SUBADVISORY AGREEMENT
This Agreement is effective as of the 1st day of March, 2006 by and between
RiverSource Investments, LLC ("Investment Manager"), a Delaware corporation and
Kenwood Capital Management LLC ("Kenwood"), a Delaware limited liability
company. The Investment Manager and Kenwood are collectively referred to as the
"parties."
WHEREAS, each of the Funds and Portfolios listed in Exhibit A (individually a
"Fund" and collectively the "Funds" ), is registered as an investment company
under the Investment Company Act of 1940 (the "1940 Act"); and
WHEREAS, each Fund has entered into an Investment Management Services Agreement
with Investment Manager, an investment adviser registered under the Investment
Advisers Act of 1940 (the "Advisers Act"), which was reapproved by Fund
shareholders on February 15, 2006, under which Investment Manager provides
investment advisory services to the Fund; and
WHEREAS, Kenwood is a registered investment adviser under the Advisers Act and
has a staff of experienced investment personnel and facilities for the kind of
investment portfolio contemplated for the Funds; and
WHEREAS, the Investment Manager and Kenwood previously entered into separate
subadvisory agreements for each of the Funds (the "Existing Subadvisory
Agreements"); and
WHEREAS, on February 15, 2006, shareholders of the Funds (1) reapproved the
Existing Subadvisory Agreements between the Investment Manager and Kenwood with
respect to each of the Funds, and (2) approved a new fee, including a
performance incentive adjustment for each of the Funds, as set forth on Exhibit
A; and
WHEREAS, the Investment Manager and Kenwood desire to replace and supersede the
Existing Subadvisory Agreements with this Agreement.
NOW, THEREFORE, it is mutually agreed with respect to each Fund:
PART ONE: INVESTMENT MANAGEMENT SERVICES
(1) Investment Manager retains Kenwood, and Kenwood agrees, with respect to the
Fund's assets allocated to Kenwood by Investment Manager, to furnish the
Fund continuously with suggested investment planning; to determine,
consistent with the Fund's investment objectives and policies, which
securities in Kenwood's discretion shall be purchased, held or sold and to
execute or cause the execution of purchase or sell orders; to prepare and
make available to the Fund all necessary research and statistical data;
subject always to the direction and control of the Board of Directors (the
"Board"), the officers of the Fund and Investment Manager. Investment
Manager will be responsible for investing and reinvesting all of the Fund"s
cash and cash items held by the Fund's U.S. custodian. Kenwood agrees to
maintain an adequate organization of competent persons to provide the
services and to perform the functions described in this Agreement.
(2) All transactions will be executed in accordance with the procedures and
standards set forth in, or established in accordance with, the Investment
Management Services Agreement between Investment Manager and the Fund.
Investment Manager will provide Kenwood with information concerning those
procedures and standards and Kenwood will maintain records to assure that
transactions have been executed in accordance those procedures and
standards.
(3) Kenwood agrees that the investment planning and investment decisions will
be in accordance with investment policies and strategies of the Fund as
disclosed to Kenwood from time to time by the Fund and as set forth in its
prospectus and statement of additional information filed with the
Securities and Exchange Commission (the "SEC").
(4) Investment Manager agrees that it will furnish to Kenwood any information
that the latter may reasonably request with respect to the services
performed or to be performed by Kenwood under this Agreement.
(5) Kenwood agrees to provide the Board and Investment Manager with information
and reports regarding its activities as deemed appropriate by Investment
Manager or as requested by the Board and to meet with any persons at the
request of the Board or Investment Manager for the purpose of reviewing
Kenwood's performance under this Agreement.
(6) It is understood and agreed that in furnishing the Fund with advisory
services, neither Kenwood, nor any of its officers, directors or agents
will be held liable to Investment Manager, the Fund or its creditors or
shareholders for errors of judgment or for anything except willful
misfeasance, bad faith, or gross negligence in the performance of its
duties, or reckless disregard of its obligations and duties under the terms
of this Agreement. It is further understood and agreed that Kenwood may
rely upon information furnished to it reasonably believed to be accurate
and reliable and that, except as provided above, Kenwood will not be
accountable for any loss suffered by Investment Manager or the Fund by
reason of the latter's action or nonaction on the basis of any advice or
recommendation of Kenwood, its officers, directors or agents.
PART TWO: COMPENSATION TO KENWOOD.
As compensation for its services, Investment Manager will pay Kenwood a fee as
described in Exhibit A. Investment Manager will pay this fee to Kenwood on a
monthly basis in cash within 5 business days after the last day of each month.
In the event of the termination of this Agreement, the fee accrued will be
prorated on the basis of the number of days that this Agreement is in effect
during the month.
