[USAA
EAGLE
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INFORMATION STATEMENT
REGARDING SUBADVISER
CHANGES TO THE
USAA SMALL CAP STOCK FUND
The USAA Small Cap Stock Fund’s Board of Trustees (the Board) recently approved Cambiar Investors, LLC (Cambiar) and Granahan Investment Management, Inc. (GIMI) as new subadvisers for the USAA Small Cap Stock Fund (the Fund), replacing Batterymarch Financial Management, Inc. with
the change taking effect on July 11, 2012. In 2002, the U.S. Securities and Exchange Commission granted an order that permits USAA Asset Management Company (AMCO) to change subadvisers for a Fund without first calling a special shareholders meeting and obtaining shareholder approval (Order). One of the conditions of the Order requires AMCO, within 90 days of the hiring of any new subadviser, to furnish the Fund’s shareholders all the information that would have been included in a proxy statement. This statement provides such information regarding the hiring of Cambiar and GIMI. This Information Statement is first being delivered to shareholders on or about September 24, 2012.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
INVESTMENT SUBADVISORY AGREEMENTS
AMONG AMCO, CAMBIAR INVESTORS, LLC, AND
GRANAHAN INVESTMENT MANAGEMENT, INC.
Ø | WHAT WAS THE PROCESS THAT LED TO CAMBIAR AND GIMI BECOMING NEW SUBADVISERS TO THE FUND? |
In monitoring the performance of the Fund's former subadviser, Batterymarch Financial Management, Inc. (Batterymarch), AMCO determined that the relative performance of the portion of the Fund allocated to Batterymarch did not meet expectations. As a result, AMCO reassessed the options available to the Fund, identified several firms in the business of managing funds with objectives similar to that of the Fund, and solicited proposals from those firms. After reviewing the proposals, AMCO concluded that engaging both Cambiar and GIMI was in the best interests of the Fund and recommended that the Fund's Board approve entering into investment subadvisory agreements with each of Cambiar and GIMI (Subadvisory Agreement(s)). On June 19, 2012, after considering, among other things, Cambiar's and GIMI's capabilities and reviewing the terms of the Subadvisory Agreements, the Fund's Board approved the new Subadvisory Agreements. Cambiar's and GIMI's duties under their respective Subadvisory Agreements are substantially the same as the duties of
Batterymarch under the Fund's former subadvisory agreement between AMCO and Batterymarch. AMCO will continue to oversee the management of the Fund as its investment adviser.
Ø | WHAT ARE THE KEY PROVISIONS OF THE SUBADVISORY AGREEMENTS? |
The key provisions of the Subadvisory Agreements remain substantially similar to the key provisions of the former subadvisory agreement with Batterymarch. The following represents a brief summary of the key provisions of the Sub-advisory Agreements with Cambiar and GIMI. Forms of the actual Subadvisory Agreements are attached hereto as Exhibit A and Exhibit B.
Under the Subadvisory Agreements, AMCO will employ Cambiar and GIMI to each manage a portion of the day-to-day investment of the Fund’s assets consistent with the Fund's investment objective, policies, and restrictions. Subject to supervision and monitoring by AMCO, and the oversight of the Fund's Board, Cambiar and GIMI will be responsible for, among other things, determining what portfolio securities to purchase, hold, or sell with respect to the portion of the Fund allocated to each, placing all orders for the purchase and sale of those portfolio securities, and selecting the appropriate broker or dealer to execute any purchase or sale transactions.
The Subadvisory Agreements require that, in the performance of their duties, Cambiar and GIMI act in the best interests of the Fund and comply with: (i) applicable laws and regulations, including, but not limited to, the Investment Company Act of 1940, as amended (1940 Act), and the Investment Advisers Act of 1940, as amended (Advisers Act), and the rules under each, (ii) the terms of the respective Subadvisory Agreement, (iii) the stated investment objective, policies and restrictions of the Fund, (iv) the Trust’s compliance procedures and other policies, procedures or guidelines, (v) the provisions of the Internal Revenue Code of 1986, as amended (Code), and (vi) the written instructions of AMCO.
When selecting the appropriate broker or dealer to execute purchase or sale transactions, the Subadvisory Agreements require Cambiar and GIMI use their best efforts to obtain the best execution available. But Cambiar and GIMI are permitted, subject to certain limitations, to pay brokerage commissions that are higher than what another broker might have charged in return for brokerage and research services. The Subadvisory Agreements also permit Cambiar and GIMI to engage in the aggregation of portfolio trading with other clients, or to engage in cross transactions (buying or selling portfolio securities that another client of Cambiar or GIMI is selling or buying, respectively), when Cambiar and GIMI deem such transactions to be in the best interest of the Fund and when such
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practices are permitted by applicable laws and regulations. The Subadvisory Agreements permit Cambiar and GIMI to effect portfolio transactions through brokers and dealers that are affiliated persons of the Funds only upon receiving written approval from AMCO, or where such a transaction is permitted by Section 11(a) of the Securities Exchange Act of 1934.
The Subadvisory Agreements also provide that Cambiar and GIMI are responsible for their own expenses pertaining to personnel, facilities, equipment, bookkeeping and other services necessary for the efficient performance of their duties. Cambiar and GIMI are required to provide reasonable assistance to AMCO regarding the valuation of securities that are the subject of a significant event, not registered for public sale, not traded on any securities markets, or otherwise deemed illiquid for purposes of the 1940 Act, although AMCO is responsible for final pricing determinations and calculations. Cambiar and GIMI are also required to provide AMCO with periodic compliance reports relating to their duties under the Subadvisory Agreements.
Under the Subadvisory Agreements, Cambiar and GIMI cannot be held liable to AMCO, the Trust, or the Fund in the absence of negligence, willful misconduct, bad faith, or reckless disregard of their respective duties under the Subadvisory Agreements, or violation of applicable law. Both Cambiar and GIMI are required, under their respective Subadvisory Agreement, to indemnify AMCO, the Trust, the Fund, and their respective affiliates and controlling persons for any liability or expenses sustained by them as a result of the negligence, willful misconduct, bad faith, or reckless disregard of duties, or violation of applicable law, on the part of either Cambiar or GIMI, respectively, as well as under certain other circumstances. The Subadvisory Agreements also contain provisions pursuant to which AMCO is required to indemnify Cambiar or GIMI for any liability and expenses which may be sustained by Cambiar or GIMI unless they were the result of Cambiar or GIMI’s willful misconduct, bad faith, or gross negligence of their respective duties, or violation of applicable law.
AMCO, and not the Fund, will be responsible for paying all fees charged by Cambiar and GIMI for these subadvisory services (the fees AMCO will pay are described in more detail in the sections “What Will AMCO Pay Cambiar for its Subadvisory Services?” and “What Will AMCO Pay GIMI for its Subadvisory Services?” below).
Ø | WHEN DID THE INVESTMENT SUBADVISORY AGREEMENTS TAKE EFFECT AND UNDER WHAT CIRCUMSTANCES MAY THEY BE TERMINATED? |
The Subadvisory Agreements took effect on July 11, 2012, and will remain in effect for an initial two-year period ending on July 10, 2014. Thereafter, each
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Subadvisory Agreement may be continued for successive years, provided that it is specifically approved at least annually by a vote of a majority of the Board members who are not “interested persons”, as that term is defined in Section 2(a)(19) of the 1940 Act, of the Fund (Independent Board Members) and by a majority of all Board members. The Fund may terminate a Subadvisory Agreement, without penalty, by a vote of a majority of the Independent Board Members or by vote of a majority of the Fund's outstanding shares, without penalty, on not more than 60 days' written notice to AMCO and Cambiar or GIMI, as the case may be. AMCO may at any time terminate either Subadvisory Agreement, without penalty, by written notice to Cambiar or GIMI, respectively. Both Cambiar and GIMI may terminate their respective Subadvisory Agree-ment, without penalty, by not less than 90 days' written notice to AMCO. A Subadvisory Agreement automatically will terminate without penalty in the event of its "assignment" as that term is defined in the 1940 Act.
Ø | WILL THE FUND'S TOTAL EXPENSES CHANGE AS A RESULT OF THE SUBADVISORY AGREEMENTS WITH CAMBIAR AND GIMI? |
No, the Subadvisory Agreements will not affect the Fund's total expense ratio. AMCO (not the Fund) pays a fee to Cambiar and GIMI for services under the Subadvisory Agreements.
Ø | WILL THE FUND'S INVESTMENT OBJECTIVE OR INVEST-MENT STRATEGIES CHANGE AS A RESULT OF THE SUBADVISORY AGREEMENTS WITH CAMBIAR AND GIMI? |
The Fund's investment objective will remain the same. However, Cambiar and GIMI are expected to realign the portion of the Fund's portfolio that each will advise to reflect their proprietary investment techniques. As a result, during
the transition period, the Fund may experience higher portfolio turnover than normal and higher related transaction costs, including brokerage commissions. In addition, the Fund may realize capital gains when portfolio positions are sold. These realized capital gains may increase the Fund's taxable distributions for the current year.
Ø | WHAT INFORMATION DID THE BOARD CONSIDER PRIOR TO APPROVING THE SUBADVISORY AGREEMENTS WITH CAMBIAR AND GIMI? |
At a meeting held on June 19, 2012, the Board, including the Independent Board Members, approved the Subadvisory Agreements with Cambiar and GIMI. In advance of the meeting, the Board received and considered a variety of information relating to the Subadvisory Agreements, Cambiar, and GIMI, and
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had the opportunity to ask questions and request additional information from management. The information provided to the Board included, among other things: (i) the experience and qualifications of Cambiar and GIMI and the individuals at each company who would be responsible for providing investment management services for the Fund; and (ii) the fees to be paid to Cambiar and GIMI. Prior to voting, the Independent Board Members reviewed each proposed Subadvisory Agreement with management and with experienced independent counsel and received materials from such counsel discussing the legal standards for their consideration of the proposed Subadvisory Agreements. The Independent Board Members also reviewed the proposed Subadvisory Agreements in private sessions with their counsel at which no representatives of management were present.
