<PAGE> 1
As filed with the Securities and Exchange Commission
on March 18, 1996
File No. 33-44905
File No. 811-6519
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. 8 [X]
and
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 11
(Check appropriate box or boxes)
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New USA Mutual Funds, Inc.
(Exact Name of Registrant as Specified in Charter)
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c/o State Street Bank and Trust Company
1776 Heritage Drive
North Quincy, Massachusetts 02171
(Address of Principal Executive Offices)
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(800) 222-2872
(Registrant's Telephone Number, Including Area Code)
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Margaret Harries
William O'Neil + Co. Incorporated
12655 Beatrice Street
Los Angeles, California 90066
(Name and Address of Agent for Service)
Please Send Copy of Communications to:
Dhiya El-Saden, Esq.
Gibson, Dunn & Crutcher
333 South Grand Avenue
Los Angeles, California 90071
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It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[x] on May 17, 1996 pursuant to paragraph (a)(1) of Rule 485
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2)
Registrant has registered an indefinite number of shares of its Common Stock
pursuant to Rule 24f-2 under the Investment Company of 1940. Registrant
intends to file the Notice required by Rule 24f-2 by March 31, 1996 for
Registrant's fiscal year ending January 31, 1996.
<PAGE> 2
THE NEW USA MUTUAL FUND
CROSS REFERENCE SHEET
FORM N-1A
Part A: Information Required in Prospectus
<TABLE>
<CAPTION>
N-1A Location in the Registration
Item No. Item Statement by Prospectus Heading
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<S> <C> <C>
1. Cover Page Cover Page
2. Synopsis "Fees and Expenses of the Fund"
3. Condensed Financial Information "Financial Highlights"
4. General Description of Registrant "The Fund," "Investment Objective and
Policies of the Fund," "General
Information"
5. Management of the Fund "Investment Objective and Policies of the
Fund," "The Manager," "Management of the
Fund," "How to Invest in the Fund"
6. Capital Stock and Other "The Fund," "Management of the Fund,"
Securities "Dividends and Distributions,"
"Taxation," "General Information"
7. Purchase of Securities Being "How to Invest in the Fund,"
Offered "Distribution Plan," "How the Fund's Per
Share Value Is Determined," "General
Information"
8. Redemption or Repurchase "How to Redeem an Investment in the Fund"
9. Pending Legal Proceedings Not Applicable
10. Cover Page Cover Page
11. Table of Contents Cover Page
12. General Information and History Not Applicable
13. Investment Objectives and "Investment Objective and Policies,"
Policies "Investment Restrictions"
14. Management of the Fund "Directors and Officers"
15. Control Persons and Principal "The Company," "Directors and Officers,"
Holders of Securities "General Information"
</TABLE>
2
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<TABLE>
<S> <C> <C>
16. Investment Advisory and Other "The Company," "The Investment Manager"
Services
17. Brokerage Allocation and Other "Execution of Portfolio Transactions"
Practices
18. Capital Stock and Other "The Company," "General Information"
Securities
19. Purchase, Redemption and Pricing "Additional Purchase and Redemption
of Securities Being Offered Information," "Determination of Share
Price"
20. Tax Status "Distributions and Tax Information"
21. Underwriters "Principal Underwriter"
22. Calculation of Performance Data "Performance Information"
23. Financial Statements Financial Statements
</TABLE>
3
<PAGE> 4
PART A
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PROSPECTUS
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<PAGE> 5
THE NEW USA MUTUAL FUND
C/O STATE STREET BANK AND TRUST COMPANY
1776 HERITAGE DRIVE
NORTH QUINCY, MASSACHUSETTS 02171
The New USA Mutual Fund (the "Fund") is a diversified series of New
USA Mutual Funds, Inc., an open-end, management investment company, that seeks
capital growth by investing primarily in equities of entrepreneurially managed
companies which, in the Fund Manager's judgment, have superior earnings growth
potential. The Fund is intended for long-term investors.
This Prospectus sets forth basic information about the Fund that
prospective investors should know before investing. It should be read and
retained for future reference. A Statement of Additional Information dated May
___, 1996, as may be amended from time to time, has been filed with the
Securities and Exchange Commission and is incorporated herein by reference. The
Statement of Additional Information is available without charge upon written
request to the Fund at the address given above, or by calling (800) 222-2872.
_________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
_________________
Prospectus dated May __, 1996.
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Fees and Expenses of the Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Financial Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Investment Objective and Policies of the Fund . . . . . . . . . . . . . . . . . . . . . 5
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
The Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
The Manager . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Management of the Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
How To Invest in the Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Distribution Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
How To Redeem an Investment in the Fund . . . . . . . . . . . . . . . . . . . . . . . . 20
Money Market Exchange Privilege . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
How the Fund's Per Share Value is Determined . . . . . . . . . . . . . . . . . . . . . 23
Dividends and Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Backup Withholding Instructions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Supplemental Application Forms . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Automatic Investment Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Automatic Investment Plan Application . . . . . . . . . . . . . . . . . . . . . 28
Systematic Withdrawal Plan Application . . . . . . . . . . . . . . . . . . . . . 31
Systematic Exchange Plan Application . . . . . . . . . . . . . . . . . . . . . . 32
</TABLE>
<PAGE> 7
THE NEW USA MUTUAL FUND
FEES AND EXPENSES OF THE FUND
Shares of the Fund may be purchased at their net asset value with a
maximum sales charge of 5.00% of the offering price next determined after a
purchase order is received in proper form. The minimum initial investment is
$1,000 ($250 for retirement plans). Subsequent investments may be made in
amounts of $50 or more ($25 for retirement plans).
The table summarizes your maximum transaction costs from investing in
the Fund and outlines the expenses which the Fund incurred in its fiscal year
ended January 31, 1996. The figures include any required fee deferrals.
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases (as a percentage of the public
offering price) 5.00%(1)
Maximum Sales Charge Imposed on Reinvested Dividends None
Deferred Sales Charges None(1)
Redemption Fees None
Exchange Fees $5.00(2)
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF
AVERAGE NET ASSETS) FOR FISCAL YEAR ENDED JANUARY 31, 1996
Management Fees 1.00%(3)
12b-1 Fees 0.60(4)
Interest Expense 0.49
Other Expenses 0.11
Total Fund Operating Expenses 2.69%
</TABLE>
1 The sales charge may be waived for certain categories of investors,
including corporate 401(k) plans. However, there will be a deferred
sales charge of 1.00% of the original purchase price if those
investors redeem their investment within 12 months. See "How to Invest
in the Fund."
2 There is a service fee of $5.00 per exchange into the Money Market
Portfolio of the Cash Account Trust ("CAT"). No fee is charged for
exchanges from CAT into the Fund. See "Money Market Exchange
Privilege."
3 If total operating expenses in a given year exceed the maximum allowed
by applicable state expense limitations, then New USA Research &
Management Co., the Fund's manager (the "Manager"), will defer its fee
to limit total annual Fund operating expenses to the maximum allowed
by such state expense limitations, and such deferral shall be subject
to recoupment in later years if legally permissible and if the Manager
remains in such capacity, among other conditions. The maximum state
limitation on Fund operating expenses (including 12b-1 expenses), on
fiscal 1996 average net assets of $181 million and a sales load of
5.00%, was 1.86%, plus an additional allowance for 12b-1 expenses (not
included in the 1.86% limitation) of 0.44%. See "Risk
Factors-Management of the Fund."
For additional disclosure relating to the Manager's fee, see
"Management of the Fund," which appears at page 12 of this Prospectus.
4 The 12b-1 expenses are for permissible marketing and distribution
expenses, the majority of which will be reimbursed to the Fund's
distributor, having been incurred on the Fund's behalf by its
distributor. The Fund may reimburse its distributor for such expenses
up to 0.75% of average net assets, plus an additional 0.25% for
service fees, subject to state expense limitations. See "Distribution
Plan."
1
<PAGE> 8
<TABLE>
<CAPTION>
EXAMPLE OF FUND EXPENSES 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------------------------ ------ ------- ------- --------
<S> <C> <C> <C>
You would pay the following
expenses on a $1,000
investment, assuming (1) 5%
annual return and (2)
redemption at the end of each
time period: . . . . . . . . $71.97 $116.57 $163.65 $293.15
</TABLE>
The table above is provided to assist investors in understanding the
various costs and expenses which may be borne directly or indirectly by an
investment in the Fund.
The Example shown above is based on operating expenses for the Fund's
fiscal year ended January 31, 1996 and should not be considered a
representation of past or future expenses. Actual Fund expenses may be greater
or less than those shown. In addition, federal regulations require the Example
to assume a 5.00% annual return, but the Fund's actual return may be higher or
lower.
2
<PAGE> 9
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF COMMON STOCK OUTSTANDING THROUGHOUT THE PERIOD
The table below provides operating performance for a share of common
stock outstanding, total investment return, ratios to average net assets and
other supplemental data, for each of the periods indicated, and has been
audited by Arthur Andersen LLP. This information has been determined based
upon financial information provided in the financial statements which are
included in the Statement of Additional Information. In addition, the Fund's
Annual Report contains a discussion of the performance of the Fund and a
comparison of the Fund's portfolio to the S & P 500. Both the Statement of
Additional Information and the Annual Report may be obtained without charge
from the Fund by calling (800) 222-2872.
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
FOR THE YEAR FOR THE YEAR FOR THE YEAR APRIL 29, 1992*
ENDED ENDED ENDED THROUGH
JANUARY 31, 1996 JANUARY 31, 1995 JANUARY 31, 1994 JANUARY 31, 1993
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning at period . . . $ 11.63 $ 12.88 $ 13.20 $ 12.00
-------- -------- -------- --------
Income from investment operations:
Net investment loss . . . . . . . . . . (0.37) (0.15) (0.14) (0.01)
Net realized and unrealized gain (loss) on
investments, futures, short sales and
options transactions . . . . . . . . . 5.54 (1.10) 1.27 1.21
-------- -------- -------- --------
Total from investment operations . . . 5.17 (1.25) 1.13 1.20
Less distributions to shareholders from:
Net realized gain on investments,
futures, short sales and options
transactions . . . . . . . . . . . . . (2.41) -- (1.45) --
-------- -------- -------- --------
Total distributions . . . . . . . . . (2.41) -- (1.45) --
-------- -------- -------- --------
Net asset value, end of period . . . . . . $14.39 $11.63 $12.88 $13.20
-------- -------- -------- --------
TOTAL INVESTMENT RETURN(a). . . . . . . . . 44.61% (9.70)% 8.92% 10.00%(b)
RATIOS AND SUPPLEMENTAL DATA:
Ratio of interest expense to average
net assets . . . . . . . . . . . . . . . 0.49% -- -- --
Ratio of distribution fees to average
net assets . . . . . . . . . . . . . . . 0.60% 0.61% 0.51% 0.56%(c)
Ratio of net expenses (excluding interest
expense and distribution fees) to
average net assets . . . . . . . . . . . 1.60% 1.51% 1.60% 1.65%(c)
-------- -------- -------- --------
Ratio of net expenses to average
net assets . . . . . . . . . . . . . . . 2.69% 2.12% 2.11% 2.21%(c)(d)
======== ======== ======== =========
Ratio of net investment loss to average
net assets . . . . . . . . . . . . . . . (2.32)% (0.63)% (1.02)% (0.18)%(c)(d)
Borrowings, end of period (000's) . . . . . $ 14,000 -- -- --
Average amount of borrowings outstanding
during the period (000's) . . . . . . . 15,748(e) -- -- --
Average number of shares outstanding
during the period (000's) . . . . . . . . 12,379(e) -- -- --
Average amount of borrowings per share
during the period . . . . . . . . . . . 1.27(e) -- -- --
Portfolio turnover rate . . . . . . . . . . 525.28% 344.45% 395.15% 280.66%
Net assets, end of period (000's) . . . . . $184,867 $170,116 $266,605 $295,590
</TABLE>
3
<PAGE> 10
_______________________
* Commencement of operations.
(a) Assumes investment at the net asset value at the beginning of the
period, reinvestment of all dividends and distributions, a complete
redemption of the investment at the net asset value at the end of the
period and no sales charge. Total return would be reduced if a sales
charge were taken into account.
(b) Non-annualized.
(c) Annualized.
(d) For the period April 29, 1992 through January 31, 1993, the Manager
reimbursed expenses in the amount of $254,725. Had the Manager not
reimbursed expenses for that period the annualized ratio of net
operating expenses to average net assets and the annualized ratio of
net investment loss to average net assets would have been 2.35% and
(0.31)%, respectively.
(e) Averages computed on a weighted average daily basis.
4
<PAGE> 11
INVESTMENT OBJECTIVE AND POLICIES OF THE FUND
GENERAL
The investment objective of The New USA Mutual Fund (the "Fund") is
to seek capital growth. Current income is not important in investment
selections. The Fund's investment objective is fundamental and may not be
changed without shareholder approval. There is no guarantee that the Fund will
achieve its objective.
The Manager seeks capital growth by investing under normal market
conditions the majority of its assets in common stock of companies which, in
the Manager's judgment, are exhibiting accelerating earnings growth and are
expected to continue achieving superior growth in earnings and/or revenues. The
Fund may invest in both exchange-listed and over-the-counter securities.
In its selection process, the Manager focuses on companies with
entrepreneurial type managements which may have introduced unique new products,
services or marketing concepts. Specifically, the Manager seeks companies with
aggressive and innovative managements that can react quickly to changing
circumstances and are willing to explore products, services and concepts that
may vary from conventional industry thinking. The Manager, however, invests
only in established companies. For instance, the Manager invests principally in
companies with a market capitalization of $100 million to $20 billion, and does
not invest more than 10% of the Fund's net assets, with no more than 5% in any
one issuer, in companies which do not have a record, together with their
predecessors, of at least three years of continuous operations.
The Manager generally expects the companies selected to gain share of
market within their industry and to maintain higher than normal profit margins.
Two major elements of the disciplined selection process are above-average
earnings growth and better than average relative price performance of the
company's common stock. Both fundamental and technical market research are used
to locate emerging new potential leaders in an industry.
The Fund may invest to a minor extent in other types of equity
securities, including preferred stock, securities such as convertible bonds,
warrants, or rights which are convertible into common or preferred stock and
depositary receipts representing interests in foreign equity securities. The
Fund may also invest up to 10% of its total assets at time of purchase in
foreign securities. In addition, the Fund may invest in certain options and
engage in short sales.
Consistent with the Fund's objective of capital growth, if the Manager
believes that there may be a future decline in common stock prices, the Manager
may cause the Fund to take a temporary defensive position by investing up to
50% of its assets at time of purchase in cash equivalents or high quality debt
securities, and other type money market instruments, including repurchase
agreements.
OTHER INVESTMENT PRACTICES
The Fund also may engage to a limited extent in the following
investment practices, each of which may involve certain special risks. See
"Risk Factors." All percentage investment limitations will be applied only at
the time of investment and will not constitute ongoing portfolio maintenance
tests. The Statement of Additional Information contains more detailed
information about some of these practices, including limitations designed to
reduce these risks.
SECURITIES LOANS, REPURCHASE AGREEMENTS AND FORWARD COMMITMENTS
The Fund may lend portfolio securities to broker-dealers and
institutions and may enter into repurchase agreements, subject to the
limitations described under "Investment Restrictions," below.
WHEN-ISSUED SECURITIES
The Fund may occasionally purchase securities on a when-issued basis,
for payment and delivery at a later date. It is anticipated that such
securities will principally be equity securities. The price is generally fixed
on the date of commitment to purchase, and the value of the security is
thereafter reflected in the Fund's net asset value. At the time of settlement,
the
5
<PAGE> 12
market value of the security may be more or less than the purchase price. When
the Fund purchases securities on a when-issued basis, it maintains a segregated
account with its custodian bank in an amount equal to the purchase price as
long as the Fund's obligation to purchase continues.
WARRANTS
As a matter of operating policy, the Fund will not invest more than 5%
of its net assets in warrants. While warrants purchased by the Fund have a
readily determined market value which will generally move in correlation with
the market price of the underlying equity security, warrants nevertheless
become worthless if they are not sold or exercised prior to their predesignated
expiration date.
PRIMES AND SCORES
As a matter of operating policy and subject to the limitations and
restrictions imposed by the Investment Company Act of 1940 (the "1940 Act"),
and provided that such investments (or other equivalents) are available in the
future, the Fund may also invest in the securities of any unit investment
trusts ("UITs") whose units are divided into "prime" and "score" components
such as those sponsored by Americus Shareowner Service Corp. (individually an
"Americus Trust" and collectively the "Americus Trusts"). Americus Trusts have
been established with respect to the shares of several major U.S. corporations
whose common stock is widely distributed. The Americus Trusts issue securities
divided into two separate components, each of which is separately traded on the
American Stock Exchange. One component carries the dividend and voting rights
of the common stock underlying the unit trust security (i.e., the "prime"
component), while the other component carries the right to its capital
appreciation, if any, over a specified price (i.e., the "score" component).
These Americus Trusts are of limited duration, generally terminating
approximately five years after formation. Upon termination, the holders of
record of prime components receive stock equal to the lesser of the net asset
value per unit or a specified dollar amount. The holders of record of score
components bear the major portion of the market risk associated with the common
stock underlying the Americus Trusts and receive stock equal in value to the
excess, if any, of the net asset value per unit over the specified dollar
amount. The score components may, therefore, be worthless. The Fund will not
invest more than 10% of its total assets in the components of the Americus
Trusts and intends to invest only in the score components. However, the Fund
may purchase prime components for the purpose of combining components for
redemption as a unit. The Fund will structure its investments in the
securities of UITs to comply with applicable provisions of the 1940 Act.
FOREIGN INVESTMENTS
The Fund may invest in securities principally traded in foreign
markets and in the securities of other investment companies that have a
majority of their assets invested in securities principally traded in foreign
markets, provided that such investments do not in the aggregate exceed 10% of
the Fund's total assets. This limitation does not apply to dollar-denominated
American Depositary Receipts traded in the United States on exchanges or in the
over-the-counter markets. The Fund may also purchase Eurodollar certificates
of deposit without regard to the 10% limit. The Fund may also buy or sell
foreign currencies and foreign currency forward contracts or futures contracts
for hedging purposes in connection with its foreign investments.
A further explanation of foreign investments, and the risks associated
with them, is included in "Risk Factors" and in the Statement of Additional
Information.
INVESTMENT COMPANY SECURITIES
Subject to the limitations and restrictions imposed by the 1940 Act,
the Fund may also invest in the securities of other investment companies
provided that (i) such investment is made through open-market purchases where
no commission except the ordinary broker's commission is paid or (ii) such
securities are acquired as part of a merger, consolidation, or acquisition of
assets. Investing in the securities of other investment companies could help
the Fund achieve its investment objective by enabling it to invest on a
diversified basis in growth opportunities in specialized markets. In no event
may the Fund invest in such securities if immediately thereafter such
securities would constitute more
6
<PAGE> 13
than 5% of the total assets of the Fund. This 5% limitation does not apply to
primes and scores. The Fund will structure its investments in such securities
to comply with applicable provisions of the 1940 Act.
SHORT SALES
The Fund may engage in short sale transactions in which it sells
borrowed securities in anticipation of a decline in the market value of such
securities. In addition, the Fund may engage in short sales "against the box"
in which it owns, or has the right to acquire at no additional cost, securities
identical to those sold short. In general, the Fund may use short sales to
hedge the market risk to the value of its other investments and protect its
equity in a declining market. The Fund may only engage in short sales of
securities (other than index futures) listed on one or more national securities
exchanges or on Nasdaq. When a short position is closed out, it may result in
a short-term capital gain or loss for federal income tax purposes. The Fund
may make a short sale only if, at the time the short sale is made and after
giving effect thereto, the aggregate current market value of all securities in
which the Fund then has a short position is 5% or less of the value of the
Fund's net assets. In addition, the value of the securities of any one issuer
that have been "shorted" by the Fund is limited to the lesser of 2% of the
value of the Fund's net assets or 2% of the total shares outstanding of the
capital stock of that issuer. All short sales must be fully collateralized.
A further explanation of short sales, and the associated risks, is
included in "Risk Factors" and in the Statement of Additional Information.
OPTIONS AND INDEX FUTURES CONTRACTS
The Fund may, for hedging purposes only, buy certain put and call
options, and buy and sell futures contracts on any securities indices,
including indices linked to the over-the-counter market, all of which are
described below. In general, the Fund may use options and index futures
contracts to: (i) attempt to protect against declines in the market value of
the Fund's portfolio securities resulting from downward market trends, (ii)
hedge against increases in equity prices pending investment in additional
equities, (iii) permit the Fund to retain unrealized gains in the value of
portfolio securities which have appreciated, or (iv) establish a position in
the securities markets as a temporary substitute for purchasing particular
securities. Options and index futures contracts may be referred to as a type
of "derivative" security. Derivatives are financial arrangements whose returns
are linked to, or derived from, some underlying stock, bond, commodity or other
asset.
Options. A call option is a contract that gives the holder of the
option the right to buy from the writer (seller) of the call option, in return
for a premium paid, the security underlying the option at a specified exercise
price. The writer of the call option has the obligation upon exercise of the
option to deliver the underlying security upon payment of the exercise price. A
put option is a contract that, in return for the premium, gives the holder of
the option the right to sell to the writer the underlying security at a
specified price during the term of the option. The writer of the put, who
receives the premium, has the obligation to buy the underlying security upon
exercise at the exercise price.
The Fund may: (i) buy exchange-traded put options on individual common
stocks, (ii) buy exchange-traded put and call options on securities indices
(including indices linked to the over-the-counter market) and index futures,
and (iii) buy over-the-counter ("OTC") put and call options on securities
indices or customized, equity-based reference instruments. The Fund may
purchase put or call options only if, at the time the purchase is made and
after giving effect thereto, the aggregate premiums paid on all such unexpired
options are 5% or less of the Fund's net assets, except that the Fund may
purchase put and call options on index futures only if, at the time the
purchase is made and after giving effect thereto, such premiums are 2% or less
of the Fund's net assets and are less than or equal to the further limitations
described under "Index Futures Contracts," below.
Index Futures Contracts. An index futures contract is a legal
agreement between a buyer or seller and the clearinghouse of a futures exchange
or board of trade in which the parties agree to make a cash settlement on a
specified future date in an amount determined by the closing price of an
underlying securities index on the last trading day of the contract. A contract
buyer, who holds a long position, must accept the cash settlement while a
seller, who holds a short position, must deliver the cash settlement. In order
to buy or sell an index futures contract, the Fund must make an initial
7
<PAGE> 14
margin deposit of cash, U.S. government or other acceptable securities with its
custodian in a segregated account. The initial margin is returned to the Fund
upon termination of the contract, assuming all contractual obligations have
been met.
The Fund may buy or sell index futures contracts only if, at the time
the transaction is made and after giving effect thereto, the sum of the
aggregate initial margin deposits (i.e., the collateral) on all open index
futures contracts and the premiums paid on all unexpired options on index
futures is 5% or less of the Fund's net assets. The Fund may engage in futures
transactions only on futures exchanges or boards of trade.
PORTFOLIO TURNOVER
The Fund's Manager retains maximum flexibility to change the Fund's
investments whenever it believes it is appropriate to do so. The length of
time the Fund has held a particular security is not a consideration in buying
or selling decisions, and it can be expected that the portfolio turnover may be
substantial. Portfolio turnover involves some expense to the Fund, including
brokerage commissions which the Fund must pay. The Manager intends to purchase
a security whenever it believes it will contribute to the Fund's stated growth
objective, even if the security has only recently been sold. In selling a
security the Manager recognizes that profits from sales of securities held less
than three months must be limited in order for the Fund to qualify as a
regulated investment company under Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"), and that such profits are taxed to shareholders
as ordinary income. See "Taxation" below. Subject to those considerations,
the Manager will sell a given security, no matter how long or short a period it
has been held and no matter whether the sale is at a profit or a loss, if the
Manager believes the investment is not fulfilling its purpose. This may be
because the investment has not lived up to expectations, or because it has
reached its estimated potential, or it may be replaced with another security
offering a greater potential reward, or a change in circumstances may have
occurred in the company or industry or the market or economy to prompt the
decision. When a decline in the general market is expected, the Manager may
sell securities to raise the Fund's cash position and likewise when an increase
in prices is expected the Manager may increase its equity positions and
decrease its cash position.
An actively managed growth oriented equity portfolio requires that
decisions be made to capitalize on emerging new potential opportunities and in
other cases to hedge against potential risks that may occur. Since all
investment decisions are based on potential risk or reward of a security, the
rate of portfolio turnover is irrelevant when the Manager believes a change is
needed to achieve the Fund's growth objective. The Fund's annual portfolio
turnover rate for the fiscal year ended January 31, 1996 was 525.30%. This
level of portfolio turnover might cause the Fund's brokerage commissions and
other transaction costs to be higher than those of most other mutual funds, and
might cause the Fund to lose its status as a regulated investment company if,
generally, 30% or more of the Fund's gross income is derived from the sale or
other disposition of stock or securities that have been held by the Fund for
less than three months.
LEVERAGE
The Fund may employ "leverage" by borrowing funds to purchase or carry
securities. The Manager may use leverage in periods when it believes that the
opportunities for gain are potentially greater than the risk of loss, but only
up to 15% of total assets (including amounts borrowed for temporary or
emergency purposes). See "Investment Restrictions," below.
The Fund will only borrow from banks, and only if the value of the
Fund's assets, less its liabilities other than borrowings, is equal to at least
300% of all borrowings including the proposed borrowing. If at any time the
value of the Fund's assets should fail to meet the 300% coverage requirement,
the Fund will, within three business days, reduce its borrowings to the extent
necessary to eliminate any shortfall. To do so, or to meet maturing bank
loans, the Fund may on occasion be required to dispose of portfolio securities
when such disposition may not otherwise be desirable. This is a fundamental
policy of the Fund which may not be changed without approval of a majority of
its outstanding shares. Currently, the Fund has a committed credit facility
with First Interstate Bank of California.
Interest on money borrowed is an expense of the Fund which may result
in little or no net income for the Fund during periods when its borrowings are
substantial. The Fund may be required to maintain minimum average balances in
connection with its borrowings or to pay a commitment or other fee to maintain
a line of credit.
8
<PAGE> 15
INVESTMENT RESTRICTIONS
Specific investment restrictions help the Fund reduce long term
investment risks for its shareholders. These restrictions are summarized
below, and a complete listing is contained in the Statement of Additional
Information.
1. The Fund will not purchase a security if, as a result: (a) with respect to
75% of its total assets, more than 5% of its total assets (measured at the time
of purchase) would be invested in the securities of a single issuer; (b) the
Fund would own more than 10% of the outstanding voting securities of any single
issuer; or (c) more than 25% of the Fund's total assets at the time of purchase
would be invested in a particular industry. These limitations do not apply to
securities of the U.S. government, its agencies or instrumentalities.
2. (a) The Fund may borrow money for leverage, and in addition for temporary
or emergency purposes. Such borrowings together with other funds borrowed to
purchase securities (see "Leverage") may not exceed 15% of the total assets of
the Fund. (b) The Fund may borrow money only from banks, or by engaging in
reverse repurchase agreements. If the Fund borrows money, its share price may
be subject to greater fluctuation until the borrowing is paid off.
3. (a) The Fund may temporarily lend up to 25% of its portfolio securities to
broker-dealers and institutions, but only when the loans are fully
collateralized, purchase debt securities in accordance with its investment
objective and policies, and enter into repurchase agreements. (b) To the
extent that repurchase agreements are deemed to be loans, the transactions
described in (a) above, in the aggregate, will be limited to 33 1/3% of the
Fund's total assets.
The specific investment restrictions summarized above are fundamental
and may not be changed without shareholder approval. Non-fundamental policies
and limitations may be changed at any time without shareholder approval,
although shareholders will be given 30 days' prior written notice of any such
changes. For a complete listing of fundamental and non-fundamental policies and
limitations, see "Investment Restrictions" in the Statement of Additional
Information.
9
<PAGE> 16
RISK FACTORS
The investment practices described above may involve certain risks.
The Statement of Additional Information contains more detailed information
about these investments and the risks that may be associated with them. Some
of the principal risks are as follows:
Investment Criteria. Companies which fit the criteria described in
"Investment Objective and Policies of the Fund-General" will principally have
equity market capitalizations of $100 million to $20 billion. Companies which
have equity market capitalizations of less than $1 billion are generally more
volatile and speculative and may cause the Fund's portfolio to fluctuate in
value more than the Standard & Poor's Composite 500 Stock Index. The Manager
may also invest in selected turn-around situations, consistent with the
objective of capital growth.
Securities Loans, Repurchase Agreements and Forward Commitments. These
transactions must be fully collateralized at all times, but involve some risk
to the Fund if the other party should default on its obligations and the Fund
is delayed or prevented from recovering the collateral. The Fund also may
purchase securities for future delivery, which may increase its overall
investment exposure and involves a risk of loss if the value of the securities
declines prior to the settlement date.
Foreign Securities. Since foreign securities are normally denominated
and traded in foreign currencies, the values of the Fund's assets may be
affected favorably or unfavorably by currency exchange rates and exchange
control regulations. Exchange rates with respect to certain currencies may be
particularly volatile. There may be less information publicly available about
a foreign company than about a U.S. company, and foreign companies are not
generally subject to accounting, auditing and financial reporting standards and
practices comparable to those in the United States. Foreign income taxes may
be withheld at the source of payment of dividend by the foreign issuer. The
securities of some foreign companies are less liquid and at times more volatile
than securities of comparable U.S. companies. Foreign brokerage commissions
and other fees are also generally higher than in the United States. Foreign
settlement procedures and trade regulations may involve certain risks (such as
delay in payment or delivery of securities or in the recovery of the Fund's
assets held abroad) and expenses not present in the settlement of domestic
investments.
In addition, with respect to certain foreign countries, there is a
possibility of nationalization or expropriation of assets, confiscatory
taxation, political or financial instability and diplomatic developments which
could affect the value of investments in those countries. In certain
countries, legal remedies available to investors may be more limited than those
available with respect to investments in the United States or other countries.
The laws of some foreign countries may limit the Fund's ability to invest in
securities of certain issuers located in those countries. Special tax
considerations apply to foreign securities.
Short Sales. There are several risks in connection with short selling
by the Fund. For example, if the price of a security sold short increases
between the time of the short sale and the time the Fund buys shares to replace
the borrowed security, the Fund will incur a loss. Moreover, to the extent
that in a generally rising market the Fund maintains short positions in
securities rising with the market, the net asset value of the Fund would be
expected to increase to a lesser extent than the net asset value of an
investment company that does not engage in short sales.
