INFORMATION STATEMENT
REGARDING SUBADVISER
CHANGES TO THE
USAA EMERGING MARKETS FUND
The USAA Emerging Markets Fund's Board of Trustees (the Board) recently approved
Lazard Asset Management LLC (Lazard), Victory Capital Management, Inc.
(Victory), and Brandes Investment Partners, L.P. (Brandes) as new subadvisers
for the USAA Emerging Markets Fund (the Fund), replacing Batterymarch Financial
Management, Inc. and The Boston Company with the change taking effect on October
16, 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
Lazard, Victory, and Brandes. This Information Statement is first being
delivered to shareholders on or about January 15, 2013.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
INVESTMENT SUBADVISORY AGREEMENTS
AMONG AMCO, LAZARD ASSET MANAGEMENT LLC,
VICTORY CAPITAL MANAGEMENT, INC., AND
BRANDES INVESTMENT PARTNERS, L.P.
> WHAT WAS THE PROCESS THAT LED TO LAZARD, VICTORY, AND BRANDES BECOMING NEW
SUBADVISERS TO THE FUND?
In monitoring the performance of the Fund's former subadviser, Batterymarch
Financial Management, Inc. (Batterymarch) and The Boston Company, AMCO
determined that the relative performance of the portion of the Fund allocated to
Batterymarch and The Boston Company 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 Lazard, Victory, and Brandes was in the best interests
of the Fund and recommended that the Fund's Board approve entering into
investment subadvisory agreements with each of Lazard, Victory, and Brandes
(Subadvisory Agreement(s)).
On September 26, 2012, after considering, among other things, Lazard's,
Victory's, and Brandes's capabilities and reviewing the terms of the Subadvisory
Agreements, the Fund's Board approved the new Subadvisory Agreements. Lazard's,
Victory's, and Brandes's duties under their respective Subadvisory Agreements
are substantially the same as the duties of Batterymarch and The Boston Company
under the Fund's former subadvisory agreements between AMCO and Batterymarch and
The Boston Company. AMCO will continue to oversee the management of the Fund as
its investment adviser.
> WHAT ARE THE KEY PROVISIONS OF THE SUBADVISORY AGREEMENTS?
Under the Subadvisory Agreements, AMCO will employ Lazard, Victory, and Brandes
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.
Lazard, Victory, and Brandes will be responsible for, among other things,
placing all orders for the purchase and sale of portfolio securities, subject to
the supervision and monitoring of AMCO and the oversight of the Fund's Board.
AMCO, and not the Fund, will be responsible for paying all fees charged by
Lazard, Victory, and Brandes for these subadvisory services. A description
of the Subadvisory Agreements set forth herein is qualified in its entirety by
the actual Subadvisory Agreements, forms of which are attached as EXHIBIT A,
EXHIBIT B, AND EXHIBIT C.
> WHEN DID THE INVESTMENT SUBADVISORY AGREEMENTS TAKE EFFECT AND UNDER WHAT
CIRCUMSTANCES MAY THEY BE TERMINATED?
The Subadvisory Agreements took effect on October 16, 2012, and will remain in
effect for an initial two-year period ending on October 15, 2014. Thereafter,
each 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 Lazard, Victory,
or Brandes, as the case may be. AMCO may at any time terminate any Sub-advisory
Agreement, without penalty, by written notice to Lazard, Victory, or Brandes,
respectively. Lazard, Victory, or Brandes may terminate their respective
Subadvisory Agreement, without penalty, by not less than 90 days' written
notice to AMCO. A Subadvisory Agreement automatically will termi-nate without
penalty in the event of its "assignment" as that term is defined in the 1940
Act.
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> WILL THE FUND'S TOTAL EXPENSES CHANGE AS A RESULT OF THE SUBADVISORY
AGREEMENTS WITH LAZARD, VICTORY, AND BRANDES?
No, the Subadvisory Agreements will not affect the Fund's total expense ratio.
AMCO (not the Fund) pays a fee to Lazard, Victory, and Brandes for services
under the Subadvisory Agreements.
> WILL THE FUND'S INVESTMENT OBJECTIVE OR INVESTMENT STRATEGY CHANGE AS A RESULT
OF THE SUBADVISORY AGREEMENTS WITH LAZARD, VICTORY, AND BRANDES?
The Fund's investment objective will remain the same. However, Lazard, Victory,
and Brandes 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 could experience higher portfolio
turnover than normal and higher related transaction costs, including brokerage
commissions. In addition, the Fund could realize capital gains when portfolio
positions are sold. These realized capital gains may increase the Fund's taxable
distributions for the current year.
> WHAT INFORMATION DID THE BOARD CONSIDER PRIOR TO APPROVING THE
SUBADVISORY AGREEMENTS WITH LAZARD, VICTORY, AND BRANDES?
At a meeting held on September 26, 2012, the Board, including the Independent
Board Members, approved the Subadvisory Agreements with Lazard, Victory, and
Brandes. In advance of the meeting, the Board received and considered a variety
of information relating to the Subadvisory Agreements, Lazard, Victory, and
Brandes and 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 Lazard, Victory,
and Brandes 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 Lazard, Victory, and Brandes. 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.