In approving the Fund's Subadvisory Agreements with Cambiar and GIMI, the Board considered various factors, among them: (i) the nature, extent, and quality of services to be provided to the Fund by Cambiar and GIMI, including the personnel that will be providing services; (ii) compensation and any other benefits that will be derived from the subadvisory relationship by Cambiar and GIMI; (iii) comparisons, to the extent available, of subadvisory fees and performance to comparable investment companies; and (iv) the terms of the Subadvisory Agreements. The Board's analysis of these factors is set forth below. In considering the Subadvisory Agreements, the Board did not identify any single factor as controlling, and each Independent Board Member may have attributed different weights to various factors. Throughout their deliberations, the Independent Board Members were represented and assisted by independent counsel.
Nature, Extent, and Quality of Services To Be Provided; Investment Personnel. The Board considered information provided to it regarding the services to be provided by Cambiar and GIMI. The Board considered both Cambiar's and GIMI's level of knowledge and investment style. The Board reviewed the experience and credentials of the investment personnel who would be responsible for managing the investment of portfolio securities with respect
to the Fund and Cambiar's and GIMI's level of staffing. The Board noted Cambiar's and GIMI's brokerage practices. The Board also considered Cambiar's and GIMI's regulatory and compliance history. The Board noted that AMCO's monitoring processes of Cambiar and GIMI would include: (i) regular tele-phonic meetings to discuss, among other matters, investment strategies and to review portfolio performance; (ii) monthly portfolio compliance checklists and quarterly compliance certifications to the Board; and (iii) periodic due diligence reviews of Cambiar and GIMI. The Board also took into consideration the financial condition of Cambiar and GIMI.
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Subadviser Compensation. In considering the cost of services to be provided by Cambiar and GIMI and the profitability to Cambiar and GIMI of their relation-ship with the Fund, the Board noted that the fees under the Subadvisory Agree-ments would be paid by AMCO. The Board also relied on the ability of AMCO to negotiate the Subadvisory Agreements and the fees thereunder at arm's length. The Board also considered information relating to potential economies of scale in Cambiar and GIMI’s management of the Fund, to the extent available. However, this information was less significant to the Board's consideration of the Subadvisory Agreements than the other factors considered for the above reasons.
Subadvisory Fees and Fund Performance. The Board considered the sub-advisory fees for the Fund in comparison to the fees that Cambiar and GIMI charge to comparable clients, as applicable. The Board considered that the Fund pays a management fee to AMCO and that, in turn, AMCO will pay a subadvisory fee to Cambiar and GIMI. The Board took into account that the advisory fees paid by the Fund would not change. The Board noted AMCO's expertise and resources in monitoring the performance, investment style, and risk-adjusted performance of Cambiar and GIMI.
Conclusion. After full consideration of a variety of factors, including those discussed above, the Board determined that its evaluation of each of the factors above supported approval of the Subadvisory Agreements with Cambiar and GIMI, and that such approval would be in the best interests of the Fund and its shareholders. As a result the Board, including the Independent Board Members, voted to approve the Subadvisory Agreements with Cambiar and GIMI.
Ø | WHAT GENERAL INFORMATION IS AVAILABLE ABOUT CAMBIAR? |
Cambiar, located at 2401 East Second Avenue, Denver, Colorado 80206, is an independent, 100% employee-owned firm. Cambiar has been pursuing its value-investing style since 1973. Cambiar provides investment management services to institutions, which include, pension plans, endowments, foundations, state and municipal government entities, and private clients. As of June 30, 2012, Cambiar managed $6.6 billion assets.
Ø | WHO ARE THE DIRECTORS AND PRINCIPAL EXECUTIVE OFFICER OF CAMBIAR? |
The names and principal occupations of the current directors and principal executive officer of Cambiar are set forth as follows:
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Name | Principal Occupation |
Brian M. Barish | President, Chief Investment Officer |
Nancy H. Wigton | Principal, Director of Marketing and Client Service |
Christine M. Simon | Principal, Chief Compliance Officer |
Roderick V. Hostetler | Principal, Director of Trading |
During the last five fiscal years, no director or officer of Cambiar has engaged in any other business, profession, vocation, or employment of a substantial nature other than that of the business of investment management and, through affiliates, investment banking.
Each of these individuals has a business address of 2401 East Second Avenue, Denver, Colorado 80206.
Ø | DOES CAMBIAR OR ANY OF ITS AFFILIATES PROVIDE ANY ADDITIONAL SERVICES TO THE FUND? |
No.
Ø | WHAT WILL AMCO PAY CAMBIAR FOR ITS SUBADVISORY SERVICES? |
CAMBIAR will charge AMCO 0.67% on the first $300 million of assets under management, and 0.65% on assets above $300 million. In addition, Cambiar will not seek to increase this fee during a three-year period ending July 10, 2015.
Ø | DOES CAMBIAR ACT AS ADVISER FOR SIMILAR FUNDS? |
Fund | Annual Fee Rate | Assets as of 7/31/12 |
Advisors Inner Circle Trust Cambiar Small Cap Fund | 1.05% | $1.002 billion |
The Advisors’ Inner Circle Fund II | 0.62% | $92.6 million |
Ø | WHAT GENERAL INFORMATION IS AVAILABLE ABOUT GIMI? |
GIMI, located at 275 Wyman Street, Waltham, Massachusetts 02451, is an independent, 100% employee-owned firm founded in 1985. The firm focuses on the smaller cap area of the market and has dedicated its investment expertise to serving institutions and family offices. At June 30, 2012, GIMI managed $2.79 billion in assets.
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Ø | WHO ARE THE DIRECTORS AND PRINCIPAL EXECUTIVE OFFICER OF GIMI? |
The names and principal occupations of the current directors and principal executive officer of GIMI are set forth as follows:
Name | Principal Occupation |
John J. Granahan | Chairman & Founder, GIMI |
Jane M. White | Founder, President & CEO, GIMI |
Gary C. Hatton | Founder & Chief Investment Officer, GIMI |
During the last five fiscal years, no director or officer of GIMI has engaged in any other business, profession, vocation, or employment of a substantial nature other than that of the business of investment management and, through affiliates, investment banking.
Each of these individuals has a business address of 275 Wyman Street, Waltham, Massachusetts 02451.
Ø | DOES GIMI OR ANY OF ITS AFFILIATES PROVIDE ANY ADDITIONAL SERVICES TO THE FUND? |
No.
Ø | WHAT WILL AMCO PAY GIMI FOR ITS SUBADVISORY SERVICES? |
GIMI will charge AMCO 0.55% on the first $300 million of assets under management, and 0.52% on assets above $300 million. In addition, GIMI will not seek to increase this fee during a three-year period ending July 10, 2015.
Ø | DOES GIMI ACT AS ADVISER FOR SIMILAR FUNDS? |
Yes. GIMI acts as subadvisor to the Variable Annuity Small Company Growth Portfolio managed by the Vanguard Group. Assets managed by GIMI for that fund are $603 million and the fee consists of a base fee of 0.15%, adjusted upward or downward by an incentive formula based on trailing 36 month performance relative to the fund’s benchmark.
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NAME AND ADDRESS OF
THE FUND'S INVESTMENT ADVISER,
PRINCIPAL UNDERWRITER, AND ADMINISTRATOR
AMCO, located at 9800 Fredericksburg Road, San Antonio, TX 78288, is the Fund’s investment adviser and administrator. USAA Investment Management Company, located at 9800 Fredericksburg Road, San Antonio, TX 78288, is the Fund’s principal underwriter.
SHARES OWNED
As of August 31, 2012, there were 52,812,682.153 shares of the Fund out-standing. No shareholder held of record or owned beneficially 5% or more of
the Fund.
FINANCIAL INFORMATION
THE FUND, WITHOUT CHARGE, WILL FURNISH TO YOU UPON REQUEST A COPY OF THE FUND'S ANNUAL REPORT FOR ITS MOST RECENT FISCAL YEAR AND A COPY OF ITS SEMIANNUAL REPORT FOR ANY SUBSEQUENT SEMIANNUAL PERIOD. SUCH REQUEST MAY BE DIRECTED TO USAA ASSET MANAGEMENT COMPANY, 9800 FREDERICKSBURG ROAD, SAN ANTONIO, TEXAS 78288 OR
(800) 531-8722.
HOUSEHOLDING
Each household will receive a single copy of this Information Statement even if you or a family member own more than one account in the Fund. For many of you, this eliminates duplicate copies and saves paper and postage costs to the Fund. However, if you would like to receive an individual copy of this Inform-ation Statement, please call us toll free at (800) 531-USAA (8722) or contact us at 9800 Fredericksburg Road, San Antonio, Texas 78288, and we will send you an individual copy.
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Exhibit A
Subadvisory Agreement
Between
Cambiar Investors and
USAA Asset Management Company
INVESTMENT SUBADVISORY AGREEMENT
AGREEMENT made as of the 11th day of July, 2012, (the Effective Date) between USAA ASSET MANAGEMENT COMPANY, a corporation organized under the laws of the state of Delaware and having its principal place of business in San Antonio, Texas (AMCO) and CAMBIAR INVESTORS, LLC, a limited liability company organized under the laws of the state of Delaware and having its principal place of business in Denver, Colorado (Cambiar).
WHEREAS, AMCO serves as the investment adviser to USAA Mutual Funds Trust, a statutory trust organized under the laws of the state of Delaware (the Trust) and registered as an open-end management investment company under the Investment Company Act of 1940, as amended (the 1940 Act); and
WHEREAS, under its Investment Advisory Agreement with the Trust (Investment Advisory Agreement), AMCO is authorized to appoint subadvisers for series of the Trust (each a Fund, or collectively Funds); and
WHEREAS, AMCO wishes to retain Cambiar to render investment advisory services to such Fund (or portions thereof) as now or hereafter may be identified in Schedule A to this Agreement, as such Schedule A may be amended from time to time (each such Fund or portion thereof referred to herein as a Fund Account and collectively as Fund Accounts); and
WHEREAS, Cambiar is willing to provide such services to the Fund Accounts and AMCO upon the terms and conditions and for the compensation set forth below;
NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, and intending to be legally bound hereby, it is agreed between the parties hereto as follows:
1. Appointment of Cambiar. AMCO hereby appoints Cambiar to act as an investment adviser for each Fund Account in accordance with the terms and conditions of this Agreement. Cambiar will be an independent contractor and will have no authority to act for or represent the Trust or AMCO in any way or otherwise be deemed an agent of the Trust or AMCO except as expressly authorized in this Agreement or another writing by the Trust, AMCO, and Cambiar. Cambiar accepts such appointment and agrees to render the services herein set forth for the compensation herein provided.
