INVESTMENT ADVISORY AGREEMENT
between
THE VICTORY INSTITUTIONAL FUNDS
and
VICTORY CAPITAL MANAGEMENT INC.
AGREEMENT made as of the 2nd day of August, 2004, by and between The
Victory Institutional Funds, a Delaware business trust which may issue one or
more series of shares of beneficial interest (the "Trust"), and Victory Capital
Management Inc., a New York corporation (the "Adviser").
WHEREAS, the Trust is registered as an open-end, management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act");
and
WHEREAS, the Trust 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. Appointment.
(a) General. The Trust 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 Trust 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
Trust for the acts and omissions of the Sub-Adviser as it is for its
own acts and omissions; and provided further that the retention of
any Sub-Adviser shall be approved in advance by (i) the Board of
Trustees of the Trust and (ii) the shareholders of the relevant Fund
if required under any applicable provisions of the 1940 Act. The
Adviser will
review, monitor and report to the Trust'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 and
without further shareholder approval, to the extent consistent with
the 1940 Act. A Sub-Adviser may be an affiliate of the Adviser.
2. Delivery of Documents. The Trust 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 Trust's Trust Instrument;
(b) the By-Laws of the Trust;
(c) resolutions of the Board of Trustees of the Trust authorizing the
execution and delivery of this Agreement;
(d) the 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 Trust under the 1940 Act on Form
N-8A as filed with the Commission; and
(f) the currently effective Prospectuses and Statements of Additional
Information of the Funds.
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 Trust 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;
2
(iv) furnish a continuous investment program for each Fund;
(v) in its discretion and without prior consultation with the
Trust, 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
Trust's Board of Trustees.
(b) 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 Trust'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 Trust 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 Trust's Board of Trustees. The management of the Funds by the
Adviser shall at all times be subject to the review of the Trust's
Board of Trustees.
(c) 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.
(d) Reports, Evaluations and other Services. The Adviser shall furnish
reports, evaluations, information or analyses to the Trust with
respect to the Funds and in connection with the Adviser's services
hereunder as the Trust'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 Trust's Board of Trustees
with respect to Trust 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.
(e) 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
3
selected by the Adviser, which may include brokers or dealers
affiliated with the Adviser to the extent permitted by the 1940 Act
and the Trust'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 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.
(f) 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, the Funds and/or the other accounts
over which the Adviser exercises investment discretion. When it is
appropriate to execute a transaction on an agency basis, 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 a 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
payment of a commission is appropriate in light of the security
being purchased or sold, and 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
Trust regarding overall commissions paid by the Funds and their
reasonableness in relation to the benefits to the Funds.
(g) 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 Trust's registration statement and the Fund's
Prospectus and Statement of Additional Information. In such event,
the 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
4. Representations and Warranties.
(a) The Adviser hereby represents and warrants to the Trust 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 Trust in carrying out the Adviser's obligations
hereunder.
(b) The Trust hereby represents and warrants to the Adviser as follows:
(i) The Trust 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 Trust 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 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 Trust's inability to qualify as a regulated investment company under
the provisions of Subchapter M of the Code.
5
6. Interested Persons. It is understood that, to the extent consistent
with applicable laws, the Trustees, officers and shareholders of the Trust 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 Trust.
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 Trust's Trustees that 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 Trust's Board of
Trustees; (xii) association membership dues authorized by the Trust'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 Trust is
a party (or to which the Funds' assets are subject) and any legal obligation for
which the Trust may have to provide indemnification to the Trust'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 Trust
for providing additional services to the Funds and the Trust which are not
covered by this Agreement, and to receive additional compensation for such
services. 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 Trust, 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 Trust, 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 August 2, 2004, 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, or such later date as may be agreed by the
parties following such shareholder approval.
6
(a) This Agreement shall continue in force until December 31, 2005.
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 Trust 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 Trust 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
Trust 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 Trust may be effected severally
as to any particular Fund, and shall be effected as to any Fund by
vote of the Trust'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 Institutional Funds" 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 Institutional Funds" entered 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 Trust personally, but bind only
the assets of the Trust, and all persons dealing with the Trust or a Fund must
look solely to the assets of the Trust or Fund for the enforcement of any claims
against the Trust or Fund.
11. Service ▇▇▇▇. The service ▇▇▇▇ of the Trust and the name "Victory"
(and derivatives thereof) have been licensed to the Trust by KeyCorp, an
affiliate of the Adviser, pursuant to a License Agreement, and their continued
use is subject to the right of KeyCorp 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 Trust.
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.
7
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 Trust 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 Trust 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 Trust 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 Trust and the particular Fund to which such relationship and
consideration applies.
This Agreement is intended to govern only the relationships between the
Adviser, on the one hand, and the Trust 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 Trust 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 Trust hereunder by the
Adviser shall be in writing and shall be duly given if mailed or delivered to
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇-▇▇▇▇, Attention: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇; with a
copy to Kramer, Levin, Naftalis & ▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇,
▇▇▇▇▇, Attention: ▇▇▇ ▇. ▇▇▇▇▇, Esq., or at such other address or to such
individual as shall be so specified by the Trust to the Adviser. Notices of any
kind to be given to the Adviser hereunder by the Trust shall be in writing and
shall be duly given if mailed or delivered to the Adviser at ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇-▇▇▇▇, Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ with a copy to ▇▇▇▇▇▇▇
▇. ▇▇▇▇▇, Esq., or at such other address or to such individual as shall be so
specified by the Adviser to the Trust. Notices shall be effective upon delivery.
8
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 INSTITUTIONAL FUNDS VICTORY CAPITAL MANAGEMENT INC.
By: /s/ ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ By: /s/ ▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇
--------------------------------- --------------------------------
Name: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ Name: ▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇
Title: Senior Managing Director Title: Secretary
9
SCHEDULE A
Fee, at an annual rate,
expressed as a percentage of average Must Be
Name of Fund daily net assets.* Last Approved Approved By
------------ ------------------ ------------- -----------------
Institutional Liquid Reserves Fund 0.12% December 31, 2004
Approved: May 18, 2004
THE VICTORY INSTITUTIONAL FUNDS
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇
--------------------------------------------
▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇
Secretary
Accepted:
VICTORY CAPITAL MANAGEMENT INC.
By: /s/ ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
--------------------------------------------
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Senior Managing Director
--------
* 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.
10