SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of
1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission only (as Permitted
by Rule 14a-6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to 240.14a-12
USAA Mutual Fund, Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
[_] $500 per each party to the controversy pursuant to Exchange Act rule
14a-6(i)(3).
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction
applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing fee is calculated and state how
it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date filed:
Preliminary Copy
USAA Letterhead
DRAFT
-----
September 11, 1996
------------------
October 2, 1996
Dear Shareholder:
On November 20, 1996, a special meeting of shareholders of the
Aggressive Growth Fund series of USAA Mutual Fund, Inc. will be held to vote
on a proposal that will increase the advisory fees paid by the Fund to USAA
Investment Management Company (IMCO). The enclosed materials contain information
about the proposal and a proxy to vote your shares at the meeting.
Your vote is extremely important, no matter how many shares you own. We
encourage you to complete and return the enclosed proxy as soon as possible to
ensure that you are represented at the meeting.
You are being asked to consider an amendment to the advisory agreement
between USAA Mutual Fund, Inc., and IMCO that will increase the advisory fee
paid by the Aggressive Growth Fund to IMCO for managing the Fund's assets and
performing certain related services. Your directors considered a number of
factors in reviewing the proposed amendment as discussed in the enclosed proxy
statement, including the quality of IMCO's services to the Fund, as reflected
by the Fund's performance, the low current advisory fee and total expense ratio
of the Fund relative to comparable mutual funds, the fact that the advisory
fee and expense ratio of the Fund would remain below the average of comparable
mutual funds even with the fee increase, and the relatively small profits
realized to date by IMCO from managing the Fund. After considering these
factors, your directors determined that the proposed amendment is fair and
reasonable and unanimously recommend that you vote in favor of the proposal.
Voting by mail is quick and easy. Everything you need is enclosed. To
cast your vote, simply complete the enclosed proxy card. Be sure to sign the
card before mailing it in the postage-paid envelope provided.
If you have any questions before you vote, please call us toll free at
1-800-531-8448. We'll be glad to help you get your vote in quickly. Thank you
for your participation in this important initiative for the Fund.
Sincerely,
Michael J.C. Roth, C.F.A.
PRESIDENT
Enclosures
PRELIMINARY COPY
DRAFT
September 11, 1996
USAA MUTUAL FUND, INC.
9800 Fredericksburg Road
San Antonio, Texas 78288
P R O X Y S T A T E M E N T
Special Meeting of Shareholders of
Aggressive Growth Fund
To Be Held November 20, 1996
To the Shareholders:
Notice is hereby given that a Special Meeting of Shareholders (the
Meeting) of the Aggressive Growth Fund (the Fund) series of USAA Mutual Fund,
Inc., a Maryland Corporation (the Company), will be held in the Multi-Purpose
Room of USAA Federal Savings Bank, 10750 Robert F. McDermott Freeway, San
Antonio, Texas on Wednesday, November 20, 1996, at 10:00 a.m., local time, for
the following purpose:
To approve an amendment to the Advisory Agreement between the Company and USAA
Investment Management Company (the Manager).
Shareholders may also consider and act upon any other matters which may
properly come before the Meeting or any adjournments thereof. The foregoing
proposal is discussed in greater detail in the attached proxy statement.
The Company's Board of Directors has fixed the close of business on
September 26, 1996, as the record date for the determination of shareholders
entitled to notice of and vote at the Meeting and any adjournments thereof.
By Order of the Board of Directors
MICHAEL D. WAGNER, Secretary
October 2, 1996
YOUR VOTE IS IMPORTANT
NO MATTER HOW MANY SHARES YOU OWN
If you do not expect to attend the Meeting in person, please indicate
your voting instructions on the enclosed proxy card. Date, sign and return
the proxy card in the enclosed envelope which needs no postage if mailed in
the United States. In order to avoid the additional expense of further
solicitation, please mail your proxy promptly.
PRELIMINARY COPY
USAA MUTUAL FUND, INC.
9800 Fredericksburg Road
San Antonio, Texas 78288
P R O X Y S T A T E M E N T
Special Meeting of Shareholders of
Aggressive Growth Fund
To Be Held November 20, 1996
This proxy statement is being distributed by the Board of Directors of
USAA Mutual Fund, Inc. (the Company) to solicit proxies from shareholders of
the Aggressive Growth Fund (the Fund) series of the Company for use at a
Special Meeting of Shareholders (the Meeting) and any adjournment thereof.
The Meeting is scheduled to be held at the Multi-Purpose Room of USAA Federal
Savings Bank, 10750 Robert F. McDermott Freeway, San Antonio, Texas on November
20, 1996, at 10:00 a.m., local time.
Any person giving a proxy may revoke it at any time prior to its use. A
shareholder may revoke a proxy by appearing at the Meeting and voting in
person, by giving written notice of revocation to the Board of Directors or by
returning a later dated proxy. Signed proxies received by the Board of
Directors in time for voting and not so revoked will be voted in accordance
with the instructions noted thereon. If no instructions are given, the
enclosed proxy will be voted FOR the proposal described in this proxy
statement.
The Fund's shareholders of record on September 26, 1996, are entitled to
notice of and to vote at the Meeting. The Fund is a portfolio of the Company
represented by a separate series of capital stock, $.01 par value per share,
of the Company. As of the record date, there were ________ shares of the
Fund issued and outstanding, with each shareholder entitled to the same number
of votes as the number of shares of capital stock held by such shareholder.
