INVESTMENT ADVISORY AGREEMENT
BETWEEN
THE VICTORY PORTFOLIOS
AND
KEY ASSET MANAGEMENT INC.
AGREEMENT made as of the 1st day of June, 1998, by and between The
Victory Portfolios, a Delaware business trust which may issue one or more series
of shares of beneficial interest (the "Company"), and Key Asset Management Inc.,
a New York corporation (the "Adviser").
WHEREAS, the Company is registered as an open-end, management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act");
and
WHEREAS, the Company desires to retain the Adviser to furnish investment
advisory services to the funds listed on Schedule A (each, a "Fund" and
collectively, the "Funds"), and the Adviser represents that it is willing and
possesses legal authority to so furnish such services;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. DELIVERY OF DOCUMENTS. The Company has delivered to the Adviser
copies of each of the following documents along with all amendments thereto
through the date hereof, and will promptly deliver to it all future amendments
and supplements thereto, if any:
(a) the Company's Trust Instrument;
(b) the By-Laws of the Company;
(c) resolutions of the Board of Trustees of the Company authorizing
the execution and delivery of this Agreement;
(d) the most recent Post-Effective Amendment to the Company's
Registration Statement under the Securities Act of 1933, as
amended (the "1933 Act"), and the 1940 Act, on Form N-1A as filed
with the Securities and Exchange Commission (the "Commission");
(e) Notification of Registration of the Company under the 1940 Act on
Form N-8A as filed with the Commission;
(f) the currently effective Prospectuses and Statements of Additional
Information of the Funds; and
(g) a copy of all applicable orders granted to the Company by the
Commission or any no-action letter or similar correspondence
concerning the Company or any of its Funds including an order
under section 6(c) of the 1940 Act dated December 31, 1996
granting the Fund an exemption from (1) the shareholder voting
requirements of Section 15(a) and Rule 18f-2; and (2) the
disclosure requirements under various rules and forms (the
"Manager of Managers Order").
2. APPOINTMENT.
(a) General. The Company hereby appoints the Adviser to act as
investment adviser to the Funds for the period and on the terms
set forth in this Agreement. The Adviser accepts such appointment
and agrees to furnish the services herein set forth for the
compensation herein provided.
(b) Employees of Affiliates. The Adviser may, in its discretion,
provide such services through its own employees or the employees
of one or more affiliated companies that are qualified to act as
an investment adviser to the Company under applicable laws and
are under the control of KeyCorp, the indirect parent of the
Adviser; provided that (i) all persons, when providing services
hereunder, are functioning as part of an organized group of
persons, and (ii) such organized group of persons is managed at
all times by authorized officers of the Adviser.
(c) Sub-Advisers. It is understood and agreed that the Adviser may
from time to time employ or associate with such other entities or
persons as the Adviser believes appropriate to assist in the
performance of this Agreement with respect to a particular Fund
or Funds (each a "Sub-Adviser"), and that any such Sub-Adviser
shall have all of the rights and powers of the Adviser set forth
in this Agreement; provided that a Fund shall not pay any
additional compensation for any Sub-Adviser and the Adviser shall
be as fully responsible to the Company for the acts and omissions
of the Sub-Adviser as it is for its own acts and omissions. The
Adviser will review, monitor and report to the Company's Board of
Trustees regarding the performance and investment procedures of
any Sub-Adviser. In the event that the services of any
Sub-Adviser are terminated, the Adviser may provide investment
advisory services pursuant to this Agreement to the Fund without
a Sub-Adviser or employ another Sub-Adviser. The Adviser may
select another Sub-Adviser without further shareholder approval
to the extent consistent with the Manager of Managers Order. A
Sub-Adviser may be an affiliate of the Adviser.