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In approving the Fund's Subadvisory Agreements with Lazard, Victory, and
Brandes, the Board considered various factors, among them: (i) the nature,
extent, and quality of services to be provided to the Fund by Lazard, Victory,
and Brandes, including the personnel that will be providing services; (ii)
compensation and any other benefits that will be derived from the subadvisory
relationship by Lazard, Victory, and Brandes; (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 Lazard, Victory, and Brandes. The Board considered Lazard's,
Victory's, and Brandes'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 Lazard's, Victory's, and Brandes's level of staffing. The Board
noted Lazard, Victory, and Brandes brokerage practices. The Board also
considered their regulatory and compliance history. The Board noted that AMCO's
monitoring processes of Lazard, Victory, and Brandes 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 Lazard, Victory, and Brandes. The Board also took into
consideration the financial condition of Lazard, Victory, and Brandes.
SUBADVISER COMPENSATION. In considering the cost of services to be provided by
Lazard, Victory, and Brandes and the profitability to Lazard, Victory, and
Brandes of their relationship with the Fund, the Board noted that the fees under
the Subadvisory Agreements 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 Lazard's, Victory's, and Brandes'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.
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SUBADVISORY FEES AND FUND PERFORMANCE. The Board considered the subadvisory
fees for the Fund in comparison to the fees that Lazard, Victory, and Brandes
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 Lazard, Victory, and Brandes. 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 Lazard, Victory, and Brandes.
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 Lazard, Victory, and
Brandes, 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 Lazard, Victory, and
Brandes.
> WHAT GENERAL INFORMATION IS AVAILABLE ABOUT LAZARD?
Lazard, located at 30 Rockefeller Plaza, New York, New York 10112-6300, provides
investment management services to client discretionary accounts with assets
totaling approximately $146 billion as of September 30, 2012.
> WHO ARE THE DIRECTORS AND PRINCIPAL EXECUTIVE OFFICER OF LAZARD?
The names and principal occupations of the current directors and principal
executive officer of Lazard are set forth as follows:
NAME AND ADDRESS PRINCIPAL OCCUPATION
Ashish Bhutani Director and Chief Executive Officer and
Vice Chairman of Lazard Ltd, the parent
company of Lazard
Kenneth M. Jacobs Director and Chairman of the Board of
Directors and Chief Executive Officer of
Lazard Ltd., the parent company of
Lazard
Alexander F. Stern Director and Chief Operating Officer of
Lazard Ltd., the parent company of Lazard
During the last five fiscal years, no director or officer of Lazard has engaged
in any other business, profession, vocation, or employment of a substantial
nature
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other than that of the business of investment management and, through
affiliates, investment banking.
Each of these individuals has a business address of 30 Rockefeller Plaza, New
York, New York 10112-6300.
> DOES LAZARD OR ANY OF ITS AFFILIATES PROVIDE ANY ADDITIONAL SERVICES TO
THE FUND?
No.
> WHAT WILL AMCO PAY LAZARD FOR ITS SUBADVISORY SERVICES?
Lazard will charge AMCO 0.75% on the first $200 million of assets under
management, 0.75% on the next $200 million of assets under management,
0.65% on the next $200 million of assets under management, and 0.60% on assets
above $600 million. In addition, Lazard will not seek to increase this fee
during a three-year period ending October 16, 2015.
> DOES LAZARD ACT AS ADVISER FOR SIMILAR FUNDS?
Lazard advises several proprietary mutual funds with a similar investment
objective to the USAA Emerging Markets Fund.
FUND NAME ASSETS UNDER MANAGEMENT
AS OF SEPTEMBER 30, 2012 MANAGEMENT FEE
Lazard Emerging Markets
Equity Blend Portfolio $179.6 Million 1.05%
Lazard Emerging Markets
Equity Portfolio $15,479.3 Million 1.00%
Lazard Developing Markets
Equity Portfolio $380.7 Million 1.00%
> WHAT GENERAL INFORMATION IS AVAILABLE ABOUT VICTORY?
Victory, located at 4900 Tiedeman Road, Cleveland, Ohio 44144, is an
SEC-registered investment adviser with nearly $22 billion in assets under
management and advisement as of September 30, 2012, primarily for institutional
clients. Through predecessor firms, Victory was founded in 1894 and is
a wholly owned, independent subsidiary of KeyBank.
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> WHO ARE THE DIRECTORS AND PRINCIPAL EXECUTIVE OFFICER OF VICTORY?
The names and principal occupations of the current directors and principal
executive officer of Victory are set forth as follows:
NAME AND ADDRESS PRINCIPAL OCCUPATION
David C. Brown Co-Chief Executive Officer,
4900 Tiedeman Road Co-President, and Chairman
Cleveland, Ohio 44144 of the Board of Directors
Christopher A. Ohmacht Co-Chief Executive Officer
45 Rockefeller Plaza and Co-President
New York, New York 10111
Richard G. Zeiger Legal Counsel, Secretary, and Director
127 Public Square
Cleveland, Ohio 44114
Joseph Rosmarin Director
127 Public Square
Cleveland, Ohio 44114
During the last five fiscal years, no director or officer of Victory 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.
> DOES VICTORY OR ANY OF ITS AFFILIATES PROVIDE ANY ADDITIONAL SERVICES TO THE
FUND?
No.
> WHAT WILL AMCO PAY VICTORY FOR ITS SUBADVISORY SERVICES?
Victory will charge AMCO 0.85% on the first $50 million of assets under
management, 0.75% on the next $100 million of assets under management,
and 0.70% on assets above $150 million. In addition, Victory will not seek
to increase this fee during a three-year period ending October 16, 2015.
> DOES VICTORY ACT AS ADVISER FOR SIMILAR FUNDS?
No.
