USAA
EAGLE
LOGO
®
USAA
INCOME STOCK FUND
INFORMATION
STATEMENT
REGARDING
A SUBADVISER CHANGE
The USAA
Income Stock Fund’s Board of Trustees (the Board) approved Epoch Investment
Partners, Inc., (Epoch) as an additional new subadviser of the USAA Income Stock
Fund (the Fund) effective on January 11, 2010, and approved the termination of
OFI Institutional Management (OFI) as a subadviser of the Fund
effective February 16, 2010. The subadvisory agreements with its existing
subadviser Grantham, Mayo, Van Otterloo & Co. LLC (GMO) and OFI were
most
recently
approved on April 16, 2009. This Information Statement is being provided to you
in lieu of a proxy statement pursuant to the terms of an exemptive order (the
Order) from the Securities and Exchange Commission. The Order permits USAA
Investment Management Company (IMCO) to change subadvisers of the Fund without
first calling a special shareholders meeting and obtaining shareholder approval.
Pursuant to the Order, however, the Fund has agreed to provide certain
information about new subadvisers and new subadvisory agreements to its
investors. Accordingly, shareholders are not being asked to vote on the hiring
of the new subadviser or the subadvisory agreement with the new subadviser, but
are encouraged to review this Information Statement
.
WE
ARE NOT ASKING YOU FOR A PROXY, AND YOU ARE REQUESTED NOT TO SEND US A
PROXY.
This
Information Statement is first being delivered to shareholders on or about March
26, 2010.
INVESTMENT
SUBADVISORY AGREEMENT
BETWEEN
IMCO AND EPOCH
n
WHAT WAS THE PROCESS THAT LED TO
EPOCH BECOMING A SUBADVISER OF THE FUND?
The Fund
was previously managed by two quantitative enhanced index managers that have not
complemented each other as well
as
originally anticipated. By replacing OFI with Epoch, the Fund can achieve better
diversification since Epoch and the existing manager, GMO, have distinct
investment styles. IMCO believes that Epoch’s portfolio strategy and process
complements the investment approach of GMO and that engaging Epoch is the best
option for the Fund. Subsequently, IMCO asked the Fund’s Board to approve
entering into an agreement with Epoch to provide investment advisory services to
the Fund. IMCO will continue to oversee the management of the Fund as the
investment adviser.
n
WHAT ARE THE KEY PROVISIONS OF THE
INVESTMENT SUBADVISORY AGREEMENT?
Under the
Investment Subadvisory Agreement, IMCO will employ Epoch to manage the Fund in a
more traditional and concentrated investment style, subject to the supervision
and monitoring of IMCO and the oversight of the Fund’s Board. IMCO, and not the
Fund, will be responsible for paying all fees charged by Epoch for these
subadvisory services. Any description of the Investment Subadvisory Agreement
set forth herein is qualified in its entirety by the actual Investment
Subadvisory Agreement, which is attached as Exhibit A.
n
WHEN DID THE INVESTMENT SUBADVISORY
AGREEMENT TAKE EFFECT?
The
Investment Subadvisory Agreement took effect on January 11, 2010, and will
remain in effect for an initial two-year period ending on January 10, 2012.
Thereafter, the Investment Subadvisory Agreement will continue automatically for
successive years, provided that it is specifically approved at least annually by
a vote of a majority of the Board members who are not “interested persons” as
that term is defined in Section 2(a)(19) of the Investment Company Act of 1940
(Independent Board Members) and by a majority of all Board members. The Fund may
terminate the Investment Subadvisory Agreement, without penalty, by a vote of a
majority of the Independent Board Members or by vote of a majority of the Fund’s
outstanding shares as defined under the Investment Company Act of 1940, without
penalty, on not more than 60 days’ written notice to IMCO and/or Epoch. IMCO may
at any
2
time
terminate the Investment Subadvisory Agreement, without penalty, by written
notice to Epoch. Epoch may terminate the Investment Subadvisory Agreement,
without penalty, by not less than 90 days’ written notice to IMCO. The
Investment Subadvisory Agreement automatically will terminate without penalty in
the event of its assignment.
n
WILL THE FUND’S TOTAL EXPENSES CHANGE
AS A RESULT OF THE INVESTMENT SUBADVISORY AGREEMENT WITH
EPOCH?
No, the
Investment Subadvisory Agreement will not affect the Fund’s total expense ratio.
IMCO (not the Fund) pays a fee to Epoch for services under the Investment
Subadvisory Agreement.
n
WHAT INFORMATION DID THE BOARD
CONSIDER PRIOR TO APPROVING THE INVESTMENT SUBADVISORY AGREEMENT WITH
EPOCH?
