highlights 28
Notes to Financial Statements 29
Report of Independent Accountants 32
===============================================================================
IMPORTANT INFORMATION
Through our ongoing efforts to reduce expenses and respond to shareholder
requests, your annual and semiannual report mailings are "streamlined." One copy
of each report is sent to each address, rather than to every registered owner.
For many shareholders and their families, this eliminates duplicate copies,
saving paper and postage costs to the Fund.
If you are the primary shareholder on at least one account, prefer not to
participate in streamlining, and would like to continue receiving one report per
registered account owner, you may request this in writing to:
USAA Investment Management Company
Attn: Report Mail
9800 Fredericksburg Road
San Antonio, TX 78284-8916
or phone a Mutual Fund Representative at 1-800-531-8448 during business hours.
This report is for the information of the shareholders and others who have
received a copy of the currently effective prospectus of the USAA S&P 500 Index
Fund, managed by USAA Investment Management Company (IMCO). It may be used as
sales literature only when preceded or accompanied by a current prospectus which
gives further details about the Fund.
USAA with the eagle is registered in the U.S. Patent & Trademark Office.
(Copyright)1998, USAA. All rights reserved.
USAA Family of Funds Summary
Fund Minimum
Type/Name Volatility Investment*
Capital Appreciation
=============================================================
Aggressive Growth Very high $3,000
Emerging Markets(1) Very high $3,000
First Start Growth Moderate to high $3,000
Gold(1) Very high $3,000
Growth Moderate to high $3,000
Growth & Income Moderate $3,000
International(1) Moderate to high $3,000
S&P 500 Index(2) Moderate $3,000
Science
& Technology(5) Very high $3,000
World Growth(1) Moderate to high $3,000
Asset Allocation
==========================================================
Balanced Strategy(1) Moderate $3,000
Cornerstone Strategy(1) Moderate $3,000
Growth and Tax
Strategy(3) Moderate $3,000
Growth Strategy(1) Moderate to high $3,000
Income Strategy Low to moderate $3,000
Income -- Taxable
==========================================================
GNMA Low to moderate $3,000
Income Moderate $3,000
Income Stock Moderate $3,000
Short-Term Bond Low $3,000
Income -- Tax Exempt
==========================================================
Long-Term(3) Moderate $3,000
Intermediate-Term(3) Low to moderate $3,000
Short-Term(3) Low $3,000
State Bond Income(3)** Moderate $3,000
Money Market
==========================================================
Money Market(4) Very low $3,000
Tax Exempt
Money Market(3),(4) Very low $3,000
Treasury Money
Market Trust(4) Very low $3,000
State Money Market(3),(4)** Very low $3,000
(1) Foreign investing is subject to additional risks, which are discussed in
the funds' prospectuses.
(2) S&P 500(Registered Trademark) 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 or the federal
alternative minimum tax.
(4) 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.
(5) This Fund may be more volatile than a fund that diversifies across many
industries.
* The InveStart(Registered Trademark) program is available for investors
without the $3,000 initial investment required to open an IMCO mutual fund
account. A mutual fund account can be opened with no initial investment if
you elect to have monthly automatic investments of at least $50 from a bank
account. InveStart is not available on tax-exempt funds or the S&P 500
Index Fund. The minimum initial investment for IRAs is $250, except for the
$2,000 minimum required for the S&P 500 Index Fund. IRAs are not available
for tax-exempt funds. The Growth and Tax Strategy Fund is not available as
an investment for your IRA because the majority of its income is tax
exempt.
** California, Florida, New York, Texas, and Virginia funds available to
residents only.
Non-deposit investment products offered by USAA Investment Management Company
are not insured by the FDIC, are not deposits or other obligations of, or
guaranteed by, USAA Federal Savings Bank, and are subject to investment risks,
and may lose value.
For more complete information about the mutual funds managed and distributed by
USAA IMCO, including charges and expenses, please call 1-800-531-8181 for a
prospectus. Read it carefully before you invest.
President's Message
"The S&P 500 Index(1) is the benchmark
which defines success as an equity investor. . ."
[PHOTOGRAPH OF MICHAEL J.C. ROTH, PRESIDENT AND VICE CHAIRMAN OF THE BOARD,
APPEARS HERE]
Late last year I was asked to write a short piece for a magazine taking the pro
side of a debate on the merits of index funds. I like the way the article came
out. I even like the points that the writer on the con side made.
I wrote about my experience investing money for a charitable organization. The
use of an index fund greatly eased the lives of our investment committee. With
an S&P 500 Index fund we never had to have portfolio managers come to town to
explain in detail their investment strategy so that we could document the fact
that we were prudently exercising our fiduciary responsibility. The S&P 500
Index(1) is the benchmark which defines success as an equity investor, both in
terms of risk and reward. The net result for our organization has been solid
returns, minimum bother and unquestioned prudence.
The gentleman who wrote the case against index funds was greatly concerned with
the unusually high performance of S&P 500 stocks for such a long time. He
stressed that this is unusual and I concur. The S&P 500, over long periods,
performs better than most money managers, but for three years that record has
been at the extreme, better than about 90% of money managers. We have repeatedly
cautioned investors not to extrapolate returns of 30% a year, which the market
has averaged these last three years.
In addition, this writer counseled an asset allocation that diversifies
globally. Again, I concur. It makes sense to participate in viable financial
markets that are now well developed and readily accessible in many other
countries. This allows an opportunity to reduce overall risk and possibly
increase the return of an investment.
But the fact remains that success will be measured by the answer to the
question, "How did you perform in relation to the S&P 500?" That is a strong
case for index funds.
Sincerely,
Michael J.C. Roth, CFA
PRESIDENT AND
VICE CHAIRMAN OF THE BOARD
(1) The S&P 500 Index is an unmanaged index representing the average
performance of a group of 500 widely held, publicly traded stocks. It
is not possible to invest in the S&P 500 Index.
For more complete information about the mutual funds managed and distributed by
IMCO, including charges and expenses, please call for a prospectus. Read it
carefully before you invest.
Past performance is no guarantee of future results. Yields and returns will
fluctuate.
Investment Review
USAA S&P 500 INDEX FUND*
OBJECTIVE: Seeks to provide investment results that, before expenses, correspond
to the total return of common stocks represented by the S&P 500 Index.
INVESTMENT INSTRUMENTS: Primarily equity securities, consisting of common stock
of current S&P 500 companies.
12/31/96 12/31/97
Net Assets . . . . . . . . . . . . . . . . . $179.1 Million $630.6 Million
Net Asset Value Per Share . . . . . . . . . . $11.57 $15.16
Average Annual Total Returns as of 12/31/97
1 Year . . . . . . . . . . . . . . . . . . . . . . . . . . . 33.03%
Since Inception on May 1, 1996 . . . . . . . . . . . . . . . 29.67%*
* Includes the $10 annual account maintenance fee through December 31, 1996.
- ----------------------------------
CUMULATIVE PERFORMANCE COMPARISON
- ----------------------------------
A chart in the form of a line graph appears here, illustrating the comparison of
a $10,000 hypothetical investment in the USAA S&P 500 Index Fund to the S&P 500
Index from 5/02/96 through 12/31/97. The data points from the graph are as
follows:
USAA S&P 500
INDEX FUND S&P 500 Index
---------- -------------
5/2/96 10,000 10,000
6/96 10,459 10,467
7/96 9,998 10,004
8/96 10,208 10,215
9/96 10,778 10,789
10/96 11,070 11,087
11/96 11,914 11,924
12/96 11,686 11,688
01/97 12,403 12,417
2/97 12,504 12,515
3/97 11,977 12,002
4/97 12,697 12,717
5/97 13,478 13,494
6/97 14,077 14,095
7/97 15,196 15,216
8/97 14,341 14,363
9/97 15,125 15,149
10/97 14,615 14,643
11/97 15,289 15,321
12/31/97 15,545 15,585
The graph illustrates how a $10,000 hypothetical investment in the USAA S&P 500
Index Fund compares to the S&P 500 Index, an unmanaged index representing the
average performance of a group of 500 widely held, publicly traded stocks. It is
not possible to invest directly in the S&P 500 Index. Total return equals income
yield plus share price change and assumes reinvestment of all dividends and
capital gain distributions. No adjustment has been made for taxes payable by
shareholders on their reinvested income dividends and capital gain
distributions. The performance data quoted represent past performance and are
not an indication of future results. Investment return and principal value of an
investment will fluctuate, and an investor's shares, when redeemed, may be worth
more or less than their original cost.