The Board of Directors expects to make this solicitation primarily by
mail; however, in addition to the solicitation of proxies by mail the officers
and Directors of the Company and persons affiliated with USAA Investment
Management Company, the investment manager and underwriter for the Fund, 9800
Fredericksburg Road, San Antonio, Texas 78288 (the Manager), may, without
remuneration, solicit proxies personally or by telephone, telegram or other
electronic means. The Company also may retain a proxy solicitation firm to
assist in soliciting proxies. The costs of retaining such a firm would depend
upon the amount and type of services rendered. The Company does not
anticipate that it will retain such a firm in connection with the proxy
solicitation for the Meeting. The Manager will pay the costs of solicitation
and expenses incurred in connection with preparing this proxy statement and
its enclosures, including any cost of retaining a proxy solicitation firm.
The Manager also will reimburse brokerage firms and others for their expenses
in forwarding solicitation materials to the beneficial owners of the Fund's
shares.
This proxy statement and the accompanying Notice of Special Meeting of
Shareholders and form of proxy are being mailed on or about October 2, 1996,
to shareholders of record on the record date. You may obtain a free copy of
the Fund's Annual Report for the fiscal year ended July 31, 1996, by writing
to the Company at 9800 Fredericksburg Road, San Antonio, Texas 78288, or by
calling toll free 1-800-531-8448.
PROPOSAL
APPROVAL OF AN AMENDMENT TO THE ADVISORY AGREEMENT
BETWEEN THE COMPANY AND THE MANAGER
The Fund's shareholders are being asked to approve an amendment (the
Amendment) to the Advisory Agreement between the Company and the Manager that
provides for an increase in the advisory fee payable by the Company to the
Manager with respect to the Fund. Under the current Advisory Agreement, the
Company pays the Manager an annual fee computed at one-half of one percent
(.50%) of the first $200,000,000 of average net assets (ANA), two-fifths of
one percent (.40%) for that portion of ANA in excess of $200,000,000 and not
over $300,000,000, and one-third of one percent (.33%) for that portion in
excess of $300,000,000. Under the Proposal, the Advisory Agreement would be
amended to increase the advisory fees payable by the Fund to a flat fee of
three-fourths of one percent (.75%) of the Fund's ANA.
The Current Advisory Agreement
Under the current Advisory Agreement, the Manager provides an investment
program, carries out the investment policies, and manages the other affairs
and business of the Company, which includes the Fund and certain other funds
advised by the Manager. The Manager is authorized, subject to the control of
the Board of Directors of the Company, to determine the selection, amount, and
time to buy or sell securities for the Fund. In addition to providing
investment services, the Manager pays for office space, facilities, simple
business equipment, supplies, utilities, telephone service and accounting
services (in addition to those provided by the custodian and transfer agent)
for the Company. The Manager compensates all personnel, officers and
Directors of the Company if such persons are also employees of the Manager or
its affiliates. The Manager also is responsible for the provision and
maintenance of a fidelity bond for the benefit of the Company. For performing
these services under the Advisory Agreement, the Company has agreed to pay the
Manager a fee computed as described above. Advisory fees are accrued daily
and are payable monthly.
Except for the services and facilities provided by the Manager, the Fund
pays all other expenses incurred in its operations. Expenses for which the
Fund is responsible include taxes (if any), brokerage commissions on
portfolio transactions, expenses of issuance and redemption of shares, charges
of transfer agents, custodians and dividend disbursing agents, costs of
preparing and distributing proxy material, costs of printing and engraving
stock certificates, auditing and legal expenses, certain expenses of
registering and qualifying shares for sale, fees of Directors who are not
interested persons (not affiliated) of the Manager, costs of typesetting,
printing and mailing the prospectus, statement of additional information
(SAI), and financial reports to existing shareholders and any other charges or
fees not specifically enumerated. The Manager pays the cost of printing and
mailing copies of the prospectus, SAI, and financial reports to prospective
shareholders.
The current Advisory Agreement will remain in effect for the Fund until
June 30, 1997, and will continue in effect from year to year
thereafter for the Fund as long as it is approved at least annually by
(a) a vote of the outstanding voting securities for the Fund (as defined
by the Investment Company Act of 1940, as amended (1940 Act)) or by the
Board of Directors (on behalf of the Fund) and (b) in either event, a
majority of the Directors who are not parties to the Advisory Agreement
or interested persons of the Manager or of the Company, at a meeting
called for the purpose of voting on such approval. The Advisory Agreement
was last approved by the Fund's shareholders at a meeting on September 21,
1990, called for the purpose of the election of the Board of Directors,
approval of the Advisory Agreement and ratification of the selection of
the Company's auditors. The Advisory Agreement was last approved
by the Company's Board of Directors on May 13, 1996. The Advisory Agreement
may be terminated at any time by vote of either the Directors of the Company
or a majority of the outstanding shares of the Fund or by the Manager on 60
days' written notice. It will automatically terminate in the event of its
assignment (as defined in the 1940 Act).