PART THREE: MISCELLANEOUS
(1) Kenwood will be deemed to be an independent contractor and, unless
expressly authorized, will have no authority to act for or represent the
Fund.
(2) Investment Manager agrees that Kenwood may render investment advice and
other services to other persons that may or may not have investment
policies and investments similar to those of the Fund, and that Kenwood may
manage its own investments, provided that these activities do not impair
Kenwood's ability to render services under this Agreement.
(3) Neither this Agreement nor any transaction under this Agreement will be
invalidated or in any way affected by the fact that directors, officers,
agents and/or shareholders of the Fund are or may be interested in Kenwood
or any successor or assignee, as directors, officers, stockholders or
otherwise; that directors, officers, stockholders or agents of Kenwood are
or may be interested in the Fund as directors, officers, shareholders, or
otherwise; or that Kenwood or any successor or assignee, is or may be
interested in the Fund as shareholder or otherwise, provided, however, that
neither Kenwood, nor any officer, director or employee thereof or of the
Fund, shall sell to or buy from the Fund any property or security other
than shares issued by the Fund, except in accordance with applicable
regulations or orders of the SEC.
(4) Any notice under this Agreement must be given in writing delivered to the
party"s principal place of business in Minneapolis, Minnesota, or to
another address as either party may designate in writing to the other.
(5) Kenwood agrees that no officer, director or employee of Kenwood will deal
for or on behalf of the Fund with himself or herself as principal or agent,
or with any corporation or partnership in which he or she may have a
financial interest, except that this shall not prohibit:
(a) Officers, directors or employees of Kenwood from having a
financial interest in the Fund or in Kenwood.
(b) The purchase of securities for the Fund, or the sale of securities
owned by the Fund, through a security broker or dealer, one or
more of whose partners, officers, directors or employees is an
officer, director or employee of Kenwood, provided such
transactions are handled in the capacity of broker only and
provided commissions charged do not exceed customary brokerage
charges for such services.
(c) Transactions with the Fund by a broker-dealer affiliate of Kenwood
as may be allowed by rule or order of the SEC, and if made
pursuant to procedures adopted by the Fund's Board.
(6) Kenwood agrees that, except as herein otherwise expressly provided or as
may be permitted consistent with the use of a broker-dealer affiliate of
Kenwood under applicable provisions of the federal securities laws, neither
it nor any of its officers, directors or employees shall at any time during
the period of this Agreement, make, accept or receive, directly or
indirectly, any fees, profits or emoluments of any character in connection
with the purchase or sale of securities (except shares issued by the Fund)
or other assets by or for the Fund.
(7) Kenwood agrees to protect the confidentiality of any non-public information
provided to it by Investment Manager or the Fund.
PART FOUR: RENEWAL AND TERMINATION
(1) This Agreement, unless terminated under paragraph 2, 3, or4 below, will
continue in effect from year to year, provided its continued applicability
is specifically approved at least annually (i) by the Board of the Fund or
by a vote of the holders of a majority of the outstanding votes of the Fund
and (ii) by vote of a majority of the Board members 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. As used in this
paragraph, the term "interested person" has the same meaning as set forth
in the 1940 Act, as amended.
(2) This Agreement may be terminated at any time, without penalty, by the Board
of the Fund or by vote of the holders of a majority of the Fund's
outstanding shares, on 60 days' written notice to Investment Manager or to
Kenwood.
(3) Investment Manager or Kenwood may terminate this Agreement by giving sixty
days written notice to the other party.
(4) This Agreement will terminate in the event of its assignment, the term
""assignment"" for this purpose having the same meaning set forth in the
1940 Act, as amended.
In Witness Thereof, the parties hereto have executed this Agreement as of the
day and year first above written.
RIVERSOURCE INVESTMENTS, LLC
By: /s/ Xxxxx X. Xxxxx
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Xxxxx X. Xxxxx
Senior Vice President
Kenwood Capital Management LLC
By: /s/ Xxxxx X. Xxxxxxxx
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Xxxxx X. Xxxxxxxx
Principal
EXHIBIT A
The compensation set forth below applies to average daily net assets that are
subject to Kenwood's investment discretion ("Allocated Portion") in the
following funds:
RiverSource Small Cap Advantage Fund
RiverSource VP Small Cap Advantage Fund
(Individually a "Fund" and Collectively, the "Funds")
Compensation to Kenwood pursuant to Part Two of the Subadvisory Agreement shall
be calculated monthly and shall be comprised of the Base Fee described in
Section 1 below, increased or decreased by any Performance Adjustment described
in Section 2 below in accordance with the transition rules described in Section
3 below.
1. BASE FEE: The base fee ("Base Fee") shall be calculated on a monthly basis by
applying the annual rate described below as determined by aggregating the
average daily net assets of the Allocated Portions of the Funds.
