EXHIBIT 4(a)
ADVISORY AGREEMENT
AGREEMENT made as of the 1st day of August, 2001 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 each of the classes
identified in Schedule A hereto (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 for 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 for 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 for 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.
(b) MONITORING. Should the Company's Board of Directors determine it
is in the best interests of a Fund's shareholders to invest all of its
investable assets in another mutual fund with substantially the same investment
objective (the "Portfolio"), the Manager will monitor the services provided to
the Portfolio, subject always to the control of the Company's Board of
Directors. Such monitoring may include among other things, review of Portfolio
reports showing the composition of securities in the Portfolio on a periodic
basis and periodic review of investment practices of the Portfolio. The Manager
will report to the Company's Board of Directors, at least annually, on the
results of such monitoring such that the Board may determine whether continued
investment exclusively in the Portfolio is in the best interests of the Fund's
shareholders.
3. SUB-ADVISERS.
The Manager may employ one or more sub-advisers from time to time to
perform such of the acts and services of the Manager, including the selection
of brokers or dealers to execute the Fund's portfolio security transactions,
and upon such terms and conditions as may be agreed upon between the Manager
and such investment adviser and approved by the Company's Board of Directors.
4. 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.
5. ADVISORY FEE.
(a) For the services and facilities to be provided by the Manager as
provided in Paragraph 2(a) hereof, the Company shall pay to the Manager a
monthly fee with respect to each Fund computed as set forth in Schedule B or
Schedule C hereto. For the services and facilities to be provided by the
Manager as provided in Paragraph 2(b) hereof, the Company shall pay no fee.
(b) The Manager may from time to time and for such periods as it deems
appropriate voluntarily waive fees or otherwise reduce its compensation
hereunder. With respect to each Fund identified in Schedule D hereto, in
addition to any amounts otherwise payable to the Manager as an advisory fee for
current services under this Agreement, the Company shall be obligated to pay
the Manager amounts previously waived or expenses paid by the Manager with
respect to such Fund, provided that such additional payments are made not later
than the date identified in Schedule D hereto as the "Ending Date" and provided
further that the amount of such additional payment in any year, together with
all other expenses of the Fund, in the aggregate, would not cause the Fund's
expense ratio in such year to exceed the percentage of the Fund's average net
assets identified in Schedule D.
(c) 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 any month, 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 month, subject to such other adjustments as may be provided in
Schedule B hereto.
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 seek on
behalf of a Fund the best overall terms available. In assessing the best
overall terms available for any transaction, the Manager shall consider all
factors it deems relevant, including the breadth of the market in and the price
of the security, the financial condition and execution capability of the broker
or dealer, and the reasonableness of the commission, if any, with respect to
the specific transaction and on a continuing basis. 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.
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.
Neither the Manager nor its officers, directors, employees, agents or
controlling persons or assigns shall be liable for any error of judgment or
mistake of law or for any loss suffered by the Company or its shareholders in
connection with the matters to which this Agreement relates; provided that 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 0000 Xxx) of any Existing
Fund. This Agreement shall become effective with respect to any Existing Fund
on the first day of the first month following 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 0000 Xxx) of such Existing Fund, and with respect
to any additional Fund on the date set forth in the 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 July 31, 2003, and, with respect to each additional Fund, through
the first July 31 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 0000 Xxx) 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 0000 Xxx)
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 0000 Xxx) 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: /S/ XXXXXXXXXXX X. XXXXX By: /S/ XXXXX X. XXXXXXX
---------------------------- -----------------------------
Name: Xxxxxxxxxxx X. Xxxxx Name: Xxxxx X. Xxxxxxx
Title: President Title: Senior Vice President
SCHEDULE A TO ADVISORY AGREEMENT
LISTING OF FUNDS
NAME OF FUND
------------
AGGRESSIVE GROWTH FUND
CAPITAL GROWTH FUND
FIRST START GROWTH FUND
GROWTH FUND
GROWTH & INCOME FUND
HIGH-YIELD OPPORTUNITIES FUND
INCOME FUND
INCOME STOCK FUND
INTERMEDIATE-TERM BOND FUND
MONEY MARKET FUND
SCIENCE & TECHNOLOGY FUND
SHORT-TERM BOND FUND
SMALL CAP STOCK FUND
SCHEDULE B TO ADVISORY AGREEMENT - FOR
FUNDS WITH PERFORMANCE ADJUSTMENTS
This Schedule B shall apply to each of the Funds identified on Schedule B-1
hereto (each, a "Fund").
(a) GENERAL. The Company shall pay to the Manager, as compensation for the
Manager's services and expenses assumed hereunder, a fee determined with
respect to each Fund, which shall be composed of the Basic Fee (defined below)
and a Performance Adjustment (defined below) to the Basic Fee based upon the
investment performance of a class of shares of the Fund in relation to the
investment record of a securities index determined by the Directors of the
Company to be appropriate over the same period.