Options and Index Futures. There are several risks in connection
with the Fund's use of put and call options and index futures contracts as
hedging devices. For example, there may be an imperfect correlation between
movements in the prices of the options or index futures and movements in the
prices of the securities which are the subject of the hedge. In addition,
successful use of all hedging strategies is subject to the Manager's ability to
identify a hedging device which is expected to reasonably correlate in price
movement with the Fund, that part of the Fund's investment portfolio, or the
particular security being hedged.
Options trading is a highly specialized activity and carries greater
than ordinary investment risk. Purchasing options may result in the complete
loss of the amounts paid as premiums to the writer of the option. An
exchange-traded option the Fund has purchased may be closed out only by
effecting a "closing sale" transaction of an option of the same series as the
option purchased on an exchange that provides a secondary market for such
options. There is no guarantee that a liquid
10
<PAGE> 17
secondary market will exist for any particular option. In addition,
regardless of any potential benefit the Fund may realize through allowable
options transactions, the cost of purchasing options will reduce the overall
return on the Fund's portfolio.
OTC equity options generally differ from exchange-traded equity
options in that exchange-traded options are standardized with respect to the
underlying instrument, expiration date, contract size and "strike" price, while
the terms of OTC options are negotiated with the counterparty OTC equity
dealers ("counterparties") to the option contract and are valued using
counterparty-supplied valuations. While this type of arrangement allows the
Fund greater flexibility to tailor an option to its needs, OTC options may
involve greater credit risk than exchange-traded options which are issued and
guaranteed by the Options Clearing Corporation, the clearing organization of
the exchanges where exchange-traded options are traded. The risk of
illiquidity may also be greater with OTC options, since they generally may be
closed out only by negotiation with the counterparty to the transaction. While
the Fund will enter into such transactions only with counterparties whose
creditworthiness has been reviewed and found satisfactory by the Manager, there
is no guarantee that the counterparty to the transaction will perform as
agreed.
Although the Fund's ability to engage in transactions in index futures
contracts is subject to a limitation based on the aggregate amount of initial
margin deposits, because of the relatively low margin deposits normally
required in futures trading, a relatively small price movement in a futures
contract may result in losses to the Fund substantially in excess of such
initial margin deposits.
Leverage. Borrowing for investment increases both investment
opportunity and investment risk. Since substantially all of the Fund's assets
fluctuate in value, whereas the interest obligation resulting from the
borrowing is a fixed one, the asset value per share of the Fund will tend to
increase more when the portfolio assets increase in value and decrease more
when portfolio assets decrease in value than would otherwise be the case. This
is the speculative factor known as leverage.
Uninsured Investment. Mutual fund shares are not deposits or
obligations of (or endorsed or guaranteed by) any bank, nor are they federally
insured or otherwise protected by the Federal Deposit Insurance Corporation
(FDIC), the Federal Reserve Board or any other agency.
Management of the Fund. New USA Research & Management Co., the Fund's
Manager, is an investment adviser formed in 1992. The Fund's Distributor is
William O'Neil + Co. Incorporated ("WON + Co."), a registered investment
adviser and broker-dealer which was founded in 1963. Both the Manager and WON
+ Co. are affiliated persons of the Fund.
Because of the provisions described below under "Management of the
Fund," if the Manager has deferred its fee, or paid expenses on behalf of the
Fund for which it has not been reimbursed, in one of the three years prior to a
shareholder investing in the Fund, it is possible that, subject to certain
conditions (including at all times complying with the maximum state expense
limitations), the Fund will reimburse the Manager for such sums after the
shareholder has invested in the Fund. To that extent, the Fund would incur an
expense after the shareholder has invested in the Fund that pertains to
services provided by the Manager to the Fund before the shareholder invested.
The amount of any contingent reimbursement or recoupment that may be payable to
the Manager under these circumstances will be explicitly set forth in a note to
the Fund's audited financial statements.
11
<PAGE> 18
THE FUND
The Fund is the first of what is contemplated to be a diversified
series of New USA Mutual Funds, Inc. (the "Company"), an open-end management
investment company registered under the 1940 Act. The Company may from time to
time create and issue additional series of funds, which may have different
investment objectives than those of the Fund.
THE MANAGER
New USA Research & Management Co. is the Fund's Manager; its address
is 12655 Beatrice Street, Los Angeles, California 90066. The Manager is an
investment adviser, formed in January 1992 and registered as such with the
Securities and Exchange Commission under the Investment Advisers Act of 1940,
as amended.
The Manager provides investment advice to the Fund and manages the
Fund's investments. The Manager supplements its research efforts by drawing on
the expertise of many national brokerage research firms, including WON + Co.
and regional firms who closely follow companies in their geographic regions.
This supplemental research may be purchased on a "soft dollar" basis involving
commissions paid by the Fund. (At this time, the Fund is the sole client of
the Manager, and the Fund receives the exclusive benefit of this research
obtained by the Manager.) Information so received is in addition to and not in
lieu of the services required to be performed by the Manager under the
Investment Management Agreement with the Fund, and the expenses of the Manager
will not necessarily be reduced as a result of the receipt of such supplemental
information.
Founded in 1963 as an investment management and brokerage firm, WON +
Co. is a comprehensive national investment information company providing
securities research to more than 600 institutions-banks, mutual funds,
insurance companies, pension plans, and corporate and government organizations.
WON + Co. maintains what it believes to be one of the most extensive computer
research capabilities in the securities industry with fundamental and technical
historical information on more than 7,500 companies. This database is
continually updated with price, volume, earnings, news and more than 100 key
fundamental and market measurements for each company. WON + Co. focuses on
companies with entrepreneurial type managements which have introduced unique
new products, services or technologies.
WON + Co. practices "bottom up" investment research; that is, instead
of basing predictions on "macro" economic projections, key performance factors
are monitored for early signs of broad new trends in individual companies and
industries.
MANAGEMENT OF THE FUND
The Company has a Board of Directors which establishes the Fund's
policies and supervises and reviews the management of the Fund. The day-to-day
operations of the Fund are administered by the officers of the Company and by
the Manager pursuant to the terms of an Investment Management Agreement with
the Fund. WON + Co. is the Fund's Distributor; its address is 12655 Beatrice
Street, Los Angeles, California 90066. It is expected that the Manager will
draw upon the research and administrative resources of WON + Co. in its
discretion and consistent with applicable regulations.
As of the date of this Prospectus, O'Neil Data Systems, Inc. ("ODS"),
an electronic book publisher, owned 100% of WON + Co. and the Manager. ODS is
wholly owned by Data Analysis Inc., which is approximately 97% owned by Mr.
William J. O'Neil.
William J. O'Neil, Chairman of New USA Research & Management Co.,
began his career as an investment consultant and money manager with Hayden,
Stone & Co., where he developed his unique investment strategies. In 1963, he
founded WON + Co., a highly respected institutional research company. The firm
serves more than 600 institutional investors through its "O'Neil Database"
services and, via an affiliate, more than 20,000 individual investors through
the weekly "Daily Graphs" books. The firm also created the first daily computer
database in the securities industry with detailed historical information on
more than 7,500 publicly traded companies. In 1984, Mr. O'Neil founded
Investor's
12
<PAGE> 19
Business Daily ("IBD"), a national daily business newspaper. According to the
International Circulation Managers' Association, IBD was the fastest growing
newspaper in America in terms of circulation in 1993.
Mr. O'Neil authored the book, How to Make Money in Stocks, the second
edition of which was published by McGraw Hill in 1994. More than 75,000
individual and professional investors have attended his paid workshops and
nationwide seminars. Mr. O'Neil expects to provide general investment counsel
and guidance to the Manager, including advice as to strategies with respect to
certain markets.
WON + Co.'s investment philosophy is incorporated into a disciplined
set of guidelines which is referred to as C-A-N S-L-I-M. C-A-N S-L-I-M covers
the following criteria: Current quarterly earnings; Annual earnings increases;
New products, New management and/or New highs in a stock's price; Shares of
common stock outstanding; Leader or Laggard; Institutional sponsorship; Market
direction. Because this discipline can be followed by the Fund even if there is
a change in portfolio managers, the performance of the Fund should not be
impacted as greatly by a change in portfolio manager as other funds which rely
heavily on an individual portfolio manager's selections.
David Ryan, who is primarily responsible for managing the Fund's
portfolio, is an experienced investment professional with over 14 years as a
securities analyst and portfolio manager. With respect to the management of
public mutual funds, Mr. Ryan has managed The New USA Mutual Fund since its
inception in April 1992. From 1985 through 1991, Mr. Ryan was a portfolio
manager at WON + Co., where he managed the investments, through their
respective investment accounts, of each of WON + Co. and its parent company.
Mr. Ryan won the U.S. Investing Championships in 1985, 1986 and 1987, and has
been lecturing across the country on his stock selection strategy and
principles for the past eight years.
Mr. O'Neil, who is an officer and director of the Manager and the
Fund, has been and will continue to be a decision-maker on the investment
advice rendered by WON + Co. to its clients. The investment advisory objectives
of WON + Co. are not necessarily the same as the investment objectives of the
Fund, and, consequently, the investment decisions of the Fund will not
necessarily coincide with the investment advice rendered by WON + Co. to its
clients. Accordingly, although the Fund will receive research materials,
including recommendation services, from WON + Co., the Fund may or may not
choose to follow investment advice given by WON + Co. to its clients.
The Manager provides the Fund with advice on buying and selling
securities, manages the investments of the Fund including the placement of
orders for portfolio transactions, furnishes the Fund with office space and
certain administrative services, and provides the personnel needed by the Fund
with respect to the Manager's responsibilities under the Investment Management
Agreement with the Fund. The Manager also compensates the members of the
Company's Board of Directors who are interested persons of the Manager, and
arranges, but does not pay, for preparing and disseminating prospectuses and
shareholder reports to prospective investors.
As compensation, the Fund pays the Manager a monthly management fee
(accrued daily) based upon the average daily net assets of the Fund at the
following annual rates: 1% on the first $500 million of net assets and .75% on
net assets exceeding $500 million. For fiscal 1996, the Fund paid the Manager
$1,810,848 (representing 1.00% of the Fund's average net assets, based on
average net assets of approximately $181 million).
The rate of the management fee paid by the Fund is higher than that
paid by most other investment companies. The Manager, however, will defer some
or all of its management fee, if necessary (and if such is not sufficient then
the Manager will reimburse the Distributor for its 12b-1 expenses), to the
extent necessary to keep the Fund's annual operating expenses at or below the
maximum allowed by applicable state expense limitations. Any deferrals made by
the Manager in its fees and any payments by the Manager of 12b-1 expenses are
subject to recoupment or reimbursement by the Fund within the following three
fiscal years, provided the Fund is able to effect such recoupment or
reimbursement and remain in compliance with applicable expense limitations,
provided the Manager is still at that time serving in such capacity and
provided the payment of such expenses (or the recoupment of such fee) would not
affect the Fund's tax status or otherwise have an adverse tax impact on the
Fund or its shareholders. In the event that all applicable state expense
limitations referred to above are repealed or revoked, the Manager has agreed
that, solely for purposes of the Manager's contingent right to recoupment as
described in this paragraph, the Fund will continue to calculate its ability to
make such recoupment
13
<PAGE> 20
based on the assumption that such expense limitations are still in effect at
the level that was in effect immediately prior to such repeal or revocation.
The Statement of Additional Information contains more detailed information
concerning the management of the Fund.
Pursuant to an Administration Agreement dated May 1, 1993 (the
"Administration Agreement"), State Street Bank and Trust Company (the
"Administrator") will perform, or arrange for the performance of, certain
administrative services for the Fund, including: maintaining the books and
records of the Fund, and preparing certain reports and other documents required
by federal and/or state laws and regulations.
The Fund will pay the Administrator a fee at the annual rate of 0.10%
of the Fund's average daily net assets up to $125 million, 0.08% on the next
$125 million, and 0.04% of those assets in excess of $250 million, which will
be payable monthly. The Administrator's principal address is 1776 Heritage
Drive, North Quincy, Massachusetts 02171.
The Fund is responsible for its own operating expenses including, but
not limited to: the costs (including brokerage commissions and referral fees to
brokers, if any, for referring institutional investors) of securities purchased
or sold by the Fund and any losses incurred in connection therewith; fees
payable to and expenses incurred on behalf of the Fund by the Manager under the
Investment Management Agreement or WON + Co. under the Amended and Restated
Distributor's Agreement or by State Street Bank and Trust Company under the
Administration Agreement; filing fees and expenses relating to the registration
and qualification of the Fund's shares and the Company under federal and/or
state securities laws and maintaining such registrations and qualifications;
fees and salaries payable to the Company's Directors who are Independent
Directors; all expenses incurred in connection with the Independent Directors'
services, including travel expenses; taxes (including any income or franchise
taxes) and governmental fees; costs of any liability, uncollectible items of
deposit and other insurance and fidelity bonds; any costs, expenses or losses
arising out of a liability of or claim for damages or other relief asserted
against the Company or the Fund for violation of any law; legal, accounting and
auditing expenses, including legal fees of special counsel for the Independent
Directors; charges of custodians, transfer agents, pricing agents and other
agents; costs of preparing share certificates; with respect to existing
shareholders, expenses of setting in type, printing and mailing prospectuses
and supplements thereto, statements of additional information and supplements
thereto, reports and proxy materials for existing shareholders; any
extraordinary expenses (including fees and disbursements of counsel, costs of
actions, suits or proceedings to which the Company is a party and the expenses
the Company may incur as a result of its legal obligation to provide
indemnification to its officers, Directors, employees and agents incurred by
the Company or the Fund); fees, voluntary assessments and other expenses
incurred in connection with membership in investment company organizations;
costs of mailing and tabulating proxies and costs of meetings of shareholders,
the Board and any committees thereof; the cost of investment company literature
and other publications provided by the Company to its Directors and officers;
and costs of mailing, stationery and communications equipment. In the fiscal
year ended January 31, 1996, the Fund's total expenses as a percentage of
average net assets were 2.20% (see "Fees and Expenses of the Fund").
To the extent the Manager performs a service or assumes an operating
expense for which the Fund is obligated to pay (other than services which the
Manager is obligated to perform under the Investment Management Agreement), the
Manager is entitled to seek reimbursement from the Fund within the following
three fiscal years for the Manager's costs incurred in rendering such service
or assuming such expense.
The Manager is obligated pursuant to the Investment Management
Agreement to attempt to obtain the best net results in terms of price and
execution, and in that connection considers a number of factors in determining
which brokers or dealers to use for the Fund's portfolio transactions. While
these are more fully discussed in the Statement of Additional Information, the
factors include, but are not limited to, the reasonableness of commissions,
quality of services and execution, and the availability of research which the
Manager may lawfully and appropriately use in its investment management and
advisory capacities. Provided the Fund receives best execution at competitive
prices, the Manager may also consider the sale of Fund shares as a factor in
selecting broker-dealers for the Fund's portfolio transactions.
14
<PAGE> 21
WON + Co. acts as one of the Fund's brokers in the purchase and sale
of portfolio securities in a minority of transactions and, in that capacity,
will receive brokerage commissions from the Fund. The Fund uses WON + Co. as
its broker only when, in the judgment of the Manager and pursuant to review and
procedures adopted by the Board of Directors of the Company in accordance with
rules under the 1940 Act, that firm will obtain for the Fund a price and
execution at least as favorable as that available from other qualified brokers.
See "Execution of Portfolio Transactions" in the Statement of Additional
Information for further information regarding the Fund's policies concerning
the execution of portfolio transactions, and for information relating to
commissions paid to brokers, including WON + Co.
When consistent with the above policies, brokerage may be directed to
persons or firms supplying investment information to the Manager, including WON
+ Co. The investment information provided to the Manager is of the type
described in Section 28(e) of the Securities Exchange Act of 1934 and is
designed to augment the Manager's own internal research and investment strategy
capabilities. Such research services include, among other things, the
furnishing of information, either directly or through publications or writings,
as to the value of securities, the advisability of investing in, purchasing or
selling securities, and the availability of securities or purchasers or sellers
of securities, and the furnishing of analyses and reports concerning issuers,
industries, securities, economic factors and trends, portfolio strategy and the
performance of accounts. There may be occasions where the transaction cost
charged by a broker, including WON + Co., may be greater than that which
another broker may charge if the Manager determines in good faith that the
amount of such transaction cost is reasonable in relation to the value of
brokerage and research services provided by the executing broker.
15
<PAGE> 22
HOW TO INVEST IN THE FUND
The Fund's shares are offered directly to the public at their current
net asset value with a sales load. The Fund's shares are offered for sale by
WON + Co., the Fund's Distributor, 12655 Beatrice Street, Los Angeles,
California 90066, or through securities brokers or dealers who execute a
Selling Agreement with WON + Co. Most investment brokers and dealers have a
Selling Agreement with WON + Co. and will be glad to accept your order.
The minimum initial investment in the Fund is $1,000, except that the
minimum initial investment for individual retirement accounts, Keogh plans,
401(k) plans and other retirement plans ("retirement plans"), custodian
accounts for minors and automatic investment plan accounts is $250, and the
minimum initial investment for certain Directors, officers and employees of the
Company and the Manager, among others, is $500. Subsequent investments must be
at least $50, except that the minimum subsequent investment for retirement
accounts, custodian accounts for minors and automatic investment plan accounts
is $25. The Manager or the Distributor, in their discretion, may waive these
minimums for qualifying programs with broker-dealers.
The public offering price is the net asset value plus a sales charge.
The sales charge varies depending on the size of your purchase. The current
sales charges are(1):
<TABLE>
<CAPTION>
SALES CHARGE AS AMOUNT OF
A PERCENTAGE OF SALES CHARGE
---------------- REALLOWED
NET TO DEALERS AS
SIZE OF TOTAL OFFERING ASSET A PERCENTAGE OF
INVESTMENT PRICE VALUE OFFERING PRICE(2)
------------- -------- ----- -----------------
<S> <C> <C> <C>
Less than $50,000 . . . . . . . . . . . . . . . . . . . . . . . 5.00% 5.26% 4.80%
$50,000-$99,999 . . . . . . . . . . . . . . . . . . . . . . . . 4.25 4.44 4.00
$100,000-$249,999 . . . . . . . . . . . . . . . . . . . . . . . 3.25 3.36 3.00
$250,000-$499,999 . . . . . . . . . . . . . . . . . . . . . . . 2.50 2.57 2.20
$500,000-$999,999 . . . . . . . . . . . . . . . . . . . . . . . 2.00 2.04 1.80
$1,000,000-$2,499,999 . . . . . . . . . . . . . . . . . . . . . 1.00 1.01 0.80
$2,500,000-$4,999,999 . . . . . . . . . . . . . . . . . . . . . 0.50 0.51 0.40
$5,000,000 and up . . . . . . . . . . . . . . . . . . . . . . . N/A N/A 0.25(3)
</TABLE>
Fund shares are sold at net asset value without imposition of sales
charges when investments are made by the following: (i) Current or retired
Directors* and officers* of the Company and any other investment companies for
which New USA Research & Management Co. may serve as investment
___________________
(1) WON + Co. pays sales commissions to brokers in amounts equal to the
amounts of sales charges reallowed to dealers.
(2) At the discretion of WON + Co., the entire sales charge may at times
be reallowed to dealers or paid as a commission to brokers. The Staff of the
Securities and Exchange Commission has indicated that dealers who receive more
than 90% of the sales charge may be considered underwriters.
(3) This figure is 0.25% of the amount of the transaction, and is paid by
WON + Co., but WON + Co. will be reimbursed by the Fund therefor.
16
<PAGE> 23
manager; employees* or retired employees* of the Company or of affiliated
companies of New USA Research & Management Co.; and trusts primarily for the
benefit of such persons; and (ii) registered representatives* in their
individual capacity or full-time employees* of brokers and dealers which have
entered into Selling Agreements with WON + Co.; and (iii) a broker, dealer,
registered investment adviser or bank trust department that has entered into an
agreement with WON + Co. providing specifically for the use of Fund shares in
fee-based investment products made available to such person's clients. In
addition, the Distributor, in its discretion, may waive the sales charge on
invested amounts in excess of $1,000,000, or for certain institutional
investors, including corporate 401(k) plans. (However, there will be a
deferred sales charge of 1% of the original purchase price, with no commission
or reallowance to the broker or dealer, if investors for whom the sales charge
has been waived redeem their investment within 12 months.) Also, a shareholder
who has redeemed shares of the Fund may invest all or part of the redemption
proceeds in the Fund's shares at its net asset value provided that such
investment is effected within 60 days after the redemption trade date. This
privilege may be exercised only once by a shareholder. Information sufficient
to permit verification must be furnished to National Financial Data Services,
the Fund's Shareholder Servicing Agent, when the purchase is placed. Such
redemption and reinvestment is a taxable transaction.
The Fund receives the net asset value. The sales charge is allocated
between your investment dealer and WON + Co. WON + Co. pays commissions to
brokers in amounts equal to the amounts of sales charges reallowed to dealers.
At the discretion of WON + Co., however, the entire sales charge may at times
be paid as a commission to brokers or reallowed to dealers. The Manager or the
Distributor may, at their expense, provide additional promotional incentives or
payments to brokers or dealers that sell shares of the Fund. In some
instances, these incentives or payments may be offered only to certain brokers
or dealers who have sold or may sell significant amounts of shares.
In addition, the Fund pays ongoing trail commissions to brokerage
firms, financial institutions (including banks) and others that facilitate the
administration and servicing of shareholder accounts at the annual rate of 25
basis points (0.25%) of the average balance of accounts for which such persons
are the brokers or dealers of record. These trail commissions constitute 12b-1
expenses and are subject to the maximum state total expense limitation.
In its discretion, the Distributor may elect to pay additional fees to
certain brokers or dealers for special services relating to the distribution of
the Fund's shares and the servicing of shareholder accounts. The Distributor
will be entitled to reimbursement for such fees under the Fund's Distribution
Plan pursuant to Rule 12b-1 under the 1940 Act, subject to the limits of such
plan. In exchange for special services relating to the distribution of the
Fund's shares, the Distributor offers to pay to national brokerage houses with
a large retail distribution network an annual fee of up to six basis points
(0.06%) of the average daily net assets invested in the Fund through such
brokerage when, at the time such special servicing agreements are entered into,
such net assets so invested through such brokerage are in excess of $100
million.
AUTOMATIC INVESTMENT PLAN
The Fund has an Automatic Investment Plan allowing investors to make
regular, systematic investments in the Fund from their bank checking accounts.
Investors may choose to make investments on the fifth and/or twentieth day of
each month (or the next business day) from their financial institution in
amounts of $25 or more. There is no service fee for participating in this
Plan. Investors can set up the Automatic Investment Plan with any financial
institution that is a member of the Automatic Clearing House. Please refer to
the application, included in the Supplemental Application Forms section of this
Prospectus and call (800) 221-5838 with any questions. The Fund reserves the
right to suspend, modify, or terminate the Automatic Investment Plan or its use
by any person without notice.
____________________________
*Includes spouse, children and parents. The Fund will also honor internal
policies which individual broker-dealers may have established for net asset
value purchases by their employees and such employees' relatives.
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<PAGE> 24
The Automatic Investment Plan is a method to implement dollar cost
averaging. Dollar cost averaging is a promise to yourself to invest a specific
amount on a regular basis. Of course, dollar cost averaging does not ensure a
profit nor protect against a loss. You should consider your financial ability
to continue purchases through periods of low price levels. A service fee of
$20 will be charged for any Automatic Investment Plan purchase that does not
clear due to insufficient funds in the designated checking account.
RIGHTS OF ACCUMULATION
Reduced sales charges apply on a cumulative basis over any period of
time. Thus, the value of all shares of the Fund owned by an investor, taken at
the current net asset value, can be combined with a current purchase to
determine the rate of sales charges applicable to the current purchase. In
order to receive the cumulative quantity reduction, the existing shares of the
Fund held by an investor must be called to the attention of the Distributor or
the Shareholder Servicing Agent at the time of the current purchase; otherwise,
the investor will not be able to receive the cumulative quantity reduction with
respect to that current purchase.
LETTER OF INTENT
You may qualify for a reduced sales charge on your purchase of shares
of the Fund immediately by completing the Letter of Intent section of the New
Account Application (the "Letter of Intent"), in which you state your intention
to invest during the next 13 months a specified amount which, if made at one
time, would qualify for a reduced sales charge. The terms of the Letter of
Intent include provisions granting a security interest in 5% of the amount of
your total intended purchase to the Distributor to assure that the full
applicable sales charge will be paid if you do not complete the intended
purchase. Additional information regarding the Letter of Intent is provided in
the Statement of Additional Information.
Rights of Accumulation and Letter of Intent applies to purchases by a
"single purchaser," i.e.: (a) an individual; (b) an individual, his or her
spouse and their children under the age of 21 purchasing shares for his or her
own accounts; (c) a pension, profit-sharing or other employee benefit plan
qualified or nonqualified under Section 401 of the Internal Revenue Code of
1986, as amended (the "Code"); and (d) tax-exempt organizations enumerated in
Section 501(c)(3) or (13) of the Code.
INVESTING DIRECTLY
Investors who desire to purchase shares directly from the Fund should
follow the instructions indicated below.
BY CHECK:
Initial Investment
- Complete the Fund's New Account Application (included with this
Prospectus).
- Make your check payable to "The New USA Mutual Fund."
- Mail the completed New Account Application and your check to the
Fund's Shareholder Servicing Agent: National Financial Data Services,
P.O. Box 419244, Kansas City, Missouri 64141-6244.
Subsequent Investments
- Detach and complete the stub attached to your account statement.
- Make your check payable to "The New USA Mutual Fund."
- Write your shareholder account number on the check.
- Mail the check and reinvestment form to National Financial Data
Services, P.O. Box 419284, Kansas City, Missouri 64141-6284.
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<PAGE> 25
BY WIRE:
Initial Investment
- Before wiring funds, call the Fund's Shareholder Servicing Agent,
National Financial Data Services, at (800) 221-5838 to advise the
Shareholder Servicing Agent that you intend to make an initial
investment by wire and to receive an account number.
- Provide the Shareholder Servicing Agent with your name and the dollar
amount to be invested.
- Complete the Fund's New Account Application (included with this
Prospectus). Be sure to include the date of the wire and the account
number as indicated in Section 3 of the Application. Mail the
completed New Account Application to the address shown at the top of
the New Account Application.
Request your bank to transmit immediately available funds by wire for purchase
of shares in your name to the Fund's Transfer Agent, as follows:
State Street Bank and Trust Company
Boston, MA
ABA #011000028
Attn: Mutual Fund Division
DDA #9904-750-8
The New USA Mutual Fund
For credit to:
Name of Shareholder:
------------------------------------------------
Shareholder Account Number:
-----------------------------------------
Shareholder Tax ID Number:
------------------------------------------
Subsequent Investments
- Instruct your bank to wire funds as indicated above. It is not
necessary to contact the Shareholder Servicing Agent prior to making
subsequent investments by wire.
It is essential that complete information regarding your account be
included in all wire instructions in order to facilitate prompt and accurate
handling of investments. Investors may obtain further information about
remitting funds in this manner and any fees that may be imposed from their own
banks.
All investments must be made in U.S. dollars and, to avoid fees and
delays, checks should be drawn only on U.S. banks. A charge may be imposed if
any check used for investment does not clear. The Fund and the Distributor
reserve the right to reject any purchase order in whole or in part.
If an order, together with payment in proper form, is received by the
Shareholder Servicing Agent, WON + Co. or another authorized securities broker
or dealer, by the earlier of 4:00 p.m., New York City time, or the close of
regular trading on the New York Stock Exchange, Fund shares will be purchased
at the Fund's next determined net asset value. Orders for Fund shares received
after the earlier of 4:00 p.m., New York City time, or the close of regular
trading on the New York Stock Exchange will be purchased at the net asset value
determined on the next day the New York Stock Exchange is open for trading.
INVESTING THROUGH SECURITIES BROKERS OR DEALERS
Investors may purchase shares of the Fund from WON + Co. or other
securities brokers or dealers who have entered into a Selling Agreement with
WON + Co. Investors should contact their securities broker or
19
<PAGE> 26
dealer directly for appropriate instructions, as well as information pertaining
to accounts and any related fees. Purchase orders through securities brokers
or dealers are effected, plus applicable charges, at the next determined net
asset value after receipt of the order by such broker or dealer, and it is the
responsibility of the securities broker or dealer to transmit orders on a
timely basis to the Fund's Shareholder Servicing Agent.
GENERAL
Federal income tax regulations require that an investor furnish his,
her or its Taxpayer Identification Number and certain other certifications upon
opening or reopening an account in order to avoid backup withholding of taxes
on distributions or redemptions by the Fund. See the Fund's New Account
Application included with this Prospectus for further information concerning
this requirement. Share certificates will only be issued by the Fund if
necessary or if requested by the investor.
RETIREMENT PLANS
Shares of the Fund are available for purchase by any retirement plan,
including Keogh plans, 401(k) plans, 403(b) plans and IRAs (individual
retirement accounts).
DISTRIBUTION PLAN
In order to compensate investment brokers and dealers (including, for
this purpose, certain financial institutions) for services provided in
connection with sales of Fund shares and the maintenance of shareholder
accounts, WON + Co. makes quarterly payments to qualifying brokers and dealers
at the annual rate of .25% of the average net asset value of shares of the Fund
which are attributable to shareholders for whom the brokers or dealers are
designated as the brokers or dealer of record. In its discretion, the
Distributor may elect to pay additional fees to certain brokers and dealers for
special services relating to the distribution of the Fund's shares and the
servicing of shareholder accounts. WON + Co. may also pay referral fees to
brokers for referring institutional investors. WON + Co. may suspend or modify
these payments at any time, and payments are subject to the continuation of the
Fund's Distribution Plan described below and the terms of Selling Agreements
between brokers and dealers and WON + Co.
The Fund has adopted a Distribution Plan pursuant to Rule 12b-1 under
the 1940 Act. The purpose of the Plan is to permit the Fund to compensate WON +
Co. for services provided and expenses incurred by it (including the expenses
referred to in the preceding paragraph) in promoting the sale of shares of the
Fund, reducing redemptions, or maintaining or improving services provided to
shareholders by WON + Co. or brokers or dealers. The Plan provides for
payments by the Fund to WON + Co., subject to the authority of the Company's
Board of Directors to reduce the amount of payments or to suspend the Plan for
such periods as they may determine. The amount of any such reimbursement by the
Fund is limited under the Plan to 0.25% for service fees and 0.75% for all
other permissible distribution expenses of the Fund's average net assets
annually, and is also subject to state expense limitations.