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2. Duties of Cambiar.
(a) Authority to Invest. Subject to the control and supervision of AMCO and the Trust’s Board of Trustees (the Board), Cambiar, at its own expense, shall have full discretion to manage, supervise, and direct the investment and reinvestment of Fund Accounts allocated to it by AMCO from time to time. It is understood that a Fund Account may consist of all, a portion of, or none of the assets of the Fund, and that AMCO has the right to allocate and reallocate such assets to a Fund Account at any time. AMCO shall provide Cambiar with reasonable written notice of such allocations and reallocations. Cambiar shall perform its duties described herein in a manner consistent with the investment objective, policies, and restrictions set forth in the then current Prospectus and Statement of Additional Information (SAI) for each Fund. Should Cambiar anticipate materially modifying its investment process, it must provide written notice in advance to AMCO, and any affected Prospectus and SAI should be amended accordingly.
For each Fund set forth on Schedule A to this Agreement, Cambiar shall provide investment advice only with respect to the discrete portion of the Fund’s portfolio allocated to it by AMCO from time to time and shall not consult with any other subadviser of such Fund concerning transactions for the Fund in securities or other assets.
With respect to the management of each Fund Account pursuant to this Agreement, Cambiar shall determine what investments shall be purchased, held, sold, or exchanged by each Fund Account and what portion, if any, of the assets of each Fund Account shall be held in cash or cash equivalents, and purchase or sell portfolio securities for each Fund Account; except that, to the extent Cambiar wishes to hold cash or cash equivalents in excess of 10% of a Fund Account’s assets, Cambiar must request in writing and receive advance permission from AMCO.
In accordance with Subsection (b) of this Section 2, Cambiar shall arrange for the execution of all orders for the purchase and sale of securities and other investments for each Fund Account and will exercise full discretion and act for the Trust in the same manner and with the same force and effect as the Trust might or could do with respect to such purchases, sales, or other trans-actions, as well as with respect to all other things necessary or incidental to the furtherance or conduct of such purchases, sales, or other transactions.
In the performance of its duties, Cambiar will act in the best interests of each Fund and will comply with (i) applicable laws and regulations, including, but not limited to, the 1940 Act and the Investment Advisers Act of 1940, as amended (Advisers Act), and the rules under each, (ii) the terms of this Agree-
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ment, (iii) the stated investment objective, policies and restrictions of each Fund, as stated in the then-current Registration Statement of each Fund, (iv) the Trust’s compliance procedures and other policies, procedures or guidelines as the Board or AMCO reasonably may establish from time to time, (v) the provisions of the Internal Revenue Code of 1986, as amended (Code), applicable to “regulated investment companies” (as defined in Section 851 of the Code), as from time to time in effect, and (vi) the written instructions of AMCO. Cambiar shall establish compliance procedures reasonably calculated to ensure compli-ance with the foregoing. AMCO shall be responsible for providing Cambiar with the Trust’s Master Trust Agreement, as amended and supplemented, the Trust’s By-Laws and amendments thereto and current copies of the materials specified in Subsections (a)(iii) and (iv) of this Section 2. AMCO shall provide Cambiar with prior written notice of any material changes to the Trust’s Registration Statement, the Trust’s compliance procedures and other policies, procedures or guidelines as the Board or AMCO reasonably may establish from time to time, that would affect Cambiar’s management of a Fund Account.
(b) Portfolio Transactions. In connection with the management of the investment and reinvestment of the Fund Accounts’ assets, Cambiar will select the brokers or dealers that will execute purchase and sale transactions for the Fund Accounts, subject to the conditions herein. In the selection of broker-dealers and the placement of orders for the purchase and sale of portfolio invest-ments for the Fund Accounts, Cambiar shall use its best efforts to obtain for the Fund Accounts the best execution available, except to the extent it may be per-mitted to pay higher brokerage commissions for brokerage and research services
as described below. In using its best efforts to obtain the best execution available, Cambiar, bearing in mind each Fund’s best interests at all times, shall consider all factors it deems relevant, including by way of illustration, price, the size of the transaction, the nature of the market for the security, the amount of the commission and dealer’s spread or mark-up, the timing of the transaction taking into account market prices and trends, the reputation, experience, and financial stability of the broker-dealer involved, the general execution and operational facilities of the broker-dealer and the quality of service rendered by the broker-dealer in other transactions.
Subject to such policies as the Board has determined and have been provided to Cambiar, and to the extent authorized by Section 28(e) of the Securities Exchange Act of 1934 (Exchange Act), Cambiar shall not be deemed to have acted unlawfully or to have breached any duty created by this Agreement or otherwise solely by reason of its having caused a Fund Account to pay a broker-dealer that provides brokerage and research services to Cambiar an amount of commission for effecting a portfolio investment transaction in excess of the amount of commission another broker-dealer offering equally good execution capability in the portfolio investment would have charged for effecting that transaction if Cambiar determines
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in good faith that such amount of commission was reasonable in relation to the value of the brokerage and research services provided by such broker-dealer, viewed in terms of either that particular transaction or Cambiar’s overall responsibilities with respect to the Fund and to other clients of Cambiar as to which Cambiar exercises investment discretion. The Board or AMCO may direct Cambiar in writing, subject to Cambiar’s agreement and its reasonable belief that it can
seek to obtain best execution in following such direction, to effect transactions in portfolio securities through broker-dealers in a manner that will help generate resources to pay the cost of certain expenses that the Trust is required to pay or for which the Trust is required to arrange payment.
On occasions when Cambiar deems the purchase or sale of a security to be in the best interest of a Fund as well as other clients of Cambiar, Cambiar, to the extent permitted by applicable laws and regulations, may aggregate the securities to be purchased or sold to attempt to obtain a more favorable price or lower brokerage commissions and efficient execution. In such event, allocation of the securities so purchased or sold, as well as the expenses incurred in the transaction, will be made by Cambiar in the manner it considers to be the most equitable and consistent with its fiduciary obligations to the Fund and to its other clients over time.
Cambiar may buy securities for a Fund Account at the same time it is selling such securities for another client account and may sell securities for a Fund Account at the time it is buying such securities for another client account. In such cases, subject to applicable legal and regulatory requirements, and in compliance with such procedures of the Trust as may be in effect from time to time, Cambiar may effectuate cross transactions between a Fund Account and such other account if it deems this to be advantageous.
Cambiar will advise the Funds’ custodian or such depository or agents as may be designated by the custodian and AMCO promptly of each purchase and sale of a portfolio security, specifying the name of the issuer, the description and amount or number of shares of the security purchased, the market price, the commission and gross or net price, the trade date and settlement date, the identity of the effecting broker or dealer and any other pertinent data that the Funds’ custodian may need to settle a security’s purchase or sale. Cambiar shall not have possession or custody of any Fund’s investments. The Trust shall be responsible for all custodial agreements and the payment of all custodial charges and fees and, upon Cambiar giving proper instructions to the custodian, Cambiar shall have no responsibility or liability for the acts, omissions or other conduct of the custodian, depository, or other agent designated by the custodian and AMCO.
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Notwithstanding the foregoing, Cambiar agrees that AMCO shall have the right by written notice to identify securities that may not be purchased on behalf of any Fund and/or brokers and dealers through which portfolio trans-action on behalf of the Fund may not be effected, including, without limitation, brokers or dealers affiliated with AMCO. Cambiar shall refrain from purchasing such securities for a Fund Account or directing any portfolio transaction to any such broker or dealer on behalf of a Fund Account, unless and until the written approval of AMCO to do so is obtained. In addition, Cambiar agrees that it shall not direct portfolio transactions for the Fund Accounts through any broker or dealer that is an “affiliated person” (as that term is defined in the 1940 Act or interpreted under applicable rules and regulations of the Securities and Exchange Commission (the Commission)) of Cambiar, except as permitted under the 1940 Act.
AMCO agrees that it will provide Cambiar with a list of brokers and dealers that are affiliated persons of the Funds, or affiliated persons of such persons, and shall timely update that list as the need arises. The Funds agree that any entity or person associated with AMCO or Cambiar that is a member of a national securities exchange is authorized to effect any transaction on such exchange for the account of the Funds that is permitted by Section 11(a) of the Exchange Act, and the Funds consent to the retention of compensation for such transactions.
(c) Expenses. Cambiar, at its expense, will furnish all necessary facilities and personnel, including salaries, expenses and fees of any personnel required for them to faithfully perform their duties under this Agreement and administrative facilities, including bookkeeping, and all equipment and services necessary for the efficient conduct of Cambiar’s duties under this Agreement. However, Cambiar shall not be obligated to pay any expenses of AMCO, the Trust or the Funds, including without limitation, interest and taxes, brokerage commissions and other costs in connection with the purchase or sale of securities or other investment instruments for the Funds and custodian fees and expenses.
(d) Valuation. Securities traded on a national securities exchange or the NASDAQ market for which market quotes are readily available are valued on each day the New York Stock Exchange is open for business. For those securities for which market quotes are not readily available, Cambiar, at its expense, will provide reasonable assistance to AMCO regarding the valuation of securities that are the subject of a significant event, not registered for public sale, not traded on any securities markets, or otherwise deemed illiquid for purposes of the 1940 Act. The parties acknowledge that AMCO is responsible for final pricing determinations and calculations, and that Cambiar will take such reasonable steps as necessary to assist AMCO in reaching such pricing determinations for Fund Account securities. Cambiar also shall monitor for “significant events” that occur after the closing of a market but before the Funds calculate their net asset values and that may affect the
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valuation of any Fund Account’s portfolio securities and shall notify AMCO immediately of the occurrence of any such events.
(e) Reports and Availability of Personnel. Cambiar, at its expense, shall render to the Board and AMCO such periodic and special reports as the Board and AMCO may reasonably request with respect to matters relating to the duties of Cambiar set forth herein. Cambiar, at its expense, will make available to the Board and AMCO at reasonable times its portfolio managers and other appropriate personnel in order to review investment policies of the Funds and to consult with the Board and AMCO regarding the investment affairs of the Funds, including economic, statistical and investment matters relevant to Cambiar’s duties hereunder.