(b) INDEX, CLASS AND CHANGES THERETO. The Directors have initially
designated for each Fund the index and class of shares of the Fund identified
on Schedule B-1 as the index and class to be used for purposes of determining
the Performance Adjustment (referred to herein as the "Index" and the "Class,"
respectively). From time to time, the Directors may, by a vote of the Directors
of the Company voting in person, including a majority of the Directors who are
not parties to this Agreement or "interested persons" (as defined in the 0000
Xxx) of any such parties, determine (i) that another securities index is a more
appropriate benchmark than the Index for purposes of evaluating the performance
of the Company; and/or (ii) that a different class of shares of the Company
representing interests in a Fund other than the Class is most appropriate for
use in calculating the Performance Adjustment. After ten days' written notice
to the Manager, a different index (the "Successor Index") may be substituted
for the Index in prospectively calculating the Performance Adjustment, and/or a
different class of shares (the "Successor Class") may be substituted in
calculating the Performance Adjustment. However, the calculation of that
portion of the Performance Adjustment attributable to any portion of the
performance period prior to the adoption of the Successor Index will still be
based upon the Fund's performance compared to the Index. The use of a Successor
Class of shares for purposes of calculating the Performance Adjustment shall
apply to the entire performance period so long as such Successor Class was
outstanding at the beginning of such period. In the event that such Successor
Class of shares was not outstanding for all or a portion of the Performance
Period, it may only be used in calculating that portion of the Performance
Adjustment attributable to the period during which such Successor Class was
outstanding and any prior portion of the Performance Period shall be calculated
using the Successor Class of shares previously designated.
(c) BASIC FEE. The basic fee for a Fund (the "Basic Fee") for any period
shall equal: (i) the Fund's average net assets during such period, multiplied
by (ii) the annual rate identified for such Fund on Schedule B-1 hereto,
multiplied by (iii) a fraction, the numerator of which is the number of
calendar days in the payment period and the denominator of which is 365 (366 in
leap years).
(d) PERFORMANCE ADJUSTMENT. The amount of the performance adjustment (the
"Performance Adjustment") shall equal: (i) the average net assets of the Fund
over the Performance Period (as defined below), multiplied by (ii) the
Adjustment Rate (as defined below), multiplied by (iii) a fraction, the
numerator of which shall be the number of days in the last month of the
Performance Period and the denominator of which shall be 365. The resulting
dollar figure will be added to or subtracted from the Basic Fee depending on
whether the Fund experienced better or worse performance than the Index.
(e) ADJUSTMENT RATE. The adjustment rate (the "Adjustment Rate") shall be
as set forth in Schedule B-2 for each Fund, PROVIDED, HOWEVER, that the
Performance Adjustment may be further adjusted to the extent necessary to
insure that the total adjustment to the Basic Fee on an annualized basis does
not exceed the maximum Performance Adjustment identified for such Fund in
Schedule B-2.
(f) PERFORMANCE PERIOD. The performance period (the "Performance Period")
shall commence on the first day of the month next occurring after this
Agreement becomes effective with respect to the Fund (the "Commencement Date"),
PROVIDED, HOWEVER, that if this Agreement should become effective on the first
day of a month with respect to a Fund, then the Commencement Date shall be the
first day of
such month. The Performance Period shall consist of the current month plus the
preceding months through the Commencement Date until a period of 36 months is
included in the Performance Period, PROVIDED, HOWEVER, that no Performance
Adjustment shall be made with respect to any period that is less than 12
months. In months subsequent to a 36-month Performance Period having been
reached, the Performance Period will be a rolling 36-month period consisting of
the most recently completed month and the previous 35 months.
(g) MEASUREMENT CALCULATION. The Fund's investment performance will be
measured by comparing the (i) opening net asset value of one share of the Class
of the Fund on the first business day of the Performance Period with (ii) the
closing net asset value of one share of the Class of the Fund as of the last
business day of such period. In computing the investment performance of the
Fund and the investment record of the Index, distributions of realized capital
gains, the value of capital gains taxes per share paid or payable undistributed
realized long-term capital gains accumulated to the end of such period and
dividends paid out of investment income on the part of the Fund, and all cash
distributions of the companies whose securities comprise the Index, will be
treated as reinvested in accordance with Rule 205-1 or any other applicable
rule under the Investment Advisers Act of 1940, as the same from time to time
may be amended.
(h) PAYMENT OF FEES. The Management Fee payable hereunder shall be
computed daily and paid monthly in arrears.
(i) AVERAGE NET ASSETS. The term "average net assets" of a Fund as used
herein for any period shall mean the quotient produced by dividing (i) the sum
of the net assets of the Fund, as determined in accordance with procedures
established from time to time under the direction of the Board of Directors of
the Company, for each calendar day of such period, by (ii) the number of such
days.
(j) TERMINATION. In the event this Agreement with respect to any Fund is
terminated as of a date other than the last day of any month, the Basic Fee
shall be computed on the basis of the period ending on the last day on which
this Agreement is in effect for such Fund, subject to a pro rata adjustment
based on the number of days elapsed in the current month as a percentage of the
total number of days in such month. The amount of any Performance Adjustment to
the Basic Fee will be computed on the basis of and applied to the average net
assets over the Performance Period ending on the last day on which this
Agreement is in effect for such Fund.