2
3. INVESTMENT ADVISORY SERVICES.
(a) Management of the Funds. The Adviser hereby undertakes to act as
investment adviser to the Funds. The Adviser shall regularly
provide investment advice to the Funds and continuously supervise
the investment and reinvestment of cash, securities and other
property composing the assets of the Funds and, in furtherance
thereof, shall:
(i) supervise all aspects of the operations of the Company and
each Fund;
(ii) obtain and evaluate pertinent economic, statistical and
financial data, as well as other significant events and
developments, which affect the economy generally, the Funds'
investment programs, and the issuers of securities included
in the Funds' portfolios and the industries in which they
engage, or which may relate to securities or other
investments which the Adviser may deem desirable for
inclusion in a Fund's portfolio;
(iii) determine which issuers and securities shall be included in
the portfolio of each Fund;
(iv) furnish a continuous investment program for each Fund;
(v) in its discretion and without prior consultation with the
Company, buy, sell, lend and otherwise trade any stocks,
bonds and other securities and investment instruments on
behalf of each Fund; and
(vi) take, on behalf of each Fund, all actions the Adviser may
deem necessary in order to carry into effect such investment
program and the Adviser's functions as provided above,
including the making of appropriate periodic reports to the
Company's Board of Trustees.
(b) Manager of Managers Structure. To the exent the a Fund has
adopted adopts a "manager of managers" structure in reliance on
the Manager of Manager Order, subject to the review of the Board
of Trustees, the Adviser shall:
(i) provide general management and administrative services to
such Fund;
(ii) set each Fund's overall investment strategies;
(iii) recommend Sub-Advisers;
(iv) allocate and, when appropriate, reallocate each Fund's
assets among Sub-Advisers;
3
(v) monitor and evaluate Sub-Adviser performance; and
(vi) oversee Sub-Adviser compliance with each Fund's investment
objective, policies and restrictions.
(c) Covenants. The Adviser shall carry out its investment advisory
and supervisory responsibilities in a manner consistent with the
investment objectives, policies, and restrictions provided in:
(i) each Fund's Prospectus and Statement of Additional
Information as revised and in effect from time to time; (ii) the
Company's Trust Instrument, By-Laws or other governing
instruments, as amended from time to time; (iii) the 1940 Act;
(iv) other applicable laws; and (v) such other investment
policies, procedures and/or limitations as may be adopted by the
Company with respect to a Fund and provided to the Adviser in
writing. The Adviser agrees to use reasonable efforts to manage
each Fund so that it will qualify, and continue to qualify, as a
regulated investment company under Subchapter M of the Internal
Revenue Code of 1986, as amended, and regulations issued
thereunder (the "Code"), except as may be authorized to the
contrary by the Company's Board of Trustees. The management of
the Funds by the Adviser shall at all times be subject to the
review of the Company's Board of Trustees.
(d) Books and Records. Pursuant to applicable law, the Adviser shall
keep each Fund's books and records required to be maintained by,
or on behalf of, the Funds with respect to advisory services
rendered hereunder. The Adviser agrees that all records which it
maintains for a Fund are the property of the Fund and it will
promptly surrender any of such records to the Fund upon the
Fund's request. The Adviser further agrees to preserve for the
periods prescribed by Rule 31a-2 under the 1940 Act any such
records of the Fund required to be preserved by such Rule.
(e) Reports, Evaluations and other Services. The Adviser shall
furnish reports, evaluations, information or analyses to the
Company with respect to the Funds and in connection with the
Adviser's services hereunder as the Company's Board of Trustees
may request from time to time or as the Adviser may otherwise
deem to be desirable. The Adviser shall make recommendations to
the Company's Board of Trustees with respect to Company policies,
and shall carry out such policies as are adopted by the Board of
Trustees. The Adviser shall, subject to review by the Board of
Trustees, furnish such other services as the Adviser shall from
time to time determine to be necessary or useful to perform its
obligations under this Agreement.