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> WHAT GENERAL INFORMATION IS AVAILABLE ABOUT BRANDES?
Brandes, located at 11988 El Camino Real, San Diego, California 92130, is 100%
beneficially owned by senior professionals of the firm. As of September 30,
2012, firm-wide assets under management were $29.8 billion.
> WHO ARE THE PRINCIPAL EXECUTIVE OFFICERS OF BRANDES?
Brandes is a limited partnership with an executive committee consisting of the
following five members:
NAME PRINCIPAL OCCUPATION
Charles H. Brandes, CFA Chairman
Jeffrey A. Busby, CFA Executive Director
Glenn R. Carlson, CFA Chief Executive Officer
Gary Iwamura, CPA Director of Finance
Brent V. Woods, CFA Managing Director, Investmnets
During the last five fiscal years, no officer of Brandes 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 11988 El Camino Real, San
Diego, California 92130.
> DOES BRANDES OR ANY OF ITS AFFILIATES PROVIDE ANY ADDITIONAL SERVICES TO THE
FUND?
No.
> WHAT WILL AMCO PAY BRANDES FOR ITS SUBADVISORY SERVICES?
Brandes will charge AMCO 0.75% on the first $300 million of assets under
management, 0.70% on the next $300 million of assets under management, and 0.60%
on assets above $600 million. In addition, Brandes will not seek to increase
this fee during a three-year period ending October 16, 2015.
> DOES BRANDES ACT AS ADVISER FOR SIMILAR FUNDS?
As of September 30, 2012, Brandes acts as advisor to the Brandes Emerging
Markets Fund (0.95% advisory fee; $201.8M in total assets) and one of three
subadvisors to the American Beacon Emerging Markets Fund (0.75% subadvisory fee;
$46.3M in total assets for the Brandes sleeve).
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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 December 31, 2012, there were 57,734,554.733 shares of the Fund
outstanding. The following table identifies those who, as of December 31, 2012,
held of record or owned beneficially 5% or more of the voting stock of any
Fund's shares.
NAME AND ADDRESS PERCENTAGE
TITLE OF CLASS OF BENEFICIAL OWNER OF CLASS
USAA Target Retirement 2030 Fund
Emerging Markets Fund San Antonio, Texas 78288 5.58%
Institutional Shares
USAA Target Retirement 2040 Fund
Emerging Markets Fund San Antonio, Texas 78288 7.11%
Institutional Shares
USAA Managed Portfolios - UMP
Emerging Markets Fund San Antonio, Texas 78288 29.51%
Institutional Shares
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 Information
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
LAZARD ASSET MANAGEMENT AND
USAA ASSET MANAGEMENT COMPANY
INVESTMENT SUBADVISORY AGREEMENT
AGREEMENT made as of the 16th day of October, 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 Lazard Asset Management, a Delaware Limited Liability Company
organized under the laws of the state of Delaware and having its principal place
of business in New York, NY, (Subadviser).
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 Subadviser 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, Subadviser 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 SUBADVISER. AMCO hereby appoints Subadviser to act as an
investment adviser for each Fund Account in accordance with the terms and
conditions of this Agreement. Subadviser 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 Subadviser.
Subadviser accepts such appointment and agrees to render the services herein set
forth for the compensation herein provided.
2. DUTIES OF SUBADVISER.
(a) AUTHORITY TO INVEST. Subject to the control and supervision
of AMCO and the Trust's Board of Trustees (the Board), Subadviser, 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
Subadviser with reasonable written notice of such allocations and reallocations.
Subadviser 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 Subadviser 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, Subadviser 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,
Subadviser 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
Subadviser wishes to hold cash or cash equivalents in excess of 10% of a Fund
Account's assets, Subadviser must request in writing and receive advance
permission from AMCO.
In accordance with Subsection (b) of this Section 2, Subadviser 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, Subadviser will act in the best interests of
each Fund and will comply with (i) applicable laws and regulations, include-ing,
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-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 pro-visions 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. Sub-adviser shall establish compliance procedures reasonably calculated to
ensure compliance with the foregoing. AMCO shall be responsible for providing
Subadviser 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 Subadviser 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 Subadviser's management of a Fund Account.
(b) PORTFOLIO TRANSACTIONS. In connection with the management of the investment
and reinvestment of the Fund Accounts' assets, Subadviser 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, Subadviser shall use its best efforts to obtain for the
Fund Accounts the best 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 obtain the best
execution available, Subadviser, 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
Subadviser, and to the extent authorized by Section 28(e) of the Securities
Exchange Act of 1934 (Exchange Act), Subadviser 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 Subadviser 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 Subadviser 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 Subadviser's overall responsibilities with
respect to the Fund and to other clients of Subadviser as to which Subadviser
exercises investment discretion. The Board or AMCO may direct Subadviser in
writing, 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 Subadviser deems the purchase or sale of a security to be in
the best interest of a Fund as well as other clients of Subadviser, Subadviser,
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 Subadviser 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.
Subadviser 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, Subadviser may effectuate cross transactions between a Fund Account and
such other account if it deems this to be advantageous.
Subadviser 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. Subadviser
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 Subadviser giving proper instructions to the
custodian, Subadviser 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, Subadviser 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 transaction on
behalf of the Fund may not be effected, including, without limitation, brokers
or dealers affiliated with AMCO. Subadviser 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, Subadviser 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 Subadviser, except as permitted under
the 1940 Act. AMCO agrees that it will provide Subadviser 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 Subadviser 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. Subadviser, at its expense, will furnish all necessary facilities
and personnel, including salaries, expenses and fees of any personnel required
for them to faithfully perform its duties under this Agreement and
administrative facilities, including bookkeeping, and all equipment and services
necessary for the efficient conduct of Subadviser's duties under this Agreement.