At a
meeting of the Board held on December 1, 2009, the Board, including the
Independent Board Members, approved the adoption of the Investment Subadvisory
Agreement with Epoch. In advance of the meeting, the Board received and
considered a variety of information relating to the Investment Subadvisory
Agreement and Epoch, and was given the opportunity to ask questions and request
additional information from management. The information provided to the Board
included, among other things: (i) the qualifications of the individuals at Epoch
responsible for these investment activities; (ii) the fees to be paid to Epoch;
and (iii) the complementary nature of the investment strategies of Epoch with
the existing strategy of the Fund. Prior to voting, the Independent Board
Members reviewed the proposed Investment Subadvisory Agreement with management
and with experienced independent counsel and received materials from such
counsel discussing the legal standards for their consideration of the proposed
Investment Subadvisory Agreement. The Independent Board Members also reviewed
the proposed Investment Subadvisory Agreement in private sessions with their
counsel at which no representatives of management were present.
3
In
approving the Fund’s Investment Subadvisory Agreement with Epoch, the Board
considered various factors, among them: (i) the nature, extent, and quality of
services to be provided to the Fund by Epoch, including the personnel that will
be providing services; (ii) Epoch’s compensation and any other benefits that
will be derived from the subadvisory relationship by Epoch; (iii) comparisons,
to the extent available, of subadvisory fees and performance to comparable
investment companies; and (iv) the terms of the Investment Subadvisory
Agreement. The Board’s analysis of these factors is set forth
below.
After
full consideration of a variety of factors, the Board, including the Independent
Board Members, voted to approve the Investment Subadvisory Agreement with Epoch.
In approving the Investment Subadvisory Agreement, the Board did not identify
any single factor as controlling, and each Independent Board Member attributed
different weights to various factors. Throughout their deliberations, the
Independent Board Members were represented and assisted by independent
counsel.
Nature,
Extent, and Quality of Services Provided; Investment Personnel.
The Board
considered information provided to it regarding the services to be provided by
Epoch. The Board considered Epoch’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 Epoch’s level of staffing. The Board also noted Epoch’s
brokerage practices. The Board also considered Epoch’s regulatory and compliance
history. The Board noted that IMCO’s monitoring processes of Epoch 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 Epoch.
Subadviser
Compensation.
The Board
also took into consideration the financial condition of Epoch. In considering
the cost of services to be provided by Epoch and the profitability to Epoch of
its relationship with the Fund, the Board noted that the fees under the
Investment Subadvisory Agreement would be paid by IMCO. The
4
Board
also relied on the ability of IMCO to negotiate the Investment Subadvisory
Agreement and the fees thereunder at arm’s length. The Board also considered
information relating to the cost of services to be provided by Epoch, Epoch’s
anticipated profitability with respect to the Fund, and the potential economies
of scale in Epoch’s management of the Fund, to the extent available. However,
this information was less significant to the Board’s consideration of the
Investment Subadvisory Agreement than the other factors considered for the above
reasons.
Subadvisory
Fees and Fund Performance.
The Board considered the subadvisory fees for
the Fund in comparison to the fees that Epoch charges to comparable clients, as
applicable. The Board considered that the Fund pays a management fee to IMCO and
that, in turn, IMCO will pay a subadvisory fee to Epoch. The Board took into
account that the advisory fees paid by the Fund would not change. The Board
noted IMCO’s expertise and resources in monitoring the performance, investment
style, and risk-adjusted performance of Epoch. The Board also noted Epoch’s
long-term performance record for other accounts.
Conclusion.
The Board
reached the following conclusions regarding the Investment Subadvisory
Agreement, among others: (i) Epoch is qualified to manage a portion of the
Fund’s assets in accordance with its investment objectives and policies; (ii)
Epoch maintains an appropriate compliance program; (iii) and the Fund’s advisory
expenses are reasonable in relation to those of similar funds and to the
services to be provided by IMCO and Epoch. Based on its conclusions, the Board
determined that approval of the Investment Subadvisory Agreement with Epoch
would be in the best interests of the Fund and its shareholders.
n
WHAT GENERAL INFORMATION IS AVAILABLE
ABOUT EPOCH?
Epoch,
located at 640 Fifth Avenue, 18th Floor, New York, New York 10019, serves as a
subadviser to the Fund. Epoch
was
founded in April 2004 as a Delaware corporation. As of December 31,
2009, the firm managed approximately $11.4
billion
in assets.