(f) Purchase and Sale of Securities. The Adviser shall place all
orders for the purchase and sale of portfolio securities for each
Fund with brokers or dealers selected by the Adviser, which may
include brokers or dealers affiliated with the Adviser to the
extent permitted by the 1940 Act and the Company's policies and
procedures applicable to the Funds. The Adviser shall use its
best efforts to seek to execute portfolio transactions at prices
which, under the circumstances, result in total costs
4
or proceeds being the most favorable to the Funds. In assessing
the best overall terms available for any transaction, the Adviser
shall consider all factors it deems relevant, including the
breadth of the market in the security, the price of the security,
the financial condition and execution capability of the broker or
dealer, research services provided to the Adviser, and the
reasonableness of the commission, if any, both for the specific
transaction and on a continuing basis. In no event shall the
Adviser be under any duty to obtain the lowest commission or the
best net price for any Fund on any particular transaction, nor
shall the Adviser be under any duty to execute any order in a
fashion either preferential to any Fund relative to other
accounts managed by the Adviser or otherwise materially adverse
to such other accounts.
(g) Selection of Brokers or Dealers. In selecting brokers or dealers
qualified to execute a particular transaction, brokers or dealers
may be selected who also provide brokerage and research services
(as those terms are defined in Section 28(e) of the Securities
Exchange Act of 1934) to the Adviser and/or the other accounts
over which the Adviser exercises investment discretion. The
Adviser is authorized to pay a broker or dealer who provides such
brokerage and research services a commission for executing a
portfolio transaction for the Fund which is in excess of the
amount of commission another broker or dealer would have charged
for effecting that transaction if the Adviser determines in good
faith that the total commission is reasonable in relation to the
value of the brokerage and research services provided by such
broker or dealer, viewed in terms of either that particular
transaction or the overall responsibilities of the Adviser with
respect to accounts over which it exercises investment
discretion. The Adviser shall report to the Board of Trustees of
the Company regarding overall commissions paid by the Fund and
their reasonableness in relation to their benefits to the Fund.
Any transactions for the Fund that are effected through an
affiliated broker-dealer on a national securities exchange of
which such broker-dealer is a member will be effected in
accordance with Section 11(a) of the Securities Exchange Act of
1934, as amended, and the regulations promulgated thereunder,
including Rule 11a2-2(T). The Fund hereby authorizes any such
broker or dealer to retain commissions for effecting such
transactions and to pay out of such retained commissions any
compensation due to others in connection with effectuating those
transactions.
(h) Aggregation of Securities Transactions. In executing portfolio
transactions for a Fund, the Adviser may, to the extent permitted
by applicable laws and regulations, but shall not be obligated
to, aggregate the securities to be sold or purchased with those
of other Funds or its other clients if, in the Adviser's
reasonable judgment, such aggregation (i) will result in an
overall economic benefit to the Fund, taking into consideration
the advantageous selling or purchase price, brokerage commission
and other expenses, and trading requirements, and (ii) is not
inconsistent with the policies set forth in the Company's
Registration Statement and the Fund's Prospectus and Statement of
Additional Information. In such event, the
5
Adviser will allocate the securities so purchased or sold, and
the expenses incurred in the transaction, in an equitable manner,
consistent with its fiduciary obligations to the Fund and such
other clients.
4. REPRESENTATIONS AND WARRANTIES.
(a) The Adviser hereby represents and warrants to the Company as
follows:
(i) The Adviser is a corporation duly organized and in good
standing under the laws of the State of New York and is
fully authorized to enter into this Agreement and carry
out its duties and obligations hereunder.
(ii) The Adviser is registered as an investment adviser with
the Commission under the Investment Advisers Act of 1940,
as amended (the "Advisers Act"), and is registered or
licensed as an investment adviser under the laws of all
applicable jurisdictions. The Adviser shall maintain such
registrations or licenses in effect at all times during
the term of this Agreement.
(iii) The Adviser at all times shall provide its best judgment
and effort to the Company in carrying out the Adviser's
obligations hereunder.