SCHEDULE B-1 TO ADVISORY AGREEMENT - LISTING OF FUNDS
WITH PERFORMANCE ADJUSTMENT
ANNUAL BASIC
NAME OF FUND PERFORMANCE INDEX FEE RATE
------------ ----------------- --------
AGGRESSIVE GROWTH FUND MID-CAP GROWTH *
CAPITAL GROWTH FUND MID-CAP GROWTH .85%
FIRST START GROWTH FUND LARGE-CAP GROWTH .75%
GROWTH FUND LARGE-CAP GROWTH .75%
GROWTH & INCOME FUND LARGE-CAP CORE .60%
HIGH-YIELD OPPORTUNITIES FUND HIGH CURRENT YIELD .50%
INCOME FUND CORPORATE DEBT FUNDS A RATED .24%
INCOME STOCK FUND EQUITY INCOME .50%
INTERMEDIATE-TERM BOND FUND INTERMEDIATE INVESTMENT GRADE DEBT **
SCIENCE & TECHNOLOGY FUND SCIENCE & TECHNOLOGY .75%
SHORT-TERM BOND FUND SHORT INVESTMENT GRADE DEBT .24%
SMALL CAP STOCK FUND SMALL-CAP CORE .75%
* THE FEE IS COMPUTED AT ONE-HALF OF ONE PERCENT (.50%) OF THE FIRST $200
MILLION OF AVERAGE NET ASSETS, TWO-FIFTHS OF ONE PERCENT (.40%) FOR THAT
PORTION OF AVERAGE NET ASSETS IN EXCESS OF $200 MILLION BUT NOT OVER
$300 MILLION, AND ONE-THIRD OF ONE PERCENT (.33%) FOR THAT PORTION OF
AVERAGE NET ASSETS IN EXCESS OF $300 MILLION.
** THE FEE IS COMPUTED AT ONE-HALF OF ONE PERCENT (.50%) OF THE FIRST $50
MILLION OF AVERAGE NET ASSETS, TWO-FIFTHS OF ONE PERCENT (.40%) OF THAT
PORTION OF AVERAGE NET ASSETS OVER $50 MILLION BUT NOT OVER $100
MILLION, AND THREE-TENTHS OF ONE PERCENT (.30%) OF THAT PORTION OF
AVERAGE NET ASSETS IN EXCESS OF $100 MILLION.
SCHEDULE B-2 TO ADVISORY AGREEMENT - PERFORMANCE ADJUSTMENT RATE
HIGH-YIELD OPPORTUNITIES FUND INCOME FUND
INTERMEDIATE-TERM BOND FUND SHORT-TERM BOND FUND
Over/Under Performance Relative Performance Adjustment Rate
to Index (in basis points) (in basis points as a percentage
of average net assets)
+/- 20 to 50 +/- 4
+/- 51 to 100 x/- 0
x/- 000 xxx xxxxxxx x/- 0
AGGRESSIVE GROWTH CAPITAL GROWTH FUND
FIRST START GROWTH FUND GROWTH FUND
GROWTH & INCOME FUND INCOME STOCK FUND
SCIENCE & TECHNOLOGY FUND SMALL CAP STOCK FUND
Over/Under Performance Relative Performance Adjustment Rate
to Index (in basis points) (in basis points as a percentage
of average net assets)
+/- 100 to 400 +/- 4
+/- 401 to 700 x/- 0
x/- 000 xxx xxxxxxx x/- 0
SCHEDULE C TO ADVISORY AGREEMENT - FOR FUNDS
WITH NO PERFORMANCE ADJUSTMENT)
This Schedule C shall apply to each of the Funds identified on Schedule C-1
hereto (each, a "Fund").
(a) The Company shall pay to the Manager a fee for each Fund calculated
daily and payable monthly in arrears, computed as a percentage of the average
net assets of the Fund for such month at the rate set forth in Schedule C-1
thereto.
(b) The "average net assets" of the Fund for any 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, for each calendar
day of such month, by (ii) the number of such days.
SCHEDULE C-1 TO ADVISORY AGREEMENT - LISTING OF FUNDS
AND FEE RATES
NAME OF FUND FEE RATE
------------ ---------
MONEY MARKET FUND .24%
SCHEDULE D TO ADVISORY AGREEMENT- FOR FUNDS WITH FEE
WAIVER AND EXPENSE REIMBURSEMENT RECOVERY PLANS
NAME OF FUND ENDING DATE PERCENTAGE OF XXX
------------ ------------ -----------------
HIGH-YIELD OPPORTUNITIES FUND AUGUST 2, 2002 *
INTERMEDIATE-TERM BOND FUND AUGUST 2, 2002 .65%
* For expenses waived and amounts reimbursed prior to August 1, 2001, the
Fund's expense ratio shall not exceed .75% of XXX; however, for expenses
waived and amounts reimbursed from August 1, 2001 until August 2, 2002, the
Fund's expense ratio shall not exceed 1.00% of XXX.
