UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
SCHEDULE 14C INFORMATION
INFORMATION STATEMENT PURSUANT TO SECTION 14(C)
OF THE SECURITIES EXCHANGE ACT OF 1934
Check the appropriate box:
[ ] Preliminary Information Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14c-5(d)(2))
[x] Definitive Information Statement
USAA MUTUAL FUNDS TRUST
------------------------------------------------------
(name of registrant as specified in the charter)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction: $__________________
(5) Total fee paid: $____________________
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
[USAA USAA TOTAL RETURN STRATEGY FUND
EAGLE
LOGO (R)] INFORMATION STATEMENT
REGARDING A SUBADVISER CHANGE
The USAA Total Return Strategy Fund's Board of Trustees (the Board) approved
Credit Suisse Securities (USA) LLC (CSSU) for its Volaris Volatility Management
Group (Volaris Group) as an additional new subadviser of the USAA Total Return
Strategy Fund (the Fund) effective on October 1, 2007. This Information
Statement is being provided to you in lieu of a proxy statement pursuant to the
terms of an exemptive order that the Fund has received from the Securities and
Exchange Commission. The exemptive order permits USAA Investment Management
Company (IMCO) to change subadvisers of the Fund without first calling a special
shareholders meeting and obtaining shareholder approval. Pursuant to the
exemptive order, however, the Fund has agreed to provide certain information
about new subadvisers and new subadvisory agreements to its investors.
Accordingly, shareholders are not being asked to vote on the hiring of the new
subadviser or the subadvisory agreement with the new subadviser, but are
encouraged to review this Information Statement.
WE ARE NOT ASKING YOU FOR A PROXY, AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
This Information Statement is first being delivered to shareholders on or about
December 29, 2007.
INVESTMENT SUBADVISORY AGREEMENT
BETWEEN IMCO AND CSSU
O WHAT WAS THE PROCESS THAT LED TO CSSU BECOMING A SUBADVISER OF THE FUND?
In an effort to reduce portfolio volatility over time, IMCO determined that
it could be beneficial to implement an index option-based strategy in a
portion of the Fund's assets. Therefore, IMCO solicited proposals from
firms in the business of managing such index option-based strategies that
were in-line with the objectives of the Fund. After reviewing these
proposals, IMCO believed that engaging CSSU was the best
option for the Fund and asked the Fund's Board to approve entering into an
agreement with CSSU to provide investment advisory services to the Fund.
IMCO will continue to oversee the management if the Fund as the investment
advisor.
O WHAT ARE THE KEY PROVISIONS OF THE INVESTMENT SUBADVISORY AGREEMENT?
Under the Investment Subadvisory Agreement, IMCO will employ CSSU for its
Volaris Volatility Management Group (Volaris Group) to manage an index
option-based risk management strategy for the Fund. CSSU will be
responsible for, among other things, implementing an index option-based
strategy by selling index call options and buying index put options or put
spread options, subject to the supervision and monitoring of IMCO and the
oversight of the Fund's Board. IMCO, and not the Fund, will be responsible
for paying all fees charged by CSSU for these subadvisory services. Any
description of the Investment Subadvisory Agreement set forth herein is
qualified in its entirety by the actual Investment Subadvisory Agreement,
which is attached as Exhibit A.
O WHEN DID THE INVESTMENT SUBADVISORY AGREEMENT TAKE EFFECT?
The Investment Subadvisory Agreement took effect on October 1, 2007, and
will remain in effect for an initial two-year period ending on September
30, 2009. Thereafter, the Investment Subadvisory Agreement will continue
automatically 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 Investment Company Act of 1940 (Independent Board Members) and by a
majority of all Board members. The Fund may terminate the Investment
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 as defined under the Investment Company Act of 1940,
without penalty, on not more than 60 days' written notice to IMCO and/or
CSSU. IMCO may at any time terminate the Investment Subadvisory Agreement,
without penalty,
2
by written notice to CSSU. CSSU may terminate the Investment Subadvisory
Agreement, without penalty, by not less than 90 days' written notice to
IMCO. The Investment Subadvisory Agreement automatically will terminate
without penalty in the event of its assignment.