Under the terms of the Advisory Agreement, the Manager is required to
reimburse the Fund in the event that the total annual expenses, inclusive of
the management fees, but exclusive of interest, taxes, brokerage fees,
excess custodian costs attributable to investments in foreign securities, and
extraordinary items, incurred by the Fund exceeds any applicable state expense
limitation. At the current time, the most restrictive expense limitation is
2.5% of the first $30,000,000 of ANA, 2% of the next $70,000,000 ANA, and 1.5%
of the remaining ANA.
From time to time the Manager may, without prior notice to shareholders,
voluntarily waive all or any portion of fees or agree to reimburse expenses
incurred by the Fund. At the present time, the Manager is not waiving any
portion of its fees or agreeing to reimburse expenses incurred by the Fund.
For the fiscal year ended July 31, 1996, the Fund paid the Manager fees
in the amount of $2,039,878 for services pursuant to the Advisory Agreement.
Proposed Amendment to the Advisory Agreement
The Advisory Agreement, following the Amendment, would be identical to
the current Advisory Agreement described above with the exception of a
revision to the fees payable to the Manager. Under the Proposal, the
Advisory Agreement would be amended to replace the existing fee schedule
applicable to the Fund, as described above, with the revised fee payable by
the Company to the Manager of three-fourths of one percent (.75%) of the
Fund's ANA. If shareholders approve the Proposal, the Amendment would become
effective January 1, 1997. Appendix A to the Proxy Statement shows the actual
expense ratios, as a percentage of ANA, for the Fund's fiscal year ended July
31, 1996, and a pro forma adjustment thereof assuming that the proposed
amended Advisory Agreement had been in place during the past fiscal year. At
July 31, 1996, the Fund had approximately $607.4 million in net assets.
If the proposed amended Advisory Agreement had been in effect for the fiscal
year ended July 31, 1996, the Fund would have paid the Manager approximately
$3,704,267 in advisory fees. This represents an increase of $1,664,389 (or
81.6%) from the advisory fees actually paid to the Manager under the current
Advisory Agreement. Appendix B to the Proxy Statement sets forth a form of
Advisory Agreement marked to show changes that would result should
shareholders approve this Proposal adopting the Amendment.
At a meeting of the Board of Directors held on September 6, 1996, the
Directors concluded that the proposed Amendment is fair and reasonable.
Accordingly, the Directors, including the Directors that are not
"interested persons" of the Manager, unanimously voted to approve the
Amendment and authorized the officers of the Company to call a meeting
of shareholders of the Fund to consider the Proposal. In reaching its
conclusion, the Directors reviewed a variety of information relating to the
nature, quality and extent of the services provided by the Manager and the
reasonableness of the proposed Amendment. Among other things, the Directors
considered the following: the short-term and long-term performance of the Fund
relative to comparable mutual funds and standardized indices; the fees charged
by other managers of similar mutual funds for comparable services and the
total expense ratios of these funds; the profitability of the Manager's
relationship with the Fund; other indirect benefits received by the Manager in
serving as the Fund's investment adviser; the willingness of the Manager to
continue managing the Fund indefinitely under the current fee arrangements;
and other organizational information relating to the Manager, its advisory
personnel and its investment processes.
The Directors determined that the Manager has provided quality services
to the Fund. The Directors noted that the Fund had an average annual total
return of 21.16%, 21.60%, 14.87% and 11.50% for the one, three, five and
ten year periods ended July 31, 1996, respectively. The Directors also noted
that Lipper Analytical Services, Inc., an independent organization that ranks
mutual funds, ranked the Fund's performance 44th out of 338 comparable mutual
funds, 17th out of 183 comparable mutual funds, 48th out of 91 comparable
mutual funds, and 23rd out of 43 comparable mutual funds for the one, three,
five and ten year periods ended July 31, 1996, respectively. Additionally,
the Directors considered the fact that from March 1, 1995 (the date on which
the personnel currently responsible for the Fund's portfolio management were
assigned by the Manager to the Fund) until July 31, 1996, the Fund's average
annual total return was 38.01%, and the Fund was ranked 14th out of 308
comparable mutual funds. Finally, the Directors noted that the Fund's perfor-
mance relative to comparable mutual funds would have been subsantially the
same if the proposed advisory fee had been in effect during these periods.
The Directors considered that the Fund's current advisory fee and the
Fund's total expense ratio are substantially below the average for comparable
mutual funds. The Directors noted that, even after giving effect to
the proposed fee increase, the Fund's advisory fee and total expense ratio
will be below the average for comparable funds. Moreover, the Directors noted
that the proposed advisory fee is below the average of advisory fees being
charged by recently organized mutual funds with similar investment objectives.
The Manager provided the Directors with profitability information based
on the Manager's internal cost allocations indicating that the Manager has
realized relatively small profits to date from managing the Fund. In
recommending that the Directors approve the proposed fee increase, the Manager
expressed the view that it cannot reasonably be expected to continue managing
the Fund indefinitely under the current fee arrangement. The Directors
independently evaluated the profitability information and concluded that the
Manager's position is reasonable. In considering the profitability information,
the Directors also considered the various indirect benefits to the Manager and
its affiliates from the relationship with the Fund, including revenues derived
from serving as the Fund's transfer agent, the commissions received by USAA
Brokerage Services in executing trades for the Fund, and the "soft dollar"
research received by the Manager from brokers in connection with the Fund's
portfolio transactions.
For these reasons, the Directors unanimously recommend that shareholders
vote FOR the Proposal.
