As filed with the Securities and Exchange Commission on April 28, 2000.
1933 Act File No. 2-49560
1940 Act File No. 811-2429
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 _X_
Pre-Effective Amendment No.____
Post-Effective Amendment No. _53_
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 _X_
Amendment No. _41_
USAA MUTUAL FUND, INC.
-------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
9800 Fredericksburg Road, 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 Road
San Antonio, TX 78288-0227
---------------------------------------
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of this Registration Statement.
It is proposed that this filing will become effective under Rule 485
___ immediately upon filing pursuant to paragraph (b)
_X_ on May 1, 2000 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 73 - 78
Page 1 of 203
<PAGE>
USAA MUTUAL FUND, INC.
CROSS REFERENCE SHEET
PART A
FORM N-1A ITEM NO. SECTION IN PROSPECTUS
1. Front and Back Cover Pages.............. Same
2. Risk/Return Summary: Investments,
Risks, and Performance............... What is the Fund's Investment
Objective and Main Strategy?
Main Risks of Investing in This
Fund
Could the Value of Your
Investment in This Fund
Fluctuate?
3. Risk/Return Summary: Fee Table............ Fees and Expenses
4. Investment Objectives, Principal
Investment Strategies, and
Related Risks............................. What is the Fund's Investment
Objective and Main Strategy?
Fund Investments
5. Management's Discussion
of Fund Performance..................... Not Applicable
6. Management, Organization, and
Capital Structure...................... Fund and Portfolio Management
7. Shareholder Information................. How to Invest
Important Information About
Purchases and Redemptions
Exchanges
Shareholder Information
8. Distribution Arrangements............... Not Applicable
9. Financial Highlights Information........ Financial Highlights
<PAGE>
USAA MUTUAL FUND, INC.
CROSS REFERENCE SHEET
PART B
FORM N-1A ITEM NO. SECTION IN STATEMENT OF
ADDITIONAL INFORMATION
10. Cover Page and Table of Contents........ Same
11. Fund History............................ Description of Shares
12. Description of the Fund and
Its Investments and Risks.............. Investment Policies
Investment Restrictions
Portfolio Transactions and
Brokerage Commissions
13. Management of the Fund Directors and Officers of the
Company
Trustees and Officers of the
Portfolio
14. Control Persons and Principal
Holders of Securities.................. Directors and Officers of the
Company
Trustees and Officers of the
Portfolio
15. Investment Advisory and
Other Services......................... Directors and Officers of the
Company
Investment Adviser
Administrator
General Information
16. Brokerage Allocation and
Other Practices........................ Portfolio Transactions and
Brokerage Commissions
17. Capital Stock and
Other Securities....................... Description of Shares
18. Purchase, Redemption, and
Pricing of Shares...................... Valuation of Securities
Conditions of Purchase an
Redemption
Additional Information Regarding
Redemption of Shares
Investment Plans
19. Taxation of the Fund.................... Tax Considerations
20. Underwriters............................ General Information
21. Calculation of Performance Data......... Calculation of Performance Data
22. Financial Statements.................... Cover Page
<PAGE>
Part A
Prospectus for the
S&P 500 Index Fund,
is 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, Science & Technology Fund,
First Start Growth Fund, Intermediate-Term Bond Fund,
High-Yield Opportunities Fund, and Small Cap Stock Fund
<PAGE>
USAA S&P 500
INDEX FUND
PROSPECTUS
MAY 1, 2000
As with other mutual funds, the Securities and Exchange Commission has not
approved or disapproved of this Fund's shares or determined whether this
prospectus is accurate or complete. Anyone who tells you otherwise is
committing a crime.
TABLE OF CONTENTS
What is the Fund's Investment Objective and Main Strategy?.............. 2
What is the S&P 500 Index?.............................................. 2
Main Risks of Investing in This Fund.................................... 2
Is This Fund for You?................................................... 3
Could the Value of Your Investment in This Fund Fluctuate?.............. 3
Fees and Expenses....................................................... 5
Fund Investments........................................................ 6
Fund and Portfolio Management........................................... 11
Using Mutual Funds in an Investment Program............................. 12
How to Invest........................................................... 14
Important Information About Purchases and Redemptions................... 17
Exchanges............................................................... 18
Shareholder Information................................................. 19
Financial Highlights.................................................... 22
Appendix A ............................................................. 24
Appendix B ............................................................. 26
<PAGE>
USAA Investment Management Company manages this Fund. For easier reading, USAA
Investment Management Company will be referred to as "we" or "us" throughout
the Prospectus.
WHAT IS THE FUND'S INVESTMENT
OBJECTIVE AND MAIN STRATEGY?
The Fund seeks to match, as closely as possible (before the deduction of
expenses), the performance of the S&P 500 Index (1), which emphasizes stocks of
large U.S. companies. The Fund seeks to achieve its objective by investing all
of its investable assets in the Equity 500 Index Portfolio (Portfolio), which
is a separate mutual fund advised by Bankers Trust Company (Bankers Trust) with
an identical investment objective. To track the S&P 500 Index as closely as
possible, the Portfolio invests in stocks of companies included in the S&P 500
Index and other securities that Bankers Trust believes are representative of
the entire S&P 500 Index. The investment performance of the Fund will
correspond directly to the investment performance of the Portfolio.
The Fund's Board of Directors may change the Fund's investment objective
without shareholder approval.
In view of the risks inherent in all investments in securities, there is no
assurance that the Fund's objective will be achieved. See FUND INVESTMENTS on
page 6 for more information.
WHAT IS THE S&P 500 INDEX?
The S&P 500 Index is a well-known stock market index that includes common
stocks of 500 companies from several industrial sectors representing a
significant portion of the market value of all stocks publicly traded in the
United States. Most of these stocks are listed on the New York Stock Exchange.
See ADDITIONAL INFORMATION ON THE S&P 500 INDEX on page 10.
MAIN RISKS OF INVESTING IN THIS FUND
The primary risks of investing in this Fund are market risk and cash flow risk.
* MARKET RISK involves the possibility that the value of the Fund's
investments in stocks will decline in a down stock market, regardless of
the success or failure of any one company's operations.
- ---------
1 "Standard & Poor's(R)", "S&P(R)", "Standard & Poor's 500", "S&P 500(R)", and
"500" are trademarks of The McGraw-Hill Companies, Inc. and have been
licensed for use by Bankers Trust Company.
2
<PAGE>
* CASH FLOW RISK involves the risk that substantial changes in purchases and
redemptions in the Portfolio adversely affect the ability to match the
performance of the S&P 500 Index.
As with other mutual funds, losing money is also a risk of investing in this
Fund.
As you consider an investment in this 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 the investment for long periods of time
to ride out down periods.
An investment in this Fund is not a deposit of USAA Federal Savings Bank,
Bankers Trust Company, or any other bank, and is not insured or guaranteed by
the Federal Deposit Insurance Corporation or any other government agency.
Look for this symbol [CAUTION LIGHT GRAPHIC] throughout the Prospectus. We use
it to mark more detailed information about the risks you will face as a Fund
shareholder.
IS THIS FUND FOR YOU?
This Fund might be appropriate as part of your investment portfolio if . . .
* You are looking for a convenient and cost-efficient means of investing in
a portfolio that generally reflects the performance of the stock market.
* You are looking for some dividend income.
* You are willing to accept moderate risk.
This Fund MAY NOT be appropriate as part of your investment portfolio if . . .
* You need steady income and stability of principal.
* You are unwilling to take greater risk for long-term goals.
* You need an investment that provides tax-free income.
This Fund by itself does not constitute a balanced investment program.
Diversifying your investments may improve your long-run investment return and
lower the volatility of your overall investment portfolio.
COULD THE VALUE OF YOUR INVESTMENT
IN THIS FUND FLUCTUATE?
Yes, it could. Bankers Trust attempts to keep the Portfolio fully invested in
securities that are representative of the S&P 500 Index as a whole. Therefore,
the value of your investment in this Fund will fluctuate with the changing
market value of the investments in the Portfolio.
3
<PAGE>
The bar chart shown below illustrates the Fund's volatility and performance
from year to year for each full calendar year since the Fund's inception.
Total Return
All mutual funds must use the same formula to calculate total return.
[SIDE BAR]
TOTAL RETURN MEASURES THE PRICE CHANGE IN A SHARE ASSUMING THE
REINVESTMENT OF ALL DIVIDEND INCOME AND CAPITAL GAIN DISTRIBUTIONS.
[BAR CHART]
CALENDAR YEAR TOTAL RETURN
1997* 33.03%
1998 28.62%
1999 20.67%
*Fund began operations on May 1, 1996.
THE FUND'S TOTAL RETURN FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 2000,
WAS 2.23%.
During the periods shown in the bar chart, the highest total return for a
quarter was 21.33% (quarter ending December 31, 1998) and the lowest total
return for a quarter was -9.83% (quarter ending September 30, 1998).
The table below shows how the Fund's average annual total returns for the
one-year period, as well as the life of the Fund, compared to those of the S&P
500 Index itself. Unlike an index, the Fund has operating expenses. Therefore,
while the Fund attempts to track the S&P 500 Index as closely as possible, it
will not match exactly the performance of the Index. Keep in mind, the S&P 500
Index is a model, not an actual portfolio. It is a passive measure of U.S.
stock market returns. It does not factor in the costs of buying, selling, and
holding stocks - costs that are reflected in the Fund's results. Also,
remember, historical performance does not necessarily indicate what will happen
in the future.
===============================================================================
Average Annual
Total Returns Since Fund's
(for the periods ending Past Inception on
December 31, 1999) 1 Year May 1, 1996
- -------------------------------------------------------------------------------
S&P 500 Index Fund* 20.67% 27.15%
- -------------------------------------------------------------------------------
S&P 500 Index 21.03% 27.33%
===============================================================================
*EXCLUDES $10 ACCOUNT MAINTENANCE FEE, WHICH IS WAIVED FOR ACCOUNTS OF $10,000
OR MORE.
4
<PAGE>
Please consider performance information in light of the Fund's investment
objective and policies and market conditions during the reported time periods.
The value of your shares may go up or down. For the most current price and
return information for this Fund, you may call USAA TouchLine(R) at
1-800-531-8777. Press 1 for the Mutual Fund Menu, press 1 again for prices and
returns. Then, press 34# when asked for the Fund Code.
[SIDE BAR]
[TELEPHONE GRAPHIC]
TouchLine(R)
1-800-531-8777
press
1
then
1
then
3 4 #
You may 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 "S&PIdx." If you prefer to obtain this information from an on-line
computer service, you can do so by using the ticker symbol "USSPX."
[SIDE BAR]
NEWSPAPER
SYMBOL
S&Pldx
TICKER
SYMBOL
USSPX
FEES AND EXPENSES
This summary shows what it will cost you, directly and indirectly, to invest in
this Fund. The Board of Directors of USAA Mutual Fund, Inc., of which the Fund
is a series, believes that the aggregate per share expenses of the Fund and the
Equity 500 Index Portfolio (Portfolio) will be less than or approximately equal
to the expenses which the Fund would incur if the investable assets (Assets) of
the Fund were invested directly in the types of securities being held by the
Portfolio.
Shareholder Transaction Expenses-- (Direct Costs)
There are no fees or sales loads charged to your account when you buy or sell
Fund shares. However, if you sell shares and request your money by wire
transfer, there is a $10 fee. (Your bank may also charge a fee for receiving
wires.)
===============================================
Annual Account Maintenance Fee
(for accounts under $10,000) $10
===============================================
Annual Fund Operating Expenses-- (Indirect Costs)
Fund expenses come out of the Fund's assets and are reflected in the Fund's
share price and dividends. "Other Expenses" include expenses such as custodian,
administration, transfer agency, and legal fees. The figures below are based
upon the actual expenses of the Fund and Portfolio combined during the past
fiscal year ended December 31, 1999, as adjusted to reflect changes in the
underlying contracts for services, and are calculated as a percentage of
average net assets (ANA).
[SIDE BAR]
12b-1 Fees - SOME MUTUAL FUNDS CHANGE THESE FEES TO PAY FOR ADVERTISING
AND OTHER COSTS OF SELLING FUND SHARES.
===============================================
Investment Advisory Fees .05%
Distribution (12b-1) Fees None
Other Expenses .13%
-----
Total Annual Operating Expenses .18%
=====
===============================================
5
<PAGE>
We are contractually entitled to receive fees from the Fund only to the extent
that the aggregate annual operating expenses of the Fund and the Portfolio do
not exceed .18% of the Fund's ANA.
USAA Shareholder Account Services, the Fund's transfer agent, assesses a $10
annual account maintenance fee to allocate part of the fixed costs of
maintaining shareholder accounts. We deduct $2.50 per quarter from your
dividends to pay the annual fee. We will waive this fee if you maintain an
account balance of $10,000 or more. See SHAREHOLDER INFORMATION on page 19 for
further information.
Example of Effect of Fund's Operating Expenses
This example is intended to help you compare the cost of investing in this Fund
with the cost of investing in other mutual funds. Although your actual costs
may be higher or lower, you would pay the following expenses on a $10,000
investment, assuming (1) 5% annual return, (2) the Fund's operating expenses
remain the same, and (3) you redeem all of your shares at the end of the
periods shown. The example excludes the $10 account maintenance fee.
===============================================
1 year............. $ 18
3 years............ 58
5 years............ 101
10 years............ 230
===============================================
FUND INVESTMENTS
Principal Investment Strategies and Risks
Q What is the Fund's principal investment strategy?
A Unlike other mutual funds that directly acquire and manage their own
portfolio securities, the Fund seeks to achieve its investment objective
by investing all of its Assets in the Equity 500 Index Portfolio
(Portfolio), a separate registered investment company with the same
investment objective as the Fund. Therefore, your interest in the
Portfolio's securities is indirect, and the investment characteristics
of the Fund will correspond directly to those of the Portfolio. This
type of arrangement is commonly referred to as a master-feeder
structure.
6
<PAGE>
Q How do funds in a master-feeder structure operate?
[SIDE BAR]
HOW A MASTER-
FEEDER STRUCTURE
OPERATES -
You buy shares
in the Fund
The Fund
invests in
the Portfolio
The Portfolio
invests in
S&P 500
stocks and
other securities
A The Portfolio is considered a master fund. The Fund is considered a
feeder fund and invests all of its Assets in the Portfolio. The
Portfolio may also accept investments from other feeder funds, typically
mutual funds or institutional investors. All feeder funds will invest in
the Portfolio under the same terms and conditions and will bear the
Portfolio's expenses in proportion to their assets. However, each feeder
fund can set its own transaction minimums, fund-specific expenses, and
other conditions. Therefore, investors in different feeder funds may
experience different returns.
The Fund may withdraw its investment from the Portfolio at any time, if
the Board of Directors determines that it is in the best interest of the
Fund's shareholders to do so. Certain changes in the Portfolio's
investment objective, policies, or restrictions may require the Fund to
withdraw its interest in the Portfolio. Upon any such withdrawal, we
would become responsible for directly managing the Assets of the Fund.
In addition, the Board of Directors would then consider whether to
invest in a different master portfolio or take other action.
[CAUTION LIGHT GRAPHIC]
MASTER-FEEDER STRUCTURE RISK. Actions of larger feeder funds may materially
affect smaller feeder funds investing in the Portfolio. For example, if a large
feeder fund withdraws from the Portfolio, the remaining funds may experience
proportionately higher operating expenses resulting in lower returns (however,
this possibility exists as well for traditionally structured funds that have
large institutional investors). Additionally, the Portfolio may become less
diverse, resulting in increased portfolio risk. Also, feeder funds with a
greater pro rata ownership in the Portfolio could have effective voting control
of the operations of the Portfolio.
Q How is the Portfolio managed?
A The Portfolio is not managed according to traditional methods of
"active" investment management, which involve the buying and selling of
securities based upon economic, financial, and market analyses and
investment judgment. Instead, the Portfolio utilizes a "passive" or
"indexing" investment approach in an attempt to match, as closely as
possible, the performance of the S&P 500 Index. This is done by holding
either all, or a
7
<PAGE>
representative sample, of the securities in the index. An index is a
group of securities whose overall performance is used as a standard to
measure investment performance.
Q As an investor, what are the benefits of using a "passive" or "indexing"
approach?
A Indexing appeals to many investors for the following reasons:
* provides simplicity because it is a straightforward market-matching
strategy;
* generally provides diversification by investing in a wide variety of
companies and industries;
* tends to have lower costs because index funds do not have many of the
expenses of actively managed funds such as research; and
* usually has relatively low trading activity; therefore, brokerage
commissions tend to be lower.
Q What is the Portfolio's investment policy?
A Under normal conditions, the Portfolio intends to invest at least 80% of
its assets in stocks of companies included in the S&P 500 Index. In
seeking to mirror the performance of the S&P 500 Index, Bankers Trust,
the Portfolio's investment adviser, attempts to allocate the Portfolio's
investments among stocks in approximately the same weightings as the S&P
500 Index, beginning with the stocks that make up the larger portion of
the Index's value. Bankers Trust may exclude or may remove any S&P stock
from the Portfolio, if Bankers Trust believes that the stock is illiquid
or has impaired financial conditions due to extraordinary events. Over
the long term, Bankers Trust seeks a correlation between the performance
of the Portfolio, before expenses, and that of the S&P 500 Index of 0.98
or better. A figure of 1.00 would indicate perfect correlation, meaning
that the Portfolio always moves up in value when the Index rises and
down in value when the Index declines. In the unlikely event that the
targeted correlation is not achieved, the Portfolio's Board of Trustees
will consider alternative structures.
8
<PAGE>
[CAUTION LIGHT GRAPHIC]
MARKET RISK. Because this Fund invests in stocks, 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 a company's operations. Stock markets
tend 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. Stocks tend to go up and down more than bonds.
Q How will Bankers Trust invest to mirror the performance of the S&P 500
Index?
A The Portfolio cannot as a practical matter hold every one of the 500
stocks in the S&P 500 Index. Because it would be very expensive to buy
and sell all of the stocks in the S&P 500 Index, Bankers Trust uses a
"sampling" technique.
* First - the Portfolio buys the stocks that make up the larger
portions of the Index's value in roughly the same proportion as the
Index.
* Second - smaller stocks are analyzed and selected. In choosing
smaller stocks, the Portfolio tries to match the industry and risk
characteristics of all of the small companies in the S&P 500 Index
without buying all of those stocks.
* Third - the Portfolio may invest in S&P 500 Index futures contracts
and similar instruments.
This approach allows the Portfolio to maintain sufficient cash to meet
redemption requests while minimizing costs.
Q Will the Portfolio purchase other types of securities?
A Under normal conditions, Bankers Trust will attempt to invest as much of
the Portfolio's assets as is practical in stocks included in the S&P 500
Index. However, the Portfolio may hold up to 20% of its assets in
short-term debt securities, money market instruments, stock index
futures, and options.
For a description of the futures and options the Portfolio may use and
some of their associated risks, see APPENDIX A on page 24.
9
<PAGE>
[CAUTION LIGHT GRAPHIC]
CASH FLOW RISK. The ability of the Fund and the Portfolio to meet their
investment objectives depends to some extent on the cash flow in and out of the
Fund and other investors in the Portfolio. When a shareholder buys or sells the
Fund's shares, the Portfolio generally has to buy or sell stocks in its
portfolio. Changes in the Fund's cash flow affect how closely the Portfolio
mirrors the S&P 500 Index.
[SIDE BAR]
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS ARE USE AS A LOW-COST
METHOD OF GAINING EXPOSURE TO A PARTICULAR SECURITIES MARKET WITHOUT
INVESTING DIRECTLY IN THOSE SECURITIES.
INVESTMENTS IN OPTIONS AND FUTURES. The Portfolio may invest, to a limited
extent, in stock index futures or options. The Portfolio will not use these
derivative instruments for speculative purposes or as leveraged investments
that magnify the gains or losses of an investment. Bankers Trust invests in
stock index futures and options to keep cash on hand to meet shareholder
redemptions or other needs while simulating full investments in stocks. These
investments tend to reduce the Portfolio's transaction cost or add value when
these instruments are favorably priced. Risks associated with investments in
futures and options include the risk that the futures or options contract will
not fully offset the underlying position and investments in futures and options
used for risk management may not have the intended effects and may result in
losses or missed opportunities.
If the Portfolio invests in futures contracts and options on futures contracts
for non-hedging purposes, the margin and premiums required to make those
investments will not exceed 5% of the Fund's net asset value after taking into
account unrealized profits and losses on the contracts. Futures contracts and
options on futures contracts used for non-hedging purposes involve greater
risks than stock investments.
Additional Information on the S&P 500 Index
[SIDE BAR]
MARKET
CAPITALIZATION
EQUALS
# OF SHARES
OUTSTANDING
MULTIPLIED BY
THE STOCK'S
CURRENT PRICE
Stocks in the S&P 500 Index are weighted according to their market
capitalization. Bankers Trust believes that the performance of the S&P 500
Index is representative of the performance of publicly traded common stocks in
general. S&P determines the composition of the S&P 500 Index based on such
factors as the market capitalization and trading activity of each stock and its
adequacy as a representation of stocks in a particular industry group. The
composition may change from time to time.
The Fund and the Portfolio are not sponsored, endorsed, sold, or promoted by
S&P. S&P makes no representation or warranty, express or implied, to the owners
of the Fund or the Portfolio or any member of the public regarding the
advisability of investing in securities generally or in the Fund and the
Portfolio particularly or the ability of the S&P 500 Index to track general
stock market performance. S&P does not guarantee the accuracy and/or the
completeness of the S&P 500 Index or any data included therein.
10
<PAGE>
S&P makes no warranty, express or implied, as to the results to be obtained by
the Fund or the Portfolio, owners of the Fund or the Portfolio, or any other
person or entity from the use of the S&P 500 Index or any data included
therein. S&P makes no express or implied warranties and hereby expressly
disclaims all such warranties of merchantability or fitness for a particular
purpose or use with respect to the S&P 500 Index or any data included therein.
FUND AND PORTFOLIO 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, while the business
affairs of the Portfolio are subject to the supervision of its Board of
Trustees. No Director of the Company also serves as a Trustee of the Portfolio.
USAA Investment Management Company
The Company has retained us, USAA Investment Management Company, to serve as
the manager, investment adviser, 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 $42 billion in total assets under management. Our mailing
address is 9800 Fredericksburg Road, San Antonio, TX 78288.
We provide certain management services to the Fund. We are responsible for
monitoring the services provided to the Portfolio by Bankers Trust, subject to
the authority of and supervision by the Company's Board of Directors. We
receive no fee for providing these monitoring services. However, in the event
the Company's Board of Directors determines it is in the best interest of the
Fund's shareholders to withdraw its investment in the Portfolio, we would be
responsible for directly managing the Assets of the Fund. In such an event, the
Fund would pay us an annual fee of one-tenth of one percent (.10%) of average
net assets, accrued daily and paid monthly. We also provide services related to
selling the Fund's shares and receive no compensation for those services.
Bankers Trust Company
At the present time, the Company seeks to achieve the Fund's investment
objective by investing all the Fund's Assets in the Portfolio. The Portfolio
has retained the services of Bankers Trust Company, with headquarters at 130
Liberty Street, New York, New York 10006, as investment adviser.
Bankers Trust, an indirect wholly owned subsidiary of Deutsche Bank AG, is a
worldwide merchant bank dedicated to servicing the needs of corporations,
governments, financial institutions, and private clients.
11
<PAGE>
Investment management is a core business of Bankers Trust with assets under its
global management totaling $270 billion as of December 31, 1999. Of that total,
approximately $238 billion are in U.S. assets.
Under its Investment Advisory Agreement, Bankers Trust receives a fee from the
Portfolio, computed daily and paid monthly, at the annual rate of .05% of the
average daily net assets of the Portfolio.
Portfolio Turnover
The annual portfolio turnover rate measures the frequency that the Portfolio
sells and replaces the value of its securities for a given period. We do not
expect the Fund to have a high portfolio turnover rate.
Administrator
Under the Administration Agreement with the Fund, we calculate the net asset
value of the Fund and generally assist the Company's Board of Directors in all
aspects of the administration and operation of the Fund. The Administration
Agreement provides for the Fund to pay us a fee, computed daily and paid
monthly, at an annual rate equal to the lesser of (1) .06% of the average daily
net assets of the Fund or (2) the amount that brings the total Fund and
Portfolio annual operating expenses as a percentage of the Fund's average net
assets up to .18%. We may also delegate one or more of our responsibilities to
others, at our expense.
Under an Administration and Services Agreement with the Portfolio, Bankers
Trust calculates the value of the assets of the Portfolio and generally assists
the Portfolio's Board of Trustees in all aspects of the administration and
operation of the Portfolio. Bankers Trust does not charge a fee to the
Portfolio for services provided under this agreement. Bankers Trust may also
delegate one or more of its responsibilities to others, at Bankers Trust's
expense. See ADMINISTRATOR in the Statement of Additional Information for
further information.
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
12
<PAGE>
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. An investment
adviser 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 S&P 500 Index 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 in
APPENDIX B under asset allocation on page 26. These unique mutual funds provide
a professionally managed, diversified investment portfolio within a mutual
fund. Designed for the individual who prefers to delegate the asset allocation
process to an investment manager, their structure achieves 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 member service
representatives stand ready to assist you with your choices and to help you
craft a portfolio to meet your needs. Refer to APPENDIX B on page 26 for a
complete list of the USAA Family of No-Load Mutual Funds.
13
<PAGE>
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), phone, or Internet. A
complete, signed application is required to open your initial account. However,
after you open your initial account with us, you will not need to fill out
another application to invest in another Fund unless the registration is
different.
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. 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 and payment prior to that time, your
purchase price will be the NAV per share determined for that day. If we receive
your request or payment 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.
This will avoid a potential four- to six-week delay in the effective date of
your purchase. 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]
* $3,000 [$2,000 for IRAs]
ADDITIONAL PURCHASES
* $50. Employees of USAA and its affiliated companies may add to an account
through payroll deduction for as little as $25 per pay period with a
$3,000 initial investment.
14
<PAGE>
HOW TO PURCHASE
MAIL
[ENVELOPE GRAPHIC]
* To open an account, send your application and check to:
USAA Investment Management Company
9800 Fredericksburg Road
San Antonio, TX 78288
* To add to your account, send your check and the "Invest by Mail" stub that
accompanies your Fund's transaction confirmation to the Transfer Agent:
USAA Shareholder Account Services
9800 Fredericksburg Road
San Antonio, TX 78288
IN PERSON
[HANDSHAKE GRAPHIC]
* To open an account, bring your application and check to our San Antonio
investment sales and service office at:
USAA Federal Savings Bank
10750 Robert F. McDermott Freeway
San Antonio, TX 78288
BANK WIRE
[BANK WIRE GRAPHIC]
* To open or add to your account, instruct your bank (which may charge a fee
for the service) to wire the specified amount to the Fund as follows:
State Street Bank and Trust Company
Boston, MA 02101
ABA#011000028
Attn: USAA S&P 500 Index Fund
USAA Account Number: 69384998
Shareholder(s) Name(s) _____________________________________
Shareholder(s) Mutual Fund Account Number ___________________
ELECTRONIC FUNDS TRANSFER
[CALENDAR GRAPHIC]
* 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 (IN SAN ANTONIO, 456-7202)
[TELEPHONE GRAPHIC]
* If you have an existing USAA mutual fund 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.
15
<PAGE>
USAA TOUCHLINE(R)1-800-531-8777 (IN SAN ANTONIO, 498-8777)
[TELEPHONE TOUCHLINE GRAPHIC]
* In addition to obtaining account balance information, last transactions,
current fund prices, and return information for your Fund, you can use USAA
TouchLine(R) from any touch-tone phone to access your Fund account to make
selected purchases, exchange to another USAA Fund, or make redemptions.
This service is available with an Electronic Services Agreement (ESA) and
EFT Buy/Sell authorization on file.
INTERNET ACCESS - WWW.USAA.COM
[COMPUTER GRAPHIC]
* You can use your personal computer to perform certain mutual fund
transactions by accessing our web site. To establish access to your
account, you will need to call 1-800-461-3507 to obtain a registration
number and personal identification number (PIN). Once you have established
Internet access to your account, you will be able to open a new mutual fund
account within an existing registration, exchange to another USAA Fund,
make redemptions, review account activity, check balances, and more. To
place orders by Internet, an ESA and EFT Buy/Sell authorization must be on
file.
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), your redemption will be effective on the next business day.
We will send you your money within seven days after the effective date of
redemption. 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. For federal
income tax purposes, a redemption is a taxable event; and as such, you may
realize a capital gain or loss. Such capital gains or losses are based on the
difference between your cost basis in the shares and the price received upon
redemption.
In addition, the Company may elect to suspend the redemption of shares or
postpone the date of payment in limited circumstances.
16
<PAGE>
HOW TO REDEEM
MAIL, IN PERSON, FAX, TELEGRAM, TELEPHONE, OR INTERNET
[FAX MACHINE GRAPHIC]
* Send your written instructions to:
USAA Shareholder Account Services
9800 Fredericksburg Road
San Antonio, TX 78288
* Visit a member service representative at our San Antonio investment sales and
service office at USAA Federal Savings Bank.
* Send a signed fax to 1-800-292-8177, or send a telegram to USAA Shareholder
Account Services.
* Call toll free 1-800-531-8448 (in San Antonio, 456-7202) to speak with a
member service representative.
* Call toll free 1-800-531-8777 (in San Antonio, 498-8777) to access our
24-hour USAA TouchLine(R) service.
* Access our Internet web site at www.usaa.com.
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, the following information is obtained:
(1) USAA number and/or account number, (2) the name(s) on the account
registration, and (3) social security/tax identification number or date of
birth of the registered account owner(s) for the account registration.
Additionally, all telephone communications with you are recorded and
confirmations of account transactions are sent to the address of record. If you
were issued stock certificates for your shares, redemption by telephone, fax,
telegram, or Internet is not available.
IMPORTANT INFORMATION ABOUT
PURCHASES AND REDEMPTIONS
INVESTOR'S GUIDE to USAA Mutual Fund Services
[INVESTORS GUIDE 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 assist 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.
17
<PAGE>
Company Rights
The Company reserves the right to:
* reject purchase or exchange orders when in the best interest of the Company;
* limit or discontinue the offering of shares of any portfolio of the Company
without notice to the shareholders;
* 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;
* 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);
* redeem an account with less than ten 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. Exchanges made through USAA TouchLine(R)
and the Internet require an ESA and EFT Buy/Sell authorization on file. After
we receive the exchange orders, the Fund's transfer agent will simultaneously
process exchange redemptions and purchases at the share prices next determined.
The investment minimums applicable to share purchases also apply to exchanges.
For federal income tax purposes, an exchange between Funds is a taxable event;
and as such, you may realize a capital gain or loss. Such capital gains or
losses are based on the difference between your cost basis in the shares and
the price received upon exchange.
The Fund has undertaken certain procedures regarding telephone transactions as
described on page 17.
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
18
<PAGE>
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
[SIDE BAR]
NAV PER SHARE
EQUALS
TOTAL ASSETS
MINUS
LIABILITIES
DIVIDED BY
# OF SHARES
OUTSTANDING
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 Portfolio's securities and other assets are valued primarily on the basis
of market quotations or, if quotations are not readily available, by a method
that the Portfolio's Board of Trustees believes accurately reflects fair value.
Dividends and Distributions
The Fund pays net investment income dividends quarterly. Any net capital gains
generally will be distributed at least annually. The Fund will make additional
payments to shareholders, if necessary, to avoid the imposition of any federal
income or excise tax.
We will automatically reinvest all income dividends and capital gain
distributions in the Fund unless you instruct us differently. 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 on the ex-dividend
date. You should consider carefully the effects of purchasing shares of the
Fund shortly before any dividend or distribution. Some or all of these
dividends and distributions are subject to taxes.
If your account balance is less than $10,000, the Transfer Agent will
automatically deduct a $10 annual account maintenance fee from the dividend
income paid to your account. The $10 account maintenance fee is deducted at a
rate of $2.50 per quarter from the dividend. If the dividend to be paid to an
account is less than the fee to be deducted, a sufficient number of shares may
be redeemed from an account to make up the difference. Any account maintenance
fee deducted from your account will be treated as taxable income even though
not received by you. The annual account maintenance fee may be changed upon at
least 30 days' notice to you.
19
<PAGE>
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 Taxpayer
Relief Act of 1997 and the technical provisions adopted by the IRS
Restructuring and Reform Act of 1998 may affect the status and treatment of
certain distributions shareholders receive from the Fund. Because each
investor's tax circumstances are unique and because the tax laws are subject to
change, we recommend that you consult your tax advisor about your investment.
SHAREHOLDER - Dividends from taxable net investment income and distributions of
net short-term capital gains are taxable to you 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.
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:
* fails to furnish the Fund with a correct tax identification number,
* underreports dividend or interest income, or
* 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 annually concerning the tax
status of dividends and distributions for federal income tax purposes.
20
<PAGE>
Future Shareholder Mailings
Through our ongoing efforts to help reduce Fund expenses, each household will
receive a single copy of the Fund's most recent financial reports and
prospectus even if you or a family member own more than one account in the
Fund. For many of you, this eliminates duplicate copies, saving paper and
postage costs to the Fund. However, if you would like to receive individual
copies, please call us and we will begin your individual delivery within 30
days.
21
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance since inception. Certain information reflects financial
results for a single Fund share. The total returns in the table represent the
rate that an investor would have earned (or lost) on an investment in the Fund
(assuming reinvestment of all dividends and distributions). This information
has been audited by PricewaterhouseCoopers LLP, whose report, along with the
Fund's financial statements, is included in the Annual Report, which is
available upon request.
Eight Months
Ended
Year Ended December 31, December 31,
---------------------------------------------
1999 1998 1997 1996*
---------------------------------------------
PER SHARE
OPERATING PERFORMANCE
Net asset value at beginning
of period $ 19.27 $ 15.16 $ 11.57 $ 10.00
---------------------------------------------
Income from investment
operations:
Net investment income .25 .21 .21 .12
Net realized and unrealized
gain on investments and
futures transactions 3.71 4.11 3.59 1.57
---------------------------------------------
Total from investment operations 3.96 4.32 3.80 1.69
---------------------------------------------
Distributions from:
Net investment income (.26) (.21) (.21) (.12)
Realized capital gains (.05) _ _ _
---------------------------------------------
Total Distributions (.31) (.21) (.21) (.12)
---------------------------------------------
Net asset value at end of period $ 22.92 $ 19.27 $ 15.16 $ 11.57
=============================================
Total return (%)** 20.67 28.62 33.03 16.90
SUPPLEMENTAL DATA AND RATIOS:
Net assets at end of period (000) $3,196,483 $1,855,855 $630,619 $179,073
Ratios to average net assets:
Net investment income (%) 1.25 1.40 1.64 2.09a
Expenses after waivers, including
expenses of the Equity 500
Index portfolio (%) .18b .18b .18 .18a
Expenses before waivers, including
expenses of Equity 500
Index Portfolio (%) .18 .20 .25 .33
Decrease reflected in above
expense ratio due to absorption
of expenses by Bankers Trust
and the Manager (%) _ .02 .07 .15a
22
<PAGE>
- ---------------------------
a Annualized. The ratio is not necessarily indicative of 12 months of
operations.
b Effective May 6, 1998, the manager is contractually entitled to receive
fees from the Fund only to the extent that the aggregate annual operating
expenses of the Fund and the portfolio do not exceed 0.18% of the Fund's
average net assets.
* Fund commenced operations May 1, 1996.
** Assumes reinvestment of all dividend income distributions during the
period; does not reflect $10 annual account maintenance fee.
23
<PAGE>
APPENDIX A
THE FOLLOWING ARE DESCRIPTIONS OF CERTAIN TYPES OF SECURITIES IN WHICH THE
PORTFOLIO'S ASSETS MAY BE INVESTED:
OPTIONS ON STOCK INDICES
The Portfolio may purchase and write put and call options on stock indices
listed on stock exchanges. A stock index fluctuates with changes in the market
values of the stocks included in the index.