O WILL THE FUND'S TOTAL EXPENSES CHANGE AS A RESULT OF THE INVESTMENT
SUBADVISORY AGREEMENT WITH CSSU?
No, the Investment Subadvisory Agreement will not affect the Fund's total
expense ratio. IMCO (not the Fund) pays a fee to CSSU for services under
the Investment Subadvisory Agreement.
O WHAT INFORMATION DID THE BOARD CONSIDER PRIOR TO APPROVING THE INVESTMENT
SUBADVISORY AGREEMENT WITH CSSU?
At a meeting of the Board held on September 24, 2007, the Board, including
the Independent Board Members, approved the adoption of the Investment
Subadvisory Agreement with CSSU. In advance of the meeting, the Board
received and considered a variety of information relating to the Investment
Subadvisory Agreement and CSSU, and was given the opportunity to ask
questions and request additional information from management. The
information provided to the Board included, among other things: (i) the
qualifications of the individuals at CSSU responsible for these investment
activities; (ii) the fees to be paid to CSSU; and (iii) the complementary
nature of the investment strategies of CSSU with the existing strategy of
the Fund. Prior to voting, the Independent Board Members reviewed the
proposed Investment 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
Investment Subadvisory Agreement. The Independent Board Members also
reviewed the proposed Investment Subadvisory Agreement in private sessions
with their counsel at which no representatives of management were present.
In approving the Fund's Investment Subadvisory Agreement with CSSU, the
Board considered various factors, among them: (i) the nature, extent, and
quality of services to be provided to the Fund by CSSU, including the
personnel that will be providing services; (ii) CSSU's compensation and any
other benefits that will be derived from the subadvisory relationship by
CSSU; (iii) comparisons, to
3
the extent available, of subadvisory fees and performance to comparable
investment companies; and (iv) the terms of the Investment Subadvisory
Agreement. The Board's analysis of these factors is set forth below.
After full consideration of a variety of factors, the Board, including the
Independent Board Members, voted to approve the Investment Subadvisory
Agreement with CSSU. In approving the Investment Subadvisory Agreement, the
Board did not identify any single factor as controlling, and each
Independent Board Member 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 PROVIDED; INVESTMENT PERSONNEL. The
Board considered information provided to it regarding the services to be
provided by CSSU. The Board considered CSSU'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 CSSU's level of
staffing. The Board also noted CSSU's brokerage practices. The Board also
considered CSSU's regulatory and compliance history. The Board noted that
IMCO's monitoring processes of CSSU would include: (i) regular telephonic
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 CSSU.
SUBADVISER COMPENSATION. The Board also took into consideration the
financial condition of CSSU. In considering the cost of services to be
provided by CSSU and the profitability to CSSU of its relationship with the
Fund, the Board noted that the fees under the Investment Subadvisory
Agreement would be paid by IMCO. The Board also relied on the ability of
IMCO to negotiate the Investment Subadvisory Agreement and the fees
thereunder at arm's length. The Board also considered information relating
to the cost of services to be provided by CSSU, CSSU's anticipated
profitability with respect to the Fund, and the potential economies of
scale in CSSU's management of the Fund, to the extent available. However,
this information was less
4
significant to the Board's consideration of the Investment Subadvisory
Agreement than the other factors considered for the above reasons.
SUBADVISORY FEES AND FUND PERFORMANCE. The Board considered the subadvisory
fees for the Fund in comparison to the fees that CSSU charges to comparable
clients, as applicable. The Board considered that the Fund pays a
management fee to IMCO and that, in turn, IMCO will pay a subadvisory fee
to CSSU. The Board took into account that the advisory fees paid by the
Fund would not change. The Board noted IMCO's expertise and resources in
monitoring the performance, investment style, and risk-adjusted performance
of CSSU. The Board also noted CSSU's long-term performance record for other
accounts.