About the Manager
The Manager, USAA Investment Management Company (IMCO), is a Delaware
Corporation organized in May, 1970 and is an affiliate of United Services
Automobile Association (USAA), a large diversified financial services
institution. USAA owns all of the shares of USAA Capital Corporation (CAPCO),
which, in turn, owns all of the shares of USAA Investment Corporation. The
Manager is wholly-owned by USAA Investment Corporation. The principal offices
of all these entities is 9800 Fredericksburg Road, San Antonio, Texas 78288.
As of _________, 1996, the Manager had $____ billion in total assets under
management, of which approximately $___ billion were in mutual fund
portfolios.
The principal executive officers and each director of the Manager,
including those officers and directors who are officers and Directors of the
Company, are as follows:
Name and Position with the Principal Occupation
Manager
M. Staser Holcomb* President, CEO, Director and Vice Chairman
Director and Chairman of the of the Board of Directors CAPCO
Board of Directors
Michael J.C. Roth* President and CEO of IMCO
President, CEO, Director and
Vice Chairman of the Board of
Directors
John W. Saunders, Jr.* Senior Vice President, Fixed Income
Senior Vice President, Fixed Investments of IMCO
Income Investments, and Director
Harry W. Miller Senior Vice President,
Senior Vice President, Equity Equity Investments of IMCO
Investments, and Director
Carl W. Shirley Senior Vice President, Insurance
Senior Vice President, Company Portfolios of IMCO
Insurance Company Portfolios
John J. Dallahan, Senior Vice President, Investment
Senior Vice President, Services of IMCO
Investment Services
Michael D. Wagner* Vice President, Corporate Counsel of USAA
Vice President, Secretary and
Counsel
Sherron Kirk* Vice President, Controller of IMCO
Vice President, Controller
*Officer or Director of the Company
The business address of each individual listed above is 9800
Fredericksburg Road, San Antonio, Texas 78288.
In addition to paying fees to the Manager for investment management
services, the Fund may pay brokerage commissions to USAA Brokerage Services, a
discount brokerage service of the Manager, to execute certain purchases and
sales of equity securities for the Fund's portfolio. For the fiscal year
ended July 31, 1996, the Fund did not pay any brokerage commissions to USAA
Brokerage Services. It is anticipated that the Fund will continue to have the
ability to pay brokerage commissions to USAA Brokerage Services for executing
certain transactions for the Fund's portfolio regardless of whether the
proposed Amendment is approved by shareholders.
USAA Transfer Agency Company d/b/a USAA Shareholder Account Services
(SAS) performs transfer agency services for the Company under a Transfer
Agency Agreement. Services include maintenance of shareholder account
records, handling of communications with shareholders, distribution of Fund
dividends, and production of reports with respect to account activity for
shareholders and the Company. For its services under the Transfer Agency
Agreement, the Fund pays SAS an annual fixed fee per account of $23.50. This
fee is subject to change at any time. For the fiscal year ended July 31,
1996, the Fund paid SAS $1,110,277 under the Transfer Agency Agreement. It is
anticipated that these services will continue to be provided by SAS regardless
of whether the proposed Amendment is approved by shareholders.
Required Vote
A majority of the Fund's shares entitled to vote, represented in person
or by proxy, is required to constitute a quorum at the Meeting. Under
Maryland law, abstentions do not constitute a vote "for" or "against" a
matter, but will be included in determining the number of shares outstanding
and the number of shares present for purposes of the Proposal described
herein. To be approved, the Proposal must receive the affirmative vote of "a
majority of the outstanding voting securities" of the Fund, as defined in the
1940 Act. Under the 1940 Act, a vote of a majority of the outstanding voting
securities of a Fund means the lesser of (a) more than 50% of the outstanding
shares of the Fund or (b) 67% or more of the shares of the Fund represented at
the Meeting if more than 50% of the outstanding shares of the Fund are present
at the Meeting or represented by proxy. As a result, abstentions will assist
the Fund in obtaining a quorum and will have the effect of a "no" vote for
purposes of obtaining the requisite vote for approval of the Proposal. Broker
"non-votes" (i.e., proxies from brokers or nominees indicating that such
persons have not received instructions from the beneficial owner or other
person entitled to vote shares on a particular matter with respect to which
the brokers or nominees do not have discretionary power) will be treated the
same as abstentions.
In the event a quorum is not present at the Meeting or in the event a
quorum is present at the Meeting but sufficient votes to approve the proposal
are not received, the persons named as proxies may propose one or more
adjournments of the Meeting to permit further solicitation of proxies,
provided that such persons determine such an adjournment and additional
solicitation is reasonable and in the interest of shareholders after
consideration of all relevant factors, including the nature of the relevant
proposals, the percentage of votes then cast, the percentage of negative votes
then cast, the nature of the proposed solicitation activities and the nature
of the reasons for such further solicitation. The Proposal may be voted on
prior to any adjournment if sufficient votes have been received and such vote
is otherwise appropriate. Any such adjournment will require the affirmative
vote of a majority of those shares of the Fund present at the Meeting in
person or by proxy.
The Board of Directors unanimously recommends that shareholders vote FOR
approval of the Proposal.
Share Ownership of Management and Certain Beneficial Owners
As of August 31, 1996, USAA, a reciprocal interinsurance exchange,
beneficially owned directly or indirectly through one or more of its affiliates
2,118,736 shares (9.4%) of the Fund. It is anticipated that such shares will be
voted in favor of the Proposal. The address of USAA and its affiliates is 9800
Fredericksburg Road, San Antonio, Texas 78288.