Options on stock indices are generally similar to options on stock except that
the delivery requirements are different. Instead of giving the right to take or
make delivery of stock at a specified price, an option on a stock index gives
the holder the right to receive a cash "exercise settlement amount" equal to
(a) the amount, if any, by which the fixed exercise price of the option exceeds
(in the case of a put) or is less than (in the case of a call) the closing
value of the underlying index on the date of exercise, multiplied by (b) a
fixed "index multiplier." Receipt of this cash amount will depend upon the
closing level of the stock index upon which the option is based being greater
than, in the case of a call, or less than, in the case of a put, the exercise
price of the option. The amount of cash received will be equal to such
difference between the closing price of the index and the exercise price of the
option expressed in dollars times a specified multiple. The writer of the
option is obligated, in return for the premium received, to make delivery of
this amount. The writer may offset its position in stock index options prior to
expiration by entering into a closing transaction on an exchange or the option
may expire unexercised.
[CAUTION LIGHT GRAPHIC]
Because the value of an index option depends upon movements in the
level of the index rather than the price of a particular stock,
whether the Portfolio will realize a gain or loss from the purchase or
writing of options on an index depends upon movements in the level of
stock prices in the stock market generally or, in the case of certain
indices, in an industry or market segment. Accordingly, the
Portfolio's successful use of options on stock indices will be subject
to Bankers Trust's ability to predict correctly movements in the
direction of the stock market generally or of a particular industry.
This requires different skills and techniques than predicting changes
in the price of individual stocks.
FUTURES CONTRACTS ON STOCK INDICES
The Portfolio may enter into contracts providing for the making and acceptance
of a cash settlement based upon changes in the value of an index of securities
(Futures Contracts). This investment technique is designed only to hedge
against anticipated future changes in general market prices that otherwise
might either adversely affect the value of securities held by the Portfolio or
adversely affect the prices of securities which are intended to be purchased at
a later date for the Portfolio. A Futures Contract may also be entered into to
close out or offset an existing futures position. In general, each transaction
in Futures Contracts involves the establishment of a position that will move in
a direction opposite to that of the investment being hedged. If these hedging
transactions are successful, the futures positions taken for the Portfolio will
rise in value by an amount that approximately offsets the decline in value of
the portion of the Portfolio's investments which are being
24
<PAGE>
hedged. Should general market prices move in an unexpected manner, the full
anticipated benefits of Futures Contracts may not be achieved or a loss may be
realized.
[CAUTION LIGHT GRAPHIC]
Although Futures Contracts would be entered into for cash management
purposes only, such transactions do involve certain risks. These risks
could include a lack of correlation between the Futures Contracts and
the equity market being hedged; a potential lack of liquidity in the
secondary market and incorrect assessments of market trends, which may
result in poorer overall performance than if a Futures Contract had
not been entered into.
Brokerage costs will be incurred and "initial margin" will be required to be
posted and maintained as a good-faith deposit against performance of
obligations under Futures Contracts written for the Portfolio. The Portfolio
may not purchase or sell a Futures Contract or options thereon if immediately
thereafter its margin deposits on its outstanding Futures Contracts and its
premium paid on outstanding options thereon would exceed 5% of the market value
of the Portfolio's total assets.
OPTIONS ON FUTURES CONTRACTS
The Portfolio may invest in options on such Futures Contracts for similar
purposes.
ASSET COVERAGE
The Portfolio will cover transactions in futures and related options, as well
as when-issued and delayed-delivery as required under applicable
interpretations of the Securities and Exchange Commission, either by owning the
underlying securities or segregating with the Portfolio's Custodian liquid
securities in an amount at all times equal to or exceeding the Portfolio's
commitment with respect to these instruments or contracts.
ILLIQUID SECURITIES
The Portfolio may invest up to 15% of the market value of the Portfolio's net
assets in securities that are illiquid. Illiquid securities are those
securities which cannot be disposed of in the ordinary course of business,
seven days or less, at approximately the same value at which the Portfolio has
valued the securities.
25
<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 the mutual funds managed and
distributed by USAA Investment Management Company, including charges and
operating expenses, call us for a Prospectus. Read it carefully before you
invest. Mutual fund operating expenses apply and continue throughout the life
of the Fund.
FUND
TYPE/NAME VOLATILITY
====================================================
CAPITAL APPRECIATION
====================================================
Aggressive Growth Very high
Emerging Markets Very high
First Start Growth Moderate to high
Gold Very high
Growth Moderate to high
Growth & Income Moderate
International Moderate to high
S&P 500 Index Moderate
Science & Technology Very high
Small Cap Stock Very high
World Growth Moderate to high
====================================================
ASSET ALLOCATION
====================================================
Balanced Strategy Moderate
Cornerstone Strategy Moderate
Growth and Tax Strategy Moderate
Growth Strategy Moderate to high
Income Strategy Low to moderate
====================================================
INCOME - TAXABLE
====================================================
GNMA Low to moderate
High-Yield Opportunities High
Income Moderate
Income Stock Moderate
Intermediate-Term Bond Low to moderate
Short-Term Bond Low
====================================================
INCOME - TAX EXEMPT
====================================================
Long-Term Moderate
Intermediate-Term Low to moderate
Short-Term Low
State Bond/Income Moderate
====================================================
MONEY MARKET
====================================================
Money Market Very low
Tax Exempt Money Market Very low
Treasury Money Market Trust Very low
State Money Market Very low
====================================================
FOREIGN INVESTING IS SUBJECT TO ADDITIONAL RISKS, SUCH AS CURRENCY
FLUCTUATIONS, MARKET ILLIQUIDITY, AND POLITICAL INSTABILITY.
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.
SOME INCOME MAY BE SUBJECT TO STATE OR LOCAL TAXES.
CALIFORNIA, FLORIDA, NEW YORK, AND VIRGINIA FUNDS ARE OFFERED ONLY TO RESIDENTS
OF THOSE STATES.
AN INVESTMENT IN A MONEY MARKET FUND IS NOT INSURED OR GUARANTEED BY THE FDIC
OR ANY OTHER GOVERNMENT AGENCY. ALTHOUGH THE FUND SEEKS TO PRESERVE THE VALUE
OF YOUR INVESTMENT AT $1 PER SHARE, IT IS POSSIBLE TO LOSE MONEY BY INVESTING
IN THE FUND.
THE SCIENCE & TECHNOLOGY FUND MAY BE MORE VOLATILE THAN A FUND THAT DIVERSIFIES
ACROSS MANY INDUSTRIES.
26
<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),
Annual or Semiannual Report, or to ask other questions about the Fund. The SAI
has been filed with the Securities and Exchange Commission (SEC) and is legally
a part of this Prospectus. In the Fund's Annual Report, you will find a
discussion of the market conditions and investment strategies that
significantly affected the Fund's performance during the last fiscal year.
To view these documents, along with other related documents, you can visit the
EDGAR database on the SEC's Internet web site (www.sec.gov) or the Commission's
Public Reference Room in Washington, D.C. Information on the operation of the
public reference room can be obtained by calling 1-202-942-8090. Additionally,
copies of this information can be obtained, after paying a duplicating fee, by
electronic request at the following E-mail address: [email protected] or by
writing the Public Reference Section of the Commission, Washington, D.C.
20549-0102.
================================================================
Investment Adviser, Underwriter, and Distributor
USAA Investment Management Company
9800 Fredericksburg Road
San Antonio, Texas 78288
---------------------------------------------------------------
Transfer Agent Custodian
USAA Shareholder Account Services Bankers Trust Company
9800 Fredericksburg Road Four Albany Street
San Antonio, Texas 78288 New York, New York 10006
---------------------------------------------------------------
Telephone Assistance Hours
Call toll free - Central Time
Monday - Friday 7:00 a.m. to 9:00 p.m.
Saturday 8:30 a.m. to 5:00 p.m.
Sunday 11:30 a.m. to 8:00 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 USAA TouchLine(R)
(from touch-tone phones only)
For account balance, last transaction, fund prices,
or to exchange or redeem fund shares
1-800-531-8777 (in San Antonio, 498-8777)
---------------------------------------------------------------
Internet Access
www.usaa.com
===============================================================
Investment Company Act File No. 811-2429
<PAGE>
Part B
Statement of Additional Information for the
S&P 500 Index Fund
is included herein
Not included in this Post-Effective Amendment
are the Statements of Additional Information for the
Aggressive Growth Fund, Growth Fund, Growth & Income Fund,
Income Stock Fund, Income Fund, Short-Term Bond Fund,
Money Market Fund, Science & Technology Fund, First Start Growth Fund,
Intermediate-Term Bond Fund, High-Yield Opportunities Fund,
and Small Cap Stock Fund
<PAGE>
USAA USAA STATEMENT OF
EAGLE MUTUAL ADDITIONAL INFORMATION
LOGO FUND, INC. May 1, 2000
- -------------------------------------------------------------------------------
USAA MUTUAL FUND, INC.
S&P 500 Index Fund
USAA MUTUAL FUND, INC. (the Company) is a registered investment company
offering shares of thirteen no-load mutual funds, one of which is described in
this Statement of Additional Information (SAI): the S&P 500 Index Fund. The
Fund is classified as diversified.
The Fund's investment objective seeks to match, as closely as possible
(before the deduction of expenses), the performance of the S&P 500 Index, which
emphasizes stocks of large U.S. companies. As described in the Prospectus, the
Company seeks to achieve the investment objective of the Fund by investing all
the investable assets of the Fund in an open-end management investment company
having the same investment objective as the Fund. The investment company is the
Equity 500 Index Portfolio (the Portfolio) advised by Bankers Trust Company
(Bankers Trust).
Since the investment characteristics of the Fund will correspond directly
to those of the Portfolio in which the Fund invests all of its investable
assets, the following includes a discussion of the various investments of and
techniques employed by the Portfolio.
You may obtain a free copy of the Prospectus dated May 1, 2000, for the
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 the Fund.
This SAI is not a Prospectus and contains information in addition to and more
detailed than that set forth in the Fund's Prospectus. It is intended to
provide you with additional information regarding the activities and operations
of the Company and the Fund and should be read in conjunction with the Fund's
Prospectus.
The financial statements for the USAA S&P 500 Index Fund and the Equity
500 Index Portfolio, and the Independent Accountants' Reports thereon for the
fiscal year ended December 31, 1999, are included in the accompanying Annual
Report to Shareholders of that date and are incorporated herein by reference.
- -------------------------------------------------------------------------------
TABLE OF CONTENTS
PAGE
2 Valuation of Securities
2 Conditions of Purchase and Redemption
3 Additional Information Regarding Redemption of Shares
3 Investment Plans
5 Investment Policies
9 Investment Restrictions
12 Portfolio Transactions and Brokerage Commissions
13 Description of Shares
14 Tax Considerations
15 Directors and Officers of the Company
18 Trustees and Officers of the Portfolio
20 Investment Adviser
22 Administrator
23 General Information
24 Calculation of Performance Data
24 Appendix A - Comparison of Fund Performance
27 Appendix B - Dollar-Cost Averaging
<PAGE>
VALUATION OF SECURITIES
Shares of the Fund are offered on a continuing, best-efforts basis through USAA
Investment Management Company (IMCO or the Manager). The offering price for
shares of the Fund is equal to the current net asset value (NAV) per share. The
NAV per share of the Fund is calculated by adding the value of the Fund's
assets (i.e., the value of its investments in the Portfolio and other assets),
deducting liabilities, and dividing by the number of shares outstanding.
The Fund's NAV per share is calculated each day, Monday through Friday,
except days on which the New York Stock Exchange (NYSE) is closed. The NYSE is
currently scheduled to be closed on New Year's Day, 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 Portfolio values its equity and debt securities (other than short-term
debt obligations maturing in 60 days or less), including listed securities and
securities for which price quotations are available, on the basis of market
valuations furnished by a pricing service. Short-term debt obligations maturing
in 60 days or less are valued at amortized cost, which approximates market
value. Other assets are valued at fair value using methods determined in good
faith by the Portfolio's Board of Trustees.
Each investor in the Portfolio, including the Fund, may add to or reduce
its investment in the Portfolio on each day that the NYSE is open for business
and New York charter banks are not closed owing to customary or local holidays.
As of the close of the NYSE, currently 4:00 p.m. (Eastern time or earlier if
the NYSE closes earlier) on each such day, the value of each investor's
interest in the Portfolio will be determined by multiplying the net asset value
of the Portfolio by the percentage representing that investor's share of the
aggregate beneficial interests in the Portfolio. Any additions or reductions
that are to be effected on that day will then be effected. The investor's
percentage of the aggregate beneficial interests in the Portfolio will then be
recomputed as the percentage equal to the fraction (1) the numerator of which
is the value of such investor's investment in the Portfolio as of the close of
the NYSE on such day plus or minus, as the case may be, the amount of net
additions to or reductions in the investor's investment in the Portfolio
effected on such day and (2) the denominator of which is the aggregate net
asset value of the Portfolio as of 4:00 p.m. or the close of the NYSE on such
day plus or minus, as the case may be, the amount of net additions to or
reductions in the aggregate investments in the Portfolio by all investors in
the Portfolio. The percentage so determined will then be applied to determine
the value of the investor's interest in the Portfolio as of 4:00 p.m. or the
close of the NYSE on the following day the NYSE is open for trading.
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 may 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 the
Portfolio. Requests for redemption that are subject to any special conditions
or which specify an effective date other than as provided herein cannot be
accepted. A gain or loss for tax purposes may be realized on the sale of
shares, depending upon the price when redeemed.
The Portfolio reserves the right, if conditions exist that make cash
payments undesirable, to honor any request for redemption or repurchase order
by making payment in whole or in part in readily marketable securities chosen
by the Portfolio and valued as they are for purposes of computing the
Portfolio's NAV (a redemption in kind). If payment is made to the Fund in
securities, the Fund may incur transaction expenses in converting these
securities into cash. The Portfolio has elected, however, to be governed by
Rule 18f-1 under the Investment Company Act of 1940, as amended (1940 Act) as a
result of which the Portfolio is obligated to redeem beneficial interests with
respect to any one investor during any 90-day period, solely in cash up to the
lesser of $250,000 or 1% of the net asset value of the Portfolio at the
beginning of the period. For purposes of determining compliance with Rule
18f-1, each shareholder of the Fund redeeming shares of the Fund on a
particular day will be treated as a direct holder in the interest in the
Portfolio being redeemed that day.
In the event the Company withdraws or redeems all of the Fund's interest
in the Portfolio, the Portfolio will effect such redemption in kind and in such
a manner that the securities delivered to the Fund will mirror, as closely as
practicable, the composition of the Portfolio immediately prior to such
redemption.
The Board of Directors may cause the redemption of an account with a
balance of less than ten shares of the Fund provided (1) the value of the
account has been reduced, for reasons other than market action, below the
minimum initial investment in such Fund at the time of the establishment of the
account, (2) the account has remained below the minimum level for six months,
and (3) 60 days' prior written notice of the proposed redemption has been sent
to 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 NAV is not reasonably practicable, or (3) for such other periods as the
SEC by order may permit for protection of the Company's shareholders.
For the mutual protection of the investor and the Fund, 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
the Fund. At the time you sign up for any of the following investment plans
that utilize the electronic funds transfer service, you will choose the day of
the month (the effective date) on which you would like to regularly purchase
shares. When this day falls on a weekend or holiday, the electronic transfer
will take place on the last business day before the effective date. You may
terminate your participation in a plan at any time. Please call the Manager for
details and necessary forms or applications.
AUTOMATIC PURCHASE OF SHARES
INVESTRONIC(R) - The regular purchase of additional shares through electronic
funds transfer from a checking or savings account. You may invest as little as
$50 per month.
DIRECT PURCHASE SERVICE - The periodic purchase of shares through electronic
funds transfer from a non-governmental employer, an income-producing
investment, or an account with a participating financial institution.
3
<PAGE>
DIRECT DEPOSIT PROGRAM - The monthly transfer of certain federal benefits to
directly purchase shares of a USAA mutual fund. Eligible federal benefits
include: Social Security, Supplemental Security Income, Veterans Compensation
and Pension, Civil Service Retirement Annuity, and Civil Service Survivor
Annuity.
GOVERNMENT ALLOTMENT - The transfer of military pay by the U.S. Government
Finance Center for the purchase of USAA mutual fund shares.
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. You may
initiate a "buy" or "sell" whenever you choose.
DIRECTED DIVIDENDS - If you own shares in more than one of the Funds in the
USAA Family of Funds, you may direct that dividends and/or capital gain
distributions earned in one fund be used to purchase shares automatically in
another fund.
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 B.
SYSTEMATIC WITHDRAWAL PLAN
If you own shares having a net asset value of $5,000 or more in a single
investment account (accounts in different Funds cannot be aggregated for this
purpose), you 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.
This 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. You are not charged 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 offers
403(b)(7) accounts and various forms of IRAs. You may make investments in one
or any combination of the Funds described in the Prospectus of each Fund of
USAA Mutual Fund, Inc. and USAA Investment Trust (not available in the Growth
and Tax Strategy Fund).
Retirement plan applications for the IRA and 403(b)(7) programs should be
sent directly to USAA Shareholder Account Services, 9800 Fredericksburg 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.
4
<PAGE>
INVESTMENT POLICIES
The investment objective of the Fund is described in the Fund's Prospectus.
There can, of course, be no assurance that the Fund will achieve its investment
objective. The Fund's investment objective is not a fundamental policy and may
be changed upon notice to, but without the approval of, the Fund's
shareholders. If there is a change in the Fund's investment objective, the
Fund's shareholders should consider whether the Fund remains an appropriate
investment in light of their then-current needs. The investment objective of
the Portfolio is also not a fundamental policy. Shareholders of the Funds will
receive 30 days' prior written notice with respect to any change in the
investment objective of the Fund or the corresponding Portfolio.
The Fund seeks to achieve its investment objective by investing all of its
investable assets in the Portfolio. The Company may withdraw the Fund's
investment from the Portfolio at any time if the Board of Directors of the
Company determines that it is in the best interest of the Fund to do so.
Since the investment characteristics of the Fund will correspond directly
to those of the Portfolio, the following is a discussion of the various
investments of and techniques employed by the Portfolio.
EQUITY SECURITIES. The Portfolio may invest in equity securities listed on
any domestic or foreign securities exchange or traded in the over-the-counter
market as well as certain restricted or unlisted securities. As used herein,
"equity securities" are defined as common stock, preferred stock, trust or
limited partnership interests, rights and warrants to subscribe to or purchase
such securities, sponsored or unsponsored ADRs, EDRs, GDRs, and convertible
securities, consisting of debt securities or preferred stock that may be
converted into common stock or that carry the right to purchase common stock.
Common stocks, the most familiar type, represent an equity (ownership) interest
in a corporation. They may or may not pay dividends or carry voting rights.
Common stock occupies the most junior position in a company's capital
structure. Although equity securities have a history of long-term growth in
value, their prices fluctuate based on changes in a company's financial
condition and on overall market and economic conditions. Smaller companies are
especially sensitive to these factors.
SHORT-TERM INSTRUMENTS. When the Portfolio experiences large cash inflows
through the sale of securities and desirable equity securities, that are
consistent with the Portfolio's investment objective, which are unavailable in
sufficient quantities or at attractive prices, the Portfolio may hold
short-term investments (or shares of money market mutual funds) for a limited
time pending availability of such equity securities. Short-term instruments
consist of foreign and domestic: (i) short-term obligations of sovereign
governments, their agencies, instrumentalities, authorities or political
subdivisions; (ii) other short-term debt securities rated AA or higher by (S&P)
or Aa or higher by Moody's Investors Service (Moody's) or, if unrated, of
comparable quality in the opinion of Bankers Trust; (iii) commercial paper;
(iv) bank obligations, including negotiable certificates of deposit, time
deposits and banker's acceptances; and (v) repurchase agreements. At the time
the Portfolio invests in commercial paper, bank obligations or repurchase
agreements, the issuer or the issuer's parent must have outstanding debt rated
AA or higher by S&P or Aa or higher by Moody's or outstanding commercial paper
or bank obligations rated A-1 by S&P or Prime-1 by Moody's. If no such ratings
are available, the instrument must be of comparable quality in the opinion of
Bankers Trust.
CERTIFICATES OF DEPOSIT AND BANKERS' ACCEPTANCES. Certificates of deposit
are receipts issued by a depository institution in exchange for the deposit of
funds. The issuer agrees to pay the amount deposited plus interest to the
bearer of the receipt on the date specified on the certificate. The certificate
usually can be traded in the secondary market prior to maturity. Bankers'
acceptances typically arise from short-term credit arrangements designed to
enable businesses to obtain funds to finance commercial transactions.
Generally, an acceptance is a time draft drawn on a bank by an exporter or an
importer to obtain a stated amount of funds to pay for specific merchandise.
The draft is then "accepted" by a bank that, in effect, unconditionally
guarantees to pay the face value of the instrument on its maturity date. The
acceptance may then be held by the accepting bank as an earning asset or it may
be sold in the secondary market at the going rate of discount for a specific
maturity. Although maturities for acceptances can be as long as 270 days, most
acceptances have maturities of six months or less.
COMMERCIAL PAPER. Commercial paper consists of short-term (usually from 1
to 270 days) unsecured promissory notes issued by corporations in order to
finance their current operations. A variable amount master demand note (which
is a type of commercial paper) represents a direct borrowing arrangement
involving periodically fluctuating rates of interest under a letter agreement
between a commercial paper issuer and an institutional lender pursuant to which
the lender may determine to invest varying amounts.
5
<PAGE>
ILLIQUID SECURITIES. Historically, illiquid securities have included
securities subject to contractual or legal restrictions on resale because they
have not been registered under the Securities Act of 1933, as amended (the 1933
Act), securities that are otherwise not readily marketable, and repurchase
agreements having a maturity of longer than seven days. Securities that have
not been registered under the 1933 Act are referred to as private placements or
restricted securities and are purchased directly from the issuer or in the
secondary market. Mutual funds do not typically hold a significant amount of
these restricted or other illiquid securities because of the potential for
delays on resale and uncertainty in valuation. Limitations on resale may have
an adverse effect on the marketability of portfolio securities and a mutual
fund might be unable to dispose of restricted or other illiquid securities
promptly or at reasonable prices and might thereby experience difficulty
satisfying redemptions within seven days. A mutual fund might also have to
register such restricted securities in order to dispose of them resulting in
additional expense and delay. Adverse market conditions could impede such a
public offering of securities.
A large institutional market has developed for certain securities that are
not registered under the 1933 Act, including repurchase agreements, commercial
paper, foreign securities, municipal securities, and corporate bonds and notes.
Institutional investors depend on an efficient institutional market in which
the unregistered security can be readily resold or on an issuer's ability to
honor a demand for repayment. The fact that there are contractual or legal
restrictions on resale of such investments to the general public or to certain
institutions may not be indicative of their liquidity.
The Securities and Exchange Commission (the SEC) has adopted Rule 144A,
which allows a broader institutional trading market for securities otherwise
subject to restriction on their resale to the general public. Rule 144A
establishes a "safe harbor" from the registration requirements of the 1933 Act
of resales of certain securities to qualified institutional buyers. Bankers
Trust anticipates that the market for certain restricted securities such as
institutional commercial paper will expand further as a result of this
regulation and the development of automated systems for the trading, clearance,
and settlement of unregistered securities of domestic and foreign issuers, such
as the PORTAL System sponsored by the National Association of Securities
Dealers, Inc.
Rule 144A Securities are securities in the United States that are not
registered for sale under federal securities laws but which can be resold to
institutions under SEC Rule 144A. Provided that a dealer or institutional
trading market in such securities exists, these restricted securities are
treated as exempt from the 15% limit on illiquid securities. Under the
supervision of the Board of Trustees of the Portfolio, Bankers Trust determines
the liquidity of restricted securities and, through reports from Bankers Trust,
the Board will monitor trading activity in restricted securities. If
institutional trading in restricted securities were to decline, the liquidity
of the Portfolio could be adversely affected.
In reaching liquidity decisions, Bankers Trust will consider, among other
things, the following factors: (1) the frequency of trades and quotes for the
security; (2) the number of dealers and other potential purchasers wishing to
purchase or sell the security; (3) dealer undertakings to make a market in the
security; and (4) the nature of the security and of the marketplace trades
(e.g., the time needed to dispose of the security, the method of soliciting
offers, and the mechanics of the transfer).
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES. The Portfolio may purchase
securities on a when-issued or delayed-delivery basis. Delivery of and payment
for these securities can take place a month or more after the date of the
purchase commitment. The purchase price and the interest rate payable, if any,
on the securities are fixed on the purchase commitment date or at the time the
settlement date is fixed. The value of such securities is subject to market
fluctuation and no interest accrues to the Portfolio until settlement takes
place. At the time the Portfolio makes the commitment to purchase securities on
a when-issued or delayed-delivery basis, it will record the transaction,
reflect the value each day of such securities in determining its net asset
value and, if applicable, calculate the maturity for the purposes of average
maturity from that date. At the time of settlement, a when-issued security may
be valued at less than the purchase price. To facilitate such acquisitions, the
Portfolio identifies, as part of a segregated account cash or liquid
securities, in an amount at least equal to such commitments. On delivery dates
for such transactions, the Portfolio will meet its obligations from maturities
or sales of the securities held in the segregated account and/or from cash
flow. If the Portfolio chooses to dispose of the right to acquire a when-issued
security prior to its acquisition, it could, as with the disposition of any
other portfolio obligation, incur a gain or loss due to market fluctuation. It
is the current policy of the Portfolio not to enter into when-issued
commitments exceeding in the aggregate 15% of the market value of the
Portfolio's total assets, less liabilities other than the obligations created
by when-issued commitments.
6
<PAGE>
LENDING OF PORTFOLIO SECURITIES. The Portfolio has the authority to lend
up to 30% of the total value of its portfolio securities to brokers, dealers,
and other financial organizations. By lending its securities, the Portfolio may
increase its income by continuing to receive payments in respect of dividends
and interest on the loaned securities as well as by either investing the cash
collateral in short-term securities or obtaining yield in the form of a fee
paid by the borrower when irrevocable letters of credit and U.S. government
obligations are used as collateral. The Portfolio will adhere to the following
conditions whenever its securities are loaned: (1) the Portfolio must receive
at least 100% collateral from the borrower; (2) the borrower must increase this
collateral whenever the market value of the securities including accrued
interest rises above the level of the collateral; (3) the Portfolio must be
able to terminate the loan at any time; (4) the Portfolio must substitute
payments in respect of all dividends, interest, or other distributions on
loaned securities; and (5) voting rights on the loaned securities may pass to
the borrower; provided, however, that if a material event adversely affecting
the investment occurs, the Portfolio's Board of Trustees must terminate the
loan and regain the right to vote the securities. Cash collateral may be
invested in a money market fund managed by Bankers Trust (or its affiliates)
and Bankers Trust may serve as the Portfolio's lending agent and may share in
revenue received from securities lending transactions as compensation for this
service.
REPURCHASE AGREEMENTS. In a repurchase agreement, the Portfolio buys a
security at one price and simultaneously agrees to sell it back at a higher
price at a future date. In the event of the bankruptcy of the other party to a
repurchase agreement, the Portfolio could experience delays in recovering
either its cash or selling securities subject to the repurchase agreement. To
the extent that, in the meantime, the value of the securities repurchased had
decreased or the value of the securities had increased, the Portfolio could
experience a loss. In all cases, Bankers Trust must find the creditworthiness
of the other party to the transaction satisfactory.
INDEX FUTURES CONTRACTS AND OPTIONS ON INDEX FUTURES CONTRACTS
FUTURES CONTRACTS. Futures contracts are contracts to purchase or sell a
fixed amount of an underlying instrument, commodity, or index at a fixed time
and place in the future. U.S. futures contracts have been designed by exchanges
which have been designated "contracts markets" by the Commodity Futures Trading
Commission (CFTC), and must be executed through a futures commission merchant,
or brokerage firm, which is a member of the relevant contract market. Futures
contracts trade on a number of exchanges and clear through their clearing
corporations. The Portfolio may enter into contracts for the purchase or sale
for future delivery of the Index.
At the same time a futures contract on the Index is entered into, the
Portfolio must allocate cash or securities as a deposit payment (initial
margin). Daily thereafter, the futures contract is valued and the payment of
"variation margin" may be required, since each day the Portfolio would provide
or receive cash that reflects any decline or increase in the contract's value.
Although futures contracts (other than those that settle in cash) by their
terms call for the actual delivery or acquisition of the instrument underlying
the contract, in most cases the contractual obligation is fulfilled by offset
before the date of the contract without having to make or take delivery of the
instrument underlying the contract. The offsetting of a contractual obligation
is accomplished by entering into an opposite position in the identical futures
contract on a commodities exchange on which the futures contract was entered
into (or a linked exchange). Such a transaction, which is effected through a
member of an exchange, cancels the obligation to make or take delivery of the
instrument underlying the contract. Since all transactions in the futures
market are made, offset, or fulfilled through a clearinghouse associated with
the exchange on which the contracts are traded, the Portfolio will incur
brokerage fees when it purchases or sells futures contracts.
The ordinary spreads between prices in the cash and futures market, due to
differences in the nature of those markets, are subject to distortions. First,
all participants in the futures market are subject to initial deposit and
variation margin requirements. Rather than meeting additional variation margin
requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationship between the cash and
futures markets. Second, the liquidity of the futures market depends on most
participants' entering into offsetting transactions rather than making or
taking delivery. To the extent that many participants decide to make or take
delivery, liquidity in the futures market could be reduced, thus producing
distortion. Third, from the point of view of speculators, the margin deposit
requirements in the futures market are less onerous than margin requirements in
the securities market. Therefore, increased participation by speculators in the
futures market may cause temporary price distortions. Due to the possibility of
distortion, a correct forecast of securities price trends by Bankers Trust may
still not result in a successful transaction.
7
<PAGE>
In addition, futures contracts entail risks. Although Bankers Trust
believes that use of such contracts will benefit the Portfolio, these
investments in futures may cause the Portfolio to realize gains and losses for
tax purposes that would not otherwise be realized if the Portfolio were to
invest directly in the underlying securities. As a result, this investment
technique may accelerate the timing of receipt of taxable distributions.
OPTIONS ON INDEX FUTURES CONTRACTS. The Portfolio may purchase and write
options on futures contracts with respect to the Index. The purchase of a call
option on an index futures contract is similar in some respects to the purchase
of a call option on such an index. For example, when the Portfolio is not fully
invested it may purchase a call option on an index futures contract to hedge
against a market advance.
The writing of a call option on a futures contract with respect to the
Index may constitute a partial hedge against declining prices of the underlying
securities that are deliverable upon exercise of the futures contract. If the
futures price at expiration of the option is below the exercise price, the
Portfolio will retain the full amount of the option premium that provides a
partial hedge against any decline which may have occurred in the Portfolio's
holdings. The writing of a put option on an index futures contract may
constitute a partial hedge against increasing prices of the underlying
securities which are deliverable upon exercise of the futures contract. If the
futures price at expiration of the option is higher than the exercise price,
the Portfolio will retain the full amount of the option premium which provides
a partial hedge against any increase in the price of securities which the
Portfolio intends to purchase. If a put or call option the Portfolio has
written is exercised, the Portfolio will incur a loss which will be reduced by
the amount of the premium it receives. Depending on the degree of correlation
between changes in the value of its portfolio securities and changes in the
value of its futures positions, the Portfolio's losses from existing options on
futures may to some extent be reduced or increased by changes in the value of
portfolio securities.
The purchase of a put option on a futures contract with respect to the
Index is similar in some respects to the purchase of protective put options the
Index. For example, the Portfolio may purchase a put option on an index futures
contract to hedge against the risk lowering securities values.
The amount of risk the Portfolio assumes when it purchases an option on a
futures contract with respect to the Index is the premium paid for the option
plus related transaction costs. In addition to the correlation risks discussed
above, the purchase of such an option also entails the risk that changes in the
value of the underlying futures contract will not be fully reflected in the
value of the option purchased.
The Portfolio's Board of Trustees has adopted the requirement that index
futures contracts and options on index futures contracts be used only for cash
management purposes. The Portfolio will not enter into any futures contracts or
options on futures contracts if immediately thereafter the amount of margin
deposits on all the futures contracts of the Portfolio and premiums paid on
outstanding options on futures contracts owned by the Portfolio would exceed 5%
of the Portfolio's net asset value, after taking into account unrealized
profits and unrealized losses on any such contracts.
OPTIONS ON SECURITIES INDEXES. The Portfolio may write (sell) covered call
and put options to a limited extent on the Index ("covered options") in an
attempt to increase income. Such options give the holder the right to receive a
cash settlement during the term of the option based upon the difference between
the exercise price and the value of the index. The Portfolio may forgo the
benefits of appreciation on the Index or may pay more than the market price of
the Index pursuant to call and put options written by the Portfolio.
By writing a covered call option, the Portfolio forgoes, in exchange for
the premium less the commission ("net premium"), the opportunity to profit
during the option period from an increase in the market value of the Index
above the exercise price. By writing a covered put option, the Portfolio, in
exchange for the net premium received, accepts the risk of a decline in the
market value of the Index below the exercise price.
The Portfolio may terminate its obligation as the writer of a call or put
option by purchasing an option with the same exercise price and expiration date
as the option previously written.
When the Portfolio writes an option, an amount equal to the net premium
received by the Portfolio is included in the liability section of the
Portfolio's Statement of Assets and Liabilities as a deferred credit. The
amount of the deferred credit will be subsequently marked to market to reflect
the current market value of the option written. The current market value of a
traded option is the last sale price or, in the absence of a sale, the mean
between the closing bid and asked price. If an option expires on its stipulated
expiration date or if the Portfolio enters into a closing purchase transaction,
the Portfolio will realize a gain (or loss if the cost of a closing purchase
transaction exceeds the premium received when the option was sold), and the
deferred credit related to such option will be eliminated. If a call option is
exercised, the Portfolio will realize a gain or loss from the sale of the
underlying security and the proceeds of the sale will be increased by the
8
<PAGE>
premium originally received. The writing of covered call options may be deemed
to involve the pledge of the securities against which the option is being
written. Securities against which call options are written will be segregated
on the books of the custodian for the Portfolio.
The Portfolio may purchase call and put options on the Index. The
Portfolio would normally purchase a call option in anticipation of an increase
in the market value of the Index. The purchase of a call option would entitle
the Portfolio, in exchange for the premium paid, to purchase the underlying
securities at a specified price during the option period. The Portfolio would
ordinarily have a gain if the value of the securities increased above the
exercise price sufficiently to cover the premium and would have a loss if the
value of the securities remained at or below the exercise price during the
option period.
The Portfolio would normally purchase put options in anticipation of a
decline in the market value of the Index (protective puts). The purchase of a
put option would entitle the Portfolio, in exchange for the premium paid, to
sell, the underlying securities at a specified price during the option period.
The purchase of protective puts is designed merely to offset or hedge against a
decline in the market value of the Index. The Portfolio would ordinarily
recognize a gain if the value of the Index decreased below the exercise price
sufficiently to cover the premium and would recognize a loss if the value of
the Index remained at or above the exercise price. Gains and losses on the
purchase of protective put options would tend to be offset by countervailing
changes in the value of the Index.
The Portfolio has adopted certain other nonfundamental policies concerning
index option transactions which are discussed below. The Portfolio's activities
in index options may also be restricted by the requirements of the Code, for
qualification as a regulated investment company.
The hours of trading for options on the Index may not conform to the hours
during which the underlying securities are traded. To the extent that the
option markets close before the markets for the underlying securities,
significant price and rate movements can take place in the underlying
securities markets that cannot be reflected in the option markets. It is
impossible to predict the volume of trading that may exist in such options, and
there can be no assurance that viable exchange markets will develop or
continue.
Because options on securities indices require settlement in cash, Bankers
Trust may be forced to liquidate portfolio securities to meet settlement
obligations.