Subject to these limitations, the amount of such payments and the specific
purposes for which they are made shall be determined by the Board of Directors
of the Company. At present, the Board of Directors has approved payments under
the Plan for the purpose of reimbursing WON + Co. for payments made by it to
brokers or dealers under the Selling Agreements referred to above as well as
for certain additional expenses related to shareholder services and the
distribution of shares.
HOW TO REDEEM AN INVESTMENT IN THE FUND
The Fund will redeem all or any portion of an investor's outstanding shares
upon request. Redemptions can be made on any day that the New York Stock
Exchange is open for trading. The redemption price is the net asset value per
share next determined after the shares are validly tendered for redemption and
such request is received by the Fund's Shareholder Servicing Agent, National
Financial Data Services or, in the case of repurchase orders, WON + Co. or
other securities brokers or dealers. A request for redemption will be deemed
to have been received by the close of regular trading on the New York Stock
Exchange if it is received by the Fund's Transfer Agent by the earlier of 4:30
p.m., New York City time, or within thirty minutes after the close of the New
York Stock Exchange on that same day from a broker or dealer that has executed
a Selling Agreement with WON + Co., provided that the broker or dealer has
received the request
20
<PAGE> 27
by the earlier of 4:00 p.m. or the close of regular trading on the New York
Stock Exchange. The procedures for requesting a redemption are set forth below.
Direct Redemption. Redemptions can be requested in writing by letter
directed to the Fund's Shareholder Servicing Agent. The Shareholder Servicing
Agent requires that the signature(s) on the written request be guaranteed by a
commercial bank or a member firm of a domestic stock exchange or the National
Association of Securities Dealers, Inc. for redemption requests over $25,000.
Redemption proceeds will be mailed or wired in accordance with the
shareholder's instructions to a predesignated account as promptly as possible,
but no later than seven business days (or such shorter period as may be
required by applicable law) after receipt of the request by the Fund's
Shareholder Servicing Agent. The minimum amount that may be wired is $5,000
(wire charges, if any, will be deducted from redemption proceeds).
Telephone Redemption. If the shareholder has actively selected
telephone redemption privileges on the New Account Application, shareholders
may redeem valid shares by calling the Fund's Shareholder Servicing Agent at
(800) 221-5838 before 4:00 p.m. New York City time, or before the close of
regular trading on the New York Stock Exchange, if earlier, on any business day
the New York Stock Exchange is open. Redemption proceeds will be mailed to the
shareholder's address of record as promptly as possible, but no later than
seven (or such shorter period as may be required by applicable law) days after
receipt of the request by the Fund's Shareholder Servicing Agent.
Shareholders may elect to establish telephone redemption and exchange
privileges. Such privileges will not be made available automatically without an
election by the shareholder. By electing to establish telephone redemption or
exchange privileges, a shareholder authorizes the Fund and its Shareholder
Servicing Agent to act upon the instruction of the shareholder by telephone to
redeem a minimum of $2,000 but no more than $25,000 from the account for which
such service has been authorized, or to effect an exchange pursuant to the
Exchange Privilege (defined below under "Money Market Exchange Privilege").
The shareholder is also agreeing that neither the Fund nor the Shareholder
Servicing Agent will be liable for any loss, expense or cost arising out of any
telephone redemption request or telephonic exercise of the Exchange Privilege,
including any fraudulent or unauthorized requests, AND THE SHAREHOLDER ALONE
WILL BEAR THE RISK OF LOSS, so long as reasonable procedures are employed and
the Fund or the Shareholder Servicing Agent reasonably believes that the
telephonic instructions are genuine.
The Fund and the Shareholder Servicing Agent will employ reasonable
procedures to confirm that instructions communicated by telephone are genuine.
These reasonable procedures include (1) establishing the identity of the caller
by use of a "Personal Identification Number" and/or confirming the
shareholder's name, address and Social Security Number; (2) all telephone
conversations with the Shareholder Servicing Agent are recorded; (3) redemption
proceeds will be mailed/wired only according to the previously established
instructions; and (4) a statement confirming each redemption will be mailed to
the shareholder. If the Fund or the Shareholder Servicing Agent does not follow
such reasonable procedures, they may be liable for losses due to unauthorized
or fraudulent instructions. Shareholders may experience delays in exercising
telephone redemption privileges or telephonic exercise of the Exchange
Privilege during periods of abnormal market activity, in which case
shareholders may wish to send a written redemption request or exercise of the
Exchange Privilege to the Fund's Shareholder Servicing Agent by overnight mail
to the following address: The New USA Mutual Fund, c/o National Financial Data
Services, 1004 Baltimore, Kansas City, Missouri 64105.
Shareholders may request telephone redemption privileges after an
account is opened; however, the authorization form will require a signature
guarantee.
Repurchase Orders. Shareholders may also sell shares back to the Fund
by wire or telephone through WON + Co. or other securities brokers or dealers
who have executed a Selling Agreement with WON + Co. Shareholders are entitled
to the net asset value next determined after receipt of a repurchase order by
the securities broker or dealer.
General. There is no charge on redemptions of shares. However,
shares tendered through brokers or dealers (other than the Distributor) may be
subject to a service charge that may be imposed by certain such brokers or
dealers. Payment of the redemption proceeds will be made promptly regardless
of when the redemption occurs, but not later than seven days (or such shorter
period as may be required by applicable law) after the receipt of all documents
in proper form, including a
21
<PAGE> 28
written redemption order with appropriate signature guarantee in cases where
telephone redemption privileges are not being utilized. The Fund may suspend
the right of redemption under certain extraordinary circumstances in accordance
with the Rules of the Securities and Exchange Commission. In the case of
shares purchased by check and redeemed shortly after purchase, the Shareholder
Servicing Agent will not mail redemption proceeds until it has been notified
that the monies used for the purchase have been collected, which may take up to
15 days from the purchase date.
Due to the relatively high cost of maintaining smaller accounts, the
Fund reserves the right to redeem shares in any account if at any time, due to
redemptions by the shareholder, the total value of a shareholder's account does
not equal at least $500. If the Fund determines to make such an involuntary
redemption, the shareholder will first be notified that the value of its
account is less than $500 and will be allowed 30 days to make additional
investment to bring the value of its account to at least $500 before the Fund
takes any action.
SYSTEMATIC WITHDRAWAL PLAN
The Fund also provides a systematic withdrawal plan to be established
on shareholder accounts following completion of the application included in the
Supplemental Application Forms section of this Prospectus. This account
privilege is subject to the following conditions:
(1) Establishing a withdrawal plan on a Fund account requires a minimum
investment of $10,000.
(2) Withdrawals must be in the amounts of $50 or more and may be taken on
a monthly, quarterly, semi-annual or annual basis.
(3) Dividend and capital gain distributions must be reinvested in the
account as full and fractional shares.
(4) Redemptions are made at net asset value as of the earlier of 4:15
p.m., New York City time, or the close of regular trading on the New
York Stock Exchange on the 15th of each month (or the next business
day).
(5) The systematic withdrawal plan may be terminated by either the Fund or
the shareholder at any time, without penalty, by written notification
to the other party.
MONEY MARKET EXCHANGE PRIVILEGE
The Distributor has arranged for shares of the Money Market Portfolio
of Cash Account Trust, a diversified open-end money market mutual fund
("CAT"), to be available in exchange for shares of the Fund and shares of CAT
so acquired plus any shares acquired through reinvestment of dividends on such
shares may be re-exchanged for shares of the Fund without a sales charge
("Exchange Privilege"). A shareholder may exercise the Exchange Privilege from
each account in the Fund into CAT a maximum of four times per calendar year. A
service fee of $5 per exchange into CAT is charged against the shareholder's
account by the Distributor to help defray the costs of the transaction. The
Distributor receives a fee from the administrator of CAT of .75 of 1% per year
of the average daily net asset value of shares of CAT acquired through the
Distributor. This Exchange Privilege does not constitute an offering or
recommendation by the Fund of CAT. CAT is separately managed and is not a
series of New USA Mutual Funds, Inc. Shares of CAT acquired directly, and not
by exchange from the Fund, may be exchanged for shares of the Fund subject to
the normal sales charge.
How to Exchange Shares. The above described Exchange Privilege may be
exercised by sending written instructions to the Shareholder Servicing Agent or
by telephone if the shareholder has affirmatively selected telephone redemption
privileges on the New Account Application. (See "Direct Redemption" and
"Telephone Redemption," under "How to Redeem an Investment in the Fund,"
above.) An exchange requires the purchase of shares of the acquired fund with a
value of at least $1,000 (or with a value of at least $2,000 and a maximum of
$25,000 if effected by telephone). Exchange redemptions and purchases are
effected on the basis of the net asset values next determined after receipt of
the request in proper order by the Shareholder Servicing Agent. In the case of
exchanges into CAT, dividends generally commence on the business day following
the exchange. For federal and state income tax purposes, an exchange is treated
as a sale and may result in a capital gain or loss, although if the shares
exchanged have been held less than 91 days, the sales charge paid on
22
<PAGE> 29
such shares is not included in the tax basis of the exchanged shares, but is
carried over and included in the tax basis of the shares acquired. See the
Statement of Additional Information.
Additional information concerning this privilege and prospectuses for
CAT may be obtained from WON + Co. or other securities brokers and dealers who
have executed a Selling Agreement with WON + Co. A shareholder should read the
prospectus and consider differences in objectives and policies before making
any exchange. Questions concerning your CAT account should be addressed to
your broker or dealer or National Financial Data Services, the Shareholder
Servicing Agent. The Fund or the Distributor can change or discontinue this
privilege, although shareholders generally would be given 60 days' advance
notice of any termination or material amendment of the Exchange Privilege and
shareholders who had exchanged into CAT generally would be permitted to
reacquire shares of the Fund without a sales charge for at least 60 days after
notice of termination of the Exchange Privilege.
SYSTEMATIC EXCHANGE PLAN
Shares invested in CAT may be automatically exchanged into the Fund,
in increments of $50 or more, on a monthly or quarterly basis (the "Systematic
Exchange Plan"). Investors may choose to make exchanges on the fifth or
twentieth day of each month (or the next business day) or the first month of
each calendar quarter. In order to implement such a Systematic Exchange Plan,
a shareholder must either have: 1) a balance of at least $1,000 in both CAT and
the Fund; or 2) a balance of at least $5,000 in CAT. The other general rules
and considerations governing exchanges described above apply to automatic
exchanges effected under the Systematic Exchange Plan. There is no service fee
for participating in the Systematic Exchange Plan. Please refer to the
Systematic Exchange Plan Application included in the Supplemental Application
Forms section of this Prospectus and call (800) 221-5838 with any questions.
The Fund reserves the right to suspend, modify, or terminate the Systematic
Exchange Plan or its use by any person without notice.
The Systematic Exchange Plan is a method to implement dollar cost
averaging. Dollar cost averaging is a promise to yourself to invest a specific
amount on a regular basis. Of course, dollar cost averaging does not ensure a
profit nor protect against a loss. You should consider your financial ability
to continue purchases through periods of low price levels.
HOW THE FUND'S PER SHARE VALUE IS DETERMINED
The Fund's net asset value is determined once daily as of the earlier
of 4:15 p.m., New York City time, or the close of regular trading on the New
York Stock Exchange on each day that the New York Stock Exchange is open for
trading. Net asset value per share is calculated by dividing the value of the
Fund's total net assets by the total number of the Fund's shares then
outstanding.
As more fully described in the Statement of Additional Information,
portfolio securities are valued using current market valuations: either the
last reported sales price or, in the case of securities for which there is no
reported last sale, the closing bid price. Securities for which market
quotations are not readily available are valued at their fair values as
determined in good faith by or under the supervision of the Board of Directors
of the Company in accordance with methods which are specifically authorized by
the Board of Directors of the Company. Short-term obligations with maturities
of 60 days or less are valued at amortized cost as reflecting fair value,
unless the Manager determines conditions indicate otherwise.
DIVIDENDS AND DISTRIBUTIONS
The Fund currently intends to distribute all of its investment company
taxable income and net capital gain, if any, at least annually. It is
anticipated that distributions will be declared and made in December of the
current year (or, at the very latest, January of the following year). Such
distribution will consist of substantially all of the investment company
taxable income for the calendar year plus substantially all of the net long-
and short-term capital gain for the twelve-month period ending on October 31 of
such calendar year. The second distribution, if required to avoid the
imposition of tax on the Fund, will be declared and made following the end of
the Fund's taxable year and will include any undistributed investment company
taxable income and net capital gain for such taxable year, to the extent deemed
necessary by the Company. The amount and frequency of distributions by the Fund
are not guaranteed and are subject to the discretion of the Company's Board of
Directors. There are two types of distributions which the Fund will make to
its shareholders:
23
<PAGE> 30
1. Investment Company Taxable Income Distributions. Income in the form of
dividends and interest received by the Fund in connection with its investment
in securities, less the expenses incurred by the Fund in its operations, is the
Fund's investment company taxable income, substantially all of which will be
distributed as dividends to the Fund's shareholders.
Any net short-term capital gain realized by the Fund (taking into account
any carryover of capital losses from previous years), while technically a
distribution from capital gains, will be distributed to shareholders with and
as a part of investment company taxable income distributions.
2. Net Capital Gain Distributions. Net gain recognized by the Fund on
transactions involving investments held for the period required for long-term
capital gain or loss treatment (currently more than one year) after deduction
of any net short-term capital loss, which includes any capital losses carried
over from previous years, will be distributed and treated as long-term capital
gain income in the hands of the shareholders regardless of the length of time
they have held the Fund's shares.
DISTRIBUTIONS MAY BE REINVESTED IN ADDITIONAL SHARES AT NO COST
Unless investors request cash distributions in writing or on the New
Account Application included with this Prospectus, all Fund distributions will
be automatically reinvested in additional shares of the Fund and credited to
the shareholder's account at the closing net asset value on the reinvestment
date. Investors have the right to change their election with respect to the
receipt of distributions by notifying the Shareholder Servicing Agent in
writing, but any such change will be effective only as to distributions for
which the record date is seven or more business days after the Fund has
received the written request.
For shareholders who have requested cash distributions, in the event
the U.S. Postal Service is unable to deliver a check to the authorized address,
the Fund's Shareholder Servicing Agent will mail the check a second time. If
the check is returned for the second time as undeliverable, the Fund will
terminate the shareholder's election to receive dividends and other
distributions in cash. The returned distribution will be reinvested and
subsequent dividends and other distributions will be automatically reinvested
in additional shares of the Fund. The shareholder will need to notify the
Fund's Shareholder Servicing Agent in writing of his or her correct address and
request that dividends and other distributions be received in cash if the
shareholder wishes to reinstate that option.
TAXATION
The following discussion reflects some of the provisions of the Code,
which affect mutual funds and their shareholders. See the Statement of
Additional Information, which is available upon request to the Fund, for a
further discussion regarding the federal income tax considerations relevant to
an investment in the Fund.
The Fund has elected to qualify as a "regulated investment company"
for federal income tax purposes and to meet all other requirements that are
necessary for it to avoid federal income taxation on the investment company
taxable income and net capital gain it distributes to shareholders. The Fund
distributes substantially all of its investment company taxable income and net
capital gain on a current basis.
All Fund distributions will be taxable to the Fund's shareholders as
ordinary income, except that any distributions of "net capital gain", (defined
in the Code as the excess of the net long-term capital gain for the taxable
year over the net short-term capital loss for such year) will be taxed as
long-term capital gain, regardless of how long the shareholder has held the
Fund's shares. Distributions will be taxable as described above whether
received in cash or in shares through the reinvestment of distributions. A
dividend paid by the Fund in the month of January will generally be considered
to have been paid on December 31 of the preceding year (and thus taxable in
such preceding year), if the dividend was declared and payable to shareholders
of record in the months of October, November or December of the preceding year.
Promptly after the end of each calendar year, the Fund will notify
each of the shareholders of the amount and tax characterization of
distributions made (or treated as made) by the Fund for the preceding year.
24
<PAGE> 31
The foregoing discussion is included for informational purposes only.
It is not intended to be a full discussion of all tax implications of an
investment in the Fund. Prospective investors are urged to consult with their
tax advisors with respect to the federal, state, local foreign and other tax
consequences of an investment in the Fund.
GENERAL INFORMATION
The Company. The Fund is a series of a Maryland corporation called
New USA Mutual Funds, Inc., which was organized on December 30, 1991. The
Articles of Incorporation permit the Board of Directors to issue up to 200
million of full and fractional shares of common stock, $.01 par value, which
may be issued in any number of series. While the Fund is currently the only
series of the Company, the Board of Directors may from time to time issue other
series, the assets and liabilities of which will be separate and distinct from
any other series.
Shareholder Rights. Shares issued by the Fund have no preemptive,
conversion or subscription rights. Each whole share will be entitled to one
vote as to any matter on which it is entitled to vote and each fractional share
shall be entitled to a proportionate fractional vote. Shareholders have equal
and exclusive rights as to dividends and distributions as declared by the Fund
and to the net assets of the Fund upon liquidation or dissolution. The Fund,
as a separate series of the Company, votes separately on matters affecting only
the Fund (e.g., approval of the Investment Management Agreement); all series of
the Company will vote as a single class on matters affecting all series jointly
or the Company as a whole (e.g., election or removal of Directors). Voting
rights are not cumulative, so that the holders of more than 50% of the shares
voting in any election of Directors can, if they so choose, elect all of the
Directors. While the Company is not required and does not intend to hold
annual meetings of shareholders, such meetings may be called by the Directors
in their discretion, or upon demand by the holders of 10% or more of the
outstanding shares of the Company for the purpose of electing or removing
Directors. The Fund held a special meeting of its shareholders on May 13, 1993
for the purpose of electing the Board of Directors, approving the Investment
Management Agreement, approving the Plan of Distribution of the Fund, ratifying
the selection of independent public accountants and amending the Company's
Articles of Incorporation to change the name of the Company to New USA Mutual
Funds, Inc. Shareholders may receive assistance from the Company in
communicating with other shareholders in connection with the election or
removal of Directors pursuant to the provisions contained in Section 16(c) of
the 1940 Act.
Performance Information. From time to time, the Fund may publish its
total return in advertisements and communications to investors. Total return
information will include the Fund's average annual compounded rate of return
over the most recent four calendar quarters and over the period from the Fund's
inception of operations. The Fund may also advertise aggregate and average
total return information over different periods of time. The Fund's average
annual compounded rate of return is determined by reference to a hypothetical
$1,000 investment that includes capital appreciation and depreciation for the
stated period according to a specific formula. Aggregate total return is
calculated in a similar manner, except that the results are not annualized.
Total return figures will reflect all recurring charges against Fund income.
Investors should note that the investment results of the Fund will fluctuate
over time, and any presentation of the Fund's total return for any prior period
should not be considered as a representation of what an investor's total return
may be in any future period.
Reports to Shareholders. The Fund will send to its shareholders
Semi-Annual and Annual Reports. The financial statements appearing in the
Annual Reports are audited by independent public accountants.
Shareholder Inquiries. Shareholder inquiries concerning purchases,
redemptions and matters relating to accounts generally should be directed to
National Financial Data Services at (800) 221-5838. For general information
concerning the Fund, shareholders should call their broker or dealer or call
the Distributor at (800) 222-2USA.
BACKUP WITHHOLDING INSTRUCTIONS
Shareholders are required by law to provide the Fund with their
correct social security or other taxpayer identification number ("TIN"),
regardless of whether they file tax returns. Failure to do so may subject a
shareholder to penalties. Failure by a shareholder to provide a correct TIN or
properly to complete the New Account Application, including Section 1, or to
sign the shareholder's name in Section 11 could result in backup withholding by
the Fund of an amount of income tax equal
25
<PAGE> 32
to 31% of any distributions, redemptions or other payments made to the
shareholder's account. Any taxes so withheld may be credited against taxes
owed on the shareholder's federal income tax return.
A shareholder who does not have a TIN should apply for one immediately
by contacting the local office of the Social Security Administration or the
Internal Revenue Service. Special rules apply for shareholders who are in
specialized tax categories. For example, for an account established under the
Uniform Transfer to Minors Act, the TIN of the minor should be furnished.
If a shareholder is a nonresident alien of the United States or other
foreign entity, Sections 1 and 11 should be properly completed, and a completed
Form W-8 should be provided to the Fund in order to avoid backup withholding on
distributions, redemptions or other payments made by the Fund. Payments made
to the account of such a shareholder by the Fund may be subject to federal
income tax withholding of up to 30% of the amount of such payments in lieu of
backup withholding.
A shareholder which is an exempt recipient should furnish its TIN in
Section 11. Exempt recipients include: certain corporations, tax-exempt
pension plans, Keogh and IRA accounts, governmental agencies, financial
institutions and registered securities and commodities dealers.
For further information regarding backup withholding, see Section 3406
of the Code and consult with a tax adviser.
This Prospectus is not an offering of the securities herein described
in any state in which the offering is unauthorized. No salesman, broker,
dealer or other person is authorized to give any information or make any
representation other than those contained in this Prospectus or in the
Statement of Additional Information.
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<PAGE> 33
SUPPLEMENTAL APPLICATION FORMS
AUTOMATIC INVESTMENT PLAN
HOW DOES IT WORK?
(1) National Financial Data Services, through United Missouri Bank, draws an
automatic clearing house ("ACH") debit electronically against your personal
checking account each month according to your instructions.
(2) Choose any amount ($25 or more) that you would like to invest regularly and
your debit for this amount will be processed by National Financial Data
Services as if you had written a check yourself.
(3) Shares will be purchased and a confirmation sent to you.
HOW DO I SET IT UP?
(1) Complete the Automatic Investment Plan Applications and, if you do not
already have an account, the New Account Application included with this
Prospectus.
(2) Write "VOID" across one of your personal checks, attach it to the Automatic
Investment Plan Application-Part I, and mail to National Financial Data
Services, The New USA Mutual Fund (P.O. Box 419244, Kansas City, Missouri
64141-6244).
(3) When your bank accepts your authorization, debits will be generated and
your Automatic Investment Plan started. In order for you to have ACH
debits from your account, your bank must be able to accept ACH transactions
and/or be a member of an ACH association. Your branch manager should be
able to tell you your bank's capabilities. We cannot guarantee acceptance
by your bank.
(4) Please allow one month for processing of your Automatic Investment Plan
before the first debit occurs.
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<PAGE> 34
AUTOMATIC INVESTMENT PLAN APPLICATION-PART I
TO: National Financial Data Services, The New USA Mutual Fund (P.O. Box
419244, Kansas City, Missouri 64141-6244).
Please start an Automatic Investment Plan for me and invest the following
amount(s) in my account(s) with:
_________The New USA Mutual Fund $________
_________Cash Account Trust Money Market Portfolio $________
on the _____5th and/or _____20th of each month. (The 20th will be selected if
neither option is chosen.)
_________I am in the process of establishing an account OR
_________my account number is_______________________________________.
________________________________________________________________________________
Name as account is registered
________________________________________________________________________________
Name as account is registered (joint owner)
________________________________________________________________________________
Street
________________________________________________________________________________
City State Zip
I understand that my ACH debit will be dated on the day(s) of each month as
indicated above or as specified by written request. I agree that if such debit
is not honored upon presentation, National Financial Data Services may
discontinue this service and any share purchase made upon deposit of such debit
may be canceled. I further agree that if the net asset value of the shares
purchased with such debit is less when said purchase is canceled than when the
purchase was made, National Financial Data Services shall be authorized to
liquidate other shares or fractions thereof held in my account to make up the
deficiency. This Automatic Investment Plan may be discontinued by National
Financial Data Services upon 30 days' written notice or at any time by the
investor by written notice to National Financial Data Services which is
received not later than 5 business days prior to the above designated
investment date.
Signatures: _________________________________________
(Owner)
_________________________________________
(Joint Owner)
28
<PAGE> 35
AUTOMATIC INVESTMENT PLAN APPLICATION-PART II
BANK REQUEST AND AUTHORIZATION
TO:
---------------------------------------------------------------------------
Name of Your Bank Bank Checking Account Number
---------------------------------------------------------------------------
Address of Bank/Branch Where Account is Maintained
As a convenience to me, please honor ACH debits on my account drawn by National
Financial Data Services through United Missouri Bank, and payable to The New
USA Mutual Fund.
I agree that your rights with respect to such debit shall be the same as if it
were a check drawn upon you and signed personally by me. This authority shall
remain in effect until you receive written notice from me changing its terms or
revoking it, and until you actually receive such notice, I agree that you shall
be fully protected in honoring any such debit.
I further agree that if any debit be dishonored, whether with or without cause
or whether intentionally or inadvertently, you shall be under no liability
whatsoever.
Depositor
-----------------------------------------------------------------
Signature of Bank Depositor as shown on bank records
Depositor
-----------------------------------------------------------------
Signature of Bank Depositor as shown on bank records (joint owner)
NOTE: Your bank must be able to accept ACH transactions and/or be a member of
an ACH association in order for you to use this service.
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
INDEMNIFICATION AGREEMENT
TO: The bank named above.
So that you may comply with your Depositor's request and authorization, The New
USA Mutual Fund agrees as follows:
(1) To indemnify and hold you harmless from any loss you may suffer
arising from or in connection with the payment by you of a debit
drawn by National Financial Data Services to the order of The New USA
Mutual Fund designated on the account of your depositor executing the
authorization including any costs or expenses reasonably incurred in
connection with such loss. The New USA Mutual Fund will not, however,
indemnify you against any loss due to your payment of any debit
generated against insufficient funds.
(2) To refund to you any amount erroneously paid by you to National
Financial Data Services on any such debit if claim for the amount of
such erroneous payment is made by you within three months of the date
of such debit on which erroneous payment was made.
29
<PAGE> 36
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30
<PAGE> 37
SYSTEMATIC WITHDRAWAL PLAN APPLICATION
TO: National Financial Data Services, The New USA Mutual Fund (P.O. Box
419244, Kansas City, Missouri 64141-6244).
Please start a Systematic Withdrawal Plan for me and withdraw
$___________________ from my New USA Mutual Fund account as I have elected
below (choose one):
<TABLE>
<S> <C>
_______Monthly _______Quarterly
_______Semi-annually _______Annually
</TABLE>
Quarterly, semi-annual and annual withdrawals will be made during the first
month of the appropriate calendar period. All withdrawals will be made on the
15th of each month (or the next business day), as appropriate pursuant to your
selection, above.
____ I am in the process of establishing an account OR ______________________
____ my account number is ___________________________________________________
_____________________________________________________________________________
Name as account is registered
_____________________________________________________________________________
Name as account is registered (joint owner)
Please send the proceeds to:
_____________________________________________________________________________
Street
_____________________________________________________________________________
City State Zip
Signatures: ________________________________________
(Owner)
________________________________________
(Joint Owner)
31
<PAGE> 38
SYSTEMATIC EXCHANGE PLAN APPLICATION
TO: National Financial Data Services, The New USA Mutual Fund (P.O. Box
419244, Kansas City, Missouri 64141-6244).
Please start a Systematic Exchange Plan for me and exchange shares having a
value of $_______________ from my Cash Account Trust Money Market Portfolio
account to my New USA Mutual Fund account as I have elected below (choose one):
_____ Monthly
_____ Quarterly
on the _____5th or _____20th (choose one) of each month or of the first month
of each calendar quarter. (The 20th will be selected if neither option is
chosen.)
_____ I am in the process of establishing my accounts OR _____ my account
numbers are
______________________________________________________________________
The New USA Mutual Fund account number
______________________________________________________________________
Cash Account Trust Money Market Portfolio account number
______________________________________________________________________
Name as accounts are registered
______________________________________________________________________
Name as accounts are registered (joint owner)
The account registration information for the two accounts involved in the
Systematic Exchange Plan must be the same in all respects.
I understand that my exchange will be dated on the day(s) of each month or
quarter as indicated above or as specified by written request. This Systematic
Exchange Plan may be discontinued by National Financial Data Services upon 30
days' written notice or at any time by the investor by written notice to
National Financial Data Services which is received not later than 5 business
days prior to the above designated exchange date.
Signatures: ________________________________________
(Owner)
________________________________________
(Joint Owner)
32
<PAGE> 39
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33
<PAGE> 40
INVESTMENT MANAGER THE NEW USA MUTUAL FUND
New USA Research & Management Co.
12655 Beatrice Street
Los Angeles, California 90066
DISTRIBUTOR
New USA Mutual Funds Distributor,
a division of
William O'Neil + Co. Incorporated
12655 Beatrice Street
Los Angeles, California 90066
ADMINISTRATOR
State Street Bank and Trust Company
1776 Heritage Drive
North Quincy, Massachusetts 02171
SHAREHOLDER SERVICING AGENT
National Financial Data Services
P.O. Box 419244
Kansas City, Missouri 64141-6244
CUSTODIAN AND TRANSFER AGENT
State Street Bank and Trust Company
1776 Heritage Drive
North Quincy, Massachusetts 02171
INDEPENDENT PUBLIC ACCOUNTANTS The New USA Mutual Fund
Arthur Andersen LLP
One International Place
Boston, Massachusetts 02110 ------------
Prospectus
------------
LEGAL COUNSEL
Gibson, Dunn & Crutcher
333 South Grand Avenue
Los Angeles, California 90071 May , 1996
34
<PAGE> 41
PART B
-------------------------------
STATEMENT OF ADDITIONAL INFORMATION
-------------------------------
<PAGE> 42
STATEMENT OF ADDITIONAL INFORMATION
MAY , 1996
THE NEW USA MUTUAL FUND
c/o State Street Bank and Trust Company
1776 Heritage Drive
North Quincy, Massachusetts 02171
(800) 222-2872
The New USA Mutual Fund (the "Fund") is a diversified series of New USA
Mutual Funds, Inc. (the "Company"), an open-end, management investment company
registered under the Investment Company Act of 1940 (the "1940 Act") offering
redeemable shares of beneficial interest. The Company may from time to time
issue additional series of funds, which may have different investment
objectives than those of the Fund. The investment objective of the Fund is to
seek capital growth. The Fund seeks to achieve its objective by investing in
equity securities, primarily the common stocks of domestic companies.
A Prospectus for the Fund, dated May , 1996, as may be amended from time
to time, provides the basic information you should know before purchasing
shares of the Fund and may be obtained without charge from the Company at the
address stated above. This Statement of Additional Information is not a
prospectus. It contains information in addition to and more detailed than set
forth in the Fund's Prospectus. It is intended to provide you with additional
information regarding the activities and operations of the Fund, and should be
read in conjunction with the Prospectus.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
The Company................................... 2
Investment Objective and Policies............. 2
Investment Restrictions....................... 7
Distribution Plan............................. 8
Distributions and Tax Information............. 9
Directors and Officers........................ 12
The Investment Manager........................ 14
Execution of Portfolio Transactions........... 15
Additional Purchase and Redemption Information 17
Determination of Share Price.................. 19
Principal Underwriter......................... 21
Administrator................................. 21
Performance Information....................... 21
General Information........................... 22
Financial Statements.......................... 23
</TABLE>
1
<PAGE> 43
THE COMPANY
New USA Mutual Funds, Inc. (the "Company") is an open-end management
investment company organized as a Maryland corporation. The Company currently
offers shares of beneficial interest, $.01 par value per share, in one series,
The New USA Mutual Fund (the "Fund"). The Fund is a diversified series of the
Company. The Fund is managed by New USA Research & Management Co. (the
"Manager"). The Company was formerly known as New USA Funds, Inc., and changed
its name in May, 1993.