However, Subadviser 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, Subadviser, 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 Subadviser will take such reasonable
steps as necessary to assist AMCO in reaching such pricing determinations for
Fund Account securities. Subadviser 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. Subadviser, 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
Subadviser set forth herein. Subadviser, 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 Subadviser's
duties hereunder.
(f) COMPLIANCE MATTERS. Subadviser, 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. Subadviser 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
Subadviser 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. Subadviser 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, Subadviser 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, Subadviser may maintain copies of such
records to comply with its recordkeeping obligations.
(h) PROXIES. Unless and until Subadviser 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 Subadviser as compensation for Subadviser'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 Subadviser 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.
Subadviser 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 Subadviser
(the Substantially Similar Services) and (ii) Subadviser charges a lower fee for
providing the Substantially Similar Services than it charges with respect to the
Fund Account, then Subadviser 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.
4. REPRESENTATIONS AND WARRANTIES.
(a) SUBADVISER. Subadviser represents and warrants to AMCO that (i) the
retention of Subadviser by AMCO as contemplated by this Agreement is authorized
by Subadviser's governing documents; (ii) the execution, delivery and
performance of this Agreement does not violate any obligation by which
Subadviser 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 Subadviser and when executed and delivered by Subadviser will be a
legal, valid and binding obligation of Subadviser, enforceable against
Subadviser 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) Subadviser is registered as an
investment adviser under the Advisers Act; (v) Subadviser has adopted a written
code of ethics complying with the requirements of Rule 17j-1 under the 1940 Act
and that Subadviser 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, Subadviser shall furnish to AMCO all
reports and information provided under Rule 17j-1(c)(2); (vi) Subadviser 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) Subadviser
will promptly notify AMCO of the occurrence of any event that would disqualify
Subadviser from serving as investment manager of an investment company pursuant
to Section 9(a) of the 1940 Act or otherwise; (viii) Subadviser 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) Subadviser will notify AMCO of
any "assignment" (as defined in the 1940 Act) of this Agreement or change of
control of Subadviser, as applicable, and any changes in the key personnel who
are either the portfolio manager(s) of any Fund Account or senior management of
Subadviser, in each case prior to or promptly after, such change; and (x)
Subadviser has adequate disaster recovery and interruption prevention measures
to ensure business resumption in accordance with applicable law and within
industry standards. Subadviser 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 Subadviser that (i) the retention of
Subadviser 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 performing the services contemplated by this
Agreement; (vii) AMCO will promptly notify Subadviser 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) SUBADVISER. Subadviser 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 Subadviser 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 Subadviser 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 Subadviser Indemnities (as defined below) for use
therein. Subadviser 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
Subadviser'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 Subadviser, 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, Subadviser 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 Subadviser or
Subadviser Indemnitiees in writing to AMCO or the Trust. AMCO shall indemnify
and hold harmless Subadviser 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 Subadviser
(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 Subadviser.
(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,
Subadviser 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 Subadviser.
Subadviser 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 Subadviser by AMCO shall be without
prejudice to the obligation of Subadviser to complete transactions already
initiated or acted upon with respect to a Fund.
Upon termination of this Agreement, the duties of AMCO delegated to Subadviser
under this Agreement automatically shall revert to AMCO. 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 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 Subadviser to AMCO in connection with
the Funds hereunder are not to be deemed exclusive, and Subadviser 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 Subadviser 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 Subadviser 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 subadvisers, in addition to
Subadviser, or AMCO itself, to perform investment advisory services to any
portion of the Funds.
10. ADDITIONAL AGREEMENTS.
(a) ACCESS TO INFORMATION. Subadviser shall, upon reasonable notice, afford
AMCO at all reasonable times access to Subadviser'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 Subadviser to
provide AMCO with access to the books and records of Subadviser 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. Notwithstanding 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 Subadviser
shall notify the other party of such regulatory or ordinary course request,
prior to the provision of such information so as to allow the other party to
respond appropriately.
(c) PRIVACY POLICY. Subadviser 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),
Subadviser 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. Subadviser agrees that it will promptly notify AMCO in the
event that: (i) Subadviser 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 Subadviser's knowledge, any affiliate of
Subadviser becomes the subject of an administrative proceeding or enforcement
action by the Commission or other regulatory body with applicable jurisdiction
that Subadviser reasonably expects could have a material adverse effect upon the
ability of Subadviser to perform its duties under this Agreement.
(f) INSURANCE. Subadviser 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 Subadviser'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 information statement
or prospectus supplement to shareholders solely due to actions involving
Subadviser, including, without limitation, a change of control of Subadviser or
a portfolio manager change, Subadviser 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:
AMCO: USAA Asset Management Company
9800 Fredericksburg Road, A-O3-W
San Antonio, Texas 78288
Facsimile No.: (210) 498-0083
Attention: FASG Counsel
Subadviser: Lazard Asset Management
30 Rockefeller Plaza
New York, NY 10112
Phone: 212-632-6071
Fax: 212-332-5785
Attention: John McSharry
(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 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, AMCO and Subadviser have caused this Agreement to be
executed as of the date first set forth above.