ASSET COVERAGE. To assure that the Portfolio's use of futures and related
options, as well as when-issued and delayed-delivery securities, are not used
to achieve investment leverage, the Portfolio will cover such transactions, as
required under applicable interpretations of the SEC, either by owning the
underlying securities or by segregating with the Portfolio's Custodian or
futures commission merchant liquid securities in an amount at all times equal
to or exceeding the Portfolio's commitment with respect to these instruments or
contracts.
INVESTMENT RESTRICTIONS
Certain investment restrictions of the Fund and the Portfolio have been adopted
as fundamental policies of the Fund or Portfolio, as the case may be. A
fundamental policy may not be changed without the approval of a majority of the
outstanding voting securities of the Fund or Portfolio, as the case may be.
Majority of the outstanding voting securities under the 1940 Act, and as used
in this SAI and the Prospectus, means, the lesser of (1) 67% or more of the
outstanding voting securities of the Fund or Portfolio, as the case may be,
present at a meeting, if the holders of more than 50% of the outstanding voting
securities of the Fund or Portfolio, as the case may be, are present or
represented by proxy or (2) more than 50% of the outstanding voting securities
of the Fund or Portfolio, as the case may be. Whenever the Company is requested
to vote on a fundamental policy of the Portfolio, the Company will hold a
meeting of the Fund's shareholders and will cast its vote as instructed by the
Fund's shareholders. The percentage of the Company's votes representing Fund
shareholders not voting will be voted by the Directors of the Company in the
same proportion as the Fund shareholders who do, in fact, vote.
As a matter of fundamental policy, the Fund may not (except that no investment
restriction of the Fund shall prevent the Fund from investing all of its
investable assets in an open-end investment company with substantially the same
investment objective):
(1) with respect to 75% of its total assets, purchase the securities of any
issuer (except U.S. government securities, as such term is defined in the
1940 Act) if, as a result, it would own more than 10% of the outstanding
voting securities of such issuer or it would have more than 5% of the
value of its total assets invested in the securities of such issuer;
9
<PAGE>
(2) borrow money, except for temporary or emergency purposes in an amount not
exceeding 33 1/3% of its total assets (including the amount borrowed)
less liabilities (other than borrowings);
(3) concentrate its investments in any one industry although it may invest
up to 25% of the value of its total assets in any one industry; provided,
this limitation does not apply to securities issued or guaranteed by the
U.S. government or its corporate 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 the Fund may invest in
financial futures contracts, options thereon, and similar instruments;
and
(8) purchase or sell real estate unless acquired as a result of ownership of
securities or other instruments, except that the 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.
As a matter of fundamental policy, the Portfolio may not:
(1) borrow money or mortgage or hypothecate assets of the Portfolio, except
that in an amount not to exceed 1/3 of the current value of the
Portfolio's net assets, it may borrow money as a temporary measure for
extraordinary or emergency purposes and enter into reverse repurchase
agreements or dollar roll transactions, and except that it may pledge,
mortgage or hypothecate not more than 1/3 of such assets to secure such
borrowings (it is intended that money would be borrowed only from banks
and only either to accommodate requests for the withdrawal of beneficial
interests (redemption of shares) while effecting an orderly liquidation
of portfolio securities or to maintain liquidity in the event of an
unanticipated failure to complete a portfolio security transaction or
other similar situations) or reverse repurchase agreements, provided that
collateral arrangements with respect to options and futures, including
deposits of initial deposit and variation margin, are not considered a
pledge of assets for purposes of this restriction and except that assets
may be pledged to secure letters of credit solely for the purpose of
participating in a captive insurance company sponsored by the Investment
Company Institute; for additional related restrictions, see clause (1)
under the caption "Additional Restrictions" below. (As an operating
policy, the Portfolio may not engage in dollar roll transactions);
(2) underwrite securities issued by other persons except insofar as the
Portfolio may technically be deemed an underwriter under the 1933 Act in
selling a portfolio security;
(3) make loans to other persons except: (a) through the lending of the
Portfolio's portfolio securities and provided that any such loans not
exceed 30% of the Portfolio's net assets (taken at market value); (b)
through the use of repurchase agreements or the purchase of short-term
obligations; or (c) by purchasing a portion of an issue of debt
securities of types distributed publicly or privately;
(4) purchase or sell real estate (including limited partnership interests but
excluding securities secured by real estate or interests therein),
interests in oil, gas or mineral leases, commodities or commodity
contracts (except futures and option contracts) in the ordinary course of
business (except that the Portfolio may hold and sell, for the
Portfolio's portfolio, real estate acquired as a result of the
Portfolio's ownership of securities);
(5) concentrate its investments in any particular industry (excluding U.S.
government securities), but if it is deemed appropriate for the
achievement of the Portfolio's investment objective, up to 25% of its
total assets may be invested in any one industry; and
(6) issue any senior security (as that term is defined in the 1940 Act) if
such issuance is specifically prohibited by the 1940 Act or the rules and
regulations promulgated thereunder, provided that collateral arrangements
with respect to options and futures, including deposits of initial
deposit and variation margin, are not considered to be the issuance of a
senior security for purposes of this restriction.
(7) with respect to 75% of the Fund's (Portfolio's) total assets, invest more
than 5% of its total assets in the securities of any one issuer
(excluding cash and cash-equivalents, U.S. government securities and the
securities of other investments companies) or own more than 10% of the
voting securities of any issuer.
10
<PAGE>
ADDITIONAL RESTRICTIONS. In order to comply with certain statutes and
policies, the Fund and the Portfolio will not as a matter of operating policy
(except that no operating policy shall prevent the Fund from investing all of
its investable assets in an open-end investment company with substantially the
same investment objective):
(1) borrow money (including through dollar roll transactions) for any purpose
in excess of 10% of the Fund's (Portfolio's) total assets (taken at
cost), except that the Fund (Portfolio) may borrow for temporary or
emergency purposes up to 1/3 of its net assets;
(2) pledge, mortgage, or hypothecate for any purpose in excess of 10% of the
Fund's (Portfolio's) total assets (taken at market value), provided that
collateral arrangements with respect to options and futures, including
deposits of initial deposit and variation margin, and reverse repurchase
agreements are not considered a pledge of assets for purposes of this
restriction;
(3) purchase any security or evidence of interest therein on margin, except
that such short-term credit as may be necessary for the clearance of
purchases and sales of securities may be obtained and except that
deposits of initial deposit and variation margin may be made in
connection with the purchase, ownership, holding or sale of futures;
(4) sell any security which it does not own unless by virtue of its ownership
of other securities it has at the time of sale a right to obtain
securities, without payment of further consideration, equivalent in kind
and amount to the securities sold and provided that if such right is
conditional the sale is made upon the same conditions;
(5) invest for the purpose of exercising control or management;
(6) purchase securities issued by any investment company except by purchase
in the open market where no commission or profit to a sponsor or dealer
results from such purchase other than the customary broker's commission,
or except when such purchase, though not made in the open market, is part
of a plan of merger or consolidation; provided, however, that securities
of any investment company will not be purchased for the Fund (Portfolio)
if such purchase at the time thereof would cause: (a) more than 10% of
the Fund's (Portfolio's) total assets (taken at the greater of cost or
market value) to be invested in the securities of such issuers; (b) more
than 5% of the Fund's (Portfolio's) total assets (taken at the greater of
cost or market value) to be invested in any one investment company; or
(c) more than 3% of the outstanding voting securities of any such issuer
to be held for the Fund (Portfolio); and provided further that, except in
the case of merger or consolidation, the Fund (Portfolio) shall not
invest in any other open-end investment company unless the Fund
(Portfolio), (i) waives the investment advisory fee with respect to
assets invested in other open-end investment companies and (ii) incurs no
sales charge in connection with the investment (as an operating policy,
the Portfolio will not invest in another open-end registered investment
company);
(7) invest more than 15% of the Fund's (Portfolio's) net assets (taken at the
greater of cost or market value) in securities that are illiquid or not
readily marketable not including (a) Rule 144A securities that have been
determined to be liquid by the Board of Directors/Trustees; and (b)
commercial paper that is sold under section 4(2) of the 1933 Act which:
(i) is not traded flat or in default as to interest or principal; and
(ii) is rated in one of the two highest categories by at least two
nationally recognized statistical rating organizations (NRSROs) and the
Fund's (Portfolio's) Board of Directors/Trustees have determined the
commercial paper to be liquid; or (iii) is rated in one of the two
highest categories by one NRSRO and the Fund's (Portfolio's) Board of
Directors/Trustees have determined that the commercial paper is
equivalent quality and is liquid;
(8) make short sales of securities or maintain a short position, unless at
all times when a short position is open it owns an equal amount of such
securities or securities convertible into or exchangeable, without
payment of any further consideration, for securities of the same issue
and equal in amount to, the securities sold short, and unless not more
than 10% of the Fund's (Portfolio's) net assets (taken at market value)
is represented by such securities, or securities convertible into or
exchangeable for such securities, at any one time (the Fund [Portfolio]
has no current intention to engage in short selling);
(9) write puts and calls on securities unless each of the following
conditions are met: (a) the security underlying the put or call is within
the investment policies of the Fund (Portfolio) and the option is issued
by the Options Clearing Corporation, except for put and call options
issued by non-U.S. entities or listed on non-U.S. securities or
commodities exchanges; (b) the aggregate value of the obligations
underlying the puts determined as of the date the options are sold shall
not exceed 5% of the Fund's (Portfolio's) net assets; (c) the securities
subject to the exercise of the call written by the Fund
11
<PAGE>
(Portfolio) must be owned by the Fund (Portfolio) at the time the call is
sold and must continue to be owned by the Fund (Portfolio) until the call
has been exercised, has lapsed, or the Fund (Portfolio) has purchased a
closing call, and such purchase has been confirmed, thereby extinguishing
the Fund's (Portfolio's) obligation to deliver securities pursuant to the
call it has sold; and (d) at the time a put is written, the Fund
(Portfolio) establishes a segregated account with its custodian
consisting of cash or short-term U.S. government securities equal in
value to the amount the Fund (Portfolio) will be obligated to pay upon
exercise of the put (this account must be maintained until the put is
exercised, has expired, or the Fund (Portfolio) has purchased a closing
put, which is a put of the same series as the one previously written);
and
(10) buy and sell puts and calls on securities, stock index futures or options
on stock index futures, or financial futures or options on financial
futures unless such options are written by other persons and: (a) the
options or futures are offered through the facilities of a national
securities association or are listed on a national securities or
commodities exchange, except for put and call options issued by non-U.S.
entities or listed on non-U.S. securities or commodities exchanges; (b)
the aggregate premiums paid on all such options which are held at any
time do not exceed 20% of the Fund's (Portfolio's) total net assets; and
(c) the aggregate margin deposits required on all such futures or options
thereon held at any time do not exceed 5% of the Fund's (Portfolio's)
total assets.
There will be no violation of any investment restrictions or policies
[except with respect to fundamental investment restriction (2) of the Fund and
(1) of the Portfolio above] if that restriction is complied with at the time
the relevant action is taken, notwithstanding a later change in the market
value of an investment, in net or total assets, or in the change of securities
rating of the investment, or any other later change.
PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS
Bankers Trust is responsible for decisions to buy and sell securities, futures
contracts and options on such securities and futures for the Portfolio, the
selection of brokers, dealers and futures commission merchants to effect
transactions and the negotiation of brokerage commissions, if any.
Broker-dealers may receive brokerage commissions on portfolio transactions,
including options, futures and options on futures transactions and the purchase
and sale of underlying securities upon the exercise of options. Orders may be
directed to any broker-dealer or futures commission merchant, including to the
extent and in the manner permitted by applicable law, Bankers Trust or its
subsidiaries or affiliates. Purchases and sales of certain portfolio securities
on behalf of the Portfolio are frequently placed by Bankers Trust with the
issuer or a primary or secondary market-maker for these securities on a net
basis, without any brokerage commission being paid by the Portfolio. Trading
does, however, involve transaction costs. Transactions with dealers serving as
market-makers reflect the spread between the bid and asked prices. Transaction
costs may also include fees paid to third parties for information as to
potential purchasers or sellers of securities. Purchases of underwritten issues
may be made which will include an underwriting fee paid to the underwriter.
Bankers Trust seeks to evaluate the overall reasonableness of the
brokerage commissions paid (to the extent applicable) in placing orders for the
purchase and sale of securities for the Portfolio taking into account such
factors as price, commission (negotiable in the case of national securities
exchange transactions), if any, size of order, difficulty of execution and
skill required of the executing broker-dealer through familiarity with
commissions charged on comparable transactions, as well as by comparing
commissions paid by the Portfolio to reported commissions paid by others.
Bankers Trust reviews on a routine basis commission rates, execution and
settlement services performed, making internal and external comparisons.
Bankers Trust is authorized, consistent with Section 28(e) of the
Securities Exchange Act of 1934, as amended, when placing portfolio
transactions for the Portfolio with a broker to pay a brokerage commission (to
the extent applicable) in excess of that which another broker might have
charged for effecting the same transaction on account of the receipt of
research, market or statistical information. The term "research, market or
statistical information" includes advice as to the value of securities; the
advisability of investing in, purchasing or selling securities; the
availability of securities or purchasers or sellers of securities; and
furnishing analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy and the performance of
accounts.
12
<PAGE>
Consistent with the policy stated above, the Conduct Rules of the National
Association of Securities Dealers, Inc. and such other policies as the Trustees
of the Portfolio may determine, Bankers Trust may consider sales of shares of
any investment company that invests in the Portfolio as a factor in the
selection of broker-dealers to execute portfolio transactions. Bankers Trust
will make such allocations if commissions are comparable to those charged by
nonaffiliated, qualified broker-dealers for similar services.
Higher commissions may be paid to firms that provide research services to
the extent permitted by law. Bankers Trust may use this research information in
managing the Portfolio's assets, as well as the assets of other clients.
Except for implementing the policies stated above, there is no intention
to place portfolio transactions with particular brokers or dealers or groups
thereof. In effecting transactions in over-the-counter securities, orders are
placed with the principal market-makers for the security being traded unless,
after exercising care, it appears that more favorable results are available
otherwise.
Although certain research, market and statistical information from brokers
and dealers can be useful to the Portfolio and to Bankers Trust, it is the
opinion of the management of the Portfolio that such information is only
supplementary to Bankers Trust's own research effort, since the information
must still be analyzed, weighed and reviewed by Bankers Trust's staff. Such
information may be useful to Bankers Trust in providing services to clients
other than the Portfolio's, and not all such information is used by Bankers
Trust in connection with the Portfolio. Conversely, such information provided
to Bankers Trust by brokers and dealers through whom other clients of Bankers
Trust effect securities transactions may be useful to Bankers Trust in
providing services to the Portfolio.
In certain instances there may be securities that are suitable for the
Portfolio as well as for one or more of Bankers Trust's other clients.
Investment decisions for the Portfolio and for Bankers Trust's other clients
are made with a view to achieving their respective investment objectives. It
may develop that a particular security is bought or sold for only one client
even though it might be held by, or bought or sold for, other clients.
Likewise, a particular security may be bought for one or more clients when one
or more clients are selling that same security. Some simultaneous transactions
are inevitable when several clients receive investment advice from the same
investment adviser, particularly when the same security is suitable for the
investment objectives of more than one client. When two or more clients are
simultaneously engaged in the purchase or sale of the same security, the
securities are allocated among clients in a manner believed to be equitable to
each. It is recognized that in some cases this system could have a detrimental
effect on the price or volume of the security as far as the Portfolio is
concerned. However, it is believed that the ability of the Portfolio to
participate in volume transactions will produce better executions for the
Portfolio.
For the years ended December 31, 1999, 1998, and 1997, the Portfolio paid
brokerage commissions in the amount of $678,820, $534,801, and $341,058,
respectively. For the year ended December 31, 1999 and 1997, the Portfolio paid
no affliliated brokerage commissions. For year ended 1998, the Portfolio paid
affiliated brokerage commissions in the amount of $333. This represents 0.06%
of the Fund's aggregate brokerage commissions and 0% of the Fund's aggregate
dollar amount of transactions involving the payment of commissions during the
fiscal year.
DESCRIPTION OF SHARES
The Fund is a series of the Company and is diversified. The Company is an
open-end management investment company incorporated under the laws of the state
of Maryland on October 14, 1980. The Company is authorized to issue shares in
separate series or Funds. There are thirteen mutual funds in the Company, one
of which is described in this SAI. Under the Articles of Incorporation, the
Board of Directors is authorized to create new Funds in addition to those
already existing without shareholder approval.
The 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 the Fund, are required to be
segregated on the books of account, and are to be charged with the expenses of
such Fund. Any general expenses of the Company not readily identifiable as
belonging to a particular Fund are allocated on the basis of the Funds'
relative net assets during the fiscal year or in such other manner as the Board
determines to be fair and equitable. Each share of each Fund represents an
equal proportionate interest in that Fund with every other share and is
entitled to such dividends and distributions out of the net income and capital
gains belonging to that Fund when declared by the Board of Directors.
13
<PAGE>
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. The Company 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. 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.
The Company will assist in communicating to other shareholders about the
meeting. On any matter submitted to the shareholders, the holder of each Fund
share is entitled to one vote per share (with proportionate voting for
fractional shares) regardless of the relative NAVs of the Funds' shares.
However, on matters affecting an individual Fund, a separate vote of the
shareholders of that Fund is required. Shareholders of the Fund are not
entitled to vote on any matter that 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.
Except as permitted by the SEC, whenever the Fund is requested to vote on
matters pertaining to the Portfolio, the Fund will hold a meeting of its
shareholders and will cast all of its votes in the same proportion as the votes
of its shareholders. The shareholders who do not vote will have their votes
cast by the Directors or officers of the Company in the same proportion as the
Fund's shareholders who do, in fact, vote.
The Portfolio, in which all the Assets of the Fund will be invested, is
organized as a trust under the laws of the state of New York. The Portfolio's
Declaration of Trust provides that the Fund and other entities investing in the
Portfolio (E.G., other investment companies, insurance company separate
accounts, and common and commingled trust funds) will each be liable for all
obligations of the Portfolio. However, the risk of the Fund incurring financial
loss on account of such liability is limited to circumstances in which both
inadequate insurance exists and the Portfolio itself was unable to meet its
obligations. Accordingly, the Company's Directors believe that neither the Fund
nor you will be adversely affected by reason of the Fund's investing in the
Portfolio.
Shareholders of a particular Fund might have the power to elect all of the
Directors of the Company because that Fund has a majority of the total
outstanding shares of the Company. When issued, each Fund's shares are fully
paid and nonassessable, have no pre-emptive or subscription rights, and are
fully transferable. There are no conversion rights.
TAX CONSIDERATIONS
The Fund intends to qualify as a regulated investment company under Subchapter
M of the Internal Revenue Code of 1986, as amended (the Code). Accordingly, the
Fund will not be liable for federal income taxes on its taxable net investment
income and net capital gains (capital gains in excess of capital losses) that
are distributed to shareholders, provided that the Fund distributes at least
90% of its net investment income and net short-term capital gain for the
taxable year.
To qualify as a regulated investment company, the Fund must, among other
things, (1) derive in each taxable year at least 90% of its gross income from
dividends, interest, payments with respect to securities loans, gains from the
sale or other disposition of stock, securities or foreign currencies, or other
income derived with respect to its business of investing in such stock,
securities, or currencies (the 90% test); and (2) satisfy certain
diversification requirements, at the close of each quarter of the Fund's
taxable year.
The Code imposes a nondeductible 4% excise tax on a regulated investment
company that fails to distribute during each calendar year an amount at least
equal to the sum of (1) 98% of its taxable net investment income for the
calendar year, (2) 98% of its capital gain net income for the twelve-month
period ending on October 31, and (3) any prior amounts not distributed. The
Fund intends to make such distributions as are necessary to avoid imposition of
the excise tax.
Taxable distributions are generally included in a shareholder's gross
income for the taxable year in which they are received. Dividends declared in
October, November, or December and made payable to shareholders of record in
such a month will be deemed to have been received on December 31, if the Fund
pays the dividend during the following January. If a shareholder of the Fund
receives a distribution taxable
14
<PAGE>
as long-term capital gain with respect to shares of the 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.
The Portfolio is not subject to federal income taxation. Instead, the Fund
and other investors investing in the Portfolio must take into account, in
computing their federal income tax liability, their share of the Portfolio's
income, gains, losses, deductions, credits and tax preference items, without
regard to whether they have received any cash distributions from the Portfolio.
Distributions received by the Fund from the Portfolio generally will not
result in the Fund's recognizing any gain or loss for federal income tax
purposes, except that: (1) gain will be recognized to the extent that any cash
distributed exceeds the Fund's basis in its interest in the Portfolio prior to
the distribution; (2) income or gain may be realized if the distribution is
made in liquidation of the Fund's entire interest in the Portfolio and includes
a disproportionate share of any unrealized receivables held by the Portfolio;
and (3) loss may be recognized if the distribution is made in liquidation of
the Fund's entire interest in the Portfolio and consists solely of cash and/or
unrealized receivables. The Fund's basis in its interest in the Portfolio
generally will equal the amount of cash and the basis of any property that the
Fund invests in the Portfolio, increased by the Fund's share of income from the
Portfolio, and decreased by the amount of any cash distributions and the basis
of any property distributed from the Portfolio.
Any gain or loss realized by a shareholder upon the sale or other
disposition of shares of the Fund, or upon receipt of a distribution in
complete liquidation of the Fund, generally will be a capital gain or loss
which will be long-term or short-term, generally depending upon the
shareholder's holding period for the shares. Any loss realized on a sale or
exchange will be disallowed to the extent the shares disposed of are replaced
(including shares acquired pursuant to a dividend reinvestment plan) within a
period of 61 days beginning 30 days before and ending 30 days after disposition
of the shares. In such a case, the basis of the shares acquired will be
adjusted to reflect the disallowed loss. Any loss realized by a shareholder on
a disposition of shares held by the shareholder for six months or less will be
treated as a long-term capital loss to the extent of any distributions of net
capital gains received by the shareholder with respect to such shares.
Additionally, any account maintenance fee deducted from a shareholder's account
will be treated as taxable income even though not received by the shareholder.
DIRECTORS AND OFFICERS OF THE COMPANY
The Board of Directors of the Company consists of seven Directors who supervise
the business affairs of the Company. 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: 53
President and Chief Executive Officer of United Services Automobile Association
(USAA) (4/00-present); President and Chief Operating Officer of USAA
(6/99-4/00); Director of USAA (2/99-present); Deputy Chief Executive Officer
for Capital Management of USAA (6/98-5/99); 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. (6/96-12/96);
Special Assistant to Chairman, 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
Director/Trustee and Chairman of the Boards of Directors/Trustees of each of
the remaining funds within the USAA Family of Funds; and Director and Chairman
of the Boards of Directors of USAA Investment Management Company (IMCO), USAA
Federal Savings Bank, and USAA Real Estate Company.
15
<PAGE>
Michael J.C. Roth 1, 2, 4
Director, President, and Vice Chairman of the Board of Directors
Age: 58
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, Director/Trustee, and Vice Chairman of the Boards of
Directors/Trustees of each of the remaining funds within the USAA Family of
Funds and USAA Shareholder Account Services; Director of USAA Life Insurance
Company; and Trustee and Vice Chairman of USAA Life Investment Trust.
David G. Peebles 1
Director and Vice President
Age: 60
Senior Vice President, Equity Investments, IMCO (11/98-present); Vice
President, Equity Investments, IMCO (2/88-11/98). Mr. Peebles serves as
Director/Trustee and Vice President of each of the remaining Funds within the
USAA Family of Funds; Director of IMCO; Senior Vice President of USAA
Shareholder Account Services; and Vice President of USAA Life Investment Trust.
Barbara B. Dreeben 3, 4, 5
200 Patterson #1008
San Antonio, TX 78209
Director
Age: 54
President, Postal Addvantage (7/92-present); Consultant, Nancy Harkins
Stationer (8/91-12/95). Mrs. Dreeben serves as a Director/Trustee of each of
the remaining funds within the USAA Family of Funds.
Robert L. Mason, Ph.D. 3, 4, 5
12823 Queens Forest
San Antonio, TX 78230
Director
Age: 53
Staff Analyst, Southwest Research Institute (9/98-present); Manager,
Statistical Analysis Section, Southwest Research Institute (8/75-9/98). Dr.
Mason serves as a Director/Trustee of each of the remaining funds within the
USAA Family of Funds.
Michael F. Reimherr 3, 4, 5
128 East Arrowhead
San Antonio, Texas 78228
Director
Age: 54
President of Reimherr Business Consulting (5/95-present). Mr. Reimherr serves
as a Director/Trustee of each of the remaining Funds within the USAA Family of
Funds.
Richard A. Zucker 2, 3, 4, 5
407 Arch Bluff
San Antonio, TX 78216
Director
Age: 56
Vice President, Beldon Roofing and Remodeling (1985-present). Mr. Zucker serves
as a Director/Trustee of each of the remaining funds within the USAA Family of
Funds.
Kenneth E. Willmann 1
Vice President
Age: 53
Senior Vice President, Fixed Income Investments, IMCO (12/99-present); Vice
President, Mutual Fund Portfolios, IMCO (09/94-12/99). Mr. Willmann serves as
Vice President of each of the remaining Funds within the USAA Family of Funds,
Director of IMCO, Senior Vice President of USAA Shareholder Account Services,
and Vice President of USAA Life Investment Trust.
16
<PAGE>
Michael D. Wagner 1
Secretary
Age: 51
Senior Vice President, USAA Capital Corporation (CAPCO) General Counsel
(01/99-present); Vice President, Corporate Counsel, USAA (1982-01/99). 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 of each of the remaining funds within the USAA
Family of Funds; and Vice President, Corporate Counsel for various other USAA
subsidiaries and affiliates.
Mark S. Howard 1
Assistant Secretary
Age: 36
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). Mr. Howard serves as Assistant Vice
President and Assistant Secretary of IMCO and USAA Shareholder Account
Services; Assistant Secretary of each of the remaining Funds within the USAA
Family of Funds and for USAA Life Investment Trust; and Assistant Vice
President, Securities Counsel, for various other USAA subsidiaries and
affiliates.
Sherron A. Kirk 1
Treasurer
Age: 55
Senior Vice President, Senior Financial Officer, IMCO (1/00-present); Vice
President, Senior Financial Officer, IMCO (8/98-1/00); Vice President,
Controller, IMCO (10/92-8/98). Mrs. Kirk serves as Treasurer of each of the
remaining funds within the USAA Family of Funds and Vice President, Senior
Financial Officer of USAA Shareholder Account Services.
Caryl Swann 1
Assistant Treasurer
Age: 52
Executive Director, Mutual Fund Analysis & Support, IMCO (10/98-present);
Director, Mutual Fund Portfolio Analysis & Support, IMCO (2/98-10/98); Manager,
Mutual Fund Accounting, IMCO (7/92-2/98). Ms. Swann serves as Assistant
Treasurer for each of the remaining funds within the USAA Family of Funds and
for USAA Life Investment Trust.
- -------------------------------------------------------------------------------
1 Indicates those Directors and officers who are employees of the Manager or
affiliated companies and are considered "interested persons" under the 1940
Act.
2 Member of Executive Committee
3 Member of Audit Committee
4 Member of Pricing and Investment Committee
5 Member of Corporate Governance Committee
Between the meetings of the Board of Directors and while the Board is not
in session, the Executive Committee of the Board of Directors has all the
powers and may exercise all the duties of the Board of Directors in the
management of the business of the Company which may be delegated to it by the
Board. The Pricing and Investment Committee of the Board of Directors acts upon
various investment-related issues and other matters that have been delegated to
it by the Board. The Audit Committee of the Board of Directors reviews the
financial statements and the auditor's reports and undertakes certain studies
and analyses as directed by the Board. The Corporate Governance Committee of
the Board of Directors maintains oversight of the organization, performance,
and effectiveness of the Board and independent Directors.
There are no family relationships among the Directors, officers, and
managerial level employees of the Company or its Manager.
17
<PAGE>
The following table sets forth information describing the compensation of
the current Directors of the Company for their services as Directors for the
fiscal year ended December 31, 1999.
NAME AGGREGATE TOTAL COMPENSATION
OF COMPENSATION FROM THE USAA
DIRECTOR FROM THE COMPANY FAMILY OF FUNDS (b)
- -------------------------------------------------------------------------------
Robert G. Davis None (a) None (a)
Barbara B. Dreeben $ 9,417 $ 34,500
Howard L. Freeman, Jr. $ 9,417 $ 34,500
Robert L. Mason $ 9,417 $ 34,500
Michael J.C. Roth None (a) None (a)
John W. Saunders, Jr. None (a) None (a)
Richard A. Zucker $ 9,417 $ 34,500
- -------------
(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 December 31, 1999, the USAA Family of Funds consisted of four
registered investment companies offering 38 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 available
to the public only through the purchase of certain variable annuity
contracts and variable life insurance policies offered by 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
in 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 March 31, 2000, the officers and
Directors of the Company and their families as a group owned beneficially or of
record less than 1% of the outstanding shares of the Company.
As of March 31, 2000, USAA and its affiliates owned (including related
employee benefit plans) 47,623,845 shares (33%) of the USAA S&P 500 Index Fund.
The Company knows of no other persons who, as of March 31, 2000, held of
record or owned beneficially 5% or more of the voting stock of the Fund's
shares.
TRUSTEES AND OFFICERS OF THE PORTFOLIO
The Trustees and officers of the Portfolio and their birthdates, principal
occupations during the past five years, and addresses are set forth below.
Their titles may have varied during that period.
CHARLES P. BIGGAR (birth date: October 13, 1930) -- Trustee of the
Portfolio; Trustee of each of the other investment companies in the BT Fund
Complex(1); Retired; former Vice President, International Business Machines
("IBM") and President, National Services and the Field Engineering Divisions of
IBM. His address is 12 Hitching Post Lane, Chappaqua, New York 10514.
S. LELAND DILL (birth date: March 28, 1930)-- Trustee of the Portfolio;
Trustee of each of the other investment companies in the BT Fund Complex;
Retired; Director, Coutts (U.S.A.) International; Trustee, Phoenix-Zweig Trust2
and Phoenix-Euclid Market Neutral Fund(2); former Partner, KPMG Peat Marwick;
Director, Vintners International Company Inc.; Director, Coutts Trust Holdings
Ltd., Director, Coutts Group; General Partner, Pemco2. His address is 5070
North Ocean Drive, Singer Island, Florida 33404.
MARTIN J. GRUBER (birth date: July 15, 1937) -- Trustee of the Portfolio;
Trustee of each of the other investment companies in the BT Fund Complex;
Nomura Professor of Finance, Leonard N. Stern School of Business, New York
University (since 1964); Trustee, TIAA(2); Trustee, SG Cowen Mutual Funds(2);
Trustee, Japan Equity Fund(2); Trustee, Taiwan Equity Fund(2). His address is
229 South Irving Street, Ridgewood, New Jersey 07450.
18
<PAGE>
RICHARD HALE* (birth date: July 17, 1945) -- Trustee of the Portfolio;
Trustee of each of the other investment companies in the BT Fund Complex;
Managing Director, Deutsche Asset Management; Director, Flag Investors Funds2;
Managing Director, Deutsche Banc Alex. Brown Incorporated; Director and
President, Investment Company Capital Corp. His address is 205 Woodbrook Lane,
Baltimore, Maryland 21212.
RICHARD J. HERRING (birth date: February 18, 1946) -- Trustee of the
Portfolio; Trustee of each of the other investment companies in the BT Fund
Complex; Jacob Safra Professor of International Banking, Professor of Finance
and Vice Dean, The Wharton School, University of Pennsylvania (since 1972). His
address is 325 South Roberts Road, Bryn Mawr, Pennsylvania 19010.
BRUCE E. LANGTON (birth date: May 10, 1931) -- Trustee of the Portfolio;
Trustee of each of the other investment companies in the BT Fund Complex;
Retired; Trustee, Allmerica Financial Mutual Funds (1992-present); Member,
Pension and Thrift Plans and Investment Committee, Unilever U.S. Corporation
(1989 to present)(3); Director, TWA Pilots Directed Account Plan and 401(k)
Plan (1988 to present)(2). His address is 99 Jordan Lane, Stamford, Connecticut
06903.
PHILIP SAUNDERS, JR. (birth date: October 11, 1935) -- Trustee of the
Portfolio; Trustee of each of the other investment companies in the BT Fund
Complex; Principal, Philip Saunders Associates (Economic and Financial
Consulting); former Director, Financial Industry Consulting, Wolf & Company;
President, John Hancock Home Mortgage Corporation; Senior Vice President of
Treasury and Financial Services, John Hancock Mutual Life Insurance Company,
Inc. His address is 445 Glen Road, Weston, Massachusetts 02193.
HARRY VAN BENSCHOTEN (birth date: February 18, 1928) -- Trustee of the
Portfolio; Trustee of each of the other investment companies in the BT Fund
Complex; Retired; Director, Canada Life Insurance Corporation of New York. His
address is 6581 Ridgewood Drive, Naples, Florida 34108.
The Board has an Audit Committee that meets with the Trust's independent
accountants to review the financial statements of the Trust, the adequacy of
internal controls and the accounting procedures and policies of the Trust. Each
member of the Board except Mr. Hale also is a member of the Audit Committee.
- ----------------------
* "Interested Person" within the meaning of Section 2(a)(19) of the Act. Mr.
Hale is a Managing Director of Deutsche Asset Management, the U.S. asset
management unit of Deutsche Bank and its affiliates.
OFFICERS OF THE TRUST AND THE PORTFOLIO
DANIEL O. HIRSCH (birth date: March 27, 1954)-- Secretary of the Trust;
Director, Deutsche Banc Alex. Brown Incorporated and Investment Company Capital
Corp. since July 1998; Assistant General Counsel, Office of the General
Counsel, United States Securities and Exchange Commission from 1993 to 1998.
His address is One South Street, Baltimore, Maryland 21202.
JOHN A. KEFFER (birth date: July 14, 1942)-- President and Chief
Executive Officer of the Trust; President, Forum Financial Group L.L.C. and its
affiliates; President, ICC Distributors, Inc.(4) His address is ICC
Distributors, Inc., Two Portland Square, Portland, Maine 04101.
CHARLES A. RIZZO (birth date: August 5, 1958) Treasurer of the Trust;
Vice President and Department Head, Deutsche Asset Management since 1998;
Senior Manager, PricewaterhouseCoopers LLP from 1993 to 1998. His address is
One South Street, Baltimore, Maryland 21202.
Messrs. Hirsch, Keffer, and Rizzo also hold similar positions for other
investment companies for which ICC Distributors, or an affiliate serves as the
principal underwriter.
No person who is an officer or director of Bankers Trust Company is an officer
or Trustee of the Trust. No director, officer or employee of ICC Distributors,
Inc., or any of its affiliates will receive any compensation from the Trust for
serving as an officer or Trustee of the Trust.
- ---------------
1 The "BT Fund Complex" consists of BT Investment Funds, BT Institutional
Funds, BT Pyramid Mutual Funds, BT Advisor Funds, Cash Management
Portfolio, Intermediate Tax Free Portfolio, Tax Free Money Portfolio, NY
Tax Free Money Portfolio, Treasury Money Portfolio, International
19
<PAGE>
Equity Portfolio, Equity 500 Index Portfolio, Capital Appreciation
Portfolio, Asset Management Portfolio and BT Investment Portfolios.
2 An investment company registered under the Investment Company Act of 1940,
as amended (the "Act").
3 A publicly held company with securities registered pursuant to Section 12
of the Securities Exchange Act of 1934, as amended.
4 Underwriter/distributor for the Trust. Mr. Keffer owns 100% of the shares
of ICC Distributors, Inc.
The following table reflects fees paid to the Trustees of the Portfolio for
the year ended December 31, 1999.