As far as is known to the Board of Directors of the Company, as of August
31,1996, no other person held of record or owned beneficially more that 5% of
the voting stock of the Fund. In addition, the Directors and Officers of the
Company, do not individually, or collectively as a group, own more that 1% of
the voting stock of the Fund.
OTHER BUSINESS
The Board of Directors does not know of any other matters to be
considered at the Meeting other than that referred to above. If any other
matters are properly presented to the Meeting, it is the intention of proxy
holders to vote such proxies on such matters in accordance with their
judgment.
The Fund does not hold annual shareholder meetings. Shareholders
wishing to submit proposals for inclusion in a proxy statement for a
subsequent shareholder meeting should send their written proposals to the
Secretary of the Company, 9800 Federicksburg Road, San Antonio, Texas 78288.
By Order of the Board of Directors
Michael D. Wagner
Secretary
October 2, 1996
San Antonio, Texas
APPENDIX A
USAA AGGRESSIVE GROWTH FUND
Annual Fund Operating Expenses Current Expense Proposed Expense
(as a percentage of average net assets) Ratio Ratio
- -----------------------------------------------------------------------------
Management Fees .41% .75%
12b-1 Fees None None
Other Expenses:
Transfer Agent Fees .22% .22%
Custodian Fees .04% .04%
All Other Expenses .07% .07%
---- ----
Total Other Expenses .33% .33%
---- ----
Total Fund Operating Expenses .74% 1.08%
==== =====
- ------------------------------------------------------------------------------
Under Current Under Proposed
Example of Effect of Fund Expenses Expense Ratio Expense Ratio
- ------------------------------------------------------------------------------
An investor would pay the following 1 Year $ 8 $ 11
expenses on a $1,000 investment, 3 Years $24 $ 34
assuming (1) 5% annual return, 5 Years $41 $ 60
and (2) redemption at the end of 10 Years $92 $132
the periods shown.
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
- ------------------------------------------------------------------------------
APPENDIX B
FORM OF ADVISORY AGREEMENT
AGREEMENT made as of the 21st day of September, 1990, between USAA
INVESTMENT MANAGEMENT COMPANY, a corporation organized under the laws of the
State of Delaware and having a place of business in San Antonio, Texas (the
"Manager"), and USAA MUTUAL FUND, INC., a corporation organized under the laws
of the State of Maryland and having a place of business in San Antonio, Texas
(the "Company").
WHEREAS, the Company is engaged in business as an open-end management
investment company and is so registered under the Investment Company Act of
1940, as amended (the "1940 Act"); and
WHEREAS, the Manager is engaged principally in the business of rendering
investment management services and is registered under the Investment Advisers
Act of 1940, as amended; and
WHEREAS, the Company is authorized to issue shares of capital stock (the
"Shares") in separate classes with each such class representing interests in a
separate portfolio of securities and other assets; and
WHEREAS, the Company presently offers Shares in five classes designated
as the Growth Fund, Aggressive Growth Fund, Income Stock Fund, Income Fund and
Money Market Fund (the "Existing Funds") (such classes, together with all
other classes subsequently established by the Company with respect to which
the Company desires to retain the Manager to render investment advisory
services hereunder and with respect to which the Manager is willing so to do,
being herein collectively referred to as the "Funds");
NOW, THEREFORE, WITNESSETH: That it is hereby agreed between the
parties hereto as follows:
1. APPOINTMENT OF MANAGER.
(a) EXISTING FUNDS. The Company hereby appoints the Manager to
act as manager and investment adviser to each of the Existing Funds for the
period and on the terms herein set forth. The Manager accepts such
appointment and agrees to render the services herein set forth, for the
compensation herein provided.
(b) ADDITIONAL FUNDS. In the event that the Company establishes
one or more classes of Shares other than the Existing Funds with respect to
which it desires to retain the Manager to render management and investment
advisory services hereunder, it shall so notify the Manager in writing.
If the Manager is willing to render such services it shall notify the
Company in writing, whereupon the Company shall appoint the Manager to
act as manager and investment adviser to each of such classes of shares
for the period and on the terms herein set forth, the Manager shall accept
such appointment and agree to render the services herein set forth for
the compensation herein provided, and each of such classes of Shares
shall become a Fund hereunder.
2. DUTIES OF MANAGER.
The Manager, at its own expense, shall furnish the following
services and facilities to the Company:
(a) INVESTMENT PROGRAM. The Manager will (i) furnish continuously
an investment program for each Fund, (ii) determine (subject to the overall
supervision and review of the Board of Directors of the Company) what
investments shall be purchased, held, sold or exchanged by each Fund and
what portion, if any, of the assets of each Fund shall be held uninvested, and
(iii) make changes on behalf of the Company in the investments of each Fund.
The Manager will also manage, supervise and conduct the other affairs and
business of the Company and of each Fund thereof and matters incidental
thereto, subject always to the control of the Board of Directors of the
Company and to the provisions of the Company's Articles of Incorporation and
Bylaws and the 1940 Act.
(b) REGULATORY REPORTS. The Manager shall furnish to the Company
necessary assistance in:
(i) The preparation of all reports now or hereafter required
by Federal or other laws.