(b) The Company hereby represents and warrants to the Adviser as
follows:
(i) The Company has been duly organized as a business trust
under the laws of the State of Delaware and is authorized
to enter into this Agreement and carry out its terms.
(ii) The Company is registered as an investment company with
the Commission under the 1940 Act and shares of each Fund
are registered for offer and sale to the public under the
1933 Act and all applicable state securities laws where
currently sold. Such registrations will be kept in effect
during the term of this Agreement.
5. COMPENSATION. As compensation for the services which the Adviser is
to provide or cause to be provided pursuant to Paragraph 3, each Fund shall pay
to the Adviser out of Fund assets an annual fee, computed and accrued daily and
paid in arrears on the first business day of every month, at the rate set forth
opposite each Fund's name on Schedule A, which shall be a percentage of the
average daily net assets of the Fund (computed in the manner set forth in the
Fund's most recent Prospectus and Statement of Additional Information)
determined as of the close of business on each business day throughout the
month. At the request of the Adviser, some or all of such fee shall be paid
directly to a Sub-Adviser. The fee for any partial month under this Agreement
shall be calculated on a proportionate basis. In the event that the total
expenses of a
6
Fund exceed the limits on investment company expenses imposed by
any statute or any regulatory authority of any jurisdiction in which shares of
such Fund are qualified for offer and sale, the Adviser will bear the amount of
such excess, except: (i) the Adviser shall not be required to bear such excess
to an extent greater than the compensation due to the Adviser for the period for
which such expense limitation is required to be calculated unless such statute
or regulatory authority shall so require, and (ii) the Adviser shall not be
required to bear the expenses of the Fund to an extent which would result in the
Fund's or Company's inability to qualify as a regulated investment company under
the provisions of Subchapter M of the Code.
6. INTERESTED PERSONS. It is understood that, to the extent consistent
with applicable laws, the Trustees, officers and shareholders of the Company are
or may be or become interested in the Adviser as directors, officers or
otherwise and that directors, officers and shareholders of the Adviser are or
may be or become similarly interested in the Company.
7. EXPENSES. As between the Adviser and the Funds, the Funds will pay
for all their expenses other than those expressly stated to be payable by the
Adviser hereunder, which expenses payable by the Funds shall include, without
limitation, (i) interest and taxes; (ii) brokerage commissions and other costs
in connection with the purchase or sale of securities and other investment
instruments, which the parties acknowledge might be higher than other brokers
would charge when a Fund utilizes a broker which provides brokerage and research
services to the Adviser as contemplated under Paragraph 3 above; (iii) fees and
expenses of the Company's Trustees who are not employees of the Adviser; (iv)
legal and audit expenses; (v) administrator, custodian, pricing and bookkeeping,
registrar and transfer agent fees and expenses; (vi) fees and expenses related
to the registration and qualification of the Funds' shares for distribution
under state and federal securities laws; (vii) expenses of printing and mailing
reports and notices and proxy material to shareholders, unless otherwise
required; (viii) all other expenses incidental to holding meetings of
shareholders, including proxy solicitations therefor, unless otherwise required;
(ix) expenses of typesetting for printing Prospectuses and Statements of
Additional Information and supplements thereto; (x) expenses of printing and
mailing Prospectuses and Statements of Additional Information and supplements
thereto sent to existing shareholders; (xi) insurance premiums for fidelity
bonds and other coverage to the extent approved by the Company's Board of
Trustees; (xii) association membership dues authorized by the Company's Board of
Trustees; and (xiii) such non-recurring or extraordinary expenses as may arise,
including those relating to actions, suits or proceedings to which the Company
is a party (or to which the Funds' assets are subject) and any legal obligation
for which the Company may have to provide indemnification to the Company's
Trustees and officers.
8. NON-EXCLUSIVE SERVICES; LIMITATION OF ADVISER'S LIABILITY. The
services of the Adviser to the Funds are not to be deemed exclusive and the
Adviser may render similar services to others and engage in other activities.