5
n
WHO ARE THE DIRECTORS AND PRINCIPAL
EXECUTIVE OFFICER OF EPOCH?
The names
and principal occupations of the current directors and principal executive
officer of Epoch are set forth as follows:
NAME
|
PRINCIPAL
OCCUPATION
|
William W.
Priest
|
Chief
Executive Officer, Co-CIO & Portfolio
Manager
|
Timothy T.
Taussig
|
President
& Chief Operating Officer
|
Adam Borak
|
Chief
Financial Officer
|
J. Philip
Clark
|
Executive Vice
President, Director of Business Development & Client
Services
|
David N.
Pearl
|
Executive Vice
President, Co-CIO & Portfolio
Manager
|
During
the last five fiscal years, no director or officer of Epoch 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.
n
DOES EPOCH OR ANY OF ITS AFFILIATES
PROVIDE ANY ADDITIONAL SERVICES TO THE FUND?
No.
n
WHAT WILL IMCO PAY EPOCH FOR ITS
SUBADVISORY SERVICES?
IMCO (not
the Fund) will pay Epoch a portfolio management fee based on the average daily
net assets of the Fund account per annum as follows: 0.40% on the first $200
million; 0.35% on the next $400 million. Once assets reach $600 million the fee
schedule above is replaced by the following schedule: 0.30% on the first $600
million; 0.25% on the next $400 million.
6
Once
assets exceed $1 billion, both parties agree to discuss adding an additional
breakpoint that will apply only to those assets in excess of $1 billion. For the
avoidance of doubt, if at any time during this agreement, when a fee calculation
is made, and assets are less than $600 million, the following schedule will
apply: 0.40% on the first $200 million; 0.35% on the next $400 million.
Furthermore, if at any time during this agreement, when a fee calculation is
made, and assets exceed $600 million, the following schedule will apply: 0.30%
on the first $600 million; 0.25% on the next $400 million.
n
DOES EPOCH ACT AS ADVISER FOR SIMILAR
FUNDS?
Epoch
serves as adviser to one other registered fund that has a similar objective to
the Fund. The table below identifies the fund, the size of the fund as of
December 31, 2009, and the rate of compensation paid to Epoch.
Fund Assets Annual
Fee Rate
Mainstay Epoch
U.S. Equity
Fund $155,455,919 0.40%
NAME AND ADDRESS OF
THE
FUND’S INVESTMENT ADVISER,
PRINCIPAL
UNDERWRITER, AND ADMINISTRATOR
IMCO,
located at 9800 Fredericksburg Road, San Antonio, Texas 78288, is the Fund’s
investment adviser, principal underwriter, and administrator.
SHARES
OWNED
As of
February 28, 2010, there were 119,785,104 shares of the Fund Shares and
6,299,347 shares of the Institutional Shares outstanding. No shareholder held of
record or owned beneficially 5% or more of the Fund.
7
FINANCIAL
INFORMATION
THE FUND
HAS INCLUDED WITH THIS MAILING A COPY OF ITS SEMI-ANNUAL REPORT FOR ITS MOST
RECENT SEMIANNUAL PERIOD AND WILL FURNISH, WITHOUT CHARGE, TO YOU UPON REQUEST A
COPY OF THE FUND’S ANNUAL REPORT FOR ITS MOST RECENT FISCAL YEAR. SUCH REQUEST
MAY BE DIRECTED TO USAA INVESTMENT
MANAGEMENT
COMPANY, 9800 FREDERICKSBURG ROAD, SAN
ANTONIO,
TEXAS 78288 OR (800) 531-USAA (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.
8
EXHIBIT
A
INVESTMENT
SUBADVISORY AGREEMENT
AGREEMENT made as of the 11th day of
January, 2010, (the Effective Date) between USAA INVESTMENT MANAGEMENT COMPANY,
a corporation organized under the laws of the state of Delaware and having its
principal place of business in San Antonio, Texas (IMCO) and Epoch Investment
Partners, Inc., organized under the laws of the state of Delaware and having its
principal place of business in New York City, New York (Epoch).
WHEREAS, IMCO serves as the investment
adviser to USAA Mutual Funds Trust, a statutory trust organized under the laws
of the state of Delaware (the Trust) and registered as an open-end management
investment company under the Investment Company Act of 1940, as amended (the
1940 Act); and
WHEREAS, under its Investment Advisory
Agreement with the Trust (Investment Advisory Agreement), IMCO is authorized to
appoint subadvisers for series of the Trust (each a Fund, or collectively
Funds); and
WHEREAS, IMCO wishes to retain Epoch to
render investment advisory services to such series (or portions thereof) of the
Trust as now or hereafter may be identified in Schedule A to this Agreement, as
such Schedule A may be amended from time to time (each such series or portion
thereof referred to herein as a Fund Account and collectively as Fund Accounts);
and
WHEREAS, Epoch is willing to provide
such services to the Fund Accounts and IMCO upon the terms and conditions and
for the compensation set forth below;
NOW, THEREFORE, in consideration of the
premises and mutual covenants herein contained, and intending to be legally
bound hereby,
it is
agreed between the parties hereto as follows:
1.