(ii) The preparation of Prospectuses, Registration Statements,
and amendments thereto that may be required by Federal or other laws or by
the rules or regulations of any duly authorized commission or administrative
body.
(c) OFFICE SPACE, FACILITIES, AND PERSONNEL. The Manager shall
furnish to the Company office space in the offices of the Manager or in such
other place or places as may be agreed upon from time to time, and all
necessary office facilities, simple business equipment, supplies, utilities,
telephone service and accounting services (in addition to those provided
by the custodian and transfer agent) for managing the affairs and investments
of the Company. These services are exclusive of the necessary records of any
dividend disbursing agent, transfer agent, registrar or custodian. The
Manager shall compensate all personnel, officers, and Directors of the
Company if such persons are also officers or employees of the Manager
or its affiliates.
(d) FIDELITY BOND. The Manager shall provide and maintain a bond
issued by a reputable insurance company authorized to do business in the
place where the bond is issued, against larceny and embezzlement covering
each officer and employee of the Company who may singly or jointly with
others have access to funds or securities of the Company, with direct or
indirect authority to draw upon such funds or to direct generally the
disposition of such funds. The bond shall be in such reasonable amount
as a majority of the Board of Directors of the Company who are not officers
or employees of the Company shall determine, with due consideration to the
aggregate assets of the Company to which any such officer or employee may
have access.
3. ALLOCATION OF EXPENSES.
Except for the services and facilities to be provided by the Manager set
forth in Paragraph 2 above, the Company assumes and shall pay all expenses for
all other Company operations and activities and shall reimburse the Manager
for any such expenses incurred by the Manager. The expenses to be borne by
the Company shall include, without limitation:
(a) the charges and expenses of any registrar, share transfer or
dividend disbursing agent, custodian, or depository appointed by the Company
for the safekeeping of its cash, portfolio securities and other property;
(b) the charges and expenses of auditors;
(c) brokerage commissions for transactions in the portfolio
securities of the Company;
(d) all taxes, including issuance and transfer taxes, and fees
payable by the Company to Federal, state or other governmental agencies;
(e) the cost of share certificates representing Shares of the
Company;
(f) fees involved in registering and maintaining registrations
of the Company and of its Shares with the Securities and Exchange Commission
and various states and other jurisdictions;
(g) all expenses of shareholders' and Directors' meetings and of
preparing, printing and mailing proxy statements, quarterly reports,
semiannual reports, annual reports and other communications (including
Prospectuses) to existing shareholders;
(h) compensation and travel expenses of Directors who are not
"interested persons" within the meaning of the 1940 Act;
(i) the expense of furnishing or causing to be furnished to each
shareholder a statement of his account, including the expense of mailing;
(j) charges and expenses of legal counsel in connection with
matters relating to the Company, including, without limitation, legal services
rendered in connection with the Company's legal and financial structure and
relations with its shareholders, issuance of Company Shares, and registration
and qualification of securities under Federal, state and other laws;
(k) membership or association dues for the Investment Company
Institute or similar organizations;
(l) interest payable on Company borrowings; and
(m) postage.
4. ADVISORY FEE.
(a) For the services and facilities to be provided by the
Manager as provided in Paragraph 2 hereof, the Company shall pay to the
Manager a monthly fee with respect to the [add "Aggressive Growth Fund
and the"] Growth Fund computed as a percentage of aggregate average net
assets of [such has been replaced with each] Fund, which on an annual basis
is equal to three-fourths of one percent (.75%) of the Monthly Average Net
Assets (defined below) of such Fund for [such has been replaced with each]
calendar month.
[Existing Paragraph b has been deleted, thus relettering the following
paragraphs.]
(b) For the services and facilities to be provided by the
Manager as provided in Paragraph 2 hereof, the Company shall pay to the
Manager a monthly fee with respect to the Aggressive Growth Fund computed as a
percentage of aggregate average net assets of such Fund, which on an annual
basis is equal to:
(1) one-half of one percent (.50%) on an annual basis of
the first $200,000,000 of the Monthly Average Net Assets (defined below) of
such Fund for such calendar month;
(2) two-fifths of one percent (.40%) on an annual basis
for that portion of Monthly Average Net Assets in excess of $200,000,000 and
not over $300,000,000 of such Fund for such calendar month; and
(3) one-third of one percent (1/3%) for the portion of
such Monthly Average Net Assets of such Fund in excess of $300,000,000.
(b) For the services and facilities to be provided by the
Manager as provided in Paragraph 2 hereof, the Company shall pay to the
Manager a monthly fee with respect to the Income Stock Fund computed as a
percentage of aggregate average net assets of such Fund, which on an annual
basis is equal to one-half of one percent (.50%) of the Monthly Average Net
Assets (defined below) of such Fund for such calendar month.
(c) For the services and facilities to be provided by the
Manager as provided in Paragraph 2 hereof, the Company shall pay to the
Manager a monthly fee with respect to the Income Fund and Money Market Fund
computed as a percentage of aggregate average net assets of each Fund, which
on an annual basis is equal to twenty-four one-hundredths of one percent
(.24%) of all Monthly Average Net Assets (defined below) of each Fund for such
calendar month.
(d) The "Monthly Average Net Assets" of any Fund of the Company
for any calendar month shall be equal to the quotient produced by dividing
(i) the sum of the net assets of such Fund, determined in accordance with
procedures established from time to time by or under the direction of the
Board of Directors of the Company in accordance with the Articles of
Incorporation of the Company, as of the close of business on each day during
such month that such Fund was open for business, by (ii) the number of such
days.