William J. O'Neil, an individual resident in California, owns
approximately 97% of Data Analysis Inc., which in turn owns 100% of O'Neil Data
Systems, Inc. ("ODS"), which in turn owns the Manager, and also owns Investor's
Business Daily, Inc., Direct Marketing Specialists, Inc., William O'Neil + Co.
Incorporated ("WON + Co."), the Distributor for the Fund, and approximately 27%
of Daily Graphs, Inc. As of the date of this Statement of Additional
Information, WON + Co. owns 100% of Finadco, Inc. and approximately 73% of
Daily Graphs, Inc.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective and policies of the Fund are described in greater
detail in the Fund's Prospectus. The following discussion supplements the
discussion in the Fund's Prospectus. There can be no guarantee the objective
of the Fund will be attained.
When-Issued Securities. The Fund may from time to time purchase
securities on a "when-issued" basis. It is anticipated that such securities
will principally be equity securities. The price of such securities is fixed
at the time the commitment to purchase is made, but delivery and payment for
the when-issued securities take place at a later date. Normally, the
settlement date occurs within one month of the purchase; during the period
between purchase and settlement, no payment is made by the Fund to the issuer.
While when-issued securities may be sold prior to the settlement date, the Fund
intends to purchase such securities with the purpose of actually acquiring them
unless a sale appears desirable for investment reasons. At the time the Fund
makes a commitment to purchase a security on a when-issued basis, it will
record the transaction and reflect the value of the security in determining its
net asset value. The market value of the when-issued securities may be more or
less than the purchase price. The Fund does not believe that its net asset
value will be adversely affected by its purchase of securities on a when-issued
basis. The Fund will establish a segregated account with its custodian bank in
which it will maintain cash and marketable securities equal in value to
commitments for when-issued securities. Such segregated securities either will
mature or, if necessary, be sold on or before the settlement date. To the
extent that assets of the Fund are held in cash pending the settlement of a
purchase of securities, the Fund will earn no income on these assets.
Short-Term Trading. In seeking to attain the Fund's objective, the
Manager will buy or sell portfolio securities whenever the Manager believes it
appropriate to do so. In deciding whether to sell a portfolio security, the
Manager does not consider how long the Fund has owned the security. From time
to time the Fund will buy securities intending to seek short-term trading
profits. A change in the securities held by the Fund is known as "portfolio
turnover" and generally involves some expense to the Fund. These expenses may
include brokerage commissions or dealer mark-ups and other transaction costs on
both the sale of securities and the reinvestment of the proceeds in other
securities. If sales of portfolio securities cause the Fund to realize net
short-term capital gains, such gains will be taxable as ordinary income. As a
result of the Fund's investment policies, under certain market conditions the
Fund's portfolio turnover rate may be higher than that of most other mutual
funds. Portfolio turnover rate for a fiscal year is the ratio of the lesser of
purchases or sales of portfolio securities to the monthly average of the value
of portfolio securities-excluding securities whose maturities at acquisition
were one year or less. The Fund's portfolio turnover rate is not a limiting
factor when the Manager considers a change in the Fund's portfolio.
Foreign Securities. Under its current policy, which may be changed
without shareholder approval, the Fund may invest up to the limit of its total
assets specified in its Prospectus (which currently is 10%) in securities
principally traded in markets outside the United States. Eurodollar
certificates of deposit areexcluded for purposes of this limitation. Also
excluded are dollar-denominated American Depositary Receipts traded in the
2
<PAGE> 44
United States on exchanges or in the over-the-counter market. Foreign
investments can be affected favorably or unfavorably by changes in currency
exchange rates and in exchange control regulations. There may be less publicly
available information about a foreign company than about a U.S. company, and
foreign companies may not be subject to accounting, auditing and financial
reporting standards and requirements comparable to those applicable to U.S.
companies. Foreign income taxes may be withheld at the source of payment of
dividends by some foreign issuers. Securities of some foreign companies are
less liquid or more volatile than securities of U.S. companies, and foreign
brokerage commissions and custodian fees are generally higher than in the
United States. Investments in foreign securities can involve other risks
different from those affecting U.S. investments, including local political or
economic developments, expropriation or nationalization of assets and
imposition of withholding taxes on dividend or interest payments. To hedge
against possible variations in foreign exchange rates, the Fund may purchase
and sell forward foreign currency contracts. These represent agreements to
purchase or sell specified currencies at specified dates and prices. The Fund
will only purchase and sell forward foreign currency contracts in amounts the
Manager deems appropriate to hedge existing or anticipated portfolio positions
and will not use such forward contracts for speculative purposes. Foreign
securities, like other assets of the Fund, will be held by the Fund's custodian
or by a subcustodian.
Securities Loans. The Fund may make secured loans of its portfolio
securities amounting to not more than 25% of its total assets, thereby
realizing additional income. The risks in lending portfolio securities, as
with other extensions of credit, consist of possible delay in recovery of the
securities or possible loss of rights in the collateral should the borrower
fail financially. As a matter of policy, securities loans are made to
broker-dealers pursuant to agreements requiring that loans be continuously
secured by collateral consisting of cash or short-term debt obligations at
least equal at all times to the value of the securities on loan. The borrower
pays to the Fund an amount equal to any dividends or interest received on
securities lent. The Fund retains all or a portion of the interest received on
investment of the cash collateral or receives a fee from the borrower.
Although voting rights, or rights to consent, with respect to the loaned
securities pass to the borrower, the Fund retains the right to call the loans
at any time on reasonable notice, and it will do so to enable the Fund to
exercise voting rights on any matters materially affecting the investment. The
Fund may also call such loans in order to sell the securities.
Forward Commitments. The Fund may enter into contracts to purchase
securities for a fixed price at a future date beyond customary settlement time
("forward commitments") if the Fund holds, and maintains until the settlement
date in a segregated account, cash or high-grade debt obligations in an amount
sufficient to meet the purchase price, or if the Fund enters into offsetting
contracts for the forward sale of other securities it owns. Forward
commitments may be considered securities in themselves, and involve a risk of
loss if the value of the security to be purchased declines prior to the
settlement date, which risk is in addition to the risk of decline in the value
of the Fund's other assets. Where such purchases are made through dealers, the
Fund relies on the dealer to consummate the sale. The dealer's failure to do
so may result in the loss to the Fund of an advantageous yield or price.
Although the Fund will generally enter into forward commitments with the
intention of acquiring securities for its portfolio or for delivery pursuant to
options contracts it has entered into, the Fund may dispose of a commitment
prior to settlement if the Manager deems it appropriate to do so. The Fund may
realize short-term profits or losses upon the sale of forward commitments.
Repurchase Agreements. The Fund may enter into repurchase agreements up
to the limit specified in the Prospectus. A repurchase agreement is a contract
under which the Fund acquires a security for a relatively short period (usually
not more than one week) subject to the obligation of the seller to repurchase
and the Fund to resell such security at a fixed time and price (representing
the Fund's cost plus interest). It is the Fund's present intention to enter
into repurchase agreements only with commercial banks and registered
broker-dealers and only with respect to obligations of the U.S. government or
its agencies or instrumentalities. Repurchase agreements may also be viewed as
loans made by the Fund which are collateralized by the securities subject to
repurchase. The Manager will monitor such transactions to ensure that the
value of the underlying securities will be at least equal at all times to the
total amount of the repurchase obligation, including the interest factor. If
the seller defaults, the Fund could realize a loss on the sale of the
underlying security to the extent that the proceeds of sale including accrued
interest are less than the resale price provided in the agreement including
interest. In addition, if the seller should be involved in bankruptcy or
insolvency proceedings, the Fund may incur delay and costs in selling the
underlying security or may suffer a loss of principal and interest if the Fund
is treated as an unsecured creditor and required to return the underlying
collateral to the seller's estate.
3
<PAGE> 45
Primes and Scores. The Fund will structure its investments in the
securities of unit investment trusts ("UITs") to comply with applicable
provisions of the 1940 Act. The presently applicable provisions require that
the Fund and affiliated persons of the Fund not own together (i) more than 3%
of the total outstanding stock of any one UIT, (ii) the securities of any
single UIT having an aggregate value in excess of 5% of the value of the Fund's
total assets and (iii) securities of all UITs having an aggregate value in
excess of 10% of the value of the Fund's total assets.
Short Sales. When the Fund makes a short sale, the proceeds it receives
are retained by the broker until the Fund replaces the borrowed security. In
addition, at the time a short sale is effected, the Fund incurs an obligation
to replace the security borrowed at whatever its price may be at the time the
Fund purchases it for delivery to the lender. The Fund may, in some instances,
have to pay a premium to borrow the security. The Fund also must pay to the
broker any dividends or interest payable on the borrowed security until the
Fund replaces the security.
The Fund's obligation to replace the security borrowed in connection with
a short sale will be secured by collateral deposited with the broker,
consisting of cash or U.S. government securities or other securities acceptable
to the broker. In addition, the Fund will be required to deposit cash or U.S.
Government securities as collateral in a segregated account with its custodian
in an amount such that the value of both collateral deposits is at all times
equal to 100% of the current market value of the securities sold short. The
deposits do not necessarily limit the Fund's potential loss on a short sale,
which may exceed the entire amount of the collateral deposits.
If the price of a security sold short increases between the time of the
short sale and the time the Fund replaces the borrowed security, the Fund will
incur a capital loss, and if the price declines during this period, the Fund
will realize a capital gain for federal income tax purposes, which generally
will be long-term or short-term depending on the period for which the Fund
holds, and the timing of the acquisition of, the security delivered to close
the short sale. Any realized capital gain will be decreased, and any incurred
capital loss will be increased, by the amount of the transaction costs and any
premium, dividend, or interest which the Fund may have to pay in connection
with such short sale.
The Fund may engage in short sales only up to the limit of the market
value of its net assets specified in its Prospectus (which is currently 5% of
net assets and, in regards to the securities of a single issuer, the lesser of
2% of net assets or 2% of the capital stock of any class of the issuer). The
Fund is not required to liquidate an existing short sale position solely
because a change in market value or the number of outstanding securities of an
issuer has caused one or more of these percentage limitations to be exceeded.
The Fund may also sell securities short "against the box." While a short
sale is the sale of a security the Fund does not own, it is "against the box"
if, at all times when the short position is open, the Fund owns an equal amount
of the securities or securities convertible into, or exchangeable without
further consideration for, securities sold short. Short sales "against the
box" are aggregated with other short sales in applying the percentage
limitations described above.
Options and Index Futures. The Fund may buy certain exchange-traded and
over-the-counter ("OTC") put and call options as specified in the Prospectus,
and buy and sell futures contracts on any securities indices, including indices
linked to the over-the-counter market, for purposes of hedging its portfolio.
Options and index futures contracts may be referred to as a type of
"derivative" security. Derivatives are financial arrangements whose returns
are linked to, or derived from, some underlying stock, bond, commodity or other
asset. The Fund will not engage in options or transactions in index futures
contracts for speculation. The Fund may purchase put or call options only if,
at the time the purchase is made and after giving effect thereto, the aggregate
premiums paid on all such unexpired options are 5% or less of the Fund's net
assets, except that the Fund may purchase put and call options on index futures
only if, at the time the purchase is made and after giving effect thereto, such
premiums are 2% or less of the Fund's net assets. In addition, the Fund may
buy or sell index futures contracts if, at the time the transaction is made and
after giving effect thereto, the sum of the aggregate initial margin deposits
on all open index futures contracts and the premiums paid on all unexpired
options on index futures is 5% or less of the Fund's net assets.
4
<PAGE> 46
Purchasing Puts and Calls. A put option is a contract that, in return
for the premium, gives the holder of the option the right to sell to the writer
the underlying security at a specified price: (i) in the case of American-style
options, at any time during the term of the option, or (ii) in the case of
European-style options, at expiration. Buying a put on an investment the Fund
owns enables the Fund to protect itself during the put period (in the case of
American-style options) or at expiration (in the case of European-style
options) against a decline in the value of the underlying investment below the
exercise price by selling such underlying investment at the exercise price to
the seller of a corresponding put. When the Fund buys a put, it benefits only
if the put is sold at a profit or if, at the time the put is exercised, the
market price of the underlying investment is below the difference of the
exercise price minus the transaction costs and the premium paid. If the put is
not exercised or sold (whether or not at a profit), it will become worthless at
its expiration date and the Fund will lose its premium payment and the right to
sell the underlying investment.
Buying a put on an investment it does not own permits the Fund either to
sell the put or buy the underlying investment and sell it at the exercise
price. The sale price of the put will vary inversely with the price of the
underlying investment. If the market price of the underlying investment is
above the exercise price and, as a result, the put is not exercised, the put
will become worthless on its expiration date.
A call option is a contract that gives the holder of the option the right
to buy from the writer (seller) of the call option, in return for a premium
paid, the security underlying the option at a specified exercise price: (i) in
the case of American-style options, at any time during the term of the option,
or (ii) in the case of European-style options, at expiration. If the market
price of the underlying investment is equal to or below the exercise price, and
as a result the call is not exercised or resold, then the call will become
worthless at its expiration date, and the Fund will lose its premium payment
and the right to buy the underlying investment. The call may, however, be
closed out prior to expiration (whether or not at a profit).
Index Futures Contracts. Transactions in index futures contracts differ
from the purchase or sale of equity securities in that no price is paid or
received by the Fund upon entering into a contract. Instead, an initial margin
deposit, typically between 5% and 8% of the value of the contracts being
entered into, is required to buy or sell an index futures contract for hedging
purposes. When the Fund enters into an index futures contract, the Fund must
deposit the initial margin, consisting of cash, U.S. government securities or
other securities acceptable to the futures broker, with the Fund's custodian in
a segregated account in the name of the futures broker. This amount is in the
nature of a performance bond or good faith deposit and is returned to the Fund
upon termination of the contract, assuming all contractual obligations have
been met.
Index futures contracts are settled every day based upon fluctuations in
the price of the underlying index through a process known as marking to market.
For example, if the Fund has entered into an index futures contract whereby it
benefits from an increase in the value of the underlying index and the price of
the underlying index has risen, the Fund will receive from the futures broker a
payment, known as variation margin, equal to that increase in value.
Conversely, if the price of the underlying index declines, the Fund would be
required to make a variation margin payment to the futures broker equal to the
decline in value.
Successful use of index futures contracts by the Fund for hedging purposes
is subject to the Manager's ability to predict movements in the direction of
the market. It is possible that, where the Fund has sold futures contracts to
hedge its portfolio against a decline in the market, the index on which the
contracts are sold may advance and the value of securities held in the Fund's
portfolio may decline. If this occurred, the Fund would lose money on the
futures contracts and also experience a decline in value in its portfolio
securities. It is also possible that, if the Fund has hedged against the
possibility of a decline in the market adversely affecting securities held in
its portfolio and securities prices increase instead, the Fund will lose part
or all of the benefit of the increased value of those securities it has hedged
because it will have offsetting losses in its futures positions. In addition,
in such situations, if the Fund has insufficient cash, it may have to sell
securities to meet daily variation margin requirements at a time when it is
disadvantageous to do so.
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<PAGE> 47
In addition to the possibility that there may be an imperfect correlation,
or no correlation at all, between movements in the index futures contracts and
the portion of the portfolio being hedged, the prices of index futures may not
correlate perfectly with movements in the underlying index due to certain
market distortions. First, since all participants in the futures market are
subject to margin deposit and maintenance requirements and investors may close
futures contracts through offsetting transactions rather than by meeting
additional margin deposit requirements, the normal relationship between the
index and futures markets could be distorted. Second, margin requirements in
the futures market are less onerous than margin requirements in the securities
market, and as a result the futures market may attract more speculators than
the securities market. Increased participation by speculators in the futures
market may also cause temporary price distortions. Due to the possibility of
price distortions in the futures market and also because of the imperfect
correlation between movements in the index and movements in the prices of index
futures contracts, even a correct forecast of general market trends by the
Manager may still not result in a successful hedging transaction over a short
time period.
Options on Index Futures. Options on index futures are similar to options
on securities except that options on index futures give the purchaser the
right, in return for the premium paid, to assume a position in an index futures
contract (a long position if the option is a call and a short position if the
option is a put), at a specified exercise price at any time during the period
of the option. Upon exercise of the option, the delivery of the futures
position by the writer of the option to the holder of the option will be
accompanied by delivery of the accumulated balance in the writer's futures
margin account which represents the amount by which the market price of the
index futures contract, at exercise, exceeds (in the case of a call) or is less
than (in the case of a put) the exercise price of the option on the index
future. If an option is exercised on the last trading day prior to its
expiration date, the settlement will be made entirely in cash equal to the
difference between the exercise price of the option and the closing level of
the index on which the future is based on the expiration date.
Options on Indices. As an alternative to purchasing put and call options
on index futures, the Fund may purchase exchange-traded put and call options on
the underlying indices themselves. Such options could be used in a manner
identical to the use of options purchased on index futures, described above.
OTC Options. The Fund may buy OTC put and call equity options that are:
(i) substantially similar to exchange-traded options on broad or narrow stock
indices, including indices linked to the over-the-counter market, or (ii) based
on customized underlying reference instruments, such as tailored indices or
groups of stocks designed to more closely reflect the composition of the Fund's
investment portfolio or that part of the Fund's investment portfolio that is
the subject of the hedge. The Fund will limit its activities in OTC options
to transactions with U.S. dealers, specifically leading banks and securities
dealers, that are rated by major credit rating organizations, such as Standard
& Poor's Corporation and Moody's Investors Service, Inc., as "A" or higher.
Liquidity of Options and Index Futures. There is no assurance that a
liquid secondary market will exist for any particular exchange-traded options
or index futures contract at any particular time. Options may have relatively
low trading volume and liquidity if their strike prices are not close to the
underlying instrument's current price. In addition, exchanges or boards of
trade may establish daily price fluctuation limits for options and futures
contracts, and may halt trading if a contract's price moves upward or downward
more than the limit in a given day. On volatile trading days when the price
fluctuation limit is reached or a trading halt is imposed, it may be impossible
for the Fund to enter into new positions or close out existing positions. If
the secondary market for a contract is not liquid because of price fluctuation
limits or otherwise, it could prevent prompt liquidation of unfavorable
positions, and potentially could require the Fund to continue to hold a
position until delivery or expiration regardless of changes in its value. As a
result, the Fund's access to other assets held to cover its options or futures
positions could also be impaired and, in the event of adverse price movements
on open futures contracts, the Fund would have to make daily variation margin
payments. Such price movements, however, would be offset all or in part by the
price movements of the securities subject to the hedge.
The risk of illiquidity may be greater with OTC options, since they
generally may be closed out only by negotiation with the counterparty to the
transaction. The Fund will treat purchased OTC options as illiquid securities.
However, with respect to OTC options written by such counterparties pursuant
to an agreement requiring a closing transaction at a formula valuation, the
amount of illiquid securities may be calculated with
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<PAGE> 48
reference to the formula valuation. In the absence of market quotations,
illiquid investments are priced at fair value as determined in good faith by
the Manager following procedures approved, and periodically reviewed, by the
Board of Directors.
INVESTMENT RESTRICTIONS
The following policies and investment restrictions have been adopted by
the Fund and (unless otherwise noted) are fundamental and cannot be changed
without the affirmative vote of a majority of the Fund's outstanding voting
securities as defined in the 1940 Act. The Fund may not:
1. With respect to 75% of its total assets, invest in the securities of
any one issuer (other than the U.S. Government and its agencies and
instrumentalities), if immediately after and as a result of such investment (a)
more than 5% of the total assets of the Fund would be invested in such issuer
or (b) more than 10% of the outstanding voting securities of such issuer would
be owned by the Fund. With respect to the remaining 25% of its total assets,
there are no such limitations.
2. Make loans to others, except (a) through the purchase of debt
securities in accordance with its investment objective and policies, (b)
through the lending of up to 25% of its portfolio securities as described above
and in its Prospectus, or (c) to the extent the entry into a repurchase
agreement is deemed to be a loan, then through repurchase agreements as
described above and in the Prospectus. The transactions described above, in
the aggregate, will be limited to 33 1/3% of the Fund's total assets.
3. (a) Borrow money other than from a bank, or by engaging in reverse
repurchase agreements, and then not in excess of 15% of its total assets. Any
such borrowing will be made only if immediately thereafter there is an asset
coverage of at least 300% of all borrowings. If at any time the value of the
Fund's assets should fail to meet the 300% coverage requirement, the Fund will,
within three business days, reduce its borrowings to the extent necessary to
eliminate the shortfall.
(b) Mortgage, pledge or hypothecate any of its assets except in connection
with permissible borrowings and permissible options or other hedging
transactions.
4. Except as required in connection with permissible options or other
hedging transactions, purchase securities on margin or underwrite securities.
(This does not preclude the Fund from obtaining such short-term credit as may
be necessary for the clearance of purchases and sales of its portfolio
securities.)
5. Buy or sell interests in oil, gas or mineral exploration or
development leases and programs, or real estate. (This does not preclude
investments in marketable securities of issuers engaged in such activities,
other than real estate limited partnerships.)
6. Invest more than 10% of the value of its net assets, with no more than
5% in any one issuer, in securities of companies which have not had a record,
together with their predecessors, of at least three years of continuous
operations. (This is an operating policy which may be changed without
shareholder approval, consistent with applicable law.)
7. Purchase or sell commodities or commodity contracts.
8. Invest in securities of other investment companies except in the open
market where no commission except the ordinary broker's commission is paid, or
as part of a merger, consolidation or acquisition of assets, and other than
primes and scores as discussed in the Prospectus. In no event may the Fund
invest in such securities if immediately thereafter such securities would
constitute more than 5% of the total assets of the Fund. (This is an operating
policy which may be changed without shareholder approval, consistent with
applicable law.)
9. Invest, in the aggregate, more than 10% of its net assets in
securities with legal or contractual restrictions on resale, securities which
are not readily marketable, and repurchase agreements with more than seven days
to maturity.
10. Invest in any issuer for purposes of exercising control or
management. (This is an operating policy which may be changed without
shareholder approval, consistent with applicable law.)
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<PAGE> 49
11. Invest, at the time of purchase, more than 25% of the market value of
its total assets in the securities of companies engaged in any one industry.
(This does not apply to investment in the securities of the U.S. Government,
its agencies or instrumentalities.)
12. Issue senior securities, as defined in the 1940 Act, except that this
restriction shall not be deemed to prohibit the Fund from (a) making any
permitted borrowings, mortgages or pledges, (b) engaging in permitted futures
transactions or (c) entering into repurchase agreements.
13. Acquire or dispose of put, call, straddle or spread options except as
may be described herein and in the Fund's Prospectus, provided that, at the
time the purchase is made and after giving effect thereto, the aggregate
premiums paid on all such unexpired options are 5% or less of the Fund's net
assets, except that the Fund may purchase put and call options on index futures
only if, at the time the purchase is made and after giving effect thereto, such
premiums are 2% or less of the Fund's net assets. (This is an operating policy
which may be changed without shareholder approval, consistent with applicable
law.)
14. Buy or sell index futures contracts unless, at the time the
transaction is made and after giving effect thereto, the sum of the aggregate
initial margin deposits on all open index futures contracts and the premiums
paid on all unexpired options on index futures is 5% or less of the Fund's net
assets. (This is an operating policy which may be changed without shareholder
approval, consistent with applicable law.)
15. Engage in short sales of securities, including, without limitation,
short sales "against the box," unless, at the time the short sale is made and
after giving effect thereto, the aggregate market value of all securities sold
short is less than or equal to 5% of the Fund's net assets, or unless in
connection with permissible futures transactions. (This is an operating policy
which may be changed without shareholder approval, consistent with applicable
law.)
16. Invest in warrants, valued at the lower of cost or market, in excess
of 5% of the value of the Fund's net assets. Included in such amount, but not
to exceed 2% of the value of the Fund's net assets, may be warrants which are
not listed on the New York Stock Exchange or American Stock Exchange. Warrants
acquired by the Fund in units or attached to securities may be deemed to be
without value. (This is an operating policy which may be changed without
shareholder approval, consistent with applicable law.)
17. Invest, in the aggregate, more than 10% of its total assets in
foreign securities (not including American Depositary Receipts and Eurodollar
certificates of deposit). (This is an operating policy which may be changed
without shareholder approval, consistent with applicable law.)
18. Invest, in the aggregate, more than 5% of its net assets in
restricted securities.
19. Invest in securities of any issuer if the officers and directors of
the Company or the Manager owning beneficially more than one-half of one
percent of the securities of that issuer together as a group own beneficially
more than 5% of the securities of that issuer.
20. Invest more than 10% of the market value of its total assets in
securities of unit investment trusts whose units are divided into "prime" and
"score" components. (This is an operating policy which may be changed without
shareholder approval, consistent with applicable law.)
To the extent these restrictions reflect matters of operating policy which
may be changed without shareholder vote, these restrictions may be amended upon
approval by the Board of Directors and 30 days' prior written notice to
shareholders.
If a percentage restriction is adhered to at the time of investment, a
subsequent increase or decrease in a percentage resulting from a change in the
values of assets will not constitute a violation of that restriction, except as
otherwise noted.
DISTRIBUTION PLAN
In order to compensate investment brokers and dealers (including, for this
purpose, certain financial institutions) for services provided in connection
with sales of Fund shares and the maintenance of shareholder accounts, the
Fund's Distributor, WON + Co., makes quarterly payments to qualifying brokers
and
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<PAGE> 50
dealers based on the average net asset value of shares of the Fund which are
attributable to shareholders for whom the brokers or dealers are designated as
the broker or dealer of record. WON + Co. makes such payments at the annual
rate of .25% of such average net asset value. For this purpose, "average net
asset value" attributable to a shareholder account means the product of (i) the
average daily share balance of the account times (ii) the Fund's average daily
net asset value per share. For administrative reasons, WON + Co. may enter
into agreements with certain brokers and dealers providing for the calculation
of "average net asset value" on the basis of assets of the accounts of the
broker or dealer's customers on an established day in each quarter. In its
discretion, the Distributor may elect to pay additional fees to certain brokers
or dealers for special services relating to the distribution of the Fund's
shares and the servicing of shareholder accounts. The Distributor will be
entitled to reimbursement for such fees under the Fund's Distribution Plan
pursuant to Rule 12b-1 under the 1940 Act, subject to the limits of such plan.
In exchange for special services relating to the distribution of the Fund's
shares, the Distributor offers to pay to national brokerage houses with a large
retail distribution network an annual fee of up to six basis points (0.06%) of
the average daily net assets invested in the Fund through such brokerage when,
at the time such special servicing agreements are entered into, such net assets
so invested through such brokerage are in excess of $100 million. WON + Co.
may also pay referral fees to brokers for referring institutional investors.
WON + Co. may suspend or modify these payments at any time and payments are
subject to the continuation of the Fund's Distribution Plan described below and
the terms of Selling Agreements between brokers or dealers and WON + Co.
The Fund has adopted a Distribution Plan pursuant to Rule 12b-1 under the
1940 Act. The purpose of the Plan is to permit the Fund to compensate WON +
Co. for services provided and expenses incurred by it (including the expenses
referred to in the preceding paragraph) in promoting the sale of shares of the
Fund, reducing redemptions, or maintaining or improving services provided to
shareholders by WON + Co. or brokers and dealers. The Plan provides for
monthly payments by the Fund to WON + Co., subject to the authority of the
Company's Board of Directors to reduce the amount of payments or to suspend the
Plan for such periods as they may determine. The amount of any such
reimbursement by the Fund is limited under the Plan to 0.25% for service fees
and 0.75% for all other permissible distribution expenses of the Fund's average
net assets annually, and is also subject to state expense limitations.
Subject to these limitations, the amount of such payments and the specific
purposes for which they are made shall be determined by the Board of Directors
of the Company. At present, the Board of Directors has approved payments under
the Plan for the purpose of reimbursing WON + Co. for payments made by it to
brokers and dealers under those Selling Agreements referred to above as well as
for certain additional expenses related to shareholder services and the
distribution of shares.
Continuance of the Plan is subject to annual approval by a vote of the
Board of Directors, including a majority of the Board of Directors who are not
interested persons of the Fund and who have no direct or indirect interest in
the Plan or related arrangements (the "Independent Directors"), cast in person
at a meeting called for that purpose. All material amendments to the Plan must
be likewise approved by the Board of Directors and the Independent Directors.
The Plan may not be amended in order to increase materially the costs which the
Fund may bear for distribution pursuant to the Plan without being approved by a
majority of the outstanding voting securities of the Fund. The Plan terminates
automatically in the event of its assignment and may be terminated without
penalty, at any time, by a vote of a majority of the outstanding voting
securities of the Fund or by a vote of a majority of the Independent Directors.
For fiscal 1996, the Fund paid distribution expenses under the Plan of
$1,086,509. Distribution expenses were paid by the Fund to WON + Co. in
reimbursement of expenses related to services, shareholder accounts, and to
compensating brokers or dealers and sales personnel.
DISTRIBUTIONS AND TAX INFORMATION
Distributions. The Fund declares and makes distributions, as stated in
its Prospectus. In order to avoid the payment of any federal excise tax, the
Fund must declare and make (or be deemed to make) distributions on or before
December 31 of each year at least equal to 98% of its "ordinary income" (which
equals investment company taxable income, as described below, adjusted to,
among other things, take into account net capital gain
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<PAGE> 51
and to exclude net short-term capital gain and net long-term capital loss) for
that calendar year and at least 98% of its capital gain net income (the excess
of capital gains over capital losses, if any) for the 12-month period ending
October 31 of that year, together with any undistributed amounts of ordinary
income and capital gain net income from the previous calendar year on which no
federal income tax was paid.
Distributions by the Fund result in a reduction in the net asset value of
the Fund's shares. Should a distribution reduce the net asset value below a
shareholder's cost basis, such distribution nevertheless would be taxable to
the shareholder as ordinary income or capital gain as described below, even
though, from an investment standpoint, it may constitute a partial return of
the shareholder's investment. In particular, investors should be careful to
consider the tax implications of buying shares just prior to a distribution.