*S&P 500(Registered Trademark) 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.
Date the Fund initially invested in securities represented by the Index.
Portfolio Sector Diversification
% of Common Stock Market Value
A pie chart is shown here depicting the Portfolio Mix as of December 31,
1997 for the USAA S&P 500 Index Fund: Finance & Building 16%, Chemicals 3%,
Other 4%, Consumer Durables 4%, Retail Trade 5%, Utilities 8%, Energy 8%,
Health Care 11%, Business Equipment & Service 12%, Consumer Non-Durables 14%,
Capital Goods 15%.
Ten Largest
Stock Holdings
General Electric
Coca-Cola
Microsoft
Exxon
Merck & Company
Royal Dutch Petroleum
Intel
Philip Morris Companies
Procter & Gamble
IBM
Distributions to Shareholders
USAA S&P 500 Index Fund completed its calendar year end on December 31, 1997. As
required by Federal Law (Internal Revenue Code of 1986, as amended, and the
Regulations thereunder), the portion of the ordinary income dividend
distributions which represent domestic dividend income qualifying for deduction
by corporations was 76.4%.
USAA S&P 500 Index Fund
Statement of Assets and Liabilities
December 31, 1997
Assets
Investment in Equity 500 Index Portfolio, at Value $ 628,394,321
Receivable for Capital Shares Sold 2,903,868
Receivable from USAA Transfer Agency Company 71,937
--------------
Total Assets 631,370,126
--------------
Liabilities
Payable for Capital Shares Redeemed 578,093
USAA Investment Management Company 29,054
Accounts Payable and Accrued Expenses 144,450
--------------
Total Liabilities 751,597
--------------
Net Assets Applicable to Capital Shares Outstanding $ 630,618,529
==============
Represented By:
Paid-in Capital $ 515,201,679
Accumulated Undistributed Net Investment Income 60,082
Accumulated Net Realized Gain from Investments
and Futures Transactions 17,943,924
Net Unrealized Appreciation on Investments
and Futures Contracts 97,412,844
--------------
Net Assets Applicable to Capital Shares Outstanding $ 630,618,529
==============
Capital Shares Outstanding ($.01 par value per share,
75,000,000 shares authorized) 41,590,193
==============
Net Asset Value, Redemption Price, and Offering Price
Per Share $ 15.16
==============
See Notes to Financial Statements on Page 11
USAA S&P 500 Index Fund
Statement of Operations
Year ended December 31, 1997
Investment Income
Income Allocated from Equity 500 Index Portfolio, net $ 7,308,579
--------------
Expenses
Administration Fees 93,126
Custodian's Fees 9,232
Postage 55,754
Shareholder Reporting Fees 28,819
Directors' Fees 3,769
Registration Fees 198,151
Professional Fees 21,064
Other 7,798
--------------
Total Expenses 417,713
--------------
Net Investment Income 6,890,866
--------------
Net Realized and Unrealized Gain on
Investments and Futures Contracts
Net Realized Gain from Investment Transactions 16,134,932
Net Realized Gain from Futures Transactions 394,723
Net Change in Unrealized Appreciation on Investments
and Futures Contracts 82,263,699
--------------
Net Realized and Unrealized Gain on Investments
and Futures Contracts 98,793,354
--------------
Net Increase in Net Assets from Operations $ 105,684,220
==============
See Notes to Financial Statements on Page 11
USAA S&P 500 Index Fund
Statements of Changes in Net Assets
Eight Months
Year Ended Ended
December 31, December 31,
1997 1996*
---- ----
From Operations
Net Investment Income $ 6,890,866 $ 1,484,251
Net Realized Gain from Investment
and Futures Transactions 16,529,655 1,414,269
Net Change in Unrealized Appreciation
on Investments and Futures Contracts 82,263,699 15,149,145
------------- ---------------
Net Increase in Net Assets from Operations 105,684,220 18,047,665
------------- ---------------
Distributions to Shareholders
Net Investment Income (6,870,198) (1,444,837)
------------- ---------------
From Capital Share Transactions
Proceeds from Shares Sold 429,485,745 177,897,878
Dividend Reinvestments 5,388,985 1,086,693
Cost of Shares Redeemed (82,142,783) (16,514,839)
------------- ---------------
Net Increase in Net Assets from
Capital Share Transactions 352,731,947 162,469,732
------------- ---------------
Net Increase in Net Assets 451,545,969 179,072,560
Net Assets:
Beginning of Period 179,072,560 -
============= ===============
End of Period $ 630,618,529 $ 179,072,560
============= ===============
Undistributed Net Investment Income
Included in Net Assets
End of Period $ 60,082 $ 39,414
============= ===============
Change in Shares Outstanding
Shares Sold 31,712,665 16,887,079
Shares Issued for Dividends Reinvested 384,579 95,983
Shares Redeemed (5,985,970) (1,504,143)
------------- ---------------
Increase in Shares Outstanding 26,111,274 15,478,919
============= ===============
* Fund commenced operations May 1, 1996.
See Notes to Financial Statements on Page 11
USAA S&P 500 Index Fund
Financial Highlights
December 31, 1997
Contained below are selected ratios and supplemental data for the periods
indicated for the USAA S&P 500 Index Fund.
Eight Months
Year Ended Ended
December 31, December 31,
1997 1996*
---- ----
Per Share Operating Performance
Net Asset Value at Beginning of Period $ 11.57 $ 10.00
--------- ----------
Income from Investment Operations:
Net Investment Income .21 .12
Net Realized and Unrealized Gain on
Investments and Futures Transactions 3.59 1.57
--------- ----------
Total from Investment Operations 3.80 1.69
Distributions from Net Investment Income (.21) (.12)
--------- ----------
Net Asset Value at End of Period $ 15.16 $ 11.57
========= ==========
Total Return (%)** 33.03 16.90
Supplemental Data and Ratios
Net Assets at End of Period (000) $ 630,619 $ 179,073
Ratios to Average Net Assets:
Net Investment Income (%) 1.64 2.09(a)
Expenses, including Expenses of the
Equity 500 Index Portfolio (%) .18 .18(a)
Decrease Reflected in Above Expense
Ratio Due to Absorption of Expenses
by Bankers Trust and the Manager (%) .07 .15(a)
(a) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
* Fund commenced operations May 1, 1996.
** Assumes reinvestment of all dividend income distributions during the period;
does not reflect $10 annual account maintenance fee.
See Notes to Financial Statements on Page 11
USAA S&P 500 Index Fund
Notes to Financial Statements
December 31, 1997
(1) Summary of Significant Accounting Policies
USAA MUTUAL FUND, INC. (the Company), registered under the Investment Company
Act of 1940 (the Act), as amended, is a diversified, open-end management
investment company incorporated under the laws of Maryland consisting of ten
separate funds. The information presented in this annual report pertains only to
the USAA S&P 500 Index Fund (the Fund). The Fund's primary investment objective
is to provide investment results that, before expenses, correspond to the total
return of common stocks represented by the S&P 500 Index. The Fund seeks to
achieve its investment objective by investing substantially all of its assets in
the Equity 500 Index Portfolio (the Portfolio), an open-end management
investment company advised by Bankers Trust Company which has the same
investment objective as the Fund. At December 31, 1997, the Fund's investment
was 22.42% of the Portfolio.
The financial statements of the Portfolio, including the Schedule of Portfolio
Investments, are contained elsewhere in this report and should be read in
conjunction with the Fund's financial statements.