TRUSTEE COMPENSATION TABLE
AGGREGATE TOTAL COMPENSATION
NAME OF PERSON, COMPENSATION FROM FUND COMPLEX
POSITION FROM PORTFOLIO PAID TO TRUSTEES
Charles P. Biggar
Trustee $ 1,235 $ 43,750
S. Leland Dill
Trustee $ 1,074 $ 43,750
Martin J. Gruber
Trustee $ 212 $ 45,000
Richard Hale
Trustee - -
Richard J. Herring
Trustee $ 189 $ 43,750
Bruce E. Langton
Trustee $ 212 $ 43,750
Philip Saunders, Jr.
Trustee $ 1,108 $ 45,000
Harry Van Benschoten
Trustee $ 212 $ 45,000
Bankers Trust reimbursed the Portfolio for a portion of their Trustees
fees for the period above. Refer to the following sections INVESTMENT ADVISER
and ADMINISTRATOR.
INVESTMENT ADVISER
As described in the Fund's Prospectus, USAA Investment Management Company is
the Manager and investment adviser, providing the services under the Management
Agreement. The Manager, a wholly owned indirect subsidiary of United Services
Automobile Association (USAA), a large, diversified financial services
institution, was organized in May 1970, has served as investment adviser and
underwriter for USAA Mutual Fund, Inc. from its inception.
In addition to the services it provides under the Management Agreement,
the Manager advises and manages the investments for USAA and its affiliated
companies as well as those of USAA Investment Trust, USAA Tax Exempt Fund,
Inc., USAA State Tax-Free Trust, and USAA Life Investment Trust. As of the date
of this SAI, total assets under management by the Manager were approximately
$42 billion, of which approximately $29 billion were in mutual fund portfolios.
Under the Management Agreement, the Manager presently monitors the
services provided by Bankers Trust to the Portfolio. The Manager receives no
fee for providing these monitoring services. In the event the Fund's Board of
Directors determines it is in the best interests of the Fund's shareholders to
withdraw its investment in the Portfolio, the Manager would become responsible
for directly managing the assets of the Fund. In such event, the Fund would pay
the Manager an annual fee of .10% of the Fund's ANA, accrued daily and paid
monthly.
20
<PAGE>
The Management Agreement will remain in effect until June 30, 2001, for
the Fund and will continue in effect from year to year thereafter for the Fund
as long as it is approved at least annually by a vote of the outstanding voting
securities of the Fund (as defined by the 1940 Act) or by the Board of
Directors (on behalf of such Fund) including a majority of the Directors who
are not interested persons of the Manager or (otherwise than as Directors) of
the Company, at a meeting called for the purpose of voting on such approval.
The Management Agreement may be terminated at any time by either the Company or
the Manager on 60 days' written notice. It will automatically terminate in the
event of its assignment (as defined by the 1940 Act).
While the officers and employees of the Manager, as well as those of the
Funds, may engage in personal securities transactions, they are restricted by
the procedures in a Joint Code of Ethics adopted by the Manager and the Funds.
The Joint Code of Ethics was designed to ensure that the shareholders'
interests come before the individuals who manage their Funds. It also prohibits
the portfolio managers and other investment personnel from buying securities in
an initial public offering or from profiting from the purchase or sale of the
same security within 60 calendar days. Additionally, the Joint Code of Ethics
requires the portfolio manager and other employees with access information
about the purchase or sale of securities by the Funds to obtain approval before
executing permitted personal trades. Copies of the Joint Code of Ethics for the
Manager and Bankers Trust have been filed with the SEC and is available for
public view.
Bankers Trust Corporation is a wholly owned subsidiary of Deutsche Bank
A.G. ("Deutsche Bank"). Deutsche Bank is a banking company with limited
liability organized under the laws of the Federal Republic of Germany. Deutsche
Bank is the parent company of a group consisting of banks, capital markets
companies, fund management companies, mortgage banks, a property finance
company, installment financing and leasing companies, insurance companies,
research and consultancy companies, and other domestic and foreign companies.
Bankers Trust, subject to the supervision and direction of the Board of
Trustees of the Portfolio, manages the Portfolio in accordance with the
Portfolio's investment objective and stated investment policies, makes
investment decisions for the Portfolio, places orders to purchase and sell
securities and other financial instruments on behalf of the Portfolio and
employs professional investment managers and securities analysts who provide
research services to the Portfolio. Bankers Trust may utilize the expertise of
any of its world wide subsidiaries and affiliates to assist it in its role as
investment adviser. All orders for investment transactions on behalf of the
Portfolio are placed by Bankers Trust with broker-dealers and other financial
intermediaries that it selects, including those affiliated with Bankers Trust.
A Bankers Trust affiliate will be used in connection with a purchase or sale of
an investment for the Portfolio only if Bankers Trust believes that the
affiliate's charge for the transaction does not exceed usual and customary
levels. The Portfolio will not invest in obligations for which Bankers Trust or
any of its affiliates is the ultimate obligor or accepting bank. The Portfolio
may, however, invest in the obligations of correspondents and customers of
Bankers Trust.
Under the terms of the Portfolio's investment advisory agreement with
Bankers Trust (the Advisory Agreements), Bankers Trust manages the Portfolio
subject to the supervision and direction of the Board of Trustees of the
Portfolio. Bankers Trust will: (1) act in strict conformity with the
Portfolio's Declaration of Trust, the 1940 Act and the Investment Advisers Act
of 1940, as the same may from time to time be amended; (2) manage the Portfolio
in accordance with the Portfolio's investment objective, restrictions, and
policies; (3) make investment decisions for the Portfolio; and (4) place
purchase and sale orders for securities and other financial instruments on
behalf of the Portfolio.
Bankers Trust bears all expenses in connection with the performance of
services under the Advisory Agreement. The Fund and the Portfolio each bear
certain other expenses incurred in its operation, including: taxes, interest,
brokerage fees and commissions, if any; fees of Trustees of the Portfolio or
Directors of the Company who are not officers, directors, or employees of
Bankers Trust, ICC Distributors or any of their affiliates, the Manager or any
of their affiliates; SEC fees and state Blue Sky qualification fees; charges of
custodians and transfer and dividend disbursing agents; certain insurance
premiums; outside auditing and legal expenses; costs of maintenance of
corporate existence; costs attributable to investor services, including,
without limitation, telephone and personnel expenses; costs of preparing and
printing prospectuses and statements of additional information for regulatory
purposes and for distribution to existing shareholders; costs of shareholders'
reports and meetings of shareholders, officers, and Trustees of the Portfolio
or Directors of the Company; and any extraordinary expenses.
21
<PAGE>
For the years ended December 31, 1999, 1998, and 1997, Bankers Trust
earned $5,134,906, $3,186,503, and $2,430,147, respectively, as compensation
for investment advisory services provided to the Portfolio. During the same
periods, Bankers Trust reimbursed $0, $799,296, and $1,739,490, respectively,
to the Portfolio to cover advisory and administrative expenses exceeding
expense limitations that were in effect for those periods.
Bankers Trust may have deposit, loan, and other commercial banking
relationships with the issuers of obligations that may be purchased on behalf
of the Portfolio, including outstanding loans to such issuers which could be
repaid in whole or in part with the proceeds of securities so purchased. Such
affiliates deal, trade, and invest for their own accounts in such obligations
and are among the leading dealers of various types of such obligations. Bankers
Trust has informed the Portfolio that, in making its investment decisions, it
does not obtain or use material inside information in its possession or in the
possession of any of its affiliates. In making investment recommendations for
the Portfolio, Bankers Trust will not inquire or take into consideration
whether an issuer of securities proposed for purchase or sale by the Portfolio
is a customer of Bankers Trust, its parent, or its subsidiaries or affiliates
and, in dealing with its customers, Bankers Trust, its parent, subsidiaries,
and affiliates will not inquire or take into consideration whether securities
of such customers are held by any fund managed by Bankers Trust or such
affiliate.
On March 11, 1999, Bankers Trust announced that it had reached an
agreement with the United States Attorney's Office in the Southern District of
New York to resolve an investigation concerning inappropriate transfers of
unclaimed funds and related recordkeeping problems that occurred between 1994
and early 1996. Pursuant to its agreement with the U.S. Attorney's Office,
Bankers Trust pleaded guilty to misstating entries in the bank's books and
records and agreed to pay a $63.5 million fine to state and federal
authorities. On July 26, 1999, the federal criminal proceedings were concluded
with Bankers Trust's formal sentencing. The events leading up to the guilty
pleas did not arise out of the investment advisory or mutual fund management
activities of Bankers Trust or its affiliates.
As a result of the plea, absent an order from the SEC, Bankers Trust would
not be able to continue to provide investment advisory services to the Fund.
The SEC has granted a temporary order to permit Bankers Trust and its
affiliates to continue to provide investment advisory services to registered
investment companies. There is no assurance that the SEC will grant a permanent
order.
ADMINISTRATOR
Under the terms of the Fund's administration agreement with the Manager, the
Manager is obligated on a continuous basis to provide such administrative
services as the Board of Directors of the Company reasonably deems necessary
for the proper administration of the Fund. The Manager will generally assist in
all aspects of the Fund's operations; supply and maintain office facilities,
statistical and research data, data processing services, clerical, accounting,
bookkeeping and recordkeeping services (including without limitation the
maintenance of such books and records as are required under the 1940 Act and
the rules thereunder, except as maintained by other agents), internal auditing,
executive and administrative services, and stationery and office supplies;
prepare reports to shareholders; prepare and file tax returns; supply financial
information and supporting data for reports to and filings with the SEC and
various state Blue Sky authorities; supply supporting documentation for
meetings of the Board of Directors; provide monitoring reports and assistance
regarding compliance with its Articles of Incorporation, Bylaws, investment
objectives and policies, and with federal and state securities laws; arrange
for appropriate insurance coverage; calculate net asset values, net income and
realized capital gains or losses; and negotiate arrangements with, and
supervise and coordinate the activities of, agents and others to supply
services.
Under the administration and services agreement between the Portfolio and
Bankers Trust, Bankers Trust is obligated on a continuous basis to provide such
administrative services as the Board of Trustees of the Portfolio reasonably
deems necessary for the proper administration of the Portfolio. Bankers Trust
will generally assist in all aspects of the Portfolio's operations; supply and
maintain office facilities (which may be in Bankers Trust's own offices),
statistical and research data, data processing services, clerical, accounting,
bookkeeping and recordkeeping services (including without limitation the
maintenance of such books and records as are required under the 1940 Act and
the rules thereunder, except as maintained by other agents), internal auditing,
executive and administrative services, and stationery and office supplies;
prepare reports to investors; prepare and file tax returns; supply financial
information and supporting data for reports to and filings with the SEC and
various state Blue Sky authorities; supply supporting
22
<PAGE>
documentation for meetings of the Board of Trustees; provide monitoring reports
and assistance regarding compliance with its Declaration of Trust, Bylaws,
investment objectives and policies, and with federal and state securities laws;
arrange for appropriate insurance coverage; calculate net asset values, net
income and realized capital gains or losses; and negotiate arrangements with,
and supervise and coordinate the activities of, agents and others to supply
services.
For the fiscal years ended December 31, 1999, 1998, and 1997, Bankers
Trust earned $344,960, $676,625, and $1,215,073, respectively, as compensation
for administrative and other services provided to the Portfolio. For the fiscal
year ended December 31, 1999, no administrative fees were waived to the
Portfolio. For the fiscal year 1998, Bankers Trust waived $139,957 in
administrative fees charged to the Portfolio.
For the fiscal years ended December 31, 1999, 1998, and 1997 the Manager
earned $1,479,126, $461,363, and $93,126, respectively, as compensation for
administrative and other services provided to the Fund.
The Manager entered into a servicing agreement with Bankers Trust pursuant
to which Bankers Trust has agreed to pay the Manager a fee for performing the
following services: providing marketing and promotional materials and other
information relating to the Portfolio and the Fund to current and prospective
shareholders of the Fund; assisting shareholders in opening or maintaining
accounts with the Fund; and maintaining and preserving records in connection
with providing these services. For these services, Bankers Trust has agreed to
pay the Manager a monthly fee in the following amounts: .03 of 1% per annum for
average daily net assets of the Fund invested in the Portfolio up to $2.5
billion; .04 of 1% per annum for the next $1.5 billion average daily net assets
of the Fund invested in the Portfolio; and .045 of 1% per annum of the amount
by which the average daily net assets of the Fund invested in the Portfolio
exceed $4 billion.
GENERAL INFORMATION
UNDERWRITER
The Company has an agreement with the Manager for exclusive underwriting and
distribution of the Fund's shares on a continuing, best-efforts basis. This
agreement provides that the Manager will receive no fee or other compensation
for such distribution services.
TRANSFER AGENT
The Transfer Agent performs transfer agent services for the Company under a
Transfer Agency Agreement. Services include maintenance of shareholder account
records, handling of communications with shareholders, distribution of Fund
dividends, and production of reports with respect to account activity for
shareholders and the Company. For its services under the Transfer Agency
Agreement, the Fund pays the Transfer Agent an annual fixed fee of $20 per
account. The fee is subject to change at any time.
CUSTODIAN
The Custodian is responsible for, among other things, safeguarding and
controlling the Company's cash and securities, handling the receipt and
delivery of securities, and collecting interest on the Company's investment in
the Portfolio. Bankers Trust serves as custodian for both the Fund and the
Portfolio. As custodian, it holds both the Fund's and the Portfolio's assets.
Bankers Trust will comply with the self-custodian provisions of Rule 17f-2
under the 1940 Act.
COUNSEL
Goodwin, Procter & Hoar LLP, Exchange Place, Boston, MA 02109, will review
certain legal matters for the Company in connection with the shares offered by
the Prospectus. Willkie Farr & Gallagher, 787 Seventh Avenue, New York, New
York 10019-6099 serves as counsel to the Portfolio.
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP, 250 West Pratt Street, Baltimore, Maryland 21201
has been selected as the independent accountants for the Portfolio. KPMG LLP,
112 East Pecan, Suite 2400, San Antonio, Texas 78205, has been selected as the
independent auditor for the Fund.
BANKING REGULATORY MATTERS
Bankers Trust has been advised by its counsel that in its opinion Bankers Trust
may perform the services for the Portfolio contemplated by the Advisory
Agreements and other activities for the Fund and the
23
<PAGE>
Portfolio described in the Prospectus and this SAI without violation of the
Glass-Steagall Act or other applicable banking laws or regulations. However,
counsel has pointed out that future changes in either federal or state statutes
and regulations concerning the permissible activities of banks or trust
companies, as well as future judicial or administrative decisions or
interpretations of present and future statutes and regulations, might prevent
Bankers Trust from continuing to perform those services for the Trust and the
Portfolio. State laws on this issue may differ from the interpretations of
relevant federal law and banks and financial institutions may be required to
register as dealers pursuant to state securities law. If the circumstances
described above should change, the Board of Trustees would review the
relationship with Bankers Trust and consider taking all actions necessary in
the circumstances.
CALCULATION OF PERFORMANCE DATA
Information regarding the total return of the Fund is provided under COULD THE
VALUE OF YOUR INVESTMENT IN THIS FUND FLUCTUATE? in its Prospectus. See
VALUATION OF SECURITIES herein for a discussion of the manner in which the
Fund's price per share is calculated.
TOTAL RETURN
The Fund may advertise performance in terms of average annual total return for
1-, 5-, and 10-year periods, or for such lesser periods as the Fund has been in
existence. Average annual total return is computed by finding the average
annual compounded rates of return over the periods that would equate the
initial amount invested to the ending redeemable value, according to the
following formula:
P(1 + T)N = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the 1-, 5-, or 10-year
periods at the end of the year or period
The calculation assumes any charges are deducted from the initial $1,000
payment and assumes all dividends and distributions by such Fund are reinvested
at the price stated in the Prospectus on the reinvestment dates during the
period and includes all recurring fees that are charged to all shareholder
accounts. For periods after December 31, 1999, performance does not reflect the
annual $10 account maintenance fee, which fee is waived for accounts of $10,000
or more. As of December 31, 1999, the Fund's average account size was
approximately $22,135.
The Fund's total return for the fiscal year ended December 31, 1999, was
20.67%.
APPENDIX A - COMPARISON OF FUND PERFORMANCE
Occasionally, we may make comparisons in advertising and sales literature
between the Fund and other comparable funds in the industry. These comparisons
may include such topics as risk and reward, investment objectives, investment
strategies, and performance.
Fund performance also may be compared to the performance of broad groups
of mutual funds with similar investment goals or unmanaged indices of
comparable securities. Evaluations of Fund performance made by independent
sources may also be used in advertisements concerning the Fund, including
reprints of, or selections from, editorials or articles about the Fund. The
Fund or its performance may also be compared to products and services not
constituting securities subject to registration under the 1933 Act such as, but
not limited to, certificates of deposit and money market accounts. Sources for
performance information and articles about the Fund may include 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 that may cover financial and investment news.
AUSTIN AMERICAN-STATESMAN, a newspaper that may cover financial news.
BANK RATE MONITOR, a service that 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.
24
<PAGE>
BUSINESS WEEK, a national business weekly that periodically reports the
performance rankings and ratings of a variety of mutual funds.
CDA/WEISENBERGER MUTUAL FUNDS INVESTMENT REPORT, a monthly newsletter that
reports on both specific mutual fund companies and the mutual fund industry as
a whole.
CHICAGO TRIBUNE, a newspaper that may cover financial news.
CONSUMER REPORTS, a monthly magazine that from time to time reports on
companies in the mutual fund industry.
DALLAS MORNING NEWS, a newspaper that may cover financial news.
DENVER POST, a newspaper that may quote financial news.
FINANCIAL PLANNING, a monthly magazine that may periodically review mutual fund
companies.
FINANCIAL SERVICES WEEK, a weekly newspaper that 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 that may cover financial news.
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 that covers financial news.
KIPLINGER'S PERSONAL FINANCE MAGAZINE, a monthly investment advisory
publication that periodically features the performance of a variety of
securities.
LIPPER, A REUTER'S COMPANY EQUITY FUND PERFORMANCE ANALYSIS, a weekly and
monthly publication of industry-wide mutual fund averages by type of fund.
LIPPER, A REUTER'S COMPANY FIXED INCOME FUND PERFORMANCE ANALYSIS, a monthly
publication of industry-wide mutual fund performance averages by type of fund.
LOS ANGELES TIMES, a newspaper that may cover financial news.
LOUIS RUKEYSER'S WALL STREET, a publication for investors.
MEDICAL ECONOMICS, a monthly magazine providing information to the medical
profession.
MONEY, a monthly magazine that features the performance of both specific funds
and the mutual fund industry as a whole.
MONEY FUND REPORT, a weekly publication of iMoneyNet, Inc. (formerly IBC
Financial Data, 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 "Taxable First Tier Fund Average."
MONEY MARKET INSIGHT, a monthly money market industry analysis prepared by
iMoneyNet, Inc. (formerly IBC Financial Data, Inc.)
MONEYLETTER, a biweekly newsletter that covers financial news and from time to
time rates specific mutual funds.
MORNINGSTAR 5 STAR INVESTOR, a monthly newsletter that 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.
25
<PAGE>
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 that may cover financial news.
NO LOAD FUND INVESTOR, a newsletter covering companies in the mutual fund
industry.
ORLANDO SENTINEL, a newspaper that may cover financial news.
PERSONAL INVESTOR, a monthly magazine that 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 that may cover financial news.
SAN FRANCISCO CHRONICLE, a newspaper that may cover
financial news.
SMART MONEY, a monthly magazine featuring news and articles on investing and
mutual funds.
USA TODAY, a newspaper that 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 that covers
financial news.
WASHINGTON POST, a newspaper that may cover financial news.
WORTH, a magazine that covers financial and investment subjects including
mutual funds.
YOUR MONEY, a monthly magazine directed toward the novice investor.
In addition to the sources above, performance of the Fund may also be
tracked by Lipper Analytical Services, Inc. and Morningstar, Inc. A Fund will
be compared to Lipper's or Morningstar's appropriate fund category according to
its objective and portfolio holdings. Footnotes in advertisements and other
sales literature will include the time period applicable for any rankings used.
Other sources for total return and other performance data that may be used
by the Fund or by those publications listed previously are Schabaker Investment
Management and Investment Company Data, Inc. These are services that collect
and compile data on mutual fund companies.
26
<PAGE>
APPENDIX B - DOLLAR-COST AVERAGING
Dollar-cost averaging is a systematic investing method, which can be used by
investors as a disciplined technique for investing. A fixed amount of money is
invested in a security (such as a stock or mutual fund) on a regular basis over
a period of time, regardless of whether securities markets are moving up or
down.
This practice reduces average share costs to the investor who acquires
more shares in periods of lower securities prices and fewer shares in periods
of higher prices.
While dollar-cost averaging does not assure a profit or protect against
loss in declining markets, this investment strategy is an effective way to help
calm the effect of fluctuations in the financial markets. Systematic investing
involves continuous investment in securities regardless of fluctuating price
levels of such securities. Investors should consider their financial ability to
continue purchases through periods of low and high price levels.
As the following chart illustrates, dollar-cost averaging tends to
keep the overall cost of shares lower. This example is for illustration only,
and different trends would result in different average costs.
===============================================================================
HOW DOLLAR-COST AVERAGING WORKS
$100 Invested Regularly for 5 Periods
Market Trend
--------------------------------------------------------------------
Down Up Mixed
-------------------- --------------------- --------------------
Share Shares Share Shares Share Shares
Investment Price Purchased Price Purchased Price Purchased
-------------------- --------------------- --------------------
$100 10 10 6 16.67 10 10
100 9 11.1 7 14.29 9 11.1
100 8 12.5 7 14.29 8 12.5
100 8 12.5 9 11.1 9 11.1
100 6 16.67 10 10 10 10
---- -- ----- -- ----- -- -----
$500 ***41 62.77 ***39 66.35 ***46 54.7
*Avg. Cost: $ 7.97 *Avg. Cost: $ 7.54 *Avg. Cost: $ 9.14
----- ----- -----
**Avg. Price: $ 8.20 **Avg. Price: $ 7.80 **Avg. Price: $ 9.20
----- ----- -----
* Average Cost is the total amount invested divided by number of shares
purchased.
** Average Price is the sum of the prices paid divided by number of
purchases.
*** Cumulative total of share prices used to compute average prices.
===============================================================================
27
<PAGE>
28083-0500
<PAGE>
USAA MUTUAL FUND, INC.
PART C. OTHER INFORMATION
Item 23. EXHIBITS
1 (a) Articles of Incorporation dated October 10, 1980 (1)
(b) Articles of Amendment dated January 14, 1981 (1)
(c) Articles Supplementary dated July 28, 1981 (1)
(d) Articles Supplementary dated November 3, 1982 (1)
(e) Articles of Amendment dated May 18, 1983 (1)
(f) Articles Supplementary dated August 8, 1983 (1)
(g) Articles Supplementary dated July 27, 1984 (1)
(h) Articles Supplementary dated November 5, 1985 (1)
(i) Articles Supplementary dated January 23, 1987 (1)
(j) Articles Supplementary dated May 13, 1987 (1)
(k) Articles Supplementary dated January 25, 1989 (1)
(l) Articles Supplementary dated May 2, 1991 (1)
(m) Articles Supplementary dated November 14, 1991 (1)
(n) Articles Supplementary dated April 14, 1992 (1)
(o) Articles Supplementary dated November 4, 1992 (1)
(p) Articles Supplementary dated March 23, 1993 (1)
(q) Articles Supplementary dated May 5, 1993 (1)
(r) Articles Supplementary dated November 8, 1993 (1)
(s) Articles Supplementary dated January 18, 1994 (1)
(t) Articles Supplementary dated November 9, 1994 (1)
(u) Articles Supplementary dated November 8, 1995 (2)
(v) Articles Supplementary dated February 6, 1996 (3)
(w) Articles Supplementary dated March 12, 1996 (4)
(x) Articles Supplementary dated November 13, 1996 (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 (10)
(bb) Articles Supplementary dated April 3, 1998 (13)
(cc) Articles Supplementary dated May 6, 1999 (14)
(dd) Articles Supplementary dated November 18, 1999 (filed herewith)
2 Bylaws, as amended February 11, 1999 (13)
3 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)
(k) Intermediate-Term Bond Fund (15)
(l) High-Yield Opportunities Fund (15)
(m) Small Cap Stock Fund (15)
4 (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-1
<PAGE>
Item 23. EXHIBITS
(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)
(h) Letter Agreement to the Advisory Agreement dated August 2, 1999
adding Intermediate-Term Bond Fund, High-Yield Opportunities
Fund, and Small Cap Stock Fund (15)
5 (a) Underwriting Agreement dated July 25, 1990 (1)
(b) Letter Agreement to the Underwriting Agreement dated June 1, 1993
adding Growth & Income Fund and Short-Term Bond Fund (1)
(c) Letter Agreement to the Underwriting Agreement dated May 1, 1996
adding S&P 500 Index Fund (5)
(d) Letter Agreement to the Underwriting Agreement dated August 1,
1997 adding Science & Technology Fund and First Start Growth
Fund (9)
(e) Letter Agreement to the Underwriting Agreement dated August 2,
1999 adding Intermediate-Term Bond Fund, High-Yield
Opportunities Fund, and Small Cap Stock Fund (15)
6 Not Applicable
7 (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)
(n) Letter Agreement to the Custodian Agreement dated August 2,
1999 with respect to the Intermediate-Term Bond Fund,
High-Yield Opportunities Fund, and Small Cap Stock Fund (15)
8 (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)
C-2
<PAGE>
Item 23. EXHIBITS
(d) Amendments dated January 1, 1999 to the Transfer Agency
Agreement Fee Schedules for Growth Fund, Aggressive Growth
Fund, Income Fund, Growth & Income Fund, Income Stock Fund,
Money Market Fund, Short-Term Bond Fund, Science Technology
Fund and First Start Growth Fund (15)
(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, 2000 for
S&P 500 Index Fund (filed herewith)
(i) Master Revolving Credit Facility Agreement with USAA Capital
Corporation dated January 11, 2000 ($500,000,000)(filed herewith)
(j) Master Revolving Credit Facility Agreement with Bank of America
dated January 12, 2000 (filed herewith)
(k) Letter Agreement to Transfer Agency Agreement dated August 1, 1997
adding Science & Technology Fund and First Start Growth Fund (9)
(l) Master Revolving Credit Facility Agreement with USAA Capital
Corporation dated January 11, 2000 ($250,000,000)(filed herewith)
(m) Letter Agreement to Transfer Agency Agreement dated August 2, 1999
adding Intermediate-Term Bond Fund, High-Yield Opportunities Fund
and Small Cap Stock Fund (15)
(n) Transfer Agency Agreement Fee Schedule for Intermediate-Term
Bond Fund (15)
(o) Transfer Agency Agreement Fee Schedule for High-Yield Opportunities
Fund (15)
(p) Transfer Agency Agreement Fee Schedule for Small Cap Stock
Fund (15)
9 (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 and Consent of Counsel with respect to the S&P 500 Index
Fund (filed herewith)
(c) Opinion of Counsel with respect to the Aggressive Growth Fund (6)
(d) Consent of Counsel with respect to the Aggressive Growth Fund,
Growth Fund, Growth & Income Fund, Income Stock Fund, Income
Fund, Short-Term Bond Fund, Money Market Fund, Science &
Technology Fund, and First Start Growth Fund (15)
(e) Opinion of Counsel with respect to the Science & Technology
Fund and First Start Growth Fund (8)
(f) Opinion and Consent of Counsel with respect to the Intermediate-
Term Bond Fund, High-Yield Opportunities Fund, and Small Cap
Stock Fund (14)
10 Independent Accountants' Consent (filed herewith)
11 Omitted financial statements - Not Applicable
12 SUBSCRIPTIONS AND INVESTMENT LETTERS
(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)
C-3
<PAGE>
Item 23. EXHIBITS
(d) Subscription and Investment Letter for the Intermediate-Term Bond
Fund, High-Yield Opportunities Fund, and Small Cap Stock Fund(15)
13 12b-1 Plans - Not Applicable
14 18f-3 Plans - Not Applicable
15 Plan Adopting Multiple Classes of Shares - Not Applicable
16 CODE OF ETHICS
(a) USAA Investment Management Company
(b) Bankers Trust Company
17 POWERS OF ATTORNEY
(a) Powers of Attorney for , Sherron A. Kirk, David G. Peebles, Robert
L. Mason, Richard A. Zucker, Barbara B. Dreeben, and Michael F.
Reimherr dated April 18, 2000 and Michael J.C. Roth dated
April 22, 2000 (filed herewith)
(b) With respect to the S&P 500 Index Fund, Powers of Attorney for
John Y. Keffer, Charles A. Rizzo, Charles P. Biggar, S.
Leland Dill, Richard T. Hale, Richard J. Herring, Bruce E.
Langton, Martin J. Gruber, Philip Saunders, Jr., and Harry
Van Benscoten, Trustees of the Equity 500 Index Portfolio, dated
September 8, 1999 (filed herewith)
(c) Power of Attorney for Robert G. Davis 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.
C-4
<PAGE>
(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.
(10) Previously filed with Post-Effective Amendment No. 47 of the Registrant
(No. 2-49560) filed with the Securities and Exchange Commission on
February 26, 1998.
(11) Previously filed with Post-Effective Amendment No. 48 of the Registrant
(No. 2-49560) filed with the Securities and Exchange Commission on
February 27, 1998.
(12) Previously filed with Post-Effective Amendment No. 49 of the Registrant
(No. 2-49560) filed with the Securities and Exchange Commission on
September 30, 1998.
(13) Previously filed with Post-Effective Amendment No. 50 of the Registrant
(No. 2-49560) filed with the Securities and Exchange Commission on
February 26, 1999.
(14) Previously filed with Post-Effective Amendment No. 51 of the Registrant
(No. 2-49560) filed with the Securities and Exchange Commission on
May 14,1999.
(15) Previously filed with Post-Effective Amendment No. 52 of the Registrant
(No. 2-49560) filed with the Securities and Exchange Commission on
November 30,1999.
C-5
<PAGE>
Item 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH FUND
Information pertaining to persons controlled by or under common
control with Registrant is hereby incorporated by reference to
the section captioned "Directors and Officers of the Company" in
the Statement of Additional Information.
Item 25. INDEMNIFICATION
Protection for the liability of the adviser and underwriter and
for the officers and directors of the Registrant is provided by
two methods:
(a) THE DIRECTOR AND OFFICER LIABILITY POLICY. This policy covers all
losses incurred by the Registrant, its adviser and its
underwriter from any claim made against those entities or persons
during the policy period by any shareholder or former shareholder
of the Fund by reason of any alleged negligent act, error or
omission committed in connection with the administration of the
investments of said Registrant or in connection with the sale or
redemption of shares issued by said Registrant.
(b) STATUTORY INDEMNIFICATION PROVISIONS. Under Section 2-418 of the
Maryland General Corporation Law, the Registrant is authorized to
indemnify any past or present director, officer, agent or
employee against judgments, penalties, fines, settlements and
reasonable expenses actually incurred by him in connection with
any proceeding in which he is a party by reason of having served
as a director, officer, agent or employee, if he acted in good
faith and reasonably believed that, (i) in the case of conduct in
his official capacity with the Registrant, that his conduct was
in the best interests of the Registrant, or (ii) in all other
cases, that his conduct was at least not opposed to the best
interests of the Registrant. In the case of any criminal
proceeding, said director, officer, agent, or employee must in
addition have had no reasonable cause to believe that his conduct
was unlawful. In the case of a proceeding by or in the right of
the Registrant, indemnification may only be made against
reasonable expenses and may not be made in respect of any
proceeding in which the director, officer, agent, or employee
shall have been adjudged to be liable to the Registrant. The
termination of any proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere, or its equivalent
creates a rebuttable presumption that the director, officer,
agent, or employee did not meet the requisite standard of conduct
for indemnification. No indemnification may be made in respect of
any proceeding charging improper personal benefit to the
director, officer, agent, or employee whether or not involving
action in such person's official capacity, if such person was
adjudged to be liable on the basis that improper personal benefit
was received. If such director, officer, agent, or employee is
successful, on the merits or otherwise, in defense of any such
proceeding against him, he shall be indemnified against the
reasonable expenses incurred by him (unless such indemnification
is limited by the Registrant's charter, which it is not).
Additionally, a court of appropriate jurisdiction may order
indemnification in certain circumstances even if the appropriate
standard of conduct set forth above was not met.
C-6
<PAGE>
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) 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 26. BUSINESS AND OTHER CONNECTIONS OF THE 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 and
Portfolio Management" and to the section of the Statement of
Additional Information captioned "Directors and Officers of the
Company."
C-7
<PAGE>
Item 27. 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 Road 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 Road President, Director, and and Vice Chairman of
San Antonio, TX 78288 Vice Chairman of the the Board of Directors
Board of Directors
David G. Peebles Senior Vice President, Vice President and
9800 Fredericksburg Road Equity Investments, and Director
San Antonio, TX 78288 Director
Kenneth E. Willmann Senior Vice President, Vice President
9800 Fredericksburg Road Fixed Income Investments
San Antonio, TX 78288 and Director
Michael D. Wagner Vice President, Secretary Secretary
9800 Fredericksburg Road and Counsel
San Antonio, TX 78288
Sherron A. Kirk Senior Vice President, Treasurer
9800 Fredericksburg Road Senior Financial Officer,
San Antonio, TX 78288 and Treasurer
(c) Not Applicable
C-8
<PAGE>
Item 28. 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
Bankers Trust Company
Four Albany Street
New York, New York 10006
Item 29. MANAGEMENT SERVICES
Not Applicable
Item 30. UNDERTAKINGS
None
C-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act and the Investment
Company Act, the Registrant certifies that it meets all requirements for
effectiveness of this registration statement pursuant to Rule 485(b) under the
Securities Act 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 18th day of April 2000.
USAA MUTUAL FUND, INC.
/s/ Michael J.C. Roth
----------------------
Michael J.C. Roth
President
Pursuant to the requirements of the Securities Act, this amendment to its
Registration Statement has been signed below by the following persons in the
capacities and on the date(s) indicated.
(Signature) (Title) (Date)
Chairman of the April 18, 2000
/s/Robert G. Davis Board of Directors
- --------------------
Robert G. Davis
Vice Chairman of the Board April 18, 2000
/s/Michael J.C. Roth of Directors and President
- -------------------- (Principal Executive Officer)
Michael J.C. Roth
Treasurer (Principal April 18, 2000
/s/Sherron A. Kirk Financial and
- -------------------- Accounting Officer)
Sherron A. Kirk
/s/David G. Peebles
- -------------------- Director April 18, 2000
David G. Peebles
/s/Robert L. Mason Director April 18, 2000
- --------------------
Robert L. Mason
/s/Michael F. Reimherr Director April 18, 2000
- --------------------
Michael F. Reimherr
/s/Richard A. Zucker Director April 18, 2000
- --------------------
Richard A. Zucker
Director
- --------------------
Barbara B. Dreeben
C-10
<PAGE>
SIGNATURES
Equity 500 Index Portfolio has duly caused this Post-Effective
Amendment No. 53 to the Registration Statement on Form N-1A of USAA Mutual
Fund, Inc. to be signed on its behalf by the undersigned, thereunto duly
authorized, in the city of Baltimore and state of Maryland on the 27 day of
April, 2000.
EQUITY TOO INDEX PORTFOLIO
By: JOHN Y. KEFFER*
---------------
President
This Post-effective Amendment No. 53 to the Registration Statement on Form
N-1A of USAA Mutual Fund, Inc. has been signed below by the following persons
in the capacities indicated with respect to Equity 500 Index Portfolio on April
27, 2000.
SIGNATURE TITLE
Charles P. Biggar* Trustee
S. Leland Dill* Trustee
Martin J. Gruber* Trustee
Richard Hale* Trustee
Richard J. Herring* Trustee
Bruce E. Langton* Trustee
Philip Saunders, Jr.* Trustee
Harry Van Benschoten* Trustee
John Y. Keffer* President and Chief Executive
Officer
Charles A. Rizzo* Treasurer and Principal
Financial and Accounting Officer
*By /s/ Daniel O. Hirsch
--------------------
Daniel O. Hirsch, Secretary of Equity 500 Index Portfolio,
As Attorney-in-Fact pursuant to a Power of Attorney.