(f) Compliance Matters. Cambiar, at its expense, will provide AMCO with such compliance reports relating to its duties under this Agreement
as may be agreed upon by such parties from time to time. Cambiar also shall cooperate with and provide reasonable assistance to AMCO, the Trust’s administrator, the Trust’s custodian and foreign custodians, the Trust’s transfer agent and pricing agents and all other agents and representatives of the Trust and AMCO, keep all such persons fully informed as to such matters as Cambiar may reasonably deem necessary to the performance of their obligations to the Trust and AMCO, provide prompt responses to reasonable requests made by such persons and maintain any appropriate interfaces with each so as to promote the efficient exchange of information.
(g) Books and Records. Cambiar will maintain for the Funds all books and records required to be maintained by the Funds pursuant to the 1940 Act and the rules and regulations promulgated thereunder insofar as such records relate to the investment affairs of the Fund Accounts. Pursuant to Rule 31a-3 under the 1940 Act, Cambiar agrees that: (i) all records it maintains for a Fund Account are the property of the Fund; (ii) it will surrender promptly to a Fund or AMCO any such records (or copies of such records) upon the Fund’s or AMCO’s request; and (iii) it will preserve for the periods prescribed by Rule 31a-2 under the 1940 Act the records it maintains for any Fund Account. Notwithstanding subsection (ii) above, Cambiar may maintain copies of such records to comply with its recordkeeping obligations.
(h) Proxies. Unless and until Cambiar is otherwise directed by AMCO or the Board, AMCO will vote proxies with respect to a Fund Account’s securities and exercise rights in corporate actions or otherwise in accordance with AMCO’s proxy voting guidelines.
3. Advisory Fee. AMCO shall pay to Cambiar as compensation for Cambiar’s services rendered pursuant to this Agreement a fee based on the
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average daily net assets of each Fund Account at the annual rates set forth in Schedule B, which schedule can be modified from time to time, subject to any appropriate approvals required by the 1940 Act. Such fees shall be calculated daily and payable monthly in arrears within fifteen (15) business days after the end of such month. AMCO (and not the Funds) shall pay such fees. If Cambiar shall serve for less than the whole of a month, the compensation as specified shall be prorated based upon the number of calendar days during which this Agreement is in effect during such month, and the fee shall be computed based upon the average daily net assets of a Fund Account for such days.
Cambiar agrees that if (i) it provides investment advisory services substantially similar to the services provided to a Fund Account to any other registered, open-end management investment company (or series thereof) with a substantially similar investment mandate and with assets under management equal to or less than the assets of the Fund Account under management by Cambiar (the Substantially Similar Services) and (ii) Cambiar charges a lower fee for providing the Substantially Similar Services than it charges with respect to the Fund Account, then Cambiar shall reduce its fee with respect to the Fund Account so that it is equal to or less than the fee charged for providing the Substantially Similar Services on a going forward basis starting immediately, provided that this paragraph will not apply to fees currently charged by Cambiar with respect to funds in the Advisors Inner Circle Fund II complex advised by Cambiar as of the date of this Agreement, it being acknowledged that this is a pre-existing relationship.
4. Representations And Warranties.
(a) Cambiar. Cambiar represents and warrants to AMCO that (i) the retention of Cambiar by AMCO as contemplated by this Agreement is authorized by Cambiar’s governing documents; (ii) the execution, delivery and performance of this Agreement does not violate any obligation by which Cambiar or its property is bound, whether arising by contract, operation of law or otherwise; (iii) this Agreement has been duly authorized by appropriate action of Cambiar and when executed and delivered by Cambiar will be a legal, valid and binding obligation of Cambiar, enforceable against Cambiar in accordance with its terms, subject, as to enforcement, to applicable bankruptcy, insolvency and similar laws affecting creditors’ rights generally and to general equitable principles (regardless of whether enforcement is sought in a proceeding in equity or law); (iv) Cambiar is registered as an investment adviser under the Advisers Act; (v) Cambiar has adopted a written code of ethics complying with the requirements of Rule 17j-1 under the 1940 Act and that Cambiar and certain of its employees, officers, partners and directors are subject to reporting requirements thereunder and, accordingly, agrees that it shall, on a timely basis, furnish a copy of such code of ethics to AMCO, and, with respect to such
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persons, Cambiar shall furnish to AMCO all reports and information provided under Rule 17j-1(c)(2); (vi) Cambiar is not prohibited by the 1940 Act, the Advisers Act or other law, regulation or order from performing the services contemplated by this Agreement; (vii) Cambiar will promptly notify AMCO of the occurrence of any event that would disqualify Cambiar from serving as investment manager of an investment company pursuant to Section 9(a) of the 1940 Act or otherwise; (viii) Cambiar has provided AMCO with a copy of its Form ADV, which as of the date of this Agreement is its Form ADV as most recently filed with the SEC, and promptly will furnish a copy of all amendments to AMCO at least annually; (ix) Cambiar will notify AMCO of any “assignment” (as defined in the 1940 Act) of this Agreement or change of control of Cambiar, as applicable, and any changes in the key personnel who are either the portfolio manager(s) of any Fund Account or senior management of Cambiar, in each case prior to or promptly after, such change; and (x) Cambiar has adequate disaster recovery and interruption prevention measures to ensure business resumption in accordance with applicable law and within industry standards. Cambiar makes no representation or warranty, express or implied, that any level of performance or investment results will be achieved by the Fund, whether on a relative or absolute basis.
(b) AMCO. AMCO represents and warrants to Cambiar that (i) the retention of Cambiar by AMCO as contemplated by this Agreement is authorized by the respective governing documents of the Trust and AMCO; (ii) the execution, delivery and performance of each of this Agreement and the Investment Advisory Agreement does not violate any obligation by which the Trust or AMCO or their respective property is bound, whether arising by contract, operation of law or otherwise; (iii) each of this Agreement and the Investment Advisory Agreement has been duly authorized by appropriate action of the Trust and AMCO and when executed and delivered by AMCO will be a legal, valid and binding obligation of the Trust and AMCO, enforceable against the Trust and AMCO in accordance with its terms, subject, as to enforcement, to applicable bankruptcy, insolvency and similar laws affecting creditors’ rights generally and to general equitable principles (regardless of whether enforcement is sought in a proceeding in equity or law); (iv) AMCO is registered as an investment adviser under the Advisers Act; (v) AMCO has adopted a written code of ethics complying with the requirements of Rule 17j-1 under the 1940 Act and that AMCO and certain of its employees, officers and directors are subject to reporting requirements thereunder; (vi) AMCO is not prohibited by the 1940 Act, the Advisers Act or other law, regulation or order from perform-ing the services contemplated by this Agreement; (vii) AMCO will promptly notify Cambiar of the occurrence of any event that would disqualify AMCO from serving as investment manager of an investment company pursuant to Section 9(a) of the 1940 Act or otherwise; and (viii) AMCO and/or its affiliates have adopted and use their best efforts to enforce their policies to identify and
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prevent investors in the Fund from market timing the purchase and sale of the Fund’s shares or engaging in arbitrage activity to the detriment of long-term investors in the Fund.
5. Liability and Indemnification.
(a) Cambiar. Cambiar shall be liable for any and all losses, claims, damages, liabilities or litigation (including reasonable legal and other expenses) to which the Trust, a Fund, AMCO, any affiliated persons thereof (within the meaning of the 1940 Act) and any controlling persons thereof (as described in Section 15 of the Securities Act of 1933, as amended (the 1933 Act)) (collectively, AMCO Indemnities) may become subject under the 1933 Act, the 1940 Act, the Advisers Act, or under any other statute, at common law or otherwise arising out of (i) any negligence, willful misconduct, bad faith
or reckless disregard by Cambiar in the performance of any of its duties or obligations hereunder or (ii) any untrue statement of a material fact contained in the Prospectus and SAI, proxy materials, reports, advertisements, sales literature, or other materials pertaining to the Funds or the omission to state therein a material fact known to Cambiar which was required to be stated therein or necessary to make the statements therein not misleading, if such statement or omission was made in reliance upon information furnished in writing to AMCO or the Trust by Cambiar Indemnities (as defined below) for use therein. Cambiar shall indemnify and hold harmless the AMCO Indemnities for any and all such losses, claims, damages, liabilities, or litigation (including reasonable legal and other expenses); provided, however, that in no case is Cambiar’s indemnity hereunder deemed to protect a person against any liability to which any such person would otherwise be subject by reason of willful misconduct, bad faith or gross negligence in performance of its duties under this Agreement or the Investment Advisory Agreement with the Trust.
(b) AMCO. AMCO shall be liable for any and all losses, claims, damages, liabilities or litigation (including reasonable legal and other expenses) to which Cambiar, any affiliated persons thereof (within the meaning of the 1940 Act) and any controlling persons thereof (as described in Section 15 of the 1933 Act) (collectively, Cambiar Indemnities) may become subject under the 1933 Act, the 1940 Act, the Advisers Act, or under any other statute, at common law or otherwise arising out of (i) any negligence, willful misconduct, bad faith or reckless disregard by AMCO in the performance of any of its duties or obligations hereunder or (ii) any untrue statement of a material fact contained in the Prospectus and SAI, proxy materials, reports, advertisements, sales literature, or other materials pertaining to the Funds or the omission to state therein a material fact known to AMCO which was required to be stated therein or necessary to make the statements therein not misleading, unless such statement or omission was made in reliance upon information furnished by
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Cambiar or Cambiar Indemnitiees in writing to AMCO or the Trust. AMCO shall indemnify and hold harmless Cambiar Indemnities for any and all such losses, claims, damages, liabilities or litigation (including reasonable legal and other expenses); provided, however, that in no case is AMCO’s indemnity hereunder deemed to protect a person against any liability to which any such person would otherwise be subject by reason of willful misconduct, bad faith or gross negligence in the performance of its duties under this Agreement.
6. Duration and Termination of this Agreement. This Agreement shall become effective with respect to a Fund upon its execution; provided, however, that this Agreement shall not become effective with respect to a Fund unless it has first been approved in the manner required by the 1940 Act and rules thereunder or in accordance with exemptive or other relief granted by the SEC or its staff. This Agreement shall remain in full force and effect continuously thereafter, except as follows:
(a) By vote of a majority of (i) the Board members who are not “interested persons” (as defined in the 1940 Act) of the Funds, AMCO, or Cambiar (Independent Board Members) or (ii) the outstanding voting shares of a Fund, such Fund may at any time terminate this Agreement, without the payment of any penalty, by providing not more than sixty (60) days’ written notice delivered or mailed by registered mail, postage prepaid, to AMCO and Cambiar.