A. Valuation of Investments - The Fund records its investment in the Portfolio
at value which reflects its proportionate interest in the net assets of the
Portfolio. Valuation of the securities held by the Portfolio is discussed in the
notes to the Portfolio's financial statements included elsewhere in this report.
B. Investment Income and Expenses - The Fund records daily its pro rata share of
the Portfolio's income, expenses, and realized and unrealized gains and losses.
In addition, the Fund accrues its own expenses.
C. Federal Taxes - The Fund's policy is to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its income to its shareholders. Therefore, no
federal income or excise tax provision is required. The Fund may periodically
make reclassifications among certain of its capital accounts as a result of the
timing and characterization of certain income and capital gains distributions
determined annually in accordance with federal tax regulations which may differ
from generally accepted accounting principles.
D. Distributions - Distributions to shareholders are recorded on the ex-dividend
date. Distributions of net investment income are made quarterly. Distributions
of the Fund's pro rata share of the Portfolio's realized gains from security
transactions not offset by capital losses are made in the succeeding fiscal year
or as otherwise required to avoid the payment of federal taxes. At December 31,
1997, the Fund had a capital loss carryover for federal income tax purposes of
approximately $321,987 which, if not offset by subsequent capital gains, will
expire in 2004. It is unlikely that the Board of Directors of the Fund will
authorize a distribution of capital gains realized in the future until the
capital loss carryover has been utilized or expires.
E. Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that may affect the reported amounts in the financial
statements. Actual results could differ from those estimates.
(2) Lines of Credit
The Fund participates with other USAA funds in two joint short-term revolving
loan agreements totaling $850 million, one with USAA Capital Corporation
(CAPCO), an affiliate of the Manager ($750 million uncommitted), and one with
NationsBank of Texas, N.A. ($100 million committed). The purpose of the
agreements is to meet temporary or emergency cash needs, including redemption
requests that might otherwise require the untimely disposition of securities.
Subject to availability under its agreement with CAPCO, the Fund may borrow from
CAPCO an amount up to 5% of its total assets at CAPCO's borrowing rate with no
markup. Subject to availability under its agreement with NationsBank, the Fund
may borrow from NationsBank an amount which, when added to outstanding
borrowings under the CAPCO agreement, does not exceed 25% of its total assets at
NationsBank's borrowing rate plus a markup. The Fund had no borrowings under
either of these agreements during the year ended December 31, 1997.
(3) Transactions with Manager
A. Administrative Fees - The Fund has entered into an Administration Agreement
with USAA Investment Management Company (the Manager) under which the Manager
provides administrative services to the Fund. Prior to May 1, 1997, the Fund's
administrative fee was computed at .02% of its annual average net assets.
Beginning May 1, 1997, the Fund pays the Manager a monthly administrative fee
which on an annual basis is equal to the lesser of .06% of the average annual
net assets of the Fund or the amount that causes the Fund's total expense ratio
to equal .18% of its annual average net assets, including the Fund's pro rata
share of the expenses of the Portfolio.
The Manager has voluntarily agreed to reimburse expenses of the Fund to the
extent necessary to limit the expenses of the Fund to .18% of its annual average
net assets (including the Fund's pro rata share of the expenses of the
Portfolio) through May 1, 1998. Under the terms of a Third Party Feeder
Agreement between the Fund, the Manager, and Bankers Trust, Bankers Trust has
voluntarily agreed to waive expenses of the Portfolio to the extent necessary to
limit the expenses of the Portfolio to .08% of its annual average net assets.
B. Transfer Agent's Fees - The Fund has entered into a Transfer Agency Agreement
with USAA Transfer Agency Company, d/b/a USAA Shareholder Account Services, an
affiliate of the Manager, under which transfer agency services are provided to
the Fund. The Fund does not pay for these services. The Transfer Agent assesses
shareholders an annual account maintenance fee of $10 to cover costs of
maintaining shareholder accounts. This fee is waived on accounts with a balance
of $10,000 or more.
C. Underwriting Agreement - The Manager provides exclusive underwriting and
distribution of the Fund's shares on a continuing best efforts basis. The
Manager receives no commissions or fees for this service.
D. Management Agreement - The Manager serves as investment adviser to the Fund
and is responsible for monitoring the services provided to the Portfolio by
Bankers Trust. While the Fund maintains its investment in the Portfolio, the
Manager receives no fee for this service.
(4) Transactions with Affiliates
USAA Investment Management Company is indirectly wholly owned by United Services
Automobile Association (the Association), a large, diversified financial
services institution. At December 31, 1997, the Association and its affiliates
owned 7,975,906 shares (19.18%) of the Fund.
Certain directors and officers of the Fund are also directors, officers, and/or
employees of the Manager. None of the affiliated directors or Fund officers
received any compensation from the Fund.
Report of Independent Accountants
To the Directors of USAA Mutual Fund, Inc. and Shareholders of USAA S&P 500
Index Fund:
We have audited the accompanying statement of assets and liabilities of the USAA
S&P 500 Index Fund (one of the funds comprising USAA Mutual Fund, Inc.) as of
December 31, 1997, and the related statement of operations for the year then
ended, the statement of changes in net assets, and financial highlights for the
year then ended and for the period May 1, 1996 (commencement of operations)
through December 31, 1996. These financial statements and financial highlights
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1997, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
USAA S&P 500 Index Fund of USAA Mutual Fund, Inc. as of December 31, 1997, and
the results of its operations, the changes in its net assets, and the financial
highlights for the periods referred to above, in conformity with generally
accepted accounting principles.
Coopers & Lybrand L.L.P.
Kansas City, Missouri
February 13, 1998
Equity 500 Index Portfolio
Schedule of Portfolio Investments
December 31, 1997
Shares Security Value
------ -------- -----
COMMON STOCKS - 98.64%
Advertising - 0.09%
57,600 Omnicom Group, Inc. $ 2,440,800
---------------
Aerospace - 1.65%
367,446 Boeing Co. 17,981,889
24,122 General Dynamics Corp. 2,085,045
72,745 Lockheed Martin Corp. 7,165,382
24,579 Northrop Grumman Corp. 2,826,585
17,497 Raytheon Co. - Class A 862,844
95,514 Raytheon Co. - Class B 4,823,457
80,624 Rockwell International
Corp. 4,212,604
85,612 United Technologies
Corp. 6,233,624
---------------
46,191,430
---------------
Airlines - 0.41%
34,202 AMR Corp. (a) 4,394,957
27,849 Delta Air Lines, Inc. 3,314,031
73,200 Southwest Airlines Co. 1,802,550
31,715 U.S. Airways
Group, Inc. (a) 1,982,188
---------------
11,493,726
---------------
Apparel, Textiles - 0.41%
16,203 Charming Shoppes,
Inc. (a) 75,951
91,414 Corning Inc. 3,393,745
24,800 Fruit of the Loom, Inc. -
Class A (a) 635,500
24,203 Liz Claiborne, Inc. 1,011,988
71,248 Nike, Inc. - Class B 2,796,484
21,129 Reebok International
Ltd. (a) 608,779
7,011 Russell Corp. 186,230
7,304 Springs Industries, Inc. -
Class A 379,808
49,830 V.F. Corp. 2,289,066
---------------
11,377,551
---------------
Auto Related - 2.14%
56,400 AutoZone, Inc. (a) 1,635,600
254,002 Chrysler Corp. 8,937,695
16,534 Cummins Engine Co.,
Inc. 976,539
31,374 Dana Corp. 1,490,265
32,182 Eaton Corp. 2,872,243
29,244 Echlin, Inc. 1,058,267
417,364 Ford Motor Co. 20,320,410
259,984 General Motors Corp. 15,761,530
67,526 Genuine Parts Co. 2,291,664
1 Meritor Automotive, Inc. 21
33,080 PACCAR, Inc. 1,736,700
46,414 Parker Hannifin Corp. 2,129,242
24,196 Timken Co. 831,738
---------------
60,041,914
---------------
Banks - 8.11%
36,034 Ahmanson (H.F.) & Co. 2,412,026
222,834 Banc One Corp. 12,102,672
138,400 Bank of New York
Company, Inc. 8,001,250
254,872 BankAmerica Corp. 18,605,656
58,067 BankBoston Corp. 5,454,669
76,294 Barnett Banks, Inc. 5,483,631
55,600 BB&T Corp. 3,561,875
154,952 Chase Manhattan Corp. 16,967,244
169,266 Citicorp 21,401,570
41,200 Comerica, Inc. 3,718,300
78,364 CoreStates Financial
Corp. 6,274,018
54,250 Fifth Third Bancorp 4,434,937
112,536 First Chicago NBD Corp. 9,396,756
239,600 First Union Corp. 12,279,500
16,517 Golden West Financial
Corp. 1,615,569
73,700 Huntington Bancshares,
Inc. 2,653,200
87,600 KeyCorp 6,203,175
93,524 Mellon Bank Corp. 5,669,893
69,360 Morgan (J.P.)
