EXHIBIT H (ii)
USAA Transfer Agency Company
0000 Xxxxxxxxxxxxxx Xxxx
Xxx Xxxxxxx, XX 00000
Gentlemen:
Pursuant to Section 1(b) of the Transfer Agency Agreement dated as of
November 13, 2002, as amended, between USAA Mutual Funds Trust (the Trust),
formerly known as USAA State Tax-Free Trust, and USAA Transfer Agency Company,
(the Transfer Agent) please be advised that the Trust has established
thirty-seven new series of its shares (each a New Fund and collectively the New
Funds) as set forth below:
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Aggressive Growth Fund Nasdaq-100 Index Fund
Balanced Strategy Fund New York Bond Fund
Capital Growth Fund New York Money Market Fund
California Bond Fund Precious Metals and Minerals Fund
California Money Market Fund S&P 500 Index Fund
Cornerstone Strategy Fund Science & Technology Fund
Emerging Markets Fund Short-Term Bond Fund
Extended Market Index Fund Small Cap Stock Fund
First Start Growth Fund Tax Exempt Intermediate-Term Fund
GNMA Trust Tax Exempt Long-Term Fund
Growth & Income Fund Tax Exempt Money Market Fund
Growth and Tax Strategy Fund Tax Exempt Short-Term Fund
Growth Fund Treasury Money Market Trust
High-Yield Opportunities Fund Total Return Strategy Fund
Income Stock Fund Value Fund
Income Fund Xxxxxxxx Xxxx Fund
Intermediate-Term Bond Fund Virginia Money Market Fund
International Fund World Growth Fund
Money Market Fund
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Please be further advised that the Trust desires to retain the Transfer
Agent to render transfer agency services under the Transfer Agency Agreement to
the New Funds in accordance with the fee schedule attached hereto as Exhibit A.
Please state below whether you are willing to render such services in
accordance with the fee schedule attached hereto as Exhibit A.
USAA MUTUAL FUNDS TRUST
Attest: /S/ XXXX X. XXXXXX By: /S/ XXXXXXXXXXX X. XXXXX
----------------------------- ------------------------------
Xxxx X. Xxxxxx Xxxxxxxxxxx X. Xxxxx
Secretary President
Dated: As of August 1, 2006
We are willing to render services to the New Funds in accordance with
the fee schedule attached hereto as Exhibit A.
USAA TRANSFER AGENCY COMPANY
Attest: /S/ XXXXXX X. XXXXXX By: /S/ XXXXX X. XXXXXXXXX
---------------------------- -----------------------
Xxxxxx X. Xxxxxx Xxxxx X. Xxxxxxxxx
Assistant Secretary Senior Vice President
Dated: As of August 1, 2006
USAA Transfer Agency Company
Fee Information for Services as
Plan, Transfer and Dividend Disbursing Agent
USAA MUTUAL FUNDS TRUST
(formerly known as USAA State Tax-Free Trust)
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ANNUAL MAINTENANCE CHARGES - The annual maintenance charge includes the
processing of all transactions and correspondence. The fee is billable on a
monthly basis at the rate of 1/12 of the annual fee. USAA Transfer Agency
Company will charge for each open account from the month the account is opened
through January of the year following the year all funds are redeemed from the
account.
Aggressive Growth Fund $23.00
Balanced Strategy Fund $23.00
Capital Growth Fund $23.00
California Bond Fund $25.50
California Money Market Fund $25.50
Cornerstone Strategy Fund $23.00
Emerging Markets Fund $23.00
Extended Market Index Fund $26.00
First Start Growth Fund $23.00
GNMA Trust $22.50
Growth & Income Fund $23.00
Growth and Tax Strategy Fund $25.50
Growth Fund $23.00
High-Yield Opportunities Fund $25.50
Income Stock Fund $23.00
Income Fund $25.50
Intermediate-Term Bond Fund $25.50
International Fund $23.00
Money Market Fund $25.50
Nasdaq-100 Index Fund $26.00
New York Bond Fund $25.50
New York Money Market Fund $25.50
Precious Metals and Minerals Fund $23.00
S&P 500 Index Fund $20.00
Science & Technology Fund $23.00
Short-Term Bond Fund $25.50
Small Cap Stock Fund $23.00
Tax Exempt Intermediate-Term Fund $25.50
Tax Exempt Long-Term Fund $25.50
Tax Exempt Money Market Fund $25.50
Tax Exempt Short-Term Fund $25.50
Treasury Money Market Trust $25.50
Total Return Strategy Fund $23.00
Value Fund $23.00
Xxxxxxxx Xxxx Fund $25.50
Virginia Money Market Fund $25.50
World Growth Fund $23.00
USAA MUTUAL FUNDS TRUST USAA TRANSFER AGENCY COMPANY
By: /S/ XXXXXXXXXXX X. XXXXX By: /S/ XXXXX X. XXXXXXXXX
------------------------- -------------------------
Xxxxxxxxxxx X. Xxxxx Xxxxx X. Xxxxxxxxx
President Senior Vice President
Date: As of August 1, 2006 Date: As of August 1, 2006
EXHIBIT H (iv)
USAA Investment Management Company
0000 Xxxxxxxxxxxxxx Xxxx
Xxx Xxxxxxx,XX 00000
Gentlemen:
Pursuant to paragraph 1(b) of the Administration and Servicing
Agreement dated as of August 1, 2001, as amended, between USAA Mutual Funds
Trust (the Trust), formerly known as USAA State Tax-Free Trust, and USAA
Investment Management Company (the Administrator), please be advised that the
Trust has established thirty-seven new series of its shares (each a New Fund and
collectively the New Funds) as set forth below, and please be further advised
that the Trust desires to retain the Administrator to render administration and
shareholder servicing services under the Administration and Servicing Agreement
to the New Funds at the fees stated below:
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Aggressive Growth Fund 0.25%
Balanced Strategy Fund 0.15%
Capital Growth Fund 0.15%
California Bond Fund 0.15%
California Money Market Fund 0.10%
Cornerstone Strategy Fund 0.15%
Emerging Markets Fund 0.15%
Extended Market Index Fund 0.38%*
First Start Growth Fund 0.15%
GNMA Trust 0.15%
Growth & Income Fund 0.15%
Growth and Tax Strategy Fund 0.15%
Growth Fund 0.15%
High-Yield Opportunities Fund 0.15%
Income Stock Fund 0.15%
Income Fund 0.15%
Intermediate-Term Bond Fund 0.15%
International Fund 0.15%
Money Market Fund 0.10%
Nasdaq-100 Index Fund 0.35%
New York Bond Fund 0.15%
New York Money Market Fund 0.10%
Precious Metals and Minerals Fund 0.15%
S&P 500 Index Fund 0.06%
Science & Technology Fund 0.15%
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---------------------------
* The fee is computed daily and paid monthly, at an annual rate equal to
0.38%, and up to 0.10% of this fee shall be paid to Xxxxxxx Xxxxx Quantitative
Advisers for subadministrative services.
Short-Term Bond Fund 0.15%
Small Cap Stock Fund 0.15%
Tax Exempt Intermediate-Term Fund 0.15%
Tax Exempt Long-Term Fund 0.15%
Tax Exempt Money Market Fund 0.10%
Tax Exempt Short-Term Fund 0.15%
Treasury Money Market Trust 0.10%
Total Return Strategy Fund 0.15%
Value Fund 0.15%
Xxxxxxxx Xxxx Fund 0.15%
Virginia Money Market Fund 0.10%
World Growth Fund 0.15%
--------------------------------------------------------------------
From time to time, the Administrator may voluntarily waive all or a
portion of the administration and servicing fee payable with respect to a New
Fund or pay expenses of a New Fund. In addition to any amounts otherwise payable
to the Administrator as an administration and servicing fee for current services
under the Administration and Servicing Agreement, the Total Return Strategy Fund
shall be obligated to pay the Administrator all amounts previously waived or
expenses paid by the Administrator with respect to the Total Return Strategy
Fund, provided that such additional payments are made not later than January 7,
2008 and provided further that the amount of such additional payment in any
year, together with all other expenses of the Total Return Strategy Fund, in the
aggregate, would not cause the Fund's expense ratio in such year to exceed 1.00%
of the average net assets of the Total Return Strategy Fund.
In addition, revised Exhibit A to the Administration and Servicing
Agreement reflecting the addition of the New Funds to the Administration and
Servicing Agreement is attached hereto as Exhibit A, and is hereby approved.
Please state below whether you are willing to render such services at
the fees stated above.
USAA MUTUAL FUNDS TRUST
Attest: /S/ XXXX X. XXXXXX By: /S/ XXXXXXXXXXX X. XXXXX
-------------------------- --------------------------
Xxxx X. Xxxxxx Xxxxxxxxxxx X. Xxxxx
Secretary President
Date: As of August 1, 2006
We are willing to render services to the New Funds at the fees stated
above. In addition, we approve Exhibit A hereto as revised Exhibit A to the
Administration and Servicing Agreement.
USAA INVESTMENT MANAGEMENT COMPANY
Attest: /S/ XXXXXX X. XXXXXX By: /S/ XXXXXXXX X. XXXXXXX
------------------------------- ---------------------------
Xxxxxx X. Xxxxxx Xxxxxxxx X. Xxxxxxx
Assistant Secretary Senior Vice President
Dated: As of August 1, 2006
EXHIBIT A - LISTING OF FUNDS AND FEES
----------------------------------------------------------
Aggressive Growth Fund 0.25%
Balanced Strategy Fund 0.15%
Capital Growth Fund 0.15%
California Bond Fund 0.15%
California Money Market Fund 0.10%
Cornerstone Strategy Fund 0.15%
Emerging Markets Fund 0.15%
Extended Market Index Fund 0.38%*
First Start Growth Fund 0.15%
GNMA Trust 0.15%
Growth & Income Fund 0.15%
Growth and Tax Strategy Fund 0.15%
Growth Fund 0.15%
High-Yield Opportunities Fund 0.15%
Income Stock Fund 0.15%
Income Fund 0.15%
Intermediate-Term Bond Fund 0.15%
International Fund 0.15%
Money Market Fund 0.10%
Nasdaq-100 Index Fund 0.35%
New York Bond Fund 0.15%
New York Money Market Fund 0.10%
Precious Metals and Minerals Fund 0.15%
S&P 500 Index Fund 0.06%
Science & Technology Fund 0.15%
Short-Term Bond Fund 0.15%
Small Cap Stock Fund 0.15%
Tax Exempt Intermediate-Term Fund 0.15%
Tax Exempt Long-Term Fund 0.15%
Tax Exempt Money Market Fund 0.10%
Tax Exempt Short-Term Fund 0.15%
Treasury Money Market Trust 0.10%
Total Return Strategy Fund 0.15%
Value Fund 0.15%
Xxxxxxxx Xxxx Fund 0.15%
Virginia Money Market Fund 0.10%
World Growth Fund 0.15%
------- --------------------------------------------------
--------------------------
* The fee is computed daily and paid monthly, at an annual rate equal to
0.38%, and up to 0.10% of this fee shall be paid to Xxxxxxx Xxxxx Quantitative
Advisers for subadministrative services.
(a) The Trust shall pay IMCO a fee for each Fund, 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 this Exhibit.
(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 Trustees of the Trust, for each calendar day
of such month, by (ii) the number of such days.
EXHIBIT H (vii)
AGREEMENT AND PLAN OF CONVERSION AND TERMINATION
THIS AGREEMENT AND PLAN OF CONVERSION AND TERMINATION ("AGREEMENT") is
made as of April 19, 2006 between USAA MUTUAL FUNDS TRUST, a Delaware statutory
trust ("TRUST"), on behalf of each of its segregated portfolios of assets
("SERIES") listed under the heading "New Funds" on Schedule A to this Agreement
("SCHEDULE A") (each, a "NEW FUND"), and USAA MUTUAL FUND, INC., a Maryland
corporation ("CORPORATION"), on behalf of each of its series listed under the
heading "Old Funds" on Schedule A (each, an "OLD Fund"). (Each New Fund and Old
Fund is sometimes referred to herein as a "FUND," and each of the Trust and the
Corporation is sometimes referred to herein as an "INVESTMENT COMPANY.") All
agreements, covenants, representations, actions, and obligations described
herein made or to be taken or undertaken by a Fund are made and shall be taken
or undertaken by the Trust on each New Fund's behalf and by the Corporation on
each Old Fund's behalf, and all rights and benefits created hereunder in favor
of a Fund shall inure to, and shall be enforceable by, the Investment Company of
which it is a series acting on its behalf.
Each Investment Company wishes to effect seventeen separate
reorganizations, each described in section 368(a)(1)(F) of the Internal Revenue
Code of 1986, as amended ("CODE"), and intends this Agreement to be, and adopts
it as, a "plan of reorganization" within the meaning of the regulations under
the Code ("REGULATIONS"). Each reorganization will involve an Old Fund's
changing its identity, form, and place of organization -- by converting from a
series of the Corporation to a series of the Trust -- by (1) transferring all
its assets to the New Fund listed on Schedule A opposite its name (which is
being established solely for the purpose of acquiring such assets and continuing
that Old Fund's business) in exchange solely for voting shares of beneficial
interest in that New Fund and that New Fund's assumption of all that Old Fund's
liabilities, (2) distributing those shares PRO RATA to that Old Fund's
shareholders in exchange for their shares of common stock therein and in
complete liquidation thereof, and (3) terminating that Old Fund (all the
foregoing transactions involving each Old Fund and its corresponding New Fund
being referred to herein collectively as a "REORGANIZATION"), all on the terms
and conditions set forth herein. The consummation of one Reorganization shall
not be contingent on the consummation of any other Reorganization. (For
convenience, the balance of this Agreement, except paragraph 8, refers only to a
single Reorganization, one Old Fund, and one New Fund, but the terms and
conditions hereof shall apply separately to each Reorganization and the Funds
participating therein.)
Each Investment Company's Board of Trustees/Directors (each, a
"BOARD"), in each case including a majority of its members who are not
"interested persons" (as that term is defined in the Investment Company Act of
1940, as amended ("1940 ACT")) thereof, (1) has duly adopted and approved this
Agreement and the transactions contemplated hereby and (2) has determined that
participation in the Reorganization is in the best interests of its Fund and
that the interests of the existing shareholders of its Fund will not be diluted
as a result of the Reorganization.
Old Fund, except Old S&P 500 Index Fund, offers a single class of
shares of common stock ("OLD SHARES"). Old S&P 500 Index Fund offers two classes
of common stock, designated Member Class and Reward Class shares ("MEMBER CLASS
OLD FUND SHARES" and "REWARD CLASS OLD FUND SHARES," respectively, and
collectively with Old Shares, "OLD FUND SHARES"). New Fund, except New S&P 500
Index Fund, will offer a single class of voting shares of
beneficial interest ("NEW SHARES"). New S&P 500 Index Fund will offer two
classes of voting shares of beneficial interest, also designated Member Class
and Reward Class shares ("MEMBER CLASS NEW FUND SHARES" and "REWARD CLASS NEW
FUND SHARES," respectively, and collectively with New Shares, "NEW FUND
SHARES").
In consideration of the mutual promises contained herein, the
Investment Companies agree as follows:
1. PLAN OF CONVERSION AND TERMINATION
1.1. Subject to the requisite approval of Old Fund's shareholders and
the terms and conditions set forth herein, Old Fund shall assign, sell, convey,
transfer, and deliver all of its assets described in paragraph 1.2 ("ASSETS") to
New Fund. In exchange therefor, New Fund shall:
(a) issue and deliver to Old Fund the number of full and fractional
New Fund Shares equal to the number of full and fractional Old Fund
Shares then outstanding (all references herein to "fractional"
shares meaning fractions rounded to the third decimal place), and
(b) assume all of Old Fund's liabilities described in paragraph 1.3
("LIABILITIES").
Such transactions shall take place at the CLOSING (as defined in paragraph 2.1).
1.2 The Assets shall consist of all assets and property -- including
all cash, cash equivalents, securities, commodities, futures interests,
receivables (including interest and dividends receivable), claims and rights of
action, rights to register shares under applicable securities laws, books and
records, and deferred and prepaid expenses shown as assets on Old Fund's books
-- Old Fund owns at the EFFECTIVE TIME (as defined in paragraph 2.1).
1.3 The Liabilities shall consist of all of Old Fund's liabilities,
debts, obligations, and duties of whatever kind or nature existing at the
Effective Time, whether absolute, accrued, or otherwise, whether or not arising
in the ordinary course of business, whether or not determinable at that time,
and whether or not specifically referred to in this Agreement. Notwithstanding
the foregoing, Old Fund shall endeavor to discharge all its known liabilities,
debts, obligations, and duties before the Effective Time.