(b) This Agreement will terminate automatically with respect to a Fund, without the payment of any penalty, unless within two years after its initial effectiveness and at least annually thereafter, the continuance of the Agreement is specifically approved by (i) the Board or the shareholders of the Fund by the affirmative vote of a majority of the outstanding shares of the Fund, and (ii) a majority of the Independent Board Members, by vote cast in person at a meeting called for the purpose of voting on such approval. If the continuance of this Agreement is submitted to the shareholders of the Fund for their approval and such shareholders fail to approve such continuance as provided herein, Cambiar may continue to serve hereunder in a manner consistent with the 1940 Act and the rules thereunder.
(c) AMCO may at any time terminate this Agreement with respect to a Fund, without the payment of any penalty, by written notice delivered in person or by facsimile, or mailed by registered mail, postage prepaid, to Cambiar. Cambiar may at any time, without the payment of any penalty, terminate this Agreement with respect to a Fund by not less than ninety (90) days’ written notice delivered or mailed by registered mail, postage prepaid,
to AMCO.
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(d) This Agreement automatically and immediately shall terminate with respect to the Funds, without the payment of any penalty, in the event of its assignment (as that term is defined in the 1940 Act or interpreted under applicable rules and regulations of the Commission) or if the Investment Advisory Agreement shall terminate for any reason.
(e) Any notice of termination served on Cambiar by AMCO shall be without prejudice to the obligation of Cambiar to complete transactions already initiated or acted upon with respect to a Fund.
Upon termination of this Agreement, the duties of AMCO delegated to Cambiar under this Agreement automatically shall revert to AMCO. Notwith-standing any termination of this Agreement with respect to a Fund, Sections 5, 10(a), 10(e), 11(a), and 11(c) of this Agreement shall remain in effect after any such termination.
7. Amendment of Agreement. No provision of this Agreement may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against whom enforcement of the change, waiver, discharge or termination is sought. No material amendment of this Agreement shall be effective until approved in the manner required by the 1940 Act, any rules thereunder or any exemptive or other relief granted by the SEC or its staff (Applicable Law).
8. Approval, Amendment, or Termination by Individual Fund. Any approval, amendment (if previously agreed to by the parties to this Agreement), or termination of this Agreement by the holders of a majority of the outstanding voting securities (as defined in the 1940 Act) of any Fund shall be effective to continue, amend or terminate this Agreement with respect to any such Fund notwithstanding (i) that such action has not been approved by the holders of a majority of the outstanding voting securities of any other Fund affected thereby, and/or (ii) that such action has not been approved by the vote of a majority of the outstanding voting securities of the Trust, unless such action shall be required by any applicable law or otherwise.
9. Services Not Exclusive. The services of Cambiar to AMCO in connection with the Funds hereunder are not to be deemed exclusive, and Cambiar shall be free to render investment advisory services to others so long as its services hereunder are not impaired thereby. It is understood that the persons employed by Cambiar to assist in the performance of its duties hereunder will not devote their full time to such services and nothing contained herein shall be deemed to limit or restrict in any manner whatsoever the right of Cambiar to engage in or devote time and attention to other businesses or to render services of whatever kind or nature. It is understood that AMCO may appoint at any time
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in accordance with Applicable Law one or more subadvisers, in addition to Cambiar, or AMCO itself, to perform investment advisory services to any portion of the Funds.
10. Additional Agreements.
(a) Access to Information. Cambiar shall, upon reasonable notice, afford AMCO at all reasonable times access to Cambiar’s officers, employees, agents and offices and to all its relevant books and records and shall furnish AMCO with all relevant financial and other data and information as requested; provided, however, that nothing contained herein shall obligate Cambiar to provide AMCO with access to the books and records of Cambiar relating to any other accounts other than the Funds.
(b) Confidentiality. All information and advice furnished by one party to the other party (including their respective officers, employees and authorized representatives) shall be treated confidentially and as proprietary information. Each party will not use such records and information for any purpose other than performance of its responsibilities and duties hereunder, except after prior notification to and approval in writing by the other party, which approval shall not be unreasonably withheld and may not be withheld where a party may be exposed to civil or criminal contempt proceedings for failure to comply, when requested to divulge such information by duly constituted authorities, or when so requested by the other party. Notwith-standing the foregoing, no approval is required in the case of routine, periodic reports required by law or regulation to be filed with a governmental or regulatory authority in the ordinary course or in the case of records and information provided to any regulator in the course of routine examinations
of a party’s books and records, except that Cambiar shall notify AMCO of such regulatory or ordinary course request, prior to the provision of such information so as to allow AMCO to respond appropriately.
(c) Privacy Policy. Cambiar acknowledges that nonpublic customer information (as defined in Regulation S-P, including any amendments thereto) of customers of the Funds received from AMCO, if any, is subject to
the limitations on redisclosure and reuse set forth in Section 248.11 of such Regulation, and agrees such information (i) shall not be disclosed to any third party for any purpose without the written consent of AMCO unless permitted by exceptions set forth in Sections 248.14 or 248.15 of such Regulation and (ii) shall be safeguarded pursuant to procedures adopted under Section 248.30 of such Regulation if so required. Notwithstanding the preceding and Section 10(b), Cambiar may, upon prior written permission, disclose AMCO’s and the Fund’s name in marketing materials as part of a representative client list.
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AMCO may at any time withdraw its consent to the use and disclosure of its name and the Fund’s name.
(d) Public Announcements. No party shall issue any press release or otherwise make any public statements with respect to the matters covered by this Agreement without the prior written consent of the other parties hereto, which consent shall not be unreasonably withheld; provided, however, that consent shall not be required if, in the opinion of counsel, such disclosure is required by law; provided further, however, that the party making such dis-closure shall provide the other parties hereto with as much prior written notice of such disclosure as is practical under the circumstances.
(e) Notifications. Cambiar agrees that it will promptly notify AMCO in the event that: (i) Cambiar becomes the subject of an administrative proceeding or enforcement action by the Commission or other regulatory body with applicable jurisdiction or (ii) to the best of Cambiar’s knowledge, any affiliate of Cambiar becomes the subject of an administrative proceeding or enforcement action by the Commission or other regulatory body with applicable jurisdiction that Cambiar reasonably expects could have a material adverse effect upon the ability of Cambiar to perform its duties under this Agreement.
(f) Insurance. Cambiar agrees to maintain errors and omissions or professional liability insurance coverage in an amount that is reasonable in light of the nature and scope of Cambiar’s business activities.
(g) Shareholder Meeting and Other Expenses. In the event that the Trust shall be required to call a meeting of shareholders or send an inform-ation statement or prospectus supplement to shareholders solely due to actions involving Cambiar, including, without limitation, a change of control of Cambiar or a portfolio manager change, Cambiar shall bear all reasonable expenses associated with such shareholder meeting, information statement,
or prospectus supplement.
11. Miscellaneous.
(a) Notices. All notices or other communications given under this Agreement shall be made by guaranteed overnight delivery, telecopy or certified mail; notice is effective when received. Notice shall be given to the parties at the following addresses:
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AMCO: USAA Asset Management Company
9800 Fredericksburg Road, A-O3-W
San Antonio, Texas 78288
Facsimile No.: (210) 498-0083
Attention: FASG Counsel
Cambiar: Cambiar Investors, LLC
Denver, CO 80206
303-302-9000
303-302-9050
Attention: Christine M. Simon
(b) Severability. If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors.
(c) Governing Law. This Agreement shall be construed in accordance with the laws of the state of Texas, without giving effect to the conflicts of laws principles thereof, and in accordance with the 1940 Act. To the extent that the applicable laws of the state of Texas conflict with the applicable provisions of the 1940 Act, the latter shall control.
(d) Counterparts. This Agreement may be executed simul-taneously in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
(e) Headings. The captions in this Agreement are included for convenience of reference only and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect.
(f) Entire Agreement. This Agreement states the entire agree-ment of the parties hereto, and is intended to be the complete and exclusive statement of the terms hereof. It may not be added to or changed orally, and may not be modified or rescinded except by a writing signed by the parties hereto and in accordance with the 1940 Act.
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IN WITNESS WHEREOF, AMCO and Cambiar have caused this Agreement to be executed as of the date first set forth above.
Attest: | USAA ASSET MANAGEMENT COMPANY |
By: | By: |
Name: Adym Rygmyr | Name: Daniel S. McNamara |
Title: Secretary | Title: President |
By:_________________________ Name: Title: Authorized Signatory | |
Attest: | CAMBIAR INVESTORS, LLC |
By: Name: Christine M. Simon Title: Chief Compliance Officer | By: Name: Brian M. Barish Title: President |
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SCHEDULE A
Small Cap Stock Fund
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SCHEDULE B
FEES
Fund | Account Rate per annum of the average daily net assets of the Fund Account |
Small Cap Stock Fund | 0.67% on the first $300 million in assets 0.65% on assets above $300 million |
* Cambiar agrees that it will not seek to increase this fee rate during the three-year period ending July 10, 2015 (the Three-Year Lock). This Three-Year Lock does not limit the rights of a Fund’s shareholders, a Fund’s Board, or AMCO as set forth in Section 6 of the Agreement (“Duration and Termination of this Agreement”).
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Exhibit B
Subadvisory Agreement
Between
Granahan Investment Management, Inc. and
USAA Asset Management Company
INVESTMENT SUBADVISORY AGREEMENT
AGREEMENT made as of the 11th day of July, 2012, (the Effective Date) between USAA ASSET MANAGEMENT COMPANY, a corporation organized under the laws of the state of Delaware and having its principal place of business in San Antonio, Texas (AMCO) and GRANAHAN INVESTMENT MANAGEMENT, INC. a corporation organized under the laws of the state of Massachusetts and having its principal place of business in Waltham, Massachusetts, (Granahan).