C-11
<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 (10)
(bb) Articles Supplementary dated April 3, 1998 (13)
(cc) Articles Supplementary dated May 6, 1999 (14)
(dd) Articles Supplementary dated November 18, 1999
(filed herewith) 79
2 Bylaws, as amended February 11, 1999 (13)
3 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)
(k) Intermediate-Term Bond Fund (15)
(l) High-Yield Opportunities Fund (15)
(m) Small Cap Stock Fund (15)
C-12
<PAGE>
EXHIBIT ITEM PAGE NO.*
- ------- ---- ---------
4 (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 Science & Technology Fund and First Start
Growth Fund (9)
(h) Letter Agreement to the Advisory Agreement dated August 2,
1999 adding Intermediate-Term Bond Fund, High-Yield
Opportunities Fund, and Small Cap Stock Fund (15)
5 (a) Underwriting Agreement dated July 25, 1990 (1)
(b) Letter Agreement to the Underwriting Agreement dated June 1,
1993 adding Growth & Income Fund and Short-Term Bond Fund
(1)
(c) Letter Agreement to the Underwriting Agreement dated May 1,
1996 adding S&P 500 Index Fund (5)
(d) Letter Agreement to the Underwriting Agreement dated August 1,
1997 adding Science & Technology Fund and First Start
Growth Fund (9)
(e) Letter Agreement to the Underwriting Agreement dated August 2,
1999 adding Intermediate-Term Bond Fund, High-Yield
Opportunities Fund, and Small Cap Stock Fund (15)
6 Not Applicable
7 (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)
C-13
<PAGE>
EXHIBIT ITEM PAGE NO.*
- ------- ---- ---------
(n) Letter Agreement to the Custodian Agreement dated August 2,
1999 with respect to the Intermediate-Term Bond Fund,
High-Yield Opportunities Fund, and Small Cap Stock Fund (15)
8 (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 January 1, 1999 to the Transfer Agency
Agreement Fee Schedules for Growth Fund, Aggressive Growth
Fund, Income Fund, Growth & Income Fund, Income Stock Fund,
Money Market Fund, Short-Term Bond Fund, Science & Technology
Fund, and First Start Growth Fund (15)
(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, 19996 adding S&P 500 Index Fund (5)
(h) Transfer Agency Agreement Fee Schedule dated May 1,
2000 for S&P 500 Index Fund (filed herewith) 83
(i) Master Revolving Credit Facility Agreement with
USAA Capital Corporation dated January 11,
2000 ($500,000,000) (filed herewith) 85
(j) Master Revolving Credit Facility Agreement with
Bank of America dated January 12, 2000 (filed herewith) 109
(k) Letter Agreement to Transfer Agency Agreement dated
August 1, 1997 adding Science & Technology Fund and
First Start Growth Fund (9)
(l) Master Revolving Credit Facility Agreement with
USAA Capital Corporation dated January 11,
2000 ($250,000,000) (filed herewith) 139
(m) Letter Agreement to Transfer Agency Agreement dated
August 2, 1999 adding Intermediate-Term Bond Fund,
High-Yield Opportunities Fund and Small Cap Stock Fund (15)
(n) Transfer Agency Agreement Fee Schedule for
Intermediate-Term Bond Fund (15)
(o) Transfer Agency Agreement Fee Schedule for
High-Yield Opportunities Fund (15)
(p) Transfer Agency Agreement Fee Schedule for
Small Cap Stock Fund (15)
9 (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 and Consent of Counsel with respect to the
S&P 500 Index Fund (filed herewith) 163
(c) Opinion of Counsel with respect to the Aggressive
Growth Fund (6)
(d) Consent of Counsel with respect to the Aggressive Growth
Fund, Growth Fund, Growth & Income Fund, Income Stock Fund,
Income Fund, Short-Term Bond Fund, Money Market Fund,
Science & Technology Fund, and First Start Growth Fund (15)
C-14
<PAGE>
EXHIBIT ITEM PAGE NO.*
- ------- ---- ---------
(e) Opinion of Counsel with respect to the Science & Technology
Fund and First Start Growth Fund (8)
(f) Opinion of Counsel with respect to the Intermediate-Term
Bond Fund, High-Yield Opportunities Fund, and Small Cap
Stock Fund (14)
10 Independent Accountants' Consent 165
11 Omitted financial statements - Not Applicable
12 SUBSCRIPTIONS AND INVESTMENT LETTERS
(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)
(d) Subscription and Investment Letter for the
Intermediate-Term Bond Fund, High-Yield Opportunities
Fund, and Small Cap Stock Fund (15)
13 12b-1 Plans - Not Applicable
14 18f-3 Plans - Not Applicable
15 Plan Adopting Multiple Classes of Shares - Not Applicable
16 CODE OF ETHICS
(a) USAA Investment Management Company 167
(b) Bankers Trust Company 179
17 POWERS OF ATTORNEY
(a) Powers of Attorney for Robert G. Davis, Sherron A. Kirk,
David G. Peebles, Robert L. Mason, Richard A. Zucker,
Barbara B. Dreeben, and Michael F. Reimherr dated April 18,
2000 and Michael J.C. Roth dated April 22, 2000
(filed herewith) 193
(b) With respect to the S&P 500 Index Fund, Powers of Attorney
for John Y. Keffer, Charles A. Rizzo, Charles P. Biggar, S.
Leland Dill, Richard T. Hale, Richard J. Herring, Bruce E.
Langton, Martin J. Gruber, Philip Saunders, Jr., and Harry
Van Benscoten, Trustees of the Equity 500 Index Portfolio,
dated September 8, 1999 (filed herewith) 201
(c) Power of Attorney for Robert G. Davis 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.
C-15
<PAGE>
(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.
(10) Previously filed with Post-Effective Amendment No. 47 of the Registrant
(No. 2-49560) filed with the Securities and Exchange Commission on
February 26, 1998.
(11) Previously filed with Post-Effective Amendment No. 48 of the Registrant
(No. 2-49560) filed with the Securities and Exchange Commission on
February 27, 1998.
(12) Previously filed with Post-Effective Amendment No. 49 of the Registrant
(No. 2-49560) filed with the Securities and Exchange Commission on
September 30, 1998.
(13) Previously filed with Post-Effective Amendment No. 50 of the Registrant
(No. 2-49560) filed with the Securities and Exchange Commission on
February 26, 1999.
(14) Previously filed with Post-Effective Amendment No. 51 of the Registrant
(No. 2-49560) filed with the Securities and Exchange Commission on
May 14, 1999.
C-16
<PAGE>
(15) Previously filed with Post-Effective Amendment No. 52 of the Registrant
(No. 2-49560) filed with the Securities and Exchange Commission on
November 30, 1999.
- -------------------------------------
* Refers to sequentially numbered pages
C-17
EXHIBIT 1 (dd)
<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 20,000,000,000 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
200,000,000 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 20,000,000,000 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 150,000,000 shares
of the Growth Fund, 55,000,000 shares of the Aggressive Growth Fund,
250,000,000 shares of the Income Stock Fund, 270,000,000 shares of the
Income Fund, 4,700,000,000 shares of the Money Market Fund, 250,000,000 shares
of the Federal Securities Money Market Fund, 120,000,000 shares of the
Short-Term Bond Fund, 110,000,000 shares of the Growth & Income Fund and
175,000,000 shares of the S&P 500 Index Fund, 105,000,000 shares of the
Science & Technology Fund, 95,000,000 shares of the First Start Growth Fund,
100,000,000 shares of the Intermediate-Term Bond Fund, 100,000,000 shares of
the High-Yield Opportunities Fund and 100,000,000 shares of the Small Cap Stock
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 150,000,000 shares of
the Growth Fund, 55,000,000 shares of the Aggressive Growth Fund, 250,000,000
shares of the Income Stock Fund, 270,000,000 shares of the Income Fund,
4,700,000,000 shares of the Money Market Fund, 250,000,000 shares of the Federal
Securities Money Market Fund, 120,000,000 shares of the Short-Term Bond
Fund, 110,000,000 shares of the Growth & Income Fund and 75,000,000 shares of
the S&P 500 Index Fund, 105,000,000 shares of the Science & Technology Fund,
95,000,000 shares of the First Start Growth Fund, 100,000,000 shares of the
Intermediate-Term Bond Fund, 100,000,000 shares of the High-Yield Opportunities
Fund and 100,000,000 shares of the Small Cap Stock 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 $200,000,000.
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 18, 1999.
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
Exhibit 8(h)
<PAGE>
USAA Transfer Agency Company
Fee Information for Services as
Plan, Transfer and Dividend Disbursing Agent
USAA MUTUAL FUND, INC.
S&P 500 Index Fund
- -------------------------------------------------------------------------------
GENERAL - Fees are based on an annual per shareholder account charge for
account maintenance plus out-of-pocket expenses. There is a minimum charge of
$2,000 per month applicable to the entire fund complex.
ANNUAL MAINTENANCE CHARGES - The annual maintenance charge includes the
processing of all transactions and correspondence. The fee is billable on a
monthly basis at the rate of 1/12 of the annual fee. USAA Transfer Agency
Company will charge for each open account from the month the account is opened
through January of the year following the year all funds are redeemed from the
account.
S&P 500 Index Fund - charge per account $20.00
In addition, nothing herein shall preclude USAA Transfer Agency Company from
charging investors up to $10 per annum.
USAA MUTUAL FUND, INC. USAA TRANSFER AGENCY COMPANY
S&P 500 Index Fund
By: /s/ Michael J. C. Roth By: /s/ Sherron Kirk
---------------------- ------------------
Michael J. C. Roth Sherron Kirk
President Vice President
Date: 4-27-00 Date: May 1, 2000
<PAGE>
Exhibit 8(i)
<PAGE>
January 11, 2000
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 11, 2000 and ending January 10, 2001 (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 12, 1999, 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,
Five Hundred Million Dollars ($500,000,000). 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
90655
<PAGE>
prospectus in effect at the time of such Loan. Portfolio securities may not be
purchased by a Fund while there is a Loan outstanding under the Facility or any
other facility, if the aggregate amount of such Loan and any other such loan
exceeds 5% of the total assets of such Fund.
3. BORROWING RATE AND MATURITY OF LOANS. CAPCO may make Loans to a
Borrower and the principal amount of the Loans outstanding from time to time
shall bear interest at a rate per annum equal to the rate at which CAPCO
obtains funding in the capital markets. 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, 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
2
90655
<PAGE>
Loans then outstanding (together with accrued interest thereon and any other
amounts owing hereunder) shall be due and payable on such date.
8. UNCOMMITTED FACILITY. The Borrowers acknowledge that the Facility
is an uncommitted facility and that CAPCO shall have no obligation to make any
Loan requested during the Facility Period under this Agreement. Further, CAPCO
shall not make any Loan if this Facility has been terminated by the Borrowers,
or if at the time of a request for a Loan by a Borrower (on behalf of the
applicable Fund(s)) there exists any Event of Default or condition which, with
the passage of time or giving of notice, or both, would constitute or become an
Event of Default with respect to such Borrower (or such applicable Fund(s)).
9. LOAN REQUESTS. Each request for a Loan (each a "Borrowing Notice")
shall be in writing by the applicable Borrower(s), except that such Borrower(s)
may make an oral request (each an "Oral Request") provided that each Oral
Request shall be followed by a written Borrowing Notice within one business
day. Each Borrowing Notice shall specify the following terms ("Terms") of the
requested Loan: (i) the date on which such Loan is to be disbursed, (ii) the
principal amount of such Loan, (iii) the Borrower(s) which are borrowing such
Loan and the amount of such Loan to be borrowed by each Borrower, (iv) the
Funds for whose benefit the loan is being borrowed and the amount of the Loan
which is for the benefit of each such Fund, and (v) the requested maturity date
of the Loan. Each Borrowing Notice shall also set forth the total assets of
each Fund for whose benefit a portion of the Loan is being borrowed as of the
close of business on the day immediately preceding the date of such Borrowing
Notice. Borrowing notices shall be delivered to CAPCO by 9:00 a.m. San Antonio
time on the day the Loan is requested to be made.
Each Borrowing Notice shall constitute a representation to CAPCO by the
applicable Borrower(s) that all of the representations and warranties in
Section 12 hereof are true and correct as of such date and that no Event of
Default or other condition which with the passage of time or giving of notice,
or both, would result in an Event of Default, has occurred or is occurring.
10. CONFIRMATIONS; CREDITING OF FUNDS; RELIANCE BY CAPCO. Upon receipt
by CAPCO of a Borrowing Notice:
(a) CAPCO shall provide each applicable Borrower written
confirmation of the Terms of such Loan via facsimile or telecopy, as soon as
reasonably practicable; provided, however, that the failure to do so shall not
affect the obligation of any such Borrower;
(b) CAPCO shall make such Loan in accordance with the Terms
by transfer of the Loan amount in immediately available funds, to the account
of the applicable Borrower(s) as specified in EXHIBIT B to this Agreement or as
such Borrower(s) shall otherwise specify to CAPCO in a writing signed by an
Authorized Individual (as defined in Section 11) of such Borrower(s); and
3
90655
<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
4
90655
<PAGE>
material fact or omit to state any material fact necessary to make the
statements contained herein or therein in light of the circumstances when made
not misleading;
(c) AUTHORIZATION; COMPLIANCE WITH OTHER INSTRUMENTS. The
execution, delivery and performance of this Agreement and the Note, and
borrowings hereunder, have been duly authorized by all necessary corporate or
trust action of the Borrower and will not result in any violation of or be in
conflict with or constitute a default under any term of the charter, by-laws or
trust agreement of such Borrower or the applicable Funds, or of any borrowing
restrictions or prospectus or statement of additional information of such
Borrower or the applicable Funds, or of any agreement, instrument, judgment,
decree, order, statute, rule or governmental regulation applicable to such
Borrower, or result in the creation of any mortgage, lien, charge or
encumbrance upon any of the properties or assets of such Borrower or the
applicable Funds pursuant to any such term. The Borrower and the applicable
Funds are not in violation of any term of their respective charter, by-laws or
trust agreement, and such Borrower and the applicable Funds are not in
violation of any material term of any agreement or instrument to which they are
a party, or to the best of such Borrower's knowledge, of any judgment, decree,
order, statute, rule or governmental regulation applicable to them;
(d) SEC COMPLIANCE. The Borrower and the applicable Funds are
in compliance in all material respects with all federal and state securities or
similar laws and regulations, including all material rules, regulations and
administrative orders of the Securities and Exchange Commission (the "SEC") and
applicable Blue Sky authorities. The Borrower and the applicable Funds are in
compliance in all material respects with all of the provisions of the
Investment Company Act of 1940, and such Borrower has filed all reports with
the SEC that are required of it or the applicable Funds;
(e) LITIGATION. There is no action, suit or proceeding
pending or, to the best of the Borrower's knowledge, threatened against such
Borrower or the applicable Funds in any court or before any arbitrator or
governmental body which seeks to restrain any of the transactions contemplated
by this Agreement or which, if adversely determined, could have a material
adverse effect on the assets or business operations of such Borrower or the
applicable Funds or the ability of such Borrower and the applicable Funds to
pay and perform their obligations hereunder and under the Notes;
(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; and
(G) YEAR 2000 PREPAREDNESS. Each Borrower has (i) initiated a
review and assessment of all areas within its business and operations
(including those affected by suppliers, vendors and customers) that could be
adversely affected by the "Year 2000 Problem" (that is, the risk that computer
applications used by such Borrower may be unable to recognize and perform
5
90655
<PAGE>
properly date-sensitive functions involving certain dates prior to and any date
after December 31, 1999), (ii) developed a plan and timeline for addressing the
Year 2000 Problem on a timely basis, and (iii) to date, implemented that plan
in accordance with that timetable. Based on the foregoing, such Borrower
reasonably believes that all computer applications that are material to its
business and operations are reasonably expected on a timely basis to be able to
perform properly date-sensitive functions for all dates before and after
January 1, 2000 (that is, be "Year 2000 compliant"), except to the extent that
a failure to do so could not reasonably be expected to 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 Note.
13. AFFIRMATIVE COVENANTS OF THE BORROWERS. Until such time as all
amounts of principal and interest due to CAPCO by a Borrower pursuant to any
Loan made to such Borrower is irrevocably paid in full, and until the Facility
is terminated, such Borrower (for itself and on behalf of its respective Funds)
agrees:
(a) To deliver to CAPCO as soon as possible and in any event
within ninety (90) days after the end of each fiscal year of such Borrower and
the applicable Funds, Statements of Assets and Liabilities, Statements of
Operations and Statements of Changes in Net Assets of each applicable Fund for
such fiscal year, as set forth in each applicable Fund's Annual Report to
shareholders together with a calculation of the maximum amount which each
applicable Fund could borrow under its Borrowing Limit as of the end of such
fiscal year;
(b) To deliver to CAPCO as soon as available and in any event
within seventy-five (75) days after the end of each semiannual period of such
Borrower and the applicable Funds, Statements of Assets and Liabilities,
Statement of Operations and Statements of Changes in Net Assets of each
applicable Fund as of the end of such semiannual period, as set forth in each
applicable 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;
6
90655
<PAGE>
(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;
(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; and
(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.
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 Bank of America, the Two Hundred Fifty Million
Dollar ($250,000,000) committed Master Revolving Credit Facility with CAPCO 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):
7
90655
<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 any Facility Fee at a date fixed for the payment thereof;
(b) Any Borrower or Fund shall default in the performance of
or compliance with any term contained in Section 13 hereof and such default
shall not have been remedied within thirty (30) days after written notice
thereof shall have been given such Borrower or Fund by CAPCO;
(c) Any Borrower or Fund shall default in the performance of
or compliance with any term contained in Section 14 hereof;
(d) Any Borrower or Fund shall default in the performance or
compliance with any other term contained herein and such default shall not have
been remedied within thirty (30) days after written notice thereof shall have
been given such Borrower or Fund by CAPCO;
(e) Any representation or warranty made by a Borrower or Fund
herein or pursuant hereto shall prove to have been false or incorrect in any
material respect when made;
(f) 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
8
90655
<PAGE>
(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.
9
90655
<PAGE>
21. BENEFIT OF AGREEMENT. This Agreement and the Note shall be binding
upon and inure for the benefit of and be enforceable by the respective
successors and assigns of the parties hereto; provided that no party to this
Agreement or the Note may assign any of its rights hereunder or thereunder
without the prior written consent of the other parties.
22. NOTICES. All notices hereunder and all written, facsimile or
telecopied confirmations of Oral Requests made hereunder shall be sent to the
Borrowers as indicated on EXHIBIT B and to CAPCO as indicated on EXHIBIT C.
23. MODIFICATIONS. No provision of this Agreement or the Note may be
waived, modified or discharged except by mutual written agreement of all
parties. THIS WRITTEN LOAN AGREEMENT AND THE NOTE REPRESENT THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN AGREEMENTS BETWEEN THE PARTIES.
24. GOVERNING LAW AND JURISDICTION. This Agreement shall be governed
by and construed in accordance with the laws of the state of Texas without
regard to the choice of law provisions thereof.
25. TRUST DISCLAIMER. Neither the shareholders, trustees, officers,
employees and other agents of any Borrower or Fund shall be personally bound by
or liable for any indebtedness, liability or obligation hereunder or under the
Note nor shall resort be had to their private property for the satisfaction of
any obligation or claim hereunder.
If this letter correctly reflects your agreement with us, please execute both
copies hereof and return one to us, whereupon this Agreement shall be binding
upon the Borrowers, the Funds and CAPCO.
Sincerely,
USAA CAPITAL CORPORATION
By: /S/ EDWIN T. MCQUISTON
----------------------
Edwin T. McQuiston
Vice President-Treasurer
10
90655
<PAGE>
AGREED AND ACCEPTED this 11th
Day of January, 2000.
USAA MUTUAL FUND, INC.,
on behalf of and for the benefit
of its series of Funds as set forth
on Schedule A to this Agreement
By: /S/ MICHAEL J. C. ROTH
----------------------
Michael J.C. Roth
President
USAA INVESTMENT TRUST,
on behalf of and for the benefit
of its series of Funds as set forth
on Schedule A to this Agreement
By: /S/ MICHAEL J. C. ROTH
----------------------
Michael J.C. Roth
President
USAA TAX EXEMPT FUND, INC.,
on behalf of and for the benefit
of its series of Funds as set forth
on Schedule A to this Agreement
By: /S/ MICHAEL J. C. ROTH
=----------------------
Michael J.C. Roth
President
USAA STATE TAX-FREE TRUST,
on behalf of and for the benefit
of its series of Funds as set forth
on Schedule A to this Agreement
By: /S/ MICHAEL J. C. ROTH
---------------------
Michael J.C. Roth
President
11
90655
<PAGE>
SCHEDULE A
FUNDS FOR WHOSE BENEFIT LOANS CAN
BE BORROWED UNDER FACILITY AGREEMENT
BORROWER FUNDS BORROWING LIMIT (Maximum
percent of total assets
which can be borrowed
under Facility and the
committed facility with
CAPCO)
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 High Yield Opportunities "
USAA Intermediate-Term Bond "
USAA Small Cap Stock Fund "
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 "
<PAGE>
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. $500,000,000 Dated: January 11, 2000
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 11, 2000 (as amended or modified, the "Agreement"), among
the Borrowers and CAPCO, together with interest thereon at the rate or rates
set forth in the Agreement. All payments of interest and principal outstanding
shall be made in accordance with the terms of the Agreement.
This Note evidences Loans made pursuant to, and is entitled to the
benefits of, the Agreement. Terms not defined in this Note shall be as set
forth in the Agreement.
CAPCO is authorized to endorse the particulars of each Loan evidenced
hereby on the attached Schedule and to attach additional Schedules as
necessary, provided that the failure of CAPCO to do so or to do so accurately
shall not affect the obligations of any Borrower (or the Fund for whose benefit
it is borrowing) hereunder.
Each Borrower waives all claims to presentment, demand, protest, and
notice of dishonor. Each Borrower agrees to pay all reasonable costs of
collection, including reasonable attorney's fees in connection with the
enforcement of this Note.
CAPCO hereby agrees (i) that any claim, liability, or obligation
arising hereunder or under the Agreement whether on account of the principal of
any Loan, interest thereon, or any other amount due hereunder or thereunder
shall be satisfied only from the assets of the specific Fund for whose benefit
a Loan is borrowed and in any event in an amount not to exceed the outstanding
principal amount of any Loan borrowed for such Fund's benefit, together with
accrued and unpaid interest due and owing thereon, and such Fund's share of any
other amount due hereunder and under the Agreement (as determined in accordance
with the provisions of the Agreement) and (ii) that no assets of any Fund shall
be used to satisfy any claim, liability, or obligation arising hereunder or
under the Agreement with respect to the outstanding principal amount of any
Loan borrowed for the benefit of any other Fund or any accrued and unpaid
interest due and owing thereon or such other Fund's share of any other amount
due hereunder
<PAGE>
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 Bank of America, N.A. (Bank of America),
dated January 12, 2000, in the manner and to the extent set forth in the
Agreement among the Borrowers, CAPCO and Bank of America, dated January 12,
2000.
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
<PAGE>
LOANS AND PAYMENT OF PRINCIPAL
This schedule (grid) is attached to and made a part of the Promissory Note
dated January 11, 2000, 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: Kenneth E. Willmann
Senior Vice President,
Fixed Income Investments
Telephone: (210) 498-7320
Telecopy: (210) 498-4174
David G. Peebles
Senior Vice President,
Equity Investments
Telephone: (210) 498-7340
Telecopy: (210) 498-2954
ADDRESS FOR BORROWING AND PAYMENTS:
9800 Fredericksburg Road
San Antonio, Texas 78288
Attention: Caryl J. Swann
Telephone: (210) 498-7303
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 HIGH YIELD OPPORTUNITIES FUND ACCT.# 6938-576-3
- --------------------------------------------------------------
USAA INTERMEDIATE-TERM BOND FUND ACCT.# 6938-577-1
- --------------------------------------------------------------
USAA SMALL CAP STOCK FUND ACCT.# 6938-578-9
- --------------------------------------------------------------
USAA INVESTMENT TRUST
=====================
USAA CORNERSTONE STRATEGY FUND ACCT.# 6938-487-3
- --------------------------------------------------------------
USAA GOLD FUND ACCT.# 6938-488-1
- --------------------------------------------------------------
USAA INTERNATIONAL FUND ACCT.# 6938-497-2
- --------------------------------------------------------------
USAA WORLD GROWTH FUND ACCT.# 6938-504-5
- --------------------------------------------------------------
USAA GNMA TRUST ACCT.# 6938-486-5
- --------------------------------------------------------------
USAA TREASURY MONEY MARKET TRUST ACCT.# 6938-493-1
- --------------------------------------------------------------
<PAGE>
USAA EMERGING MARKETS FUND ACCT.# 6938-501-1
- --------------------------------------------------------------
USAA GROWTH AND TAX STRATEGY FUND ACCT.# 6938-509-4
- --------------------------------------------------------------
USAA BALANCED STRATEGY FUND ACCT.# 6938-507-8
- --------------------------------------------------------------
USAA GROWTH STRATEGY FUND ACCT.# 6938-510-2
- --------------------------------------------------------------
USAA INCOME STRATEGY FUND ACCT.# 6938-508-6
- --------------------------------------------------------------
USAA TAX EXEMPT FUND, INC.
==========================
LONG-TERM FUND ACCT.# 6938-492-3
- --------------------------------------------------------------
USAA INTERMEDIATE-TERM FUND ACCT.# 6938-496-4
- --------------------------------------------------------------
USAA SHORT-TERM FUND ACCT.# 6938-500-3
- --------------------------------------------------------------
USAA TAX EXEMPT MONEY MARKET FUND ACCT.# 6938-514-4
- --------------------------------------------------------------
USAA CALIFORNIA BOND FUND ACCT.# 6938-489-9
- --------------------------------------------------------------
USAA CALIFORNIA MONEY MARKET FUND ACCT.# 6938-491-5
- --------------------------------------------------------------
USAA NEW YORK BOND FUND ACCT.# 6938-503-7
- --------------------------------------------------------------
USAA NEW YORK MONEY MARKET FUND ACCT.# 6938-511-0
- --------------------------------------------------------------
USAA VIRGINIA BOND FUND ACCT.# 6938-512-8
- --------------------------------------------------------------
USAA VIRGINIA MONEY MARKET FUND ACCT.# 6938-513-6
- --------------------------------------------------------------
USAA STATE TAX-FREE TRUST
=========================
USAA FLORIDA TAX-FREE INCOME FUND ACCT.# 6938-473-3
- --------------------------------------------------------------
USAA FLORIDA TAX-FREE MONEY MARKET FUND ACCT.# 6938-467-5
- --------------------------------------------------------------
USAA TEXAS TAX-FREE INCOME FUND ACCT.# 6938-602-7
- --------------------------------------------------------------
USAA TEXAS TAX-FREE MONEY MARKET FUND ACCT.# 6938-601-9
- --------------------------------------------------------------
<PAGE>
EXHIBIT C
ADDRESS FOR USAA CAPITAL CORPORATION
USAA Capital Corporation
9800 Fredericksburg Road
San Antonio, Texas 78288
Attention: Edwin T. McQuiston
Telephone No.: (210) 498-2296
Telecopy No.: (210) 498-6566
<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
-----------------------
Kenneth E. Willmann Senior Vice President,
Fixed Income Investments /S/ KENNETH E. WILLMANN
-----------------------
David G. Peebles Senior Vice President,
Equity Investments /S/ DAVID G. PEEBLES
-----------------------
Clifford A. Gladson Vice President,
Mutual Fund Portfolios /S/ CLIFFORD A. GLADSON
-----------------------
Sherron A. Kirk Vice President,
Senior Financial Officer /S/ SHERRON A. KIRK
-----------------------
Caryl J. Swann Executive Director,
Mutual Fund Analysis
and Support /S/ CARYL J. SWANN
-----------------------
IN WITNESS WHEREOF, I have executed this Certificate as of this 11th day of
January, 2000.
/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 11, 2000 /S/ MICHAEL J. C. ROTH
-----------------------
MICHAEL J. C. ROTH
President
<PAGE>
Exhibit 8(j)
<PAGE>
January 12, 2000
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 Bank of
America, N.A., successor by merger to NationsBank, N.A. (the "Bank"), agrees to
make during the period commencing January 12, 2000 and ending January 11, 2001
(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 13, 1999, as heretofore amended or modified,
between the Borrowers and the Bank. The Bank and the Borrowers hereby agree as
follows:
1. AMOUNT. The aggregate principal amount of the Loans to be advanced
under this Facility shall not exceed, at any one time outstanding, One Hundred
Million United States Dollars (U.S. $100,000,000) (the "Commitment"). The
aggregate principal amount of the Loans which may be borrowed by a Borrower for
the benefit of a particular Fund under the Facility and the Other Facility
(hereinafter defined) shall not exceed the
<PAGE>
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 .50 of one percent (1%) (50 basis
points) or (ii) the aggregate of the London Interbank Offered Rate (as defined
below) plus 50 basis points. The rate of interest payable on such outstanding
amounts shall change on each date that the Federal Funds Rate shall change.
Interest on the Loans shall be calculated on the basis of a year of 360 days
and the actual days elapsed but shall not exceed the highest lawful rate. Each
Loan will be for an established number of days to be agreed upon by the
applicable Borrower(s) and the Bank and, in the absence of such agreement, will
mature on the earlier of three months after the date of such Loan or the last
day of the Facility Period. The term "Federal Funds Rate," as used herein,
shall mean the overnight rate for Federal funds transactions between member
banks of the Federal Reserve System, as published by the Federal Reserve Bank
of New York or, if not so published, as determined in good faith by the Bank in
accordance with its customary practices; and the term "London Interbank Offered
Rate," as used herein, shall mean the rate per annum (rounded upwards, if
necessary, to the
<PAGE>
nearest 1/100 of 1%) appearing on Telerate Page 3750 (or any successor page) as
the London interbank offered rate for deposits in Dollars 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 1.50 percent (150 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
<PAGE>
of the Facility (whether by acceleration or otherwise). If any Loan bearing
interest based on the London Interbank Offered Rate is repaid or prepaid other
than on the last day of an interest period applicable thereto, the Fund which
is the beneficiary of such Loan shall pay to the Bank promptly upon demand such
amount as the Bank determines in good faith is necessary to compensate the Bank
for any reasonable cost or expense incurred by the Bank as a result of such
repayment or prepayment in connection with the reemployment of funds in an
amount equal to such repayment or prepayment. Whenever the Bank seeks to assess
for any such cost or expense it will provide a certificate as the Borrower(s)
shall reasonably request.
5. FACILITY FEE. Beginning with the date of this Agreement and until
such time as all Loans have been irrevocably repaid to the Bank in full, and
the Bank is no longer obligated to make Loans, the Funds (to be allocated among
the Funds as the Borrowers deem appropriate) shall pay to the Bank a facility
fee (the "Facility Fee") in the amount of .09 of one percent (9 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,
2000, and upon termination of the Facility (whether by acceleration or
otherwise).
6. OPTIONAL TERMINATION OR REDUCTION OF COMMITMENT. The Borrowers shall
have the right upon at least three (3) business days prior written notice to
the Bank, to terminate or reduce the unused portion of the Commitment. Any such
reduction of the Commitment shall be in the amount of Five Million United
States Dollars (U.S. $5,000,000) or any larger integral multiple of One Million
United States Dollars (U.S. $1,000,000) (except that any reduction may be in
the aggregate amount of the unused Commitment). Accrued fees with respect to
the terminated Commitment shall be payable to the Bank on the effective date of
such termination.
7. MANDATORY TERMINATION OF COMMITMENT. The Commitment shall
automatically terminate on the last day of the Facility Period and any Loans
then outstanding (together with accrued interest thereon and any other amounts
owing hereunder) shall be due and payable on such date.
8. COMMITTED FACILITY. The Bank acknowledges that the Facility is a
committed facility and that the Bank shall be obligated to make any Loan
requested during the Facility Period under this Agreement, subject to the terms
and conditions hereof; provided, however, that the Bank shall not be
<PAGE>
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,
<PAGE>
the series of Funds comprising such Borrower the following representations and
warranties, which shall survive the execution and delivery hereof and of the
Note:
(a) ORGANIZATION, STANDING, ETC. The Borrower is a corporation
or trust duly organized, validly existing, and in good standing under
applicable state laws and has all requisite corporate or trust power and
authority to carry on its respective businesses as now conducted and
proposed to be conducted, to enter into this Agreement and all other
documents to be executed by it in connection with the transactions
contemplated hereby, to issue and borrow under the Note and to carry out
the terms hereof and thereof;
(b) FINANCIAL INFORMATION; DISCLOSURE, ETC. The Borrower has
furnished the Bank with certain financial statements of such Borrower
with respect to itself and the applicable Funds, all of which such
financial statements have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis and fairly
present the financial position and results of operations of such
Borrower and the applicable Funds on the dates and for the periods
indicated. Neither this Agreement nor any financial statements, reports
or other documents or certificates furnished to the Bank by such
Borrower or the applicable Funds in connection with the transactions
contemplated hereby contain any untrue statement of a material fact or
omit to state any material fact necessary to make the statements
contained herein or therein in light of the circumstances when made not
misleading;
(c) AUTHORIZATION; COMPLIANCE WITH OTHER INSTRUMENTS. The
execution, delivery and performance of this Agreement and the Note, and
borrowings hereunder, have been duly authorized by all necessary
corporate or trust action of the Borrower and will not result in any
violation of or be in conflict with or constitute a default under any
term of the charter, by-laws or trust agreement of such Borrower or the
applicable Funds, or of any borrowing restrictions or prospectus or
statement of additional information of such Borrower or the applicable
Funds, or of any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation applicable to such Borrower, or
result in the creation of any mortgage, lien, charge or encumbrance upon
any of the properties or assets of such Borrower or the applicable Funds
pursuant to any such term. The Borrower and the applicable Funds are
<PAGE>
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;
(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; and
(g) YEAR 2000 PREPAREDNESS. The Borrower has (i) initiated a
review and assessment of all areas within its business and operations
(including those affected by suppliers, vendors and customers) that
could be adversely affected by the "Year 2000 Problem" (that is, the
risk that computer applications used by such Borrower may be unable to
recognize and perform properly date-sensitive functions involving
certain dates prior to and any date after December 31, 1999), (ii)
developed a plan and timeline for addressing
<PAGE>
the Year 2000 Problem on a timely basis, and (iii) to date, implemented
that plan in accordance with that timetable. Based on the foregoing,
such Borrower reasonably believes that all computer applications that
are material to its business and operations are reasonably expected on a
timely basis to be able to perform properly date-sensitive functions for
all dates before and after January 1, 2000 (that is, be "Year 2000
compliant"), except to the extent that a failure to do so could not
reasonably be expected to 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.