The price of shares purchased at that time includes the amount of the
forthcoming distribution. Those investors purchasing shares just prior to a
distribution will then receive a partial return of their investment upon such
distribution, which will nevertheless be taxable to them.
Taxation of the Fund. The Fund has elected to qualify as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code") for each taxable year by complying with all applicable
requirements regarding the source of its income, the diversification of its
assets, and the timing of its distributions. The Fund's policy is to
distribute to its shareholders all of its investment company taxable income
(which includes interest, dividends and net short-term capital gain in excess
of net long-term capital loss) and any net capital gain (defined in the Code as
the excess of net long-term capital gain over net short-term capital loss) for
each calendar year in a manner which complies with the distribution
requirements of the Code so as to avoid being subject to any federal income or
excise taxes. However, the Board of Directors may elect to pay any applicable
excise taxes if it determines that payment is, under the circumstances, in the
best interests of the Fund.
In order to qualify as a regulated investment company, the Fund must,
among other things, (a) derive at least 90% of its gross income from dividends,
interest, payments with respect to loans of stock and securities, gains from
the sale or other disposition of stock or securities or foreign currencies, or
other income (generally including gains from options, futures or forward
contracts, but excluding futures contracts on commodities such as gold or oil)
derived with respect to the business of investing in stock, securities or
currencies; (b) derive less than 30% of its gross income from the sale or other
disposition of stock or securities (or options, futures or forward contracts
thereon), or foreign currencies (or options, futures, or forward contracts
thereon) that are not directly related to the Fund's stock and securities
investment activities, held less than three months; and (c) diversify its
holdings so that, at the end of each fiscal quarter, (i) at least 50% of the
market value of its assets is represented by cash, cash items, U.S. Government
securities, securities of other regulated investment companies and other
securities (provided that the securities of any one issuer shall not exceed 5%
of the Fund's assets or 10% of the voting securities of the issuer), and (ii)
not more than 25% of the value of the Fund's assets is invested in the
securities of any one issuer (other than U.S. Government securities or the
securities of other regulated investment companies). As such, and by complying
with the applicable provisions of the Code, the Fund will not be subject to
federal income tax on taxable income (including capital gains) which is
distributed to shareholders in accordance with the timing requirements of the
Code.
The 30% limit on income from the disposition of certain options, futures,
and forward contracts held less than three months and the qualifying income and
diversification requirements described above may limit the extent to which the
Fund will be able to engage in transactions in options, futures and forward
contracts.
Any security, option, or other position entered into or held by the Fund
that substantially diminishes the Fund's risk of loss from any other position
held by the Fund may constitute a "straddle" for federal income tax purposes.
In general, straddles are subject to certain rules that may affect the amount,
character and timing of the Fund's gains and losses with respect to straddle
positions by requiring, among other things, that loss realized on disposition
of one position of a straddle be deferred to the extent of any unrealized gain
in an offsetting position until such position is disposed of; that the Fund's
holding period in certain straddle positions not begin until the straddle is
terminated (possibly resulting in the gain being treated as short-term capital
gain rather than long-term capital gain); and that losses recognized with
respect to certain straddle positions, which would otherwise constitute
short-term capital losses, be treated as long-term capital losses. Different
elections are available to the Fund which may mitigate the effects of the
straddle rules.
Many of the options, futures contracts and forward contracts used by the
Fund will be "Section 1256 contracts." Any gains or losses on Section 1256
contracts generally will be considered 60% long-term and 40%
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<PAGE> 52
short-term capital gains or losses, although certain foreign currency gains and
losses from such contracts may be treated as ordinary in character. Also,
Section 1256 contracts held by the Fund at the end of each taxable year (and at
other times prescribed under the Code) will be "marked to market," with the
result that unrealized gains or losses will be treated as though they were
realized during the year and the resulting gain or loss will be treated as
ordinary or 60%/40% gain or loss, depending on the circumstances.
The hedging transactions and other transactions in options, futures and
forward contracts undertaken by the Fund also may result in "conversion
transactions." Application of the conversion transaction rules may result in
all or a portion of any long-term capital gain realized by the Fund from such
transactions being treated as ordinary income. Because application of the
conversion transaction rules may affect the character of capital gains, the
amount which must be distributed to shareholders, and which will be taxed to
shareholders as ordinary income or long-term capital gain, may be increased or
decreased as compared to a fund that does not engage in such transactions.
Under the Code, gains or losses attributable to fluctuations in exchange
rates which occur between the time the Fund accrues interest or other
receivables, or accrues expenses or other liabilities, denominated in a foreign
currency and the time the Fund actually collects such receivables, or pays such
liabilities, generally will be treated as ordinary income or loss. Similarly,
on disposition of debt securities denominated in a foreign currency and on
disposition of certain futures contracts, forward contracts and options, gains
and losses attributable to fluctuations in the value of the foreign currency
between the date of acquisition of the security or contract and the date of
disposition also will be treated as ordinary gain or loss. These gains or
losses, referred to under the Code as "section 988" gains or losses, may
increase or decrease the amount of the Fund's investment company taxable income
to be distributed to its shareholders as ordinary income.
Investment income received by the Fund from sources within foreign
countries may be subject to foreign income taxes withheld at the source.
Taxation of Shareholders. Distributions of investment company taxable
income and net capital gain will be taxable to shareholders whether made in
cash or reinvested in shares. In determining amounts of net capital gain to be
distributed, any capital loss carryovers from prior years will be applied
against capital gains. Shareholders receiving distributions that are
reinvested in shares will have a cost basis for federal income tax purposes in
each share so received equal to the net asset value of a share of the Fund on
the reinvestment date. Fund distributions will also be included in individual
and corporate shareholders' income on which the alternative minimum tax may be
imposed.
Distributions of investment company taxable income (which includes the
excess of net short-term capital gain over net long-term capital loss) will be
taxed as ordinary income. A portion of the investment company taxable income
distributions is expected to qualify for the corporate dividends-received
deduction, subject to the satisfaction by the corporate shareholder of certain
holding period and debt-financing restrictions. The portion of the
distribution deducted by the corporate shareholder must be included in its
adjusted alternative minimum taxable income.
Any distribution of the Fund's net capital gain (described above) is
treated as long-term capital gain regardless of the length of time the Fund's
shares have been held by the shareholder. The maximum federal income tax rate
on long-term capital gain income for individuals is currently 28%, as
contrasted with a maximum federal income tax rate of 39.6% on ordinary income
distributions. For corporate shareholders, the maximum federal income tax rate
for long-term capital gain income as well as ordinary income is currently 35%.
Distributions which are declared during October, November or December of
any calendar year to shareholders of record in any such month and which are
paid to shareholders in the following January will be taxable to shareholders
as if received on December 31 of the year in which they were declared.
Sales, redemptions and exchanges of shares of the Fund may result in gains
or losses for tax purposes to the extent of the difference between the proceeds
from the shares redeemed and the shareholder's adjusted tax basis for such
shares. Any loss realized upon the redemption of shares within six months from
their date of purchase will be treated as a long-term capital loss to the
extent of distributions of long-term capital gain dividends during such
six-month period. All or a portion of a loss realized upon the redemption of
shares may be
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<PAGE> 53
disallowed to the extent shares are purchased (including shares acquired by
means of reinvested dividends) within 30 days before or after such redemption.
Information Reporting and Backup Withholding. The Fund or the securities
broker or dealer effecting a sale of Fund shares by a shareholder will be
required to file information reports with the Internal Revenue Service ("IRS")
with respect to distributions, redemptions and other payments made to the
shareholders. In addition, the Fund will be required to backup withhold at a
rate of 31% with regard to distributions, redemptions and other payments made
to accounts of individual or other non-exempt shareholders who (i) have not
furnished their correct taxpayer identification numbers and certain required
certifications on the New Account Application, or (ii) with respect to which
the Fund or the securities broker or dealer has been notified by the IRS that
the number furnished is incorrect or that the account is otherwise subject to
backup withholding. The Fund will inform investors of the source of their
distributions at the time they are paid, and will promptly after the close of
each calendar year advise investors of the tax status of such distributions.
Miscellaneous. Distributions and the transactions referred to in the
preceding paragraphs may be subject to state and local income taxes, and the
treatment thereof may differ from the federal income tax treatment. In
particular, under the laws of certain states, distributions of investment
company taxable income are taxable to shareholders as dividends, even though a
portion of such distributions may be derived from interest on U.S. Government
obligations which, if received directly by such shareholders, would be exempt
from state income tax. Given the passive nature of the income realized and
distributed by the Fund, as a very general rule, a shareholder should only be
subject to tax on Fund distributions or redemption payments in the state in
which the shareholder resides (or has its commercial domicile in the case of a
non-individual).
Nonresident aliens and foreign persons are subject to different tax rules
and may be subject to withholding of up to 30% with respect to distributions or
redemption payments received from the Fund.
The foregoing discussion is included for informational purposes only. It
is not intended to be a full discussion of all tax implications of an
investment in the Fund. The foregoing discussion does not purport to deal with
all aspects of taxation that may be relevant to particular shareholders in
light of their personal investment or tax circumstances, or to certain types of
shareholders (including insurance companies, tax-exempt organizations,
financial institutions, broker-dealers, or foreign corporations and persons who
are not citizens or residents of the United States) subject to special
treatment under the Federal income tax laws. PROSPECTIVE INVESTORS ARE ADVISED
TO CONSULT THEIR OWN TAX ADVISORS REGARDING THE SPECIAL TAX CONSEQUENCES TO
THEM OF INVESTING IN THE FUND, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND
OTHER TAX CONSEQUENCES OF SUCH INVESTMENT AND POTENTIAL CHANGES IN APPLICABLE
LAW.
DIRECTORS AND OFFICERS
The Directors are responsible for the overall management of the Fund,
including general supervision and review of its investment activities. The
officers, who administer the Fund's daily operations, are appointed by the
Board of Directors. The current Directors and officers of the Company and
their affiliations and principal occupations for the past five years are set
forth below.
William J. O'Neil, Chairman of the Board, Chief Executive Officer and Director*
c/o Data Analysis Inc., 12655 Beatrice Street, Los Angeles, California
90066. Since January 1992, Mr. O'Neil has been Chairman, Chief Executive
Officer and a Director of the Company, and Chairman and Chief Executive
Officer of New USA Research & Management Co. Since 1984, Mr. O'Neil has
been Chairman of Data Analysis Inc.
Jerry Dackerman, Director
c/o Data Analysis Inc., 12655 Beatrice Street, Los Angeles, California
90066. Since 1988, Mr. Dackerman has been President and Chief Executive
Officer of Consortium 2000, Inc., a telecommunications consulting firm. From
1977 to 1988, Mr. Dackerman was President and Chief Executive Officer of
Robin & Dackerman, Inc., a telecommunications and information systems
consulting firm.
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<PAGE> 54
James H. Macklin, Director
c/o Data Analysis Inc., 12655 Beatrice Street, Los Angeles, California
90066. Mr. Macklin has been a Professor at California State University,
Northridge in the Department of Accounting and Management Information
Systems since 1983.
Jong S. Park, M.D., Director
c/o Data Analysis Inc., 12655 Beatrice Street, Los Angeles, California
90066. Dr. Park was an orthopedic surgeon in private practice for
twenty-nine years. Prior to 1989, Dr. Park was the President of Orthopedic
Surgeons Associated of Lima, Ohio.
Fredrick M. Russo, M.D., Director
c/o Data Analysis Inc., 12655 Beatrice Street, Los Angeles, California
90066. Since December 1984, Dr. Russo has been a physician at, and since
1995 has been President of, Facey Medical Group, Inc.
Lewis H. Stanton, Director*
c/o Data Analysis Inc., 12655 Beatrice Street, Los Angeles, California
90066. Since October 1988, Mr. Stanton has been Chief Financial Officer of
Data Analysis Inc.
Margaret R. Harries, Senior Vice President and Secretary
c/o Data Analysis Inc., 12655 Beatrice Street, Los Angeles, California
90066. Since January 1992, Ms. Harries has been Senior Vice President of
the Company. Ms. Harries has been Senior Vice President and Compliance
Officer of New USA Research & Management Co. since January 1995. In March
1995, Ms. Harries was elected Secretary of the Company. Since June 1989,
Ms. Harries has been Compliance Director and Assistant Vice President of WON
+ Co. From May 1985 to May 1989, Ms. Harries was Circulation Manager and
Assistant Vice President for Investor's Business Daily, Inc., a national
business newspaper.
David Ryan, Senior Vice President
c/o Data Analysis Inc., 12655 Beatrice Street, Los Angeles, California
90066. Since January 1992, Mr. Ryan has been Senior Vice President of the
Company. Since March 1992, Mr. Ryan has been employed by New USA Research &
Management Co. as Portfolio Manager of The New USA Mutual Fund. From 1982 to
March 1992, Mr. Ryan served as a Portfolio Manager and Research Analyst
with WON + Co.
Natalie D. Carter, Chief Financial Officer
c/o Data Analysis Inc., 12655 Beatrice Street, Los Angeles, California
90066. Since October 1993, Ms. Carter has been employed by New USA Research
& Management Co. as Chief Financial Officer. She has been employed by New
USA Research & Management as Secretary since January 1994. Ms. Carter has
also been Chief Financial Officer of the Company since November 1993. From
February 1993 to September 1993, Ms. Carter was a Financial Reporting
Analyst with Southern California Gas Co. Ms. Carter was an Internal Auditor
for Pacific Enterprises from July 1992 to January 1993. From May 1986 to
June 1992, Ms. Carter was an Auditor in the Accounting and Audit Division of
Arthur Andersen LLP.
The Directors of the Company who are not affiliated with WON + Co. or the
Manager each receive a quarterly retainer of $1250 and fees of $1500 for each
Board meeting attended and are reimbursed for expenses incurred in connection
with attendance at Board meetings. The officers of the Company receive
no compensation directly from it for performing the duties of their offices.
However, those officers and Directors of the Company who are officers or
partners of the Manager or WON + Co. may receive remuneration indirectly
because the Manager will receive a management fee from the Fund and WON + Co.
will
- ----------------
* Director deemed an "interested person" of the Fund, as defined in the 1940
Act.
13
<PAGE> 55
receive commissions for executing portfolio transactions for the Fund and a
portion of the sales charge that is not reallowed to dealers or paid as
commissions to brokers.
As of the date of this Statement of Additional Information, the Directors
and officers of the Company as a group (9 persons) owned 1.1% of the
shares of the Fund.
THE INVESTMENT MANAGER
As stated in the Prospectus, investment management services are provided
to the Fund by New USA Research & Management Co., the Manager, pursuant to an
Investment Management Agreement dated April 1, 1992. The continuation of the
Investment Management Agreement was approved by the Board of Directors on March
7, 1995 and the Agreement shall continue in effect for periods not exceeding
one year so long as such continuation is approved at least annually by (1) the
Board of Directors of the Company or the vote of a majority of the outstanding
shares of the Fund, and (2) a majority of the Directors who are not interested
persons of any party to the Agreement, in each case cast in person at a meeting
called for the purpose of voting on such approval. The Agreement may be
terminated at any time, without penalty, by the Fund or the Manager upon 60
days' written notice, and is automatically terminated in the event of its
assignment as defined in the 1940 Act.
Under the Investment Management Agreement, the Fund pays the Manager a fee
for the Manager's services, as described in the Prospectus. The amounts paid
to the Manager pursuant to the Investment Management Agreement were $1,810,848
and $2,040,219 in fiscal 1996 and 1995, respectively.
If the Fund's annual operating expenses, expressed as a percentage of
average daily net assets, exceed the most restrictive limitation imposed by any
state in which such Fund's shares are then qualified for sale, then the Manager
will defer its fee to limit total annual Fund operating expenses to the maximum
allowed by such state expense limitations, and such deferral shall be subject
to recoupment within the next three fiscal years if legally permissible and if
the Manager is still serving at that time in such capacity, and provided that
the recoupment of such fee or reimbursement of such expenses would not affect
the Fund's tax status or otherwise have an adverse tax impact on the Fund or
its shareholders. Currently the most restrictive state limitation is 2.5% of
the first $30,000,000 of average net assets of the Fund, plus 2% of the next
$70,000,000, plus 1.5% of the average net assets in excess of $100,000,000,
subject to a formula that permits the Fund to exclude certain expenses from
that calculation. Operating expenses for the purposes of the Investment
Management Agreement include the Manager's management fee but do not include
any taxes, interest, brokerage commissions, expenses incurred in connection
with any merger or reorganization, any extraordinary expenses such as
litigation, and such other expenses as may be deemed excludable with the prior
written approval of any state securities commission imposing an expense
limitation. The Manager may also from time to time pay for other Fund expenses
(including expenses of distribution) from its own funds if (after reduction of
its fee as described above) Fund expenses exceed applicable state expense
limitations, subject to reimbursement by the Fund within the next three fiscal
years if legally permissible and if the Manager is still serving at that time
in such capacity and provided the payment of such expenses (or the recoupment
of such fee) would not affect the Fund's tax status or otherwise have an
adverse tax impact on the Fund or its shareholders. The Fund will not accrue
as an expense in any given year any portion of the Manager's fee that has not
been paid in such year, or any expenses that have not been reimbursed, but the
Fund will note the amount of any such fees or expenses in a note to the Fund's
audited year-end financial statements.
The Manager may also act as an investment adviser or administrator to
other persons, entities, and corporations, including other investment
companies.
The use of the name "New USA" by the Company and by the Fund is pursuant
to the consent of the Manager which may be withdrawn in the event the Manager
ceases to be the Manager of the Company.
The Distributor may provide certain administrative services to the Fund on
behalf of the Manager. The Distributor will also perform investment advisory
and brokerage services for persons other than the Fund,
14
<PAGE> 56
including issuers of securities in which the Fund may invest. These activities
from time to time may result in a conflict of interest of the Distributor from
those of the Fund and may restrict the ability of the Distributor to provide
services to the Fund.
EXECUTION OF PORTFOLIO TRANSACTIONS
In all purchases and sales of securities for the Fund, the primary
consideration is to obtain the most favorable price and execution available.
Pursuant to the Investment Management Agreement, the Manager determines which
securities are to be purchased and sold by the Fund and which broker-dealers
are eligible to execute the Fund's portfolio transactions, subject to the
instructions of and review by the Fund and the Company's Board of Directors.
Purchases and sales of securities in the over-the-counter market will generally
be executed directly with a "market-maker" unless, in the opinion of the
Manager or the Fund, a better price and execution can otherwise be obtained by
using a broker for the transaction, including WON + Co. when acting on an
agency basis.
Purchases of portfolio securities for the Fund also may be made directly
from issuers or from underwriters. Where possible, purchase and sale
transactions will be effected through dealers (including banks) which
specialize in the types of securities which the Fund will be holding, unless
better executions are available elsewhere. Dealers and underwriters usually
act as principal for their own account. Purchases from underwriters will
include a concession paid by the issuer to the underwriter and purchases from
dealers will include the spread between the bid and the asked price. If the
execution and price offered by more than one dealer or underwriter are
comparable, the order may be allocated to a dealer or underwriter that has
provided research or other services as discussed below.
In placing portfolio transactions, the Manager will use its best efforts
to choose a broker-dealer capable of providing the services necessary to obtain
the most favorable price and execution available. The full range and quality
of services available will be considered in making these determinations, such
as the size of the order, the difficulty of execution, the operational
facilities of the firm involved, the firm's risk in positioning a block of
securities, and other factors. In those instances where it is reasonably
determined that more than one broker-dealer can offer the services needed to
obtain the most favorable price and execution available, consideration may be
given to those broker-dealers which furnish or supply research and statistical
information to the Manager or its affiliates that they may lawfully and
appropriately use in their investment advisory capacities, as well as provide
other services in addition to execution services. The Manager considers such
information, which is in addition to and not in lieu of the services required
to be performed by it under its Agreement with the Company, to be useful in
varying degrees, but of indeterminable value. The placement of portfolio
transactions with broker/dealers who sell shares of the Fund is subject to
rules adopted by the National Association of Securities Dealers, Inc. Provided
the Company's officers are satisfied that the Fund is receiving the most
favorable price and execution available, the Manager may also consider the sale
of the Fund's shares as a factor in the selection of broker-dealers to execute
its portfolio transactions.
While it is the Fund's general policy to seek first to obtain the most
favorable price and execution available, in selecting a broker-dealer to
execute portfolio transactions, weight may also be given to the ability of a
broker-dealer to furnish brokerage and research services to the Fund or to the
Manager. In negotiating any commissions with a broker or evaluating the spread
to be paid to a dealer, the Fund may therefore pay a higher commission or
spread than would be the case if no weight were given to the furnishing of
these supplemental services, provided that the amount of such commission or
spread has been determined in good faith by the Company and the Manager to be
reasonable in relation to the value of the brokerage and/or research services
provided by such broker-dealer, which services either produce a direct benefit
to the Fund or assist the Manager in carrying out its responsibilities to the
Fund. The standard of reasonableness is to be measured in light of the
Manager's overall responsibilities to the Fund.
Accordingly, when consistent with the above policies, brokerage may be
directed to persons or firms supplying investment information to the Manager,
including WON + Co. The investment information
15
<PAGE> 57
provided to the Manager is of the type described in Section 28(e) of the
Securities Exchange Act of 1934 and is designed to augment the Manager's own
internal research and investment strategy capabilities. Such research services
include, among other things, the furnishing of information, either directly or
through publications or writings, as to the value of securities, the
advisability of investing in, purchasing or selling securities, and the
availability of securities or purchasers or sellers of securities, and the
furnishing of analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy and the performance of
accounts. There may be occasions where the transaction cost charged by a
broker, including WON + Co., may be greater than that which another broker may
charge if the Manager determines in good faith that the amount of such
transaction cost is reasonable in relation to the value of brokerage and
research services provided by the executing broker.
Investment decisions for the Fund are made independently from those of
other client accounts of the Manager or its affiliates. Nevertheless, it is
possible that at times identical securities will be acceptable for the Fund and
for one or more of such client accounts. To the extent any of these client
accounts and the Fund seeks to acquire the same security at the same time, the
Fund may not be able to acquire as large a portion of such security as it
desires, or it may have to pay a higher price or obtain a lower yield for such
security. Similarly, the Fund may not be able to obtain as high a price for,
or as large an execution of, an order to sell any particular security at the
same time. On occasion, situations may arise in which legal and regulatory
considerations will preclude trading for the Fund's account by reason of
activities of WON + Co. or its affiliates. It is the judgment of the Board of
Directors that the Fund will not be materially disadvantaged by any such
trading preclusion and that the desirability of continuing its advisory
arrangements with the Manager and the Manager's affiliation with WON + Co. and
other affiliates of WON + Co. outweigh any disadvantages that may result from
the foregoing.
Subject to the foregoing policies, the Fund intends to use WON + Co. as
one of its regular brokers to execute portfolio transactions for the Fund. In
accordance with the provisions of Rule 17e-1 under the 1940 Act, the Company
has adopted certain procedures which are designed to provide that commissions
payable to WON + Co. are reasonable and fair as compared to the commissions
received by other brokers in connection with comparable transactions involving
similar securities being purchased or sold on securities or options exchanges
during a comparable period of time. In determining the commissions to be paid
to WON + Co., it is the policy of the Fund that such commissions will, in the
judgment of the Manager pursuant to the procedures adopted by, and the review
of, the Board of Directors, be (i) at least as favorable as those which would
be charged by other qualified brokers having comparable execution capability
and (ii) at least as favorable as commissions contemporaneously charged by WON
+ Co. on comparable transactions for its most favored unaffiliated customers,
except any customers of WON + Co. considered by a majority of the Directors who
are not interested persons not to be comparable to the Fund. The Fund does not
deem it practicable and in its best interests to solicit competitive bids for
commission rates on each transaction. However, consideration is regularly
given to information concerning the prevailing level of commissions charged on
comparable transactions by other qualified brokers. The Board of Directors
reviews the procedures adopted by the Company with respect to the payment of
brokerage commissions at least annually to ensure their continuing
appropriateness, and determines, on at least a quarterly basis, that all such
transactions during the preceding quarter were effected in compliance with such
procedures.
WON + Co.'s brokerage services to the Fund are also subject to Section
11(a)(1)(H) under the Securities Exchange Act of 1934, as amended. Section
11(a)(1)(H) permits the Fund to use WON + Co. as a broker for portfolio
transactions effected on national securities exchanges of which WON + Co. is a
member provided that certain conditions are met. These conditions include the
following requirements: (1) WON + Co. must obtain express authorization to
effect such transactions from the person or persons authorized to transact
business for the Fund prior to effecting such transactions, (2) WON + Co. must
furnish the person or persons authorized to transact business for the Fund with
a statement at least annually disclosing the aggregate commissions received by
WON + Co. in effecting such transactions, and (3) WON + Co. must comply with
any rules the Securities and Exchange Commission has prescribed with respect to
the requirements of clauses (1) and (2), above. Pursuant to Section
11(a)(1)(H) of the Securities Exchange Act of 1934, those persons authorized by
the Board of Directors to
16
<PAGE> 58
transact business for the Fund expressly authorized WON + Co. to effect
portfolio transactions for the Fund on national securities exchanges of which
WON + Co. is a member. This authorization has been approved by a majority of
the Independent Directors.
The Fund does not effect securities transactions through brokers in
accordance with any formula, nor does it effect securities transactions through
such brokers solely for selling shares of the Fund. However, as stated above,
WON + Co. will act as one of the Fund's brokers in the purchase and sale of a
minority of portfolio securities, and other brokers who execute brokerage
transactions as described above may from time to time effect purchases of
shares of the Fund for their customers.
During its fiscal years ended January 31, 1995 and 1996, the Fund paid
brokerage commissions totaling $1,417,276 and $1,489,829, respectively, with
respect to portfolio transactions aggregating $1,400,554,945 in 1995 and
$2,132,484,088 in 1996. Of these totals, the Fund paid $179,335 and $355,695
in brokerage commissions to WON + Co. in fiscal 1995 and 1996, respectively, all
on a soft dollar basis. Such transactions with WON + Co. in fiscal 1996
represented 23.87% of the aggregate commissions paid, with respect to portfolio
transactions aggregating $308,492,844, representing 14.47% of the aggregate of
all portfolio transactions. The principal reason for the difference in the
above percentages is that the Fund from time to time paid higher commissions to
WON + Co. in exchange for what the Manager determined were valuable research
services, consistent with the standards described above. In fiscal 1996, the
Fund paid $1,330,734 in the aggregate in commissions to brokers and dealers
(including WON + Co.) who provided research and investment services, such
commissions being paid with respect to portfolio transactions aggregating
$1,107,146,421.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
General
The Company reserves the right in its sole discretion (i) to suspend the
continued offering of the Fund's shares, (ii) to reject purchase orders in
whole or in part when in the judgment of the Fund's Manager or the Distributor
such rejection is in the best interest of the Fund, and (iii) to reduce or
waive the minimum for initial and subsequent investments in the Fund's shares.
Payments to shareholders for shares of the Fund redeemed directly from the
Fund will be made as promptly as possible but no later than seven days (or such
shorter period as may be required by applicable law) after receipt by the
Fund's Shareholder Servicing Agent of the written request in proper form, with
the appropriate documentation as stated in the Fund's Prospectus, except that
the Fund may suspend the right of redemption or postpone the date of payment
during any period when (a) trading on the New York Stock Exchange is restricted
as determined by the Securities and Exchange Commission ("SEC") or such
Exchange is closed for other than weekends and holidays; (b) an emergency
exists as determined by the SEC making disposal of portfolio securities or
valuation of net assets of the Fund not reasonably practicable; or (c) for such
other period as the SEC may permit for the protection of the Fund's
shareholders. At various times, the Fund may be requested to redeem shares for
which it has not yet received confirmation of good payment; in this
circumstance, the Fund may delay the redemption until payment for the purchase
of such shares has been collected and confirmed to the Fund.
The Fund intends to pay cash (U.S. dollars) for all shares redeemed, but,
under abnormal conditions which make payment in cash unwise, the Fund may make
payment partly in its portfolio securities with a current market value equal to
the redemption price. Although the Fund does not anticipate that it will make
any part of a redemption payment in securities, if such payment were made, an
investor may incur brokerage costs in converting such securities to cash. The
Fund has elected to be governed by the provisions of Rule 18f-1 under the 1940
Act, which contains a formula for determining the minimum redemption amounts
that must be paid in cash. Any portfolio securities issued for an "in kind"
redemption will be readily marketable.
The value of shares on redemption or repurchase may be more or less than
the investor's costs, depending upon the market value of the Fund's portfolio
securities at the time of redemption or repurchase.
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<PAGE> 59
Letter of Intent
Shareholders may sign a Letter of Intent at the time of initial purchase,
or within 30 days, covering investments to be made within a period of 13 months
(the "Period") from such initial purchase. The shareholder thereby becomes
eligible for a reduced sales charge based on the total amount of the specified
intended investment (the "Letter of Intent Goal"), provided such amount is not
less than $50,000. A minimum initial purchase of $1,000 and subsequent
purchases of $50 each are required. A New Account Application form, which
should be used to establish a Letter of Intent, is available from brokers and
dealers or the Distributor.
All transactions under a Letter of Intent must be indicated as such and
must be placed by the dealer or the shareholder directly through National
Financial Data Services (the "Shareholder Servicing Agent"). Shareholders
should review for accuracy all confirmations of transactions, especially
purchases made pursuant to a Letter of Intent.
If the Letter of Intent Goal is completed before the end of the Period,
any subsequent purchases within the Period receive the reduced sales charge
applicable. In addition, during the Periods, the shareholder may increase his
or her Letter of Intent Goal and all subsequent purchases are treated as a new
Letter of Intent (including escrow of additional Fund shares) except as to the
Period, which does not change.
Signing a Letter of Intent does not bind the shareholder to complete his
or her Letter of Intent Goal, but the Letter of Intent Goal must be completed
to obtain the reduced sales charge. The Letter of Intent is binding on the
Fund and the Distributor. However, the Distributor may withdraw a
shareholder's Letter of Intent privileges for future purchases upon receiving
information from the Shareholder Servicing Agent that the shareholder has
redeemed or transferred his or her Fund shares within the Period.
The Letter of Intent requires the Shareholder Servicing Agent, as escrow
agent, to hold 5% of the Letter of Intent Goal in escrow until completion of
the Letter of Intent Goal within the Period. The escrowed Fund shares are taken
from the first purchase and, if necessary, from each successive purchase. If
the Letter of Intent Goal is completed within the Period, the escrowed Fund
shares are promptly delivered to, or as directed by, the shareholder.