1.4 At or prior to the Closing, New Fund shall redeem the INITIAL
SHARES (as defined in paragraph 5.5) for $10.00 each. At the Effective Time (or
as soon thereafter as is reasonably practicable), Old Fund shall distribute the
New Fund Shares it receives pursuant to paragraph 1.1(a) to its shareholders of
record determined as of the Effective Time (each, a "SHAREHOLDER"), in
proportion to their Old Fund Shares then held of record and in exchange for
their Old Fund Shares, and shall completely liquidate. That distribution shall
be accomplished by the Trust's transfer agent's opening accounts on New Fund's
share transfer books in the Shareholders' names and transferring those New Fund
Shares thereto. Pursuant to such transfer, each Shareholder's account shall be
credited with the number of full and fractional New Fund Shares equal to the
number of full and fractional Old Fund Shares that Shareholder holds at the
Effective Time. All issued and outstanding Old Fund Shares, including any
represented by
2
certificates, shall simultaneously be canceled on Old Fund's share transfer
books. New Fund shall not issue certificates representing the New Fund Shares
issued in connection with the Reorganization.
1.5 As soon as reasonably practicable after distribution of the New
Fund Shares pursuant to paragraph 1.4, but in all events within six months after
the Effective Time, Old Fund shall be terminated as a series of the Corporation
and any further actions shall be taken in connection therewith as required by
applicable law.
1.6 Any reporting responsibility of Old Fund to a public authority,
including the responsibility for filing regulatory reports, tax returns, and
other documents with the Securities and Exchange Commission ("COMMISSION"), any
state securities commission, any federal, state, and local tax authorities, and
any other relevant regulatory authority, is and shall remain its responsibility
up to and including the date on which it is terminated.
1.7 Any transfer taxes payable on issuance of New Fund Shares in a name
other than that of the registered holder on Old Fund's share transfer books of
the Old Fund Shares actually or constructively exchanged therefor shall be paid
by the person to whom those New Fund Shares are to be issued, as a condition of
that transfer.
2. CLOSING AND EFFECTIVE TIME
2.1 The Reorganization, together with related acts necessary to
consummate the same ("CLOSING"), shall occur at the Investment Companies'
offices on July 31, 2006 or at such other place and/or on such other date as to
which the Investment Companies may agree. All acts taking place at the Closing
shall be deemed to take place simultaneously immediately after the close of
business (I.E., 4:00 p.m., Eastern time) on the date thereof ("EFFECTIVE TIME").
2.2 The Corporation shall direct the custodian for its assets
("CUSTODIAN") to deliver at the Closing a certificate of an authorized officer
stating that (a) the Assets have been delivered in proper form to New Fund
within two business days before or at the Effective Time and (b) all necessary
taxes in connection with the delivery of the Assets, including all applicable
federal and state stock transfer stamps, if any, have been paid or provision for
payment has been made. Each of Old Fund's portfolio securities represented by a
certificate or other written instrument shall be transferred and delivered by
Old Fund as of the Effective Time for New Fund's account duly endorsed in proper
form for transfer in such condition as to constitute good delivery thereof. The
Custodian shall deliver as of the Effective Time by book entry, in accordance
with the customary practices of the Custodian and any securities depository (as
defined in Rule 17f-4 under the 1940 Act) in which any Assets are deposited, the
Assets that are deposited with such depositories. The cash to be transferred by
Old Fund shall be delivered by wire transfer of federal funds at the Effective
Time.
2.3 The Corporation shall direct its transfer agent to deliver at the
Closing a certificate of an authorized officer stating that Old Fund's share
transfer books contain the number of full and fractional outstanding Old Fund
Shares each Shareholder owned immediately before the Closing.
3
2.4 The Corporation shall deliver to the Trust at the Closing a
certificate of an authorized officer of the Corporation setting forth
information (including adjusted basis and holding period, by lot) concerning the
Assets, including all portfolio securities, on Old Fund's books immediately
before the Effective Time.
2.5 Each Investment Company shall deliver to the other at the Closing a
certificate executed in its name by its President or a Vice President in form
and substance reasonably satisfactory to the recipient and dated the date of the
Closing, to the effect that the representations and warranties it made in this
Agreement are true and correct at the Effective Time except as they may be
affected by the transactions contemplated by this Agreement.
3. REPRESENTATIONS AND WARRANTIES
3.1 The Corporation, on Old Fund's behalf, represents and warrants to
the Trust, on New Fund's behalf, as follows:
(a) The Corporation is a corporation that is duly incorporated, validly
existing, and in good standing under the laws of the State of
Maryland; and its Articles of Incorporation ("ARTICLES") are on file
with that state's Department of Assessments and Taxation;
(b) The Corporation is duly registered as an open-end management
investment company under the 1940 Act, and such registration will be
in full force and effect at the Effective Time;
(c) Old Fund is a duly established and designated series of the
Corporation;
(d) At the Effective Time, the Corporation, on Old Fund's behalf, will
have good and marketable title to the Assets and full right, power,
and authority to sell, assign, transfer, and deliver the Assets
hereunder free of any liens or other encumbrances (except securities
that are subject to "securities loans" as referred to in section
851(b)(2) of the Code or that are restricted to resale by their
terms); and on delivery and payment for the Assets, the Trust, on
New Fund's behalf, will acquire good and marketable title thereto;
(e) Old Fund is not engaged currently, and the Corporation's execution,
delivery, and performance of this Agreement will not result, in (1)
a material violation of the Articles or the Corporation's By-Laws
(collectively, "CORPORATION GOVERNING DOCUMENTS") or of any
agreement, indenture, instrument, contract, lease, or other
undertaking to which the Corporation, on Old Fund's behalf, is a
party or by which it is bound or (2) the acceleration of any
obligation, or the imposition of any penalty, under any agreement,
indenture, instrument, contract, lease, judgment, or decree to which
the Corporation, on Old Fund's behalf, is a party or by which it is
bound;
(f) All material contracts and other commitments of Old Fund (other than
this Agreement and certain investment contracts, including options,
futures, and forward contracts) will terminate, or provision for
discharge of any liabilities of Old Fund thereunder will be made, at
or before the Effective Time, without either Fund's incurring any
liability or penalty with respect thereto and without diminishing or
releasing any rights the
4
Corporation, on Old Fund's behalf, may have had with respect to
actions taken or omitted or to be taken by any other party thereto
before the Closing;
(g) No litigation, administrative proceeding, or investigation of or
before any court or governmental body is presently pending or, to
its knowledge, threatened against the Corporation with respect to
Old Fund or any of its properties or assets that, if adversely
determined, would materially and adversely affect its financial
condition or the conduct of its business; and the Corporation, on
Old Fund's behalf, knows of no facts that might form the basis for
the institution of such proceedings and is not a party to or subject
to the provisions of any order, decree, or judgment of any court or
governmental body that materially and adversely affects its business
or its ability to consummate the transactions herein contemplated,
except as otherwise disclosed to the Trust;
(h) Old Fund's Statement of Assets and Liabilities, Statements of
Operations and Changes in Net Assets, and Portfolio of Investments
(collectively, "Statements") at and for the year ended on July 31,
2005 or December 31, 2005 ("2005 Statements"), have been audited by
Xxxxx & Young LLP, an independent registered public accounting firm
("E & Y"); the 2005 Statements and Old Fund's unaudited Statements
at and for the six-month period ended on January 31, 2006 or June
30, 2006, present fairly, in all material respects, Old Fund's
financial condition as of the respective dates thereof in accordance
with generally accepted accounting principles consistently applied
("GAAP"); and to the Corporation's management's best knowledge and
belief, there are and will be no known contingent liabilities,
debts, obligations, or duties of Old Fund required to be reflected
on a balance sheet (including the notes thereto) in accordance with
GAAP as of such respective dates that are not disclosed therein;
(i) Since July 31, 2005 or December 31, 2005, there has not been any
material adverse change in Old Fund's financial condition, assets,
liabilities, or business, other than changes occurring in the
ordinary course of business, or any incurrence by Old Fund of
indebtedness maturing more than one year from the date such
indebtedness was incurred; for purposes of this subparagraph, a
decline in net asset value per Old Fund Share due to declines in
market values of securities Old Fund holds, the discharge of Old
Fund liabilities, or the redemption of Old Fund Shares by its
shareholders shall not constitute a material adverse change;
(j) At the Effective Time, all federal and other tax returns, dividend
reporting forms, and other tax-related reports of Old Fund required
by law to have been filed by such date (including any extensions)
shall have been filed and are or will be correct in all material
respects, and all federal and other taxes shown as due or required
to be shown as due on such returns and reports shall have been paid
or provision shall have been made for the payment thereof, and to
the best of the Corporation's knowledge, no such return is currently
under audit and no assessment has been asserted with respect to such
returns;
(k) Old Fund is a "fund" as defined in section 851(g)(2) of the Code;
for each taxable year of its operation, Old Fund has met (or, for
its current taxable year, will meet) the
5
requirements of Subchapter M of Chapter 1 of the Code for
qualification as a regulated investment company ("RIC") and has been
(or will be) eligible to and has computed (or will compute) its
federal income tax under section 852 of the Code; from the time the
Corporation's Board approved the transactions contemplated by this
Agreement ("APPROVAL TIME") through the Effective Time, Old Fund has
invested and will invest its assets in a manner that ensures its
compliance with the foregoing; from the time it commenced operations
through the Effective Time, Old Fund has conducted and will conduct
its "historic business" (within the meaning of section 1.368-1(d)(2)
of the Regulations) in a substantially unchanged manner; from the
Approval Time through the Effective Time, Old Fund (1) has not
disposed of and/or acquired, and will not dispose of and/or acquire,
any assets (i) for the purpose of satisfying New Fund's investment
objective or policies or (ii) for any other reason except in the
ordinary course of its business as a RIC and (2) has not otherwise
changed, and will not otherwise change, its historic investment
policies; and Old Fund has no earnings and profits accumulated in
any taxable year in which the provisions of Subchapter M did not
apply to it;
(l) All issued and outstanding Old Fund Shares are, and at the Effective
Time will be, duly and validly issued and outstanding, fully paid,
and non-assessable by the Corporation and have been offered and sold
in every state and the District of Columbia in compliance in all
material respects with applicable registration requirements of the
Securities Act of 1933, as amended ("1933 ACT"), and state
securities laws; all issued and outstanding Old Fund Shares will, at
the Effective Time, be held by the persons and in the amounts set
forth in the Old Fund's share transfer books, as provided in
paragraph 2.3; and Old Fund does not have outstanding any options,
warrants, or other rights to subscribe for or purchase any Old Fund
Shares, nor is there outstanding any security convertible into any
Old Fund Shares;
(m) Old Fund incurred the Liabilities, which are associated with the
Assets, in the ordinary course of its business;
(n) Old Fund is not under the jurisdiction of a court in a "title 11
or similar case" (as defined in section 368(a)(3)(A) of the Code);
(o) During the five-year period ending at the Effective Time, (1)
neither Old Fund nor any person "related" (within the meaning of
section 1.368-1(e)(3) of the Regulations) to it will have acquired
Old Fund Shares, either directly or through any transaction,
agreement, or arrangement with any other person, with consideration
other than New Fund Shares or Old Fund Shares, except for shares
redeemed in the ordinary course of Old Fund's business as a series
of an open-end investment company as required by section 22(e) of
the 1940 Act, and (2) no distributions will have been made with
respect to Old Fund Shares, other than normal, regular dividend
distributions made pursuant to Old Fund's historic dividend-paying
practice and other distributions that qualify for the deduction for
dividends paid (within the meaning of section 561 of the Code)
referred to in sections 852(a)(1) and 4982(c)(1)(A) of the Code;
6
(p) Not more than 25% of the value of Old Fund's total assets (excluding
cash, cash items, and U.S. government securities) is invested in the
stock and securities of any one issuer, and not more than 50% of the
value of such assets is invested in the stock and securities of five
or fewer issuers;
(q) The Corporation's current prospectus and statement of additional
information including Old Fund, and each prospectus and statement of
additional information including Old Fund used at all times prior to
the date hereof, (1) conform in all material respects to the
applicable requirements of the 1933 Act and the 1940 Act and the
rules and regulations of the Commission thereunder and (2) as of the
date on which they were issued did not contain, and as supplemented
by any supplement thereto dated before or at the Effective Time do
not contain, any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under
which they were made, not misleading;
(r) Each of the PROXY STATEMENT (as defined in paragraph 4.5) (other
than written information the Trust provided for inclusion therein)
and the Corporation's REGISTRATION STATEMENT including Old Fund
under the 1933 Act and the 1940 Act did not, on its effective date,
and will not, at the Effective Time and at the time of the
SHAREHOLDERS MEETING (as defined in paragraph 4.1), contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which such statements
were made, not misleading; and
(s) The New Fund Shares are not being acquired for the purpose of any
distribution thereof, other than in accordance with the terms
hereof.
3.2 The Trust, on New Fund's behalf, represents and warrants to the
Corporation, on Old Fund's behalf, as follows:
(a) The Trust is a statutory trust that is duly organized, validly
existing, and in good standing under the laws of the State of
Delaware; and its Certificate of Trust has been duly filed in the
office of the Secretary of State thereof;
(b) The Trust is duly registered as an open-end management investment
company under the 1940 Act;
(c) New Fund is duly established and designated series of the Trust;
(d) New Fund has not commenced operations and will not do so until after
the Closing;
(e) Before the Closing, there will be no (1) issued and outstanding New
Fund Shares, (2) options, warrants, or other rights to subscribe for
or purchase any New Fund Shares, (3) securities convertible into any
New Fund Shares, or (4) any other securities issued by New Fund,
except the Initial Shares;
(f) No consideration other than New Fund Shares (and New Fund's
assumption of the Liabilities) will be issued in exchange for the
Assets in the Reorganization;
7
(g) New Fund is not engaged currently, and the Trust's execution,
delivery, and performance of this Agreement will not result, in (1)
a material violation of the Trust's Master Trust Agreement or
By-Laws (collectively, "TRUST GOVERNING DOCUMENTS") or of any
agreement, indenture, instrument, contract, lease, or other
undertaking to which the Trust, on New Fund's behalf, is a party or
by which it is bound or (2) the acceleration of any obligation, or
the imposition of any penalty, under any agreement, indenture,
instrument, contract, lease, judgment, or decree to which the Trust,
on New Fund's behalf, is a party or by which it is bound;
(h) No litigation, administrative proceeding, or investigation of or
before any court or governmental body is presently pending or, to
its knowledge, threatened against the Trust with respect to New Fund
or any of its properties or assets that, if adversely determined,
would materially and adversely affect its financial condition or the
conduct of its business; and the Trust, on New Fund's behalf, knows
of no facts that might form the basis for the institution of such
proceedings and is not a party to or subject to the provisions of
any order, decree, or judgment of any court or governmental body
that materially and adversely affects its business or its ability to
consummate the transactions herein contemplated, except as otherwise
disclosed to the Corporation;
(i) New Fund will be a "fund" as defined in section 851(g)(2) of the
Code; it will meet the requirements of Subchapter M of Chapter 1 of
the Code for qualification as a RIC for its taxable year in which
the Reorganization occurs; and it intends to continue to meet all
such requirements for the next taxable year;
(j) New Fund has no plan or intention to issue additional New Fund
Shares following the Reorganization except for shares issued in the
ordinary course of its business as a series of an open-end
investment company; nor does New Fund, or any person "related"
(within the meaning of section 1.368-1(e)(3) of the Regulations) to
it, have any plan or intention to acquire -- during the five-year
period beginning at the Effective Time, either directly or through
any transaction, agreement, or arrangement with any other person --
with consideration other than New Fund Shares, any New Fund Shares
issued to the Shareholders pursuant to the Reorganization, except
for redemptions in the ordinary course of such business as required
by section 22(e) of the 1940 Act;
(k) Following the Reorganization, New Fund (1) will continue Old Fund's
"historic business" (within the meaning of section 1.368-1(d)(2) of
the Regulations) and (2) will use a significant portion of Old
Fund's "historic business assets" (within the meaning of section
1.368-1(d)(3) of the Regulations) in a business; moreover, New Fund
(3) has no plan or intention to sell or otherwise dispose of any of
the Assets, except for dispositions made in the ordinary course of
that business and dispositions necessary to maintain its status as a
RIC, and (4) expects to retain substantially all the Assets in the
same form as it receives them in the Reorganization, unless and
until subsequent investment circumstances suggest the desirability
of change or it becomes necessary to make dispositions thereof to
maintain such status;
8
(l) There is no plan or intention for New Fund to be dissolved or merged
into another statutory or business trust or a corporation or any
"fund" thereof (as defined in section 851(g)(2) of the Code)
following the Reorganization;
(m) During the five-year period ending at the Effective Time, neither
New Fund nor any person "related" (within the meaning of section
1.368-1(e)(3) of the Regulations) to it will have acquired Old Fund
Shares with consideration other than New Fund Shares;
(n) Assuming the truthfulness and correctness of the Corporation's
representation and warranty in paragraph 3.1(p), immediately after
the Reorganization, (1) not more than 25% of the value of New Fund's
total assets (excluding cash, cash items, and U.S. government
securities) will be invested in the stock and securities of any one
issuer and (2) not more than 50% of the value of such assets will be
invested in the stock and securities of five or fewer issuers;
(o) The New Fund Shares to be issued and delivered to Old Fund, for the
Shareholders' accounts, pursuant to the terms hereof, (1) will at
the Effective Time have been duly authorized and duly registered
under the federal securities laws (and appropriate notices
respecting them will have been duly filed under applicable state
securities laws) and (2) when so issued and delivered, will be duly
and validly issued and outstanding New Fund Shares and will be fully
paid and non-assessable by the Trust;
(p) The Proxy Statement (only with respect to written information the
Trust provided for inclusion therein) will, on its effective date,
at the Effective Time, and at the time of the Shareholders Meeting,
not contain any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which
such statements were made, not misleading; and
(q) The Trust's Trust Agreement permits the Trust to vary its
shareholders' investment; and the Trust will not have a fixed pool
of assets -- each series thereof (including New Fund after it
commences operations) will be a managed portfolio of securities, and
its investment adviser, USAA Investment Management Company
("ADVISER"), will have the authority to buy and sell securities for
it.