The Adviser and its affiliates may enter into other agreements with the Funds
and the Company for providing additional services to the Funds and the Company
which are not covered by this Agreement, and to receive additional compensation
for such services.
7
In the absence of willful misfeasance, bad faith, gross negligence or reckless
disregard of obligations or duties hereunder on the part of the Adviser, or a
breach of fiduciary duty with respect to receipt of compensation, neither the
Adviser nor any of its directors, officers, shareholders, agents, or employees
shall be liable or responsible to the Company, the Funds or to any shareholder
of the Funds for any error of judgment or mistake of law or for any act or
omission in the course of, or connected with, rendering services hereunder or
for any loss suffered by the Company, a Fund or any shareholder of a Fund in
connection with the performance of this Agreement.
9. EFFECTIVE DATE; MODIFICATIONS; TERMINATION. This Agreement shall
become effective on the date of its execution, provided that it shall have been
approved by a majority of the outstanding voting securities of each Fund, in
accordance with the requirements of the 1940 Act.
(a) The Agreement shall continue in force for a period of two years
from the date of its execution. Thereafter, this Agreement shall
continue in effect as to each Fund for successive annual periods,
provided such continuance is specifically approved at least
annually (i) by a vote of the majority of the Trustees of the
Company who are not parties to this Agreement or interested
persons of any such party, cast in person at a meeting called for
the purpose of voting on such approval and (ii) by a vote of the
Board of Trustees of the Company or a majority of the outstanding
voting shares of the Fund.
(b) The modification of any of the non-material terms of this
Agreement may be approved by a vote of a majority of those
Trustees of the Company who are not interested persons of any
party to this Agreement, cast in person at a meeting called for
the purpose of voting on such approval.
(c) Notwithstanding the foregoing provisions of this Paragraph 9,
either party hereto may terminate this Agreement at any time on
sixty (60) days' prior written notice to the other, without
payment of any penalty. Such a termination by the Company may be
effected severally as to any particular Fund, and shall be
effected as to any Fund by vote of the Company's Board of
Trustees or by vote of a majority of the outstanding voting
securities of the Fund. This Agreement shall terminate
automatically in the event of its assignment.
10. LIMITATION OF LIABILITY OF TRUSTEES AND SHAREHOLDERS. The Adviser
acknowledges the following limitation of liability:
The terms "The Victory Portfolios" and "Trustees" refer, respectively,
to the trust created and the Trustees, as trustees but not individually or
personally, acting from time to time under the Trust Instrument, to which
reference is hereby made and a copy of which is on file at the office of the
Secretary of State of the State of Delaware, such reference being inclusive of
any and all amendments thereto so filed or hereafter filed. The obligations of
"The Victory Portfolios" entered
8
into in the name or on behalf thereof by any of the Trustees, representatives or
agents are made not individually, but in such capacities and are not binding
upon any of the Trustees, shareholders or representatives of the Company
personally, but bind only the assets of the Company, and all persons dealing
with the Company or a Fund must look solely to the assets of the Company or Fund
for the enforcement of any claims against the Company or Fund.
11. SERVICE XXXX. The service xxxx of the Company and the name "Victory"
(and derivatives thereof) have been licensed to the Company by KeyCorp, through
its subsidiary Key Trust Company ("Key Trust"), an affiliate of the Adviser,
pursuant to a License Agreement dated June 21, 1993, and their continued use is
subject to the right of Key Trust to withdraw this permission under the License
Agreement in the event the Adviser or another subsidiary of KeyCorp is not the
investment adviser to the Company.
12. CERTAIN DEFINITIONS. The terms "vote of a majority of the
outstanding voting securities," "assignment," "control," and "interested
persons," when used herein, shall have the respective meanings specified in the
1940 Act. References in this Agreement to the 1940 Act and the Advisers Act
shall be construed as references to such laws as now in effect or as hereafter
amended, and shall be understood as inclusive of any applicable rules,
interpretations and/or orders adopted or issued thereunder by the Commission.