Attest: USAA ASSET MANAGEMENT COMPANY
By:/s/ Adym Rygmyr By:/s/ Daniel S. McNamara
------------------ -------------------------
Name: Adym Rygmyr Name: Daniel S. McNamara
Title: Secretary Title: President
By:/s/ Chris Cykowski
---------------------
Name: Chris Cykowski
Title: Authorized Signatory
Attest: LAZARD ASSET MANAGEMENT
By: /s/ John McSharry By: /s/ Jennifer Abate
------------------- --------------------
Name: John McSharry Name: Jennifer Abate
Title: Senior Vice President Title: Managing Director
SCHEDULE A
Emerging Markets Fund
SCHEDULE B
FEES
ACCOUNT RATE PER ANNUM OF THE
FUND AVERAGE DAILY NET ASSETS OF THE FUND ACCOUNT
Emerging Markets Fund 0-200 million - 75 basis points
Next 200 million - 70 basis points
Next 200 million - 65 basis points
Over 600 million - 60 basis points
-----------------------
* Subadviser agrees that it will not seek to increase this fee rate during the
three-year period ending October 16, 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").
EXHIBIT B
SUBADVISORY AGREEMENT
BETWEEN
VICTORY CAPITAL MANAGEMENT INC. AND
USAA ASSET MANAGEMENT COMPANY
INVESTMENT SUBADVISORY AGREEMENT
AGREEMENT made as of the 16th day of October, 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 Victory Capital Management Inc., a corporation organized under
the laws of the state of New York and having its principal place of business in
Cleveland, Ohio, (Subadviser).
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 Subadviser 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, Subadviser 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 SUBADVISER. AMCO hereby appoints Subadviser to act as an
investment adviser for each Fund Account in accordance with the terms and
conditions of this Agreement. Subadviser 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 Subadviser.
Subadviser accepts such appointment and agrees to render the services herein set
forth for the compensation herein provided.
2. DUTIES OF SUBADVISER.
(a) AUTHORITY TO INVEST. Subject to the control and supervision of AMCO and the
Trust's Board of Trustees (the Board), Subadviser, 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 Subadviser with
reasonable written notice of such allocations and reallocations. Subadviser
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
Subadviser 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, Subadviser 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,
Subadviser 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
Subadviser wishes to hold cash or cash equivalents in excess of 10% of a Fund
Account's assets, Subadviser must request in writing and receive advance
permission from AMCO.
In accordance with Subsection (b) of this Section 2, Subadviser 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.
In the performance of its duties, Subadviser 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 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.
Subadviser shall establish compliance procedures reasonably calculated to ensure
compliance with the foregoing. AMCO shall be responsible for providing
Subadviser 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 Subadviser 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 Subadviser's management of a Fund Account.
(b) PORTFOLIO TRANSACTIONS. In connection with the management of the investment
and reinvestment of the Fund Accounts' assets, Subadviser 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, Subadviser shall use its best efforts to obtain for the
Fund Accounts the best 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 obtain the best
execution available, Subadviser, 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
Subadviser, and to the extent authorized by Section 28(e) of the Securities
Exchange Act of 1934 (Exchange Act), Subadviser 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 Subadviser 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
Subadviser 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 Subadviser's overall responsibilities with respect to the Fund
and to other clients of Subadviser as to which Subadviser exercises investment
discretion. The Board or AMCO may direct Subadviser in writing, 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. The
Board or AMCO acknowledges that under such written direction, the Subadviser's
services will not include the selection of brokerage firms nor the negotiation
of commission rates, and the commission rates may not be as favorable as those
which might be obtained if the Subadviser undertakes to select brokerage firms
or negotiate rates with those firms selected. Subadviser may be unable to obtain
best execution when directed to use a particular broker, and due to the manual
nature of directed trades, the transactions may be executed after discretionary
trades in certain circumstances.
On occasions when Subadviser deems the purchase or sale of a security to be in
the best interest of a Fund as well as other clients of Subadviser, Subadviser,
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 Subadviser 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.
Subadviser 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, Subadviser may effectuate cross transactions between a Fund Account and
such other account if it deems this to be advantageous.
Subadviser 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. Subadviser
shall not have possession or custody of any Fund's invest-ments. The Trust shall
be responsible for all custodial agreements and the payment of all custodial
charges and fees and, upon Subadviser giving proper instructions to the
custodian, Subadviser 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, Subadviser 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 transaction on
behalf of the Fund may not be effected, including, without limitation, brokers
or dealers affiliated with AMCO. Subadviser 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, Subadviser 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 Subadviser, except as permitted under
the 1940 Act. AMCO agrees that it will provide Subadviser 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 Subadviser 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. Subadviser, at its expense, will furnish all necessary facilities
and personnel, including salaries, expenses and fees of any personnel required
for them to faithfully perform its duties under this Agreement and
administrative facilities, including bookkeeping, and all equipment and services
necessary for the efficient conduct of Subadviser's duties under this Agreement.
However, Subadviser 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, Subadviser, 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 Subadviser will take such reasonable
steps as necessary to assist AMCO in reaching such pricing determinations for
Fund Account securities. Subadviser 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. Subadviser, 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
Subadviser set forth herein. Subadviser, 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 Subadviser's
duties hereunder.
(f) COMPLIANCE MATTERS. Subadviser, 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. Subadviser 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 Subadviser 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. Subadviser 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, Subadviser 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, Subadviser may maintain copies of such
records to comply with its recordkeeping obligations.