3.3 Each Investment Company, on its respective Fund's behalf,
represents and warrants to the other Investment Company, on its respective
Fund's behalf, as follows:
(a) No governmental consents, approvals, authorizations, or filings are
required under the 1933 Act, the Securities Exchange Act of 1934, as
amended ("1934 ACT"), the 1940 Act, or state securities laws for its
execution or performance of this Agreement, except for (1) the
Trust's amendment of its registration statement under the 1933 Act
and the 1940 Act and the amendment of its notification of
registration filed on Form N-8A under the 1940 Act to reflect the
Reorganization and any additional information necessary to comply
with Rule 414(d) under the 1933 Act ("REGISTRATION STATEMENT"), and
(2) such consents, approvals, authorizations, and filings as have
been made or received or as may be required subsequent to the
Effective Time;
9
(b) The fair market value of the New Fund Shares each Shareholder
receives will be approximately equal to the fair market value of its
Old Fund Shares it actually or constructively surrenders in exchange
therefor;
(c) Its management (1) is unaware of any plan or intention of the
Shareholders to redeem, sell, or otherwise dispose of (i) any
portion of their Old Fund Shares before the Reorganization to any
person "related" (within the meaning of section 1.368-1(e)(3) of the
Regulations) to either Fund or (ii) any portion of the New Fund
Shares they receive in the Reorganization to any person "related"
(within such meaning) to New Fund, (2) does not anticipate
dispositions of those New Fund Shares at the time of or soon after
the Reorganization to exceed the usual rate and frequency of
dispositions of shares of Old Fund as a series of an open-end
investment company, (3) expects that the percentage of shareholder
interests, if any, that will be disposed of as a result of or at the
time of the Reorganization will be DE MINIMIS, and (4) does not
anticipate that there will be extraordinary redemptions of New Fund
Shares immediately following the Reorganization;
(d) The Shareholders will pay their own expenses (such as fees of
personal investment or tax advisers for advice regarding the
Reorganization), if any, incurred in connection with the
Reorganization;
(e) The fair market value of the Assets on a going concern basis will
equal or exceed the Liabilities to be assumed by New Fund and those
to which the Assets are subject;
(f) None of the compensation received by any Shareholder who is an
employee of or service provider to Old Fund will be separate
consideration for, or allocable to, any of the Old Fund Shares that
Shareholder held; none of the New Fund Shares any such Shareholder
receives will be separate consideration for, or allocable to, any
employment agreement, investment advisory agreement, or other
service agreement; and the compensation paid to any such Shareholder
will be for services actually rendered and will be commensurate with
amounts paid to third parties bargaining at arm's-length for similar
services;
(g) Neither Fund will be reimbursed for any expenses incurred by it or
on its behalf in connection with the Reorganization unless those
expenses are solely and directly related to the Reorganization
(determined in accordance with the guidelines set forth in Rev. Rul.
73-54, 1973-1 C.B. 187) ("REORGANIZATION EXPENSES");
(h) The aggregate value of the acquisitions, redemptions, and
distributions limited by paragraphs 3.1(o), 3.2(j), and 3.2(m) will
not exceed 50% of the value (without giving effect to such
acquisitions, redemptions, and distributions) of the proprietary
interest in Old Fund at the Effective Time;
(i) Immediately following consummation of the Reorganization, the
Shareholders will own all the New Fund Shares and will own such
shares solely by reason of their ownership of the Old Fund Shares
immediately before the Reorganization; and
10
(j) Immediately following consummation of the Reorganization, New Fund
will hold the same assets -- except for assets used to pay the
Funds' expenses incurred in connection with the Reorganization --
and be subject to the same liabilities that Old Fund held or was
subject to immediately before the Reorganization, plus any
liabilities for such expenses; and such excepted assets, together
with the amount of all redemptions and distributions (other than
regular, normal dividends) Old Fund makes immediately preceding the
Reorganization, will, in the aggregate, constitute less than 1% of
its net assets.
4. COVENANTS
4.1 The Corporation covenants to call a meeting of Old Fund's
shareholders to consider and act on this Agreement and to take all other action
necessary to obtain approval of the transactions contemplated herein
("SHAREHOLDERS MEETING").
4.2 The Corporation covenants that the New Fund Shares to be delivered
hereunder are not being acquired for the purpose of making any distribution
thereof, other than in accordance with the terms hereof.
4.3 The Corporation covenants that it will assist the Trust in
obtaining information the Trust reasonably requests concerning the beneficial
ownership of Old Fund Shares.
4.4 The Corporation covenants that it will turn over its books and
records (including all books and records required to be maintained under the
1940 Act and the rules and regulations thereunder) to the Trust at the Closing.
4.5 Each Investment Company covenants to cooperate in preparing, in
compliance with applicable federal securities laws, a proxy statement on
Schedule 14A relating to the Reorganization to be furnished in connection with
the Corporation's Board's solicitation of proxies for use at the Shareholders
Meeting ("PROXY STATEMENT").
4.6 Each Investment Company covenants that it will, from time to time,
as and when requested by the other Investment Company, execute and deliver or
cause to be executed and delivered all assignments and other instruments, and
will take or cause to be taken further action, the other Investment Company
deems necessary or desirable in order to vest in, and confirm to, (a) New Fund,
title to and possession of all the Assets, and (b) Old Fund, title to and
possession of the New Fund Shares to be delivered hereunder, and otherwise to
carry out the intent and purpose hereof.
4.7 The Trust covenants to use all reasonable efforts to obtain the
approvals and authorizations required by the 1933 Act, the 1940 Act, and state
securities laws it deems appropriate to continue its operations after the
Effective Time.
4.8 Subject to this Agreement, each Investment Company covenants to
take or cause to be taken all actions, and to do or cause to be done all things,
reasonably necessary, proper, or advisable to consummate and effectuate the
transactions contemplated hereby.
11
5. CONDITIONS PRECEDENT
Each Investment Company's obligations hereunder shall be subject to (a)
performance by the other Investment Company of all its obligations to be
performed hereunder at or before the Closing, (b) all representations and
warranties of the other Investment Company contained herein being true and
correct in all material respects as of the date hereof and, except as they may
be affected by the transactions contemplated hereby, as of the Effective Time,
with the same force and effect as if made at and as of such time, and (c) the
following further conditions that, at or before such time:
5.1 All necessary filings shall have been made with the Commission and
state securities authorities, and no order or directive shall have been received
that any other or further action is required to permit the parties to carry out
the transactions contemplated hereby. A post-effective amendment
("POST-EFFECTIVE AMENDMENT") to the Registration Statement of New Trust with
respect to the New Fund shall have become effective under the 1933 Act, no stop
orders suspending the effectiveness thereof shall have been issued, and, to each
Investment Company's best knowledge, no investigation or proceeding for that
purpose shall have been instituted or be pending, threatened, or contemplated
under the 1933 Act or the 1940 Act, and the Commission shall not have issued an
unfavorable report with respect to the Reorganization under section 25(b) of the
1940 Act nor instituted any proceedings seeking to enjoin consummation of the
transactions contemplated hereby under section 25(c) of the 1940 Act. All
consents, orders, and permits of federal, state, and local regulatory
authorities (including the Commission and state securities authorities) either
Investment Company deems necessary to permit consummation, in all material
respects, of the transactions contemplated hereby shall have been obtained,
except where failure to obtain same would not involve a risk of a material
adverse effect on either Fund's assets or properties;
5.2 At the Effective Time, no action, suit, or other proceeding shall
be pending before any court or governmental agency in which it is sought to
restrain or prohibit, or to obtain damages or other relief in connection with,
the transactions contemplated hereby;
5.3 The Investment Companies shall have received an opinion of Counsel
as to the federal income tax consequences mentioned below ("TAX OPINION"). In
rendering the Tax Opinion, Counsel may rely as to factual matters, exclusively
and without independent verification, on the representations and warranties made
in this Agreement, which Counsel may treat as representations and warranties
made to it, and in separate letters addressed to it. The Tax Opinion shall be
substantially to the effect that, based on the facts and assumptions stated
therein and conditioned on consummation of the Reorganization in accordance with
this Agreement, for federal income tax purposes:
(a) New Fund's acquisition of the Assets in exchange solely for New Fund
Shares and its assumption of the Liabilities, followed by Old Fund's
distribution of those shares PRO RATA to the Shareholders actually
or constructively in exchange for their Old Fund Shares, will
qualify as a "reorganization" (as defined in section 368(a)(1)(F) of
the Code), and each Fund will be "a party to a reorganization"
within the meaning of section 368(b) of the Code;
12
(b) Old Fund will recognize no gain or loss on the transfer of the
Assets to New Fund in exchange solely for New Fund Shares and New
Fund's assumption of the Liabilities or on the subsequent
distribution of those shares to the Shareholders in exchange for
their Old Fund Shares;
(c) New Fund will recognize no gain or loss on its receipt of the Assets
in exchange solely for New Fund Shares and its assumption of the
Liabilities;
(d) New Fund's basis in each Asset will be the same as Old Fund's basis
therein immediately before the Reorganization, and New Fund's
holding period for each Asset will include Old Fund's holding period
therefor;
(e) A Shareholder will recognize no gain or loss on the exchange of all
its Old Fund Shares solely for New Fund Shares pursuant to the
Reorganization;
(f) A Shareholder's aggregate basis in the New Fund Shares it receives
in the Reorganization will be the same as the aggregate basis in its
Old Fund Shares it actually or constructively surrenders in exchange
for those New Fund Shares, and its holding period for those New Fund
Shares will include, in each instance, its holding period for those
Old Fund Shares, provided the Shareholder holds them as capital
assets at the Effective Time; and
(g) For purposes of section 381 of the Code, New Fund will be treated as
if there had been no Reorganization. Accordingly, the Reorganization
will not result in the termination of Old Fund's taxable year, Old
Fund's tax attributes enumerated in section 381(c) of the Code will
be taken into account by New Fund as if there had been no
Reorganization, and the part of Old Fund's taxable year before the
Reorganization will be included in New Fund's taxable year after the
Reorganization.
Notwithstanding subparagraphs (b) and (d), the Tax Opinion may state that no
opinion is expressed as to the effect of the Reorganization on the Funds or any
Shareholder with respect to any Asset as to which any unrealized gain or loss is
required to be recognized for federal income tax purposes at the end of a
taxable year (or on the termination or transfer thereof) under a mark-to-market
system of accounting;
5.4 Before the Closing, the Trust's Board shall have authorized the
issuance of, and New Fund shall have issued, ten New Fund Share in each class
("INITIAL SHARES") to the Adviser or an affiliate thereof in consideration of
the payment of $10.00 each to take whatever action it may be required to take as
New Fund's sole shareholder pursuant to paragraph 5.6;
5.5 The Trust (on behalf of and with respect to New Fund) shall have
entered into, or adopted, as appropriate, an investment advisory contract and
other agreements and plans necessary for New Fund's operation as a series of an
open-end investment company. Each such contract and agreement shall have been
approved by the Trust's Board and, to the extent required by law (as interpreted
by Commission staff positions), by its trustees who are not "interested persons"
(as defined in the 1940 Act) thereof and by the Adviser or its affiliate as New
Fund's sole shareholder; and
13
5.6 At any time before the Closing, either Investment Company may waive
any of the foregoing conditions (except those set forth in paragraphs 5.1, 5.4,
5.5, and 5.6) if, in the judgment of its Board, such waiver will not have a
material adverse effect on its Fund's shareholders' interests.
6. EXPENSES
Subject to complying with the representation contained in paragraph
3.3(g), the Reorganization Expenses shall be borne by the Funds equally or in
any other proportion or manner the Investment Companies mutually agree on. The
Reorganization Expenses include costs associated with obtaining any necessary
order of exemption from the 1940 Act, preparation of the Post-Effective
Amendment, printing and distributing New Fund's prospectus and Old Fund's proxy
materials, soliciting proxies, legal fees, accounting fees, securities
registration fees, and expenses of holding shareholders meetings.
Notwithstanding the foregoing, expenses shall be paid by the party directly
incurring them if and to the extent that the payment thereof by another person
would result in such party's disqualification as a RIC or would prevent the
Reorganization from qualifying as a tax-free reorganization.
7. ENTIRE AGREEMENT; NO SURVIVAL
Neither Investment Company has made any representation, warranty, or
covenant not set forth herein, and this Agreement constitutes the entire
agreement between the Investment Companies. The representations, warranties, and
covenants contained herein or in any document delivered pursuant hereto or in
connection herewith shall not survive the Closing.
8. TERMINATION
This Agreement may be terminated, with respect to one or more
Reorganizations, at any time at or before the Closing:
8.1 By either Investment Company (a) in the event of the other
Investment Company's material breach of any representation, warranty, or
covenant contained herein to be performed at or before the Closing, (b) if a
condition to its obligations has not been met and it reasonably appears that
such condition will not or cannot be met, (c) if a governmental body issues an
order, decree, or ruling having the effect of permanently enjoining,
restraining, or otherwise prohibiting consummation of the Reorganization, or (d)
if the Closing has not occurred on or before August 1, 2006, or such other date
as to which the Investment Companies agree; or
8.2 By the Investment Companies' mutual agreement.
In the event of termination under paragraphs 8.1(c) or 8.2, neither Investment
Company (nor its trustees/directors, officers, or shareholders) shall have any
liability to the other Investment Company.
9. AMENDMENTS
The Investment Companies may amend, modify, or supplement this
Agreement at any time in any manner they mutually agree on in writing,
notwithstanding Old Fund's shareholders'
14
approval thereof; provided that, following such approval no such amendment,
modification, or supplement shall have a material adverse effect on the
Shareholders' interests.
10. SEVERABILITY
Any term or provision of this Agreement that is invalid or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such invalidity or unenforceability without rendering invalid
or unenforceable the remaining terms and provisions of this Agreement or
affecting the validity or enforceability of any of the terms and provisions of
this Agreement in any other jurisdiction.
11. MISCELLANEOUS
11.1 This Agreement shall be construed and interpreted in accordance
with the internal laws of the State of Delaware; provided that, in the case of
any conflict between those laws and the federal securities laws, the latter
shall govern.
11.2 Nothing expressed or implied herein is intended or shall be
construed to confer on or give any person, firm, trust, or corporation other
than each Investment Company (on its respective Fund's behalf) and its
respective successors and assigns any rights or remedies under or by reason of
this Agreement.