13. AFFIRMATIVE COVENANTS OF THE BORROWERS. Until such time as all
amounts of principal and interest due to the Bank by a Borrower pursuant to any
Loan made to such Borrower is irrevocably paid in full, and until the Bank is
no longer obligated to make Loans to such Borrower, such Borrower (for itself
and on behalf of its respective Funds) agrees:
(a) To deliver to the Bank as soon as possible and in any event
within ninety (90) days after the end of each fiscal year of such
Borrower and the applicable Funds, Statements of Assets and Liabilities,
Statements of Operations and Statements of Changes in Net Assets of each
applicable Fund for such fiscal year, as set forth in each applicable
Fund's Annual Report to shareholders together with a calculation of the
maximum amount which each applicable Fund could borrow under its
Borrowing Limit as of the end of such fiscal year;
(b) To deliver to the Bank as soon as available and in any
event within seventy-five (75) days after the end of each semiannual
period of such Borrower and the applicable Funds, Statements of Assets
and Liabilities, Statements of Operations and Statements of Changes in
Net Assets of each applicable Fund as of the end of such semiannual
period, as set forth in each applicable Fund's Semiannual Report to
shareholders, together with a calculation of the maximum amount which
each applicable Fund could borrow under its Borrowing Limit at the end
of such semiannual period;
(c) To deliver to the Bank prompt notice of the occurrence of
any event or condition which constitutes, or is likely to result in, a
<PAGE>
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 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:
<PAGE>
(a) Not to incur any indebtedness for borrowed money (other
than pursuant to a $750,000,000 uncommitted master revolving credit
facility with USAA Capital Corporation (the "Other Facility") and
overdrafts incurred at the custodian of the Funds from time to time in
the ordinary course of business) except the Loans, without the prior
written consent of the Bank, which consent will not be unreasonably
withheld; and
(b) Not to dissolve or terminate its existence, or merge or
consolidate with any other person or entity, or sell all or
substantially all of its assets in a single transaction or series of
related transactions (other than assets consisting of margin stock),
each without the prior written consent of the Bank, which consent will
not be unreasonably withheld; provided that a Borrower may without such
consent merge, consolidate with, or purchase substantially all of the
assets of, or sell substantially all of its assets to, an affiliated
investment company or series thereof, as provided for in Rule 17a-8 of
the Investment Company Act of 1940.
15. EVENTS OF DEFAULT. If any of the following events (each an "Event of
Default") shall occur (it being understood that an Event of Default with
respect to one Fund or Borrower shall not constitute an Event of Default with
respect to any other Fund or Borrower):
(a) Any Borrower or Fund shall default in the payment of
principal or interest on any Loan or any other fee due hereunder for a
period of five (5) days after the same becomes due and payable, whether
at maturity or with respect to the Facility Fee at a date fixed for the
payment thereof;
(b) Any Borrower or Fund shall default in the performance of or
compliance with any term contained in Section 13 hereof and such default
shall not have been remedied within thirty (30) days after written
notice thereof shall have been given such Borrower or Fund by the Bank;
(c) Any Borrower or Fund shall default in the performance of
or compliance with any term contained in Section 14 hereof;
<PAGE>
(d) Any Borrower or Fund shall default in the performance or
compliance with any other term contained herein and such default shall
not have been remedied within thirty (30) days after written notice
thereof shall have been given such Borrower or Fund by the Bank;
(e) Any representation or warranty made by a Borrower or Fund
herein or pursuant hereto shall prove to have been false or incorrect in
any material respect when made;
(f) USAA Investment Management Company or any successor manager
or investment adviser, provided that such successor is a wholly-owned
subsidiary of USAA Capital Corporation, shall cease to be the Manager
and investment advisor of each Fund; or
(g) An event of default shall occur and be continuing under the
Other Facility;
then, in any event, and at any time thereafter, if any Event of Default shall
be continuing, the Bank may by written notice to the applicable Borrower or
Fund (i) terminate its commitment to make any Loan hereunder, whereupon said
commitment shall forthwith terminate without any other notice of any kind with
respect to such Borrower or Fund and (ii) declare the principal and interest in
respect of any outstanding Loans with respect to such Borrower or Fund, and all
other amounts due hereunder with respect to such Borrower or Fund, to be
immediately due and payable whereupon the principal and interest in respect
thereof and all other amounts due hereunder shall become forthwith due and
payable without presentment, demand, protest or other notice of any kind, all
of which are expressly waived by the Borrowers.
16. NEW BORROWERS; NEW FUNDS. So long as no Event of Default or
condition which, with the passage of time or the giving of notice, or both,
would constitute or become an Event of Default has occurred and is continuing,
and with the prior consent of the Bank, which consent will not be unreasonably
withheld:
(a) Any investment company that becomes part of the same "group
of investment companies" (as that term is defined in Rule 11a-3 under
the Investment Company Act of 1940) as the original Borrowers to this
Agreement, may, by submitting an amended Schedule A and Exhibit B to
this Agreement to the Bank (which amended Schedule A
<PAGE>
and Exhibit B shall replace the Schedule A and Exhibit B which are then
a part of this Agreement) and such other documents as the Bank may
reasonably request, become a party to this Agreement and may become a
"Borrower" hereunder; and
(b) A Borrower may, by submitting an amended Schedule A and
Exhibit B to this Agreement to the Bank (which amended Schedule A and
Exhibit B shall replace the Schedule A and Exhibit B which are then a
part of this Agreement), add additional Funds for whose benefit such
Borrower may borrow Loans. No such amendment of Schedule A to this
Agreement shall amend the Borrowing Limit applicable to any Fund without
the prior consent of the Bank.
17. LIMITED RECOURSE. The Bank agrees (i) that any claim, liability, or
obligation arising hereunder or under the Note whether on account of the
principal of any Loan, interest thereon, or any other amount due hereunder or
thereunder shall be satisfied only from the assets of the specific Fund for
whose benefit a Loan is borrowed and in any event in an amount not to exceed
the outstanding principal amount of any Loan borrowed for such Fund's benefit,
together with accrued and unpaid interest due and owing thereon, and such
Fund's share of any other amount due hereunder and under the Note (as
determined in accordance with the provisions hereof) and (ii) that no assets of
any Fund shall be used to satisfy any claim, liability, or obligation arising
hereunder or under the Note with respect to the outstanding principal amount of
any Loan borrowed for the benefit of any other Fund or any accrued and unpaid
interest due and owing thereon or such other Fund's share of any other amount
due hereunder and under the Note (as determined in accordance with the
provisions hereof).
18. REMEDIES ON DEFAULT. In case any one or more Events of Default shall
occur and be continuing, the Bank may proceed to protect and enforce its rights
by an action at law, suit in equity or other appropriate proceedings, against
the applicable Borrower(s) and/or Fund(s), as the case may be. In the case of a
default in the payment of any principal or interest on any Loan or in the
payment of any fee due hereunder, the relevant Fund(s) (to be allocated among
such Funds as the Borrowers deem appropriate) shall pay to the Bank such
further amount as shall be sufficient to cover the cost and expense of
collection, including, without limitation, reasonable attorney's fees and
expenses.
<PAGE>
19. NO WAIVER OF REMEDIES. No course of dealing or failure or delay on
the part of the Bank in exercising any right or remedy hereunder or under the
Note shall constitute a waiver of any right or remedy hereunder or under the
Note, nor shall any partial exercise of any right or remedy hereunder or under
the Note preclude any further exercise thereof or the exercise of any other
right or remedy hereunder or under the Note. Such rights and remedies expressly
provided are cumulative and not exclusive of any rights or remedies which the
Bank would otherwise have.
20. EXPENSES. The Fund(s) (to be allocated among the Funds as the
Borrowers deem appropriate) shall pay on demand all reasonable out-of-pocket
costs and expenses (including reasonable attorney's fees and expenses) incurred
by the Bank in connection with the collection and any other enforcement
proceedings of or regarding this Agreement, any Loan or the Note.
21. BENEFIT OF AGREEMENT. This Agreement and the Note shall be binding
upon and inure for the benefit of and be enforceable by the respective
successors and assigns of the parties hereto; provided that no party to this
Agreement or the Note may assign any of its rights hereunder or thereunder
without the prior written consent of the other parties. The Bank may not sell
participations and subparticipations in all or any part of the Loans made
hereunder without the prior consent of the Borrowers, which consent shall not
be unreasonably withheld.
22. NOTICES. All notices hereunder and all written, facsimiled or
telecopied confirmations of Oral Requests made hereunder shall be sent to
the Borrowers as indicated on EXHIBIT B and to the Bank as indicated on EXHIBIT
C. Written communications shall be deemed to have been duly given and made as
follows: If sent by mail, seventy-two (72) hours after deposit in the mail with
first-class postage prepaid, addressed as provided in EXHIBIT B (the Borrowers)
and EXHIBIT C (the Bank); and in the case of facsimile or telecopy, when the
facsimile or telecopy is received if on a business day or otherwise on the next
business day.
23. MODIFICATIONS. No provision of this Agreement or the Note may be
waived, modified or discharged except by mutual written agreement of all
parties. THIS WRITTEN LOAN AGREEMENT AND THE NOTE REPRESENT THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
<PAGE>
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN AGREEMENTS BETWEEN THE PARTIES.
24. INCREASED COST AND REDUCED RETURN. If at any time after the date
hereof, the Bank (which shall include, for purposes of this Section, any
corporation controlling the Bank) determines that the adoption or modification
of any applicable law regarding the Bank's required levels of reserves, other
than the reserve requirement taken into account when computing the London
Interbank Offered Rate as provided in Section 3, or capital (including any
allocation of capital requirements or conditions), or similar requirements, or
any interpretation or administration thereof by a governmental body or
compliance by the Bank with any of such requirements, has or would have the
effect of (a) increasing the Bank's costs relating to the Loans, or (b)
reducing the yield or rate of return of the Bank on the Loans, to a level below
that which the Bank could have achieved but for the adoption or modification of
any such requirements, the Funds (to be allocated among the Funds as the
Borrowers deem appropriate) shall, within fifteen (15) days of any request by
the Bank, pay to the Bank such additional amounts as (in the Bank's sole
judgment, after good faith and reasonable computation) will compensate the Bank
for such increase in costs or reduction in yield or rate of return of the Bank.
Whenever the Bank shall seek compensation for any increase in costs or
reduction in yield or rate of return, the Bank shall provide a certificate as
the Borrower(s) shall reasonably request. Failure by the Bank to demand payment
within 90 days of any additional amounts payable hereunder shall constitute a
waiver of the Bank's right to demand payment of such amounts at any subsequent
time. Nothing herein contained shall be construed or so operate as to require
the Borrowers or the Funds to pay any interest, fees, costs or charges greater
than is permitted by applicable law.
25. GOVERNING LAW AND JURISDICTION. This Agreement shall be governed by
and construed in accordance with the laws of the state of Texas without regard
to the choice of law provisions thereof.
26. TRUST DISCLAIMER. Neither the shareholders, trustees, officers,
employees and other agents of any Borrower or Fund shall be personally bound by
or liable for any indebtedness, liability or obligation hereunder or under the
Note nor shall resort be had to their private property for the satisfaction of
any obligation or claim hereunder.
<PAGE>
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,
BANK OF AMERICA, N.A.
By: /S/ JOAN L. D'AMICO
-------------------
Title: PRINCIPAL
-------------
AGREED AND ACCEPTED:
USAA MUTUAL FUND, INC.,
on behalf of and for the benefit
of its series of Funds as set forth
on Schedule A to this Agreement
By: /S/ MICHAEL J.C. ROTH
----------------------
Michael J.C. Roth
President
USAA INVESTMENT TRUST,
on behalf of and for the benefit
of its series of Funds as set forth
on Schedule A to this Agreement
By: /S/ MICHAEL J.C. ROTH
----------------------
Michael J.C. Roth
President
<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
<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 High Yield Opportunities 25
USAA Intermediate-Term Bond 25
USAA Small Cap Stock 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
<PAGE>
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 12, 2000
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 BANK OF AMERICA, 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 12, 2000 (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 12, 2000, 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 BANK OF AMERICA, 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
BANK OF AMERICA, 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: Kenneth E. Willmann
Senior Vice President,
Fixed Income Investments
Telephone: (210) 498-7320
Telecopy: (210) 498-4174
David G. Peebles
Senior Vice President,
Equity Investments
Telephone: (210) 498-7340
Telecopy: (210) 498-2954
ADDRESS FOR BORROWING AND PAYMENTS:
9800 Fredericksburg Road
San Antonio, Texas 78288 (for Federal Express, 78240)
Attention: Caryl J. Swann
Telephone: (210) 498-7303
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 HIGH YIELD OPPORTUNITIES FUND ACCT.# 6938-576-3
- --------------------------------------------------------------
USAA INTERMEDIATE-TERM BOND FUND ACCT.# 6938-577-1
- --------------------------------------------------------------
USAA SMALL CAP STOCK FUND ACCT.#-6938-578-9
- --------------------------------------------------------------
USAA INVESTMENT TRUST
=====================
USAA CORNERSTONE STRATEGY FUND ACCT.# 6938-487-3
- --------------------------------------------------------------
USAA GOLD FUND ACCT.# 6938-488-1
- --------------------------------------------------------------
USAA INTERNATIONAL FUND ACCT.# 6938-497-2
- --------------------------------------------------------------
USAA WORLD GROWTH FUND ACCT.# 6938-504-5
- --------------------------------------------------------------
USAA GNMA TRUST ACCT.# 6938-486-5
- --------------------------------------------------------------
<PAGE>
USAA TREASURY MONEY MARKET TRUST ACCT.# 6938-493-1
- --------------------------------------------------------------
USAA EMERGING MARKETS FUND ACCT.# 6938-501-1
- --------------------------------------------------------------
USAA GROWTH AND TAX STRATEGY FUND ACCT.# 6938-509-4
- --------------------------------------------------------------
USAA GROWTH STRATEGY FUND ACCT.# 6938-510-2
- --------------------------------------------------------------
USAA INCOME STRATEGY FUND ACCT.# 6938-508-6
- --------------------------------------------------------------
USAA BALANCED STRATEGY FUND ACCT.# 6938-507-8
- --------------------------------------------------------------
USAA TAX EXEMPT FUND, INC.
==========================
USAA LONG-TERM FUND ACCT.# 6938-492-3
- --------------------------------------------------------------
USAA INTERMEDIATE-TERM FUND ACCT.# 6938-496-4
- --------------------------------------------------------------
USAA SHORT-TERM FUND ACCT.# 6938-500-3
- --------------------------------------------------------------
USAA TAX EXEMPT MONEY MARKET FUND ACCT.# 6938-514-4
- --------------------------------------------------------------
USAA CALIFORNIA BOND FUND ACCT.# 6938-489-9
- --------------------------------------------------------------
USAA CALIFORNIA MONEY MARKET FUND ACCT.# 6938-491-5
- --------------------------------------------------------------
USAA NEW YORK BOND FUND ACCT.# 6938-503-7
- --------------------------------------------------------------
USAA NEW YORK MONEY MARKET FUND ACCT.# 6938-511-0
- --------------------------------------------------------------
USAA VIRGINIA BOND FUND ACCT.# 6938-512-8
- --------------------------------------------------------------
USAA VIRGINIA MONEY MARKET FUND ACCT.# 6938-513-6
- --------------------------------------------------------------
USAA STATE TAX-FREE TRUST
=========================
USAA FLORIDA TAX-FREE INCOME FUND ACCT.# 6938-473-3
- --------------------------------------------------------------
USAA FLORIDA TAX-FREE MONEY MARKET FUND ACCT.# 6938-467-5
- --------------------------------------------------------------
USAA TEXAS TAX-FREE INCOME FUND ACCT.# 6938-602-7
- --------------------------------------------------------------
USAA TEXAS TAX-FREE MONEY MARKET FUND ACCT.# 6938-601-9
- --------------------------------------------------------------
<PAGE>
EXHIBIT C
ADDRESS FOR THE BANK
Bank of America, N.A.
901 Main Street
66th Floor
Dallas, Texas 75202
Attention: Joan D'Amico
Telephone: (214) 508-3307
Telecopy: (214) 508-3742
<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 Bank of America, 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
-----------------------
Kenneth E. Willmann Senior Vice President
Fixed Income Investments /S/ KENNETH E. WILLMANN
-----------------------
David G. Peebles Senior Vice President
Equity Investments /S/ DAVID G. PEEBLES
-----------------------
Clifford A. Gladson Vice President
Mutual Fund Portfolios /S/ CLIFFORD A. GLADSON
-----------------------
Sherron A. Kirk Vice President
Senior Financial Officer /S/ SHERRON A. KIRK
-----------------------
Caryl J. Swann Executive Director
Mutual Fund Analysis and /S/ CARYL J. SWANN
Support -----------------------
<PAGE>
IN WITNESS WHEREOF, I have executed the Certificate as of this 12th day of
January, 2000.
/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 12, 2000
/S/ MICHAEL J.C. ROTH
----------------------
MICHAEL J.C. ROTH
President
<PAGE>
BANK OF AMERICA
LOGO EXHIBIT E
SUBORDINATION
Bank of America, N.A. AGREEMENT
- -------------------------------------------------------------------------------
THIS IS AN AGREEMENT AMONG: DATED: January 12, 2000
- -------------------------------------------------------------------------------
NAME AND ADDRESS OF LENDER NAME AND ADDRESS NAME AND ADDRESS
(INCLUDING COUNTY): OF BORROWER: OF CREDITOR:
Bank of America, N.A. USAA Mutual Fund, Inc. USAA Capital Corporation
901 Main Street USAA Investment Trust 9800 Fredericksburg Road
Dallas, Dallas County, USAA Tax Exempt Fund, Inc. San Antonio, Texas 78288
Texas 75202 USAA State Tax-Free Trust
9800 Fredericksburg Road
San Antonio, Texas 78288
(LENDER) (DEBTOR) (CREDITOR)
- -------------------------------------------------------------------------------
1. BACKGROUND. Debtor is or may be indebted to Lender pursuant to that certain
Facility Agreement Letter dated January 12, 2000 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
12, 1999 between Debtor and Creditor ("Subordinated Facility Agreement").
All debt (as hereinafter defined) under the Senior Facility Agreement is
hereinafter referred to as "senior debt" and all debt (as hereinafter
defined) under the Subordinated Facility Agreement is hereinafter referred
to as "subordinated debt".
2. DEFINITION OF DEBT. The term "debt" as used in the terms "senior debt" and
"subordinated debt" means all debts, obligations and liabilities, now or
hereafter existing, direct or indirect, absolute or contingent, joint or
several, secured or unsecured, due or not due, contractual or tortious,
liquidated or unliquidated, arising by operation of law or otherwise,
irrespective of the person in whose favor such debt may originally have
been created and regardless of the manner in which such debt has been or
may hereafter be acquired by Lender or Creditor, as the case may be, and
includes all costs incurred to obtain, preserve, perfect or enforce any
security interest, lien or mortgage, or to collect any debt or to maintain,
preserve, collect and enforce any collateral, and interest on such amounts.
3. SUBORDINATION OF DEBT. Until senior debt has been paid in full, Debtor will
not pay and Creditor will not accept any payment on subordinated debt at
any time that an Event of Default (as defined in the Senior Facility
Agreement) has occurred and is continuing in respect of senior debt.
Anything of value received by Creditor on account of subordinated debt in
violation of this agreement will be held by Creditor in trust and
immediately will be turned over to Lender in the form received to be
applied by Lender on senior debt.
4. REMEDIES OF CREDITOR. Until all senior debt has been paid in full, without
Lender's permission, Creditor will not be a party to any action or
proceeding against any person to recover subordinated debt. Upon written
request of Lender, Creditor will file any claim or proof of claim or take
any other action to collect subordinated debt in any bankruptcy,
receivership, liquidation, reorganization or other proceeding for relief of
debtors or in connection with Debtor's insolvency, or in liquidation or
marshaling of Debtor's assets or liabilities, or in any probate proceeding,
and if any distribution shall be made to Creditor, Creditor will hold the
same in trust for Lender and immediately pay to Lender, in the form
received to be applied on senior debt, all money or other assets received
in any such proceedings on account of subordinated debt until senior debt
shall have been paid in full. If Creditor shall fail to take any such
action when requested by Lender, Lender may enforce this agreement or as
attorney in fact for Creditor and Debtor may take any such action on
Creditor's behalf. Creditor hereby irrevocably appoints Lender Creditor's
attorney in fact to take any such action that Lender might request Creditor
to take hereunder, and to sue for, compromise, collect and receive all such
money and other assets and take any other action in Lender's own name or in
Creditor's name that Lender shall consider advisable for enforcement and
collection of subordinated debt, and to apply any amounts received on
senior debt.
5. MODIFICATIONS. At any time and from time to time, without Creditor's
consent or notice to Creditor and without liability to Creditor and without
releasing or impairing any of Lender's rights against Creditor or any of
Creditor's obligations hereunder, Lender may take additional or other
security for senior debt; release, exchange, subordinated or lose any
security for senior debt; release any person obligated on senior debt,
modify, amend or waive compliance with any agreement relating to senior
debt; grant any adjustment, indulgence or forbearance to, or compromise
with, any person liable for senior debt; neglect, delay, omit, fail or
refuse to take or prosecute any action for collection of any senior debt or
to foreclose upon any collateral or take or prosecute any action on any
agreement securing any senior debt.
6. SUBORDINATION OF LIENS. Creditor subordinates and makes inferior to any
security interests, liens or mortgages now or hereafter securing senior
debt all security interests, liens, or mortgages now or hereafter securing
subordinated debt. Any foreclosure against any property securing senior
debt shall foreclose, extinguish and discharge all security interests,
liens and mortgages securing subordinated debt, and any purchaser at any
such foreclosure sale shall take title to the property so sold free of all
security interest, liens and mortgages securing subordinated debt.
7. STATEMENT OF SUBORDINATION; ASSIGNMENT BY CREDITOR; ADDITIONAL INSTRUMENTS.
Debtor and Creditor will cause any instrument evidencing or securing
subordinated debt to bear upon its face a statement that such instrument is
subordinated to senior debt as set forth herein and will take all actions
and execute all documents appropriate to carry out this agreement. Creditor
will notify Lender not less than 10 days before any assignment of any
subordinated debt.
8. ASSIGNMENT BY LENDER. Lender's rights under this agreement may be assigned
in connection with any assignment or transfer of any senior debt.
9. VENUE. Debtor and Creditor agree that this agreement is performable in the
county of Lender's address set out above.
10. CUMULATIVE RIGHTS; WAIVERS. This instrument is cumulative of all other
rights and securities of the Lender. No waiver by Lender of any right
hereunder, with respect to a particular payment, shall affect or impair its
rights in any matters thereafter occurring.
11. SUCCESSORS AND ASSIGNS. This instrument is binding upon and shall inure to
the benefit of the heirs, executors, administrators, successors and assigns
of each of the parties hereto, but Creditor covenants that it will not
assign subordinated debt, or any part thereof, without making the rights
and interests of the assignee subject in all respects to the terms of this
instrument.
12. TERMINATION. This agreement shall terminate upon the termination of the
Senior Facility Agreement and repayment in full of the senior debt.
(LENDER) (DEBTOR) (CREDITOR)
Bank of America, N.A. USAA Mutual Fund, Inc. USAA Capital Corporation
USAA Investment Trust
USAA Tax Exempt Fund, Inc.
USAA State Tax-Free Trust
By /S/JOAN L. D'AMICO By /S/ MICHAEL J.C. ROTH By /S/EDWIN T. MCQUISTON
------------------ ---------------------- --------------------
Its PRINCIPAL Its President Its VP President
------------- ------------------ ----------------
<PAGE>
Exhibit 8(l)
<PAGE>
January 11, 2000
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 11, 2000 and ending January 10, 2001 (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 12, 1999, between 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, Two
Hundred Fifty Million Dollars ($250,000,000). 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
<PAGE>
prospectus in effect at the time of such Loan. Portfolio securities may not be
purchased by a Fund while there is a Loan outstanding under the Facility or any
other facility, if the aggregate amount of such Loan and any other such loan
exceeds 5% of the total assets of such Fund.
3. BORROWING RATE AND MATURITY OF LOANS. CAPCO shall 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. 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 Bank of America, N.A. ("Bank of
America") 364-day committed $100,000,000 Master Revolving Credit Facility, the
Borrower will in the absence of predominating circumstances, borrow from Bank
of America. 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 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 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. Beginning with the date of this Agreement and until
such time as all Loans have been irrevocably repaid to CAPCO in full, and CAPCO
is no longer obligated to make Loans, the Funds (to be allocated among the
Funds as the Borrowers deem appropriate) may pay to CAPCO a facility fee (the
"Facility Fee") in the amount up to .08 of one percent (8 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, 2000,
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 CAPCO, 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
2
90650
<PAGE>
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 CAPCO on the
effective date of such termination.
7. MANDATORY TERMINATION OF THE FACILITY. The Facility, unless
extended by written amendment, shall automatically terminate on the last day of
the Facility Period and any Loans then outstanding (together with accrued
interest thereon and any other amounts owing hereunder) shall be due and
payable on such date.
8. COMMITTED FACILITY. CAPCO acknowledges that the Facility is a
committed facility and that CAPCO shall be obligated to make any Loan requested
during the Facility Period under this Agreement, subject to the terms and
conditions hereof; provided, however, that CAPCO 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, 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;
3
90650
<PAGE>
(b) CAPCO shall make such Loan in accordance with the Terms
by transfer of the Loan amount in immediately available funds, to the account
of the applicable Borrower(s) as specified in EXHIBIT B to this Agreement or as
such Borrower(s) shall otherwise specify to CAPCO in a writing signed by an
Authorized Individual (as defined in Section 11) of such Borrower(s); and
(c) CAPCO shall make appropriate entries on the Note or the
records of CAPCO to reflect the Terms of the Loan; provided, however, that the
failure to do so shall not affect the obligation of any Borrower.
CAPCO shall be entitled to rely upon and act hereunder pursuant to any Oral
Request which it reasonably believes to have been made by the applicable
Borrower through an Authorized Individual. If any Borrower believes that the
confirmation relating to any Loan contains any error or discrepancy from the
applicable Oral Request, such Borrower will promptly notify CAPCO thereof.
11. BORROWING RESOLUTIONS AND OFFICERS' CERTIFICATES. Prior to the
making of any Loan pursuant to this Agreement, the Borrowers shall have
delivered to CAPCO (a) the duly executed Note, (b) Resolutions of each
Borrower's Trustees or Board of Directors authorizing such Borrower to execute,
deliver and perform this Agreement and the Note on behalf of the applicable
Funds, (c) an Officer's Certificate in substantially the form set forth in
EXHIBIT D to this Agreement, authorizing certain individuals ("Authorized
Individuals"), to take on behalf of each Borrower (on behalf of the applicable
Funds) actions contemplated by this Agreement and the Note, and (d) the Opinion
of Counsel to USAA Investment Management Company, Manager and Advisor to the
Borrowers, with respect to such matters as CAPCO may reasonably request.
12. REPRESENTATIONS AND WARRANTIES. In order to induce CAPCO to enter
into this Agreement and to make the Loans provided for hereunder, each Borrower
hereby makes with respect to itself, and as may be relevant, the series of
Funds comprising such Borrower, the following representations and warranties,
which shall survive the execution and delivery hereof and of the Note:
(a) ORGANIZATION, STANDING, ETC. The Borrower is a
corporation or trust duly organized, validly existing, and in good standing
under applicable state laws and has all requisite corporate or trust power and
authority to carry on its respective businesses as now conducted and proposed
to be conducted, to enter into this Agreement and all other documents to be
executed by it in connection with the transactions contemplated hereby, to
issue and borrow under the Note and to carry out the terms hereof and thereof;
(b) FINANCIAL INFORMATION; DISCLOSURE, ETC. The Borrower has
furnished CAPCO with certain financial statements of such Borrower with respect
to itself and the applicable Funds, all of which such financial statements have
been prepared in accordance with generally accepted accounting principles
applied on a consistent basis and fairly present the financial position and
results of operations of such Borrower and the applicable Funds on the
4
90650
<PAGE>
dates and for the periods indicated. Neither this Agreement nor any financial
statements, reports or other documents or certificates furnished to CAPCO by
such Borrower or the applicable Funds in connection with the transactions
contemplated hereby contain any untrue statement of a material fact or omit to
state any material fact necessary to make the statements contained herein or
therein in light of the circumstances when made not misleading;
(c) AUTHORIZATION; COMPLIANCE WITH OTHER INSTRUMENTS. The
execution, delivery and performance of this Agreement and the Note, and
borrowings hereunder, have been duly authorized by all necessary corporate or
trust action of the Borrower and will not result in any violation of or be in
conflict with or constitute a default under any term of the charter, by-laws or
trust agreement of such Borrower or the applicable Funds, or of any borrowing
restrictions or prospectus or statement of additional information of such
Borrower or the applicable Funds, or of any agreement, instrument, judgment,
decree, order, statute, rule or governmental regulation applicable to such
Borrower, or result in the creation of any mortgage, lien, charge or
encumbrance upon any of the properties or assets of such Borrower or the
applicable Funds pursuant to any such term. The Borrower and the applicable
Funds are not in violation of any term of their respective charter, by-laws or
trust agreement, and such Borrower and the applicable Funds are not in
violation of any material term of any agreement or instrument to which they are
a party, or to the best of such Borrower's knowledge, of any judgment, decree,
order, statute, rule or governmental regulation applicable to them;
(d) SEC COMPLIANCE. The Borrower and the applicable Funds are
in compliance in all material respects with all federal and state securities or
similar laws and regulations, including all material rules, regulations and
administrative orders of the Securities and Exchange Commission (the "SEC") and
applicable Blue Sky authorities. The Borrower and the applicable Funds are in
compliance in all material respects with all of the provisions of the
Investment Company Act of 1940, and such Borrower has filed all reports with
the SEC that are required of it or the applicable Funds;
(e) LITIGATION. There is no action, suit or proceeding
pending or, to the best of the Borrower's knowledge, threatened against such
Borrower or the applicable Funds in any court or before any arbitrator or
governmental body which seeks to restrain any of the transactions contemplated
by this Agreement or which, if adversely determined, could have a material
adverse effect on the assets or business operations of such Borrower or the
applicable Funds or the ability of such Borrower and the applicable Funds to
pay and perform their obligations hereunder and under the Notes;
(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 Bank of America committed facility) to the applicable
Borrower for the repayment of such Loans; and
(g) YEAR 2000 PREPAREDNESS. Each Borrower has (i) initiated
a review and assessment of all areas within its business and operations
(including those affected by suppliers, vendors and customers) that could be
adversely affected by the "Year 2000 Problem" (that is, the
5
90650
<PAGE>
risk that computer applications used by such Borrower may be unable to
recognize and perform properly date-sensitive functions involving certain dates
prior to and any date after December 31, 1999), (ii) developed a plan and
timeline for addressing the Year 2000 Problem on a timely basis, and (iii) to
date, implemented that plan in accordance with that timetable. Based on the
foregoing, such Borrower reasonably believes that all computer applications
that are material to its business and operations are reasonably expected on a
timely basis to be able to perform properly date-sensitive functions for all
dates before and after January 1, 2000 (that is, be "Year 2000 compliant"),
except to the extent that a failure to do so could not reasonably be expected
to 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
Note.
13. AFFIRMATIVE COVENANTS OF THE BORROWERS. Until such time as all
amounts of principal and interest due to CAPCO by a Borrower pursuant to any
Loan made to such Borrower is irrevocably paid in full, and until the Facility
is terminated, such Borrower (for itself and on behalf of its respective Funds)
agrees:
(a) To deliver to CAPCO as soon as possible and in any event
within ninety (90) days after the end of each fiscal year of such Borrower and
the applicable Funds, Statements of Assets and Liabilities, Statements of
Operations and Statements of Changes in Net Assets of each applicable Fund for
such fiscal year, as set forth in each applicable Fund's Annual Report to
shareholders together with a calculation of the maximum amount which each
applicable Fund could borrow under its Borrowing Limit as of the end of such
fiscal year;
(b) To deliver to CAPCO as soon as available and in any event
within seventy-five (75) days after the end of each semiannual period of such
Borrower and the applicable Funds, Statements of Assets and Liabilities,
Statement of Operations and Statements of Changes in Net Assets of each
applicable Fund as of the end of such semiannual period, as set forth in each
applicable 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;
6
90650
<PAGE>
(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;
(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; and
(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.
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 Bank of America, the Five Hundred Million Dollar
($500,000,000) uncommitted Master Revolving Credit Facility with CAPCO 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
7
90650
<PAGE>
payment thereof;
(b) Any Borrower or Fund shall default in the performance of
or compliance with any term contained in Section 13 hereof and such default
shall not have been remedied within thirty (30) days after written notice
thereof shall have been given such Borrower or Fund by CAPCO;
(c) Any Borrower or Fund shall default in the performance of
or compliance with any term contained in Section 14 hereof;
(d) Any Borrower or Fund shall default in the performance or
compliance with any other term contained herein and such default shall not have
been remedied within thirty (30) days after written notice thereof shall have
been given such Borrower or Fund by CAPCO;
(e) Any representation or warranty made by a Borrower or Fund
herein or pursuant hereto shall prove to have been false or incorrect in any
material respect when made;
(f) 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
8
90650
<PAGE>
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
9
90650
<PAGE>
confirmations of Oral Requests made hereunder shall be sent to the Borrowers as
indicated on EXHIBIT B and to CAPCO as indicated on EXHIBIT C.
23. MODIFICATIONS. No provision of this Agreement or the Note may be
waived, modified or discharged except by mutual written agreement of all
parties. THIS WRITTEN LOAN AGREEMENT AND THE NOTE REPRESENT THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN AGREEMENTS BETWEEN THE PARTIES.
24. GOVERNING LAW AND JURISDICTION. This Agreement shall be governed
by and construed in accordance with the laws of the state of Texas without
regard to the choice of law provisions thereof.
25. TRUST DISCLAIMER. Neither the shareholders, trustees, officers,
employees and other agents of any Borrower or Fund shall be personally bound by
or liable for any indebtedness, liability or obligation hereunder or under the
Note nor shall resort be had to their private property for the satisfaction of
any obligation or claim hereunder.
If this letter correctly reflects your agreement with us, please execute both
copies hereof and return one to us, whereupon this Agreement shall be binding
upon the Borrowers, the Funds and CAPCO.
Sincerely,
USAA CAPITAL CORPORATION
By: /S/ EDWIN T. MCQUISTON
------------------------
Edwin T. McQuiston
Vice President-Treasurer
AGREED AND ACCEPTED this 11th
Day of January, 2000.
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
10
90650
<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
11
90650
<PAGE>
SCHEDULE A
----------
FUNDS FOR WHOSE BENEFIT LOANS CAN
BE BORROWED UNDER FACILITY AGREEMENT
BORROWER FUNDS BORROWING LIMIT
- -------- ----- ---------------
(Maximum percent of
total assets which
can be borrowed
under Facility and
the uncommitted
facility with CAPCO)
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 High Yield Opportunities "
USAA Intermediate-Term Bond "
USAA Small Cap Stock "
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 "
<PAGE>
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>
MASTER GRID PROMISSORY NOTE
U.S. $250,000,000 Dated: January 11, 2000
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 11, 2000 (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
<PAGE>
interest due and owing thereon or such other Fund's share of any other amount
due hereunder and under the Agreement (as determined in accordance with the
provisions of the Agreement).
Neither the shareholders, trustees, officers, employees and other
agents of any Borrower or Fund shall be personally bound by or liable for any
indebtedness, liability or obligation hereunder or under the Note nor shall
resort be had to their private property for the satisfaction of any obligation
or claim hereunder.
Loans under the Agreement and this Note are subordinated to loans made
under the $100,000,000 364-day committed Mater Revolving Credit Facility
Agreement between the Borrowers and Bank of America, N.A. (Bank of America),
dated January 12, 2000, in the manner and to the extent set forth in the
Agreement among the Borrowers, CAPCO and Bank of America, dated January 12,
2000.