(h) PROXIES. Unless and until Subadviser 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 Subadviser as compensation for Subadviser'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 Sub-adviser 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.
Subadviser 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 Subadviser
(the Substantially Similar Services) and (ii) Subadviser charges a lower fee for
providing the Substantially Similar Services than it charges with respect to the
Fund Account, then Subadviser 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.
4. REPRESENTATIONS AND WARRANTIES.
(a) SUBADVISER. Subadviser represents and warrants to AMCO that (i) the
retention of Subadviser by AMCO as contemplated by this Agreement is authorized
by Subadviser's governing documents; (ii) the execution, delivery and
performance of this Agreement does not violate any obligation by which
Subadviser 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 Subadviser and when executed and delivered by Subadviser will be a
legal, valid and binding obligation of Subadviser, enforceable against
Subadviser 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) Subadviser is registered as an
investment adviser under the Advisers Act; (v) Subadviser has adopted a written
code of ethics complying with the requirements of Rule 17j-1 under the 1940 Act
and that Subadviser 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, Subadviser shall furnish to AMCO all
reports and information provided under Rule 17j-1(c)(2); (vi) Subadviser 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) Subadviser
will promptly notify AMCO of the occurrence of any event that would disqualify
Subadviser from serving as investment manager of an investment company pursuant
to Section 9(a) of the 1940 Act or other-wise; (viii) Subadviser 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) Subadviser will notify AMCO of
any "assignment" (as defined in the 1940 Act) of this Agreement or change of
control of Subadviser, as applicable, and any changes in the key personnel who
are either the portfolio manager(s) of any Fund Account or senior management of
Subadviser, in each case prior to or promptly after, such change; and (x)
Subadviser has adequate disaster recovery and interruption prevention measures
to ensure business resumption in accordance with applicable law and within
industry standards. Subadviser 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 Subadviser that (i) the retention of
Subadviser 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 performing the services contemplated by this
Agreement; (vii) AMCO will promptly notify Subadviser 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) SUBADVISER. Subadviser 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 Subadviser 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 Subadviser 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 Subadviser Indemnities (as defined below)
for use therein. Subadviser 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 Subadviser'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 Subadviser, 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, Subadviser 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 Subadviser or
Subadviser Indemnitiees in writing to AMCO or the Trust. AMCO shall indemnify
and hold harmless Subadviser 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 Subadviser
(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 Subadviser.
(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,
Subadviser 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 Subadviser.
Subadviser 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 Subadviser by AMCO shall be without
prejudice to the obligation of Subadviser to complete transactions already
initiated or acted upon with respect to a Fund.
Upon termination of this Agreement, the duties of AMCO delegated to Subadviser
under this Agreement automatically shall revert to AMCO. 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 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 Subadviser to AMCO in connection with
the Funds hereunder are not to be deemed exclusive, and Subadviser 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 Subadviser 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 Subadviser 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 subadvisers, in addition to
Subadviser, or AMCO itself, to perform investment advisory services to any
portion of the Funds.
10. ADDITIONAL AGREEMENTS.
(a) ACCESS TO INFORMATION. Subadviser shall, upon reasonable notice, afford
AMCO at all reasonable times access to Subadviser'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 Subadviser to
provide AMCO with access to the books and records of Subadviser 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. Notwithstanding 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 the other party the opportunity to
respond appropriately.
(c) PRIVACY POLICY. Subadviser 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),
Subadviser 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. Subadviser agrees that it will promptly notify AMCO in the
event that: (i) Subadviser 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 Subadviser's knowledge, any affiliate of
Subadviser becomes the subject of an administrative proceeding or enforcement
action by the Commission or other regulatory body with applicable jurisdiction
that Subadviser reasonably expects could have a material adverse effect upon the
ability of Subadviser to perform its duties under this Agreement.
(f) INSURANCE. Subadviser 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 Subadviser'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 information statement
or prospectus supplement to shareholders solely due to actions involving
Subadviser, including, without limitation, a change of control of Subadviser or
a portfolio manager change, Subadviser 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:
AMCO: USAA Asset Management Company
9800 Fredericksburg Road, A-O3-W
San Antonio, Texas 78288
Facsimile No.: (210) 498-0083
Attention: FASG Counsel
Subadviser: Victory Capital Management Inc.
4900 Tiedeman Rd, 4th Floor
Brooklyn, Ohio 44144
Phone: (216) 898-2420
Facsimile No.: (216) 370-5799
Attention: Mike Hackett
(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 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, AMCO and Subadviser have caused this Agreement to be
executed as of the date first set forth above.
Attest: USAA ASSET MANAGEMENT COMPANY
By:/s/ Adym Rygmyr By: /s/ Daniel S. McNamara
---------------- ----------------------------
Name: Adym Rygmyr Name: Daniel S. McNamara
Title: Secretary Title: President
By:/s/ Chris Cykowski
---------------------
Name: Chris Cykowski
Title: Authorized Signatory
Attest: VICTORY CAPITAL MANAGEMENT INC.
By:/s/ Peter Scharich By:/s/ Michael Policarpo
--------------------- ------------------------
Name: Peter Scharich Name: Michael Policarpo
Title: Chief Financial Officer Title: Senior Managing Director
SCHEDULE A
Emerging Markets Fund
SCHEDULE B
FEES
ACCOUNT RATE PER ANNUM OF THE
FUND AVERAGE DAILY NET ASSETS OF THE FUND ACCOUNT
---- ---------------------------------------------------
Emerging Markets Fund 0 - 50 million - 85 basis points
Next 100 million - 75 basis points
Over 150 million - 70 basis points
-----------------------
* Subadviser agrees that it will not seek to increase this fee rate during the
three-year period ending October 16, 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"). The parties agree to review the applicable fees
once the total relationship is greater than $300 million.