11.3 Notice is hereby given that this instrument is executed and
delivered on behalf of the Trust's trustees solely in their capacities as
trustees and not individually. Each Investment Company's obligations under this
instrument are not binding on or enforceable against any of its
trustees/directors, officers, or shareholders or any series of the Investment
Company other than its Fund but are only binding on and enforceable against its
Fund's property. Each Investment Company, in asserting any rights or claims
under this Agreement on its Fund's behalf, shall look only to the other Fund's
property in settlement of such rights or claims and not to the property of any
other series of the other Investment Company or to such trustees/directors,
officers, or shareholders.
11.4 This Agreement may be executed in one or more counterparts, all of
which shall be considered one and the same agreement, and shall become effective
when one or more counterparts have been executed by each Investment Company and
delivered to the other Investment Company. The headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
15
IN WITNESS WHEREOF, each party has caused this Agreement to be executed
and delivered by its duly authorized officer as of the day and year first
written above.
USAA MUTUAL FUNDS TRUST, on behalf of each
of its series listed on Schedule A
By: /S/ XXXXXXXXXXX X. XXXXX
------------------------------
Xxxxxxxxxxx X. Xxxxx
President
USAA MUTUAL FUND, INC., on behalf of each of
its series listed on Schedule A
By: /S/ XXXX X. XXXXXX
------------------------------
Xxxx X. Xxxxxx
Secretary
16
SCHEDULE A
OLD FUNDS NEW FUNDS
(EACH A SERIES OF THE CORPORATION) (EACH A SERIES OF THE TRUST)
------------------------------------ ---------------------------------------
Aggressive Growth Fund Aggressive Growth Fund
Capital Growth Fund Capital Growth Fund
Extended Market Index Fund Extended Market Index Fund
First Start Growth Fund First Start Growth Fund
Growth Fund Growth Fund
Growth & Income Fund Growth & Income Fund
High-Yield Opportunities Fund High-Yield Opportunities Fund
Income Stock Fund Income Stock Fund
Income Fund Income Fund
Intermediate-Term Bond Fund Intermediate-Term Bond Fund
Money Market Fund Money Market Fund
Nasdaq-100 Index Fund Nasdaq-100 Index Fund
S&P 500 Index Fund S&P 500 Index Fund
Short-Term Bond Fund Short-Term Bond Fund
Science & Technology Fund Science & Technology Fund
Small Cap Stock Fund Small Cap Stock Fund
Value Fund Value Fund
17
EXHIBIT H (VIII)
AGREEMENT AND PLAN OF CONVERSION AND TERMINATION
THIS AGREEMENT AND PLAN OF CONVERSION AND TERMINATION ("AGREEMENT") is
made as of April 19, 2006 between USAA MUTUAL FUNDS TRUST, a Delaware statutory
trust ("NEW TRUST"), on behalf of each of its segregated portfolios of assets
("SERIES") listed under the heading "New Funds" on Schedule A to this Agreement
("SCHEDULE A") (each, a "NEW FUND"), and USAA INVESTMENT TRUST, a Massachusetts
business trust ("OLD TRUST"), on behalf of each of its series listed under the
heading "Old Funds" on Schedule A (each, an "OLD FUND"). (Each New Fund and Old
Fund is sometimes referred to herein as a "FUND," and each of New Trust and Old
Trust is sometimes referred to herein as an "INVESTMENT COMPANY.") All
agreements, covenants, representations, actions, and obligations described
herein made or to be taken or undertaken by a Fund are made and shall be taken
or undertaken by New Trust on each New Fund's behalf and by Old Trust on each
Old Fund's behalf, and all rights and benefits created hereunder in favor of a
Fund shall inure to, and shall be enforceable by, the Investment Company of
which it is a series acting on its behalf.
Each Investment Company wishes to effect ten separate reorganizations,
each described in section 368(a)(1)(F) of the Internal Revenue Code of 1986, as
amended ("CODE"), and intends this Agreement to be, and adopts it as, a "plan of
reorganization" within the meaning of the regulations under the Code
("REGULATIONS"). Each reorganization will involve an Old Fund's changing its
identity, form, and place of organization -- by converting from a series of Old
Trust to a series of New Trust -- by (1) transferring all its assets to the New
Fund listed on Schedule A opposite its name (which is being established solely
for the purpose of acquiring such assets and continuing that Old Fund's
business) in exchange solely for voting shares of beneficial interest ("SHARES")
in that New Fund and that New Fund's assumption of all that Old Fund's
liabilities, (2) distributing those shares PRO RATA to that Old Fund's
shareholders in exchange for their shares therein and in complete liquidation
thereof, and (3) terminating that Old Fund (all the foregoing transactions
involving each Old Fund and its corresponding New Fund being referred to herein
collectively as a "REORGANIZATION"), all on the terms and conditions set forth
herein. The consummation of one Reorganization shall not be contingent on the
consummation of any other Reorganization. (For convenience, the balance of this
Agreement, except paragraph 8, refers only to a single Reorganization, one Old
Fund, and one New Fund, but the terms and conditions hereof shall apply
separately to each Reorganization and the Funds participating therein.)
Each Investment Company's Board of Trustees (each, a "BOARD"), in each
case including a majority of its members who are not "interested persons" (as
that term is defined in the Investment Company Act of 1940, as amended ("1940
ACT")) thereof, (1) has duly adopted and approved this Agreement and the
transactions contemplated hereby and (2) has determined that participation in
the Reorganization is in the best interests of its Fund and that the interests
of the existing shareholders of its Fund will not be diluted as a result of the
Reorganization.
Old Fund offers a single class of voting shares of beneficial interest
("OLD FUND SHARES"). New Fund will offer a single class of voting shares of
beneficial interest ("NEW FUND SHARES").
In consideration of the mutual promises contained herein, the
Investment Companies agree as follows:
1. PLAN OF CONVERSION AND TERMINATION
1.1. Subject to the requisite approval of Old Fund's shareholders and
the terms and conditions set forth herein, Old Fund shall assign, sell, convey,
transfer, and deliver all of its assets described in paragraph 1.2 ("ASSETS") to
New Fund. In exchange therefor, New Fund shall:
(a) issue and deliver to Old Fund the number of full and fractional
New Fund Shares equal to the number of full and fractional Old Fund
Shares then outstanding (all references herein to "fractional"
shares meaning fractions rounded to the third decimal place), and
(b) assume all of Old Fund's liabilities described in paragraph 1.3
("LIABILITIES").
Such transactions shall take place at the CLOSING (as defined in paragraph 2.1).
1.2 The Assets shall consist of all assets and property -- including
all cash, cash equivalents, securities, commodities, futures interests,
receivables (including interest and dividends receivable), claims and rights of
action, rights to register shares under applicable securities laws, books and
records, and deferred and prepaid expenses shown as assets on Old Fund's books
-- Old Fund owns at the EFFECTIVE TIME (as defined in paragraph 2.1).
1.3 The Liabilities shall consist of all of Old Fund's liabilities,
debts, obligations, and duties of whatever kind or nature existing at the
Effective Time, whether absolute, accrued, or otherwise, whether or not arising
in the ordinary course of business, whether or not determinable at that time,
and whether or not specifically referred to in this Agreement. Notwithstanding
the foregoing, Old Fund shall endeavor to discharge all its known liabilities,
debts, obligations, and duties before the Effective Time.
1.4 At or prior to the Closing, New Fund shall redeem the INITIAL
SHARES (as defined in paragraph 5.5) for $10.00 each. At the Effective Time (or
as soon thereafter as is reasonably practicable), Old Fund shall distribute the
New Fund Shares it receives pursuant to paragraph 1.1(a) to its shareholders of
record determined as of the Effective Time (each, a "SHAREHOLDER"), in
proportion to their Old Fund Shares then held of record and in exchange for
their Old Fund Shares, and shall completely liquidate. That distribution shall
be accomplished by New Trust's transfer agent's opening accounts on New Fund's
share transfer books in the Shareholders' names and transferring those New Fund
Shares thereto. Pursuant to such transfer, each Shareholder's account shall be
credited with the number of full and fractional New Fund Shares equal to the
number of full and fractional Old Fund Shares that Shareholder holds at the
Effective Time. All issued and outstanding Old Fund Shares, including any
represented by certificates, shall simultaneously be canceled on Old Fund's
share transfer books. New Fund shall not issue certificates representing the New
Fund Shares issued in connection with the Reorganization.
1.5 As soon as reasonably practicable after distribution of the New
Fund Shares pursuant to paragraph 1.4, but in all events within six months after
the Effective Time, Old Fund shall be terminated as a series of Old Trust and
any further actions shall be taken in connection therewith as required by
applicable law.
2
1.6 Any reporting responsibility of Old Fund to a public authority,
including the responsibility for filing regulatory reports, tax returns, and
other documents with the Securities and Exchange Commission ("COMMISSION"), any
state securities commission, any federal, state, and local tax authorities, and
any other relevant regulatory authority, is and shall remain its responsibility
up to and including the date on which it is terminated.
1.7 Any transfer taxes payable on issuance of New Fund Shares in a name
other than that of the registered holder on Old Fund's share transfer books of
the Old Fund Shares actually or constructively exchanged therefor shall be paid
by the person to whom those New Fund Shares are to be issued, as a condition of
that transfer.
2. CLOSING AND EFFECTIVE TIME
2.1 The Reorganization, together with related acts necessary to
consummate the same ("CLOSING"), shall occur at the Investment Companies'
offices on July 31, 2006 or at such other place and/or on such other date as to
which the Investment Companies may agree. All acts taking place at the Closing
shall be deemed to take place simultaneously immediately after the close of
business (I.E., 4:00 p.m., Eastern time) on the date thereof ("EFFECTIVE TIME").
2.2 Old Trust shall direct the custodian for its assets ("CUSTODIAN")
to deliver at the Closing a certificate of an authorized officer stating that
(a) the Assets have been delivered in proper form to New Fund within two
business days before or at the Effective Time and (b) all necessary taxes in
connection with the delivery of the Assets, including all applicable federal and
state stock transfer stamps, if any, have been paid or provision for payment has
been made. Each of Old Fund's portfolio securities represented by a certificate
or other written instrument shall be transferred and delivered by Old Fund as of
the Effective Time for New Fund's account duly endorsed in proper form for
transfer in such condition as to constitute good delivery thereof. The Custodian
shall deliver as of the Effective Time by book entry, in accordance with the
customary practices of the Custodian and any securities depository (as defined
in Rule 17f-4 under the 1940 Act) in which any Assets are deposited, the Assets
that are deposited with such depositories. The cash to be transferred by Old
Fund shall be delivered by wire transfer of federal funds at the Effective Time.
2.3 Old Trust shall direct its transfer agent to deliver at the Closing
a certificate of an authorized officer stating that Old Fund's share transfer
books contain the number of full and fractional outstanding Old Fund Shares each
Shareholder owned immediately before the Closing.
2.4 Old Trust shall deliver to New Trust at the Closing a certificate
of an authorized officer of Old Trust setting forth information (including
adjusted basis and holding period, by lot) concerning the Assets, including all
portfolio securities, on Old Fund's books immediately before the Effective Time.
2.5 Each Investment Company shall deliver to the other at the Closing a
certificate executed in its name by its President or a Vice President in form
and substance reasonably satisfactory to the recipient and dated the date of the
Closing, to the effect that the representations and warranties it made in this
Agreement are true and correct at the Effective Time except as they may be
affected by the transactions contemplated by this Agreement.
3
3. REPRESENTATIONS AND WARRANTIES
3.1 Old Trust, on Old Fund's behalf, represents and warrants to New
Trust, on New Fund's behalf, as follows:
(a) Old Trust is a trust operating under a written instrument or
declaration of trust, the beneficial interest under which is divided
into transferable shares, organized under the laws of the
Commonwealth of Massachusetts (a "MASSACHUSETTS BUSINESS TRUST")
that is duly organized and validly existing under such laws; and its
First Amended and Restated Master Trust Agreement ("DECLARATION") is
on file with that commonwealth's Secretary of State; and before
January 1, 1997, Old Trust claimed classification for federal tax
purposes as an association taxable as a corporation and has not
elected otherwise since;
(b) Old Trust is duly registered as an open-end management investment
company under the 1940 Act, and such registration will be in full
force and effect at the Effective Time;
(c) Old Fund is a duly established and designated series of Old Trust;
(d) At the Effective Time, Old Trust, on Old Fund's behalf, will have
good and marketable title to the Assets and full right, power, and
authority to sell, assign, transfer, and deliver the Assets
hereunder free of any liens or other encumbrances (except securities
that are subject to "securities loans" as referred to in section
851(b)(2) of the Code or that are restricted to resale by their
terms); and on delivery and payment for the Assets, New Trust, on
New Fund's behalf, will acquire good and marketable title thereto;
(e) Old Fund is not engaged currently, and Old Trust's execution,
delivery, and performance of this Agreement will not result, in (1)
a material violation of the Declaration or Old Trust's By-Laws
(collectively, "OLD TRUST GOVERNING DOCUMENTS") or of any agreement,
indenture, instrument, contract, lease, or other undertaking to
which Old Trust, on Old Fund's behalf, is a party or by which it is
bound or (2) the acceleration of any obligation, or the imposition
of any penalty, under any agreement, indenture, instrument,
contract, lease, judgment, or decree to which Old Trust, on Old
Fund's behalf, is a party or by which it is bound;
(f) All material contracts and other commitments of Old Fund (other than
this Agreement and certain investment contracts, including options,
futures, and forward contracts) will terminate, or provision for
discharge of any liabilities of Old Fund thereunder will be made, at
or before the Effective Time, without either Fund's incurring any
liability or penalty with respect thereto and without diminishing or
releasing any rights Old Trust, on Old Fund's behalf, may have had
with respect to actions taken or omitted or to be taken by any other
party thereto before the Closing;
(g) No litigation, administrative proceeding, or investigation of or
before any court or governmental body is presently pending or, to
its knowledge, threatened against Old Trust with respect to Old Fund
or any of its properties or assets that, if adversely determined,
would materially and adversely affect its financial condition or the
conduct
4
of its business; and Old Trust, on Old Fund's behalf, knows of no
facts that might form the basis for the institution of such
proceedings and is not a party to or subject to the provisions of
any order, decree, or judgment of any court or governmental body
that materially and adversely affects its business or its ability to
consummate the transactions herein contemplated, except as otherwise
disclosed to New Trust;
(h) Old Fund's Statement of Assets and Liabilities, Statements of
Operations and Changes in Net Assets, and Portfolio of Investments
(collectively, "Statements") at and for the year ended on May 31,
2005 ("2005 Statements"), have been audited by Xxxxx & Young, LLP,
an independent registered public accounting firm ("E& Y"); E&Y will
perform the audit of the Statements for the year ended on May 31,
2006 ("2006 Statements"); the 2005 Statements and Old Fund's
unaudited Statements at and for the six-month period ended on
November 30, 2005, present fairly, in all material respects, Old
Fund's financial condition as of the respective dates thereof in
accordance with generally accepted accounting principles
consistently applied ("GAAP"); and to Old Trust's management's best
knowledge and belief, there are and will be no known contingent
liabilities, debts, obligations, or duties of Old Fund required to
be reflected on a balance sheet (including the notes thereto) in
accordance with GAAP as of such respective dates that are not
disclosed therein;
(i) Since May 31, 2005, there has not been any material adverse change
in Old Fund's financial condition, assets, liabilities, or business,
other than changes occurring in the ordinary course of business, or
any incurrence by Old Fund of indebtedness maturing more than one
year from the date such indebtedness was incurred; for purposes of
this subparagraph, a decline in net asset value per Old Fund Share
due to declines in market values of securities Old Fund holds, the
discharge of Old Fund liabilities, or the redemption of Old Fund
Shares by its shareholders shall not constitute a material adverse
change;
(j) At the Effective Time, all federal and other tax returns, dividend
reporting forms, and other tax-related reports of Old Fund required
by law to have been filed by such date (including any extensions)
shall have been filed and are or will be correct in all material
respects, and all federal and other taxes shown as due or required
to be shown as due on such returns and reports shall have been paid
or provision shall have been made for the payment thereof, and to
the best of Old Trust's knowledge, no such return is currently under
audit and no assessment has been asserted with respect to such
returns;
(k) Old Fund is a "fund" as defined in section 851(g)(2) of the Code;
for each taxable year of its operation, Old Fund has met (or, for
its current taxable year, will meet) the requirements of Subchapter
M of Chapter 1 of the Code for qualification as a regulated
investment company ("RIC") and has been (or will be) eligible to and
has computed (or will compute) its federal income tax under section
852 of the Code; from the time Old Trust's Board approved the
transactions contemplated by this Agreement ("APPROVAL TIME")
through the Effective Time, Old Fund has invested and will invest
its assets in a manner that ensures its compliance with the
foregoing; from the time it commenced operations through the
Effective Time, Old Fund has conducted and will
5
conduct its "historic business" (within the meaning of section
1.368-1(d)(2) of the Regulations) in a substantially unchanged
manner; from the Approval Time through the Effective Time, Old Fund
(1) has not disposed of and/or acquired, and will not dispose of
and/or acquire, any assets (i) for the purpose of satisfying New
Fund's investment objective or policies or (ii) for any other reason
except in the ordinary course of its business as a RIC and (2) has
not otherwise changed, and will not otherwise change, its historic
investment policies; and Old Fund has no earnings and profits
accumulated in any taxable year in which the provisions of
Subchapter M did not apply to it;
(l) All issued and outstanding Old Fund Shares are, and at the Effective
Time will be, duly and validly issued and outstanding, fully paid,
and non-assessable by Old Trust and have been offered and sold in
every state and the District of Columbia in compliance in all
material respects with applicable registration requirements of the
Securities Act of 1933, as amended ("1933 ACT"), and state
securities laws; all issued and outstanding Old Fund Shares will, at
the Effective Time, be held by the persons and in the amounts set
forth in Old Fund's share transfer books, as provided in paragraph
2.3; and Old Fund does not have outstanding any options, warrants,
or other rights to subscribe for or purchase any Old Fund Shares,
nor is there outstanding any security convertible into any Old Fund
Shares;
(m) Old Fund incurred the Liabilities, which are associated with the
Assets, in the ordinary course of its business;
(n) Old Fund is not under the jurisdiction of a court in a "title 11 or
similar case" (as defined in section 368(a)(3)(A) of the Code);
(o) During the five-year period ending at the Effective Time, (1)
neither Old Fund nor any person "related" (within the meaning of
section 1.368-1(e)(3) of the Regulations) to it will have acquired
Old Fund Shares, either directly or through any transaction,
agreement, or arrangement with any other person, with consideration
other than New Fund Shares or Old Fund Shares, except for shares
redeemed in the ordinary course of Old Fund's business as a series
of an open-end investment company as required by section 22(e) of
the 1940 Act, and (2) no distributions will have been made with
respect to Old Fund Shares, other than normal, regular dividend
distributions made pursuant to Old Fund's historic dividend-paying
practice and other distributions that qualify for the deduction for
dividends paid (within the meaning of section 561 of the Code)
referred to in sections 852(a)(1) and 4982(c)(1)(A) of the Code;
(p) Not more than 25% of the value of Old Fund's total assets (excluding
cash, cash items, and U.S. government securities) is invested in the
stock and securities of any one issuer, and not more than 50% of the
value of such assets is invested in the stock and securities of five
or fewer issuers;
(q) Old Trust's current prospectus and statement of additional
information including Old Fund, and each prospectus and statement of
additional information including Old Fund used at all times prior to
the date hereof, (1) conform in all material respects to the
6
applicable requirements of the 1933 Act and the 1940 Act and the
rules and regulations of the Commission thereunder and (2) as of the
date on which they were issued did not contain, and as supplemented
by any supplement thereto dated before or at the Effective Time do
not contain, any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under
which they were made, not misleading;
(r) Each of the PROXY STATEMENT (as defined in paragraph 4.5) (other
than written information New Trust provided for inclusion therein)
and Old Trust's registration statement including Old Fund under the
1933 Act and the 1940 Act did not, on its effective date, and will
not, at the Effective Time and at the time of the SHAREHOLDERS
MEETING (as defined in paragraph 4.1), contain any untrue statement
of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light
of the circumstances under which such statements were made, not
misleading;
(s) The New Fund Shares are not being acquired for the purpose of any
distribution thereof, other than in accordance with the terms
hereof; and
(t) The Declaration permits Old Trust to vary its shareholders'
investment; and Old Trust does not have a fixed pool of assets --
each series thereof (including Old Fund) is a managed portfolio of
securities, and its investment adviser, USAA Investment Management
Company ("ADVISER"), has the authority to buy and sell securities
for it.