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
<PAGE>
LOANS AND PAYMENT OF PRINCIPAL
This schedule (grid) is attached to and made a part of the Promissory Note
dated January 11, 2000, 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: Kenneth E. Willmann
Senior Vice President,
Fixed Income Investments
Telephone: (210) 498-7320
Telecopy: (210) 498-4174
David G. Peebles
Senior Vice President,
Equity Investments
Telephone: (210) 498-7340
Telecopy: (210) 498-2954
ADDRESS FOR BORROWING AND PAYMENTS:
9800 Fredericksburg Road
San Antonio, Texas 78288
Attention: Caryl J. Swann
Telephone: (210) 498-7303
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 HIGH YIELD OPPORTUNITIES FUND ACCT.# 6938-576-3
- -------------------------------------------------------------
USAA INTERMEDIATE-TERM BOND FUND ACCT.# 6938-577-1
- -------------------------------------------------------------
USAA SMALL CAP STOCK FUND ACCT.# 6938-578-9
- -------------------------------------------------------------
USAA INVESTMENT TRUST
=====================
USAA CORNERSTONE STRATEGY FUND ACCT.# 6938-487-3
- -------------------------------------------------------------
USAA GOLD FUND ACCT.# 6938-488-1
- -------------------------------------------------------------
USAA INTERNATIONAL FUND ACCT.# 6938-497-2
- -------------------------------------------------------------
USAA WORLD GROWTH FUND ACCT.# 6938-504-5
- -------------------------------------------------------------
USAA GNMA TRUST ACCT.# 6938-486-5
- -------------------------------------------------------------
USAA TREASURY MONEY MARKET TRUST ACCT.# 6938-493-1
- -------------------------------------------------------------
<PAGE>
USAA EMERGING MARKETS FUND ACCT.# 6938-501-1
- -------------------------------------------------------------
USAA GROWTH AND TAX STRATEGY FUND ACCT.# 6938-509-4
- -------------------------------------------------------------
USAA BALANCED STRATEGY FUND ACCT.# 6938-507-8
- -------------------------------------------------------------
USAA GROWTH STRATEGY FUND ACCT.# 6938-510-2
- -------------------------------------------------------------
USAA INCOME STRATEGY FUND ACCT.# 6938-508-6
- -------------------------------------------------------------
USAA TAX EXEMPT FUND, INC.
==========================
USAA LONG-TERM FUND ACCT.# 6938-492-3
- -------------------------------------------------------------
USAA INTERMEDIATE-TERM FUND ACCT.# 6938-496-4
- -------------------------------------------------------------
USAA SHORT-TERM FUND ACCT.# 6938-500-3
- -------------------------------------------------------------
USAA TAX EXEMPT MONEY MARKET FUND ACCT.# 6938-514-4
- -------------------------------------------------------------
USAA CALIFORNIA BOND FUND ACCT.# 6938-489-9
- -------------------------------------------------------------
USAA CALIFORNIA MONEY MARKET FUND ACCT.# 6938-491-5
- -------------------------------------------------------------
USAA NEW YORK BOND FUND ACCT.# 6938-503-7
- -------------------------------------------------------------
USAA NEW YORK MONEY MARKET FUND ACCT.# 6938-511-0
- -------------------------------------------------------------
USAA VIRGINIA BOND FUND ACCT.# 6938-512-8
- -------------------------------------------------------------
USAA VIRGINIA MONEY MARKET FUND ACCT.# 6938-513-6
- -------------------------------------------------------------
USAA STATE TAX-FREE TRUST
=========================
USAA FLORIDA TAX-FREE INCOME FUND ACCT.# 6938-473-3
- -------------------------------------------------------------
USAA FLORIDA TAX-FREE MONEY MARKET FUND ACCT.# 6938-467-5
- -------------------------------------------------------------
USAA TEXAS TAX-FREE INCOME FUND ACCT.# 6938-602-7
- -------------------------------------------------------------
USAA TEXAS TAX-FREE MONEY MARKET FUND ACCT.# 6938-601-9
- -------------------------------------------------------------
<PAGE>
EXHIBIT C
ADDRESS FOR USAA CAPITAL CORPORATION
USAA Capital Corporation
9800 Fredericksburg Road
San Antonio, Texas 78288
Attention: Edwin T. McQuiston
Telephone No.: (210) 498-2296
Telecopy No.: (210) 498-6566
90650
<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
committed 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
-----------------------
Kenneth E. Willmann Senior Vice President,
Fixed Income Investments /S/ KENNETH E. WILLMANN
-----------------------
David G. Peebles Senior Vice President,
Equity Investments /S/ DAVID G. PEEBLES
-----------------------
Clifford A. Gladson Vice President,
Mutual Fund Portfolios /S/ CLIFFORD A. GLADSON
-----------------------
Sherron A. Kirk Vice President,
Senior Financial Officer /S/ SHERRON A. KIRK
-----------------------
Caryl J. Swann Executive Director,
Mutual Fund Analysis
and Support /S/ CARYL J. SWANN
-----------------------
IN WITNESS WHEREOF, I have executed this Certificate as of this 11th day of
January, 2000.
/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 11, 2000 /S/ MICHAEL J.C. ROTH
------------------------
MICHAEL J.C. ROTH
President
EXHIBIT 9(b)
OPINION AND CONSENT
OF COUNSEL
<PAGE>
GOODWIN, PROCTER & HOAR LLP
COUNSELLORS AT LAW
EXCHANGE PLACE
BOSTON, MASSACHUSETTS 02109-2881
TELEPHONE (617) 570-1000
TELECOPIER (617) 523-1231
April 26, 2000
USAA Mutual Fund, Inc.
USAA Building
9800 Fredericksburg Road
San Antonio, TX 78288
Ladies and Gentlemen:
As counsel to USAA Mutual Fund, Inc. (the "Company"), a Maryland
corporation, we have been asked to render our opinion with respect to the
issuance of shares of capital stock, $.01 par value per share, of the USAA S&P
500 Index Fund (the "Shares"), a class of capital stock of the Company which
has been established and designated in the Company's Articles of Incorporation
and Articles Supplementary to the Articles of Incorporation, as amended
(collectively, the "Articles"), all as more fully described in the Prospectus
and the Statement of Additional Information contained in Post-Effective
Amendment No. 53 (the "Amendment") to the Registration Statement (No. 2-49560)
on Form N-1A (the "Registration Statement") to be filed by the Company with the
Securities and Exchange Commission.
We have examined the Articles, the By-Laws of the Company, as amended,
the minutes of certain meetings of and resolutions adopted by the Board of
Directors of the Company, the Prospectus and Statement of Additional
Information contained in the Amendment and such other documents, records and
certificates as we deemed necessary for the purposes of this opinion.
Based upon the foregoing, and assuming that not more than 375,000,000
Shares of the USAA S&P 500 Index Fund will be issued and outstanding at any
time, we are of the opinion that the Shares will, when sold in accordance with
the terms of the Prospectus and Statement of Additional Information in effect
at the time of the sale, be legally issued, fully paid and non-assessable.
We also hereby consent to the reference to the firm in the Statement
of Additional Information under the heading "General Information--Counsel"
which forms a part of the Amendment and the filing of this opinion as an
exhibit to the Amendment.
Very truly yours,
/s/GOODWIN, PROCTER & HOAR LLP
-------------------------------
GOODWIN, PROCTER & HOAR LLP
GPH/ses
DOCSC\874369.1
EXHIBIT 10
CONSENT OF
INDEPENDENT ACCOUNTANTS
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Post-Effective
Amendment No. 53 to the Registration Statement on Form N-1A ("Registration
Statement") of our report dated February 11, 2000, relating to the financial
statements and financial highlights which appear in the December 31, 1999
Annual Report to Shareholders of the USAA S&P 500(R) Index Fund, which is also
incorporated by reference into the Registration Statement. We also consent to
the references to us under the headings "Financial Highlights" and "Independent
Accountants" in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
- ---------------------------------------------
PricewaterhouseCoopers LLP
Baltimore, Maryland
April 26, 2000
Exhibit 16(a)
<PAGE>
Effective 9/9/98
JOINT CODE OF ETHICS
I. BACKGROUND
1. This Code of Ethics has been adopted by IMCO, SAS and each of the USAA
Funds in order to comply with the Investment Company Act of 1940 which
requires that every investment company and its investment adviser adopt
such a Code in order to regulate the personal investing activities of its
personnel.
2. The purpose of this Code is to avoid conflicts of interest so that the
confidence of investors in the USAA Funds and other clients of IMCO ("
OTHER IMCO-MANAGED ACCOUNTS") as well as USAA members and customers will
be preserved.
3. In adopting this Code, the Boards of Directors/Trustees (hereinafter
"Board of Directors") of IMCO, SAS and the USAA Funds emphasize that all
persons covered by this Code must agree:
(a) to place the interests of USAA Fund shareholders and other
IMCO-managed accounts above their own personal interests;
(b) to refrain, in the conduct of all of their personal affairs, from
taking any inappropriate advantage of their positions with IMCO, SAS
and the USAA Funds; and
(c) to conduct all "personal securities transactions" so as to fully
comply with the provisions of this Code in order to avoid any actual
or even apparent conflict or claim of a conflict of interest or abuse
of such person's position with IMCO, SAS and the USAA Funds.
4. This Code is intended to be administered together with the "Policy
Statement Concerning Insider Trading" (the "IMCO INSIDER TRADING POLICY")
as adopted and revised, from time to time, by IMCO, as well as the "USAA
Policy Statement and Procedures on Conflict of Interest and Business
Ethics" (the "USAA CONFLICTS POLICY") as adopted and revised, from time to
time, by the United Services Automobile Association ("USAA").
5. In adopting this Code, the Boards of Directors have considered:
(a) how the Code's restrictions and procedures as to compliance should
be framed in light of IMCO's and SAS's legal and ethical obligations
to the USAA Funds and all other IMCO-managed accounts;
(b) the overall nature of the USAA Funds' operations; and
1
<PAGE>
(c) issues and concerns raised by transactions in different kinds of
securities, and by the personal securities transactions of different
categories of personnel (including portfolio managers, analysts,
traders, fund accountants, other investment personnel, and all
"access persons" in general).
6. The Boards of Directors have also provided for the fair, just and
equitable treatment of all of the officers, directors and employees who
will be affected by this Code.
II. DEFINITIONS
For the definitions of important terms used throughout this Code, see
"Appendix A."
III. JOINT CODE OF ETHICS COMMITTEE
1. PURPOSE, AUTHORITY AND RESPONSIBILITIES. A Joint Code of Ethics Committee
("Committee") has been established by the Boards of Directors which has
authority and responsibility to interpret, adopt and implement procedures
designed to ensure compliance with this Code.
The Committee shall perform an annual review of the Code and the IMCO
Insider Trading Policy to discuss (1) what, if any, changes to the Code or
the IMCO Insider Trading Policy may be appropriate; and (2) compliance
with the Code or the IMCO Insider Trading Policy over the previous year.
Upon completion of the annual review, the Compliance Officer, on behalf of
the Committee, shall prepare an annual report to the Board of Directors
that at a minimum (1) summarizes existing procedures contained in the Code
and the IMCO Insider Trading Policy and any changes in the procedures made
during the past year; (2) identifies any violations requiring significant
remedial action during the past year; and (3) identifies any recommended
changes in existing restrictions or procedures based upon IMCO's
experience under the Code or IMCO Insider Trading Policy, evolving
industry practices, or developments in applicable laws or regulations. In
conjunction with its annual review of the Code, the Committee also shall
provide a report to IMCO's Corporate Governance Committee summarizing the
provisions of the Code as they apply to the disinterested
directors/trustees and proposing any changes to the Code as it applies to
disinterested directors/trustees.
The Committee Charter contains provisions which will be of interest to all
persons covered by this Code. Copies of the Charter will be furnished by
the Compliance Officer upon request and should be treated as the
confidential property of IMCO.
2. VIOLATIONS; INVESTIGATIONS; EMPLOYMENT-RELATED SANCTIONS; DISGORGEMENT.
The Committee Charter authorizes the Committee to investigate as well as
to conduct informal hearings (including the power to call individuals as
witnesses) to determine whether violations of this Code have been
committed by any persons subject thereto. In the event that a substantive
violation of this Code is determined to have occurred, the Charter grants
the Committee authority to impose certain employment-related sanctions
listed therein. Authority is also granted to the Committee to issue
directions, by way of disgorgement of
2
<PAGE>
any security or money, and to take whatever further enforcement action the
Committee deems prudent and necessary to see that violations are fully and
adequately rectified.
IV. AFFIRMATIVE OBLIGATIONS
1. IMCO. IMCO shall:
(a) compile list of all "access persons," to be updated as soon as
practicable, but no less frequently than on a monthly basis; and
(b) issue timely notice to all employees of their addition to, or removal
from, such list.
2. REPORTING PERSONS. Upon initial employment or association with IMCO, SAS
or other entity designated by the Compliance Officer ( see sub-paragraphs
(a) and (b) below), and no less frequently than annually thereafter ( see
sub-paragraphs (a) to (c) below), all reporting persons shall:
(a) affirm in writing their receipt of, familiarity with, understanding
of, and agreement to comply with:
(i) those provisions of this Code that pertain to them; and
(ii) all provisions of the IMCO Insider Trading Policy.
(b) agree in writing to cooperate with any investigations or inquiries
to determine whether substantive violations of this Code, or of the
above-referenced related policy statement, have occurred.
(c) certify in writing compliance with those provisions of this Code
(including, in particular, the transaction reporting requirements of
the Code), and the above-referenced related policy statement, at all
times since the effective date of such person's last such
certification.
3. INTERESTED ACCESS PERSONS. All interested access persons shall make prompt
oral or written disclosure to the Compliance Officer as well as the IMCO
Senior Vice President in his or her area of the firm of any actual or
apparent material conflict(s) of interest which the interested access
person may have with regard to any security in which he or she has a
beneficial ownership interest and which he or she knows, or has reason to
know, is the subject of a buy, sell or hold recommendation to or
concerning any USAA Fund or other IMCO-managed account.
V. RESTRICTIONS AS TO GIFTS, ETC. AND DIRECTORSHIPs
1. GIFTS, GRATUITIES, FAVORS, AWARDS OR OTHER BENEFITS. In addition to those
provisions of the USAA Conflicts Policy and NASD Rules of Fair Practice
relating to the receipt of gifts
3
<PAGE>
and other benefits, all reporting persons other than disinterested
directors/trustees are prohibited from receiving any gift, gratuity,
favor, award or other item or benefit having a market value in excess of
$100 per person, per year, from or on behalf of any person or entity that
does, or seeks to do, business with or on behalf of IMCO, SAS or any USAA
Fund. Business-related entertainment such as meals, tickets to the theater
or a sporting event which are infrequent and of a non-lavish nature are
excepted from this prohibition.
2. DIRECTORSHIPS.
(a) GENERAL RULE. Interested access personS are and shall hereby be
prohibited from serving on the board of directors of any publicly
traded company absent prior written approval by the Joint Code of
Ethics Committee.
(b) APPLICATIONS FOR APPROVAL. Applications for approval of service as a
director of a publicly traded company shall be directed, in writing,
to the office of the Compliance Officer for prompt forwarding to the
Joint Code of Ethics Committee. In passing upon such applications,
the Committee shall consider all factors which it deems to be
pertinent to the request. Approvals, once granted, may be revoked, in
the discretion of the Committee, at any time and upon no prescribed
advance notice.
(c) SUBSEQUENT INVESTMENT MANAGEMENT ACTIVITIES. Whenever any interested
access person is granted approval to serve as a director of a
publicly traded company he or she shall personally refrain from
participating in any deliberations, recommendations, or
considerations of whether or not to recommend that any securities of
that company be purchased, sold or retained in the investment
portfolio of any USAA Fund or other IMCO-Managed Account. All
appropriate portfolio managers are to be advised in writing by the
Compliance Officer that specific interested access person is to be
excluded from such decisions.
VI. SUBSTANTIVE RESTRICTIONS ON PERSONAL INVESTING ACTIVITIES
1. INITIAL PUBLIC OFFERINGS. No interested access person or IMCO-NASD
registered employee shall effect or be permitted to effect the purchase
of a security from the issuer, or any member of the underwriting syndicate
or selling group, in and during the course of any initial public offering
by or on behalf of the issuer of such security.
2. PRIVATE PLACEMENT TRANSACTIONS.
(a) GENERAL RULE. No interested access person may purchase a security
in a transaction exempt from registration under applicable state and
federal securities laws ("private placement transaction") without
obtaining the advance written approval of the Compliance Officer.
4
<PAGE>
(b) EXCEPTION. In determining whether or not to grant approval of a
private placement transaction, the Compliance Officer is directed
to consider, among any other pertinent factors:
(i) whether the investment opportunity is available to, and should
be reserved solely for, the USAA Funds; and
(ii) whether the opportunity is or seems to have been made available
to the access person due to or by virtue of the position which
he or she holds with IMCO and/or the USAA Funds.
(c) SUBSEQUENT INVESTMENT MANAGEMENT ACTIVITIES.
(i) Interested access persons who are granted advance written
approval to purchase a security in a private placement
transaction shall timely comply with the continuing disclosure
requirements of paragraph IV.3 above in connection with any
actual or apparent conflict(s) of interest that might otherwise
arise should IMCO, any USAA Fund or any other IMCO-managed
account consider for purchase, sale or retention of any security
whatsoever issued by the same issuer.
(ii) In adopting this Code, IMCO acknowledges its responsibility
to monitor activities of the firm and those of its interested
access persons to ensure that investment decisions on behalf
of the USAA Funds and/or any other IMCO-managed account relating
to any security whatsoever of an issuer with respect to which
an interested access person has obtained pre-acquisition approval
will be subject to independent review by senior IMCO investment
personnel having no personal interest in the issuer or any of
its securities.
3. PERSONAL SECURITIES TRANSACTION "BLACK-OUT" TRADING RESTRICTIONS
(a) PROHIBITED TRADING "BLACK-OUT" PERIODS. The following categories of
personnel are subject to the following self-operative restrictions
upon execution of personal securities transactions by or on their
behalf:
(i) "PENDING ORDER" RESTRICTION. Subject only to the exceptions
noted in sub-paragraph (b) below, no interested access person
may effect a personal securities transaction in a security with
respect to which an USAA Fund or other IMCO-managed account
has outstanding a purchase or sale order (the " PENDING ORDER")
regarding the same security or any equivalent security.
(ii) 14-DAY RESTRICTION. No portfolio manager may effect a personal
securities transaction within seven calendar days before, or
seven (7) calendar days after, the trade date of a purchase or
sale of the same security or any equivalent security by or on
behalf of any USAA Fund or other IMCO-managed account for
which he or she serves as portfolio manager.
5
<PAGE>
In the event that a personal securities transaction is effected in
contravention of either of the two foregoing restrictions, the interested
access person or portfolio manager involved shall, as soon as practicable
after becoming aware of the violative nature of his or her personal
transaction (IRRESPECTIVE OF ANY PRE-EXECUTION CLEARANCE WHICH MAY HAVE
BEEN PREVIOUSLY GRANTED FOR THE TRANSACTION), promptly (I) advise the
office of the Compliance Officer of the violation, and (II) comply with
whatever directions, by way of disgorgement, which the Compliance Officer
may issue in order for the violation to be fully and adequately rectified.
(b) EXCEPTIONS TO THE "PENDING ORDER" TRADING RESTRICTION. The
Compliance Officer may and is hereby authorized to grant, absent
circumstances inconsistent with the recitals to this Code, exception
and relief to interested access persons from the trading restriction
established by sub-paragraph (a)(i) above where the pending order:
(i) has been placed by or on behalf of a USAA Fund or other
IMCO-managed account, the investment objective of which is to
substantially replicate the performance of a broad-based,
publicly-traded market basket of common stocks (e.g., the
Standard & Poor's 500 Composite Stock Index); or
(ii) relates to the common stock of an issuer included within the
Standard & Poor's 500 Composite Stock Index, and the access
person's requested trade does not, when aggregated with any and
all such other like trades in the same security or any equivalent
security during the previous thirty (30) calendar days, exceed
a total of 500 shares.
4. SHORT-TERM MATCHED PROFIT TRANSACTIONS.
(a) PROHIBITED TRANSACTIONS. Subject to the exceptions noted immediately
below, no investment personnel shall engage in any "short-term
matched profit transaction" within the meaning of this Code.
N.B. Investment personnel should note that this prohibition is
intended to apply to all instances of short-term (i.e., 60 calendar
days or less) security "short-selling," as well as short-term
investment activities (of a hedging, as well as a speculative nature)
in or involving options.
(b) EXCEPTIONS. The Compliance Officer may, and is hereby granted
authority to determine, in his or her discretion, to except a given
personal securities transaction from the prohibition established by
the foregoing sub-paragraph in cases where:
(i) the transaction, and any earlier personal securities transaction
with which it may be matched over the most recent 60 calendar
days, do not appear to evidence actual abuse of a conflict of
interest with any USAA Fund or other IMCO-managed account (as,
for example, where the security(ies) involved
6
<PAGE>
have not recently been held, traded or actively considered for
investment or trading by such accounts); or
(ii) the investment personnel demonstrate that a BONA FIDE and
sufficient personal or family economic hardship exists warranting
the granting of such an exception.
Exceptions should be granted only upon meritorious circumstances and,
if granted, are to be promptly reported, in writing, to the Joint
Code of Ethics Committee.
5. EXCESSIVE SHORT-TERM TRADING.
IMCO management encourages employees to invest. However, we believe there
is a distinction between investment and the attempt to generate profits by
trading securities. This latter activity is not compatible with the
performance of an individual's job. Frequent trading which diverts the
employee's attention form the job is unacceptable.
Employees will refrain from engaging in a pattern of securities
transactions:
(a) that involves such frequent trading as to potentially impact an
employee's ability to carry out his or her duties; or
(b) that implies that an employee might become preoccupied with tracking
personal investments or working on his or her trading strategies
during working hours; or
(c) that involves margin debit balances that exceed 1/2 of the employee's
annual base salary.
After consideration of the above criteria, the Code of Ethics Committee
may place restrictions on the personal trading activity of employees who
engage in short-term trading activity that the Committee, in its judgment,
deems to be excessive.
VII. PRE-EXECUTION CLEARANCE OF PERSONAL SECURITIES TRANSACTIONS
1. REQUIREMENT TO SEEK AND OBTAIN PRE-EXECUTION CLEARANCE.
(a) GENERAL RULE. Each interested access person shall, as a pre-condition
to the execution of any personal securities transaction, be required
to seek and obtain the express approval of such action by the
Compliance Officer (or such officer's delegate), which approval may
be in oral or written form, as the access person elects. Should oral
approval be sought, the interested access person shall be bound by
the written record made thereof by the Compliance Officer (or such
officer's delegate).
7
<PAGE>
(b) RULE APPLICABLE TO DISINTERESTED DIRECTOR/TRUSTEES. Disinterested
director/trustees shall be entitled to exemption on a
transaction-by-transaction basis from the pre-execution clearance
requirement of the foregoing sub-paragraph, provided that at the time
of execution of the given personal securities transaction, they have
no actual knowledge regarding whether or not the security at issue,
or any equivalent security has, at any time during the previous
fifteen calendar days, been either (I) purchased or sold, or (II)
actively considered for purchase or sale, by or on behalf of any USAA
Fund or other IMCO-managed account. Should a disinterested
director/trustee believe that he or she is, in fact, in possession
of such knowledge with respect to a contemplated personal securities
transaction, the transaction may not occur without pre-execution
clearance as prescribed by sub-paragraph (a) above.
2. PROCEDURES FOR PROCESSING SUCH REQUESTS.
(a) ACCESS PERSON PROCEDURES. In making requests for pre-execution
clearance, access persons will be required to furnish whatever
information is called for by the office of the Compliance Officer.
(b) COMPLIANCE OFFICER PROCEDURES.
(i) IMCO TRADER AND PORTFOLIO MANAGER CONSIDERATION. Before passing
upon a pre-execution clearance request, the Compliance Officer
or his or her delegate shall make such inquiries as are
reasonably necessary to determine whether the proposed
transaction would violate any express provision of this Code, or
would otherwise give rise to an actual or apparent material
conflict of interest, and shall take such action as may be
consistent with such determination.
3. EFFECT OF PRE-EXECUTION CLEARANCE. Approval of a request for
pre-execution clearance shall not operate as a waiver, satisfaction or
presumption of satisfaction of any other provision of this Code, but only
as evidence of an access person's good faith, which may be considered by
the Joint Code of Ethics Committee should a violation of any other
provision of this Code be determined to have occurred.
4. LIMITATIONS UPON EXECUTION OF APPROVED TRANSACTIONS. The Joint Code of
Ethics Committee shall be authorized to establish terms and conditions
upon which all approved personal securities transactions may be executed.
Such terms and conditions may be amended, from time to time, and, where
practicable, shall be stated on the pre-execution clearance request form.
At a minimum, such terms and conditions shall include requirements that
the access person acknowledge, by signing the request form:
(a) his or her responsibility, pursuant to paragraph VIII.1(a) of this
Code, to ensure that the executing broker-dealer (or its clearing
broker) simultaneously provide a duplicate confirmation of the
trade, when executed, directly to the office of the Compliance
Officer;
8
<PAGE>
(b) his or her understanding and agreement that if, for any reason
whatsoever, the approved request is not acted upon within the time
frame allowed by the Compliance Officer, the clearance shall be
deemed to have lapsed and terminated, necessitating a further
original request if the trade is still desired to be pursued by the
access person; and
(c) his or her agreement to notify the Compliance Officer if, having
received approval, the access person subsequently determines not to
pursue the approved trade.
5. DENIALS. Grounds for denials of requests for pre-execution clearance will
be provided by the Compliance Officer, in writing, upon the access
person's request form.
6. APPEALS.
(a) DISCRETIONARY. Access persons may appeal to the Joint Code of Ethics
Committee for a hearing as to reasons why a denial of pre-execution
clearance by the Compliance Officer should be overturned and reversed
by the Committee. Whether or not such a hearing will be granted is
totally within the discretion of the Committee.
(b) PROCEDURES REGARDING APPEALS. Requests for an appeal must be in
writing, stating all reasons therefor, and delivered to the office
of the Compliance Officer not later than seven (7) calendar days
following the date of final denial of the pre-execution clearance
request. Further procedures governing appeals are to be adopted by
the Joint Code of Ethics Committee and shall be furnished, upon
request, by the office of the Compliance Officer.
VIII. REPORTING AND DISCLOSURE REQUIREMENTS TO EFFECTUATE AND MONITOR COMPLIANCE
WITH THIS CODE, THE IMCO INSIDER TRADING POLICY AND RULE 204-2(A)(12)
UNDER THE INVESTMENT ADVISERS ACT OF 1940
1. BROKERAGE ACCOUNT CONFIRMATIONS AND STATEMENTS. All reporting persons are
required to ensure that the office of the Compliance Officer is furnished
duplicate copies of the following documents:
(a) confirmations issued by broker-dealers upon the execution of all
personal securities transactions in any security in which the
reporting person had, at the time of the transaction, or by reason of
the transaction acquired, any direct or indirect beneficial ownership
interest in the security or securities which were the subject of the
transaction; and
(b) any regular periodic or other statements reflecting personal
securities transaction activity within any account with a securities
broker-dealer in which the reporting person has any direct or
indirect beneficial ownership interest.
9
<PAGE>
Such copies shall be provided to the Compliance Officer contemporaneously
with the time that the reporting person receives his or her copies from
the broker-dealer.
2. QUARTERLY REPORTS BY INTERESTED ACCESS PERSONS. Every interested access
person shall submit to the Compliance Department, on a calendar quarterly
basis, a report (the "Quarterly Report") of all personal securities
transactions. To facilitate preparation of this report, at the end of each
calendar quarter the Compliance Department will provide each interested
access person a listing of transactions for which the Compliance
Department had received duplicate confirmations during that quarter. An
interested access person shall review and revise such listing as
appropriate to satisfy this quarterly report requirement. Such quarterly
report shall be submitted within ten (10) calendar days after the end of
each calendar quarter. The Quarterly Report need not include any
transactions in "excepted securities" as defined in Appendix A of this
Code of Ethics and shall be filed with the Compliance Department
regardless whether the interested access person had a beneficial ownership
interest in any securities transactions during the quarter.
The Quarterly Report shall contain the following information:
(a) the date of the transaction, the title and the number of shares, and
the principal amount of each security involved;
(b) the nature of the transaction (i.e., purchase, sale or any other type
of acquisition or disposition);
(c) the price at which the transaction was effected; and
(d) the name of the broker, dealer or bank with or through whom the
transaction was effected.
3. REPORTS BY ACCESS PERSONS OF TRANSACTIONS IN SHARES ISSUED PURSUANT TO
DIVIDEND REINVESTMENT PLANS.
(a) Notwithstanding that transactions in shares issued pursuant to
automatic dividend reinvestment plans are excluded from the term
"purchase or sale of a security" within the meaning of this Code, in
order to facilitate IMCO's compliance with the books and records
provisions of Rule 204-2(a)(12) under the Investment Advisers Act of
1940, all interested access persons shall be required to inform the
office of the Compliance Officer, in writing, of any transaction in
securities issued pursuant to dividend reinvestment plans in which
the interested access person has any direct or indirect beneficial
ownership interest, not later than ten (10) calendar days after the
end of the calendar quarter in which such transaction has occurred.
(b) Notwithstanding anything to the contrary in this Code, a disinterested
director/trustee shall not be required to report transactions in
securities issued
10
<PAGE>
pursuant to a dividend reinvestment plan (regardless of whether the
transaction is automatic), provided that at the time of execution of
the transaction, the disinterested director/trustee has no actual
knowledge regarding whether or not the security at issue, or any
equivalent security has, at any time during the previous fifteen
calendar days, been either (i) purchased or sold, or (ii) actively
considered for purchase or sale, by or on behalf of any USAA Fund or
other IMCO-managed account. Should a disinterested director/trustee
believe that he or she is in fact in possession of such knowledge
with respect to a contemplated personal securities transaction, the
transaction must be reported in the manner set forth in paragraph (a)
above with respect to interested access persons.
4. OTHER DISCLOSURE REQUIREMENTS. Each reporting person shall be required to
furnish upon his or her initial association with IMCO or SAS a disclosure
and identification of:
(a) all accounts with securities broker-dealers in which the reporting
person currently has any direct or indirect beneficial ownership
interest;
(b) any investment or other similar clubs or groups in which he or
she wishes to participate in (Participation in such clubs or
groups requires advance authorization and continuous compliance with
such terms and conditions as the Compliance Officer may impose); and
(c) any regular outside business interest and/or activities of the
reporting person (whether compensated or uncompensated), including
any directorships within the purview of paragraph V.2 above in which
he or she currently serves provided, however, that sub-paragraphs (a)
and (b) above shall not apply to disinterested directors/trustees.
Subsequent developments necessitating additions, deletions or other
changes in the above information shall be brought by reporting persons to
the attention of the office of Compliance Office PRIOR to the occurrence
of developments within the scope of sub-paragraph (a) and (b) above, and
PROMPTLY FOLLOWING occurrences within the scope of sub-paragraph (c)
above. The information on file will be provided to persons to whom this
Code applies on an annual basis by the office of the Compliance Officer.
Each reporting person shall also be required, upon his or her initially
becoming subject to this Code, and annually thereafter to disclose and
identify all individual securities in which the reporting person had, as
of the effective date of such disclosure, any direct or indirect
beneficial interest.
11
<PAGE>
Exhibit 16(b)
<PAGE>
CODE OF ETHICS AND PROCEDURES
PURSUANT TO RULE 17J-1 UNDER THE
INVESTMENT COMPANY ACT OF 1940
This Code of Ethics (the "Code") has been adopted by each Investment Company
listed on Exhibit A, attached hereto (each, a "Trust") to specify and prohibit
certain types of personal securities transactions deemed to create a conflict
of interest and to establish reporting requirements and preventive procedures
pursuant to the provisions of Rule 17j-1(b)(1) under the Investment Company Act
of 1940 (the "1940 Act").
I. DEFINITIONS
A. An "Access Person" means (i) any Trustee, Director, officer, or Advisory
Person (as defined below) of the Investment Company or any investment
advisor thereof, or (ii) any director or officer of a principal
underwriter of the Investment Company, who, in the ordinary course of his
or her business, makes, participates in or obtains information regarding
the purchase or sale of securities for the Investment Company for which
the principal underwriter so acts or whose functions or duties as part of
the ordinary course of his or her business relate to the making of any
recommendation to the Investment company regarding the purchase or sale of
securities or (iii) notwithstanding the provisions of clause (i) above,
where the investment adviser is primarily engaged in a business or
businesses other than advising registered investment companies or other
advisory clients, any trustee, director, officer or Advisory Person of the
investment adviser who, with respect to the Investment Company, makes any
recommendation or participates in the determination of which
recommendations shall be made, or whose principal function of duties
relate to the determination of which recommendations shall be made to the
Investment Company or who in connection with his or her duties, obtains
any information concerning securities recommendations being made by such
investment adviser to the Investment Company.
B. An "Advisory Person" means any employee of the Investment Company or any
investment advisor thereof (or of any company in a control relationship to
the Investment Company or such investment adviser), who, in connection
with his or her regular functions or duties, makes, participates in or
obtains information regarding the purchase or sale of securities by the
Investment Company or whose functions relate to any recommendations with
respect to such purchases or sales and any natural person in a control
relationship with the Investment Company or adviser who obtains
information regarding the purchase or sale of securities.
C. A "Portfolio Manager" means any person or persons with the direct
responsibility and authority to make investment decisions affecting the
Investment Company.
D. "Access Persons", "Advisory Persons" and "Portfolio Managers" shall not,
unless otherwise provided in the code of ethics of the Investment
Company's investment adviser any subadviser, administrator or principal
underwriter, include any individual who is required to file quarterly
reports with the Investment Company's investment adviser, any subadviser,
administrator or principal underwriter pursuant to a code of ethics
substantially in conformity with Rule 17j-1 of the 1940 Act or Rule 204-2
of the Investment Advisers Act of 1940 which has been approved by the
Investment Company's Board of Trustees.
E. "Beneficial Ownership" shall be interpreted subject to the provisions of
Rule 16a-1(a) (exclusive of Section (a)(1) of such Rule) of the Securities
Exchange Act of 1934.
F. "Control" shall have the same meaning as set forth in Section 2(a)(9) of
the 1940 Act.
1
<PAGE>
G. "Disinterested Trustee" means a Trustee who is not an "interested person"
of the Investment Company within the meaning of Section 2(a)(19) of the
1940 Act. An "interested person" includes any person who is a trustee,
director, officer or employee of any investment adviser of the Investment
Company, or owner of 5% or more of the outstanding stock of any investment
adviser of the Investment Company. Affiliates of brokers or dealers are
also "interested persons", except as provided in Rule 2(a)(19)(1) under
the 1940 Act.
H. "Review Officer" is the person designated by the Investment Company's
Board of Trustees to monitor the overall compliance with this Code. In the
absence of any such designation, the Review Officer shall be the Treasurer
or any Assistant Treasurer of the Investment Company.
I. "Preclearance Officer" is the person designated by the Investment
Company's Board of Trustees to provide preclearance of any personal
security transaction as required by this Code.
J. "Purchase or sale of a security" includes, among other things, the writing
of an option to purchase or sell a security or the purchase or sale of a
future or index on a security or option thereon.
K. "Security" shall have the meaning set forth in Section 2(a)(36) of the
1940 Act (in effect, all securities) except that is shall not include
securities issued by the U.S. Government (or any other "government
security" as that term is defined in the 1940 Act), bankers' acceptances,
bank certificates of deposit, commercial paper and such other money market
instruments as may be designated by the Trustees of the Investment
Company, and shares of registered open-end investment companies.
L. A security is "being considered for purchase or sale" when a
recommendation to purchase or sell the security has been made and
communicated and, with respect to the person making the recommendation,
when such person seriously considers making such a recommendation.
II. STATEMENT OF GENERAL PRINCIPLES
The following general fiduciary principles shall govern the personal investment
activities of all Access Persons.
Each Access Person shall:
A. At all times, place the interests of the Investment Company before his or
her personal interests;
B. Conduct all personal securities transactions in a manner consistent with
this Code, so as to avoid any actual or potential conflicts of interest,
or an abuse of position of trust and responsibility; and
C. Not take an inappropriate advantage of his or her position with or on
behalf of the Investment Company.