(e) The Manager may from time to time and for such periods as it
deems appropriate voluntarily waive fees or otherwise reduce its compensation
hereunder.
5. EXPENSE LIMITATION.
In the event that expenses of any Fund of the Company for any
fiscal year should exceed the expense limitation on investment company
expenses imposed by any statute or regulatory authority of any jurisdiction in
which shares of the Company are qualified for offer and sale, the compensation
due the Manager for such fiscal year with respect to such Fund shall be
reduced by the amount of such excess by a reduction or refund thereof. In the
event that the expenses of any Fund exceed any expense limitation which the
Manager may, by written notice to such Fund, voluntarily declare to be
effective subject to such terms and conditions as the Manager may prescribe in
such notice, the compensation due the Manager shall be reduced, and, if
necessary, the Manager shall assume expenses of such Fund, to the extent
required by such expense limitation.
In the event this Agreement is terminated with respect to any one
or more Funds as of a date other than the last day of the fiscal year of the
Company, the Manager shall pay the Company a pro rata portion of the amount
that the Manager would have been required to pay, if any, had this Agreement
remained in effect for the full fiscal year.
6. COMPANY TRANSACTIONS.
In connection with the management of the investment and
reinvestment of the assets of the Company, the Manager, acting by its own
officers, directors or employees or by a duly authorized subcontractor, is
authorized to select the brokers or dealers that will execute purchase and
sale transactions for the Company and is directed to use its best efforts to
obtain the best available price and most favorable execution with respect to
all such purchases and sales of portfolio securities for the Company. Subject
to this primary requirement, and maintaining as its first consideration the
benefits to the Company and its shareholders, the Manager shall have the
right, subject to the control of the Board of Directors, to follow a policy of
selecting brokers and dealers who furnish statistical, research and other
services to the Company or to the Manager.
The Manager agrees that neither it nor any of its officers or
directors will take any long or short position in the capital stock of the
Company; provided, however, that such prohibition:
(a) shall not prevent the Manager from purchasing shares of the
capital stock of the Company if orders to purchase such shares are placed upon
the receipt by the Manager of purchase orders for such shares and are not in
excess of such purchase orders received by the Manager; and
(b) shall not prevent the purchase of shares of capital stock of
the Company by any of the persons above described for their account and for
investment at the price at which such shares are available to the public at
the time of purchase or as part of the initial capital of the Company.
7. RELATIONS WITH COMPANY.
Subject to and in accordance with the Articles of Incorporation
and Bylaws of the Company and of the Manager, respectively, it is understood
that Directors, officers, agents and shareholders of the Company are or may be
interested in the Manager (or any successor thereof) as directors, officers,
or otherwise, that directors, officers, agents and shareholders of the Manager
are or may be interested in the Company as Directors, officers, shareholders
or otherwise, that the Manager (or any such successor) is or may be interested
in the Company as a shareholder or otherwise and that the effect of any such
interests shall be governed by said Articles of Incorporation and Bylaws.
8. LIABILITY OF MANAGER.
No provision of this Agreement shall be deemed to protect the
Manager against any liability to the Company or its shareholders to which it
might otherwise be subject by reason of any willful misfeasance, bad faith or
gross negligence in the performance of its duties or the reckless disregard of
its obligations and duties under this Agreement. Nor shall any provision
hereof be deemed to protect any Director or officer of the Company against any
such liability to which he might otherwise be subject by reason of any willful
misfeasance, bad faith or gross negligence in the performance of his duties or
the reckless disregard of his obligations and duties. If any provision of
this Agreement shall be held or made invalid by a court decision, statute,
rule or otherwise, the remainder of this Agreement shall not be affected
thereby.
9. DURATION AND TERMINATION OF THIS AGREEMENT.
(a) DURATION. This Agreement shall be executed on the first
date upon which the Agreement shall have been approved by a majority of the
outstanding voting securities (as that term is defined in the 1940 Act) of any
Existing Fund. This Agreement shall become effective with respect to any
Existing Fund on the date upon which the Agreement shall have been approved by
a majority of the outstanding voting securities (as that term is defined in
the 1940 Act) of such Existing Fund, and with respect to any additional Fund
on the date of receipt by the Company of notice from the Manager in accordance
with Paragraph 1(b) hereof that the Manager is willing to serve as Manager
with respect to such Fund. Unless terminated as herein provided, this
Agreement shall remain in full force and effect with respect to each Existing
Fund through June 30, 1991, and, with respect to each additional Fund, through
the first June 30 occurring more than twelve months after the date on which
such Fund becomes a Fund hereunder, and shall continue in full force and
effect for periods of one year thereafter with respect to each Fund so long as
such continuance with respect to any such Fund is approved at least annually
(a) by either the Directors of the Company or by vote of a majority of the
outstanding voting shares (as defined in the 1940 Act) of such Fund, and (b)
in either event by the vote of a majority of the Directors of the Company who
are not parties to this Agreement or "interested persons" (as defined in the
1940 Act) of any such party, cast in person at a meeting called for the
purpose of voting on such approval.