WHEREAS, AMCO serves as the investment adviser to USAA Mutual Funds Trust, a statutory trust organized under the laws of the state of Delaware (the Trust) and registered as an open-end management investment company under the Investment Company Act of 1940, as amended (the 1940 Act); and
WHEREAS, under its Investment Advisory Agreement with the Trust (Investment Advisory Agreement), AMCO is authorized to appoint subadvisers for series of the Trust (each a Fund, or collectively Funds); and
WHEREAS, AMCO wishes to retain Granahan to render investment advisory services to such Fund (or portions thereof) as now or hereafter may be identified in Schedule A to this Agreement, as such Schedule A may be amended from time to time (each such Fund or portion thereof referred to
herein as a Fund Account and collectively as Fund Accounts); and
WHEREAS, Granahan is willing to provide such services to the Fund Accounts and AMCO upon the terms and conditions and for the compensation set forth below;
NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, and intending to be legally bound hereby, it is agreed between the parties hereto as follows:
1. Appointment of Granahan. AMCO hereby appoints Granahan to act as an investment adviser for each Fund Account in accordance with the terms and conditions of this Agreement. Granahan will be an independent contractor and will have no authority to act for or represent the Trust or AMCO in any way or otherwise be deemed an agent of the Trust or AMCO except as expressly authorized in this Agreement or another writing by the Trust, AMCO and Granahan. Granahan accepts such appointment and agrees to render the services herein set forth for the compensation herein provided.
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2. Duties of Granahan.
(a) Authority to Invest. Subject to the control and supervision of AMCO and the Trust’s Board of Trustees (the Board), Granahan, at its own expense, shall have full discretion to manage, supervise, and direct the investment and reinvestment of Fund Accounts allocated to it by AMCO from time to time. It is understood that a Fund Account may consist of all, a portion of, or none of the assets of the Fund, and that AMCO has the right to allocate and reallocate such assets to a Fund Account at any time. AMCO shall provide Granahan with reasonable written notice of such allocations and reallocations. Granahan shall perform its duties described herein in a manner consistent with the investment objective, policies, and restrictions set forth in the then current Prospectus and Statement of Additional Information (SAI) for each Fund. Should Granahan anticipate materially modifying its investment process, it must provide written notice in advance to AMCO, and any affected Prospectus and SAI shall be amended accordingly.
For each Fund set forth on Schedule A to this Agreement, Granahan shall provide investment advice only with respect to the discrete portion of the Fund’s portfolio allocated to it by AMCO from time to time and shall not consult with any other subadviser of such Fund concerning transactions for the Fund in securities or other assets.
With respect to the management of each Fund Account pursuant to this Agreement, Granahan shall determine what investments shall be purchased, held, sold or exchanged by each Fund Account and what portion, if any, of the assets of each Fund Account shall be held in cash or cash equivalents, and purchase or sell portfolio securities for each Fund Account; except that, to the extent Granahan wishes to hold cash or cash equivalents in excess of 10% of a Fund Account’s assets, Granahan must request in writing and receive advance permission from AMCO.
In accordance with Subsection (b) of this Section 2, Granahan shall arrange for the execution of all orders for the purchase and sale of securities and other investments for each Fund Account and will exercise full discretion and act for the Trust in the same manner and with the same force and effect as the Trust might or could do with respect to such purchases, sales, or other trans-actions, as well as with respect to all other things necessary or incidental to the furtherance or conduct of such purchases, sales, or other transactions.
In the performance of its duties, Granahan will act in the best interests of each Fund and will comply with (i) applicable laws and regulations, including, but not limited to, the 1940 Act and the Investment Advisers Act of 1940, as amended (Advisers Act), and the rules under each, (ii) the terms of this
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Agreement, (iii) the stated investment objective, policies and restrictions of each Fund, as stated in the then-current Registration Statement of each Fund, (iv) the Trust’s compliance procedures and other policies, procedures or guidelines as the Board or AMCO reasonably may establish from time to time, (v) the provisions of the Internal Revenue Code of 1986, as amended (Code), applicable to “regulated investment companies” (as defined in Section 851 of the Code), as from time to time in effect, and (vi) the written instructions of AMCO. Granahan shall establish compliance procedures reasonably calculated to ensure compliance with the foregoing. AMCO shall be responsible for providing Granahan with the Trust’s Master Trust Agreement, as amended and supple-mented, the Trust’s By-Laws and amendments thereto and current copies of the materials specified in Subsections (a)(iii) and (iv) of this Section 2. AMCO shall provide Granahan with prior written notice of any material changes to the Trust’s Registration Statement, the Trust’s compliance procedures and other policies, procedures or guidelines as the Board or AMCO reasonably may establish from time to time, that would affect Granahan’s management of a Fund Account.
(b) Portfolio Transactions. In connection with the management of the investment and reinvestment of the Fund Accounts’ assets, Granahan will select the brokers or dealers that will execute purchase and sale transactions for the Fund Accounts, subject to the conditions herein. In the selection of broker-dealers and the placement of orders for the purchase and sale of portfolio invest-ments for the Fund Accounts, Granahan shall use its best efforts to obtain for the Fund Accounts the best execution available, except to the extent it may be per-mitted to pay higher brokerage commissions for brokerage and research services as described below. In using its best efforts to obtain the best execution available, Granahan, bearing in mind each Fund’s best interests at all times, shall consider all factors it deems relevant, including by way of illustration, price, the size of the transaction, the nature of the market for the security, the amount of the commission and dealer’s spread or mark-up, the timing of the transaction taking into account market prices and trends, the reputation, experience, and financial stability of the broker-dealer involved, the general execution and operational facilities of the broker-dealer and the quality of service rendered by the broker-dealer in other transactions.
Subject to such policies as the Board has determined and have been provided to Granahan, and to the extent authorized by Section 28(e) of the Securities Exchange Act of 1934 (Exchange Act), Granahan shall not be deemed to have acted unlawfully or to have breached any duty created by this Agreement or otherwise solely by reason of its having caused a Fund Account to pay a broker-dealer that provides brokerage and research services to Granahan an amount of commission for effecting a portfolio investment transaction in excess of the amount of commission another broker-dealer offering equally good execution capability in
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the portfolio investment would have charged for effecting that transaction if Granahan determines in good faith that such amount of commission was reasonable in relation to the value of the brokerage and research services provided by such broker-dealer, viewed in terms of either that particular transaction or Granahan’s overall responsibilities with respect to the Fund and to other clients of Granahan as to which Granahan exercises investment discretion. The Board or AMCO may request Granahan in writing, subject to Granahan’s agreement and its reasonable belief that it can seek to obtain best execution in following such request, to effect transactions in portfolio securities through broker-dealers in a manner that will help generate resources to pay the cost of certain expenses that the Trust is required to pay or for which the Trust is required to arrange payment, provided that it is understood that Granahan’s current policy is not to engage in client directed brokerage. Should Granahan refuse such a request, it shall respond in writing promptly: (i) notifying the Board or AMCO (as the case may be) of such refusal; (ii) stating the basis for such refusal in light of the particular circumstances of the request; and, (iii) identifying the benefits to the Fund of refusing to participate in the requested client-directed brokerage.
On occasions when Granahan deems the purchase or sale of a security to be in the best interest of a Fund as well as other clients of Granahan, Granahan, to the extent permitted by applicable laws and regulations, may aggregate the securities to be purchased or sold to attempt to obtain a more favorable price or lower brokerage commissions and efficient execution. In such event, allocation of the securities so purchased or sold, as well as the expenses incurred in the transaction, will be made by Granahan in the manner it considers to be the most equitable and consistent with its fiduciary obligations to the Fund and to its other clients over time.
Granahan may buy securities for a Fund Account at the same time it is selling such securities for another client account and may sell securities for a Fund Account at the time it is buying such securities for another client account. In such cases, subject to applicable legal and regulatory requirements, and in compliance with such procedures of the Trust as may be in effect from time to time, Granahan may effectuate cross transactions between a Fund Account and such other account if it deems this to be advantageous.
Granahan will advise the Funds’ custodian or such depository or agents as may be designated by the custodian and AMCO promptly of each purchase and sale of a portfolio security, specifying the name of the issuer, the description and amount or number of shares of the security purchased, the market price, the commission and gross or net price, the trade date and settlement date, the identity of the effecting broker or dealer and any other pertinent data that the Funds’ custodian may need to settle a security’s purchase or sale. Granahan shall not have possession or custody of any Fund’s investments. The Trust shall
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be responsible for all custodial agreements and the payment of all custodial charges and fees and, upon Granahan giving proper instructions to the custodian, Granahan shall have no responsibility or liability for the acts, omissions or other conduct of the custodian, depository, or other agent designated by the custodian and AMCO.
Notwithstanding the foregoing, Granahan agrees that AMCO shall have the right by written notice to identify securities that may not be purchased on behalf of any Fund and/or brokers and dealers through which portfolio trans-action on behalf of the Fund may not be effected, including, without limitation, brokers or dealers affiliated with AMCO. Granahan shall refrain from purchas-ing such securities for a Fund Account or directing any portfolio transaction to any such broker or dealer on behalf of a Fund Account, unless and until the written approval of AMCO to do so is obtained. In addition, Granahan agrees that it shall not direct portfolio transactions for the Fund Accounts through any broker or dealer that is an “affiliated person” (as that term is defined in the 1940 Act or interpreted under applicable rules and regulations of the Securities and Exchange Commission (the Commission)) of Granahan, except as permitted under the 1940 Act. AMCO agrees that it will provide Granahan with a list of brokers and dealers that are affiliated persons of the Funds, or affiliated persons of such persons, and shall timely update that list as the need arises. The Funds agree that any entity or person associated with AMCO or Granahan that is a member of a national securities exchange is authorized to effect any transaction on such exchange for the account of the Funds that is permitted by Section 11(a) of the Exchange Act, and the Funds consent to the retention of compensation for such transactions.
(c) Expenses. Granahan, at its expense, will furnish all necessary facilities and personnel, including salaries, expenses and fees of any personnel required for it to faithfully perform its duties under this Agreement and admini-strative facilities, including bookkeeping, and all equipment and services necessary for the efficient conduct of Granahan’s duties under this Agreement. However, Granahan shall not be obligated to pay any expenses of AMCO, the Trust or the Funds, including without limitation, interest and taxes, brokerage commissions and other costs in connection with the purchase or sale of securities or other investment instruments for the Funds and custodian fees and expenses.
(d) Valuation. Securities traded on a national securities exchange or the NASDAQ market for which market quotes are readily available are valued on each day the New York Stock Exchange is open for business. For those securities for which market quotes are not readily available, Granahan, at its expense, will provide reasonable assistance to AMCO regarding the valuation of securities that are the subject of a significant event, not registered for public sale, not traded on any securities markets, or otherwise deemed illiquid for purposes of the 1940 Act.