3.2 New Trust, on New Fund's behalf, represents and warrants to Old
Trust, on Old Fund's behalf, as follows:
(a) New Trust is a statutory trust that is duly organized, validly
existing, and in good standing under the laws of the State of
Delaware; and its Certificate of Trust has been duly filed in the
office of the Secretary of State thereof;
(b) New Trust is duly registered as an open-end management investment
company under the 1940 Act;
(c) New Fund is duly established and designated series of New Trust;
(d) New Fund has not commenced operations and will not do so until after
the Closing;
(e) Before the Closing, there will be no (1) issued and outstanding New
Fund Shares, (2) options, warrants, or other rights to subscribe for
or purchase any New Fund Shares, (3) securities convertible into any
New Fund Shares, or (4) any other securities issued by New Fund,
except the Initial Shares;
(f) No consideration other than New Fund Shares (and New Fund's
assumption of the Liabilities) will be issued in exchange for the
Assets in the Reorganization;
(g) New Fund is not engaged currently, and New Trust's execution,
delivery, and performance of this Agreement will not result, in (1)
a material violation of New
7
Trust's Master Trust Agreement or By-Laws (collectively, "NEW TRUST
GOVERNING DOCUMENTS") or of any agreement, indenture, instrument,
contract, lease, or other undertaking to which New Trust, on New
Fund's behalf, is a party or by which it is bound or (2) the
acceleration of any obligation, or the imposition of any penalty,
under any agreement, indenture, instrument, contract, lease,
judgment, or decree to which New Trust, on New Fund's behalf, is a
party or by which it is bound;
(h) No litigation, administrative proceeding, or investigation of or
before any court or governmental body is presently pending or, to
its knowledge, threatened against New Trust with respect to New Fund
or any of its properties or assets that, if adversely determined,
would materially and adversely affect its financial condition or the
conduct of its business; and New Trust, on New Fund's behalf, knows
of no facts that might form the basis for the institution of such
proceedings and is not a party to or subject to the provisions of
any order, decree, or judgment of any court or governmental body
that materially and adversely affects its business or its ability to
consummate the transactions herein contemplated, except as otherwise
disclosed to Old Trust;
(i) New Fund will be a "fund" as defined in section 851(g)(2) of the
Code; it will meet the requirements of Subchapter M of Chapter 1 of
the Code for qualification as a RIC for its taxable year in which
the Reorganization occurs; and it intends to continue to meet all
such requirements for the next taxable year;
(j) New Fund has no plan or intention to issue additional New Fund
Shares following the Reorganization except for shares issued in the
ordinary course of its business as a series of an open-end
investment company; nor does New Fund, or any person "related"
(within the meaning of section 1.368-1(e)(3) of the Regulations) to
it, have any plan or intention to acquire -- during the five-year
period beginning at the Effective Time, either directly or through
any transaction, agreement, or arrangement with any other person --
with consideration other than New Fund Shares, any New Fund Shares
issued to the Shareholders pursuant to the Reorganization, except
for redemptions in the ordinary course of such business as required
by section 22(e) of the 1940 Act;
(k) Following the Reorganization, New Fund (1) will continue Old Fund's
"historic business" (within the meaning of section 1.368-1(d)(2) of
the Regulations) and (2) will use a significant portion of Old
Fund's "historic business assets" (within the meaning of section
1.368-1(d)(3) of the Regulations) in a business; moreover, New Fund
(3) has no plan or intention to sell or otherwise dispose of any of
the Assets, except for dispositions made in the ordinary course of
that business and dispositions necessary to maintain its status as a
RIC, and (4) expects to retain substantially all the Assets in the
same form as it receives them in the Reorganization, unless and
until subsequent investment circumstances suggest the desirability
of change or it becomes necessary to make dispositions thereof to
maintain such status;
(l) There is no plan or intention for New Fund to be dissolved or merged
into another statutory or business trust or a corporation or any
"fund" thereof (as defined in section 851(g)(2) of the Code)
following the Reorganization;
8
(m) During the five-year period ending at the Effective Time, neither
New Fund nor any person "related" (within the meaning of section
1.368-1(e)(3) of the Regulations) to it will have acquired Old Fund
Shares with consideration other than New Fund Shares;
(n) Assuming the truthfulness and correctness of Old Trust's
representation and warranty in paragraph 3.1(p), immediately after
the Reorganization, (1) not more than 25% of the value of New Fund's
total assets (excluding cash, cash items, and U.S. government
securities) will be invested in the stock and securities of any one
issuer and (2) not more than 50% of the value of such assets will be
invested in the stock and securities of five or fewer issuers;
(o) The New Fund Shares to be issued and delivered to Old Fund, for the
Shareholders' accounts, pursuant to the terms hereof, (1) will at
the Effective Time have been duly authorized and duly registered
under the federal securities laws (and appropriate notices
respecting them will have been duly filed under applicable state
securities laws) and (2) when so issued and delivered, will be duly
and validly issued and outstanding New Fund Shares and will be fully
paid and non-assessable by New Trust;
(p) The Proxy Statement (only with respect to written information New
Trust provided for inclusion therein) will, on its effective date,
at the Effective Time, and at the time of the Shareholders Meeting,
not contain any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which
such statements were made, not misleading; and
(q) New Trust's Trust Agreement permits New Trust to vary its
shareholders' investment; and New Trust will not have a fixed pool
of assets -- each series thereof (including New Fund after it
commences operations) will be a managed portfolio of securities, and
the Adviser will have the authority to buy and sell securities for
it.
3.3 Each Investment Company, on its respective Fund's behalf,
represents and warrants to the other Investment Company, on its respective
Fund's behalf, as follows:
(a) No governmental consents, approvals, authorizations, or filings are
required under the 1933 Act, the Securities Exchange Act of 1934, as
amended ("1934 ACT"), the 1940 Act, or state securities laws for its
execution or performance of this Agreement, except for such
consents, approvals, authorizations, and filings as have been made
or received or as may be required subsequent to the Effective Time;
(b) The fair market value of the New Fund Shares each Shareholder
receives will be approximately equal to the fair market value of its
Old Fund Shares it actually or constructively surrenders in exchange
therefor;
(c) Its management (1) is unaware of any plan or intention of the
Shareholders to redeem, sell, or otherwise dispose of (i) any
portion of their Old Fund Shares before the Reorganization to any
person "related" (within the meaning of section 1.368-1(e)(3) of the
Regulations) to either Fund or (ii) any portion of the New Fund
Shares they receive in the Reorganization to any person "related"
(within such meaning) to New Fund,
9
(2) does not anticipate dispositions of those New Fund Shares at the
time of or soon after the Reorganization to exceed the usual rate
and frequency of dispositions of shares of Old Fund as a series of
an open-end investment company, (3) expects that the percentage of
shareholder interests, if any, that will be disposed of as a result
of or at the time of the Reorganization will be DE MINIMIS, and (4)
does not anticipate that there will be extraordinary redemptions of
New Fund Shares immediately following the Reorganization;
(d) The Shareholders will pay their own expenses (such as fees of
personal investment or tax advisers for advice regarding the
Reorganization), if any, incurred in connection with the
Reorganization;
(e) The fair market value of the Assets on a going concern basis will
equal or exceed the Liabilities to be assumed by New Fund and those
to which the Assets are subject;
(f) None of the compensation received by any Shareholder who is an
employee of or service provider to Old Fund will be separate
consideration for, or allocable to, any of the Old Fund Shares that
Shareholder held; none of the New Fund Shares any such Shareholder
receives will be separate consideration for, or allocable to, any
employment agreement, investment advisory agreement, or other
service agreement; and the compensation paid to any such Shareholder
will be for services actually rendered and will be commensurate with
amounts paid to third parties bargaining at arm's-length for similar
services;
(g) Neither Fund will be reimbursed for any expenses incurred by it or
on its behalf in connection with the Reorganization unless those
expenses are solely and directly related to the Reorganization
(determined in accordance with the guidelines set forth in Rev. Rul.
73-54, 1973-1 C.B. 187) ("REORGANIZATION EXPENSES");
(h) The aggregate value of the acquisitions, redemptions, and
distributions limited by paragraphs 3.1(o), 3.2(j), and 3.2(m) will
not exceed 50% of the value (without giving effect to such
acquisitions, redemptions, and distributions) of the proprietary
interest in Old Fund at the Effective Time;
(i) Immediately following consummation of the Reorganization, the
Shareholders will own all the New Fund Shares and will own such
shares solely by reason of their ownership of the Old Fund Shares
immediately before the Reorganization; and
(j) Immediately following consummation of the Reorganization, New Fund
will hold the same assets -- except for assets used to pay the
Funds' expenses incurred in connection with the Reorganization --
and be subject to the same liabilities that Old Fund held or was
subject to immediately before the Reorganization, plus any
liabilities for such expenses; and such excepted assets, together
with the amount of all redemptions and distributions (other than
regular, normal dividends) Old Fund makes immediately preceding the
Reorganization, will, in the aggregate, constitute less than 1% of
its net assets.
10
4. COVENANTS
4.1 Old Trust covenants to call a meeting of Old Fund's shareholders to
consider and act on this Agreement and to take all other action necessary to
obtain approval of the transactions contemplated herein ("SHAREHOLDERS
MEETING").
4.2 Old Trust covenants that the New Fund Shares to be delivered
hereunder are not being acquired for the purpose of making any distribution
thereof, other than in accordance with the terms hereof.
4.3 Old Trust covenants that it will assist New Trust in obtaining
information New Trust reasonably requests concerning the beneficial ownership of
Old Fund Shares.
4.4 Old Trust covenants that it will turn over its books and records
(including all books and records required to be maintained under the 1940 Act
and the rules and regulations thereunder) to New Trust at the Closing.
4.5 Each Investment Company covenants to cooperate in preparing, in
compliance with applicable federal securities laws, a proxy statement on
Schedule 14A relating to the Reorganization to be furnished in connection with
Old Trust's Board's solicitation of proxies for use at the Shareholders Meeting
("PROXY Statement").
4.6 Each Investment Company covenants that it will, from time to time,
as and when requested by the other Investment Company, execute and deliver or
cause to be executed and delivered all assignments and other instruments, and
will take or cause to be taken further action, the other Investment Company
deems necessary or desirable in order to vest in, and confirm to, (a) New Fund,
title to and possession of all the Assets, and (b) Old Fund, title to and
possession of the New Fund Shares to be delivered hereunder, and otherwise to
carry out the intent and purpose hereof.
4.7 Old Trust covenants that it will deliver copies of the 2006
Statements to New Trust promptly after E&Y signs and delivers same thereto. On
such delivery, Old Trust's representations and warranties contained in the third
clause of paragraph 3.1(h) (referring to the Statements' fair presentation in
accordance with GAAP) and the last clause thereof shall apply to the 2006
Statements in addition to the Statements referred to therein, and paragraph
3.1(i) shall apply by substituting "May 31, 2006" for "May 31, 2005."
4.8 New Trust covenants to use all reasonable efforts to obtain the
approvals and authorizations required by the 1933 Act, the 1940 Act, and state
securities laws it deems appropriate to continue its operations after the
Effective Time.
4.9 Subject to this Agreement, each Investment Company covenants to
take or cause to be taken all actions, and to do or cause to be done all things,
reasonably necessary, proper, or advisable to consummate and effectuate the
transactions contemplated hereby.