CONCLUSION. The Board reached the following conclusions regarding the
Investment Subadvisory Agreement, among others: (i) CSSU is qualified to
manage a portion of the Fund's assets in accordance with its investment
objectives and policies; (ii) CSSU maintains an appropriate compliance
program; (iii) and the Fund's advisory expenses are reasonable in relation
to those of similar funds and to the services to be provided by IMCO and
CSSU. Based on its conclusions, the Board determined that approval of the
Investment Subadvisory Agreement with CSSU would be in the best interests
of the Fund and its shareholders.
O WHAT GENERAL INFORMATION IS AVAILABLE ABOUT CSSU?
CSSU, located at Eleven Madison Avenue, New York, New York 10010, is an SEC
registered broker-dealer and investment advisor. CSSU provides a variety of
capital raising, market making, advisory, and brokerage services for its
government, financial institution, high net-worth individuals, and
corporate clients and affiliates. CSSU also provides both discretionary and
non-discretionary investment related advisory services to approximately
2,500 clients.
O WHO ARE THE DIRECTORS AND PRINCIPAL EXECUTIVE OFFICER OF CSSU?
The names and principal occupations of the current directors and principal
executive officer of CSSU are set forth as follows:
5
NAME PRINCIPAL OCCUPATION
Brian D. Finn Managing Director
Karlheinz Muhr Senior Registered Options
Principal and Managing Director
Stephen Van Besien Managing Director
During the last five fiscal years, no director or officer of CSSU 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.
O DOES CSSU OR ANY OF ITS AFFILIATES PROVIDE ANY ADDITIONAL SERVICES TO THE
FUND?
No.
O WHAT WILL IMCO PAY CSSU FOR ITS SUBADVISORY SERVICES?
IMCO (not the Fund) will pay CSSU a portfolio management fee as follows:
TOTAL NOTIONAL AMOUNT ANNUAL
OF ALL FUND ACCOUNTS SUBADVISORY FEE*
First $0.00 - $50,000,000.00 0.23%
Next $50,000,000.01 - $250,000,000.00 0.20%
Next $250,000,000.01 - $500,000,000.00 0.12%
Next $500,000,000.01 - $2,000,000,000.00 0.10%
Over $2,000,000,000.00 0.08%
* Credit Suisse agrees that it will not seek to increase these fee rates
during the period ending October 1, 2010 (the Lock). This Lock does not
limit the rights of the Fund's shareholders, the Fund's Board, or IMCO as
set forth in Section 6 of the Agreement ("Duration and Termination of this
Agreement").
O DOES CSSU ACT AS ADVISER FOR SIMILAR FUNDS?
To our knowledge, CSSU does not serve as adviser to any other registered
fund that has a similar objective to the Fund. However, as of October 1,
2007, CSSU does serve as a subadviser to the USAA Balanced Strategy Fund
(net assets of $661,146,259), USAA Cornerstone
6
Strategy Fund (net assets of $2,285,001,006), and USAA First Start Growth
Fund (net assets of $228,527,168) at the same fee rates as the Fund using a
substantially similar investment strategy.
NAME AND ADDRESS OF
THE FUND'S INVESTMENT ADVISER,
PRINCIPAL UNDERWRITER, AND ADMINISTRATOR
IMCO, located at 9800 Fredericksburg Road, San Antonio, Texas 78288, is the
Fund's investment adviser, principal underwriter, and administrator.
SHARES OWNED
As of November 30, 2007, there were 24,795,667 shares of the Fund outstanding.
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 INVESTMENT MANAGEMENT COMPANY, 9800 FREDERICKSBURG ROAD, SAN ANTONIO, TEXAS
78288 OR (800) 531-8181.
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 Information
Statement, please call us toll free at (800) 531-8181 or contact us at 9800
Fredericksburg Road, San Antonio, Texas 78288 and we will send you an individual
copy.
7
EXHIBIT A
INVESTMENT SUBADVISORY AGREEMENT
AGREEMENT made as of the 1st day of October, 2007 (the Effective Date)
between USAA INVESTMENT MANAGEMENT COMPANY, a corporation organized under the
laws of the State of Delaware and having its principal place of business in San
Antonio, Texas (IMCO) and CREDIT SUISSE SECURITIES (USA) LLC, a limited
liability company organized under the laws of the State of Delaware and having
its principal place of business in New York (Credit Suisse).