Appointment
of Epoch.
IMCO hereby appoints Epoch to act as an investment adviser for
each Fund Account in accordance with the terms and conditions of this Agreement.
Epoch will be an independent contractor and will have no authority to act for or
represent the Trust or
A-1
IMCO in
any way or otherwise be deemed an agent of the Trust or IMCO except as expressly
authorized in this Agreement or another writing by the Trust, IMCO and Epoch.
Epoch accepts such appointment and agrees to render the services herein set
forth for the compensation herein provided.
2.
Duties of Epoch.
(a)
Authority
to Invest
. Subject to the control and supervision of IMCO and the Trust’s
Board of Trustees (the Board), Epoch, at its own expense, shall have full
discretion to manage, supervise, and direct the investment and reinvestment of
Fund Accounts allocated to it by IMCO 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 IMCO has the right to allocate and reallocate such assets to a
Fund Account at any time. Epoch 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 Epoch anticipate materially modifying its investment
process, it must provide written notice in advance to IMCO, and any affected
Prospectus and SAI should be amended accordingly.
For each Fund set forth on Schedule A
to this Agreement, Epoch shall provide investment advice only with respect to
the discrete portion of the Fund’s portfolio allocated to it by IMCO 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, Epoch 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 Epoch wishes to hold cash or cash
equivalents in excess of 10% of a Fund Account’s assets, Epoch must request in
writing and receive advance permission from IMCO.
In accordance with Subsection (b) of
this Section 2, Epoch 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
A-2
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, Epoch
will act in the best interests of each Fund and will comply with (i) applicable
laws and regulations, including, but not limited to, the 1940 Act and the
Investment Advisers Act of 1940, as amended (Advisers Act), and the rules under
each; (ii) the terms of this Agreement; (iii) the stated investment objective,
policies, and restrictions of each Fund, as stated in the then-current
Registration Statement of each Fund; (iv) the Trust’s compliance procedures and
other policies, procedures, or guidelines as the Board or IMCO reasonably may
establish from time to time; (v) the provisions of the Internal Revenue Code of
1986, as amended (Code), applicable to “regulated investment companies” (as
defined in Section 851 of the Code), as from time to time in effect; and (vi)
the written instructions of IMCO. Epoch shall establish compliance procedures
reasonably calculated to ensure compliance with the foregoing. IMCO shall be
responsible for providing Epoch with the Trust’s Master Trust Agreement, as
amended and supplemented, the Trust’s By-Laws and amendments thereto and current
copies of the materials specified in Subsections (a)(iii) and (iv) of this
Section 2. IMCO shall provide Epoch with prior written notice of any material
change to the Trust’s Registration Statement that would affect Epoch’s
management of a Fund Account.
(b)
Portfolio
Transactions.
In connection with the management of the investment and
reinvestment of the Fund Accounts’ assets, Epoch 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, Epoch shall use its best efforts to obtain for the Fund Accounts
the most favorable price and execution available, except to the extent it may be
permitted to pay higher brokerage commissions for brokerage and research
services as described below. In using its best efforts to obtain the most
favorable price and execution available, Epoch, 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,
A-3
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
may determine and to the extent authorized by Section 28(e) of the Securities
Exchange Act of 1934 (Exchange Act), Epoch 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 Epoch 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
Epoch 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 Epoch’s
overall responsibilities with respect to the Fund and to other clients of Epoch
as to which Epoch exercises investment discretion. The Board or IMCO may direct
Epoch 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 Epoch deems the
purchase or sale of a security to be in the best interest of a Fund as well as
other clients of Epoch, Epoch, 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 Epoch 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.
Epoch may buy securities for a Fund
Account at the same time it is selling such securities for another client
account and may sell
A-4
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, Epoch may effectuate cross transactions between a Fund Account and
such other account if it deems this to be advantageous.
Epoch will advise the Funds’ custodian
or such depository or agents as may be designated by the custodian and IMCO
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. Epoch 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 Epoch giving proper
instructions to the custodian, Epoch shall have no responsibility or liability
for the acts, omissions or other conduct of the custodian, depository, or other
agent designated by the custodian and IMCO.