& Company, Inc. 7,829,010
85,800 National City Corp. 5,641,350
265,804 NationsBank Corp. 16,164,206
277,616 Norwest Corp. 10,722,918
17,400 Republic New York Corp. 1,986,862
73,160 SunTrust Banks, Inc. 5,221,795
90,199 U.S. Bancorp 10,096,651
72,200 Wachovia Corp. 5,857,225
97,685 Washington Mutual, Inc. 6,233,524
33,370 Wells Fargo & Co. 11,327,029
---------------
227,316,511
---------------
Beverages - 3.36%
182,380 Anheuser-Busch
Companies, Inc. 8,024,720
9,419 Brown-Forman, Inc. -
Class B 520,400
909,122 Coca-Cola Co. 60,570,253
15,768 Coors (Adolph) Co. -
Class B 524,286
557,594 PepsiCo, Inc. 20,317,332
132,737 Seagram Ltd. 4,289,064
---------------
94,246,055
---------------
Building and Construction - 0.85%
17,283 Armstrong World
Industries, Inc. 1,291,904
11,290 Centex Corp. 710,564
9,466 Crane Co. 410,588
8,506 Fleetwood Enterprises,
Inc. 360,973
269,426 Home Depot, Inc. 15,862,456
62,811 Masco Corp. 3,195,510
12,450 Owens Corning 424,856
32,130 Stanley Works 1,516,134
---------------
23,772,985
---------------
Building, Forest Products - 0.35%
24,003 Boise Cascade Corp. 726,091
36,528 Champion International
Corp. 1,655,175
33,201 Georgia-Pacific Corp. 2,016,961
22,354 Johnson Controls, Inc. 1,067,403
2,045 Kaufman & Broad
Home Corp. 45,885
34,158 Louisiana-Pacific Corp. 649,002
4,401 Potlatch Corp. 189,243
69,994 Weyerhaeuser Co. 3,434,080
---------------
9,783,840
---------------
Chemicals and
Toxic Waste - 2.64%
46,304 Air Products &
Chemical, Inc. 3,808,504
96,740 Amgen, Inc. (a) 5,236,052
83,676 Dow Chemical Co. 8,493,114
415,692 Du Pont (E.I.) de
Nemours & Co. 24,967,501
30,181 Eastman
Chemical Co. 1,797,656
16,450 FMC Corp. (a) 1,107,291
27,249 Grace (W.R.) & Co. 2,191,841
22,096 Great Lakes
Chemical Corp. 991,558
38,814 Hercules, Inc. 1,943,126
27,102 Mallinckrodt, Inc. 1,029,876
216,920 Monsanto Co. 9,110,640
46,406 Morton International, Inc. 1,595,206
16,325 Nalco Chemical Co. 645,858
60,142 PPG Industries, Inc. 3,435,612
33,276 Raychem Corp. 1,432,948
23,159 Rohm & Haas Co. 2,217,474
39,700 Sigma-Aldrich Corp. 1,578,075
54,252 Union Carbide Corp. 2,329,445
---------------
73,911,777
---------------
Computer Services - 1.48%
127,200 3Com Corp. (a) 4,444,050
29,100 Adobe Systems, Inc. 1,200,375
107,512 Automatic Data
Processing, Inc. 6,598,549
58,100 Cabletron Systems,
Inc. (a) 871,500
293,934 Cendant Corp. (a) 10,103,981
120,000 Dell Computer Corp. (a) 10,080,000
182,300 EMC Corp. (a) 5,001,856
50,000 Parametric Technology
Co. (a) 2,368,750
74,315 Silicon Graphics, Inc. (a) 924,293
---------------
41,593,354
---------------
Computer Software - 3.53%
375,450 Cisco Systems, Inc. (a) 20,931,338
201,975 Computer Associates
International, Inc. 10,679,427
443,500 Microsoft Corp. (a) 57,322,375
363,356 Oracle Corp. (a) 8,107,381
94,700 Seagate Technology,
Inc. (a) 1,822,975
---------------
98,863,496
---------------
Containers - 0.28%
35,330 Avery Dennison Corp. 1,581,017
2,754 Ball Corp. 97,251
50,850 Crown Cork & Seal
Company, Inc. 2,548,856
52,500 Owens-Illinois, Inc. (a) 1,991,719
39,849 Stone Container Corp. 415,924
21,522 Temple-Inland, Inc. 1,125,870
---------------
7,760,637
---------------
Cosmetics and Toiletries - 0.94%
2,798 Alberto-Culver Co. -
Class B 89,711
54,028 Avon Products, Inc. 3,315,969
205,908 Gillette Co. 20,680,885
42,387 International Flavors &
Fragrances, Inc. 2,182,930
---------------
26,269,495
---------------
Diversified - 1.02%
54,169 Allegheny Teledyne Inc. 1,401,623
28,102 Ceridian Corp. (a) 1,287,423
39,400 Loews Corp. 4,181,325
155,478 Minnesota Mining &
Manufacturing Co. 12,758,913
3,527 NACCO Industries, Inc. -
Class A 378,050
47,964 Pall Corp. 992,255
57,915 Praxair, Inc. 2,606,175
31,220 SUPERVALU, Inc. 1,307,338
59,706 Textron, Inc. 3,731,625
---------------
28,644,727
---------------
Drugs - 6.87%
238,766 American Home
Products Corp. 18,265,599
365,478 Bristol-Myers Squibb Co. 34,583,356
407,740 Lilly (Eli) & Co. 28,388,897
440,397 Merck & Company, Inc. 46,792,181
475,408 Pfizer, Inc. 35,447,609
269,116 Schering-Plough Corp. 16,718,832
100,086 Warner-Lambert Co. 12,410,664
---------------
192,607,138
---------------
Electrical Equipment - 4.85%
261,410 CBS Corp. 7,695,257
1,202,944 General Electric Co. 88,266,016
23,072 General Signal Corp. 973,350
14,965 Grainger (W.W.), Inc. 1,454,411
385,940 Hewlett-Packard Co. 24,121,250
43,023 ITT Corp. (a) 3,565,531
37,423 ITT Industries, Inc. 1,174,147
192,664 Tyco International Ltd. 8,681,921
---------------
135,931,883
---------------
Electronics - 3.94%
55,041 Advanced Micro
Devices, Inc.(a) 987,298
5,527 Aeroquip-Vickers, Inc. 271,168
207,712 AlliedSignal, Inc. 8,087,786
80,873 AMP, Inc. 3,396,666
134,900 Applied Materials,
Inc. (a) 4,063,863
167,500 Emerson Electric Co. 9,453,281
26,542 Harris Corp. 1,217,614
600,228 Intel Corp. 42,166,017
31,800 KLA Instruments
Corp. (a) 1,228,275
52,600 LSI Logic Corp. (a) 1,038,850
82,800 Micron Technology,
Inc. (a) 2,152,800
219,442 Motorola, Inc. 12,521,909
58,026 National Semiconductor
Corp. (a) 1,505,049
95,701 Northern Telecom Ltd. 8,517,389
17,825 Perkin-Elmer Corp. 1,266,689
29,938 Scientific-Atlanta, Inc. 501,462
16,707 Tektronix, Inc. 663,059
143,456 Texas Instruments, Inc. 6,455,520
58,900 Thermo Electron
Corp. (a) 2,621,050
17,300 Thomas & Betts Corp. 817,425
21,259 Western Atlas, Inc. (a) 1,573,166
---------------
110,506,336
---------------
Environmental Control - 0.33%
81,035 Browning-Ferris
Industries, Inc. 2,998,295
98,900 Laidlaw, Inc. -
Class B 1,347,513
20,126 Safety-Kleen Corp. 552,207
159,458 Waste Management, Inc. 4,385,095
---------------
9,283,110
---------------
Financial Services - 5.09%
170,866 American Express Co. 15,249,791
17,852 Beneficial Corp. 1,483,947
96,400 Charles Schwab Corp. 4,042,775
10,200 Cincinnati Financial
Corp. 1,435,650
36,700 Countrywide Credit
Industries 1,573,513
47,500 Equifax 1,683,281
389,964 Fannie Mae 22,252,321
157,300 First Data Corp. 4,601,025
92,444 Fleet Financial Group,
Inc. 6,927,522
254,724 Freddie Mac 10,682,488