11
5. CONDITIONS PRECEDENT
Each Investment Company's obligations hereunder shall be subject to (a)
performance by the other Investment Company of all its obligations to be
performed hereunder at or before the Closing, (b) all representations and
warranties of the other Investment Company contained herein being true and
correct in all material respects as of the date hereof and, except as they may
be affected by the transactions contemplated hereby, as of the Effective Time,
with the same force and effect as if made at and as of such time, and (c) the
following further conditions that, at or before such time:
5.1 All necessary filings shall have been made with the Commission and
state securities authorities, and no order or directive shall have been received
that any other or further action is required to permit the parties to carry out
the transactions contemplated hereby. A post-effective amendment
("POST-EFFECTIVE AMENDMENT") to the registration statement ("REGISTRATION
STATEMENT") of New Trust with respect to the New Fund shall have become
effective under the 1933 Act, no stop orders suspending the effectiveness
thereof shall have been issued, and, to each Investment Company's best
knowledge, no investigation or proceeding for that purpose shall have been
instituted or be pending, threatened, or contemplated under the 1933 Act or the
1940 Act, and the Commission shall not have issued an unfavorable report with
respect to the Reorganization under section 25(b) of the 1940 Act nor instituted
any proceedings seeking to enjoin consummation of the transactions contemplated
hereby under section 25(c) of the 1940 Act. All consents, orders, and permits of
federal, state, and local regulatory authorities (including the Commission and
state securities authorities) either Investment Company deems necessary to
permit consummation, in all material respects, of the transactions contemplated
hereby shall have been obtained, except where failure to obtain same would not
involve a risk of a material adverse effect on either Fund's assets or
properties;
5.2 At the Effective Time, no action, suit, or other proceeding shall
be pending before any court or governmental agency in which it is sought to
restrain or prohibit, or to obtain damages or other relief in connection with,
the transactions contemplated hereby;
5.3 The Investment Companies shall have received an opinion of Counsel
as to the federal income tax consequences mentioned below ("TAX OPINION"). In
rendering the Tax Opinion, Counsel may rely as to factual matters, exclusively
and without independent verification, on the representations and warranties made
in this Agreement, which Counsel may treat as representations and warranties
made to it, and in separate letters addressed to it. The Tax Opinion shall be
substantially to the effect that, based on the facts and assumptions stated
therein and conditioned on consummation of the Reorganization in accordance with
this Agreement, for federal income tax purposes:
(a) New Fund's acquisition of the Assets in exchange solely for New Fund
Shares and its assumption of the Liabilities, followed by Old Fund's
distribution of those shares PRO RATA to the Shareholders actually
or constructively in exchange for their Old Fund Shares, will
qualify as a "reorganization" (as defined in section 368(a)(1)(F) of
the Code), and each Fund will be "a party to a reorganization"
within the meaning of section 368(b) of the Code;
12
(b) Old Fund will recognize no gain or loss on the transfer of the
Assets to New Fund in exchange solely for New Fund Shares and New
Fund's assumption of the Liabilities or on the subsequent
distribution of those shares to the Shareholders in exchange for
their Old Fund Shares;
(c) New Fund will recognize no gain or loss on its receipt of the Assets
in exchange solely for New Fund Shares and its assumption of the
Liabilities;
(d) New Fund's basis in each Asset will be the same as Old Fund's basis
therein immediately before the Reorganization, and New Fund's
holding period for each Asset will include Old Fund's holding period
therefor;
(e) A Shareholder will recognize no gain or loss on the exchange of all
its Old Fund Shares solely for New Fund Shares pursuant to the
Reorganization;
(f) A Shareholder's aggregate basis in the New Fund Shares it receives
in the Reorganization will be the same as the aggregate basis in its
Old Fund Shares it actually or constructively surrenders in exchange
for those New Fund Shares, and its holding period for those New Fund
Shares will include, in each instance, its holding period for those
Old Fund Shares, provided the Shareholder holds them as capital
assets at the Effective Time; and
(g) For purposes of section 381 of the Code, New Fund will be treated as
if there had been no Reorganization. Accordingly, the Reorganization
will not result in the termination of Old Fund's taxable year, Old
Fund's tax attributes enumerated in section 381(c) of the Code will
be taken into account by New Fund as if there had been no
Reorganization, and the part of Old Fund's taxable year before the
Reorganization will be included in New Fund's taxable year after the
Reorganization.
Notwithstanding subparagraphs (b) and (d), the Tax Opinion may state that no
opinion is expressed as to the effect of the Reorganization on the Funds or any
Shareholder with respect to any Asset as to which any unrealized gain or loss is
required to be recognized for federal income tax purposes at the end of a
taxable year (or on the termination or transfer thereof) under a mark-to-market
system of accounting;
5.4 Before the Closing, New Trust's Board shall have authorized the
issuance of, and New Fund shall have issued, ten New Fund Share in each class
("INITIAL SHARES") to the Adviser or an affiliate thereof in consideration of
the payment of $10.00 each to take whatever action it may be required to take as
New Fund's sole shareholder pursuant to paragraph 5.6;
5.5 New Trust (on behalf of and with respect to New Fund) shall have
entered into, or adopted, as appropriate, an investment advisory contract and
other agreements and plans necessary for New Fund's operation as a series of an
open-end investment company. Each such contract and agreement shall have been
approved by New Trust's Board and, to the extent required by law (as interpreted
by Commission staff positions), by its trustees who are not "interested persons"
(as defined in the 1940 Act) thereof and by the Adviser or its affiliate as New
Fund's sole shareholder; and
13
5.6 At any time before the Closing, either Investment Company may waive
any of the foregoing conditions (except those set forth in paragraphs 5.1, 5.4,
5.5, and 5.6) if, in the judgment of its Board, such waiver will not have a
material adverse effect on its Fund's shareholders' interests.
6. EXPENSES
Subject to complying with the representation contained in paragraph
3.3(g), the Reorganization Expenses shall be borne by the Old Funds equally or
in any other proportion or manner the Investment Companies mutually agree on.
The Reorganization Expenses include costs associated with obtaining any
necessary order of exemption from the 1940 Act, preparation of the
Post-Effective Amendment, printing and distributing New Fund's prospectus and
Old Fund's proxy materials, soliciting proxies, legal fees, accounting fees,
securities registration fees, and expenses of holding shareholders meetings.
Notwithstanding the foregoing, expenses shall be paid by the party directly
incurring them if and to the extent that the payment thereof by another person
would result in such party's disqualification as a RIC or would prevent the
Reorganization from qualifying as a tax-free reorganization.
7. ENTIRE AGREEMENT; NO SURVIVAL
Neither Investment Company has made any representation, warranty, or
covenant not set forth herein, and this Agreement constitutes the entire
agreement between the Investment Companies. The representations, warranties, and
covenants contained herein or in any document delivered pursuant hereto or in
connection herewith shall not survive the Closing.
8. TERMINATION
This Agreement may be terminated, with respect to one or more
Reorganizations, at any time at or before the Closing:
8.1 By either Investment Company (a) in the event of the other
Investment Company's material breach of any representation, warranty, or
covenant contained herein to be performed at or before the Closing, (b) if a
condition to its obligations has not been met and it reasonably appears that
such condition will not or cannot be met, (c) if a governmental body issues an
order, decree, or ruling having the effect of permanently enjoining,
restraining, or otherwise prohibiting consummation of the Reorganization, or (d)
if the Closing has not occurred on or before August 1, 2006, or such other date
as to which the Investment Companies agree; or
8.2 By the Investment Companies' mutual agreement.
In the event of termination under paragraphs 8.1(c) or 8.2, neither Investment
Company (nor its trustees, officers, or shareholders) shall have any liability
to the other Investment Company.
9. AMENDMENTS
The Investment Companies may amend, modify, or supplement this
Agreement at any time in any manner they mutually agree on in writing,
notwithstanding Old Fund's shareholders'
14
approval thereof; provided that, following such approval no such amendment,
modification, or supplement shall have a material adverse effect on the
Shareholders' interests.
10. SEVERABILITY
Any term or provision of this Agreement that is invalid or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such invalidity or unenforceability without rendering invalid
or unenforceable the remaining terms and provisions of this Agreement or
affecting the validity or enforceability of any of the terms and provisions of
this Agreement in any other jurisdiction.
11. MISCELLANEOUS
11.1 This Agreement shall be construed and interpreted in accordance
with the internal laws of the State of Delaware; provided that, in the case of
any conflict between those laws and the federal securities laws, the latter
shall govern.
11.2 Nothing expressed or implied herein is intended or shall be
construed to confer on or give any person, firm, trust, or corporation other
than each Investment Company (on its respective Fund's behalf) and its
respective successors and assigns any rights or remedies under or by reason of
this Agreement.
11.3 Notice is hereby given that this instrument is executed and
delivered on behalf of each Investment Company's trustees solely in their
capacities as trustees and not individually. Each Investment Company's
obligations under this instrument are not binding on or enforceable against any
of its trustees, officers, or shareholders or any series of the Investment
Company other than its Fund but are only binding on and enforceable against its
Fund's property. Each Investment Company, in asserting any rights or claims
under this Agreement on its Fund's behalf, shall look only to the other Fund's
property in settlement of such rights or claims and not to the property of any
other series of the other Investment Company or to such trustees, officers, or
shareholders.
11.4 This Agreement may be executed in one or more counterparts, all of
which shall be considered one and the same agreement, and shall become effective
when one or more counterparts have been executed by each Investment Company and
delivered to the other Investment Company. The headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
15
IN WITNESS WHEREOF, each party has caused this Agreement to be executed
and delivered by its duly authorized officer as of the day and year first
written above.
USAA MUTUAL FUNDS TRUST, on behalf of
each of its series listed on Schedule A
By: /S/ XXXXXXXXXXX X. XXXXX
------------------------------
Xxxxxxxxxxx X. Xxxxx
President
USAA INVESTMENT TRUST, on behalf of each
of its series listed on Schedule A
By: /S/ XXXX X. XXXXXX
------------------------------
Xxxx X. Xxxxxx
Secretary
16
SCHEDULE A
OLD FUNDS NEW FUNDS
(EACH A SERIES OF OLD TRUST) (EACH A SERIES OF NEW TRUST)
Balanced Strategy Fund Balanced Strategy Fund
Cornerstone Strategy Fund Cornerstone Strategy Fund
GNMA Trust GNMA Trust
Growth and Tax Strategy Fund Growth and Tax Strategy Fund
Emerging Markets Fund Emerging Markets Fund
International Fund International Fund
Precious Metals and Minerals Fund Precious Metals and Minerals Fund
Treasury Money Market Trust Treasury Money Market Trust
Total Return Strategy Fund Total Return Strategy Fund
World Growth Fund World Growth Fund
17
EXHIBIT H(XI)
AGREEMENT AND PLAN OF CONVERSION AND TERMINATION
THIS AGREEMENT AND PLAN OF CONVERSION AND TERMINATION ("AGREEMENT") is
made as of April 19, 2006 between USAA MUTUAL FUNDS TRUST, a Delaware statutory
trust ("TRUST"), on behalf of each of its segregated portfolios of assets
("SERIES") listed under the heading "New Funds" on Schedule A to this Agreement
("SCHEDULE A") (each, a "NEW FUND"), and USAA TAX EXEMPT FUND, INC., a Maryland
corporation ("CORPORATION"), on behalf of each of its series listed under the
heading "Old Funds" on Schedule A (each, an "OLD Fund"). (Each New Fund and Old
Fund is sometimes referred to herein as a "FUND," and each of the Trust and the
Corporation is sometimes referred to herein as an "INVESTMENT COMPANY.") All
agreements, covenants, representations, actions, and obligations described
herein made or to be taken or undertaken by a Fund are made and shall be taken
or undertaken by the Trust on each New Fund's behalf and by the Corporation on
each Old Fund's behalf, and all rights and benefits created hereunder in favor
of a Fund shall inure to, and shall be enforceable by, the Investment Company of
which it is a series acting on its behalf.
Each Investment Company wishes to effect nine separate reorganizations,
each described in section 368(a)(1)(F) of the Internal Revenue Code of 1986, as
amended ("CODE"), and intends this Agreement to be, and adopts it as, a "plan of
reorganization" within the meaning of the regulations under the Code
("REGULATIONS"). Each reorganization will involve an Old Fund's changing its
identity, form, and place of organization -- by converting from a series of the
Corporation to a series of the Trust -- by (1) transferring all its assets to
the New Fund listed on Schedule A opposite its name (which is being established
solely for the purpose of acquiring such assets and continuing that Old Fund's
business) in exchange solely for voting shares of beneficial interest in that
New Fund and that New Fund's assumption of all that Old Fund's liabilities, (2)
distributing those shares PRO RATA to that Old Fund's shareholders in exchange
for their shares of common stock therein and in complete liquidation thereof,
and (3) terminating that Old Fund (all the foregoing transactions involving each
Old Fund and its corresponding New Fund being referred to herein collectively as
a "REORGANIZATION"), all on the terms and conditions set forth herein. The
consummation of one Reorganization shall not be contingent on the consummation
of any other Reorganization. (For convenience, the balance of this Agreement,
except paragraph 8, refers only to a single Reorganization, one Old Fund, and
one New Fund, but the terms and conditions hereof shall apply separately to each
Reorganization and the Funds participating therein.)
Each Investment Company's Board of Trustees/Directors (each, a
"BOARD"), in each case including a majority of its members who are not
"interested persons" (as that term is defined in the Investment Company Act of
1940, as amended ("1940 ACT")) thereof, (1) has duly adopted and approved this
Agreement and the transactions contemplated hereby and (2) has determined that
participation in the Reorganization is in the best interests of its Fund and
that the interests of the existing shareholders of its Fund will not be diluted
as a result of the Reorganization.
Old Fund offers a single class of shares of common stock ("OLD FUND
SHARES"). New Fund will offer a single class of voting shares of beneficial
interest ("NEW FUND SHARES").
In consideration of the mutual promises contained herein, the
Investment Companies agree as follows:
1
1. PLAN OF CONVERSION AND TERMINATION
1.1. Subject to the requisite approval of Old Fund's shareholders and
the terms and conditions set forth herein, Old Fund shall assign, sell, convey,
transfer, and deliver all of its assets described in paragraph 1.2 ("ASSETS") to
New Fund. In exchange therefor, New Fund shall:
(a) issue and deliver to Old Fund the number of full and fractional
New Fund Shares equal to the number of full and fractional Old Fund
Shares then outstanding (all references herein to "fractional"
shares meaning fractions rounded to the third decimal place), and
(b) assume all of Old Fund's liabilities described in paragraph 1.3
("LIABILITIES").
Such transactions shall take place at the CLOSING (as defined in paragraph 2.1).
1.2 The Assets shall consist of all assets and property -- including
all cash, cash equivalents, securities, commodities, futures interests,
receivables (including interest and dividends receivable), claims and rights of
action, rights to register shares under applicable securities laws, books and
records, and deferred and prepaid expenses shown as assets on Old Fund's books
-- Old Fund owns at the EFFECTIVE TIME (as defined in paragraph 2.1).
1.3 The Liabilities shall consist of all of Old Fund's liabilities,
debts, obligations, and duties of whatever kind or nature existing at the
Effective Time, whether absolute, accrued, or otherwise, whether or not arising
in the ordinary course of business, whether or not determinable at that time,
and whether or not specifically referred to in this Agreement. Notwithstanding
the foregoing, Old Fund shall endeavor to discharge all its known liabilities,
debts, obligations, and duties before the Effective Time.
1.4 At or prior to the Closing, New Fund shall redeem the INITIAL
SHARES (as defined in paragraph 5.5) for $10.00 each. At the Effective Time (or
as soon thereafter as is reasonably practicable), Old Fund shall distribute the
New Fund Shares it receives pursuant to paragraph 1.1(a) to its shareholders of
record determined as of the Effective Time (each, a "SHAREHOLDER"), in
proportion to their Old Fund Shares then held of record and in exchange for
their Old Fund Shares, and shall completely liquidate. That distribution shall
be accomplished by the Trust's transfer agent's opening accounts on New Fund's
share transfer books in the Shareholders' names and transferring those New Fund
Shares thereto. Pursuant to such transfer, each Shareholder's account shall be
credited with the number of full and fractional New Fund Shares equal to the
number of full and fractional Old Fund Shares that Shareholder holds at the
Effective Time. All issued and outstanding Old Fund Shares, including any
represented by certificates, shall simultaneously be canceled on Old Fund's
share transfer books. New Fund shall not issue certificates representing the New
Fund Shares issued in connection with the Reorganization.
1.5 As soon as reasonably practicable after distribution of the New
Fund Shares pursuant to paragraph 1.4, but in all events within six months after
the Effective Time, Old Fund shall be terminated as a series of the Corporation
and any further actions shall be taken in connection therewith as required by
applicable law.
2
1.6 Any reporting responsibility of Old Fund to a public authority,
including the responsibility for filing regulatory reports, tax returns, and
other documents with the Securities and Exchange Commission ("COMMISSION"), any
state securities commission, any federal, state, and local tax authorities, and
any other relevant regulatory authority, is and shall remain its responsibility
up to and including the date on which it is terminated.
1.7 Any transfer taxes payable on issuance of New Fund Shares in a name
other than that of the registered holder on Old Fund's share transfer books of
the Old Fund Shares actually or constructively exchanged therefor shall be paid
by the person to whom those New Fund Shares are to be issued, as a condition of
that transfer.
2. CLOSING AND EFFECTIVE TIME
2.1 The Reorganization, together with related acts necessary to
consummate the same ("CLOSING"), shall occur at the Investment Companies'
offices on July 31, 2006 or at such other place and/or on such other date as to
which the Investment Companies may agree. All acts taking place at the Closing
shall be deemed to take place simultaneously immediately after the close of
business (I.E., 4:00 p.m., Eastern time) on the date thereof ("EFFECTIVE TIME").