WHEREAS, IMCO 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), IMCO is authorized to appoint subadvisers for series of the
Trust (each a Fund, or collectively Funds); and
WHEREAS, IMCO wishes to retain Credit Suisse to render investment advisory
services to such series (or portions thereof) of the Trust 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 series or portion thereof referred to
herein as a Fund Account and collectively as Fund Accounts); and
WHEREAS, Credit Suisse is willing to provide such services to the Fund
Accounts and IMCO 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 CREDIT SUISSE. IMCO hereby appoints Credit Suisse to act as an
investment adviser for each Fund Account in accordance with the terms and
conditions of this Agreement. Credit Suisse will be an independent contractor
and will have no authority to act for or represent the Trust or IMCO
A-1
in any way or otherwise be deemed an agent of the Trust or IMCO except as
expressly authorized in this Agreement or another writing by the Trust, IMCO and
Credit Suisse. Credit Suisse accepts such appointment and agrees to render the
services herein set forth for the compensation herein provided.
2. DUTIES OF CREDIT SUISSE.
(A) AUTHORITY TO INVEST. Subject to the control and supervision of IMCO and
the Trust's Board of Trustees (the Board), Credit Suisse shall have full
discretion to manage, supervise and direct the development and implementation of
an index options overlay strategy on the Fund Accounts for the purpose of acting
as a migrating collar on a portion of the Fund's equity exposure. Other than as
provided for herein, Credit Suisse will not have discretionary management
authority over the securities held in the Fund Account. IMCO shall designate the
maximum Total Value of options to be written for each Fund Account. Total Value
shall be equal to, on a cumulative basis, the fair market value of the index
underlying the options at the time of execution of the options positions. Credit
Suisse shall adjust the options strategy in accordance with written guidelines
provided by IMCO from time to time.
Credit Suisse 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, as provided to Credit Suisse by IMCO from time to time. Should Credit
Suisse anticipate materially modifying its investment process, it must provide
written notice in advance to IMCO, and any affected Prospectus and SAI should be
amended accordingly.
For each Fund set forth on Schedule A to this Agreement, Credit Suisse
shall not consult with any other subadviser of such Fund concerning transactions
for the Fund in securities or other assets.
In accordance with Subsection (b) of this Section 2, Credit Suisse 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
transactions, as well as with respect to all other things necessary or
incidental to the furtherance or conduct of such purchases, sales, or other
transactions.
A-2
In the performance of its duties, Credit Suisse 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 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 IMCO 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
IMCO. Credit Suisse shall establish compliance procedures reasonably calculated
to ensure compliance with the foregoing. IMCO shall be responsible for providing
Credit Suisse 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. IMCO
shall provide Credit Suisse with prior written notice of any material change to
the Trust's Registration Statement that would affect Credit Suisse's management
of a Fund Account.
(B) PORTFOLIO TRANSACTIONS. In connection with the management of the
investment and reinvestment of the Fund Accounts' assets, Credit Suisse 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 investments for the Fund Accounts, Credit Suisse shall use its best
efforts to seek to obtain for the Fund Accounts the most favorable price and
execution available, except to the extent it may be permitted to pay higher
brokerage commissions for brokerage and research services as described below. In
using its best efforts to seek to obtain the most favorable price and execution
available, Credit Suisse, 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.
A-3
Subject to such policies as the Board may determine and to the extent
authorized by Section 28(e) of the Securities Exchange Act of 1934 (Exchange
Act), Credit Suisse 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 Credit Suisse 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 Credit Suisse
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 Credit
Suisse's overall responsibilities with respect to the Fund and to other clients
of Credit Suisse as to which Credit Suisse exercises investment discretion. The
Board or IMCO may direct Credit Suisse 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 Credit Suisse deems the purchase or sale of a security to
be in the best interest of a Fund as well as other clients of Credit Suisse,
Credit Suisse, 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 Credit Suisse 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.