If the Letter of Intent Goal is not completed within the Period, the
shareholder pays the Distributor an amount equal to the sales charge applicable
to a single purchase in the total amount of the purchases made under the Letter
of Intent minus the sales charges actually paid. If the Distributor does not
receive such unpaid sales charge within 20 days after requesting payment in
writing, the Distributor instructs the Shareholder Servicing Agent to redeem
escrowed Fund shares sufficient to cover the unpaid sales charge. If the
redemption proceeds are inadequate, the shareholder is liable to the
Distributor for the difference. The Shareholder Servicing Agent delivers to, or
as directed by, the shareholder all Fund shares remaining after such
redemption, together with any excess cash proceeds. In addition, under the
Letter of Intent, the shareholder irrevocably appoints the Shareholder
Servicing Agent as his or her attorney with full power of substitution in the
premises to surrender for redemption any or all escrowed Fund shares.
Any income dividends and capital gains distributions on the escrowed Fund
shares are paid to, or as directed by, the shareholder.
Money Market Exchange Privilege
The procedures for exchanging shares between the Fund and the Cash Account
Trust are set forth under "Money Market Exchange Privilege" in the Fund's
Prospectus. If the account registration information for the two accounts
involved in the exchange differs in any respect, the exchange instructions must
be in writing and must contain a signature guarantee as described under "How to
Redeem an Investment in the Fund" in the Fund's Prospectus.
By use of the Exchange Privilege, the investor authorizes the Shareholder
Servicing Agent to act on telegraphic or written exchange instructions from any
person representing himself to be the investor or the agent of the investor
and believed by the Shareholder Servicing Agent to be genuine. The Shareholder
Servicing Agent's records of such instructions are binding.
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<PAGE> 60
For purposes of determining the sales charge rate previously paid on
shares of The New USA Mutual Fund, all sales charges previously paid on The New
USA Mutual Fund shall be included. If the exchanged shares were acquired
through reinvestment, those shares may be exchanged without a sales charge. If
a shareholder exchanges less than all of his shares, the shares upon which the
highest sales charge rate was previously paid are deemed exchanged first.
Exchange requests received on a business day prior to the time shares of
the funds are priced will be processed on the date of receipt by the
Shareholder Servicing Agent. "Processing" a request means that shares in the
fund from which the shareholder is withdrawing an investment will be redeemed
at the net asset value per share next determined on the date of receipt.
Shares of the fund into which the shareholder is investing will also normally
be purchased at the net asset value per share, plus any applicable sales
charge, next determined on the date of receipt by the Shareholder Servicing
Agent. Exchange requests received on a business day after the time shares of
the funds are priced will be processed on the next business day in the manner
described above.
Retirement Plans
Shares of the Fund are available for purchase by any retirement plan,
including Keogh plans, 401(k) plans, 403(b) plans and individual retirement
accounts ("IRAs").
For individuals who wish to purchase shares of the Fund through an IRA,
there is available through the Fund a prototype individual retirement account
and custody agreement. National Financial Data Services will furnish custodial
services for an annual maintenance fee per participating account of $12.
(These fees are in addition to the normal Custodian charges paid by the Fund
and will be deducted automatically from each Participant's account.) For
further details, including the right to appoint a successor custodian, see the
plan and custody agreements and the IRA Disclosure Statement as provided by the
Fund. An IRA that invests in shares of the Fund may also be used by employers
who have adopted a Simplified Employee Pension Plan. Individuals or employers
who wish to invest in shares of the Fund under a custodianship with another
bank or trust company must make individual arrangements with such institution.
The IRA Disclosure Statement available from the Fund contains more
information on the amount investors may contribute and the deductibility of IRA
contributions. In summary, an individual may contribute to the IRA up to 100%
of earned compensation, not to exceed $2,000 annually (or $2,250 to two IRAs if
there is a non-working spouse). An IRA may be established whether or not the
amount of the contribution is deductible. A deduction for federal income tax
purposes with respect to the entire amount of the contribution generally will
only be allowed to taxpayers who meet one of the following two tests:
(a) the individual is not an active participant in an employer's
retirement plan and does not file a joint return with a spouse who is an active
participant in such a plan, or
(b) the individual's adjusted gross income before the IRA deduction is (i)
$40,000 or less for married couples filing jointly, or (ii) $25,000 or less for
single individuals. NOTE: The maximum $2,000 deduction generally is reduced
for married couples filing jointly with adjusted gross incomes before the IRA
deduction between $40,000 and $50,000, and for single individuals with adjusted
gross incomes between $25,000 and $35,000.
It is advisable for an investor considering the funding of any retirement
plan to consult with an attorney or to obtain advice from a competent
retirement plan consultant with respect to the requirements of such plans and
the tax aspects thereof.
DETERMINATION OF SHARE PRICE
As noted in the Fund's Prospectus, the net asset value of shares of the
Fund will be determined once daily as of the earlier of 4:15 p.m., New York
City time, or the close of regular trading on the New York Stock Exchange on
each day the New York Stock Exchange is open for trading. It is expected that
the Exchange will be closed on Saturdays and Sundays and on New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas. The Fund does not expect to determine the
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<PAGE> 61
net asset value of its shares on any day when the Exchange is not open for
trading even if there is sufficient trading in its portfolio securities on such
days to materially affect the net asset value per share.
In valuing the Fund's assets for purposes of calculating net asset value,
readily marketable portfolio securities listed on a national securities
exchange or on the National Association of Securities Dealers Automated
Quotation National Market System ("NASDAQ-NMS") are valued at the last sale
price on the business day as of which such value is being determined. If there
has been no sale on such exchange or on the NASDAQ-NMS on such day, the
security is valued at the closing bid price on such day. Readily marketable
securities traded only in the over-the-counter market and not on NASDAQ-NMS are
valued at the current or last bid price. If no bid is quoted on such day, the
security is valued by such method as the Board of Directors of the Company
shall determine in good faith to reflect the security's fair value.
Exchange-traded options are valued at the last sale price, as quoted on the
principal exchange on which such option contract is traded or, in the absence
of a sale, the last bid price. OTC options are valued on the basis of closing
reference-instrument bid prices, if available, or at their fair value as
determined in good faith under consistently applied procedures under the
general supervision of the Board of Directors. Money market instruments with a
maturity of more than 60 days are valued at current market, as discussed above.
The fair value of debt securities originally purchased with remaining
maturities of 60 days or less shall be their amortized cost value unless
conditions indicate otherwise.
Securities denominated in foreign currencies and traded on foreign
exchanges or in foreign markets will be valued in a similar manner and their
value translated into U.S. dollars at the bid price of their respective
currency denomination against U.S. dollars last quoted by a major bank or, if
no such quotation is available, at the rate of exchange determined in
accordance with policies established in good faith by the Board of Directors.
Because the value of securities denominated in foreign currencies must be
translated into U.S. dollars, fluctuations in the value of such currencies in
relation to the U.S. dollar will affect the net asset value of the Fund's
shares even though there has not been any change in the market values of such
securities.
Generally, trading in and valuation of foreign securities is substantially
completed each day at various times prior to the close of the New York Stock
Exchange. Occasionally, events affecting the values of such securities in U.S.
dollars on a day on which the Fund calculates their net asset value may occur
between the times when such securities are valued and the close of the New York
Stock Exchange which will not be reflected in the computation of the Fund's net
asset value unless the Directors or their delegates deem that such events would
materially affect the net asset value, in which case an adjustment would be
made.
In certain cases, reliable market quotations may not be considered to be
readily available for certain preferred stocks of certain foreign securities.
These investments are stated at fair value on the basis of valuations furnished
by pricing services approved by the Directors, which include market
transactions for comparable securities and various relationships between
securities which are generally recognized by institutional traders.
If any securities held by the Fund are restricted as to resale or do not
have readily available market quotations, the Manager determines their fair
value following procedures approved by the Board of Directors. The Directors
periodically review such procedures. The fair value of such securities is
generally determined as the amount which the Fund could reasonably expect to
realize from an orderly disposition of such securities over a reasonable period
of time. The valuation procedures applied in any specific instance are likely
to vary from case to case. However, consideration is generally given to the
financial position of the issuer and other fundamental analytical data relating
to the investment and to the nature of the restrictions on disposition of the
securities (including any registration expenses that might be borne by the Fund
in connection with such disposition). In addition, specific factors are also
generally considered, such as the cost of the investment, the market value of
any unrestricted securities of the same class (both at the time of purchase and
at the time of valuation), the size of the holding, the prices of any recent
transactions or offers with respect to such securities and any available
analysts' reports regarding the issuer.
All other assets of the Fund are valued in such manner as the Board of
Directors in good faith deems appropriate to reflect their fair value.
The net asset value per share of the Fund is calculated as follows: all
liabilities incurred or accrued are deducted from the valuation of total assets
which includes accrued but undistributed income; the resulting net
20
<PAGE> 62
assets are divided by the number of shares of the Fund outstanding at the time
of the valuation and the result (adjusted to the nearest cent) is the net asset
value per share.
Set forth below is an example of the method of computing the offering
price of the Fund's shares, assuming a purchase of an aggregate of less than
$50,000 subject to the sales charges set forth in the Prospectus at a price
based on the net asset value of the Fund's shares at January 31, 1996:
<TABLE>
<S> <C>
Net Asset Value at January 31, 1996 ............................ $14.39
Sales Charge (5% of offering price, 5.26% of net asset value) .. 0.76
------
Offering Price ................................................. $15.15
------
</TABLE>
PRINCIPAL UNDERWRITER
WON + Co., the Distributor, acts as the Fund's principal underwriter in a
continuous public offering of the Fund's shares. The Distributor is currently
registered as a broker-dealer with the SEC and in 50 states and is a member of
most of the principal securities exchanges in the United States and is a member
of the National Association of Securities Dealers, Inc. The Amended and
Restated Distributor's Agreement (the Distributor's Agreement") between the
Company and the Distributor is in effect until March 1995, and shall continue
in effect thereafter for periods not exceeding one year if approved at least
annually by (i) the Board of Directors of the Company or the vote of a majority
of the outstanding shares of the Fund (as defined in the 1940 Act) and (ii) a
majority of the Directors who are not interested persons of the Fund or WON +
Co., in each case cast in person at a meeting called for the purpose of voting
on such approval. The Distributor's Agreement may be terminated without
penalty by the parties thereto upon not more than 60 days' nor less than 10
days' written notice, and is automatically terminated in the event of its
assignment as defined in the 1940 Act. In fiscal 1995 and 1996, WON + Co.
received $54,075 and $54,191, respectively, in sales charge revenue. In fiscal
1995 and 1996, WON + Co. also received $179,335 and $355,695, respectively, in
brokerage commissions.
ADMINISTRATOR
Pursuant to an Administration Agreement dated May 1, 1993 (the
"Administration Agreement"), State Street Bank and Trust Company (the
"Administrator") will perform, or arrange for the performance of, certain
administrative services for the Fund, including: maintaining the books and
records of the Fund and preparing certain reports and other documents required
by federal, and/or state laws and regulations.
The Fund will pay the Administrator a fee at the annual rate of 0.10% of
the Fund's average daily net assets up to $125 million, 0.08% on the next $125
million, and 0.04% of those assets in excess of $250 million, which will be
payable monthly. The Administrator's principal address is 1776 Heritage Drive,
North Quincy, Massachusetts 02171.
PERFORMANCE INFORMATION
From time to time, the Fund may state its total return in advertisements
and investor communications. Total return may be stated for any relevant period
as specified in the advertisement or communication. Any statements of total
return will be accompanied by information on the Fund's average annual
compounded rate of return over the most recent four calendar quarters and the
period from the Fund's inception of operations. The Fund may also advertise
aggregate and average total return information over different periods of time.
The Fund's average annual compounded rate of return is determined by
reference to a hypothetical $1,000 investment that includes capital
appreciation and depreciation for the stated period, according to the following
formula:
21
<PAGE> 63
P(1+T)n = ERV
<TABLE>
<S> <C> <C>
Where: P = a hypothetical initial purchase order of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of the hypothetical $1,000 purchase at
the end of the period
</TABLE>
The Fund's average annual total return, calculated using the above method,
for the one year period ended January 31, 1996, was 37.38%, including deduction
of the maximum 5% front-end sales charge.
Aggregate total return is calculated in a similar manner, except that the
results are not annualized. Each calculation assumes that all dividends and
distributions are reinvested at net asset value on the reinvestment dates
during the period.
The Fund's total return may be compared to relevant indices, including
Standard & Poor's 500 Composite Stock Index, the Russell 2000 Index, the
Investor's Business Daily 6000 Index, and indices published by Lipper
Analytical Services, Inc. From time to time, evaluations of the Fund's
performance, including rankings within specific groups, may be published by
independent sources and used by the Manager or the Distributor in
advertisements and in information furnished to present or prospective investors
in the Fund.
Investors should note that the investment results of the Fund will
fluctuate over time, and any presentation of the Fund's total return for any
period should not be considered as a representation of what an investment may
earn or what an investor's total return may be in any future period.
GENERAL INFORMATION
Investors in the Fund will be informed of the Fund's progress through
periodic reports. Also, the Distributor may provide monthly reports on
representative holdings of the Fund to investors, broker-dealers and
prospective investors. Financial statements will be submitted to shareholders
semi-annually, at least one of which will be certified by independent public
accountants. All expenses incurred in connection with the Company's
organization and the registration of its shares have been assumed by the Fund.
The Manager has agreed to advance the organization expenses incurred by the
Company and the Fund and will be reimbursed for such expenses after
commencement of the Company's operations. The organization expenses of the
Company and the Fund are being amortized over a period of five years. Investors
purchasing shares of the Fund bear such expenses only as they are amortized
daily against the Fund's investment income.
State Street Bank and Trust Company, located at 1776 Heritage Drive, North
Quincy, Massachusetts, acts as Custodian of the securities and other assets of
the Fund. The Custodian does not participate in decisions relating to the
purchase and sale of securities by the Fund.
State Street Bank and Trust Company, located at 1776 Heritage Drive, North
Quincy, Massachusetts, is the Fund's Transfer Agent.
National Financial Data Services, located at 1004 Baltimore, Kansas City,
Missouri, is the Fund's Shareholder Servicing and Dividend Disbursing Agent.
State Street Bank and Trust Company, located at 1776 Heritage Drive, North
Quincy, Massachusetts, is the Fund's Administrator, and provides certain
administrative services for the Fund.
Arthur Andersen LLP, located at One International Place, Boston,
Massachusetts, is the independent public accountant for the Fund.
Gibson, Dunn & Crutcher, located at 333 South Grand Avenue, Los Angeles,
California, is legal counsel to the Fund.
The Company is registered with the Securities and Exchange Commission
("SEC") as a management investment company, and the Fund is a diversified
series of the Company. Such a registration does not involve supervision of the
management or policies of the Fund. The Prospectus of the Fund and this
Statement of Additional Information omit certain of the information contained
in the registration Statement filed with the SEC. Copies of the Registration
Statement may be obtained from the SEC upon payment of the prescribed fee.
22
<PAGE> 64
FINANCIAL STATEMENTS
The attached audited financial statements relate to the fiscal year ended
January 31, 1996.
23
<PAGE> 65
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Directors of The New USA Mutual Fund:
We have audited the accompanying statement of assets and liabilities of
The New USA Mutual Fund (a portfolio constituting the New USA Mutual Funds,
Inc.), including the schedule of investments, as of January 31, 1996, and the
related statements of operations and cash flows for the year then ended, and the
statement of changes in net assets and the financial highlights for each of the
periods presented. These financial statements and the financial highlights are
the responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and the financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
January 31, 1996 by correspondence with the custodian and brokers and the
application of alternative procedures, when confirmations were not received from
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of The New USA Mutual Fund as of January 31, 1996, the results of its
operations and its cash flows for the year then ended, the changes in its net
assets and the financial highlights for the periods presented in conformity with
generally accepted accounting principles.
Arthur Andersen LLP
Boston, Massachusetts
March 6, 1996
<PAGE> 66
- --------------------------------------------------------------------------------
THE NEW USA MUTUAL FUND
SCHEDULE OF INVESTMENTS IN SECURITIES
JANUARY 31, 1996
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
SHARES MARKET
HELD VALUE
- --------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS - 110.55%
AEROSPACE/DEFENSE - 2.41%
57,500 Boeing Co. ................. $ 4,463,437
-----------
AEROSPACE/DEFENSE
EQUIPMENT - 0.81%
37,500 Precision Castparts Corp. .. 1,495,313
-----------
BUILDING/RESIDENTIAL/
COMMERCIAL - 2.10%
75,000 Continental Homes
Holding Corp. ............ 1,650,000
30,000 Newhall Land & Farming
Co. California ........... 532,500
25,000 Palm Harbor Homes Inc.+ .... 523,438
60,000 Toll Brothers Inc.+ ........ 1,170,000
-----------
3,875,938
-----------
BUILDING-MOBILE/
MANUFACTURING & RV - 3.66%
45,000 Clayton Homes Inc. ......... 900,000
75,000 Oakwood Homes Corp. ........ 3,356,250
72,500 Redman Industries New+ ..... 2,510,312
-----------
6,766,562
-----------
CHEMICALS/SPECIALTY - 1.07%
26,000 Cytec Industries Inc.+ ..... 1,982,500
-----------
COMMERCIAL SERVICES/
ADVERTISING - 0.19%
5,000 Catalina Marketing Corp.+ . 353,750
-----------
COMMERCIAL SERVICES/
MISCELLANEOUS - 1.33%
20,000 APAC Teleservices Inc.+ .... 915,000
5,000 Clintrials Research Inc.+ . 135,625
47,000 Copart Inc.+ ............... 1,398,250
-----------
2,448,875
-----------
COMMERCIAL SERVICES/
PRINTING TRADE - 0.90%
25,000 Cadmus Communications
Corp ..................... 715,625
20,000 Oracle Systems Corp.+ ...... 955,000
-----------
1,670,625
-----------
COMMERCIAL SERVICES/
SCHOOLS - 1.13%
125,200 Youth Services Inc.+........ $2,097,100
-----------
COMMERCIAL SERVICES/SECURITY/
SAFETY - 1.00%
30,000 Corrections Corp.
America+.................. 1,278,750
20,000 Wackenhut Corrections
Corp.+.................... 565,000
-----------
1,843,750
-----------
COMPUTER/GRAPHICS - 0.01%
1,000 Visioneer Communications
Inc.+..................... 22,000
-----------
COMPUTER/INTEGRATED
SYSTEMS - 6.46%
70,000 Brooktrout Technology Inc.+ 2,186,406
44,000 HCIA Inc.+.................. 2,453,000
15,000 Kronos Inc.+................ 510,000
30,000 Medic Computer Systems
Inc.+..................... 1,702,500
31,000 Netscape Communications
Corp.+.................... 5,091,750
-----------
11,943,656
-----------
COMPUTER/LOCAL AREA
NETWORKS - 0.61%
2,000 Ascend Communications
Inc.+..................... 77,750
8,000 Cisco Systems Inc.+......... 666,000
20,000 Netstar Inc.+............... 382,500
-----------
1,126,250
-----------
COMPUTER/MEMORY
DEVICES - 3.48%
92,300 C Cube Microsystems Inc.+... 5,538,000
15,000 Seagate Technology +........ 888,750
-----------
6,426,750
-----------
COMPUTER/MINI/MICRO - 3.17%
52,500 Digital Equipment Corp.+.... 3,799,688
45,000 Sun Microsystems Inc.+...... 2,070,000
-----------
5,869,688
-----------
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE> 67
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
SHARES MARKET
HELD VALUE
- --------------------------------------------------------------------------------
<C> <S> <C>
COMPUTER/PERIPHERAL
EQUIPMENT - 0.52%
2,500 Adaptec Inc.+...................... $ 110,000
15,000 Security Dynamics +................ 858,750
--------------
968,750
--------------
COMPUTER/SERVICES - 3.38%
8,000 Gartner Group Inc. Cl A+........... 442,000
69,100 HBO & Co........................... 5,804,400
--------------
6,246,400
--------------
COMPUTER/SOFTWARE - 3.73%
18,000 Business Objects S A, ADR+......... 828,000
11,500 Cambridge Technology
Partners M+...................... 569,250
15,000 CBT Group Public Limited+.......... 813,750
35,000 Cognos Inc.+....................... 1,386,875
5,000 Epic Design
Technology Inc.+................. 150,000
25,000 HNC Software Inc.+................. 1,450,000
1,000 Open Text Corp.+................... 16,625
7,200 Peoplesoft Inc.+................... 342,000
50,800 Physicians Computer
Network Inc.+.................... 552,450
28,000 Structural Dynamics Research
Corp.+........................... 780,500
--------------
6,889,450
--------------
COSMETICS/PERSONAL
CARE - 0.78%
45,000 Natures Sunshine
Products Inc..................... 1,440,000
--------------
ELECTRONICS/MEASURING
INSTRUMENTS - 0.30%
29,600 Thermo Voltek Corp.+............... 558,700
--------------
ELECTRONICS/MILITARY
SYSTEMS - 0.37%
25,000 Logicon Inc........................ 684,375
--------------
ELECTRONICS/MISCELLANEOUS/
COMPONENTS - 0.71%
15,000 Chicago Miniature
Lamp Inc.+....................... 408,750
30,000 Thermolase Corp.+.................. 896,250
--------------
1,305,000
--------------
ELECTRONICS/SEMICONDUCTOR
MANUFACTURING - 2.70%
55,000 Altera Corp.+...................... $ 3,623,125
14,000 Maxim Integrated
Products Inc.+................... 497,000
15,000 Oak Technology +................... 750,000
10,000 Supertex Inc.+..................... 125,000
--------------
4,995,125
--------------
FINANCIAL SERVICES/
MISCELLANEOUS - 3.67%
53,600 Fila Holdings Spa ADR.............. 2,599,600
92,300 Medaphis Corp.+.................... 3,692,000
10,000 Sunamerica Inc..................... 492,500
--------------
6,784,100
--------------
INSTRUMENTS/SCIENTIFIC - 2.68%
204,000 Input/Output Inc.+................. 4,947,000
--------------
INSURANCE/ACCIDENT &
HEALTH - 0.31%
25,500 United Insurance Cos.
Inc.+............................ 586,500
--------------
INSURANCE/DIVERSIFIED - 0.18%
5,000 Travelers Group Inc................ 328,750
--------------
INSURANCE/PROPERTY/
CASUALTY/TITLE - 1.07%
67,500 Vesta Insurance Group Inc.......... 1,974,375
--------------
LASERS/SYSTEMS/
COMPONENTS - 0.12%
5,000 Coherent Inc.+..................... 228,125
--------------
LEISURE/GAMING - 0.89%
55,000 Grand Casinos Inc.+................ 1,643,125
--------------
LEISURE/HOTELS & MOTELS - 0.48%
30,000 Studio Plus America Inc.+.......... 892,500
--------------
LEISURE/MOVIES - 1.58%
100,900 Regal Cinemas Inc.+................ 2,926,100
--------------
MACHINERY/FARM - 0.51%
20,000 Case Corp.......................... 947,500
--------------
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE> 68
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
SHARES MARKET
HELD VALUE
- --------------------------------------------------------------------------------
<C> <S> <C>
MEDIA/BOOKS - 0.25%
17,500 Educational Development
Corp.+........................... $ 455,000
--------------
MEDICAL/BIOMED/
GENETICS - 11.30%
10,500 Agouron Pharmaceuticals
Inc.+............................ 441,000
66,500 Amgen Inc.+........................ 3,998,312
140,800 Biochem Pharmaceuticals
Inc.+............................ 6,195,200
35,000 Celgene Corp.+..................... 538,125
48,000 Centocor Inc.+..................... 1,644,000
43,000 Chiron Corp.+...................... 4,945,000
20,000 Curative Technologies Inc.+........ 387,500
65,000 Immulogic Pharmaceutical
Corp.+........................... 1,275,625
50,000 Liposome Inc.+..................... 1,200,000
10,000 Sequana Therapeutics Inc.+......... 261,250
--------------
20,886,012
--------------
MEDICAL/DENTAL
SUPPLIES - 0.73%
10,000 Fresenius USA Inc.+................ 217,500
40,000 Mentor Corp........................ 1,125,000
--------------
1,342,500
--------------
MEDICAL/DRUGS - 1.77%
85,000 Dura Pharmaceuticals Inc.+ 3,272,500
--------------
MEDICAL/ETHICAL
DRUGS - 5.23%
97,000 Elan PLC, ADR +.................... 5,626,000
40,000 Pfizer Inc......................... 2,750,000
70,000 Sequus Pharmaceuticals
Inc.+............................ 1,303,750
--------------
9,679,750
--------------
MEDICAL/HEALTH
MAINTENANCE - 1.82%
10,000 Compdent Corp.+.................... 352,500
90,000 Healthsource Inc.+................. 3,015,000
--------------
3,367,500
--------------
MEDICAL/HOSPITAL - 1.47%
20,000 Columbia / Hca Healthcare
Corp............................. 1,112,500
20,000 Health Management
Associates +..................... 602,500
20,000 Universal Health Services
Inc.+............................ 997,500
--------------
2,712,500
--------------
MEDICAL/INSTRUMENTS - 2.44%
5,000 Hologic Inc.+...................... $ 241,250
60,000 Idexx Labs Inc.+................... 3,015,000
20,000 Spine Tech Inc.+................... 530,000
15,000 Thermotrex Corp.+.................. 729,375
--------------
4,515,625
--------------
MEDICAL/OUTPATIENT/
HOME CARE - 4.14%
30,000 Genesis Health Ventures
Inc.+............................ 1,263,750
15,000 Medpartners/ Mullikin Inc.+ 540,000
45,000 Physician Reliance
Network Inc.+.................... 2,047,500
83,000 Renal Treatment
Centers Inc.+.................... 3,797,250
--------------
7,648,500
--------------
MEDICAL/PRODUCTS - 7.23%
70,000 Boston Scientific Corp.+........... 3,587,500
35,000 Nellcor Puritan Bennett
Inc.+............................ 2,170,000
50,800 Quintiles Transnational
Corp.+........................... 2,730,500
63,200 Thermo Cardiosystems Inc.+......... 4,676,800
10,000 Utah Med Probf Inc.+............... 208,750
--------------
13,373,550
--------------
METAL ORES/GOLD/SILVER - 2.14%
30,000 Firstmiss Gold Inc.+............... 810,000
30,000 Newmont Mining Corp................ 1,680,000
90,000 Santa Fe Pacific Gold
Corp............................. 1,473,750
--------------
3,963,750
--------------
OIL & GAS/DRILLING - 2.94%
70,000 Diamond Offshore
Drilling Inc.+................... 2,668,750
60,000 Sonat Offshore Drilling
Inc.............................. 2,767,500
--------------
5,436,250
--------------
OIL & GAS/FIELD SERVICES - 0.99%
55,000 Tidewater Inc...................... 1,821,875
--------------
OIL & GAS/REFINING/
MARKETING - 0.36%
40,000 World Fuel Services Corp........... 675,000
--------------
PAPER/PAPER PRODUCTS - 0.18%
15,000 Thermo Fibertek Inc.+.............. 326,250
--------------
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE> 69
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
SHARES MARKET
HELD VALUE
- --------------------------------------------------------------------------------
<C> <S> <C>
REAL ESTATE/OPERATIONS - 0.63%
40,000 Central Parking Corp.................. $ 1,155,000
--------------
RETAIL/APPAREL & SHOE - 5.10%
153,300 Gadzooks Inc.+........................ 3,813,337
35,000 Just For Feet Inc.+................... 1,089,375
65,000 Nike Inc.............................. 4,533,750
--------------
9,436,462
--------------
RETAIL/DISCOUNT &
VARIETY - 0.10%
5,000 Dollar Tree Stores Inc.+.............. 176,250
--------------
RETAIL/MAJOR DISCOUNT
CHAINS - 1.35%
60,000 Sears Roebuck & Co.................... 2,490,000
--------------
RETAIL/MISCELLANEOUS/
DIVERSIFIED - 0.88%
5,000 Baby Superstore Inc.+................. 242,500
35,000 Bed, Bath, & Beyond Inc.+............. 1,389,063
--------------
1,631,563
--------------
RETAIL/WHOLESALE/BUILDING
PRODUCTS - 0.51%
23,500 Hughes Supply Inc..................... 675,625
10,800 Orchard Supply Hardware..+............ 267,300
--------------
942,925
--------------
RETAIL/WHOLESALE OFFICE
SUPPLIES - 1.30%
27,000 Boise Cascade Office
Products Corp.+..................... 1,390,500
20,000 Viking Office Products Inc.+.......... 1,020,000
--------------
2,410,500
--------------
SOAP/CLEANING
PREPARATION - 0.49%
25,000 USA Detergents Inc.+.................. 900,000
--------------
STEEL/PRODUCERS - 0.09%
10,000 Chaparral Steel Co.................... 157,500
--------------
TELECOMMUNICATIONS/
EQUIPMENT - 2.24%
25,000 Aspect Telecommunications
Corp.+.............................. $ 925,000
45,000 Cable Design Technologies
Corp.+.............................. 1,980,000
36,500 MRV Communications Inc.+.............. 1,241,000
--------------
4,146,000
--------------
TELECOMMUNICATIONS/
SERVICES-MISCELLANEOUS - 0.47%
20,000 Sprint Corp........................... 862,500
--------------
TEXTILE/APPAREL
MANUFACTURING - 2.09%
60,000 Nautica Enterprises Inc.+............. 2,340,000
40,000 Tommy Hilfiger Corp.+................. 1,520,000
--------------
3,860,000
--------------
Total Common Stocks
(cost $183,744,247)................. 204,377,331
--------------
CONTRACT
VALUE
REPURCHASE AGREEMENT - 1.41%
$2,603,980 Repurchase Agreement dated
1/31/96 with State Street Bank
and Trust Co., 5.00%, due
2/01/96, collateralized by
United States Treasury Bill
Discount Note, due 10/17/96
(market value $2,660,289)
(repurchase proceeds $2,604,342)
(cost $2,603,980)................... 2,603,980
--------------
TOTAL INVESTMENTS AND
REPURCHASE AGREEMENT --
111.96%
(cost $186,348,227)................. 206,981,311
OTHER ASSETS LESS
LIABILITIES -- (11.96)%............. (22,114,220)
--------------
NET ASSETS -- 100.00%................. $ 184,867,091
==============
</TABLE>
+ Non-income producing security.
The accompanying notes are an integral part of this statement.