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The parties acknowledge that AMCO is responsible for final pricing determinations and calculations, and that Granahan will take such reasonable steps as necessary to assist AMCO in reaching such pricing determinations for Fund Account securities. Granahan also shall monitor for “significant events” that occur after the closing of a market but before the Funds calculate their net asset values and that may affect the valuation of any Fund Account’s portfolio securities and shall notify AMCO immediately of the occurrence of any such events.
(e) Reports and Availability of Personnel. Granahan, at its expense, shall render to the Board and AMCO such periodic and special reports as the Board and AMCO may reasonably request with respect to matters relating to the duties of Granahan set forth herein. Granahan, at its expense, will make available to the Board and AMCO at reasonable times its portfolio managers and other appropriate personnel in order to review investment policies of the Funds and to consult with the Board and AMCO regarding the investment affairs of the Funds, including economic, statistical and investment matters relevant to Granahan’s duties hereunder.
(f) Compliance Matters. Granahan, at its expense, will provide AMCO with such compliance reports relating to its duties under this Agreement as may be agreed upon by such parties from time to time. Granahan also shall cooperate with and provide reasonable assistance to AMCO, the Trust’s administrator, the Trust’s custodian and foreign custodians, the Trust’s transfer agent and pricing agents and all other agents and representatives of the Trust and AMCO, keep all such persons fully informed as to such matters as Granahan may reason-ably deem necessary to the performance of their obligations to the Trust and AMCO, provide prompt responses to reasonable requests made by such persons and maintain any appropriate interfaces with each so as to promote the efficient exchange of information.
(g) Books and Records. Granahan will maintain for the Funds all books and records required to be maintained by the Funds pursuant to the 1940 Act and the rules and regulations promulgated thereunder insofar as such records relate to the investment affairs of the Fund Accounts. Pursuant to Rule 31a-3 under the 1940 Act, Granahan agrees that: (i) all records it maintains for a Fund Account are the property of the Fund; (ii) it will surrender promptly to a Fund or AMCO any such records (or copies of such records) upon the Fund’s or AMCO’s request; and (iii) it will preserve for the periods prescribed by Rule 31a-2 under the 1940 Act the records it maintains for any Fund Account. Notwithstanding subsection (ii) above, Granahan may maintain copies of such records to comply with its recordkeeping obligations.
(h) Proxies. Unless and until Granahan is otherwise directed by AMCO or the Board, AMCO will vote proxies with respect to a Fund Account’s
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securities and exercise rights in corporate actions or otherwise in accordance with AMCO’s proxy voting guidelines.
3. Advisory Fee. AMCO shall pay to Granahan as compensation for Granahan’s services rendered pursuant to this Agreement a fee based on the average daily net assets of each Fund Account at the annual rates set forth in Schedule B, which schedule can be modified from time to time, subject to any appropriate approvals required by the 1940 Act. Such fees shall be calculated daily and payable monthly in arrears within fifteen (15) business days after the end of such month. AMCO (and not the Funds) shall pay such fees. If Granahan shall serve for less than the whole of a month, the compensation as specified shall be prorated based upon the number of calendar days during which this Agreement is in effect during such month, and the fee shall be computed based upon the average daily net assets of a Fund Account for such days.
Granahan agrees that if (i) it provides investment advisory services substantially similar to the services provided to a Fund Account to any other registered, open-end management investment company (or series thereof) with a substantially similar investment mandate and with assets under management equal to or less than the assets of the Fund Account under management by Granahan (the Substantially Similar Services) and (ii) Granahan charges a lower fee for providing the Substantially Similar Services than it charges with respect to the Fund Account, then Granahan shall reduce its fee with respect to the Fund Account so that it is equal to or less than the fee charged for providing the Substantially Similar Services on a going forward basis starting immediately, provided that this paragraph will not apply to fees currently charged by Granahan with respect to funds in the Vanguard Funds complex advised by Granahan, it being acknowledged that this is a pre-existing relationship.
4. Representations And Warranties.
(a) Granahan. Granahan represents and warrants to AMCO that (i) the retention of Granahan by AMCO as contemplated by this Agreement is authorized by Granahan’s governing documents; (ii) the execution, delivery
and performance of this Agreement does not violate any obligation by which Granahan or its property is bound, whether arising by contract, operation of law or otherwise; (iii) this Agreement has been duly authorized by appropriate action of Granahan and when executed and delivered by Granahan will be a legal, valid and binding obligation of Granahan, enforceable against Granahan in accord-ance with its terms, subject, as to enforcement, to applicable bankruptcy, insolvency and similar laws affecting creditors’ rights generally and to general equitable principles (regardless of whether enforcement is sought in a proceeding in equity or law); (iv) Granahan is registered as an investment adviser under the Advisers Act; (v) Granahan has adopted a written code of
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ethics complying with the requirements of Rule 17j-1 under the 1940 Act and that Granahan and certain of its employees, officers, partners and directors are subject to reporting requirements thereunder and, accordingly, agrees that it shall, on a timely basis, furnish a copy of such code of ethics to AMCO, and, with respect to such persons, Granahan shall furnish to AMCO all reports and information provided under Rule 17j-1(c)(2); (vi) Granahan is not prohibited by the 1940 Act, the Advisers Act or other law, regulation or order from perform-ing the services contemplated by this Agreement; (vii) Granahan will promptly notify AMCO of the occurrence of any event that would disqualify Granahan from serving as investment manager of an investment company pursuant to Section 9(a) of the 1940 Act or otherwise; (viii) Granahan has provided AMCO with a copy of its Form ADV, which as of the date of this Agreement is its Form ADV as most recently filed with the SEC, and promptly will furnish a copy of all amendments to AMCO at least annually; (ix) Granahan will notify AMCO of any “assignment” (as defined in the 1940 Act) of this Agreement or change of control of Granahan, as applicable, and any changes in the key personnel who are either the portfolio manager(s) of any Fund Account or senior management of Granahan, in each case prior to or promptly after, such change; and (x) Granahan has adequate disaster recovery and interruption prevention measures to ensure business resumption in accordance with applicable law and within industry standards. Granahan makes no representation or warranty, express or implied, that any level of performance or investment results will be achieved by the Fund, whether on a relative or absolute basis.
(b) AMCO. AMCO represents and warrants to Granahan that (i) the retention of Granahan by AMCO as contemplated by this Agreement is authorized by the respective governing documents of the Trust and AMCO; (ii) the execution, delivery and performance of each of this Agreement and the Investment Advisory Agreement does not violate any obligation by which the Trust or AMCO or their respective property is bound, whether arising by contract, operation of law or otherwise; (iii) each of this Agreement and the Investment Advisory Agreement has been duly authorized by appropriate action of the Trust and AMCO and when executed and delivered by AMCO will be a legal, valid and binding obligation of the Trust and AMCO, enforceable against the Trust and AMCO in accordance with its terms, subject, as to enforcement, to applicable bankruptcy, insolvency and similar laws affecting creditors’ rights generally and to general equitable principles (regardless of whether enforcement is sought in a proceeding in equity or law); (iv) AMCO is registered as an investment adviser under the Advisers Act; (v) AMCO has adopted a written code of ethics complying with the requirements of Rule 17j-1 under the 1940 Act and that AMCO and certain of its employees, officers and directors are subject to reporting requirements thereunder; (vi) AMCO is not prohibited by the 1940 Act, the Advisers Act or other law, regulation or order from perform-ing the services contemplated by this Agreement; (vii) AMCO will promptly
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notify Granahan of the occurrence of any event that would disqualify AMCO from serving as investment manager of an investment company pursuant to Section 9(a) of the 1940 Act or otherwise; and (viii) AMCO and/or its affiliates have adopted and use their best efforts to enforce their policies to identify and prevent investors in the Fund from market timing the purchase and sale of the Fund’s shares or engaging in arbitrage activity to the detriment of long-term investors in the Fund.
5. Liability and Indemnification.
(a) Granahan. Granahan shall be liable for any and all losses, claims, damages, liabilities or litigation (including reasonable legal and other expenses) to which the Trust, a Fund, AMCO, any affiliated persons thereof (within the meaning of the 1940 Act) and any controlling persons thereof (as described in Section 15 of the Securities Act of 1933, as amended (the 1933 Act)) (collectively, AMCO Indemnitees) may become subject under the 1933 Act, the 1940 Act, the Advisers Act, or under any other statute, at common law or otherwise arising out of (i) any negligence, willful misconduct, bad faith or reckless disregard by Granahan in the performance of any of its duties or obligations hereunder or (ii) any untrue statement of a material fact contained
in the Prospectus and SAI, proxy materials, reports, advertisements, sales literature, or other materials pertaining to the Funds or the omission to state therein a material fact known to Granahan which was required to be stated therein or necessary to make the statements therein not misleading, if such statement or omission was made in reliance upon and accurately reflects information furnished in writing to AMCO or the Trust by Granahan Indemnitees (as defined below) for use therein. Granahan shall indemnify
and hold harmless the AMCO Indemnitees for any and all such losses, claims, damages, liabilities, or litigation (including reasonable legal and other expenses); provided, however, that in no case is Granahan’s indemnity hereunder deemed to protect a person against any liability to which any such person would otherwise be subject by reason of willful misconduct, bad faith or gross negligence in performance of its duties under this Agreement or the Investment Advisory Agreement with the Trust.
(b) AMCO. AMCO shall be liable for any and all losses, claims, damages, liabilities or litigation (including reasonable legal and other expenses) to which Granahan, any affiliated persons thereof (within the meaning of the 1940 Act) and any controlling persons thereof (as described in Section 15 of the 1933 Act) (collectively, Granahan Indemnitees) may become subject under the 1933 Act, the 1940 Act, the Advisers Act, or under any other statute, at common law or otherwise arising out of (i) any negligence, willful misconduct, bad faith or reckless disregard by AMCO in the performance of any of its duties or obligations hereunder or (ii) any untrue statement of a material fact contained
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in the Prospectus and SAI, proxy materials, reports, advertisements, sales literature, or other materials pertaining to the Funds or the omission to state therein a material fact known to AMCO which was required to be stated therein or necessary to make the statements therein not misleading, unless such statement or omission was made in reliance upon and accurately reflects information furnished by Granahan or Granahan Indemnitees in writing to AMCO or the Trust. AMCO shall indemnify and hold harmless Granahan Indemnitees for any and all such losses, claims, damages, liabilities or litigation (including reasonable legal and other expenses); provided, however, that in no case is AMCO’s indemnity hereunder deemed to protect a person against any liability to which any such person would otherwise be subject by reason of willful misconduct, bad faith or gross negligence in the performance of its duties under this Agreement.