53,500 Green Tree Financial
Corp. 1,401,031
46,923 Hartford Financial
Services Group 4,390,233
39,358 Household
International, Inc. 5,020,605
184,225 MBNA Corp. 5,031,645
122,276 Merrill Lynch & Co., Inc. 8,918,506
215,793 Morgan Stanley, Dean
Witter, Discover & Co. 12,758,761
123,633 PNC Banc Corp. 7,054,808
59,700 State Street Corp. 3,473,794
59,000 Synovus Financial Corp. 1,932,250
420,521 Travelers Group, Inc. 22,655,569
---------------
142,569,515
---------------
Food Services/Lodging - 0.57%
44,719 Darden Restaurants,
Inc. 558,988
256,114 McDonald's Corp. 12,229,443
60,699 Tricon Global
Restaurants, Inc. (a) 1,764,065
54,462 Wendy's International,
Inc. 1,310,492
---------------
15,862,988
---------------
Foods - 3.09%
195,317 Archer-Daniels-
Midland Co. 4,235,937
167,054 Campbell Soup Co. 9,710,014
171,632 ConAgra, Inc. 5,631,675
52,830 CPC International, Inc. 5,692,432
64,319 General Mills, Inc. 4,606,848
134,375 Heinz (H.J.) Co. 6,827,930
41,294 Hershey Foods Corp. 2,557,647
148,014 Kellogg Co. 7,345,195
25,840 Pioneer Hi-Bred
International, Inc. 2,771,340
50,884 Quaker Oats Co. 2,684,131
38,605 Ralston-Purina
Group 3,587,852
175,687 Sara Lee Corp. 9,893,374
62,810 Sysco Corp. 2,861,781
233,368 Unilever N.V. 14,570,915
35,127 Whitman Corp. 915,497
34,092 Wrigley (WM) Jr. Co. 2,712,445
---------------
86,605,013
---------------
Forest Products
and Paper - 0.04%
34,600 Willamette
Industries, Inc. 1,113,688
---------------
Health Care - 0.90%
281,122 Abbott Laboratories 18,431,061
227,222 Columbia/HCA
Healthcare Corp. 6,731,452
---------------
25,162,513
---------------
Hospital Supplies and
Health Care - 2.92%
22,401 Allergan, Inc. 751,834
35,234 Alza Corp. (a) 1,120,882
23,477 Bard (C.R.), Inc. 735,124
21,723 Bausch & Lomb, Inc. 860,774
108,863 Baxter International, Inc. 5,490,777
40,532 Becton, Dickinson & Co. 2,026,600
45,450 Biomet, Inc. 1,164,656
71,500 Boston Scientific Corp. (a) 3,280,062
40,200 Cardinal Health, Inc. 3,020,025
54,400 Guidant Corp. 3,386,400
73,400 HBO & Co. 3,523,200
141,000 HEALTHSOUTH Corp. (a) 3,912,750
51,700 Humana, Inc. (a) 1,072,775
493,896 Johnson & Johnson 32,535,399
17,560 Manor Care, Inc. 614,600
172,304 Medtronic, Inc. 9,013,653
9,674 Shared Medical
Systems Corp. 638,484
39,419 St. Jude Medical, Inc. (a) 1,202,280
111,710 Tenet Healthcare
Corp. (a) 3,700,394
71,000 United Healthcare Corp. 3,527,812
22,848 U.S. Surgical Corp. 669,732
---------------
82,248,213
---------------
Hotel/Motel - 0.21%
92,041 Hilton Hotels Corp. 2,738,220
46,690 Marriott
International, Inc. 3,233,282
---------------
5,971,502
---------------
Household Furnishings - 0.18%
29,012 Maytag Corp. 1,082,510
52,858 Newell Co. 2,246,465
29,939 Whirlpool Corp. 1,646,645
---------------
4,975,620
---------------
Household Products - 1.88%
42,704 Clorox Co. 3,376,285
108,702 Colgate-Palmolive Co. 7,989,597
494,040 Procter & Gamble Co. 39,430,568
49,802 Rubbermaid, Inc. 1,245,050
20,596 Tupperware Corp. 574,113
---------------
52,615,613
---------------
Insurance - 3.82%
54,959 Aetna, Inc. 3,878,044
157,650 Allstate Corp. 14,326,444
87,137 American General Corp. 4,710,844
257,800 American International
Group, Inc. 28,035,750
56,950 Aon Corp. 3,338,694
61,772 Chubb Corp. 4,671,507
28,233 CIGNA Corp. 4,886,074
70,400 Conseco, Inc. 3,198,800
29,578 General Re Corp. 6,270,536
26,077 Jefferson-Pilot Corp. 2,030,746
37,410 Lincoln National Corp. 2,922,656
66,624 Marsh & McLennan
Companies, Inc. 4,967,652
36,000 MBIA, Inc. 2,405,250
44,900 MGIC Investment Corp. 2,985,850
26,400 Progressive Corp. 3,164,700
36,998 Providian Financial 1,671,847
59,202 SAFECO Corp. 2,886,098
34,830 St. Paul Companies, Inc. 2,858,237
60,900 SunAmerica, Inc. 2,603,475
46,268 Torchmark Corp. 1,946,148
51,500 UNUM Corp. 2,800,312
29,017 USF&G Corp. 640,188
---------------
107,199,852
---------------
Leisure Related - 1.26%
31,314 American Greetings
Corp. - Class A 1,225,160
28,442 Brunswick Corp. 862,148
248,157 Disney (Walt) Co. 24,583,053
18,039 Harcourt General, Inc. 987,635
35,215 Harrah's Entertainment,
Inc. (a) 664,683
49,487 Hasbro, Inc. 1,558,841
5,639 Jostens, Inc. 130,049
107,165 Mattel, Inc. 3,991,896
61,300 Mirage Resorts, Inc. (a) 1,394,575
---------------
35,398,040
---------------
Machinery - 1.30%
37,671 Black & Decker Corp. 1,471,523
11,982 Briggs & Stratton Corp. 581,876
29,200 Case Corp. 1,764,775
136,864 Caterpillar, Inc. 6,646,458
7,447 Cincinnati Milacron, Inc. 193,157
39,148 Cooper Industries, Inc. 1,918,252
97,623 Deere & Co. 5,692,641
74,808 Dover Corp. 2,702,439
64,482 Dresser Industries, Inc. 2,704,214
28,730 Echo Bay Mines Ltd. (a) 70,029
18,922 Harnischfeger
Industries, Inc. 668,183
90,792 Illinois Tool Works, Inc. 5,458,869
65,696 Ingersoll-Rand Co. 2,660,688
18,592 Millipore Corp. 630,966
10,658 Navistar International
Corp. (a) 264,452
14,094 Snap-On, Inc. 614,851
46,672 TRW, Inc. 2,491,118
---------------
36,534,491
---------------
Metals - 0.85%
80,536 Alcan Aluminium
Ltd. 2,224,807
63,400 Aluminum Company
of America 4,461,775
62,935 Armco, Inc. (a) 310,742
15,849 Asarco, Inc. 355,612
137,100 Barrick Gold Corp. 2,553,487
44,400 Battle Mountain Gold Co. 260,850
40,449 Bethlehem Steel Corp. (a) 348,873
29,194 Cyprus Amax Minerals Co. 448,858
40,008 Engelhard Corp. 695,139
30,600 Freeport-McMoRan Copper
& Gold, Inc. - Class B 481,950
63,643 Homestake Mining Co. 564,832
57,566 Inco Ltd. 978,622
16,603 Inland Steel Industries,
Inc. 284,326
66,610 Newmont Mining Corp. 1,956,669
36,494 Nucor Corp. 1,763,116
25,408 Phelps Dodge Corp. 1,581,647
89,604 Placer Dome, Inc. 1,136,851
29,349 Reynolds Metals Co. 1,760,940
38,977 USX-U.S. Steel Group,
Inc. 1,218,031
20,379 Worthington Industries,
Inc. 336,254
----------------
23,723,381
----------------
Miscellaneous - 0.13%
1 ACNielsen Corp. (a) 24
60,579 Cognizant Corp. 2,699,552
58,000 NextLevel Systems,
Inc. (a) 1,036,750
----------------
3,736,326
----------------
Office Equipment
and Computers - 3.03%
46,142 Apple Computer, Inc. (a) 605,614