<PAGE> 70
- -------------------------------------------------------------------------------
THE NEW USA MUTUAL FUND
STATEMENT OF ASSETS AND LIABILITIES
JANUARY 31, 1996
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(cost $183,744,247) (Note 1)...................... $ 204,377,331
Repurchase agreement (Note 1)....................... 2,603,980
---------------
Total investments and repurchase
agreement......................................... 206,981,311
---------------
Receivable for securities sold...................... 10,187,793
Receivable for Fund shares sold..................... 118,842
Deferred organization expenses -
net (Note 1)...................................... 84,292
Prepaid expenses.................................... 17,042
Dividends receivable................................ 13,702
Interest receivable................................. 362
---------------
Total Assets................................ 217,403,344
---------------
LIABILITIES:
Payable for securities purchased.................... 17,165,788
Borrowing under line of
credit (Note 5)................................... 14,000,000
Payable for Fund shares redeemed.................... 922,131
Investment management fee
payable (Note 2).................................. 154,225
Distributor fee payable (Note 2).................... 92,861
Administration fee payable (Note 2)................. 32,597
Other accrued expenses and
liabilities....................................... 168,651
---------------
Total Liabilities........................... 32,536,253
---------------
NET ASSETS.......................................... $ 184,867,091
===============
Net assets consist of:
Capital stock, $0.01 par value;
200,000,000 shares authorized,
12,842,466 shares issued
and outstanding (Note 4).......................... $ 128,425
Additional paid-in capital.......................... 149,397,566
Accumulated net investment income................... 469,484
Accumulated realized gain
on investments - net.............................. 14,238,532
Unrealized appreciation on
investments - net................................. 20,633,084
---------------
NET ASSETS.......................................... $ 184,867,091
===============
Net asset value and redemption
price per share (Note 1).......................... $ 14.39
===============
Maximum offering price
per share (Note 1)................................ $ 15.15
===============
</TABLE>
- -------------------------------------------------------------------------------
THE NEW USA MUTUAL FUND
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JANUARY 31, 1996
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME (NOTE 1):
Dividends (net of foreign withholding
tax of $ 4,300)................................... $ 341,003
Interest............................................ 304,563
Miscellaneous income................................ 5,099
---------------
650,665
---------------
EXPENSES:
Investment management fees (Note 2) 1,810,848
Distribution fees (Note 2).......................... 1,086,509
Transfer agent fees................................. 334,957
Administration fees (Note 2)........................ 176,122
Custodian fees...................................... 160,051
Professional fees................................... 121,410
Amortization of deferred organization
expenses (Note 1)................................. 67,923
Directors' fees..................................... 29,000
Reports to shareholders............................. 28,000
Registration fees................................... 22,717
Other expenses...................................... 140,082
---------------
Total expenses excluding
interest....................................... 3,977,619
Interest expense................................. 880,665
---------------
Total expenses................................... 4,858,284
---------------
Net investment loss................................. (4,207,619)
---------------
REALIZED AND UNREALIZED GAIN
(LOSS) ON SECURITIES, FUTURES
AND SHORT SALES TRANSACTIONS
(NOTES 1 AND 3): Net realized gain (loss) from:
Securities transactions........................... 58,524,683
Futures transactions.............................. (165,035)
Short sales transactions.......................... (1,507,483)
Change in unrealized appreciation on
investments - net................................. 12,032,523
---------------
Net realized and unrealized gain on
securities, futures and short
sales transactions................................ 68,884,688
---------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS......................... $ 64,677,069
===============
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE> 71
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
THE NEW USA MUTUAL FUND
STATEMENTS OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED
JANUARY 31, 1996 JANUARY 31, 1995
---------------- ----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment loss....................................................... $ (4,207,619) $ (1,294,497)
Realized gain (loss) on securities, futures,
short sales and options transactions - net.............................. 56,852,165 (10,159,394)
Change in unrealized appreciation
on investments - net.................................................... 12,032,523 (13,335,797)
---------------- ----------------
Net increase (decrease) in net assets
resulting from operations............................................. 64,677,069 (24,789,688)
---------------- ----------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net realized gain on securities, futures,
short sales and options transactions................................... (27,138,147) --
---------------- ----------------
FROM FUND SHARE TRANSACTIONS (NOTE 4):
Net proceeds from shares sold............................................. 12,165,690 14,368,662
Shares issued to shareholders in
reinvestment of distributions........................................... 24,126,151 --
Payments for shares redeemed.............................................. (59,079,462) (86,068,031)
---------------- ----------------
Net decrease in net assets from Fund share transactions................. (22,787,621) (71,699,369)
---------------- ----------------
Net increase (decrease) in net assets................................... 14,751,301 (96,489,057)
---------------- ----------------
NET ASSETS:
Beginning of year......................................................... 170,115,790 266,604,847
---------------- ----------------
End of year............................................................... $ 184,867,091 $ 170,115,790
================ ================
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE> 72
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
THE NEW USA MUTUAL FUND
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED JANUARY 31, 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C>
CASH FLOWS PROVIDED BY (USED FOR) OPERATING ACTIVITIES:
Interest and dividends received ...................................................... $ 885,716
Expenses paid ........................................................................ (4,774,371)
----------------
Net cash used for operating activities............................................... (3,888,655)
----------------
CASH FLOWS PROVIDED BY (USED FOR) INVESTING ACTIVITIES:
Purchase of portfolio securities ..................................................... (1,013,021,591)
Sales and maturities of portfolio securities.......................................... 1,052,776,762
----------------
Net cash flows provided by investing activities ..................................... 39,755,171
----------------
CASH FLOWS PROVIDED BY (USED FOR) FINANCING ACTIVITIES:
Proceeds from borrowings ............................................................. 147,260,000
Payments against borrowings .......................................................... (133,260,000)
Dividends and distributions paid (excluding reinvestment of
dividends and distributions of $24,126,151) ......................................... (3,011,996)
Proceeds from capital stock shares sold .............................................. 12,209,735
Cost of capital stock shares redeemed ................................................ (59,064,255)
----------------
Net cash flows used for financing activities ........................................ (35,866,516)
----------------
NET DECREASE IN CASH ................................................................... --
CASH AT BEGINNING OF PERIOD ............................................................ --
----------------
CASH AT END OF PERIOD .................................................................. $ --
================
RECONCILIATION OF NET INCREASE
IN NET ASSETS RESULTING FROM OPERATIONS
TO NET CASH FLOWS USED FOR
OPERATING ACTIVITIES:
Net increase in net assets resulting from operations ................................... $ 64,677,069
Net realized gain on investments........................................................ (56,852,165)
Increase in unrealized appreciation .................................................... (12,032,523)
Accretion of discount on short-term securities.......................................... (32,818)
Decrease in interest and dividends receivable .......................................... 267,869
Decrease in prepaid expenses............................................................ 61,470
Increase in accrued in expenses and other payables...................................... 22,443
----------------
Net cash used for operating activities ............................................... $ (3,888,655)
================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest.............................................. $ 880,665
================
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE> 73
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
THE NEW USA MUTUAL FUND
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- -------------------------------------------------------------------------------------------------------------------
YEAR YEAR YEAR APRIL 29, 1992*
ENDED ENDED ENDED THROUGH
JANUARY 31, JANUARY 31, JANUARY 31, JANUARY 31,
1996 1995 1994 1993
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of period................. $ 11.63 $ 12.88 $ 13.20 $ 12.00
--------- ---------- ---------- ---------
Income from investment operations:
Net investment loss............................. (0.37) (0.15) (0.14) (0.01)
Net realized and unrealized gain (loss) on
securities, futures, short sales and options
transactions................................... 5.54 (1.10) 1.27 1.21
--------- ---------- ---------- ---------
Total from investment operations..................... 5.17 (1.25) 1.13 1.20
Less distributions to shareholders from:
Net realized gain on securities, futures,
short sales and options transactions........... (2.41) -- (1.45) --
--------- ---------- ---------- ---------
Total distributions.................................. (2.41) -- (1.45) --
--------- ---------- ---------- ---------
Net asset value, end of period....................... $ 14.39 $ 11.63 $ 12.88 $ 13.20
========= ========== ========== =========
TOTAL INVESTMENT RETURN (a).......................... 44.61% (9.70)% 8.92% 10.00% (b)
RATIOS AND SUPPLEMENTAL DATA:
Ratio of interest expense to average net assets ..... 0.49% -- -- --
Ratio of distribution fees to average net assets..... 0.60% 0.61% 0.51% 0.56% (c)
Ratio of net expenses (excluding interest expense
and distribution fees) to average net assets.... 1.60% 1.51% 1.60% 1.65% (c)
---------- --------- ---------- ---------
Ratio of net expenses to average net assets ......... 2.69% 2.12% 2.11% 2.21% (c)(d)
========== ========= ========== =========
Ratio of net investment loss to average net assets .. (2.32)% (0.63)% (1.02)% (0.18)%(c)(d)
Borrowings, end of period (000's).................... $14,000 -- -- --
Average amount of borrowings outstanding
during the period (000's)....................... $15,748 (e) -- -- --
Average number of shares outstanding
during the period .............................. 12,379 (e) -- -- --
Average amount of borrowings per
share during the period ........................ $1.27 (e) -- -- --
Portfolio turnover rate.............................. 525.28% 344.45% 395.15% 280.66%
Net assets, end of period (000's).................... $184,867 $170,116 $266,605 $295,590
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations.
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales charge. Total return would be reduced if a sales charge were taken
into account.
(b) Non-annualized.
(c) Annualized.
(d) For the period April 29, 1992 through January 31, 1993, the Manager
reimbursed expenses in the amount of $254,725. Had the Manager not
reimbursed expenses for that period the annualized ratio of net operating
expenses to average net assets and the annualized ratio of net investment
loss to average net assets would have been 2.35% and (0.31)%,
respectively.
(e) Averages computed on a weighted average daily basis.
The accompanying notes are an integral part of this statement.
<PAGE> 74
- --------------------------------------------------------------------------------
THE NEW USA MUTUAL FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
New USA Mutual Funds, Inc. (the "Company"), a Maryland corporation, was
organized on December 30, 1991 as a diversified, open end management investment
company registered under the Investment Company Act of 1940, as amended. The
Company has established one fund series to date: The New USA Mutual Fund (the
"Fund"), which commenced operations on April 29, 1992. O'Neil Data Systems, Inc.
is the parent company of William O'Neil & Co. Incorporated (WON & Co.) (the
Fund's "Distributor") and New USA Research & Management Co. (the Fund's
"Manager"). The Fund seeks capital growth by investing under normal market
conditions the majority of its assets in common stock of companies that are
exhibiting accelerating earnings growth and are expected to continue to achieve
superior growth in earnings and/or revenues.
The following is a summary of significant accounting policies followed by
the Fund.
Investment Valuation: Portfolio securities listed on national securities
exchanges are valued at the last sale price on the business day as of which such
value is being determined or, lacking any sales, at the closing bid price on
such day. Portfolio securities traded in the over-the-counter market are valued
at the current or last bid price. If no bid is quoted on such day, the security
is valued by such method as the Board of Directors of the Company shall
determine in good faith to reflect the security's fair value. Index options are
valued at the last sale price or, in the absence of a sale, the last bid price.
Short-term debt securities having a maturity of 60 days or less from the
valuation date are valued at amortized cost which approximates market value.
Portfolio securities for which market quotations are not readily available are
valued as determined in good faith by or under the direction of the Board of
Directors.
Index Futures Contracts: The Fund may purchase or sell index futures contracts
for the purpose of hedging the market risk on existing portfolio holdings or the
intended purchase of securities. Futures contracts are contracts to buy or sell
units of an index at a specified date at a price agreed upon when the contract
is made. Upon entering into a contract, the Fund deposits with its custodian or
broker an amount of "initial margin" of cash and liquid assets to guarantee
delivery and payment of the futures contract. Subsequent payments to and from
the broker, called "variation margin", are made on a daily basis as the value of
the contract fluctuates. Such receipts or payments are recorded by the Fund as
unrealized gains or losses. When the contract is closed or expires, the Fund
records a realized gain or loss equal to the difference between the value of the
contract at the time it was opened and the value at the time it was closed or
expired. Risks of entering into futures contracts include the possibility that a
change in the value of the contract may not correlate with the changes in the
value of the underlying securities. As of January 31, 1996, there were no
futures contracts held.
Options on Indices: The Fund may purchase call and put options on any securities
indices for hedging purposes only. To hedge the Fund's portfolio against a
decline in value, the Fund may buy puts on stock indices; to hedge against
increases in equity price pending investment in additional equities, the Fund
may buy calls on stock indices. Upon the purchase of a call option or a
protective put option by the Fund, the premium paid is recorded as an
investment, and subsequently marked-to-market to reflect the current market
value of the option. If an option which the Fund has purchased expires on the
stipulated expiration date, the Fund will realize a loss in the amount of the
cost of the option. If the Fund enters into a closing sale transaction, the Fund
will realize a gain or loss, depending on whether the sale proceeds from the
closing sale transaction are greater or less than the cost of the option. If the
Fund exercises a purchased call or put option, the Fund will realize a gain or
loss based on the change in the value of the index. As of January 31, 1996,
there were no options contracts held.
Short Sales: The Fund may engage in short sale transactions. A short sale is
effected when it is believed that the price of a particular security will
decline, and involves the sale of a security which the Fund does not own in the
hope of purchasing the same security at a later date at a lower price. To make
delivery to the buyer, the Fund must borrow
<PAGE> 75
the security. The Fund is then obligated to return the security to the lender,
and therefore must subsequently purchase the same security. Upon entering into a
short sale, the Fund must leave the proceeds from the short sale with the
broker, and must also deposit with the broker a certain amount of cash or U.S.
Government securities to collateralize its obligation to replace the borrowed
securities which have been sold. In addition, the Fund must deposit cash or U.S.
Government securities as collateral in a segregated account with its custodian
in an amount such that the value of both collateral deposits is at all times
equal to 100% of the current market value of the securities sold short. If the
price of the security sold short increases between the time of the short sale
and the time the Fund replaces the borrowed security, the Fund will incur a
capital loss, and if the price declines during this period, the Fund will
realize a capital gain. The Fund may also sell securities short "against the
box" in which it owns, or has the right to acquire at no additional cost,
securities identical to those sold short. As of January 31, 1996, there were no
open short sales.
Security Transactions and Investment Income: Security transactions are recorded
on the dates the transactions are entered into (the trade dates). Realized gains
and losses on security transactions are determined on the identified cost basis.
Dividend income is recorded on the ex-dividend date. Interest income is
determined on the basis of interest accrued, premium amortized and discount
earned.
Dividends and Distributions to Shareholders: The Fund records all distributions
to shareholders from net investment income and realized gains on the ex-dividend
date. Such distributions are determined in conformity with income tax
regulations which may differ from the generally accepted accounting principals.
These differences are primarily due to differing treatments for losses deferred
due to wash sales and excise tax regulations.
Federal Income Taxes: It is the Fund's policy to comply with the special
provisions of Subchapter M of the Internal Revenue Code applicable to regulated
investment companies. As provided therein, in any fiscal year in which the Fund
so qualifies and distributes at least 90% of its taxable income, the Fund (but
not the shareholders) will be relieved of Federal income tax on the income
distributed. Accordingly, no provision for income taxes has been made. In order
to avoid imposition of the excise tax applicable to regulated investment
companies, it is also the Fund's intention to declare as dividends in each
calendar year at least 98% of its net investment income and 98% of its net
realized capital gains plus undistributed amounts from prior years.
Deferred Organization Expenses: Expenses of organization have been capitalized
and are being amortized on a straight-line basis over five years.
Repurchase Agreements: A repurchase agreement is an instrument under which the
purchaser acquires a security but agrees at the time of purchase to sell back
the security to the seller at an agreed-upon date, price and interest rate. It
is the policy of the Fund that the custodian takes possession of the underlying
collateral securities. Collateral is marked-to-market daily to ensure that the
market value of the underlying assets, including accrued interest is at least
equal to the value of the seller's repurchase obligation. In the event of a
bankruptcy or other default of the seller of a repurchase agreement, the Fund
could experience both delays in liquidating the underlying securities and
losses. These losses would equal the contract value of the repurchase agreement
and accrued interest, net of any proceeds received in liquidation of the
underlying securities. To minimize the possibility of loss, the Fund enters into
repurchase agreements only with commercial banks and registered broker/dealers
deemed to be creditworthy by the Manager and only with respect to obligations of
the U.S. government or its agencies. Refer to the Fund's Schedule of Investments
for the contract value of repurchase agreements and accrued interest as of
January 31, 1996.
Use of Estimates: The preparation of these financial statements in accordance
with generally accepted accounting principles incorporates estimates made by
management in determining the reported amounts of assets, liabilities, revenues,
and expenses of the Fund.
2. AGREEMENTS WITH AFFILIATES AND OTHER PARTIES
Under the terms of the Investment Management Agreement (the
<PAGE> 76
"Management Agreement") between the Fund and the Manager, the Manager has agreed
to provide investment management and advisory services, subject to the policies
and control of the Board of Directors. The Management Agreement also requires
the Manager to provide the Fund with office space and certain administrative
services and provide the personnel needed by the Fund with respect to the
Manager's responsibilities under the Management Agreement with the Fund. For
these services and facilities, the Fund pays the Manager a management fee,
computed and accrued daily and paid monthly, based upon the average daily net
assets of the Fund at the following annual rates: 1% on the first $500 million
of net assets and 0.75% on net assets exceeding $500 million.
Certain states in which shares of the Fund are qualified for sale impose
limitations on expenses (including management fees) of the Fund. The most
restrictive annual expense limitation requires that the Manager reimburse the
Fund to the extent that expenses exceed 2.5% of the Fund's first $30 million of
average net assets, 2.0% of the Fund's next $70 million of average net assets,
and 1.5% of the average net assets in excess of $100 million, subject to a
formula that permits the Fund to exclude certain expenses from that calculation.
There was no reimbursement of expenses by the Manager for the year ended January
31, 1996.
Any deferrals made by the Manager in its fees and any payments by the
Distributor of Rule 12b-1 expenses are subject to recoupment or reimbursement by
the Fund within the following three fiscal years, provided the Fund is able to
effect such recoupment or reimbursement and remain in compliance with applicable
expense limitations, provided the Manager is still at that time serving in such
capacity and provided the payment of such expenses (or the recoupment of such
fee) would not affect the Fund's tax status or otherwise have an adverse tax
impact on the Fund or its shareholders.
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule
12b-1 under the Investment Company Act of 1940. The purpose of the Plan is to
permit the Fund to compensate the Distributor for services provided and expenses
incurred by it in promoting the sale of shares of the Fund, reducing
redemptions, or maintaining or improving services provided to shareholders by
the Distributor or dealers. The Plan provides for monthly payments by the Fund
to the Distributor, subject to the authority of the Fund's Board of Directors to
reduce the amount of payments or to suspend the Plan for such periods as they
may determine. The amount of any such reimbursement by the Fund is limited under
the Plan to 0.25% for service fees and 0.75% for all other permissible
distribution expenses of the Fund's average net assets annually, and is also
subject to state expense limitations.
The Distributor acts as the Fund's principal underwriter in a continuous
public offering of the Fund's shares. For the year ended January 31, 1996, the
Distributor earned $54,744 in underwriting and broker commissions on sales of
the Fund's shares. Additionally, the Distributor earned $355,695 in soft dollar
commissions as broker on trades of portfolio securities for the year ended
January 31, 1996.
The Fund has entered into an Administration Agreement with State Street
Bank and Trust Company (the Fund's "Administrator") dated May 1, 1993. The
Administrator performs, or arranges for the performance of, certain
administrative services for the Fund, including maintaining the books and
records of the Fund, and preparing certain reports and other documents required
by federal and/or state laws and regulations. For these services, the Fund pays
the Administrator a fee at an annual rate of 0.08% of the Fund's average daily
net assets up to $125 million, 0.04% of the next $125 million, and 0.02% of
those assets in excess of $250 million, subject to certain minimum requirements.
Effective June 1, 1995, these fees were changed to 0.10% of the Fund's average
daily net assets up to $125 million, 0.08% on the next $125 million, and 0.04%
of those assets in excess of $250 million.
Certain officers and/or directors of the Fund are officers and/or directors
of O'Neil Data Systems, Inc., WON & Co. and/or New USA Research & Management Co.
3. INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of investments, excluding short-term
securities, for the year ended January 31, 1996, were $989,492,396 and
$1,005,733,890, respectively. As of January 31, 1996,
<PAGE> 77
net unrealized appreciation for Federal income tax purposes aggregated
$18,640,321 of which $20,298,394 related to appreciated securities and
$1,658,073 related to depreciated securities. The aggregate cost of investments
at January 31, 1996 for Federal income tax purposes was $188,340,990.
4. FUND SHARE TRANSACTIONS
Proceeds and payments of Fund shares as shown in the Statements of Changes in
Net Assets are the result of the following share transactions:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JANUARY 31, JANUARY 31,
1996 1995
---------- -----------
<S> <C> <C>
Shares sold .......................... 809,986 1,186,780
Shares reinvested from
distributions ..................... 1,691,876 --
Less shares
redeemed .......................... (4,283,992) (7,253,546)
---------- ----------
Net decrease
in shares
outstanding ....................... (1,782,130) (6,066,766)
========== ==========
</TABLE>
5. LINE OF CREDIT
The Fund established a revolving line of credit with First Interstate Bank,
enabling the Fund to borrow up to $30,000,000 with interest at either the prime
rate minus 2% or the bank's adjusted cost of funds rate plus three-fourths of
one percent (0.75%). In addition, the Fund is required to pay an annual fee of
0.125% of the unused portion on a quarterly basis. The average daily loan
balance was $15,747,789, at a weighted average interest rate of 6.87%. The
maximum loan outstanding during the year ended January 31, 1996 was $29,400,000.
6. CERTAIN RECLASSIFICATIONS
In accordance with Statement of Position 93-2, the Fund has reclassified
$781,106 from accumulated net investment income to additional paid-in capital.
The Fund has also reclassified $5,458,209 from accumulated realized gain on
investments-net to accumulated net investment income. These reclassifications
have no impact on the net asset value of the Fund and are designed to present
the Fund's capital accounts on a tax basis.
<PAGE> 78
- --------------------------------------------------------------------------------
THE NEW USA MUTUAL FUND
ADDITIONAL INFORMATION (UNAUDITED)
- --------------------------------------------------------------------------------
If certain requirements are met, 1.83% of the ordinary distributions paid by The
New USA Mutual Fund during 1995 qualifies for the deduction for dividends paid
available to corporate shareholders only, pursuant to Internal Revenue Code
Section 243. Corporate shareholders should consult their tax advisor to
determine if they qualify for this deduction.
<PAGE> 79
THE NEW USA MUTUAL FUND
FORM N-1A
PART C
Item 24. Financial Statements and Exhibits.
(a) Financial Statements included in Part A:
Condensed Financial Information -- Fiscal year ended January
31, 1996.
Financial Statements included in Part B:
Report of Independent Public Accountants.
Schedule of Investments in Securities -- January 31, 1996.
Statement of Assets and Liabilities -- January 31, 1996.
Statement of Operations -- For the year ended January 31, 1996.
Statement of Changes in Net Assets -- January 31, 1996.
Statement of Cash Flows -- For the year ended
January 31, 1996.
Selected Data for a Share Outstanding Throughout
Each Period.
Notes to Financial Statements.
The information required in Schedule I is contained in the Schedule of
Investments in Securities.
Schedule Nos. I through VII and other financial statement information, for
which provision is made in the applicable accounting regulations of the
Securities and Exchange Commission, are either omitted because they are not
required under the related instructions, they are inapplicable, or the required
information is presented in the financial statements or notes which are
included in Part B to the Registration Statement.
<PAGE> 80
(b) Exhibits:
1. Articles of Incorporation:
Incorporated by reference to Post-Effective Amendment
No. 4 to Form N-1A filed May 5, 1994.
2. By-laws: Incorporated by reference
to Pre-effective Amendment No. 1 to Form N-1A filed
February 18, 1992
3. Not applicable.
4. Form of Specimen Share Certificate:
Incorporated by reference to Post-Effective Amendment
No. 4 to Form N-1A filed May 5, 1994.
5. Form of Investment Management
Agreement: Incorporated by reference to Post-effective
Amendment No. 2 to Form N-1A filed May 4, 1993.
6a. Form of Amended and Restated Distributor's
Agreement dated as of March 14, 1996.
b. Selected Dealers' Agreement:
Incorporated by reference to Pre-effective Amendment
No. 2 to Form N-1A filed March 4, 1992.
7. Not applicable.
8. Form of Custodian Contract:
Incorporated by reference to Post-effective Amendment
No. 2. to Form N-1A filed May 4, 1993.
9a. Form of Administration Agreement:
Incorporated by reference to Post-effective Amendment
No. 2 to Form N-1A filed May 4, 1993.
b. Form of Transfer Agency and Service
Agreement: Incorporated by reference to Post-effective
Amendment No. 2 to Form N-1A filed May 4, 1993.
c. Revolving Credit Agreement by and
between New USA Mutual Funds, Inc. and First Interstate
Bank of California dated as of November 14, 1994, as
amended by the First Amendment to the Credit Agreement
dated as of March 28, 1995: Incorporated by reference
to Post-effective Amendment No. 7 to Form N-1A dated
April 26, 1995.
d. Second Amendment to the Credit
Agreement dated as of July 20, 1995.
e. Third Amendment to the Credit
Agreement dated as of November 3, 1995.
10. Consent and Opinion of Counsel as
to legality of shares: Incorporated by reference to
Pre-effective Amendment No. 2 to Form N-1A filed March
4, 1992.
2
<PAGE> 81
11. Consent of Independent Public
Accountants.
12. Not applicable.
13. Letter of Understanding re: Initial
Shares: Incorporated by reference to Pre-effective
Amendment No. 2 to Form N-1A filed March 4, 1992.
14. Form of IRA Application and Forms
and related documents: Incorporated by reference to
Post-effective Amendment No. 2 to Form N-1A filed May
4, 1993.
15. Form of Plan of Distribution:
Incorporated by reference to Post-effective Amendment
No. 2 to Form N-1A filed May 4, 1993.
16. Not applicable.
Item 25. Persons Controlled by or Under Common Control with Registrant
William J. O'Neil, an individual resident in California owns approximately
97% of Data Analysis Inc., a California corporation, which in turn owns 100% of
O'Neil Data Systems, Inc. ("ODS"), a California corporation, which in turn owns
New USA Research & Management Co., a California corporation, and also
Investor's Business Daily, Inc., a California corporation, Direct Marketing
Specialists, Inc., a California corporation, William O'Neil + Co. Incorporated
("WON + Co."), a California corporation, and approximately 27% of Daily Graphs,
Inc., a California corporation. WON + Co. owns 100% of Finadco, Inc., a
California corporation, and approximately 73% of Daily Graphs, Inc.
Item 26. Number of Holders of Securities.
<TABLE>
<CAPTION>
Number of Record Holders
Title of Class as of March 1, 1996
-------------- ------------------------
<S> <C>
Shares of
Beneficial
Interest, $.01 par
value--The New USA
Mutual Fund 6,840
</TABLE>
Item 27. Indemnification
Subsection (b) of Section 2-418 of the General Corporation Law of Maryland
empowers a corporation to indemnify any person who was or is party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation or is or was serving at the request of the corporation or
enterprise, against reasonable expenses (including attorneys' fees) judgments,
penalties, fines and amounts paid in settlement actually incurred by him in
connection with such action, suit or proceeding unless it is established that:
(i) the act or omission of the person was material to the matter giving rise to
the proceeding and was committed in bad faith or
3
<PAGE> 82
was the result of active and deliberate dishonesty; (ii) the person actually
received an improper personal benefit of money, property or services; or (iii)
with respect to any criminal action or proceeding, the person had reasonable
cause to believe his act or omission was unlawful.
Indemnification under subsection (b) of Section 2-418 may not be made by a
corporation unless authorized for a specific proceeding after a determination
has been made that indemnification is permissible in the circumstances because
the party to be indemnified has met the standard of conduct set forth in
subsection (b). This determination shall be made (i) by the Board of Directors
by a majority vote of a quorum consisting of directors not, at the time,
parties to the proceeding, or, if such 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 and 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) by special legal
counsel selected by the Board of Directors or a committee of the Board by vote
as set forth in subparagraph (i), or, if the requisite quorum of the full Board
cannot be obtained therefor and the committee cannot be established, by a
majority vote of the full Board in which any director who is a party may
participate; or (iii) by the stockholders (except that shares held by any party
to the specific proceedings may not be voted). A court of appropriate
jurisdiction may also order indemnification if the court determines that a
person seeking indemnification is entitled to reimbursement under subsection
(b).
Section 2-418 further provides that indemnification provided for by
Section 2-418 shall not be deemed exclusive of any rights to which the
indemnified party may be entitled; that the scope of indemnification extends to
directors, officers, employees or agents of a constituent corporation absorbed
in a consolidation or merger and persons serving that capacity at the request
of the constituent corporation for another; and empowers the corporation to
purchase and maintain insurance on behalf of a director, officer, employee or
agent of the corporation against any liability asserted against or incurred by
such person in any such capacity or arising out of such person's status as such
whether or not the corporation would have the power to indemnify such person
against such liabilities under Section 2-418.
Article VIII (h) of the Articles of Incorporation of the Fund provides
that "The Corporation shall indemnify (1) its directors and officers, whether
serving the Corporation or at its request any other entity, to the full extent
required or permitted by the General Laws of the State of Maryland now or
hereafter in force, including the advance of expenses under the procedures and
to the full extent permitted by law, and (2) its other employees and agents to
such extent as shall be authorized by the Board of Directors or the
Corporation's By-Laws and be permitted by law. The foregoing rights of
indemnification shall not be exclusive of any other rights to which those
seeking indemnification may be entitled. The Board of Directors may take such
action as is necessary to carry out these indemnification provisions and is
expressly empowered to adopt, approve and amend from time to time such by-laws,
resolutions or contracts implementing such provisions or such
4
<PAGE> 83
further indemnification arrangements as may be permitted by law. No amendment
of this Charter of the Corporation shall limit or eliminate the right to
indemnification provided hereunder with respect to acts or omissions occurring
prior to such amendment or repeal. Nothing contained herein shall be construed
to authorize the Corporation to indemnify any director or officer of the
corporation against any liability to the Corporation or to any holders of
securities of the Corporation to which he is subject by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties
involved in the conduct of his office. Any indemnification by the Corporation
shall be consistent with the requirements of law, including the Investment
Company Act of 1940.
Registrant has obtained an Investment Advisor/Mutual Fund Directors' and
Officers' Policy, which provides that the Registrant's officers and directors
shall be indemnified against certain liabilities while acting in their
capacities as such.
Insofar as indemnification for liability arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, 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, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
Item 28. Business and Other Connections of Investment Adviser.