EXHIBIT C
SUBADVISORY AGREEMENT
BETWEEN
BRANDES INVESTORS PARTNERS, L.P. AND
USAA ASSET MANAGEMENT COMPANY
INVESTMENT SUBADVISORY AGREEMENT
AGREEMENT made as of the 17th day of October, 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 Brandes Investment Partners, L.P., a limited partnership
organized under the laws of the state of Delaware and having its principal place
of business in San Diego, California, (Subadviser).
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 Subadviser 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, Subadviser 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 SUBADVISER. AMCO hereby appoints Subadviser to act as an
investment adviser for each Fund Account in accordance with the terms and
conditions of this Agreement. Subadviser 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 Subadviser.
Subadviser accepts such appointment and agrees to render the services herein set
forth for the compensation herein provided.
2. DUTIES OF SUBADVISER.
(a) AUTHORITY TO INVEST. Subject to the control and supervision of AMCO and the
Trust's Board of Trustees (the Board), Subadviser, 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 Subadviser with
reasonable written notice of such allocations and reallocations. Subadviser
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
Subadviser 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, Subadviser 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,
Subadviser 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
Subadviser wishes to hold cash or cash equivalents in excess of 10% of a Fund
Account's assets, Subadviser must request in writing and receive advance
permission from AMCO.
For avoidance of doubt, Subadviser shall not have the responsibility for or
discretionary authority over the investment of the Fund's daily uninvested cash
in any cash management or short-term vehicle utilized for the investment of such
uninvested cash in the Fund. The Subadviser will not be responsible for the
payment of the cost of securities or brokerage commissions or any other Trust
expenses except as specified in this Agreement.
In accordance with Subsection (b) of this Section 2, Subadviser 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.
In the performance of its duties, Subadviser 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 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. Subadviser shall establish compliance procedures reasonably calculated to
ensure compliance with the foregoing. AMCO shall be responsible for providing
Subadviser 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
Subadviser 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 Subadviser' management of a Fund Account.
(b) PORTFOLIO TRANSACTIONS. In connection with the management of the investment
and reinvestment of the Fund Accounts' assets, Subadviser 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, Subadviser shall use its best efforts to obtain for the
Fund Accounts the best 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 obtain the best
execution available, Subadviser, 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
Subadviser, and to the extent authorized by Section 28(e) of the Securities
Exchange Act of 1934 (Exchange Act), Subadviser 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 Subadviser 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 Subadviser 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 Subadviser' overall responsibilities with respect
to the Fund and to other clients of Subadviser as to which Subadviser exercises
investment discretion. The Board or AMCO may direct Subadviser in writing, 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 Subadviser deems the purchase or sale of a security to be in
the best interest of a Fund as well as other clients of Subadviser, Subadviser,
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 Subadviser 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.
Subadviser 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, Subadviser may effectuate cross transactions between a Fund Account and
such other account if it deems this to be advantageous.
Subadviser 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. Subadviser
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 Subadviser giving proper instructions to the
custodian, Subadviser 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, Subadviser 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 transaction on
behalf of the Fund may not be effected, including, without limitation, brokers
or dealers affiliated with AMCO. Subadviser 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, Subadviser 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 Subadviser, except as permitted under
the 1940 Act. AMCO agrees that it will provide Subadviser 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 Subadviser 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. Subadviser, at its expense, will furnish all necessary facilities
and personnel, including salaries, expenses and fees of any personnel required
for them to faithfully perform its duties under this Agreement and
administrative facilities, including bookkeeping, and all equipment and services
necessary for the efficient conduct of Subadviser' duties under this Agreement.
However, Subadviser 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, Subadviser, 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 Subadviser will take such reasonable
steps as necessary to assist AMCO in reaching such pricing determinations for
Fund Account securities. Subadviser 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. Subadviser, 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
Subadviser set forth herein. Subadviser, 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 Subadviser'
duties hereunder.
(f) COMPLIANCE MATTERS. Subadviser, 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. Subadviser 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 Subadviser 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. Subadviser 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, Subadviser 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, Subadviser may maintain copies of such
records to comply with its recordkeeping obligations.
(h) PROXIES. Unless and until Subadviser 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. The Subadviser shall not incur any liability to the
Trust or AMCO by reason of any exercise of any proxy voting authority in
accordance with any direction by AMCO nor shall it incur any liability with
respect to the failure to exercise any proxy voting authority in the absence of
direction by AMCO, provided that nothing herein shall relieve the Subadviser of
any liability it may have under applicable laws.
3. ADVISORY FEE. AMCO shall pay to Subadviser as compensation for Subadviser'
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 Subadviser 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.
Subadviser 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 Subadviser
(the Substantially Similar Services) and (ii) Subadviser charges a lower fee for
providing the Substantially Similar Services than it charges with respect to the
Fund Account, then Subadviser shall reduce its fees 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.
This paragraph shall only apply to Substantially Similar Services that are
entered into by the Subadviser after the effective date of this Agreement.