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ANNUAL RATE AT EACH
NET ASSETS (MILLIONS) ASSET LEVEL, AS A
PERCENTAGE OF AVERAGE
DAILY NET ASSETS
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First $100 0.60%
Next $100 0.55%
Next $100 0.525%
Next $100 0.50%
Next $100 0.475%
Over $500 0.45%
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2. PERFORMANCE INCENTIVE ADJUSTMENT: After calculating the Base Fee, a
performance incentive adjustment ("Performance Adjustment") shall be calculated
separately for each Fund on a monthly basis, subject to the Transition Rules set
forth in Paragraph 3.
The Performance Adjustment shall be based on the Fund's performance compared to
the performance of the index identified below (each, an "Index") multiplied by
an adjustment rate, discussed below. The Index applicable to each Fund may
change in accordance with the "Change in Index" rules set forth below.
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FUND INDEX
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RiverSource Small Cap Advantage Fund Xxxxxxx 2000 Index
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RiverSource VP Small Cap Advantage Fund Xxxxxxx 2000 Index
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The Performance Adjustment is determined by first measuring the percentage
difference over a rolling 12-month period between the performance of the
Allocated Portion of each Fund (net of expenses equal to the expense ratio
reflected in the performance of Class A shares of the entire Small Cap Advantage
Fund, before any Fund-level performance incentive adjustment, or net of VP fund
expenses equal to the expense ratio for the VP Small Cap Advantage Fund, before
any Fund-level performance incentive adjustment) and the performance of the
Index applicable to that Fund ("Performance Difference"). The Performance
Difference will then be used in the calculation with the adjustment rate in
accordance with the table set forth below ("Adjustment Rate"). The Adjustment
Rate, computed to five decimal places, is determined in accordance with table
below, and is applied against average daily net assets for the applicable
rolling 12-month period to provide the Performance Adjustment.
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PERFORMANCE DIFFERENCE ADJUSTMENT RATE (CALCULATION)
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0.00%-4.00% 3 basis points times the performance difference,
times 100
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4.00% or more 12 basis points
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For example, if the Performance Difference is 2.38% for the applicable period,
the adjustment rate calculation equals 0.000714 (0.0003 [3 basis points] x 2.38%
x 100)). Rounded to five decimal places, the Adjustment Rate is 0.00071, which
is then applied against average daily net assets of the Allocated Portion for
the applicable period to determine an annualized Performance Adjustment. The
actual Performance Adjustment will then be pro-rated to the number of days in
the month for which the fee is calculated.
Where the performance of the Allocated Portion of a Fund (less expenses) exceeds
that of the Index, the fee paid to Kenwood will increase by an amount equal to
the Performance Adjustment. Where the performance of the Index exceeds the
performance of the Allocated Portion of a Fund (less expenses), the fee paid to
Kenwood will decrease by the Performance Adjustment.
The 12-month comparison period rolls over with each succeeding month, so that it
always equals 12 months, ending with the month for which the performance is
being computed.
Change in Index
If the Index ceases to be published for a period of more than 90 days, changes
in any material respect, otherwise becomes impracticable or, at the discretion
of the Boards of Directors ("Board") in consultation with RiverSource
Investments, LLC, is no longer appropriate to use for purposes of a Performance
Adjustment, the Board may take action it deems appropriate and in the best
interests of shareholders, including: (1) discontinuance of the Performance
Adjustment until such time as it approves a substitute index, or (2) adoption of
a methodology to transition to a substitute index it has approved.
3. TRANSITION RULES: The Performance Adjustment will not be fully operational
until February 28, 2007. Until that date, the following transition rules will
apply:
(I) MARCH 1, 2006 THROUGH AUGUST 31, 2006. Kenwood will earn the Base
Fee with no Performance Adjustment during this transition period.
(II) SEPTEMBER 1, 2006 THROUGH FEBRUARY 28, 2007. Beginning September
1, 2006, the Performance Adjustment will take effect with respect
to the number of months elapsed between March 2006, and the end of
the month for which Kenwood's fee is being computed. During the
period, the Performance Adjustment will be calculated using the
performance of the Allocated Portion of the Fund (less fund
expenses as described in section 2) measured against the
performance of the Index from March 2006 through the end of the
applicable month in the manner set forth in Section 2 of this
Exhibit A, and will be applied against average daily net assets of
the Allocated Portion for the applicable rolling transition period
to determine an annualized Performance Adjustment. The actual
Performance Adjustment will then be pro-rated to the number of
days in the month for which the fee is calculated.
(III) ON AND AFTER FEBRUARY 28, 2007. The Performance Adjustment will be
fully operational at this time and be calculated in the manner set
forth in Section 2 of this Exhibit A.