The Investment Adviser is New USA Research & Management Co. (the
"Manager"). William J. O'Neil, Chairman, Chief Executive Officer and a
director of the Manager, is also Chairman of the Board and Chief Executive
Officer and a director of William O'Neil + Co. Incorporated, located at 12655
Beatrice Street, Los Angeles, California 90066. In addition, Mr. O'Neil is
Chairman of the Board of Investor's Business Daily, Inc., located at 12655
Beatrice Street, Los Angeles, California 90066, President and Chairman of
O'Neil Data Systems, Inc., located at 12655 Beatrice Street, Los Angeles,
California 90066, Chairman and a director of Direct Marketing Specialists,
Inc., located at 12655 Beatrice Street, Los Angeles, California 90066 and
Chairman and Chief Executive Officer of Daily Graphs, Inc., located at 12655
Beatrice Street, Los Angeles, California 90066. Mr. O'Neil is also Chairman of
the Board, Chief Executive Officer and a director of the Fund. David Ryan, a
director and Senior Vice President of the Manager, is a Senior Vice President
of the Fund. Margaret Harries, a Senior Vice President and Compliance Officer
of the Manager, is a Senior Vice President and Secretary
5
<PAGE> 84
of the Fund. Natalie Carter, who is Chief Financial Officer,
Secretary and Treasurer of the Manager, is Chief Financial Officer of the Fund.
Item 29. Principal Underwriter.
(a) William O'Neil + Co. Incorporated ("WON + Co.") is the principal
underwriter of the Registrant. WON + Co. acts as the principal underwriter,
depositor and/or investment adviser for no other investment companies.
(b) The following information is provided with reference to the directors
and officers of WON + Co., the Registrant's principal underwriter:
<TABLE>
<CAPTION>
Position and
Name and Principal Position and Offices with Offices with
Business Address* Principal Underwriter Registrant
- ------------------------ ------------------------------- ------------------
<S> <C> <C>
William J. O'Neil Chairman of the Board, Chief Chairman of the
Executive Officer and Director Board, Chief
Executive Officer
and Director
Susan McKnight President None
William R. Machgan Senior Vice President and Director None
Hagford O. ("Don") Drake Chief Financial Officer, Vice None
President, Treasurer and
Secretary
Connie Cullen Executive Vice President None
James Miller Senior Vice President None
James Stateler Senior Vice President None
Frank R. Davis, Jr. Vice President None
Robert Drislane Vice President None
Rodney Fragodt Vice President None
Steven Greenfield Vice President None
George Gregory Vice President None
Edward Keane Vice President None
W. Bruce Hanley Vice President None
Tom Muro Vice President None
Bruce Schoneman Vice President None
</TABLE>
6
<PAGE> 85
<TABLE>
<S> <C> <C>
Glenn Shadrake Vice President None
Gary Slemaker Vice President None
Barbara Aquino Assistant Vice President None
James Garcia Assistant Vice President None
Margaret Riley Harries Assistant Vice President and Senior Vice
Compliance Officer President and
Secretary
Jim Lan Assistant Vice President None
Roberta Scarlett Assistant Vice President None
</TABLE>
*The principal business address of the persons listed (except for Edward Keane)
is 12655 Beatrice Street, Los Angeles, California 90066. The principal
business address of Edward Keane is New York Stock Exchange, 11 Wall Street,
New York, New York 10005.
Item 30. Location of Accounts and Records.
The accounts, books, or other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 will be kept by the
Registrant at the offices of State Street Bank and Trust Company, 1776 Heritage
Drive, North Quincy, Massachusetts 02171.
Item 31. Management Services.
There are no management-related service contracts not discussed in
Parts A and B.
Item 32. Undertakings.
The Registrant hereby undertakes to promptly call a meeting of
shareholders for the purpose of voting upon the question of removal of any
director or directors when requested in writing to do so by the record holders
of not less than 10 per centum of the Registrant's outstanding shares and to
assist its shareholders in communicating with other shareholders in accordance
with the requirements of Section 16(c) of the Investment Company Act of 1940.
7
<PAGE> 86
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Amendment
to this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Los Angeles, the State of California,
on March 14, 1996.
NEW USA MUTUAL FUNDS, INC.
By: /s/ William J. O'Neil
-------------------------
William J. O'Neil
Chairman and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to this Registration Statement has been signed below by the following persons
in the capacities and on the dates indicated.
<TABLE>
<S> <C>
/s/ William J. O'Neil March 14, 1996
- -------------------------
William J. O'Neil
Chairman, Chief Executive
Officer and Director
/s/ Natalie D. Carter March 14, 1996
- -------------------------
Natalie D. Carter
Chief Financial Officer
/s/ Jerry Dackerman March 14, 1996
- -------------------------
Jerry Dackerman
Director
/s/ James H. Macklin March 14, 1996
- -------------------------
James H. Macklin
Director
/s/ Jong S. Park March 14, 1996
- -------------------------
Jong S. Park, M.D.
Director
/s/ Fredrick M. Russo March 14, 1996
- -------------------------
Fredrick M. Russo, M.D.
Director
/s/ Lewis H. Stanton March 14, 1996
- -------------------------
Lewis H. Stanton
Director
</TABLE>
8
<PAGE> 87
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Document
- ----------- --------
<S> <C>
6a. Form of Amended and
Restated
Distributor's
Agreement dated as
of March 14, 1996
9d. Second Amendment to
the Credit
Agreement dated as
of July 20, 1995.
9e. Third Amendment to
the Credit
Agreement dated as
of November 3,
1995.
11. Consent of
Independent Public
Accountants
</TABLE>
9
<PAGE> 1
EXHIBIT 6a
NEW USA MUTUAL FUNDS, INC.
AMENDED AND RESTATED
DISTRIBUTOR'S AGREEMENT
Amended and Restated Distributor's Agreement dated as of March 14, 1996,
by and between NEW USA MUTUAL FUNDS, INC., a Maryland corporation (the
"Company"), and WILLIAM O'NEIL & CO. INCORPORATED, a California corporation
("WON & Co.").
WHEREAS, the Company is an open-end management investment company;
WHEREAS, WON & Co. has the facilities to sell and distribute the shares of
beneficial interest of the various series established from time to time by the
Company ("Funds"); and
WHEREAS, the Company and WON & Co. entered into a Distribution Agreement
dated as of April 1, 1992 (the "Distribution Agreement") and are desirous of
amending and restating such agreement;
WHEREAS, since the date that the parties entered into the Distribution
Agreement, the Company has changed its name from New USA Funds, Inc. to New USA
Mutual Funds, Inc.;
NOW, THEREFORE, in consideration of the mutual agreements contained
herein, the parties agree to amend and restate the Distribution Agreement in
its entirety as follows:
1. Underwriter. WON & Co. shall be the exclusive principal underwriter
for the sale of shares of each Fund. The term "shares" as used herein shall
mean shares of beneficial interest of the Funds. The Company reserves the
right to refuse at any time or times to sell any shares for any reason deemed
adequate by it.
2. Sales of Shares to WON & Co. and Sales by WON & Co. WON & Co. will
have the right, as principal, to sell shares to investment dealers against
orders therefor at the public offering price less a discount determined by WON
& Co., which discount shall not exceed the amount of the sales charge referred
to below.
WON & Co. will also have the right, as principal, to purchase shares from
the Funds at their net asset value and to sell such shares to the public
against orders therefor at the public offering price. Upon receipt of an order
to purchase Funds shares from a bank or dealer with whom WON & Co. has a sales
contract, WON & Co. will promptly purchase shares from such Fund to fill such
order. Upon receipt of registration instructions in proper form and payment
for such shares, WON & Co. will transmit such instructions to the Fund or its
agent for registration of the shares purchased.
<PAGE> 2
WON & Co. will also have the right, as agent for the Funds, to sell shares
at the public offering price to such persons and upon such conditions as the
Directors of the Company may from time to time determine.
WON & Co. will also have the right, as principal, to sell shares at their
net asset value to such persons as may be approved by the Directors of the
Company, all such sales to comply with the provisions of the Investment Company
Act of 1940, as amended (the "1940 Act"), and the Rules and Regulations of the
Securities and Exchange Commission promulgated thereunder.
The public offering price shall be the net asset value of shares then in
effect, plus any applicable sales charge determined in the manner set forth in
the then current Prospectus and Statement of Additional Information of the Fund
(collectively, the "Registration Statement") or as permitted by the 1940 Act
and the Rules and Regulations of the Securities and Exchange Commission
promulgated thereunder. In no event shall any applicable sales charge exceed
5% of the public offering price. The net asset value of the shares shall be
determined in the manner provided in the then current Registration Statement of
the Fund and when determined shall be applicable to transactions as provided
for in the then current Registration Statement.
On every sale the Fund shall receive the applicable net asset value of the
shares. WON & Co. shall have the right to retain the sales charge less any
applicable dealer discount. WON & Co. will reimburse the Fund for any increased
issue tax paid on account of the sales charge. The Fund will reimburse WON &
CO. for distribution expenses pursuant to the Company's Plan of Distribution
under Rule 12b-l of the 1940 Act (the "Plan of Distribution").
3. Sales of Shares by the Company. The Company may, to the extent
permitted by the 1940 Act, cause the Funds to issue shares at any time and to
sell shares to shareholders of the Funds or to other persons approved by WON &
Co. at not less than net asset value, and may also cause the Funds to sell
shares at not less than net asset value to (i) current or retired directors and
officers of the Company and any other investment companies for which New USA
Research & Management Co. may serve as investment manager; employees or retired
employees of the companies comprising or affiliated companies of New USA
Research & Management Co.; and trusts primarily for the benefit of such
persons; (ii) registered representatives in their individual capacity or
full-time employees of brokers and dealers which have entered into dealer
agreements with WON & Co.; (iii) brokers, dealers, registered investment
advisers or bank trust departments that have entered into an agreement with WON
& Co. providing specifically for the use of Fund shares in fee-based investment
products made available to such person's clients; (iv) the spouse, children and
parents of those persons listed in clauses (i) and (ii) above; (v) shareholders
who have redeemed shares of a Fund provided that (a) the investment by such
shareholder in Fund shares is effected within 60 days after the redemption
trade date and (b) any shareholder exercising this privilege has not previously
exercised this privilege and provides to the relevant Fund's shareholder
servicing agent when the purchase is placed, information sufficient to permit
verification of the fulfillment of the above requirements; and (vi)
shareholders of a Fund who have exchanged their Fund shares for shares of the
Money Market Portfolio of Cash Account Trust ("CAT"), to the extent that the
investment by such shareholders in Fund shares consists solely of CAT shares
acquired
2
<PAGE> 3
by exchanging Fund shares for such CAT shares plus CAT shares acquired through
reinvestment of dividends on such CAT shares. The Company shall also honor the
internal policies which individual broker-dealers may have established for net
asset value purchases by their employees. In addition, WON & Co., in its
discretion, may waive the sales charge on invested amounts in excess of
$1,000,000 or for certain institutional investors, including corporate 401(k)
plans. Notwithstanding the foregoing, there will be a deferred sales charge of
1% of the original purchase price, with no reallowance to the dealer, if
investors for whom the sales charge has been waived redeem their investment
within twelve months.
4. Repurchase of Shares. WON & Co. will act as agent for the Funds in
connection with the repurchase of shares by the Funds upon terms and conditions
set forth in the then current Registration Statement of the respective Funds.
5. Basis of Purchases and Sales of Shares. WON & Co. will use its best
efforts to place shares sold by it on an investment basis. WON & Co. does not
agree to sell any specific number of shares. Shares will be sold by WON & Co.
only against orders therefor. WON & Co. will not purchase shares from anyone
other than the Fund except in accordance with Section 4, and will not take
"long" or "short" positions contrary to the then current Registration Statement
of the respective Fund.
6. Rules of NASD, etc. WON & Co. will conform to the Rules of Fair
Practice of the National Association of Securities Dealers, Inc. and the sale
of securities laws of any jurisdiction in which it sells, directly or
indirectly, any shares. WON & Co. also agrees to furnish to the Company
sufficient copies of any agreements or plans it intends to use in connection
with any sales of shares in adequate time for the Company to file and clear
them with the proper authorities before they are put in use, and not to use
them until so filed and cleared, and other expenses as may be authorized by the
Board of Directors pursuant to the Company's Plan of Distribution.
7. WON & Co. Independent Contractor. WON & Co. shall be an independent
contractor and neither WON & Co. nor any of its officers or employees, as such,
is or shall be an employee of the Company or the Funds. Won & Co. is
responsible for its own conduct and the employment, control and conduct of its
agents and employees and for injury to such agents or employees or to others
through its agents or employees. Won & Co. assumes full responsibility for its
agents and employees under applicable statutes and agrees to pay all employer
taxes thereunder.
WON & Co. will maintain at its own expense insurance against public
liability in such an amount as the Directors of the Company may from time to
time reasonably request.
8. Expenses. The Funds will pay, or will be obligated to reimburse WON &
Co. for, all expenses of qualifying shares of the Funds for sale under the
so-called "Blue Sky" laws of any state, and expenses of preparing, printing and
distributing advertising and sales literature (including expenses of
registering shares under the Federal Securities Act and the 1940 Act and the
preparation and printing of Prospectuses and Statements of Additional
Information
3
<PAGE> 4
and reports as required by said Acts and the direct expenses of the issue of
shares), and other expenses authorized by the Board of Directors pursuant to
the Company's Plan of Distribution.
9. Indemnification of the Company. WON & Co. agrees to indemnify and hold
harmless the Company and each person who has been, is, or may hereafter be a
Director of the Company against expenses reasonably incurred by any of them in
connection with any claim or in connection with any action, suit or proceeding
to which any of them may be a party, which arises out of or is a material fact,
or out of any alleged misrepresentation or omission to state a material fact,
on the part of WON & Co. or any agent or employee of WON & Co. or any other
person for whose acts such misrepresentation or omission was made in reliance
upon written information furnished by the Company. WON & Co. also agrees
likewise to indemnify and hold harmless the Company and each such person in
connection with any claim or in connection with any action, suit or proceeding
which arises out of or is alleged to arise out of WON & Co.'s failure to
exercise reasonable care and diligence with respect to its services rendered in
connection with investment, reinvestment, automatic withdrawal and other plans
for shares. The term "expenses" includes amounts paid in satisfaction of
judgments or in settlements which are made with WON & Co.'s consent. The
foregoing rights of indemnification shall be in addition to any other rights to
which the Company or a Director may be entitled as a matter of law.
10. Assignment Terminates this Contract; Amendments of this Contract.
This Contract shall automatically terminate, without the payment of any
penalty, in the event of its assignment. This Contract may be amended only if
such amendment be approved either by action of the Directors of the Company or
at a meeting of the shareholders of the respective Funds by the affirmative
vote of a majority of the outstanding shares of such Fund, and by a majority of
the Directors of the Company who are not interested persons of the Funds or of
WON & Co. by vote cast in person at a meeting called for the purpose of voting
on such approval.
11. Effective Period and Termination of this Contract. This Amended and
Restated Contract shall take effect upon the date first above written and shall
remain in full force and effect continuously (unless terminated automatically
as set forth in Section 10) until terminated:
(a) Either by the Company or WON & Co. by not more
than sixty (60) days' nor less than ten (10) days' written
notice delivered or mailed by registered mail, postage
prepaid, to the other party; or
(b) If the continuance of this Amended and Restated
Contract after February 22, 1995 is not specifically
approved at least annually by the Directors of the Company
or the shareholders of the Funds by the affirmative vote of
a majority of the outstanding shares of the Company, and by
a majority of the Directors of the Company, and by a
majority of the Directors of the Company who are not
interested persons of the Fund or of WON & Co. by vote cast
in person at a meeting called for the purpose of voting on
such approval.
4
<PAGE> 5
Action by the Company under (a) above may be taken by vote of its
Directors. The requirement under (b) above that continuance of this Amended
and Restated Contract be "specifically approved at least annually" shall be
construed in a manner consistent with the 1940 Act and the Rules and
Regulations thereunder.
Termination of this Amended and Restated Contract pursuant to this Section
11 shall be without the payment of any penalty.
12. Certain Definitions. For the purposes of this Contract, the
"affirmative vote of a majority of the outstanding shares of the Fund" means
the affirmative vote, at a duly called and held meeting of shareholders of the
Fund, (a) of the holders of 67% or more of the shares of the Fund present (in
person or by proxy) and entitled to vote at such meeting, if the holders of
more than 50% of the outstanding shares of the Fund entitled to vote at such
meeting are present in person or by proxy, or (b) of the holders of more than
50% of the outstanding shares of the Fund entitled to vote at such meeting,
whichever is less.
For the purposes of this Contract, the terms "interested person" and
"assignment" shall have the meanings defined in the 1940 Act, subject, however,
to such exemptions as may be granted by the Securities and Exchange Commission
under said Act.
IN WITNESS WHEREOF, New USA Mutual Funds, Inc. and William O'Neil & Co.
Incorporated have each caused this Amended and Restated Distributor's Contract
to be signed in duplicate in its behalf, all as of the day and year first above
written.
NEW USA MUTUAL FUNDS, INC.
By:
------------------------------
Margaret R. Harries
WILLIAM O'NEIL & CO. INCORPORATED
By:
-------------------------------
William J. O'Neil
5
<PAGE> 1
Exhibit 9d
SECOND AMENDMENT TO REVOLVING CREDIT AGREEMENT
THIS SECOND AMENDMENT TO REVOLVING CREDIT AGREEMENT (the "Second
Amendment") is made and dated as of the 20th day of July, 1995 by and between
FIRST INTERSTATE BANK OF CALIFORNIA (the "Lender") and NEW USA MUTUAL FUNDS,
INC. (the "Company") acting on behalf of THE NEW USA MUTUAL FUND (the "Fund").
RECITALS
The Company is an open-end management investment company registered under
the Investment Company Act of 1940. The Fund is a diversified series of the
Company, which may from time to time issue additional series of funds. The
Company acting on behalf of the Fund entered into a Revolving Credit Agreement
with the Lender (as amended, modified, or waived from time to time, the
"Agreement") pursuant to which the Lender agreed to extend credit to the Fund
in an aggregate amount not to exceed the Credit Limit (as such term and all
other capitalized terms used but not otherwise defined herein are defined in
the Agreement) of $10,000,000. Pursuant to the terms of the First Amendment,
the Credit Limit was increased from $10,000,000 to $20,000,000. At the request
of the Company, the Lender has agreed to increase the existing Credit Limit
from $20,000,000 to $30,000,000 and to clarify what Indebtedness the Company
may incur all on the terms and conditions contained in this Second Amendment.
NOW, THEREFORE, for good and valuable consideration, receipt and adequacy
of which are hereby acknowledged, the parties agree as follows:
AGREEMENT
1. Amendment.
(a) The definition of "Credit Limit" contained in Exhibit A to the
Agreement is amended to read as follows:
"'Credit Limit' shall mean $30,000,000, as such amount may be increased
or decreased by written agreement of the Lender and the Company."
(b) The "and" after Paragraph 6(b)(1) is deleted, and Paragraph
6(b)(3) is added after Paragraph 6(b)(2) to read as follows:
"and (3) Indebtedness to the Collateral Agent in an aggregate amount not
to exceed $150,000 incurred to cover shareholder redemptions and not
outstanding for more than three (3) consecutive days;"
2. Conditions to Effectiveness of Second Amendment. This Second Amendment
shall be effective on the date (the "Second Amendment Effective Date") that all
of the following
<PAGE> 2
conditions precedent shall have occurred: (a) the Company and the Lender have
duly executed and delivered-counterpart copies of this Second Amendment; (b)
the Company shall have paid to the Lender a Credit Limit increase fee equal to
one-eighth of one percent (.125%) of $10,000,000; (c) the Company shall have
delivered to the Lender in form and substance satisfactory to the Lender and
its counsel (1) certified copies of resolutions of the Board of Directors of
the Company approving the execution and delivery of this Second Amendment; (2)
a certificate of the Secretary or an Assistant Secretary of the Company
certifying the names and true signatures of the officers of the Company
authorized to sign this Second Amendment; (3) a duly executed Federal Reserve
Form U-1 pursuant to Regulation U of the Board of Governors of the Federal
Reserve System that the Company hereby authorizes and directs the Lender to
supplement with each Daily Report for the purpose of at all times accurately
and completely completing such form; (4) an opinion of counsel to the Company
with respect to the effectiveness of this Second Amendment to amend the
Agreement as provided herein; (d) all of the representations and warranties
contained in this Second Amendment and the Agreement as amended hereby shall be
true and correct as of the Second Amendment Effective Date except to the extent
that they expressly relate to a prior date; and (e) no Event of Default shall
have occurred and be continuing as of the Second Amendment Effective Date.
3. Representations and Warranties of the Company. As an inducement to the
Lender to enter into this Second Amendment, the Company represents and
warrants to the Lender that (a) the Company is duly organized, validly existing
and in good standing as a corporation under the laws of the State of Maryland;
(b) the Company has the corporate power and authority and the legal right to
execute, deliver and perform the Loan Documents on behalf of the Fund and has
taken all necessary corporate action to authorize the execution, delivery and
performance of the Loan Documents on behalf of the Fund; (c) this Second
Amendment has been duly executed and delivered by the Company on behalf of the
Fund; (d) the Agreement as amended hereby constitutes a legal, valid and
binding obligation of the Company enforceable against the Company in accordance
with its terms, subject to the effect of applicable bankruptcy and other
similar laws affecting the rights of creditors generally and the effect of
equitable principles whether applied in an action at law or a suit in equity;
(d) the execution and delivery of this Second Amendment and the performance of
the Agreement as amended hereby will not violate any Requirement of Law or any
Contractual Obligation of the Company or create or result in the creation of
any Lien on any assets of the Company; (e) no consent, approval, authorization
of, or registration, declaration or filing with any governmental authority is
required on the part of the Company in connection with the execution and
delivery of the Second Amendment or the performance of or compliance with the
terms, provisions and conditions of the Agreement as amended hereby.
4. Miscellaneous. This Second Amendment and the documents and agreements
referred to herein embody the entire agreement and understanding between the
parties hereto and supersede all prior agreements and understandings relating
to the subject matter hereof and thereof. All representations, warranties,
covenants and agreements herein contained on the part of the Borrower shall
survive the termination of this Second Amendment and shall be effective until
the Obligations are paid and performed in full or longer as expressly provided
herein. This Second Amendment may be executed in any number of counterparts
all of which together shall
2
<PAGE> 3
constitute one agreement. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect to
choice of law rules.
IN WITNESS WHEREOF, the parties hereto have caused this Second Amendment
to be executed as of the day and year first above written.
NEW USA MUTUAL FUNDS, INC., a
Maryland corporation, as the Company
By: /s/ WILLIAM J. O'NEIL
----------------------------------
Print Name: WILLIAM J. O'NEIL
----------------------------------
Title: CHIEF EXECUTIVE OFFICER
----------------------------------
FIRST INTERSTATE BANK OF CALIFORNIA,
as the Lender
By: /s/ KIM DEFENDERFER
----------------------------------
Print Name: KIM DEFENDERFER
----------------------------------
Title: VICE PRESIDENT
----------------------------------
3
<PAGE> 1
Exhibit 9e
THIRD AMENDMENT TO REVOLVING CREDIT AGREEMENT
THIS THIRD AMENDMENT TO REVOLVING CREDIT AGREEMENT (the "Second
Amendment") is made and dated as of the 13th day of November, 1995 by and
between FIRST INTERSTATE BANK OF CALIFORNIA (the "Lender") and NEW USA MUTUAL
FUNDS, INC. (the "Company") acting on behalf of THE NEW USA MUTUAL FUND (the
"Fund").
RECITALS
The Company is an open-end management investment company registered under
the Investment Company Act of 1940. The Fund is a diversified series of the
Company, which may from time to time issue additional series of funds. The
Company acting on behalf of the Fund entered into a Revolving Credit Agreement
with the Lender (as amended, modified, or waived from time to time, the
"Agreement") pursuant to which the Lender agreed to extend credit to the Fund in
an aggregate amount not to exceed the Credit Limit (as such term and all other
capitalized terms used but not otherwise defined herein are defined in the
Agreement) until the Maturity Date. The parties hereto now wish to extend the
Maturity Date.
NOW, THEREFORE, for good and valuable consideration, receipt and adequacy
of which are hereby acknowledged, the parties agree as follows:
AGREEMENT
1. Amendment.
(a) The definition of "Maturity Date" contained in Exhibit A to the
Agreement is amended to read as follows:
"Maturity Date" shall mean (a) November 12, 1996, as such date may be
extended from time to time in writing by the Lender, in its sole
discretion; or (b) if earlier, the date the Lender terminates its
obligation to make further Loans hereunder pursuant to Paragraph 7 above."
2. Conditions to Effectiveness of Third Amendment. This Third Amendment
shall be effective on the date (the "Third Amendment Effective Date") that
counterparts have been fully executed and delivered by the Lender and the
Company; provided that this Third Amendment shall not be effective unless, as
of the Third Amendment Effective Date, (a) all of the representations and
warranties contained in this Third Amendment and the Agreement as amended hereby
are true and correct except to the extent that they expressly relate to a prior
date; and (b) no Event of Default shall have occurred and be continuing;
provided, further, that this Third Amendment shall cease to be effective or to
have any force or effect and all Obligations outstanding under the Agrement
shall be
<PAGE> 2
immediately due and payable if on or before December 13, 1995 the
Company shall fail to have delivered to the Lender in form and substance
satisfactory to the Lender and its counsel (1) certified copies of resolutions
of the Board of Directors of the Company approving the execution and delivery of
this Third Amendment; (2) a certificate of the Secretary or an Assistant
Secretary of the Company certifying the names and true signatures of the
officers of the Company authorized to sign this Third Amendment; and (3) an
opinion of counsel to the Company with respect to the effectiveness of this
Third Amendment to amend the Agreement as provided herein.
3. Representations and Warranties of the Company. As an inducement to the
Lender to enter into this Third Amendment, the Company represents and warrants
to the Lender that (a) the Company is duly organized, validly existing and in
good standing as a corporation under the laws of the State of Maryland; (b) the
Company has the corporate power and authority and the legal right to execute,
deliver and perform the Loan Documents on behalf of the Fund and has taken all
necessary corporate action to authorize the execution, delivery and performance
of the Loan Documents on behalf of the Fund; (c) this Third Amendment has been
duly executed and delivered by the Company on behalf of the Fund; (d) the
Agreement as amended hereby constitutes a legal, valid and binding obligation
of the Company enforceable against the Company in accordance with its terms,
subject to the effect of applicable bankruptcy and other similar laws affecting
the rights of creditors generally and the effect of equitable principles whether
applied in an action at law or a suit in equity; (d) the execution and delivery
of this Third Amendment and the performance of the Agreement as amended hereby
will not violate any Requirement of Law or any Contractual Obligation of the
Company or create or result in the creation of any Lien on any assets of the
Company; (e) no consent, approval, authorization of, or registration,
declaration or filing with any governmental authority is required on the part
of the Company in connection with the execution and delivery of the Third
Amendment of the performance of or compliance with the terms, provisions and
conditions of the Agreement as amended hereby.
4. Miscellaneous. This Third Amendment and the documents and agreements
referred to herein embody the entire agreement and understanding between the
parties hereto and supersede all prior agreements and understandings relating
to the subject matter hereof and thereof. All representations, warranties,
covenants and agreements herein contained on the part of the Borrower shall
survive the termination of this Third Amendment and shall be effective until
the Obligations are paid and performed in full or longer as expressly provided
herein. This Third Amendment may be executed in any number of counterparts all
of which together shall constitute one agreement. This Agreement shall be
governed by and construed in accordance with the laws of the State of New York,
without giving effect to choice of law rules.
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this Third Amendment to
be executed as of the day and year first above written.
NEW USA MUTUAL FUNDS,INC., a Maryland
corporation, as the Company
By: /s/ NATALIE CARTER
-----------------------------------
Print Name: NATALIE CARTER
-----------------------------------
Title: CHIEF FINANCIAL OFFICER
-----------------------------------
FIRST INTERSTATE BANK OF CALIFORNIA,
as the Lender
By: /s/ KIM DEFENDERFER
-----------------------------------
Print Name: KIM DEFENDERFER
-----------------------------------
Title: VICE PRESIDENT
-----------------------------------
<PAGE> 1
Exhibit 11
ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The New USA Mutual Fund
(a portfolio constituting New USA Mutual Funds, Inc.):
As independent public accountants, we hereby consent to the incorporation by
reference in this Registration Statement of our report dated March 6, 1996 on
the financial statements and financial highlights of The New USA Mutual Fund
included in or made a part of Post-Effective Amendment No. 8 and Amendment No.
11 to Registration Statement File Nos. 33-44905 and 811-6519, respectively.
/s/ ARTHUR ANDERSEN LLP
Boston, Massachusetts
March 13, 1996
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANTS' FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1996
<PERIOD-START> FEB-01-1995
<PERIOD-END> JAN-31-1996
<INVESTMENTS-AT-COST> 186,348,227
<INVESTMENTS-AT-VALUE> 206,981,311
<RECEIVABLES> 10,320,699
<ASSETS-OTHER> 101,334
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 217,403,344
<PAYABLE-FOR-SECURITIES> 17,165,788
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 15,370,465
<TOTAL-LIABILITIES> 32,536,253
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 149,525,991
<SHARES-COMMON-STOCK> 12,842,466
<SHARES-COMMON-PRIOR> 14,624,696
<ACCUMULATED-NII-CURRENT> 469,484
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 14,238,532
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 20,633,084
<NET-ASSETS> 184,867,091
<DIVIDEND-INCOME> 341,003
<INTEREST-INCOME> 304,563
<OTHER-INCOME> 5,099
<EXPENSES-NET> 4,858,284
<NET-INVESTMENT-INCOME> (4,207,619)
<REALIZED-GAINS-CURRENT> 56,852,165
<APPREC-INCREASE-CURRENT> 12,032,523
<NET-CHANGE-FROM-OPS> 64,677,069
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 27,138,147
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 809,986
<NUMBER-OF-SHARES-REDEEMED> 4,283,992
<SHARES-REINVESTED> 1,691,876
<NET-CHANGE-IN-ASSETS> 14,761,301
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (10,017,277)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,810,848
<INTEREST-EXPENSE> 880,685
<GROSS-EXPENSE> 4,858,284
<AVERAGE-NET-ASSETS> 181,084,800
<PER-SHARE-NAV-BEGIN> 11.63
<PER-SHARE-NII> (0.37)
<PER-SHARE-GAIN-APPREC> 5.54
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 2.41
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.39
<EXPENSE-RATIO> 2.69
<AVG-DEBT-OUTSTANDING> 15,747,789
<AVG-DEBT-PER-SHARE> 1.27
</TABLE>