Any approval of this Agreement by the holders of a majority of the
outstanding shares (as defined in the 1940 Act) of any Fund shall be effective
to continue this Agreement with respect to any such Fund notwithstanding (A)
that this Agreement has not been approved by the holders of a majority of the
outstanding shares of any other Fund affected thereby, and (B) that this
Agreement has not been approved by the vote of a majority of the outstanding
shares of the Company, unless such approval shall be required by any other
applicable law or otherwise.
(b) TERMINATION. This Agreement may be terminated at any time,
without payment of any penalty, by vote of the Directors of the Company or by
vote of a majority of the outstanding shares (as defined in the 1940 Act), or
by the Manager on sixty (60) days' written notice to the other party.
(c) AUTOMATIC TERMINATION. This Agreement shall automatically
terminate in the event of its assignment.
10. NAME OF COMPANY.
It is understood that the name "USAA," and any logo associated with that
name, is the valuable property of the United Services Automobile Association,
and that the Company has the right to include "USAA" as a part of its name
only so long as this Agreement shall continue and the Manager is a wholly
owned subsidiary of the United Services Automobile Association. Upon
termination of this Agreement the Company shall forthwith cease to use the
"USAA" name and logo and shall submit to its shareholders an amendment to its
Articles of Incorporation to change the Company's name.
11. PRIOR AGREEMENT SUPERSEDED.
This Agreement supersedes any prior agreement relating to the subject
matter hereof between the parties.
12. SERVICES NOT EXCLUSIVE.
The services of the Manager to the Company hereunder are not to be
deemed exclusive, and the Manager shall be free to render similar services to
others so long as its services hereunder are not impaired thereby.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first set forth above.
USAA MUTUAL FUND, INC. USAA INVESTMENT MANAGEMENT
COMPANY
BY: BY:
--------------------------- ---------------------------
President President
ATTEST: ATTEST:
--------------------------- ---------------------------
Secretary Secretary
PRELIMINARY COPY
USAA MUTUAL FUND, INC.
AGGRESSIVE GROWTH FUND
SPECIAL MEETING OF SHAREHOLDERS -
NOVEMBER 20, 1996
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
THE SHAREHOLDER(S) AS SHOWN ON THIS CARD HEREBY APPOINTS MICHAEL
J.C. ROTH, JOHN W. SAUNDERS, JR. AND GEORGE E. BROWN, AND EACH OF THEM, AS
PROXIES WITH FULL POWER OF SUBSTITUTION TO ACT FOR AND VOTE ON BEHALF OF THE
SHAREHOLDER(S) ALL SHARES OF THE FUND WHICH THE SHAREHOLDER(S) WOULD BE
ENTITLED TO VOTE IF PERSONALLY PRESENT AT THE SPECIAL MEETING OF SHAREHOLDERS
OF USAA MUTUAL FUND, INC. (THE "COMPANY") TO BE HELD IN SAN ANTONIO, TEXAS ON
NOVEMBER 20, 1996 OR AT ANY ADJOURNMENT THEREOF, ON THE FOLLOWING ITEMS AS SET
FORTH IN THE NOTICE OF MEETING AND THE PROXY STATEMENT.
IF A CHOICE IS SPECIFIED, THIS PROXY WILL BE VOTED AS INDICATED. IF NO CHOICE
IS SPECIFIED, THIS PROXY WILL BE VOTED "FOR" THE PROPOSAL. IN THEIR
DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER BUSINESS AS MAY
PROPERLY COME BEFORE THE MEETING. THE BOARD OF DIRECTORS RECOMMENDS A VOTE
FOR SUCH PROPOSAL:
TO VOTE, MARK BLOCK BELOW IN BLUE OR
BLACK INK AS FOLLOWS [x] KEEP THIS PORTION FOR YOUR RECORDS
- ------------------------------------------------------------------------------
AGGRESSIVE GROWTH FUND DETACH AND RETURN THIS PORTION ONLY
- -----------------
VOTE ON PROPOSAL
- -----------------
FOR AGAINST ABSTAIN
[ ] [ ] [ ] 1. TO APPROVE AN AMENDMENT TO THE ADVISORY
AGREEMENT BETWEEN THE AGGRESSIVE GROWTH
FUND AND USAA INVESTMENT MANAGEMENT COMPANY.
IMPORTANT! PLEASE VOTE, SIGN, DATE, DETACH AND MAIL IN THE ENCLOSED
ENVELOPE.
THE UNDERSIGNED ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING
AND PROXY STATEMENT DATED OCTOBER 2, 1996. THIS PROXY MAY BE REVOKED AT
ANY TIME PRIOR TO THE EXERCISE OF THE POWERS CONFERRED BY THIS PROXY, AS
INDICATED IN THE PROXY STATEMENT.
PLEASE SIGN NAME OR NAMES EXACTLY AS PRINTED ABOVE TO AUTHORIZE THE
VOTING OF YOUR SHARES AS INDICATED ABOVE. WHERE SHARES ARE REGISTERED
WITH JOINT OWNERS, ALL JOINT OWNERS SHOULD SIGN. PERSONS SIGNING AS
EXECUTORS, ADMINISTRATORS, TRUSTEES, ETC., SHOULD SO INDICATE.
CORPORATE PROXIES SHOULD BE SIGNED BY AN AUTHORIZED OFFICER.
--------------------------- ------------------------ -----
SIGNATURE SIGNATURE (JOINT OWNERS) DATE