4. REPRESENTATIONS AND WARRANTIES.
(a) SUBADVISER. Subadviser represents and warrants to AMCO that (i) the
retention of Subadviser by AMCO as contemplated by this Agreement is authorized
by Subadviser' governing documents; (ii) the execution, delivery and performance
of this Agreement does not violate any obligation by which Subadviser 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
Subadviser and when executed and delivered by Subadviser will be a legal, valid
and binding obligation of Subadviser, enforceable against Subadviser 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) Subadviser is registered as an investment
adviser under the Advisers Act; (v) Subadviser has adopted a written code of
ethics complying with the requirements of Rule 17j-1 under the 1940 Act and that
Subadviser 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, Subadviser shall furnish to AMCO all reports and
information provided under Rule 17j-1(c)(2); (vi) Subadviser 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) Subadviser will
promptly notify AMCO of the occurrence of any event that would disqualify
Subadviser from serving as investment manager of an investment company pursuant
to Section 9(a) of the 1940 Act or otherwise; (viii) Subadviser 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) Subadviser will notify AMCO of
any "assignment" (as defined in the 1940 Act) of this Agreement or change of
control of Subadviser, as applicable, and any changes in the key personnel who
are either the portfolio manager(s) of any Fund Account or senior management of
Subadviser, in each case prior to or promptly after, such change; and (x)
Subadviser has adequate disaster recovery and interruption prevention measures
to ensure business resumption in accordance with applicable law and within
industry standards. Subadviser 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 Subadviser that (i) the retention of
Subadviser 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 performing the services contemplated by this
Agreement; (vii) AMCO will promptly notify Subadviser 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) SUBADVISER. Subadviser 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 gross negligence, willful misconduct, bad faith
or reckless disregard by Subadviser 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 Subadviser 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 Subadviser Indemnities (as defined below)
for use therein. Subadviser 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 Subadviser' 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 Subadviser, 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, Subadviser 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 gross 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 Subadviser or
Subadviser Indemnitiees in writing to AMCO or the Trust. AMCO shall indemnify
and hold harmless Subadviser 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.
(c) Under no circumstances shall either party hereto be liable to the other for
special, punitive or consequential damages, arising under or in connection with
this Agreement, even if previously informed of the possibility of such damages.
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 Subadviser
(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 Subadviser.
(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,
Subadviser 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 Subadviser.
Subadviser 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 Subadviser by AMCO shall be without
prejudice to the obligation of Subadviser to complete transactions already
initiated or acted upon with respect to a Fund.
Upon termination of this Agreement, the duties of AMCO delegated to Subadviser
under this Agreement automatically shall revert to AMCO. 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 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 Subadviser to AMCO in connection with
the Funds hereunder are not to be deemed exclusive, and Subadviser 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 Subadviser 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 Subadviser 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 subadvisers, in addition to
Subadviser, or AMCO itself, to perform investment advisory services to any
portion of the Funds.
10. ADDITIONAL AGREEMENTS.
(a) ACCESS TO INFORMATION. Subadviser shall, upon reasonable notice, afford
AMCO at all reasonable times access to Subadviser' 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 and
agreed to by Subadviser; provided, however, that nothing contained herein shall
obligate Subadviser to provide AMCO with access to the books and records of
Subadviser 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. Notwithstanding 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 the other party to respond
appropriately.
(c) PRIVACY POLICY. Subadviser 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),
Subadviser 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. Each party agrees that it will promptly notify the other in
the event that: (i) the party 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 the party's knowledge, any
affiliate of such party becomes the subject of an administrative proceeding or
enforcement action by the Commission or other regulatory body with applicable
jurisdiction that such party reasonably expects could have a material adverse
effect upon the ability of the party to perform its duties under this Agreement.
(f) INSURANCE. Subadviser 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 Subadviser' 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 information statement
or prospectus supplement to shareholders solely due to actions involving
Subadviser, including, without limitation, a change of control of Subadviser or
a portfolio manager change, Subadviser 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:
AMCO: USAA Asset Management Company
9800 Fredericksburg Road, A-O3-W
San Antonio, Texas 78288
Facsimile No.: (210) 498-0083
Attention: FASG Counsel
SUBADVISER: Brandes Investment Partners, L.P.
11988 El Camino Real, Suite 600
San Diego, CA 92130
Facsimile No.: (858) 314-1023
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.
(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, AMCO and Subadviser have caused this Agreement to be
executed as of the date first set forth above.
Attest: USAA ASSET MANAGEMENT COMPANY
By:/s/ Adym Rygmyr By: /s/ Daniel S. McNamara
---------------- ----------------------------
Name: Adym Rygmyr Name: Daniel S. McNamara
Title: Secretary Title: President
By:/s/ Chris Cykowski
---------------------
Name: Chris Cykowski
Title: Authorized Signatory
Attest: BRANDES INVESTMENT
PARTNERS, L.P.
By: /s/ Glenn R. Carlson By: /s/ Charles H. Brandes
----------------------- -------------------------
Name: Glenn R. Carlson Name: Charles H. Brandes
Title: Chief Executive Officer Title: Chairman
SCHEDULE A
Emerging Markets Fund
SCHEDULE B
FEES
ACCOUNT RATE PER ANNUM OF THE
FUND AVERAGE DAILY NET ASSETS OF THE FUND ACCOUNT
---- ---------------------------------------------------
Emerging Markets Fund 0-300 million - 75 basis points
Next 300 - 70 basis points
Over 600 - 60 basis points
* Subadviser agrees that it will not seek to increase this fee rate during the
three-year period ending October 16, 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"). The Subadviser agrees to review the applicable
fees once the total relationship is greater than $600 million.
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97722-0113