Notwithstanding the foregoing, Epoch
agrees that IMCO shall have the right by written notice to identify securities
that may not be purchased on behalf of any Fund and/or brokers and dealers
through which portfolio transaction on behalf of the Fund may not be effected,
including, without limitation, brokers or dealers affiliated with IMCO. Epoch
shall refrain from purchasing such securities for a Fund Account or directing
any portfolio transaction to any such broker or dealer on behalf of a Fund
Account, unless and until the written approval of IMCO to do so is obtained. In
addition, Epoch agrees that it shall not direct portfolio transactions for the
Fund Accounts through any broker or dealer that is an “affiliated person” (as
that term is defined in the 1940 Act or interpreted under applicable rules and
regulations of the Commission) of Epoch, except as permitted under the 1940 Act.
IMCO agrees that it will provide Epoch with a list of brokers and dealers that
are affiliated persons of the Funds, or affiliated persons of such persons, and
shall timely update that list as the need arises. The Funds agree that any
entity or person associated with IMCO or Epoch (or any of their “affiliated
persons”) that is a member of a national securities exchange is authorized to
effect any transaction on such exchange for the
A-5
account
of the Funds that is permitted by Section 11(a) of the Exchange Act or Rule
11a2-2(T) thereunder, and the Funds consent to the retention of compensation for
such transactions.
(c)
Expenses.
Epoch, at its expense, will furnish all necessary facilities and personnel,
including salaries, expenses, and fees of any personnel required for them to
faithfully perform their duties under this Agreement and administrative
facilities, including bookkeeping, and all equipment and services necessary for
the efficient conduct of Epoch’s duties under this Agreement. However, Epoch
shall not be obligated to pay any expenses of IMCO, 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, Epoch, at its expense, will provide assistance
to IMCO regarding the valuation of securities that are the subject of a
significant event, not registered for public sale, not traded on any securities
markets, or otherwise deemed illiquid for purposes of the 1940 Act. The parties
acknowledge that IMCO is responsible for final pricing determinations and
calculations, and that Epoch will take such steps as are reasonably necessary to
assist IMCO in reaching such pricing determinations for Fund Account securities.
Epoch also shall monitor for “significant events” that occur after the closing
of a market but before the Funds calculate their net asset values and that may
affect the valuation of any Fund Account’s portfolio securities and shall notify
IMCO immediately of the occurrence of any such events.
(e)
Reports
and Availability of Personnel.
Epoch, at its expense, shall render to the
Board and IMCO such periodic and special reports as the Board and IMCO may
reasonably request with respect to matters relating to the duties of Epoch set
forth herein. Epoch, at its expense, will make available to the Board and IMCO
at reasonable times its portfolio managers and other appropriate personnel in
order to review investment policies of the Funds and to consult with the Board
and IMCO regarding the investment affairs of the Funds, including economic,
statistical, and investment matters relevant to Epoch’s duties
hereunder.
A-6
(f)
Compliance
Matters.
Epoch, at its expense, will provide IMCO with such compliance
reports relating to its duties under this Agreement as may be agreed upon by
such parties from time to time. Epoch also shall cooperate with and provide
reasonable assistance to IMCO, the Trust’s administrator, the Trust’s custodian
and foreign custodians, the Trust’s transfer agent and pricing agents and all
other agents and representatives of the Trust and IMCO, keep all such persons
fully informed as to such matters as they may reasonably deem necessary to the
performance of their obligations to the Trust and IMCO, provide prompt responses
to reasonable requests made by such persons and maintain any appropriate
interfaces with each so as to promote the efficient exchange of
information.
(g)
Books
and Records.
Epoch 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, Epoch agrees that: (i) all records it maintains for a
Fund Account are the property of the Fund; (ii) it will surrender promptly to a
Fund or IMCO any such records (or copies of such records) upon the Fund’s or
IMCO’s request; and (iii) it will preserve for the periods prescribed by Rule
31a-2 under the 1940 Act the records it maintains for any Fund Account.
Notwithstanding subsection (ii) above, Epoch may maintain copies of such records
to comply with its recordkeeping obligations.
(h)
Proxies.
Unless and until Epoch is otherwise directed by IMCO or the Board, IMCO will
vote proxies with respect to a Fund Account’s securities and exercise rights in
corporate actions or otherwise in accordance with IMCO’s proxy voting
guidelines.
3.
Advisory
Fee.
IMCO shall pay to Epoch as compensation for Epoch’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. IMCO (and
not the Funds) shall pay such fees. If Epoch 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
A-7
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.