Credit Suisse 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, Credit Suisse may effectuate cross transactions between a Fund
Account and such other account if it deems this to be advantageous.
Credit Suisse will advise the Funds' custodian or such depository or agents
as may be designated by the custodian and IMCO promptly of each
A-4
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. Credit Suisse 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 Credit Suisse giving
proper instructions to the custodian, Credit Suisse 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 IMCO.
Notwithstanding the foregoing, Credit Suisse agrees that IMCO 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
transaction on behalf of the Fund may not be effected, including, without
limitation, brokers or dealers affiliated with IMCO. Credit Suisse 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 IMCO to do so is obtained. In addition, Credit
Suisse 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 Commission) of Credit Suisse, except as permitted under the
1940 Act. IMCO agrees that it will provide Credit Suisse 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 IMCO or Credit Suisse 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. Credit Suisse, at its expense, will furnish all necessary
facilities and personnel, including salaries, expenses and fees of any personnel
required for Credit Suisse to faithfully perform its duties under this Agreement
and administrative facilities, including bookkeeping, and all equipment and
services necessary for the efficient conduct of Credit Suisse's duties under
this Agreement. However, Credit Suisse shall not be obligated to pay any
expenses of IMCO, the Trust or the Funds, including without limitation, interest
and
A-5
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, Credit Suisse, at its expense,
will provide reasonable assistance to IMCO 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 IMCO is responsible for final pricing
determinations and calculations, and that Credit Suisse will take such steps as
necessary to assist IMCO in reaching such pricing determinations for Fund
Account securities. Credit Suisse 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 IMCO immediately of the occurrence of any
such events.
(E) REPORTS AND AVAILABILITY OF PERSONNEL. Credit Suisse, at its expense,
shall render to the Board and IMCO such periodic and special reports as the
Board and IMCO may reasonably request with respect to matters relating to the
duties of Credit Suisse set forth herein. Credit Suisse, at its expense, will
make available to the Board and IMCO 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 IMCO regarding the investment affairs of
the Funds, including economic, statistical and investment matters relevant to
Credit Suisse's duties hereunder.
(F) COMPLIANCE MATTERS. Credit Suisse, at its expense, will provide IMCO
with such compliance reports relating to its duties under this Agreement as may
be agreed upon by such parties from time to time. Credit Suisse also shall
cooperate with and provide reasonable assistance to IMCO, 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 IMCO, keep all such persons fully informed as to such matters as
they may reasonably deem necessary to the performance of their obligations to
the Trust and IMCO, 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.
A-6
(G) BOOKS AND RECORDS. Credit Suisse 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, Credit Suisse 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 IMCO any such records (or copies of such records) upon the Fund's or IMCO'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, Credit Suisse may maintain copies of such
records to comply with its recordkeeping obligations.
(H) PROXIES. Unless and until Credit Suisse is otherwise directed by IMCO
or the Board, IMCO will vote proxies with respect to a Fund Account's securities
and exercise rights in corporate actions or otherwise in accordance with IMCO's
proxy voting guidelines.
3. ADVISORY FEE. IMCO shall pay to Credit Suisse as compensation for Credit
Suisse's services rendered pursuant to this Agreement a fee based on the total
Notional Amount for 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 15 business days after the end of such month.
IMCO (and not the Funds) shall pay such fees. If Credit Suisse 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. "Notional Amount" is equal to the daily closing price of the
index underlying options strategies written for each Fund Account using the
closing price listed on an agreed upon exchange.