17,114 Autodesk, Inc. 633,218
278,231 Compaq Computer Corp. 15,702,662
29,886 Computer Sciences
Corp. (a) 2,495,481
18,745 Data General Corp. (a) 326,866
55,932 Digital Equipment
Corp. (a) 2,069,484
46,819 Honeywell, Inc. 3,207,102
50,562 Ikon Office Solutions, Inc. 1,422,056
357,382 International Business
Machines Corp. 37,368,755
22,079 Moore Corp. Ltd. 333,945
118,992 Novell, Inc. (a) 892,440
52,098 Pitney Bowes, Inc. 4,685,564
137,656 Sun Microsystems,
Inc. (a) 5,489,033
72,599 Unisys Corp. (a) 1,007,311
118,735 Xerox Corp. 8,764,127
----------------
85,003,658
----------------
Oil Related - 8.45%
36,193 Amerada Hess Corp. 1,986,091
179,002 Amoco Corp. 15,237,545
19,500 Anadarko Petroleum 1,183,406
35,200 Apache Corp. 1,234,200
21,387 Ashland Inc. 1,148,215
118,750 Atlantic Richfield Co. 9,514,844
65,144 Baker Hughes, Inc. 2,841,907
60,239 Burlington Resources,
Inc. 2,699,460
241,966 Chevron Corp. 18,631,382
906,414 Exxon Corp. 55,461,207
32,381 Fluor Corp. 1,210,240
16,538 Foster Wheeler Corp. 447,560
98,480 Halliburton Co. 5,114,805
9,808 Helmerich & Payne, Inc. 665,718
20,832 Kerr-McGee Corp. 1,318,926
24,087 McDermott
International, Inc. 882,186
289,142 Mobil Corp. 20,872,438
125,714 Occidental Petroleum
Corp. 3,684,992
43,979 Oryx Energy Co. (a) 1,121,464
18,754 Pennzoil Co. 1,253,002
90,706 Phillips Petroleum Co. 4,410,579
29,900 Rowan Companies,
Inc. (a) 911,950
788,204 Royal Dutch
Petroleum Co. 42,710,804
183,562 Schlumberger Ltd. 14,776,741
29,845 Sun Co., Inc. 1,255,355
69,434 Tenneco, Inc. 2,742,643
201,122 Texaco, Inc. 10,936,009
93,748 Union Pacific Resources
Group, Inc. 2,273,389
90,637 Unocal Corp. 3,517,849
99,364 USX-Marathon Group 3,353,535
118,236 Williams Companies, Inc. 3,354,946
----------------
236,753,388
----------------
Paper - 0.80%
11,531 Bemis Company, Inc. 508,085
73,035 Fort James Corp. 2,793,589
111,144 International Paper Co. 4,793,085
212,130 Kimberly-Clark Corp. 10,460,660
42,102 Mead Corp. 1,178,856
29,303 Union Camp Corp. 1,573,205
34,960 Westvaco Corp. 1,099,055
----------------
22,406,535
----------------
Pharmaceuticals - 0.24%
186,532 Pharmacia & Upjohn,
Inc. 6,831,735
----------------
Photography and Optical - 0.29%
121,326 Eastman Kodak Co. 7,378,138
16,482 Polaroid Corp. 802,467
----------------
8,180,605
----------------
Printing and Publishing - 1.31%
30,091 Deluxe Corp. 1,038,140
58,152 Donnelley (R.R.)
& Sons Co. 2,166,162
30,172 Dow Jones & Co, Inc. 1,619,859
62,579 Dun & Bradstreet Corp. 1,936,038
104,292 Gannett Co., Inc. 6,446,549
3,304 Harland (John H.) Co. 69,384
37,626 Knight-Ridder, Inc. 1,956,552
37,630 McGraw-Hill
Companies, Inc. 2,784,620
8,272 Meredith Corp. 295,207
30,284 New York Times Co. -
Class A 2,002,529
192,815 Time Warner, Inc. 11,954,530
27,329 Times Mirror Co. -
Class A 1,680,734
46,596 Tribune Co. 2,900,601
----------------
36,850,905
----------------
Professional Services - 0.42%
40,535 Block (H&R), Inc. 1,816,475
18,600 Ecolab, Inc. 1,031,138
8,125 EG&G, Inc. 169,102
39,160 Interpublic Group of
Companies, Inc. 1,950,657
20,326 National Service
Industries 1,007,407
84,792 Service Corporation
International 3,132,005
23,843 Transamerica Corp. 2,539,279
----------------
11,646,063
----------------
Railroads - 0.70%
57,362 Burlington Northern
Santa Fe Corp. 5,331,081
79,332 CSX Corp. 4,283,927
130,353 Norfolk Southern Corp. 4,016,502
95,647 Union Pacific Corp. 5,971,960
----------------
19,603,470
----------------
Real Estate - 0.02%
10,166 Pulte Corp. 425,066
----------------
Retail - 4.12%
92,202 Albertson's, Inc. 4,368,070
106,736 American Stores Co. 2,194,759
39,346 Circuit City Stores, Inc. 1,399,242
78,599 Costco Companies,
Inc. (a) 3,507,480
64,419 CVS Corp. 4,126,842
80,108 Dayton Hudson Corp. 5,407,290
42,797 Dillards Department
Stores, Inc. - Class A 1,508,594
77,400 Federated Department
Stores, Inc. (a) 3,333,038
147,771 Gap, Inc. 5,236,635
17,093 Giant Food, Inc. - Class A 575,820
8,025 Great Atlantic & Pacific
Tea Co., Inc. 238,242
178,903 Kmart Corp. (a) 2,068,566
93,720 Kroger Co. (a) 3,461,783
92,447 Limited, Inc. 2,357,399
10,826 Longs Drug Stores, Inc. 347,785
66,694 Lowe's Companies, Inc. 3,180,470
83,298 May Department
Stores Co. 4,388,763
8,030 Mercantile Stores
Co., Inc. 488,826
31,729 Nordstrom, Inc. 1,915,638
98,150 Penney (J.C.) Co., Inc. 5,919,672
15,512 Pep Boys-Manny,
Moe & Jack 370,349
51,001 Rite Aid Corp. 2,993,121
141,709 Sears, Roebuck & Co. 6,412,332
64,974 Sherwin-Williams Co. 1,803,029
37,966 Tandy Corp. 1,464,064
59,308 TJX Companies, Inc. 2,038,713
108,618 Toys 'R' Us, Inc. (a) 3,414,678
182,468 Walgreen Co. 5,724,934
825,548 Wal-Mart Stores, Inc. 32,557,549
47,180 Winn-Dixie Stores, Inc. 2,061,176
36,122 Woolworth Corp. (a) 735,986
----------------
115,600,845
----------------
Telecommunications - 3.92%
1 360 Communications
Co. (a) 20
185,535 Airtouch Communications,
Inc. (a) 7,711,298
59,000 Alltel Corp. 2,422,687
202,052 Ameritech Corp. 16,265,186
37,976 Andrew Corp. (a) 911,424
77,300 Bay Networks, Inc. (a) 1,975,981
37,600 Clear Channel
Communications,
Inc. (a) 2,986,850
113,362 Comcast Corp. - Class A 3,577,988
43,990 DSC Communications
Corp. (a) 1,055,760
56,400 Frontier Corp. 1,357,125
351,936 GTE Corp. 18,388,656
17,406 King World
Productions, Inc. 1,005,197
236,441 Lucent Technologies, Inc. 18,885,725
251,720 MCI
Communications Corp. 10,776,763
165,360 Tele-Communications,
Inc. - Class A (a) 4,619,745
69,300 Tellabs, Inc. (a) 3,664,238
99,849 Viacom, Inc. - Class B (a) 4,137,493
332,100 WorldCom, Inc. (a) 10,046,025
----------------
109,788,161
----------------
Tire and Rubber - 0.19%
18,851 Cooper Tire &
Rubber Co. 459,493
24,952 Goodrich (B.F.) Co. 1,033,949
59,836 Goodyear Tire
& Rubber Co. 3,807,065
----------------
5,300,507
----------------
Tobacco - 1.61%
64,574 Fortune Brands, Inc. 2,393,274
890,598 Philip Morris
Companies, Inc. 40,355,222
67,707 UST, Inc. 2,500,927
----------------
45,249,423
----------------
Trucking, Shipping - 0.17%
16,882 Caliber System, Inc. 821,942