13. INDEPENDENT CONTRACTOR. The Adviser shall for all purposes herein be
deemed to be an independent contractor and shall, unless otherwise expressly
provided herein or authorized by the Board of Trustees of the Company from time
to time, have no authority to act for or represent a Fund in any way or
otherwise be deemed an agent of a Fund.
14. STRUCTURE OF AGREEMENT. The Company is entering into this Agreement
on behalf of the respective Funds severally and not jointly. The
responsibilities and benefits set forth in this Agreement shall refer to each
Fund severally and not jointly. No Fund shall have any responsibility for any
obligation of any other Fund arising out of this Agreement. Without otherwise
limiting the generality of the foregoing:
(a) any breach of any term of this Agreement regarding the Company
with respect to any one Fund shall not create a right or
obligation with respect to any other Fund;
(b) under no circumstances shall the Adviser have the right to set
off claims relating to a Fund by applying property of any other
Fund; and
(c) the business and contractual relationships created by this
Agreement, consideration for entering into this Agreement, and
the consequences of such relationship and consideration relate
solely to the Company and the particular Fund to which such
relationship and consideration applies.
9
This Agreement is intended to govern only the relationships between the
Adviser, on the one hand, and the Company and the Funds, on the other hand, and
(except as specifically provided above in this Paragraph 14) is not intended to
and shall not govern (i) the relationship between the Company and any Fund or
(ii) the relationships among the respective Funds.
15. GOVERNING LAW. This Agreement shall be governed by the laws of the
State of Ohio, provided that nothing herein shall be construed in a manner
inconsistent with the 1940 Act or the Advisers Act.
16. 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 and, to this extent, the provisions
of this Agreement shall be deemed to be severable.
17. NOTICES. Notices of any kind to be given to the Company hereunder by
the Adviser shall be in writing and shall be duly given if mailed or delivered
to 0000 Xxxxxxx Xxxx, Xxxxxxxx, Xxxx 00000-0000, Attention: Xxxxxxx X. Xxxxxxxx;
with a copy to Kramer, Levin, Naftalis & Xxxxxxx, 000 Xxxxx Xxxxxx, Xxx Xxxx,
Xxx Xxxx, 00000, Attention: Xxxx Xxxxxxxxxx, Esq., or at such other address or
to such individual as shall be so specified by the Company to the Adviser.
Notices of any kind to be given to the Adviser hereunder by the Company shall be
in writing and shall be duly given if mailed or delivered to the Adviser at 000
Xxxxxx Xxxxxx, Xxxxxxxxx, Xxxx 00000-0000, Attention: Xxxxxxx X. Xxxxxx, with a
copy to Xxxxxxx X. Xxxxx, Esq., or at such other address or to such individual
as shall be so specified by the Adviser to the Company. Notices shall be
effective upon delivery.
10
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the date
written above.
THE VICTORY PORTFOLIOS KEY ASSET MANAGEMENT INC.
on behalf of the Funds listed on
Schedule A, individually and not
jointly
By: /s/Xxxxxxxx X. Xxxxxxxx By: /s/Xxxxxxxx X. Xxxxxx
----------------------- ---------------------
Name: Xxxxxxx X. Xxxxxxxx Name: Xxxxxxxx X. Xxxxxx
Title: Secretary Title: Senior Managing Director
11
Schedule A
Name of Fund Fee*
------------ ----
1. The Xxxxxxx Xxxxxxxxxxxxx Growth Fund 1.10%
--------------
* As a percentage of average daily net assets. Note, however, that the
Adviser shall have the right, but not the obligation, to voluntarily
waive any portion of the advisory fee from time to time. Any such
voluntary waiver will be irrevocable and determined in advance of
rendering investment advisory services by the Adviser, and shall be in
writing and signed by the parties hereto.