4.
Representations And
Warranties.
(a)
Epoch.
Epoch represents and warrants to IMCO that (i) the retention of Epoch by IMCO as
contemplated by this Agreement is authorized by Epoch’s governing documents;
(ii) the execution, delivery, and performance of this Agreement does not violate
any obligation by which Epoch 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 Epoch and when executed and delivered by
Epoch will be a legal, valid, and binding obligation of Epoch, enforceable
against Epoch 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) Epoch is
registered as an investment adviser under the Advisers Act; (v) Epoch has
adopted a written code of ethics complying with the requirements of Rule 17j-1
under the 1940 Act and that Epoch and certain of its employees, officers,
partners, and directors are subject to reporting requirements thereunder and,
accordingly, agrees that it shall, on a timely basis, furnish a copy of such
code of ethics to IMCO, and, with respect to such persons, Epoch shall furnish
to IMCO all reports and information provided under Rule 17j-1(c)(2); (vi) Epoch
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) Epoch
will promptly notify IMCO of the occurrence of any event that would disqualify
Epoch from serving as investment manager of an investment company pursuant to
Section 9(a) of the 1940 Act or otherwise; (viii) Epoch has provided IMCO with a
copy of its Form ADV, which as of the date of this Agreement is its Form ADV as
most recently filed with the SEC, and promptly will furnish a copy of all
amendments to IMCO at least annually; (ix) Epoch will notify IMCO of any
“assignment” (as defined in the 1940 Act) of this Agreement or change of control
of Epoch, as applicable, and any changes in the key personnel who are either the
portfolio manager(s) of any Fund Account or senior management of Epoch, in each
case prior to or promptly after, such change; and (x) Epoch has adequate
disaster recovery and interruption prevention measures to ensure business
resumption in accordance with applicable law and within industry
standards. Epoch
A-8
makes no
representation or warranty, express or implied, that any level of performance or
investment results will be achieved by the Fund, whether on a relative or
absolute basis.
(b)
IMCO.
IMCO represents and warrants to Epoch that (i) the retention of Epoch by IMCO as
contemplated by this Agreement is authorized by the respective governing
documents of the Trust and IMCO; (ii) the execution, delivery and performance of
each of this Agreement and the Investment Advisory Agreement does not violate
any obligation by which the Trust or IMCO or their respective property is bound,
whether arising by contract, operation of law or otherwise; (iii) each of this
Agreement and the Investment Advisory Agreement has been duly authorized by
appropriate action of the Trust and IMCO and when executed and delivered by IMCO
will be a legal, valid, and binding obligation of the Trust and IMCO,
enforceable against the Trust and IMCO in accordance with its terms, subject, as
to enforcement, to applicable bankruptcy, insolvency, and similar laws affecting
creditors’ rights generally and to general equitable principles (regardless of
whether enforcement is sought in a proceeding in equity or law); (iv) IMCO is
registered as an investment adviser under the Advisers Act; (v) IMCO has adopted
a written code of ethics complying with the requirements of Rule 17j-1 under the
1940 Act and that IMCO and certain of its employees, officers, and directors are
subject to reporting requirements thereunder; (vi) IMCO is not prohibited by the
1940 Act, the Advisers Act or other law, regulation, or order from performing
the services contemplated by this Agreement; (vii) IMCO will promptly notify
Epoch of the occurrence of any event that would disqualify IMCO from serving as
investment manager of an investment company pursuant to Section 9(a) of the 1940
Act or otherwise; (viii) IMCO has provided Epoch with a copy of certain
applicable portions of the Trust’s compliance policies and procedures adopted
pursuant to Rule 38a-1 under the 1940 Act, and will provide Epoch with a copy of
any amendments to such compliance policies and procedures within a reasonable
time after receiving the same from the Trust; and (ix) IMCO and/or its
affiliates have adopted and use their best efforts to enforce their policies to
identify and prevent investors in the Fund from market timing the purchase and
sale of the Fund’s shares or engaging in arbitrage activity to the detriment of
long-term investors in the Fund.
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5.
Liability and
Indemnification.
(a)
Epoch.