4. REPRESENTATIONS AND WARRANTIES.
(A) CREDIT SUISSE. Credit Suisse represents and warrants to IMCO that (i)
the retention of Credit Suisse by IMCO as contemplated by this Agreement is
authorized by Credit Suisse's governing documents; (ii) the execution, delivery
and performance of this Agreement does not violate any obligation by which
Credit Suisse 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 Credit Suisse and when executed and delivered by Credit
Suisse will be a legal, valid and binding obligation of Credit Suisse,
enforceable
A-7
against Credit Suisse 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) Credit Suisse is
registered as an investment adviser under the Advisers Act; (v) Credit Suisse
has adopted a written code of ethics complying with the requirements of Rule
17j-1 under the 1940 Act and that Credit Suisse 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 IMCO, and, with respect to such persons, Credit
Suisse shall furnish to IMCO all reports and information provided under Rule
17j-1(c)(2); (vi) Credit Suisse 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) Credit Suisse will promptly notify IMCO of the
occurrence of any event that would disqualify Credit Suisse from serving as
investment manager of an investment company pursuant to Section 9(a) of the 1940
Act or otherwise; (viii) Credit Suisse has provided IMCO 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 IMCO
at least annually; (ix) Credit Suisse will notify IMCO of any "assignment" (as
defined in the 1940 Act) of this Agreement or change of control of Credit
Suisse, as applicable, and any changes in the key personnel who are either the
portfolio manager(s) of any Fund Account or senior management of Credit Suisse,
in each case prior to or promptly after, such change; and (x) Credit Suisse has
adequate disaster recovery and interruption prevention measures to ensure
business resumption in accordance with applicable law and within industry
standards. Credit Suisse 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) IMCO. IMCO represents and warrants to Credit Suisse that (i) the
retention of Credit Suisse by IMCO as contemplated by this Agreement is
authorized by the respective governing documents of the Trust and IMCO; (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 IMCO 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 IMCO
and when executed and delivered by IMCO will be a legal, valid and binding
obligation of the Trust and IMCO, enforceable against
A-8
the Trust and IMCO 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) IMCO is registered as an
investment adviser under the Advisers Act; (v) IMCO has adopted a written code
of ethics complying with the requirements of Rule 17j-1 under the 1940 Act and
that IMCO and certain of its employees, officers and directors are subject to
reporting requirements thereunder; (vi) IMCO 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) IMCO will promptly notify Credit Suisse of
the occurrence of any event that would disqualify IMCO from serving as
investment manager of an investment company pursuant to Section 9(a) of the 1940
Act or otherwise; and (viii) IMCO 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) CREDIT SUISSE. Credit Suisse 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, IMCO, 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, IMCO 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 of Credit Suisse 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 Credit Suisse 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 IMCO or the Trust by Credit Suisse Indemnities (as defined below) for use
therein. Credit Suisse shall indemnify and hold harmless the IMCO 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 Credit Suisse's indemnity hereunder deemed to protect a person against
any liability to
A-9
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) IMCO. IMCO shall be liable for any and all losses, claims, damages,
liabilities or litigation (including reasonable legal and other expenses) to
which Credit Suisse, 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, Credit Suisse 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 IMCO 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 IMCO 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 in writing to IMCO
or the Trust. IMCO shall indemnify and hold harmless Credit Suisse Indemnities
for any and all such losses, claims, damages, liabilities or litigation
(including reasonable legal and other expenses); provided, however, that in no
case shall IMCO's indemnity hereunder be 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, IMCO, or Credit Suisse
(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 60 days' written notice delivered or mailed
by registered mail, postage prepaid, to IMCO and Credit Suisse.
A-10
(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, Credit
Suisse may continue to serve hereunder in a manner consistent with the 1940 Act
and the rules thereunder.
(c) IMCO 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 Credit Suisse.
Credit Suisse may at any time, without the payment of any penalty, terminate
this Agreement with respect to a Fund by not less than 90 days' written notice
delivered or mailed by registered mail, postage prepaid, to IMCO.
(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 Credit Suisse by IMCO shall be
without prejudice to the obligation of Credit Suisse to complete transactions
already initiated or acted upon with respect to a Fund.
Upon termination of this Agreement, the duties of IMCO delegated to Credit
Suisse under this Agreement automatically shall revert to IMCO. Notwithstanding
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
A-11
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 Credit Suisse to IMCO in connection
with the Funds hereunder are not to be deemed exclusive, and Credit Suisse 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 Credit Suisse 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 Credit Suisse
to engage in or devote time and attention to other businesses or to render
services of whatever kind or nature. It is understood that IMCO may appoint at
any time in accordance with Applicable Law one or more subadvisers, in addition
to Credit Suisse, or IMCO itself, to perform investment advisory services to any
portion of the Funds.