III. UNLAWFUL ACTIONS
It is unlawful for any affiliated person of or principal underwriter for a
Fund, or any affiliated person of an investment adviser of or principal
underwriter for a Fund, in connection with the purchase or sale, directly or
indirectly, by the person of a security held or to be acquired by the Fund:
A. To employ any device, scheme or artifice to defraud the Fund;
B. To make any untrue statement of a material fact to the Fund or to omit to
state a material fact necessary in order to make statements made to the
Fund, in light of the circumstances in which they are made, not
misleading;
2
<PAGE>
C. To engage in any act, practice or course of business that operates or
would operate as a fraud or deceit on the Fund; or
D. To engage in any manipulative practice with respect to the Fund.
IV. RESTRICTIONS OF PERSONAL INVESTING ACTIVITIES
A. Blackout Periods
1. No Access Person (other than a Disinterested Trustee) shall purchase or
sell, directly or indirectly, any security in which he or she has, or
by reason of such transaction acquires, any direct or indirect
beneficial ownership on a day during which he or she knows or should
have known the Investment Company has a pending "buy" and "sell" order
in that same security until that order is executed or withdrawn.
2. No Advisory Person or Portfolio Manager shall purchase or sell,
directly or indirectly, any security in which he or she has, or by
reason of such transaction acquires, any direct or indirect beneficial
ownership within at least seven calendar days before and after the
Investment Company trades (or has traded) in that security.
B. Initial Public Offerings
No Advisory Person shall acquire any security in an initial public
offering for his or her personal account.
C. Private Placements
With regard to private placements, each Advisory Person shall:
1. Obtain express prior written approval from the Preclearance Officer for
any acquisition of securities in a private placement (the Preclearance
Officer, in making such determination, shall consider, among other
factors, whether the investment opportunity should be reserved for the
Investment Company, and whether such opportunity is being offered to
such Advisory Person by virtue of his or her position with the
Investment Company); and
2. After authorization to acquire securities in a private placement has
been obtained, disclose such personal investment with respect to any
subsequent consideration by the Investment Company (or any other
investment company for which he or she acts in a capacity as an
Advisory Person) for investment in that issuer.
If the Investment Company decides to purchase securities of an issuer
the shares of which have been previously obtained for personal
investment by an Advisory Person, that decision shall be subject to an
independent review by Advisory Persons with no personal interest in the
issuer.
D. Short-Term Trading Profits
No Advisory Person shall profit from the purchase and sale, or sale and
purchase, of the same (or equivalent) securities of which such Advisory
Person has beneficial ownership within 60 calendar days. any profit so
realized shall, unless the Investment Company" Board of Trustees approves
otherwise, be disgorged as directed by the Investment Company's Board of
Trustees.
E. Gifts
No Advisory Person shall receive any gift or other things of more than de
minimis value from any person or entity that does business with or on
behalf of the Investment Company.
3
<PAGE>
F. Service as a Director or Trustee
1. No Advisory Person shall serve on the board of directors or trustees of
a publicly traded company without prior authorization from the Board of
Trustees of the Investment Company, based upon a determination that
such board service would be consistent with the interests of the
Investment Company and its investors.
2. If board service by an Advisory Person is authorized by the Board of
Trustees of the Investment Company such Advisory Person shall be
isolated from the investment making decisions of the Investment Company
with respect to the companies of which he or she is a director or
trustee.
G. Exempted Transactions
The prohibitions of Section IV shall not apply to:
1. Purchases or sales effected in any account over which the Access Person
has no direct or indirect influence or control;
2. Purchases or sales that are non-volitional on the part of the Access
Person or the Investment Company, including mergers, recapitalizations
or similar transactions;
3. Purchases which are part of an automatic dividend reinvestment plan;
4. Purchases effected upon the exercise of rights issued by an issuer pro
rata to all holders of a class of securities, to the extent such rights
were acquired from such issuer, and sales of such rights so acquired;
and
5. Purchases or sales that receive prior approval in writing by the
Preclearance Officer as (a) only remotely potentially harmful to the
Investment Company because they would be very unlikely to affect a
highly institutional market, (b) clearly not economically related to
the securities to be purchased or sold or held by the Investment
company or client, and (c) not representing any danger of the abuses
proscribed by Rule 17j-1, but only if in each case the prospective
purchaser has identified to the Review Officer all factors of which he
or she is aware which are potentially relevant to a conflict of
interest analysis, including the existence of any substantial economic
relationship between his or her transaction and securities held or to
be held by the Investment Company.
V. COMPLIANCE PROCEDURES
A. Preclearance
1. An Access Person (other than a Disinterested Trustee) may not, directly
or indirectly, acquire or dispose of beneficial ownership of a security
except as provided below unless:
a. Such purchase or sale has been approved by the Preclearance Officer;
b. The approved transaction is completed on the same day approval is
received; and
c. The Preclearance Officer has not rescinded such approval prior to
execution of the transaction.
2. Each Access person may effect total purchase and sales of up to $25,000
of securities listed on a national securities exchange or on NASDAQ
within any six month period without preclearance from the Board of
Trustees or the Preclearance Officer provided that:
a. The six month period is a "rolling" period, i.e., the limit is
applicable between any two dates which are six months apart;
b. Transactions in options and futures, other than options or futures
on commodities, will be included for purposes of calculating
whether the $25,000 limit has been exceeded. such transactions will
be measured by the value of the securities underlying options and
futures; and
4
<PAGE>
c. although preclearance is not required for personal transactions in
securities which fall into this "de minimis" exception, these
trades must still be reported on a quarterly basis pursuant to
Section V.B.2. hereunder, if such transactions are reportable.
B. Reporting
1. Coverage: Each Access Person (other than Disinterested Trustees) shall
file with the Review Officer confidential quarterly reports containing
the information required in Section V.B.2 hereunder with respect to all
transactions during the preceding quarter in any securities in which
such person has, or by reason of such transaction acquires, any direct
or indirect beneficial ownership, provided that no Access Person shall
be required to report transactions effected for any account over which
such Access Person has no direct or indirect influence or control
(except that such an Access Person must file a written certification
stating that he or she has no direct or indirect influence or control
over the account in question).
2. Filings: Every report shall be made no later than ten days after the
end of the calendar quarter in which the transaction to which the
report relates was effected, and shall contain the following
information:
a. The date of the transaction, the title and the number of shares and
the principal amount of each security involved;
b. The nature of the transaction (i.e. purchase, sale, or any other
type of acquisition or disposition);
c. The price at which the transaction was effected; and
d. The name of the broker, dealer or bank with or through whom the
transaction was effected.
3. Any report may contain a statement that it shall not be construed as an
admission by the person making the report that he or she has any direct
or indirect beneficial ownership in the security to which the report
relates.
4. Confirmations: All Access Persons (other than Disinterested Trustees)
shall direct their brokers to supply the Investment Company's Review
Officer on a timely basis, duplicate copies of all personal securities
transactions.
C. Review
In reviewing transactions and holding reports, the Review Officer shall
take into account the exemptions allowed under Section IV.G. hereunder.
Before making a determination that a violation has been committed by an
Access Person, the Review Officer shall give such person an opportunity to
supply additional information regarding the transaction in question. Each
Fund, investment adviser or principal underwriter shall maintain a list of
names of appropriate management and compliance personnel responsible for
reviewing securities transactions and holdings reports.
D. Disclosure of Personal Holdings
All Advisory Persons shall disclose personal securities holdings upon
commencement of employment and thereafter on an annual basis.
E. Certification of Compliance
Each Access Person is required to certify annually that he or she has read
and understood this Code and recognizes that he or she is subject to the
Code. Further, each Access Person is required to certify annually that he
or she has complied with all the requirements of this Code and that he or
she has disclosed or reported all personal securities transactions
pursuant to the requirements of the Code.
5
<PAGE>
VI. REQUIREMENTS FOR DISINTERESTED TRUSTEES
A. No report is required if such person is a Disinterested Trustee, and such
person would be required to make such report solely by reason of being a
Trustee, except where such Trustee knew, or in the ordinary course of
fulfilling his official duties as a Trustee of the Funds, should have
known that during the fifteen day period immediately preceding or after
the date of the transaction in a security by the Trustee, such security is
or was purchased or sold, or considered for purchase or sale by the Funds.
B. Notwithstanding the preceding section, any Disinterested Trustee may, at
his or her option, report the information described in Section V.B.2.
above with respect to any one or more transactions and may include a
statement that the report shall not be construed as an admission that the
person knew or should have known of portfolio transactions by the
Investment Company in such securities.
VII. REVIEW BY THE BOARD OF TRUSTEES
The Board of Trustees, including a majority of Trustees who are not interested
persons, must approve the Code of Ethics of the Fund, the Code of Ethics of
each investment adviser and principal underwriter of the Fund, and any material
changes to these Codes. The board must base its approval of a Code and any
material changes to the Code based on a determination that the Code contains
provisions reasonably necessary to to prevent Access Persons from engaging in
any conduct prohibited by paragraph III. of these policies and procedures.
Before approving a Code of a Fund, investment adviser or principal underwriter
or any amendment to the Code, the Board of Trustees must receive a
certification from the Fund, investment adviser or principal underwriter that
it has adopted procedures reasonably necessary to prevent Access Persons from
violating the investment adviser's or principal underwriter's Code of Ethics.
The Fund's board must approve the Code of an investment adviser or principal
underwriter before initially retaining the services of the investment adviser
or principal underwriter. The Fund's board must approve a material change to a
Code no later than six months after adoption of the material change.
At least annually, the Review Officer shall provide to the Board of Trustees:
A. A review of all existing procedures concerning Access Persons' personal
trading activities and any procedural changes made during the past year;
B. Any recommended changes to the Investment Company's Code or procedures;
and
C. A written report describing any issues or violations that occurred during
the past year, including, but not limited to, information about material
Code or procedural violations and sanctions imposed in response to those
violations.
D. Certification that the Fund, investment adviser or principal underwriter
has adopted procedures reasonably necessary to prevent its access persons
from violating its Code of Ethics.
VIII. SANCTIONS
A. Sanctions for Violations By Access Persons (Except Disinterested Trustees)
If the Review Officer determines that a violation of this Code has
occurred, he or she shall so advise the Board of Trustees and the Board
may impose such sanctions as it deems appropriate, including inter alia,
disgorgement of profits, censure, suspension or termination of the
employment of the violator. All material violations of the code and any
sanctions imposed as a result thereto shall be reported periodically to
the Board of Trustees.
6
<PAGE>
B. Sanctions for Violations by Disinterested Trustees
If the Review Officer determines that any Disinterested Trustee has
violated this code, he or she shall so advise the President of the
Investment Company and also a committee consisting of the Disinterested
Trustees (other than the person whose transaction is at issue) and shall
provide the committee with a report, including the record of pertinent
actual or contemplated portfolio transactions of the Investment Company
and any additional information supplied by the person whose transaction is
at issue. The committee, at its option, shall either impose such sanctions
as it deems appropriate or refer the matter to the full Board of Trustees
of each Trust, which shall impose such sanctions as it deems appropriate.
IX. MISCELLANEOUS
A. Access Persons
The Review Officer of the Investment Company will identify all Access
Persons who are under a duty to make reports to the Investment Company and
will inform such person so of such duty. Any failure by the Review Officer
to notify any person of his or her duties shall not relieve such person of
his or her obligations hereunder.
B. Records
The Investment Company's administrator shall maintain records in the
manner and to the extent set froth below, which records may be maintained
on microfilm under the conditions described in Rule 31a-2(f) under the
1940 Act, and shall be available for examination by representatives of the
Securities and Exchange Commission ("SEC"):
1. A copy of this Code and any other code which is, or at any time within
the past five years has been, in effect shall be preserved in an easily
accessible place;
2. A record of any violation of this Code and of any action taken as a
result of such violation shall be preserved in an easily accessible
place for a period of not less than five years following the end of the
fiscal year in which the violation occurs;
3. A copy of each report made pursuant to this Code shall be preserved for
a period of not less than five years from the end of the fiscal year in
which it is made, the first two years in an easily accessible place;
and
4. A list of all persons who are required, or within the past five years
have been required, to make reports pursuant to this Code shall be
maintained in an easily accessible place.
C. Confidentiality
All reports of securities transactions and any other information filed
pursuant to this Code shall be treated as confidential, except to the
extent required by Law.
D. Interpretation of Provisions
The Board of Trustees of the Investment Company may from time to time
adopt such interpretations of this Code as it deems appropriate.
7
<PAGE>
BT INVESTMENT FUNDS PRESERVATIONPLUS FUND
BT INSTITUTIONAL FUNDS PRESERVATIONPLUS INCOME FUND
THE LEADERSHIP TRUST U.S. BOND INDEX PORTFOLIO
EAFE INDEX PORTFOLIO
SMALL CAP PORTFOLIO EQUITY 500 INDEX PORTFOLIO
CASH MANAGEMENT PORTFOLIO SET MANAGEMENT I, II & III PORTFOLIO
TREASURY MONEY PORTFOLIO CAPITAL APPRECIATION PORTFOLIO
DAILY ASSETS FUND EQUITY APPRECIATION PORTFOLIO
INSTITUTIONAL TREASURY ASSETS FUND SMALL CAP INDEX PORTFOLIO
LIQUID ASSETS FUND QUANTITATIVE EQUITY FUND
TAX FREE MONEY PORTFOLIO INTERMEDIATE TAX FREE PORTFOLIO
NY TAX FREE MONEY PORTFOLIO BT INVESTMENT PORTFOLIOS
INTERNATIONAL EQUITY PORTFOLIO BT INSURANCE FUNDS TRUST
LATIN AMERICAN EQUITY PORTFOLIO (each, an "Investment Company")
PACIFIC BASIN EQUITY PORTFOLIO
GLOBAL EMERGING MARKETS EQUITY PORTFOLIO
TRANSACTION REPORT
To: ____________________________, Review Officer
From: ______________________________________
(Your name)
This Transaction Report (the "Report") is submitted pursuant to
Section V of the Code of Ethics, as of [____ , 1999] (the Code), of the above
referenced Trust and supplies (below) information with respect to transactions
in any security in which I may be deemed to have, or by reason of such
transaction acquire, any direct or indirect beneficial ownership interest
(whether or not such security is a security held or to be acquired by the
Investment Company) for the calendar quarter ended ____________.
Unless the context otherwise requires, all terms used in this Report
shall have the same meaning as set forth in the Code.
For purposes of this Report, beneficial ownership shall be interpreted
subject to the provisions of the Code and Rule 16a-1(a) (exclusive of Section
(a)(1) of such Rule) of the Securities Exchange Act of 1934.
[GRID]
TITLE OF SECURITIES
Date of Disposition of
TRANSACTION
Nature of Transaction,
Whether Purchase, Sale
or Other type of
Acquired Or
ACQUISITION
Principal Amount of
Securities Transaction
DISPOSED OF
Price at Which the
Transaction was
Effected
Name of the Broker,
Dealer, or Bank with
Whom the Ownership
WAS EFFECTED
NATURE OF SECURITIES*
*If appropriate, you may disclaim beneficial ownership of any security listed
in this Report.
8
<PAGE>
I HEREBY CERTIFY THAT I (1) HAVE READ AND UNDERSTAND THE CODE OF THE
INVESTMENT COMPANY (2) RECOGNIZE THAT I AM SUBJECT TOT HE CODE, (3) HAVE
COMPLIED WITH THE REQUIREMENTS OF THE CODE OVER THE PAST YEAR*, (4) HAVE
DISCLOSED ALL PERSONAL SECURITIES TRANSACTIONS OVER THE PAST YEAR* REQUIRED TO
BE DISCLOSED BY THE CODE, (5) HAVE SOUGHT AND OBTAINED PRECLEARANCE WHENEVER
REQUIRED BY THE CODE AND (6) CERTIFY THAT TO THE BEST OF MY KNOWLEDGE THE
INFORMATION FURNISHED IN THIS REPORT IS TRUE AND CORRECT.
NAME (Print): _________________________________________________________
SIGNATURE: ___________________________________________________________
DATE: _____________________________________________________________
(*) OR PORTION THEREOF DURING WHICH THE CODE HAS BEEN IN EFFECT.
9
<PAGE>
BT INVESTMENT FUNDS INTERNATIONAL EQUITY PORTFOLIO
BT INSTITUTIONAL FUNDS LATIN AMERICAN EQUITY PORTFOLIO
BT PYRAMID MUTUAL FUNDS PACIFIC BASIN EQUITY PORTFOLIO
THE LEADERSHIP TRUST GLOBAL EMERGING MARKETS EQUITY PORTFOLIO
BT INVESTMENT PORTFOLIO QUANTITATIVE EQUITY FUND
BT INSURANCE FUNDS TRUST SMALL CAP PORTFOLIO
CASH MANAGEMENT PORTFOLIO EQUITY 500 INDEX PORTFOLIO
TREASURY MONEY PORTFOLIO EAFE INDEX PORTFOLIO
INSTITUTIONAL TREASURY ASSETS FUND U.S. BOND INDEX PORTFOLIO
DAILY ASSETS FUND SMALL CAP INDEX PORTFOLIO
LIQUID ASSETS FUND ASSET MANAGEMENT I, II & III PORTFOLIOS
TAX FREE MONEY PORTFOLIO CAPITAL APPRECIATION PORTFOLIO
NY TAX FREE MONEY PORTFOLIO EQUITY APPRECIATION PORTFOLIO
PRESERVATIONPLUS FUND INTERMEDIATE TAX FREE PORTFOLIO
PRESERVATIONPLUS INCOME FUND
PERSONAL TRADING REQUEST AND AUTHORIZATION
This Personal Trading Request and Authorization is submitted pursuant
to the Code of Ethics as of [ _______, 1999] (the "Code") of the above
referenced. Unless the context otherwise requires, all terms used herein
shall have the same meaning as set forth in the Code.
Personal Trading Request (to be completed by Access Person prior to any
personal trade):
Name of Access Person: ___________________________________________________
Date of proposed transaction: ________________________________________________
Name of the issuer and dollar amount or number of securities of the issuer to
be purchased or sold:
- -------------------------------------------------------------------------------
Nature of the transaction (i.e. purchase, sale)1:
- -------------------------------------------------------------------------------
Are you or is a member of your immediate family an officer, trustee, or
director of the issuer of the securities or any affiliate2 of the issuer?
|_| Yes |_| No
If yes, please describe:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
_______________________________________________________________________________
1 If other than market order, please describe any proposed limits.
2 For purposes of this question, "affiliate" includes (I) any entity that
directly or indirectly owns, controls or holds with power to vote 5% or more
of the outstanding voting securities of the issuer and (II) any entity under
common control with the issuer.
10
<PAGE>
Describe the nature of any direct or indirect professional or business
relationship that you may have with the issuer of the securities.3
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Do you have an material nonpublic information concerning the issuer?
|_| Yes |_| No
Do you beneficially own more than 1/2 of 1% of the outstanding equity
securities of the issuer?
|_| Yes |_| No
If yes, please report the name of the issuer and the total number of
shares "beneficially owned":
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Are you aware of any facts regarding the proposed transaction, including the
existence of any substantial economic relationship between the proposed
transaction and any securities held or to be acquired by the Investment
Company, that may be relevant to a determination as to the existence of a
potential conflict of interest?4
|_| Yes |_| No
If yes, please describe:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
3 A "professional relationship" includes, for example, the provision of legal
counsel or accounting services. a "business relationship" includes, for
example, the provision of consulting services or insurance coverage.
4 Facts that would be responsive to this question would include, for example
the receipt of "special favors" from a stock promoter, including
participation in a private placement or initial public offering as an
inducement to purchase other securities for the Investment Company. Another
example would be investment in securities of a limited partnership that in
turn owned warrants of a company formed for the purpose of effecting a
leveraged buy-out in circumstances where the Investment Company might invest
in securities related to a leveraged buy-out. The foregoing are only examples
of pertinent facts and in no way limit the types of facts that may be
responsive to this question.
11
<PAGE>
To the best of my knowledge and belief, the answers I have provided above are
true and correct.
Dated: ______________________ _________________________________
Signature of Access Person
Approval or Disapproval of Personal Trading Request (to be completed by
Preclearance Officer) prior to personal trade:
___ I confirm that the above-described proposed transaction appears to be
consistent with the policies described in the Code and that the
conditions necessary5 for approval of the proposed transaction have been
satisfied.
___ I do not believe that the above-described proposed transaction appears
to be consistent with the policies described in the Code or that the
conditions necessary for the approval of the proposed transaction have
been satisfied.
Dated: ___________________________ ___________________________________
Signature of Preclearance Officer
_______________________________________________________________________________
5 In the case of a personal securities transaction by an Access Person of the
Investment Company (other than Disinterested Trustees), the Code requires
that the Preclearance Officer determine that the proposed personal securities
transaction (I) is not potentially harmful to the Investment Company (II)
would be unlikely to affect the market in which the Investment Company's
portfolio securities are traded, and (III) is not related economically to
securities to be purchased, sold, or held by the Investment Company. In
addition, the Code requires that the Preclearance Officer determine that the
decision to purchase or sell the security at issue is not he result of
information obtained in the course of the Access Person's relationship with
the Investment Company.
12
<PAGE>
EXHIBIT A
BT INVESTMENT FUNDS
BT INSTITUTIONAL FUNDS
BT PYRAMID MUTUAL FUNDS
THE LEADERSHIP TRUST
BT INVESTMENT PORTFOLIO
BT INSURANCE FUNDS TRUST
CASH MANAGEMENT PORTFOLIO
TREASURY MONEY PORTFOLIO
INSTITUTIONAL TREASURY ASSETS FUND
DAILY ASSETS FUND
LIQUID ASSETS FUND
TAX FREE MONEY PORTFOLIO
NY TAX FREE MONEY PORTFOLIO
PRESERVATIONPLUS FUND
PRESERVATIONPLUS INCOME FUND
INTERNATIONAL EQUITY PORTFOLIO
LATIN AMERICAN EQUITY PORTFOLIO
PACIFIC BASIN EQUITY PORTFOLIO
GLOBAL EMERGING MARKETS EQUITY PORTFOLIO
QUANTITATIVE EQUITY FUND
SMALL CAP PORTFOLIO
EQUITY 500 INDEX PORTFOLIO
EAFE INDEX PORTFOLIO
U.S. BOND INDEX PORTFOLIO
SMALL CAP INDEX PORTFOLIO
ASSET MANAGEMENT I, II & III PORTFOLIOS
CAPITAL APPRECIATION PORTFOLIO
EQUITY APPRECIATION PORTFOLIO
INTERMEDIATE TAX FREE PORTFOLIO
13
Exhibit 17(a)
<PAGE>
POWER OF ATTORNEY
STATE OF: TEXAS
COUNTY OF: BEXAR
Know all men by these presents that the undersigned Director of USAA
MUTUAL FUND, INC., a Maryland Corporation, (the "Company"), constitutes and
appoints Michael J. C. Roth, David G. Peebles, Michael D. Wagner, and Mark S.
Howard, and each of them, as his true and lawful attorney-in-fact and agent,
with full power of substitution, for him and in his name, place and stead, in
any and all capacities to sign registration statements in his capacity as a
Director of the Company on any form or forms filed under the Securities Act of
1933 and the Investment Company Act of 1940 and any and all amendments thereto,
with all exhibits, instruments, and other documents necessary or appropriate in
connection therewith and to file them with the Securities and Exchange
Commission or any other regulatory authority as may be necessary or desirable,
hereby ratifying and confirming all that said attorney-in-fact and agent or his
substitute, may lawfully do or cause to be done by virtue hereof.
/s/ Michael J. C. Roth April 22, 2000
- ---------------------------------- -----------------------------------
Michael J. C. Roth Date
Director
On this 22nd day of April, 2000, before me, Patricia M. McClain, the
undersigned Notary Public, personally appeared Michael J. C. Roth, known to me
to be the person whose name is subscribed to the above Power of Attorney, and
acknowledged that he executed it.
WITNESS my hand and official seal
/s/ Patricia M. McClain
My Commission Expires: ------------------------------------
Notary Public
August 17, 20003 State of Texas
- -----------------------
<PAGE>
POWER OF ATTORNEY
STATE OF: TEXAS
COUNTY OF: BEXAR
Know all men by these presents that the undersigned Treasurer of USAA
MUTUAL FUND, INC., a Maryland Corporation, (the "Company"), constitutes and
appoints Michael J. C. Roth, David G. Peebles, Michael D. Wagner, and Mark S.
Howard, and each of them, as her true and lawful attorney-in-fact and agent,
with full power of substitution, for her and in her name, place and stead, in
any and all capacities to sign registration statements in her capacity as the
Treasurer of the Company on any form or forms filed under the Securities Act of
1933 and the Investment Company Act of 1940 and any and all amendments thereto,
with all exhibits, instruments, and other documents necessary or appropriate in
connection therewith and to file them with the Securities and Exchange
Commission or any other regulatory authority as may be necessary or desirable,
hereby ratifying and confirming all that said attorney-in-fact and agent or his
substitute, may lawfully do or cause to be done by virtue hereof.
/s/ Sherron A. Kirk April 18, 2000
- -------------------------------- -----------------------------
Sherron A. Kirk Date
Treasurer (Principal Financial
and Accounting Officer)
On this 18th day of April, 2000, before me, Patricia M. McClain, the
undersigned Notary Public, personally appeared Sherron A. Kirk, known to me to
be the person whose name is subscribed to the above Power of Attorney, and
acknowledged that she executed it.
WITNESS my hand and official seal
/s/ Patricia M. McClain
My Commission Expires: ------------------------------------
Notary Public
August 17, 20003 State of Texas
- -----------------------
<PAGE>
POWER OF ATTORNEY
STATE OF: TEXAS
COUNTY OF: BEXAR
Know all men by these presents that the undersigned Director of USAA
MUTUAL FUND, INC., a Maryland Corporation, (the "Company"), constitutes and
appoints Michael J. C. Roth, David G. Peebles, Michael D. Wagner, and Mark S.
Howard, and each of them, as his true and lawful attorney-in-fact and agent,
with full power of substitution, for him and in his name, place and stead, in
any and all capacities to sign registration statements in his capacity as a
Director of the Company on any form or forms filed under the Securities Act of
1933 and the Investment Company Act of 1940 and any and all amendments thereto,
with all exhibits, instruments, and other documents necessary or appropriate in
connection therewith and to file them with the Securities and Exchange
Commission or any other regulatory authority as may be necessary or desirable,
hereby ratifying and confirming all that said attorney-in-fact and agent or his
substitute, may lawfully do or cause to be done by virtue hereof.
/s/ David G. Peebles April 18, 2000
- --------------------------- ----------------------------------
David G. Peebles Date
Director
On this 18th day of April, 2000, before me, Patricia M. McClain, the
undersigned Notary Public, personally appeared David G. Peebles, known to me to
be the person whose name is subscribed to the above Power of Attorney, and
acknowledged that he executed it.
WITNESS my hand and official seal
/s/ Patricia M. McClain
My Commission Expires: ------------------------------------
Notary Public
August 17, 20003 State of Texas
- -----------------------
<PAGE>
POWER OF ATTORNEY
STATE OF: TEXAS
COUNTY OF: BEXAR
Know all men by these presents that the undersigned Director of USAA
MUTUAL FUND, INC., a Maryland Corporation, (the "Company"), constitutes and
appoints Michael J. C. Roth, David G. Peebles, Michael D. Wagner, and Mark S.
Howard, and each of them, as his true and lawful attorney-in-fact and agent,
with full power of substitution, for him and in his name, place and stead, in
any and all capacities to sign registration statements in his capacity as a
Director of the Company on any form or forms filed under the Securities Act of
1933 and the Investment Company Act of 1940 and any and all amendments thereto,
with all exhibits, instruments, and other documents necessary or appropriate in
connection therewith and to file them with the Securities and Exchange
Commission or any other regulatory authority as may be necessary or desirable,
hereby ratifying and confirming all that said attorney-in-fact and agent or his
substitute, may lawfully do or cause to be done by virtue hereof.
/s/ Robert L. Mason April 18, 2000
- --------------------------- ----------------------------------
Robert L. Mason Date
Director
On this 18th day of April, 2000, before me, Patricia M. McClain, the
undersigned Notary Public, personally appeared Robert L. Mason, known to me to
be the person whose name is subscribed to the above Power of Attorney, and
acknowledged that he executed it.
WITNESS my hand and official seal
/s/ Patricia M. McClain
My Commission Expires: ------------------------------------
Notary Public
August 17, 20003 State of Texas
- -----------------------
<PAGE>
POWER OF ATTORNEY
STATE OF: TEXAS
COUNTY OF: BEXAR
Know all men by these presents that the undersigned Director of USAA
MUTUAL FUND, INC., a Maryland Corporation, (the "Company"), constitutes and
appoints Michael J. C. Roth, David G. Peebles, Michael D. Wagner, and Mark S.
Howard, and each of them, as his true and lawful attorney-in-fact and agent,
with full power of substitution, for him and in his name, place and stead, in
any and all capacities to sign registration statements in his capacity as a
Director of the Company on any form or forms filed under the Securities Act of
1933 and the Investment Company Act of 1940 and any and all amendments thereto,
with all exhibits, instruments, and other documents necessary or appropriate in
connection therewith and to file them with the Securities and Exchange
Commission or any other regulatory authority as may be necessary or desirable,
hereby ratifying and confirming all that said attorney-in-fact and agent or his
substitute, may lawfully do or cause to be done by virtue hereof.
/s/ Richard A. Zucker April 18, 2000
- ----------------------------- ----------------------------------
Richard A. Zucker Date
Director
On this 18th day of April, 2000, before me, Patricia M. McClain, the
undersigned Notary Public, personally appeared Richard A. Zucker, known to me
to be the person whose name is subscribed to the above Power of Attorney, and
acknowledged that he executed it.
WITNESS my hand and official seal
/s/ Patricia M. McClain
My Commission Expires: ------------------------------------
Notary Public
August 17, 20003 State of Texas
- -----------------------
<PAGE>
POWER OF ATTORNEY
STATE OF: TEXAS
COUNTY OF: BEXAR
Know all men by these presents that the undersigned Director of USAA
MUTUAL FUND, INC., a Maryland Corporation, (the "Company"), constitutes and
appoints Michael J. C. Roth, David G. Peebles, Michael D. Wagner, and Mark S.
Howard, and each of them, as her true and lawful attorney-in-fact and agent,
with full power of substitution, for her and in her name, place and stead, in
any and all capacities to sign registration statements in her capacity as a
Director of the Company on any form or forms filed under the Securities Act of
1933 and the Investment Company Act of 1940 and any and all amendments thereto,
with all exhibits, instruments, and other documents necessary or appropriate in
connection therewith and to file them with the Securities and Exchange
Commission or any other regulatory authority as may be necessary or desirable,
hereby ratifying and confirming all that said attorney-in-fact and agent or his
substitute, may lawfully do or cause to be done by virtue hereof.
/s/ Barbara B. Dreeben April 18, 2000
- --------------------------------- -----------------------------------
Barbara B. Dreeben Date
Director
On this 18th day of April, 2000, before me, Patricia M. McClain, the
undersigned Notary Public, personally appeared Barbara B. Dreeben, known to me
to be the person whose name is subscribed to the above Power of Attorney, and
acknowledged that she executed it.
WITNESS my hand and official seal
/s/ Patricia M. McClain
My Commission Expires: ------------------------------------
Notary Public
August 17, 20003 State of Texas
- -----------------------
<PAGE>
POWER OF ATTORNEY
STATE OF: TEXAS
COUNTY OF: BEXAR
Know all men by these presents that the undersigned Director of USAA
MUTUAL FUND, INC., a Maryland Corporation, (the "Company"), constitutes and
appoints Michael J. C. Roth, David G. Peebles, Michael D. Wagner, and Mark S.
Howard, and each of them, as his true and lawful attorney-in-fact and agent,
with full power of substitution, for him and in his name, place and stead, in
any and all capacities to sign registration statements in his capacity as a
Director of the Company on any form or forms filed under the Securities Act of
1933 and the Investment Company Act of 1940 and any and all amendments thereto,
with all exhibits, instruments, and other documents necessary or appropriate in
connection therewith and to file them with the Securities and Exchange
Commission or any other regulatory authority as may be necessary or desirable,
hereby ratifying and confirming all that said attorney-in-fact and agent or his
substitute, may lawfully do or cause to be done by virtue hereof.
/s/ Michael F. Reimherr April 18, 2000
- ----------------------------- -------------------------------
Michael F. Reimherr Date
Director
On this 18th day of April, 2000, before me, Patricia M. McClain, the
undersigned Notary Public, personally appeared Michael F. Reimherr, known to me
to be the person whose name is subscribed to the above Power of Attorney, and
acknowledged that he executed it.
WITNESS my hand and official seal
/s/ Patricia M. McClain
My Commission Expires: ------------------------------------
Notary Public
August 17, 20003 State of Texas
- -----------------------
<PAGE>
Exhibit 17(b)
<PAGE>
POWER OF ATTORNEY
This Power of Attorney will be contingent upon the election of the
Trustee nominees at the Special Shareholder Meetings to be held in September
and October 1999.
The undersigned Trustees and officers, as indicated respectively
below, of BT Investment Funds, BT Institutional Funds, BT Pyramid Mutual Funds,
and BT Advisor Funds (each, a "Trust") and Cash Management Portfolio, Treasury
Money Portfolio, Tax Free Money Portfolio, NY Tax Free Money Portfolio,
International Equity Portfolio, Equity 500 Index Portfolio, Asset Management
Portfolio, Capital Appreciation Portfolio, Intermediate Tax Free Portfolio, and
BT Investment Portfolios (each, a "Portfolio Trust") each hereby constitutes
and appoints the Secretary, each Assistant Secretary and each authorized
signatory of each Trust and each Portfolio Trust, each of them with full powers
of substitution, as his true and lawful attorney-in-fact and agent to execute
in his name and on his behalf in any and all capacities the Registration
Statements on Form N-1A, and any and all amendments thereto, and all other
documents, filed by a Trust or a Portfolio Trust with the Securities and
Exchange Commission (the "SEC") under the Investment Company Act of 1940, as
amended, and (as applicable) the Securities Act of 1933, as amended, and any
and all instruments which such attorneys and agents, or any of them, deem
necessary or advisable to enable the Trust or Portfolio Trust to comply with
such Acts, the rules, regulations and requirements of the SEC, and the
securities or Blue Sky laws of any state or other jurisdiction and to file the
same, with all exhibits thereto and other documents in connection therewith,
with the SEC and such other jurisdictions, and the undersigned each hereby
ratifies and confirms as his own act and deed any and all acts that such
attorneys and agents, or any of them, shall do or cause to be done by virtue
hereof. Any one of such attorneys and agents has, and may exercise, all of the
powers hereby conferred. The undersigned each hereby revokes any Powers of
Attorney previously granted with respect to any Trust or Portfolio Trust
concerning the filings and actions described herein.
Page 1 of 2
<PAGE>
IN WITNESS WHEREOF, each of the undersigned has hereunto set his hand
as of the 8th day of September, 1999.
SIGNATURES TITLE
/S/ JOHN Y. KEFFER President and Chief Executive Officer of
- -------------------------------- each Trust and Portfolio Trust
John Y. Keffer
/S/ CHARLES A. RIZZO Treasurer (Principal Financial and
- -------------------------------- Accounting Officer) of each Trust and
Charles A. Rizzo Portfolio Trust
/S/ CHARLES P. BIGGAR Trustee of each Trust and Portfolio Trust
- --------------------------------
Charles P. Biggar
/S/ S. LELAND DILL Trustee of each Trust and Portfolio Trust
- --------------------------------
S. Leland Dill
/S/ RICHARD T. HALE Trustee of each Trust and Portfolio Trust
- --------------------------------
Richard T. Hale
/S/ RICHARD J. HERRING Trustee of each Trust and Portfolio Trust
- --------------------------------
Richard J. Herring
/S/ BRUCE E. LANGTON Trustee of each Trust and Portfolio Trust
- --------------------------------
Bruce E. Langton
/S/ MARTIN J. GRUBER Trustee of each Trust and Portfolio Trust
- --------------------------------
Martin J. Gruber
/S/ PHILIP SAUNDERS, JR. Trustee of each Trust and Portfolio Trust
- --------------------------------
Philip Saunders, Jr.
/S/ HARRY VAN BENSCHOTEN Trustee of each Trust and Portfolio Trust
- --------------------------------
Harry Van Benschoten
Page 2 of 2