Epoch shall be liable for any and all losses, claims, damages, liabilities, or
litigation (including reasonable legal and other expenses) to which the Trust, a
Fund, IMCO, any affiliated persons thereof (within the meaning of the 1940 Act)
and any controlling persons thereof (as described in Section 15 of the
Securities Act of 1933, as amended (the 1933 Act)) (collectively, IMCO
Indemnities) may become subject under the 1933 Act, the 1940 Act, the Advisers
Act, or under any other statute, at common law or otherwise arising out of (i)
any gross negligence, willful misfeasance, bad faith, or reckless disregard of
Epoch 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 Epoch which was required to be stated therein or necessary to make the
statements therein not misleading, if such statement or omission was made in
reliance upon information furnished in writing to IMCO or the Trust by Epoch
Indemnities (as defined below) for use therein. Epoch shall indemnify and hold
harmless the IMCO Indemnities for any and all such losses, claims, damages,
liabilities, or litigation (including reasonable legal and other expenses);
provided, however, that in no case is Epoch’s indemnity hereunder deemed to
protect a person against any liability to which any such person would otherwise
be subject by reason of willful misfeasance, bad faith or gross negligence, or
reckless disregard of Epoch in performance of its duties under this Agreement or
the Investment Advisory Agreement with the Trust.
(b)
IMCO.
IMCO shall be liable for any and all losses, claims, damages, liabilities, or
litigation (including reasonable legal and other expenses) to which Epoch, 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, Epoch 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 misfeasance, bad
faith, or reckless disregard by IMCO in the performance of any of its duties or
obligations hereunder or (ii) any untrue statement of a material fact contained
in the Prospectus and SAI, proxy materials, reports, advertisements, sales
literature, or other materials pertaining to the Funds or the omission
A-10
to state
therein a material fact known to IMCO which was required to be stated therein or
necessary to make the statements therein not misleading, unless such statement
or omission was made in reliance upon information furnished in writing to IMCO
or the Trust by Epoch. IMCO shall indemnify and hold harmless Epoch Indemnities
for any and all such losses, claims, damages, liabilities, or litigation
(including reasonable legal and other expenses); provided, however, that in no
case shall IMCO’s indemnity hereunder be deemed to protect a person against any
liability to which any such person would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence, or reckless disregard of
IMCO 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 parties to this Agreement or
“interested persons” (as defined in the 1940 Act) of the Funds, IMCO, or Epoch
(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 IMCO and Epoch.
(b) This
Agreement will terminate automatically with respect to a Fund, without the
payment of any penalty, unless within two (2) 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, Epoch may
continue to serve hereunder in a manner consistent with the 1940 Act and the
rules thereunder.
A-11
(c) IMCO may
at any time terminate this Agreement with respect to a Fund, without the payment
of any penalty, upon written notice delivered in person or by facsimile, or
mailed by registered mail, postage prepaid, to Epoch. IMCO will use its best
efforts to provide Epoch with thirty (30) days’ advance notice of termination.
Epoch 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
IMCO.
(d) This
Agreement automatically and immediately shall terminate with respect to the
Funds, without the payment of any penalty, in the event of its assignment (as
that term is defined in the 1940 Act or interpreted under applicable rules and
regulations of the Commission) or if the Investment Advisory Agreement shall
terminate for any reason.
(e) Any
notice of termination served on Epoch by IMCO shall be without prejudice to the
obligation of Epoch to complete transactions already initiated or acted upon
with respect to a Fund.
Upon termination of this Agreement, the
duties of IMCO delegated to Epoch under this Agreement automatically shall
revert to IMCO. Notwithstanding any termination of this Agreement with respect
to a Fund, Sections 5, 10(a), 10(e), 11(a), and 11(c) of this Agreement shall
remain in effect after any such termination.
7.
Amendment
of Agreement.
No provision of this Agreement may be changed, waived,
discharged, or terminated orally, but only by an instrument in writing signed by
the party against whom enforcement of the change, waiver, discharge, or
termination is sought. No material amendment of this Agreement shall be
effective until approved in the manner required by the 1940 Act, any 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
A-12
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 Epoch to IMCO in connection with the Funds
hereunder are not to be deemed exclusive, and Epoch shall be free to render
investment advisory services to others. It is understood that the persons
employed by Epoch 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 Epoch to
engage in or devote time and attention to other businesses or to render services
of whatever kind or nature. It is understood that IMCO may appoint at any time
in accordance with Applicable Law one or more subadvisers, in addition to Epoch,
or IMCO itself, to perform investment advisory services to any portion of the
Funds.
10.
Additional
Agreements.
(a)
Access
to Information.
Epoch shall, upon reasonable notice, afford IMCO at all
reasonable times access to Epoch’s officers, employees, agents, and offices and
to all its relevant books and records and shall furnish IMCO with all relevant
financial and other data and information as requested; provided, however, that
nothing contained herein shall obligate Epoch to provide IMCO with access to the
books and records of Epoch 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, and in light of the publicly
disclosed status of mutual fund subadvisory relationships, IMCO agrees that
Epoch may refer to IMCO and/or the Trust on a representative client
list.