42,750 Federal Express Corp. (a) 2,610,422
37,617 Ryder System, Inc. 1,231,957
----------------
4,664,321
----------------
Utilities - 7.88%
80,310 American Electric
Power Co. 4,146,004
597,006 AT&T Corp. 36,566,618
40,625 Baltimore Gas
& Electric Co. 1,383,789
285,418 Bell Atlantic Corp. 25,973,038
364,432 BellSouth Corp. 20,522,077
42,028 Carolina Power
& Light Co. 1,783,563
85,230 Central & South
West Corp. 2,306,537
46,622 CINergy Corp. 1,786,205
37,966 Coastal Corp. 2,351,519
24,735 Columbia Gas
System, Inc. 1,943,243
94,036 Consolidated Edison
Company of
New York, Inc. 3,855,476
39,405 Consolidated Natural
Gas Co. 2,384,002
63,206 Dominion Resources,
Inc. 2,690,205
57,576 DTE Energy Co. 1,997,168
135,295 Duke Energy Corp. 7,491,961
3,742 Eastern Enterprises 168,390
135,970 Edison International 3,696,684
117,866 Enron Corp. 4,898,806
105,207 Entergy Corp. 3,149,635
78,884 FirstEnergy Corp. (a) 2,287,636
66,294 FPL Group, Inc. 3,923,776
47,800 GPU, Inc. 2,013,575
114,092 Houston Industries, Inc. 3,044,830
38,342 Niagara Mohawk
Power Corp. (a) 402,591
10,069 NICOR, Inc. 424,786
18,844 Northern States
Power Co. 1,097,663
11,791 ONEOK, Inc. 476,062
21,768 Pacific Enterprises 819,021
91,389 PacifiCorp 2,496,062
91,284 PECO Energy Co. 2,213,637
5,455 People's Energy Corp. 214,791
170,505 PG&E Corp. 5,189,746
73,300 PP&L Resources, Inc. 1,754,619
95,494 Public Service Enterprise
Group, Inc. 3,025,966
338,614 SBC
Communications, Inc. 24,803,475
34,810 Sonat, Inc. 1,592,558
259,458 Southern Co. 6,713,476
126,282 Sprint Corp. 7,403,282
90,127 Texas Utilities Co. 3,745,903
79,525 Unicom Corp. 2,445,394
26,720 Union Electric Co. 1,155,640
182,328 U.S. West, Inc. -
Communications Group 8,227,551
219,028 U.S. West, Inc. -
Media Group (a) 6,324,433
----------------
220,891,393
----------------
Total Common Stock
(Cost $1,757,541,598) 2,764,949,595
----------------
SHORT-TERM INSTRUMENTS - 1.23%
Mutual Funds - 1.08%
30,227,816 BT Institutional
Cash Management
Fund $ 30,227,816
----------------
Principal
Amount
------
U.S. Treasury Bill - 0.15%
$4,170,000 5.30%, 3/05/98 (b) 4,133,229
----------------
Total Short-Term Instruments
(Cost $34,360,106) 34,361,045
----------------
Total Investments
(Cost $1,791,901,704) 99.87% 2,799,310,640
Other Assets
Less Liabilities 0.13% 3,775,831
------ ----------------
Net Assets 100.00% $ 2,803,086,471
====== ================
- --------------------------------------
(a) Non-income producing security.
(b) Held as collateral for futures contracts.
See Notes to Financial Statements on Page 29
Equity 500 Index Portfolio
Statement of Assets and Liabilities
December 31, 1997
Assets
Investments, at Value (Cost of $1,791,901,704) $ 2,799,310,640
Dividends and Interest Receivable* 3,960,232
Variation Margin Receivable 22,425
Prepaid Expenses and Other 4,991
----------------
Total Assets 2,803,298,288
----------------
Liabilities
Due to Bankers Trust 193,761
Accrued Expenses and Other 18,056
----------------
Total Liabilities 211,817
----------------
Net Assets $ 2,803,086,471
================
Composition of Net Assets
Paid-in capital 1,795,065,447
Net Unrealized Appreciation on Investments 1,007,408,936
Net Unrealized Appreciation on Futures Contracts 612,088
----------------
Net Assets $ 2,803,086,471
================
* Includes $151,469 from the Portfolio's investment in the BT Institutional
Cash Management Fund.
See Notes to Financial Statements on Page 29
Equity 500 Index Portfolio
Statement of Operations
Year ended December 31, 1997
Investment Income
Dividends (net of foreign withholding taxes of $239,357) $ 42,168,929
Interest* 2,481,564
---------------
Total Investment Income 44,650,493
---------------
Expenses
Advisory Fees 2,430,147
Administration and Services Fees 1,215,073
Professional Fees 25,600
Trustees Fees 2,100
Miscellaneous 10,687
---------------
Total Expenses 3,683,607
Less: Expenses Absorbed by Bankers Trust (1,739,490)
---------------
Net Expenses 1,944,117
---------------
Net Investment Income 42,706,376
---------------
Realized and Unrealized Gain
on Investments and Futures Contracts
Net Realized Gain from Investment Transactions 91,887,326
Net Realized Gain on Futures Transactions 3,399,122
Net Change in Unrealized Appreciation on Investments 528,046,548
Net Change in Unrealized Appreciation on
Futures Contracts 729,288
---------------
Net Realized and Unrealized Gain on Investments
and Futures Contracts 624,062,284
---------------
Net Increase in Net Assets from Operations $ 666,768,660
===============
* Includes $1,311,133 from the Portfolio's investment in the BT Institutional
Cash Management Fund.
See Notes to Financial Statements on Page 29
Equity 500 Index Portfolio
Statements of Changes in Net Assets
Year Ended Year Ended
December 31, 1997 December 31, 1996
----------------- -----------------
Increase in Net Assets from:
Operations
Net Investment Income $ 42,706,376 $ 33,117,570
Net Realized Gain from Investments
and Futures Transactions 95,286,448 21,413,687
Net Change in Unrealized
Appreciation on Investments
and Futures Contracts 528,775,836 267,538,386
----------------- -----------------
Net Increase in Net Assets
from Operations 666,768,660 322,069,643
----------------- -----------------
Capital Transactions
Proceeds from Capital Invested 1,462,422,481 854,711,041
Value of Capital Withdrawn (1,251,328,236) (332,293,144)
----------------- -----------------
Net Increase in Net Assets from
Capital Transactions 211,094,245 522,417,897
----------------- -----------------
Total Increase in Net Assets 877,862,905 844,487,540
Net Assets
Beginning of Year 1,925,223,566 1,080,736,026
----------------- -----------------
End of Year $ 2,803,086,471 $ 1,925,223,566
================= =================
See Notes to Financial Statements on Page 29
Equity 500 Index Portfolio
Financial Highlights
December 31, 1997
Contained below are selected supplemental data and ratios to average net assets
for the periods indicated for the Equity 500 Index Portfolio.