2.2 The Corporation shall direct the custodian for its assets
("CUSTODIAN") to deliver at the Closing a certificate of an authorized officer
stating that (a) the Assets have been delivered in proper form to New Fund
within two business days before or at the Effective Time and (b) all necessary
taxes in connection with the delivery of the Assets, including all applicable
federal and state stock transfer stamps, if any, have been paid or provision for
payment has been made. Each of Old Fund's portfolio securities represented by a
certificate or other written instrument shall be transferred and delivered by
Old Fund as of the Effective Time for New Fund's account duly endorsed in proper
form for transfer in such condition as to constitute good delivery thereof. The
Custodian shall deliver as of the Effective Time by book entry, in accordance
with the customary practices of the Custodian and any securities depository (as
defined in Rule 17f-4 under the 1940 Act) in which any Assets are deposited, the
Assets that are deposited with such depositories. The cash to be transferred by
Old Fund shall be delivered by wire transfer of federal funds at the Effective
Time.
2.3 The Corporation shall direct its transfer agent to deliver at the
Closing a certificate of an authorized officer stating that Old Fund's share
transfer books contain the number of full and fractional outstanding Old Fund
Shares each Shareholder owned immediately before the Closing.
2.4 The Corporation shall deliver to the Trust at the Closing a
certificate of an authorized officer of the Corporation setting forth
information (including adjusted basis and holding period, by lot) concerning the
Assets, including all portfolio securities, on Old Fund's books immediately
before the Effective Time.
2.5 Each Investment Company shall deliver to the other at the Closing a
certificate executed in its name by its President or a Vice President in form
and substance reasonably satisfactory to the recipient and dated the date of the
Closing, to the effect that the
3
representations and warranties it made in this Agreement are true and correct at
the Effective Time except as they may be affected by the transactions
contemplated by this Agreement.
3. REPRESENTATIONS AND WARRANTIES
3.1 The Corporation, on Old Fund's behalf, represents and warrants
to the Trust, on New Fund's behalf, as follows:
(a) The Corporation is a corporation that is duly incorporated, validly
existing, and in good standing under the laws of the State of
Maryland; and its Articles of Incorporation ("ARTICLES") are on file
with that state's Department of Assessments and Taxation;
(b) The Corporation is duly registered as an open-end management
investment company under the 1940 Act, and such registration will be
in full force and effect at the Effective Time;
(c) Old Fund is a duly established and designated series of the
Corporation;
(d) At the Effective Time, the Corporation, on Old Fund's behalf, will
have good and marketable title to the Assets and full right, power,
and authority to sell, assign, transfer, and deliver the Assets
hereunder free of any liens or other encumbrances (except securities
that are subject to "securities loans" as referred to in section
851(b)(2) of the Code or that are restricted to resale by their
terms); and on delivery and payment for the Assets, the Trust, on
New Fund's behalf, will acquire good and marketable title thereto;
(e) Old Fund is not engaged currently, and the Corporation's execution,
delivery, and performance of this Agreement will not result, in (1)
a material violation of the Articles or the Corporation's By-Laws
(collectively, "CORPORATION GOVERNING DOCUMENTS") or of any
agreement, indenture, instrument, contract, lease, or other
undertaking to which the Corporation, on Old Fund's behalf, is a
party or by which it is bound or (2) the acceleration of any
obligation, or the imposition of any penalty, under any agreement,
indenture, instrument, contract, lease, judgment, or decree to which
the Corporation, on Old Fund's behalf, is a party or by which it is
bound;
(f) All material contracts and other commitments of Old Fund (other than
this Agreement and certain investment contracts, including options,
futures, and forward contracts) will terminate, or provision for
discharge of any liabilities of Old Fund thereunder will be made, at
or before the Effective Time, without either Fund's incurring any
liability or penalty with respect thereto and without diminishing or
releasing any rights the Corporation, on Old Fund's behalf, may have
had with respect to actions taken or omitted or to be taken by any
other party thereto before the Closing;
(g) No litigation, administrative proceeding, or investigation of or
before any court or governmental body is presently pending or, to
its knowledge, threatened against the Corporation with respect to
Old Fund or any of its properties or assets that, if adversely
determined, would materially and adversely affect its financial
condition or the conduct of its business; and the Corporation, on
Old Fund's behalf, knows of no facts that
4
might form the basis for the institution of such proceedings and is
not a party to or subject to the provisions of any order, decree, or
judgment of any court or governmental body that materially and
adversely affects its business or its ability to consummate the
transactions herein contemplated, except as otherwise disclosed to
the Trust;
(h) Old Fund's Statement of Assets and Liabilities, Statements of
Operations and Changes in Net Assets, and Portfolio of Investments
(collectively, "Statements") at and for the year ended on March 31,
2005 ("2005 Statements"), have been audited by Xxxxx & Young LLP, an
independent registered public accounting firm ("E& Y"); E&Y will
perform the audit of the Statements for the year ended on March 31,
2006 ("2006 Statements"); the 2005 Statements and Old Fund's
unaudited Statements at and for the six-month period ended on
September 30, 2005, present fairly, in all material respects, Old
Fund's financial condition as of the respective dates thereof in
accordance with generally accepted accounting principles
consistently applied ("GAAP"); and to the Corporation's management's
best knowledge and belief, there are and will be no known contingent
liabilities, debts, obligations, or duties of Old Fund required to
be reflected on a balance sheet (including the notes thereto) in
accordance with GAAP as of such respective dates that are not
disclosed therein;
(i) Since March 31, 2005, there has not been any material adverse change
in Old Fund's financial condition, assets, liabilities, or business,
other than changes occurring in the ordinary course of business, or
any incurrence by Old Fund of indebtedness maturing more than one
year from the date such indebtedness was incurred; for purposes of
this subparagraph, a decline in net asset value per Old Fund Share
due to declines in market values of securities Old Fund holds, the
discharge of Old Fund liabilities, or the redemption of Old Fund
Shares by its shareholders shall not constitute a material adverse
change;
(j) At the Effective Time, all federal and other tax returns, dividend
reporting forms, and other tax-related reports of Old Fund required
by law to have been filed by such date (including any extensions)
shall have been filed and are or will be correct in all material
respects, and all federal and other taxes shown as due or required
to be shown as due on such returns and reports shall have been paid
or provision shall have been made for the payment thereof, and to
the best of the Corporation's knowledge, no such return is currently
under audit and no assessment has been asserted with respect to such
returns;
(k) Old Fund is a "fund" as defined in section 851(g)(2) of the Code;
for each taxable year of its operation, Old Fund has met (or, for
its current taxable year, will meet) the requirements of Subchapter
M of Chapter 1 of the Code for qualification as a regulated
investment company ("RIC") and has been (or will be) eligible to and
has computed (or will compute) its federal income tax under section
852 of the Code; from the time the Corporation's Board approved the
transactions contemplated by this Agreement ("APPROVAL TIME")
through the Effective Time, Old Fund has invested and will invest
its assets in a manner that ensures its compliance with the
foregoing; from the time it commenced operations through the
Effective Time, Old Fund has conducted and will
5
conduct its "historic business" (within the meaning of section
1.368-1(d)(2) of the Regulations) in a substantially unchanged
manner; from the Approval Time through the Effective Time, Old Fund
(1) has not disposed of and/or acquired, and will not dispose of
and/or acquire, any assets (i) for the purpose of satisfying New
Fund's investment objective or policies or (ii) for any other reason
except in the ordinary course of its business as a RIC and (2) has
not otherwise changed, and will not otherwise change, its historic
investment policies; and Old Fund has no earnings and profits
accumulated in any taxable year in which the provisions of
Subchapter M did not apply to it;
(l) All issued and outstanding Old Fund Shares are, and at the Effective
Time will be, duly and validly issued and outstanding, fully paid,
and non-assessable by the Corporation and have been offered and sold
in every state and the District of Columbia in compliance in all
material respects with applicable registration requirements of the
Securities Act of 1933, as amended ("1933 ACT"), and state
securities laws; all issued and outstanding Old Fund Shares will, at
the Effective Time, be held by the persons and in the amounts set
forth in the Old Fund's share transfer books, as provided in
paragraph 2.3; and Old Fund does not have outstanding any options,
warrants, or other rights to subscribe for or purchase any Old Fund
Shares, nor is there outstanding any security convertible into any
Old Fund Shares;
(m) Old Fund incurred the Liabilities, which are associated with the
Assets, in the ordinary course of its business;
(n) Old Fund is not under the jurisdiction of a court in a "title 11
or similar case" (as defined in section 368(a)(3)(A) of the Code);
(o) During the five-year period ending at the Effective Time, (1)
neither Old Fund nor any person "related" (within the meaning of
section 1.368-1(e)(3) of the Regulations) to it will have acquired
Old Fund Shares, either directly or through any transaction,
agreement, or arrangement with any other person, with consideration
other than New Fund Shares or Old Fund Shares, except for shares
redeemed in the ordinary course of Old Fund's business as a series
of an open-end investment company as required by section 22(e) of
the 1940 Act, and (2) no distributions will have been made with
respect to Old Fund Shares, other than normal, regular dividend
distributions made pursuant to Old Fund's historic dividend-paying
practice and other distributions that qualify for the deduction for
dividends paid (within the meaning of section 561 of the Code)
referred to in sections 852(a)(1) and 4982(c)(1)(A) of the Code;
(p) Not more than 25% of the value of Old Fund's total assets (excluding
cash, cash items, and U.S. government securities) is invested in the
stock and securities of any one issuer, and not more than 50% of the
value of such assets is invested in the stock and securities of five
or fewer issuers;
(q) The Corporation's current prospectus and statement of additional
information including Old Fund, and each prospectus and statement of
additional information including Old Fund used at all times prior to
the date hereof, (1) conform in all material respects to
6
the applicable requirements of the 1933 Act and the 1940 Act and the
rules and regulations of the Commission thereunder and (2) as of the
date on which they were issued did not contain, and as supplemented
by any supplement thereto dated before or at the Effective Time do
not contain, any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under
which they were made, not misleading;
(r) Each of the PROXY STATEMENT (as defined in paragraph 4.5) (other
than written information the Trust provided for inclusion therein)
and the Corporation's REGISTRATION STATEMENT including Old Fund
under the 1933 Act and the 1940 Act did not, on its effective date,
and will not, at the Effective Time and at the time of the
SHAREHOLDERS MEETING (as defined in paragraph 4.1), contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which such statements
were made, not misleading; and
(s) The New Fund Shares are not being acquired for the purpose of any
distribution thereof, other than in accordance with the terms
hereof.
3.2 The Trust, on New Fund's behalf, represents and warrants to the
Corporation, on Old Fund's behalf, as follows:
(a) The Trust is a statutory trust that is duly organized, validly
existing, and in good standing under the laws of the State of
Delaware; and its Certificate of Trust has been duly filed in the
office of the Secretary of State thereof;
(b) The Trust is duly registered as an open-end management investment
company under the 1940 Act;
(c) New Fund is a duly established and designated series of the Trust;
(d) New Fund has not commenced operations and will not do so until after
the Closing;
(e) Before the Closing, there will be no (1) issued and outstanding New
Fund Shares, (2) options, warrants, or other rights to subscribe for
or purchase any New Fund Shares, (3) securities convertible into any
New Fund Shares, or (4) any other securities issued by New Fund,
except the Initial Shares;
(f) No consideration other than New Fund Shares (and New Fund's
assumption of the Liabilities) will be issued in exchange for the
Assets in the Reorganization;
(g) New Fund is not engaged currently, and the Trust's execution,
delivery, and performance of this Agreement will not result, in (1)
a material violation of the Trust's Master Trust Agreement or
By-Laws (collectively, "TRUST GOVERNING DOCUMENTS") or of any
agreement, indenture, instrument, contract, lease, or other
undertaking to which the Trust, on New Fund's behalf, is a party or
by which it is bound or (2) the acceleration of any obligation, or
the imposition of any penalty, under any agreement,
7
indenture, instrument, contract, lease, judgment, or decree to which
the Trust, on New Fund's behalf, is a party or by which it is bound;
(h) No litigation, administrative proceeding, or investigation of or
before any court or governmental body is presently pending or, to
its knowledge, threatened against the Trust with respect to New Fund
or any of its properties or assets that, if adversely determined,
would materially and adversely affect its financial condition or the
conduct of its business; and the Trust, on New Fund's behalf, knows
of no facts that might form the basis for the institution of such
proceedings and is not a party to or subject to the provisions of
any order, decree, or judgment of any court or governmental body
that materially and adversely affects its business or its ability to
consummate the transactions herein contemplated, except as otherwise
disclosed to the Corporation;
(i) New Fund will be a "fund" as defined in section 851(g)(2) of the
Code; it will meet the requirements of Subchapter M of Chapter 1 of
the Code for qualification as a RIC for its taxable year in which
the Reorganization occurs; and it intends to continue to meet all
such requirements for the next taxable year;
(j) New Fund has no plan or intention to issue additional New Fund
Shares following the Reorganization except for shares issued in the
ordinary course of its business as a series of an open-end
investment company; nor does New Fund, or any person "related"
(within the meaning of section 1.368-1(e)(3) of the Regulations) to
it, have any plan or intention to acquire -- during the five-year
period beginning at the Effective Time, either directly or through
any transaction, agreement, or arrangement with any other person --
with consideration other than New Fund Shares, any New Fund Shares
issued to the Shareholders pursuant to the Reorganization, except
for redemptions in the ordinary course of such business as required
by section 22(e) of the 1940 Act;
(k) Following the Reorganization, New Fund (1) will continue Old Fund's
"historic business" (within the meaning of section 1.368-1(d)(2) of
the Regulations) and (2) will use a significant portion of Old
Fund's "historic business assets" (within the meaning of section
1.368-1(d)(3) of the Regulations) in a business; moreover, New Fund
(3) has no plan or intention to sell or otherwise dispose of any of
the Assets, except for dispositions made in the ordinary course of
that business and dispositions necessary to maintain its status as a
RIC, and (4) expects to retain substantially all the Assets in the
same form as it receives them in the Reorganization, unless and
until subsequent investment circumstances suggest the desirability
of change or it becomes necessary to make dispositions thereof to
maintain such status;
(l) There is no plan or intention for New Fund to be dissolved or merged
into another statutory or business trust or a corporation or any
"fund" thereof (as defined in section 851(g)(2) of the Code)
following the Reorganization;
(m) During the five-year period ending at the Effective Time, neither
New Fund nor any person "related" (within the meaning of section
1.368-1(e)(3) of the Regulations) to it will have acquired Old Fund
Shares with consideration other than New Fund Shares;
8
(n) Assuming the truthfulness and correctness of the Corporation's
representation and warranty in paragraph 3.1(p), immediately after
the Reorganization, (1) not more than 25% of the value of New Fund's
total assets (excluding cash, cash items, and U.S. government
securities) will be invested in the stock and securities of any one
issuer and (2) not more than 50% of the value of such assets will be
invested in the stock and securities of five or fewer issuers;
(o) The New Fund Shares to be issued and delivered to Old Fund, for the
Shareholders' accounts, pursuant to the terms hereof, (1) will at
the Effective Time have been duly authorized and duly registered
under the federal securities laws (and appropriate notices
respecting them will have been duly filed under applicable state
securities laws) and (2) when so issued and delivered, will be duly
and validly issued and outstanding New Fund Shares and will be fully
paid and non-assessable by the Trust;
(p) The Proxy Statement (only with respect to written information the
Trust provided for inclusion therein) will, on its effective date,
at the Effective Time, and at the time of the Shareholders Meeting,
not contain any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which
such statements were made, not misleading; and
(q) The Trust's Trust Agreement permits the Trust to vary its
shareholders' investment; and the Trust will not have a fixed pool
of assets -- each series thereof (including New Fund after it
commences operations) will be a managed portfolio of securities, and
its investment adviser, USAA Investment Management Company
("ADVISER"), will have the authority to buy and sell securities for
it.