A-13
(c)
Privacy
Policy.
Epoch acknowledges that nonpublic customer information (as
defined in Regulation S-P, including any amendments thereto) of customers of the
Funds received from IMCO is subject to the limitations on redisclosure and reuse
set forth in Section 248.11 of such Regulation, and agrees such information (i)
shall not be disclosed to any third party for any purpose without the written
consent of IMCO unless permitted by exceptions set forth in Sections 248.14 or
248.15 of such Regulation and (ii) shall be safeguarded pursuant to procedures
adopted under Section 248.30 of such Regulation if so required.
(d)
Public
Announcements.
No party shall issue any press release or otherwise make
any public statements with respect to the matters covered by this Agreement
without the prior written consent of the other parties hereto, which consent
shall not be unreasonably withheld; provided, however, that consent shall not be
required if, in the opinion of counsel, such disclosure is required by law;
provided further, however, that the party making such disclosure shall provide
the other parties hereto with as much prior written notice of such disclosure as
is practical under the circumstances.
(e)
Notifications.
Epoch agrees that it will promptly notify IMCO in the event that: (i) Epoch
becomes or reasonably expects to become the subject of an administrative
proceeding or enforcement action by the Commission or other regulatory body with
applicable jurisdiction or (ii) to the best of Epoch’s knowledge, any affiliate
of Epoch becomes or reasonably expects to become the subject of an
administrative proceeding or enforcement action by the Commission or other
regulatory body with applicable jurisdiction that could reasonably be expected
to have a material adverse effect upon the ability of Epoch to perform its
duties under this Agreement.
(f)
Insurance.
Epoch 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 Epoch’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 Epoch, including,
without limitation, a change of control of Epoch or a portfolio manager change,
Epoch shall bear all reasonable expenses associated with such shareholder
meeting, information statement, or prospectus supplement.
A-14
11.
Miscellaneous.
(a)
Notices.
All notices or other communications given under this Agreement shall be made by
guaranteed overnight delivery, telecopy or certified mail; notice is effective
when received. Notice shall be given to the parties at the following
addresses:
IMCO: USAA
Investment Management Company
9800 Fredericksburg Road,
A-O3-W
San Antonio, Texas 78288
Facsimile No.: (210)
498-4022
Attention: Securities
Counsel
Epoch: Epoch
Investment Partners, Inc.
640 Fifth Avenue, 18th
Floor
New York, NY 10019
Facsimile No.: 212 202
4948
Attention:
(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
A-15
orally,
and may not be modified or rescinded except by a writing signed by the parties
hereto and in accordance with the 1940 Act.
IN
WITNESS WHEREOF, IMCO and Epoch have caused this Agreement to be executed as of
the date first set forth above.
USAA INVESTMENT
MANAGEMENT
COMPANY
By: /s/ Christopher P. Laia
Name:
Christopher Laia
Title: Vice President
By: /s/ Mark R. Kamstra
Name: Mark R. Kamstra
Title: Authorized Signatory
Attest:
EPOCH INVESTMENT PARTNERS, INC.
By: /s/
Thomas
Pernice By: /s/
Timothy T. Taussig
Name: Thomas
Pernice
Name: Timothy T. Tuassig
Title: Managing
Director
Title: President & Chief Operating
Officer
A-16
SCHEDULE
A
USAA
Income Stock Fund
A-17
SCHEDULE
B
FEES
Fund
Account Rate
per annum of the average daily
net
assets of the Fund Account*
Income
Stock
Fund 0.40%
on the first $200 million
0.35% on the next $400
million
Once
assets reach $600 million the fee schedule above is replaced by the following
schedule:
0.30% on the first $600
million
0.25% on the next $400
million
Once
assets exceed $1 billion, both parties agree to discuss adding an additional
breakpoint that will apply only to those assets in excess of
$1
billion. For the avoidance of doubt, if at any time during this agreement, when
a fee calculation is made, and assets are less than $600
million,
the following schedule will apply: 0.40% on the first $200
million;
0.35% on the next $400 million. Furthermore, if at any time
during
this agreement, when a fee calculation is made, and assets
exceed
$600 million, the following schedule will apply: 0.30% on the first $600
million; 0.25% on the next $400 million.
* Epoch
agrees that it will not seek to increase this fee rate during the period ending
January 10, 2013 (the Lock). This Lock does not limit the rights of
the Fund’s shareholders, the Fund’s Board, or IMCO as set forth in Section 6 of
the Agreement (“Duration and Termination of this Agreement”).
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