6. Duration and Termination of this Agreement. This Agreement shall become effective with respect to a Fund upon its execution; provided, however, that this Agreement shall not become effective with respect to a Fund unless it has first been approved in the manner required by the 1940 Act and rules thereunder or in accordance with exemptive or other relief granted by the SEC or its staff. This Agreement shall remain in full force and effect continuously thereafter, except as follows:
(a) By vote of a majority of (i) the Board members who are not “interested persons” (as defined in the 1940 Act) of the Funds, AMCO, or Granahan (Independent Board Members) or (ii) the outstanding voting shares of a Fund, such Fund may at any time terminate this Agreement, without the payment of any penalty, by providing not more than sixty (60) days’ written notice delivered or mailed by registered mail, postage prepaid, to AMCO and Granahan.
(b) This Agreement will terminate automatically with respect to a Fund, without the payment of any penalty, unless within two years after its initial effectiveness and at least annually thereafter, the continuance of the Agreement is specifically approved by (i) the Board or the shareholders of the Fund by the affirmative vote of a majority of the outstanding shares of the Fund, and (ii) a majority of the Independent Board Members, by vote cast in person at a meeting called for the purpose of voting on such approval. If the continuance of this Agreement is submitted to the shareholders of the Fund for their approval and such shareholders fail to approve such continuance as provided herein, Granahan may continue to serve hereunder in a manner consistent with the 1940 Act and the rules thereunder.
(c) AMCO may at any time terminate this Agreement with respect to a Fund, without the payment of any penalty, by written notice delivered in
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person or by facsimile, or mailed by registered mail, postage prepaid, to Granahan. Granahan may at any time, without the payment of any penalty, terminate this Agreement with respect to a Fund by not less than ninety (90) days’ written notice delivered or mailed by registered mail, postage prepaid, to AMCO.
(d) This Agreement automatically and immediately shall terminate with respect to the Funds, without the payment of any penalty, in the event of its assignment (as that term is defined in the 1940 Act or interpreted under applicable rules and regulations of the Commission) or if the Investment Advisory Agreement shall terminate for any reason.
(e) Any notice of termination served on Granahan by AMCO shall be without prejudice to the obligation of Granahan to complete transactions already initiated or acted upon with respect to a Fund.
Upon termination of this Agreement, the duties of AMCO delegated to Granahan under this Agreement automatically shall revert to AMCO. Notwith-standing any termination of this Agreement with respect to a Fund, Sections 5, 10(a), 10(e), 11(a), and 11(c) of this Agreement shall remain in effect after any such termination.
7. Amendment of Agreement. No provision of this Agreement may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against whom enforcement of the change, waiver, discharge or termination is sought. No material amendment of this Agreement shall be effective until approved in the manner required by the 1940 Act, any rules thereunder or any exemptive or other relief granted by the SEC or its staff (Applicable Law).
8. Approval, Amendment, or Termination by Individual Fund. Any approval, amendment, or termination of this Agreement by the holders of a majority of the outstanding voting securities (as defined in the 1940 Act) of any Fund shall be effective to continue, amend or terminate this Agreement with respect to any such Fund notwithstanding (i) that such action has not been approved by the holders of a majority of the outstanding voting securities of any other Fund affected thereby, and/or (ii) that such action has not been approved by the vote of a majority of the outstanding voting securities of the Trust, unless such action shall be required by any applicable law or otherwise.
9. Services Not Exclusive. The services of Granahan to AMCO in connection with the Funds hereunder are not to be deemed exclusive, and Granahan shall be free to render investment advisory services to others so long as its services hereunder are not impaired thereby. It is understood that the
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persons employed by Granahan to assist in the performance of its duties here-under will not devote their full time to such services and nothing contained herein shall be deemed to limit or restrict in any manner whatsoever the right of Granahan to engage in or devote time and attention to other businesses or to render services of whatever kind or nature. It is understood that AMCO may appoint at any time in accordance with Applicable Law one or more sub-advisers, in addition to Granahan, or AMCO itself, to perform investment advisory services to any portion of the Funds.
10. Additional Agreements.
(a) Access to Information. Granahan shall, upon reasonable notice, afford AMCO at all reasonable times access to Granahan’s officers, employees, agents and offices and to all its relevant books and records and shall furnish AMCO with all relevant financial and other data and information as requested; provided, however, that nothing contained herein shall obligate Granahan to provide AMCO with access to the books and records of Granahan relating to any other accounts other than the Funds.
(b) Confidentiality. All information and advice furnished by one party to the other party (including their respective officers, employees and authorized representatives) shall be treated confidentially and as proprietary information. Each party will not use such records and information for any purpose other than performance of its responsibilities and duties hereunder, except after prior notification to and approval in writing by the other party, which approval shall not be unreasonably withheld and may not be withheld where a party may be exposed to civil or criminal contempt proceedings for failure to comply, when requested to divulge such information by duly constituted authorities, or when so requested by the other party. Notwith-standing the foregoing, no approval is required in the case of routine, periodic reports required by law or regulation to be filed with a governmental or regulatory authority in the ordinary course or in the case of records and information provided to any regulator in the course of routine examinations of
a party’s books and records, except that either party receiving such a regulatory or ordinary course request shall notify the other party of such regulatory or ordinary course request, prior to the provision of such information so as to allow such other party to respond appropriately.
(c) Privacy Policy. Granahan acknowledges that nonpublic customer information (as defined in Regulation S-P, including any amendments thereto) of customers of the Funds received from AMCO, if any, is subject to the limitations on redisclosure and reuse set forth in Section 248.11 of such Regulation, and agrees such information (i) shall not be disclosed to any third party for any purpose without the written consent of AMCO unless permitted by
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exceptions set forth in Sections 248.14 or 248.15 of such Regulation and (ii) shall be safeguarded pursuant to procedures adopted under Section 248.30 of such Regulation if so required. Notwithstanding the preceding and Section 10(b), Granahan may, upon prior written permission, disclose AMCO’s and the Fund’s name in marketing materials as part of a representative client list. AMCO may at any time withdraw its consent to the use and disclosure of its name and the Fund’s name.
(d) Public Announcements. No party shall issue any press release or otherwise make any public statements with respect to the matters covered by this Agreement without the prior written consent of the other parties hereto, which consent shall not be unreasonably withheld; provided, however, that consent shall not be required if, in the opinion of counsel, such disclosure
is required by law; provided further, however, that the party making such disclosure shall provide the other parties hereto with as much prior written notice of such disclosure as is practical under the circumstances.
(e) Notifications. Granahan agrees that it will promptly notify AMCO in the event that: (i) Granahan becomes the subject of an administrative proceeding or enforcement action by the Commission or other regulatory body with applicable jurisdiction or (ii) to the best of Granahan’s knowledge, any affiliate of Granahan becomes the subject of an administrative proceeding or enforcement action by the Commission or other regulatory body with applicable jurisdiction that Granahan reasonably expects could have a material adverse effect upon the ability of Granahan to perform its duties under this Agreement.
(f) Insurance. Granahan agrees to maintain errors and omissions or professional liability insurance coverage in an amount that is reasonable in light of the nature and scope of Granahan’s business activities.
(g) Shareholder Meeting and Other Expenses. In the event that the Trust shall be required to call a meeting of shareholders or send an inform-ation statement or prospectus supplement to shareholders solely due to actions involving Granahan, including, without limitation, a change of control of Granahan or a portfolio manager change, Granahan shall bear all reasonable expenses associated with such shareholder meeting, information statement, or prospectus supplement.
11. Miscellaneous.
(a) Notices. All notices or other communications given under this Agreement shall be made by guaranteed overnight delivery, telecopy or certified mail; notice is effective when received. Notice shall be given to the parties at the following addresses:
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AMCO: USAA Asset Management Company
9800 Fredericksburg Road, A-O3-W
San Antonio, Texas 78288
Facsimile No.: (210) 498-0083
Attention: FASG Counsel
Granahan: Granahan Investment Management, Inc.
275 Wyman St. Suite 270
Waltham, MA 02451
(781) 890-4412
Fax: (781)890-6427
Attention: Chief Compliance Officer
(b) Severability. If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors.
(c) Governing Law. This Agreement shall be construed in accordance with the laws of the state of Texas, without giving effect to the conflicts of laws principles thereof, and in accordance with the 1940 Act. To the extent that the applicable laws of the state of Texas conflict with the applicable provisions of the 1940 Act, the latter shall control.
(d) Counterparts. This Agreement may be executed simul-taneously in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
(e) Headings. The captions in this Agreement are included for convenience of reference only and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect.
(f) Entire Agreement. This Agreement states the entire agree-ment of the parties hereto, and is intended to be the complete and exclusive statement of the terms hereof. It may not be added to or changed orally, and may not be modified or rescinded except by a writing signed by the parties hereto and in accordance with the 1940 Act.
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IN WITNESS WHEREOF, AMCO and Granahan have caused this Agreement to be executed as of the date first set forth above.
Attest: | USAA ASSET MANAGEMENT COMPANY |
By: | By: |
Name: Adym Rygmyr | Name: Daniel S. McNamara |
Title: Secretary | Title: President |
By: | |
Name: | |
Title: Authorized Signatory | |
Attest: | GRANAHAN INVESTMENT MANAGEMENT |
By: | By: |
Name: Title: | Name: Jane M. White Title: President & CEO |
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SCHEDULE A
Small Cap Stock Fund
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SCHEDULE B
FEES
Fund | Account Rate per annum of the average daily net assets of the Fund Account |
Small Cap Stock Fund | Small Cap Core Growth Mandate 0.55% on the first $300 million in assets 0.52% on assets above $300 million |
* Granahan agrees that it will not seek to increase this fee rate during the three-year period ending July 10, 2015 (the Three-Year Lock). This Three-Year Lock does not limit the rights of a Fund’s shareholders, a Fund’s Board, or AMCO as set forth in Section 6 of the Agreement (“Duration and Termination of this Agreement”).
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