3.3 Each Investment Company, on its respective Fund's behalf,
represents and warrants to the other Investment Company, on its respective
Fund's behalf, as follows:
(a) No governmental consents, approvals, authorizations, or filings are
required under the 1933 Act, the Securities Exchange Act of 1934, as
amended ("1934 ACT"), the 1940 Act, or state securities laws for its
execution or performance of this Agreement, except for (1) the
Trust's amendment of its registration statement under the 1933 Act
and the 1940 Act and the amendment of its notification of
registration filed on Form N-8A under the 1940 Act to reflect the
Reorganization and any additional information necessary to comply
with Rule 414(d) under the 1933 Act ("REGISTRATION STATEMENT"), and
(2) such consents, approvals, authorizations, and filings as have
been made or received or as may be required subsequent to the
Effective Time;
(b) The fair market value of the New Fund Shares each Shareholder
receives will be approximately equal to the fair market value of its
Old Fund Shares it actually or constructively surrenders in exchange
therefor;
(c) Its management (1) is unaware of any plan or intention of the
Shareholders to redeem, sell, or otherwise dispose of (i) any
portion of their Old Fund Shares before the Reorganization to any
person "related" (within the meaning of section 1.368-1(e)(3) of
9
the Regulations) to either Fund or (ii) any portion of the New Fund
Shares they receive in the Reorganization to any person "related"
(within such meaning) to New Fund, (2) does not anticipate
dispositions of those New Fund Shares at the time of or soon after
the Reorganization to exceed the usual rate and frequency of
dispositions of shares of Old Fund as a series of an open-end
investment company, (3) expects that the percentage of shareholder
interests, if any, that will be disposed of as a result of or at the
time of the Reorganization will be DE MINIMIS, and (4) does not
anticipate that there will be extraordinary redemptions of New Fund
Shares immediately following the Reorganization;
(d) The Shareholders will pay their own expenses (such as fees of
personal investment or tax advisers for advice regarding the
Reorganization), if any, incurred in connection with the
Reorganization;
(e) The fair market value of the Assets on a going concern basis will
equal or exceed the Liabilities to be assumed by New Fund and those
to which the Assets are subject;
(f) None of the compensation received by any Shareholder who is an
employee of or service provider to Old Fund will be separate
consideration for, or allocable to, any of the Old Fund Shares that
Shareholder held; none of the New Fund Shares any such Shareholder
receives will be separate consideration for, or allocable to, any
employment agreement, investment advisory agreement, or other
service agreement; and the compensation paid to any such Shareholder
will be for services actually rendered and will be commensurate with
amounts paid to third parties bargaining at arm's-length for similar
services;
(g) Neither Fund will be reimbursed for any expenses incurred by it or
on its behalf in connection with the Reorganization unless those
expenses are solely and directly related to the Reorganization
(determined in accordance with the guidelines set forth in Rev. Rul.
73-54, 1973-1 C.B. 187) ("REORGANIZATION EXPENSES");
(h) The aggregate value of the acquisitions, redemptions, and
distributions limited by paragraphs 3.1(o), 3.2(j), and 3.2(m) will
not exceed 50% of the value (without giving effect to such
acquisitions, redemptions, and distributions) of the proprietary
interest in Old Fund at the Effective Time;
(i) Immediately following consummation of the Reorganization, the
Shareholders will own all the New Fund Shares and will own such
shares solely by reason of their ownership of the Old Fund Shares
immediately before the Reorganization; and
(j) Immediately following consummation of the Reorganization, New Fund
will hold the same assets -- except for assets used to pay the
Funds' expenses incurred in connection with the Reorganization --
and be subject to the same liabilities that Old Fund held or was
subject to immediately before the Reorganization, plus any
liabilities for such expenses; and such excepted assets, together
with the amount of all redemptions and distributions (other than
regular, normal dividends) Old Fund makes immediately
10
preceding the Reorganization, will, in the aggregate, constitute
less than 1% of its net assets.
4. COVENANTS
4.1 The Corporation covenants to call a meeting of Old Fund's
shareholders to consider and act on this Agreement and to take all other action
necessary to obtain approval of the transactions contemplated herein
("SHAREHOLDERS MEETING").
4.2 The Corporation covenants that the New Fund Shares to be delivered
hereunder are not being acquired for the purpose of making any distribution
thereof, other than in accordance with the terms hereof.
4.3 The Corporation covenants that it will assist the Trust in
obtaining information the Trust reasonably requests concerning the beneficial
ownership of Old Fund Shares.
4.4 The Corporation covenants that it will turn over its books and
records (including all books and records required to be maintained under the
1940 Act and the rules and regulations thereunder) to the Trust at the Closing.
4.5 Each Investment Company covenants to cooperate in preparing, in
compliance with applicable federal securities laws, a proxy statement on
Schedule 14A relating to the Reorganization to be furnished in connection with
the Corporation's Board's solicitation of proxies for use at the Shareholders
Meeting ("PROXY STATEMENT").
4.6 Each Investment Company covenants that it will, from time to time,
as and when requested by the other Investment Company, execute and deliver or
cause to be executed and delivered all assignments and other instruments, and
will take or cause to be taken further action, the other Investment Company
deems necessary or desirable in order to vest in, and confirm to, (a) New Fund,
title to and possession of all the Assets, and (b) Old Fund, title to and
possession of the New Fund Shares to be delivered hereunder, and otherwise to
carry out the intent and purpose hereof.
4.7 The Corporation covenants that it will deliver copies of the 2006
Statements to the Trust promptly after E&Y signs and delivers same thereto. On
such delivery, the Corporation's representations and warranties contained in the
third clause of paragraph 3.1(h) (referring to the Statements' fair presentation
in accordance with GAAP) and the last clause thereof shall apply to the 2006
Statements in addition to the Statements referred to therein, and paragraph
3.1(i) shall apply by substituting "March 31, 2006" for "March 31, 2005."
4.8 The Trust covenants to use all reasonable efforts to obtain the
approvals and authorizations required by the 1933 Act, the 1940 Act, and state
securities laws it deems appropriate to continue its operations after the
Effective Time.
4.9 Subject to this Agreement, each Investment Company covenants to
take or cause to be taken all actions, and to do or cause to be done all things,
reasonably necessary, proper, or advisable to consummate and effectuate the
transactions contemplated hereby.
11
5. CONDITIONS PRECEDENT
Each Investment Company's obligations hereunder shall be subject to (a)
performance by the other Investment Company of all its obligations to be
performed hereunder at or before the Closing, (b) all representations and
warranties of the other Investment Company contained herein being true and
correct in all material respects as of the date hereof and, except as they may
be affected by the transactions contemplated hereby, as of the Effective Time,
with the same force and effect as if made at and as of such time, and (c) the
following further conditions that, at or before such time:
5.1 All necessary filings shall have been made with the Commission and
state securities authorities, and no order or directive shall have been received
that any other or further action is required to permit the parties to carry out
the transactions contemplated hereby. A post-effective amendment
("POST-EFFECTIVE AMENDMENT") to the Registration Statement of New Trust with
respect to the New Fund shall have become effective under the 1933 Act, no stop
orders suspending the effectiveness thereof shall have been issued, and, to each
Investment Company's best knowledge, no investigation or proceeding for that
purpose shall have been instituted or be pending, threatened, or contemplated
under the 1933 Act or the 1940 Act, and the Commission shall not have issued an
unfavorable report with respect to the Reorganization under section 25(b) of the
1940 Act nor instituted any proceedings seeking to enjoin consummation of the
transactions contemplated hereby under section 25(c) of the 1940 Act. All
consents, orders, and permits of federal, state, and local regulatory
authorities (including the Commission and state securities authorities) either
Investment Company deems necessary to permit consummation, in all material
respects, of the transactions contemplated hereby shall have been obtained,
except where failure to obtain same would not involve a risk of a material
adverse effect on either Fund's assets or properties;
5.2 At the Effective Time, no action, suit, or other proceeding shall
be pending before any court or governmental agency in which it is sought to
restrain or prohibit, or to obtain damages or other relief in connection with,
the transactions contemplated hereby;
5.3 The Investment Companies shall have received an opinion of Counsel
as to the federal income tax consequences mentioned below ("TAX OPINION"). In
rendering the Tax Opinion, Counsel may rely as to factual matters, exclusively
and without independent verification, on the representations and warranties made
in this Agreement, which Counsel may treat as representations and warranties
made to it, and in separate letters addressed to it. The Tax Opinion shall be
substantially to the effect that, based on the facts and assumptions stated
therein and conditioned on consummation of the Reorganization in accordance with
this Agreement, for federal income tax purposes:
(a) New Fund's acquisition of the Assets in exchange solely for New Fund
Shares and its assumption of the Liabilities, followed by Old Fund's
distribution of those shares PRO RATA to the Shareholders actually
or constructively in exchange for their Old Fund Shares, will
qualify as a "reorganization" (as defined in section 368(a)(1)(F) of
the Code), and each Fund will be "a party to a reorganization"
within the meaning of section 368(b) of the Code;
12
(b) Old Fund will recognize no gain or loss on the transfer of the
Assets to New Fund in exchange solely for New Fund Shares and New
Fund's assumption of the Liabilities or on the subsequent
distribution of those shares to the Shareholders in exchange for
their Old Fund Shares;
(c) New Fund will recognize no gain or loss on its receipt of the Assets
in exchange solely for New Fund Shares and its assumption of the
Liabilities;
(d) New Fund's basis in each Asset will be the same as Old Fund's basis
therein immediately before the Reorganization, and New Fund's
holding period for each Asset will include Old Fund's holding period
therefor;
(e) A Shareholder will recognize no gain or loss on the exchange of all
its Old Fund Shares solely for New Fund Shares pursuant to the
Reorganization;
(f) A Shareholder's aggregate basis in the New Fund Shares it receives
in the Reorganization will be the same as the aggregate basis in its
Old Fund Shares it actually or constructively surrenders in exchange
for those New Fund Shares, and its holding period for those New Fund
Shares will include, in each instance, its holding period for those
Old Fund Shares, provided the Shareholder holds them as capital
assets at the Effective Time; and
(g) For purposes of section 381 of the Code, New Fund will be treated as
if there had been no Reorganization. Accordingly, the Reorganization
will not result in the termination of Old Fund's taxable year, Old
Fund's tax attributes enumerated in section 381(c) of the Code will
be taken into account by New Fund as if there had been no
Reorganization, and the part of Old Fund's taxable year before the
Reorganization will be included in New Fund's taxable year after the
Reorganization.
Notwithstanding subparagraphs (b) and (d), the Tax Opinion may state that no
opinion is expressed as to the effect of the Reorganization on the Funds or any
Shareholder with respect to any Asset as to which any unrealized gain or loss is
required to be recognized for federal income tax purposes at the end of a
taxable year (or on the termination or transfer thereof) under a mark-to-market
system of accounting;
5.4 Before the Closing, the Trust's Board shall have authorized the
issuance of, and New Fund shall have issued, ten New Fund Shares in each class
("INITIAL SHARES") to the Adviser or an affiliate thereof in consideration of
the payment of $10.00 each to take whatever action it may be required to take as
New Fund's sole shareholder pursuant to paragraph 5.6;
5.5 The Trust (on behalf of and with respect to New Fund) shall have
entered into, or adopted, as appropriate, an investment advisory contract and
other agreements and plans necessary for New Fund's operation as a series of an
open-end investment company. Each such contract and agreement shall have been
approved by the Trust's Board and, to the extent required by law (as interpreted
by Commission staff positions), by its trustees who are not "interested persons"
(as defined in the 1940 Act) thereof and by the Adviser or its affiliate as New
Fund's sole shareholder; and
13
5.6 At any time before the Closing, either Investment Company may waive
any of the foregoing conditions (except those set forth in paragraphs 5.1, 5.4,
5.5, and 5.6) if, in the judgment of its Board, such waiver will not have a
material adverse effect on its Fund's shareholders' interests.
6. EXPENSES
Subject to complying with the representation contained in paragraph
3.3(g), the Reorganization Expenses shall be borne by the Funds equally or in
any other proportion or manner the Investment Companies mutually agree on. The
Reorganization Expenses include costs associated with obtaining any necessary
order of exemption from the 1940 Act, preparation of the Post-Effective
Amendment, printing and distributing New Fund's prospectus and Old Fund's proxy
materials, soliciting proxies, legal fees, accounting fees, securities
registration fees, and expenses of holding shareholders meetings.
Notwithstanding the foregoing, expenses shall be paid by the party directly
incurring them if and to the extent that the payment thereof by another person
would result in such party's disqualification as a RIC or would prevent the
Reorganization from qualifying as a tax-free reorganization.
7. ENTIRE AGREEMENT; NO SURVIVAL
Neither Investment Company has made any representation, warranty, or
covenant not set forth herein, and this Agreement constitutes the entire
agreement between the Investment Companies. The representations, warranties, and
covenants contained herein or in any document delivered pursuant hereto or in
connection herewith shall not survive the Closing.
8. TERMINATION
This Agreement may be terminated, with respect to one or more
Reorganizations, at any time at or before the Closing:
8.1 By either Investment Company (a) in the event of the other
Investment Company's material breach of any representation, warranty, or
covenant contained herein to be performed at or before the Closing, (b) if a
condition to its obligations has not been met and it reasonably appears that
such condition will not or cannot be met, (c) if a governmental body issues an
order, decree, or ruling having the effect of permanently enjoining,
restraining, or otherwise prohibiting consummation of the Reorganization, or (d)
if the Closing has not occurred on or before August 1, 2006, or such other date
as to which the Investment Companies agree; or
8.2 By the Investment Companies' mutual agreement.
In the event of termination under paragraphs 8.1(c) or 8.2, neither Investment
Company (nor its trustees/directors, officers, or shareholders) shall have any
liability to the other Investment Company.
9. AMENDMENTS
The Investment Companies may amend, modify, or supplement this
Agreement at any time in any manner they mutually agree on in writing,
notwithstanding Old Fund's shareholders'
14
approval thereof; provided that, following such approval no such amendment,
modification, or supplement shall have a material adverse effect on the
Shareholders' interests.
10. SEVERABILITY
Any term or provision of this Agreement that is invalid or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such invalidity or unenforceability without rendering invalid
or unenforceable the remaining terms and provisions of this Agreement or
affecting the validity or enforceability of any of the terms and provisions of
this Agreement in any other jurisdiction.
11. MISCELLANEOUS
11.1 This Agreement shall be construed and interpreted in accordance
with the internal laws of the State of Delaware; provided that, in the case of
any conflict between those laws and the federal securities laws, the latter
shall govern.
11.2 Nothing expressed or implied herein is intended or shall be
construed to confer on or give any person, firm, trust, or corporation other
than each Investment Company (on its respective Fund's behalf) and its
respective successors and assigns any rights or remedies under or by reason of
this Agreement.
11.3 Notice is hereby given that this instrument is executed and
delivered on behalf of the Trust's trustees solely in their capacities as
trustees and not individually. Each Investment Company's obligations under this
instrument are not binding on or enforceable against any of its
trustees/directors, officers, or shareholders or any series of the Investment
Company other than its Fund but are only binding on and enforceable against its
Fund's property. Each Investment Company, in asserting any rights or claims
under this Agreement on its Fund's behalf, shall look only to the other Fund's
property in settlement of such rights or claims and not to the property of any
other series of the other Investment Company or to such trustees/directors,
officers, or shareholders.
11.4 This Agreement may be executed in one or more counterparts, all of
which shall be considered one and the same agreement, and shall become effective
when one or more counterparts have been executed by each Investment Company and
delivered to the other Investment Company. The headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
15
IN WITNESS WHEREOF, each party has caused this Agreement to be executed
and delivered by its duly authorized officer as of the day and year first
written above.
USAA MUTUAL FUNDS TRUST, on behalf of
each of its series listed on Schedule A
By: /S/ XXXXXXXXXXX X. XXXXX
------------------------------
Xxxxxxxxxxx X. Xxxxx
President
USAA TAX EXEMPT FUND, INC., on behalf of
each of its series listed on Schedule A
By: /S/ XXXX X. XXXXXX
------------------------------
Xxxx X. Xxxxxx
Secretary
16
SCHEDULE A
OLD FUNDS NEW FUNDS
(EACH A SERIES OF THE CORPORATION) (EACH A SERIES OF THE TRUST)
-------------------------------------- --------------------------------
California Bond Fund California Bond Fund
California Money Market Fund California Money Market Fund
Intermediate-Term Fund Tax Exempt Intermediate-Term Fund
Long-Term Fund Tax Exempt Long-Term Fund
Short-Term Fund Tax Exempt Short-Term Fund
New York Bond Fund New York Bond Fund
New York Money Market Fund New York Money Market Fund
Tax Exempt Money Market Fund Tax Exempt Money Market Fund
Xxxxxxxx Xxxx Fund Xxxxxxxx Xxxx Fund
Virginia Money Market Fund Virginia Money Market Fund
17