10. ADDITIONAL AGREEMENTS.
(A) ACCESS TO INFORMATION. Credit Suisse shall, upon reasonable notice,
afford IMCO at all reasonable times access to Credit Suisse's officers,
employees, agents and offices and to all its relevant books and records and
shall furnish IMCO with all relevant financial and other data and information as
requested; provided, however, that nothing contained herein shall obligate
Credit Suisse to provide IMCO with access to the books and records of Credit
Suisse 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
A-12
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, when so
requested by the other party, or as otherwise required by applicable law or
regulation.
(C) PRIVACY POLICY. Credit Suisse acknowledges that nonpublic customer
information (as defined in Regulation S-P, including any amendments thereto) of
customers of the Funds received from IMCO 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 IMCO 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.
(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. Credit Suisse agrees that it will promptly notify IMCO
in the event that: (i) Credit Suisse becomes or reasonably expects to become 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
Credit Suisse's knowledge, any affiliate of Credit Suisse becomes or reasonably
expects to become the subject of an administrative proceeding or enforcement
action by the Commission or other regulatory body with applicable jurisdiction
that could reasonably be expected to have a material adverse effect upon the
ability of Credit Suisse to perform its duties under this Agreement.
(F) INSURANCE. Credit Suisse 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 Credit Suisse's business activities.
A-13
(G) SHAREHOLDER MEETING AND OTHER EXPENSES. In the event that the Trust
shall be required to call a meeting of shareholders or send an information
statement or prospectus supplement to shareholders solely due to actions
involving Credit Suisse, including, without limitation, a change of control of
Credit Suisse or a portfolio manager change, Credit Suisse 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:
IMCO: USAA Investment Management Company
9800 Fredericksburg Road, A-O3-W
San Antonio, Texas 78288
Facsimile No.: (210) 498-4022
Attention: Securities Counsel
Credit Suisse: Credit Suisse Securities (USA) LLC
Eleven Madison Avenue
New York, New York 10010
Facsimile No.: (212) 743-3032
Attention: General Counsel
(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.
A-14
(D) COUNTERPARTS. This Agreement may be executed simultaneously 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 agreement 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.
IN WITNESS WHEREOF, IMCO and Credit Suisse have caused this Agreement to be
executed as of the date first set forth above.
Attest: USAA INVESTMENT MANAGEMENT
COMPANY
By: /S/ CLIFF GLADSON By: /S/ RONALD SWEET
---------------------- -------------------------------
Name: Cliff Gladson Name: Ronald B. Sweet
Title: Senior Vice President Title: Vice President
By: /S/ JAMES P. GRADLESS
-------------------------------
Name: James P. Gradeless
Title: Authorized Signatory
Attest: CREDIT SUISSE SECURITIES (USA) LLC
By: /S/ KATHY CHEN By: /S/ KARLHEINZ MUHR
---------------- ----------------------
Name: Kathy Chen Name: Karlheinz Muhr
Title: Director Title: Managing Director
By: ________________________________
Name:
Title:
A-15
SCHEDULE A
First Start Growth Fund
Total Return Strategy Fund
Balanced Strategy Fund
Cornerstone Strategy Fund
SCHEDULE B
FEES
TOTAL NOTIONAL AMOUNT OF ALL FUND ACCOUNTS ANNUAL SUBADVISORY FEE*
First $0.00 - $50,000,000.00 0.23%
Next $50,000,000.01 - $250,000,000.00 0.20%
Next $250,000,000.01 - $500,000,000.00 0.12%
Next $500,000,000.01 - $2,000,000,000.00 0.10%
Over $2,000,000,000.00 0.08%
- --------------------
* Credit Suisse agrees that it will not seek to increase these fee rates
during the period ending October 1, 2010 (the Lock). This Lock does not limit
the rights of the Fund's shareholders, the Fund's Board, or IMCO as set forth in
Section 6 of the Agreement ("Duration and Termination of this Agreement").
A-16