Supplemental Data and Ratios:
For the year ended December 31,
-----------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Net Assets, End
of Period (000) $ 2,803,086 $ 1,925,224 $ 1,080,736 $ 559,772 $ 151,805
Ratios to Average
Net Assets:
Net Investment
Income (%) 1.76 2.20 2.52 2.84 2.67
Expenses (%) .08 .10 .10 .10 .10
Decrease Reflected
in Above Expense
Ratio Due to
Absorption of
Expenses by
Bankers Trust (%) .07 .05 .05 .06 .10
Portfolio Turnover
Rate (%) 19 15 6 21 31
Average Commission
Per Share* $ .0230 $ .0230
* For fiscal years beginning on or after September 1, 1995, a portfolio is
required to disclose its average commission rate per share for security trades
on which commissions are charged.
See Notes to Financial Statements on Page 29
Equity 500 Index Portfolio
Notes to Financial Statements
December 31, 1997
(1) Organization and Significant
Accounting Policies
A. Organization
The Equity 500 Index Portfolio (the Portfolio) is registered under the
Investment Company Act of 1940 (the Act), as amended, as an open-end management
investment company. The Portfolio was organized on December 11, 1991 as an
unincorporated trust under the laws of New York, and commenced operations on
December 31, 1992. The Declaration of Trust permits the Board of Trustees (the
Trustees) to issue beneficial interests in the Portfolio.
B. Security Valuation
The Portfolio's investments are valued each business day by an independent
pricing service (the Service) approved by the Trustees. Securities traded on
national exchanges or traded in the NASDAQ National Market System are valued at
the last sales prices reported at the close of business each day.
Over-the-counter securities not included in the NASDAQ National Market System
and listed securities for which no sale was reported are valued at the mean of
the bid and asked prices. Short-term obligations with remaining maturities of 60
days or less are valued at amortized cost which, with accrued interest,
approximates value. Securities for which quotations are not available are stated
at fair value as determined by the Trustees.
C. Security Transactions and Interest Income
Security transactions are accounted for on a trade date basis. Dividend income
is recorded on the ex-dividend date. Interest income is recorded on the accrual
basis and includes amortization of premium and discount on investments. Realized
gains and losses from securities transactions are recorded on the identified
cost basis.
All of the net investment income and realized and unrealized gains and losses
from the security transactions of the Portfolio are allocated pro rata among the
investors in the Portfolio at the time of such determination.
D. Futures Contracts
The Portfolio may enter into financial futures contracts which are contracts to
buy a standard quantity of securities at a specified price on a future date. The
Portfolio is required to deposit either in cash or securities an amount equal to
a certain percentage of the contract amount. Subsequent payments are made or
received by the portfolio each day, dependent on the daily fluctuations in the
value of the underlying security, and are recorded for financial statement
purposes as unrealized gains or losses by the Portfolio.
Futures contracts are valued at the settlement price established each day by the
board of trade or exchange on which they are traded.
E. Federal Income Taxes
It is the Portfolio's policy to comply with the requirements of the Internal
Revenue Code. Therefore, no federal income tax provision is required.
F. Other
The preparation of financial statement in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts in the financial statements. Actual results could
differ from those estimates.
(2) Fees and Transactions with Affiliates
The Portfolio has entered into an Administration and Services Agreement with
Bankers Trust Company (Bankers Trust). Under this Administration and Services
Agreement, Bankers Trust provides administrative, custody, transfer agency and
shareholder services to the Portfolio in return for a fee computed daily and
paid monthly at an annual rate of 0.05 of 1% of the Portfolio's average daily
net assets. For the year ended December 31, 1997, this fee aggregated
$1,215,073.
The Portfolio has entered into an Advisory Agreement with Bankers Trust. Under
this Advisory Agreement, the Portfolio pays Bankers Trust an advisory fee
computed daily and paid monthly at an annual rate of 0.10 of 1% of the
Portfolio's average daily net assets. For the year ended December 31, 1997, this
fee aggregated $2,430,147.
Bankers Trust has voluntarily undertaken to waive and reimburse expenses of the
Portfolio, to the extent necessary, to limit all expenses to 0.08 of 1% of the
average daily net assets of the Portfolio. For the year ended December 31, 1997,
expenses of the Portfolio have been reduced by $1,739,490.
On September 30, 1996, the Trust entered into a Distribution Agreement with
Edgewood Services, Inc. (Edgewood).
Certain officers of the Portfolio are also directors, officers and employees
of Edgewood Services, Inc., the distributor of the BT Pyramid Mutual Funds. None
of the officers so affiliated received compensation for services as officers of
the Portfolio.
For the year ended December 31, 1997, the Equity 500 Index Portfolio paid
brokerage commissions of $341,058.
(3) Purchases and Sales of
Investment Securities
The aggregate cost of purchases and proceeds from sales of investments, other
than short-term obligations, for the year ended December 31, 1997, were
$777,096,136 and $439,507,213, respectively. For federal income tax purposes,
the tax basis of investments held at December 31, 1997 was $1,807,569,264. The
aggregate gross unrealized appreciation was $1,013,752,877 and the aggregate
gross unrealized depreciation was $22,011,501 for all investments as of December
31, 1997.
(4) Futures Contracts
A summary of obligations under these financial instruments at December 31, 1997
is as follows:
Market Unrealized
Type of Future Expiration Contracts Position Value Appreciation
- -------------- ---------- --------- -------- ----- ------------
S&P 500
Index Futures March 1998 259 Long $63,396,725 $612,088
At December 31, 1997, the Portfolio segregated $4,133,229 to cover margin
requirements on open futures contracts.
REPORT OF INDEPENDENT
ACCOUNTANTS
To the Trustees and Holders of Beneficial Interest of the Equity 500 Index
Portfolio:
We have audited the accompanying statement of assets and liabilities, including
the schedule of portfolio investments, of the Equity 500 Index Portfolio as of
December 31, 1997, and the related statement of operations for the year then
ended, the statement of changes in net assets for each of the two years in the
period then ended and the financial highlights for each of the five years in the
period then ended. These financial statements and financial highlights are the
responsibility of the Portfolio's management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1997, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Equity 500 Index Portfolio as of December 31, 1997, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for the
periods referred to above, in conformity with generally accepted accounting
principles.
Coopers & Lybrand L.L.P.
Kansas City, Missouri
February 13, 1998
- --------------------------------------------------------------------------------
Directors
Robert G. Davis, Chairman of the Board
Michael J.C. Roth, President and Vice Chairman of the Board
John W. Saunders, Jr., Vice President
Barbara B. Dreeben
Howard L. Freeman, Jr.
Robert L. Mason
Richard A. Zucker
----------------------
Investment Advisor, Underwriter and Distributor
USAA Investment Management Company
9800 Fredericksburg Road
San Antonio, Texas 78288
-------------------------------------
Transfer Agent Legal Counsel
USAA Shareholder Account Services Goodwin, Procter & Hoar LLP
9800 Fredericksburg Road Exchange Place
San Antonio, Texas 78288 Boston, Massachusetts 02109
Custodian Independent Auditors
Bankers Trust Company Coopers & Lybrand LLP
Four Albany Street 1100 Main Street, Suite 900
New York, New York 10006 Kansas City, Missouri 64105
--------------------------------------------------------------------------
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
----
(from Touchtone phones only)
For account balance, last transaction or fund prices
1-800-531-8777, (in San Antonio) 498-8777
- --------------------------------------------------------------------------------
