Exhibit 5(e)
FORM OF SUB-MANAGEMENT AGREEMENT
VARIABLE ANNUITY PORTFOLIOS
SUB-MANAGEMENT AGREEMENT, dated as of ________ __, 1996, by and between
Citibank, N.A., a national banking association (the "Manager"), and Franklin
Advisory Services, Inc., a Delaware corporation (the "Subadviser").
W I T N E S S E T H:
WHEREAS, the Manager has been retained by Variable Annuity Portfolios, a
Massachusetts business trust (the "Trust"), to act as investment adviser to the
Trust with respect to the series of the Trust designated as CitiSelectSM VIP
Folio 200, CitiSelectSM VIP Folio 300, CitiSelectSM VIP Folio 400 and
CitiSelectSM VIP Folio 500 (each individually a "Fund" and collectively the
"Funds"), and
WHEREAS, the Trust engages in business as an open-end management investment
company and is registered as such under the Investment Company Act of 1940, as
amended (collectively with the rules and regulations promulgated thereunder, the
"1940 Act"), and
WHEREAS, the Manager wishes to engage the Subadviser to provide certain
investment advisory services for the Funds, and the Subadviser is willing to
provide such investment advisory services for the Funds on the terms and
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and agreements of
the parties hereto as herein set forth, the parties covenant and agree as
follows:
1. Appointment of the Subadviser. In accordance with and subject to the
Management Agreement between the Trust and the Manager (the "Management
Agreement"), the Manager hereby appoints the Subadviser to act as subadviser
with respect to each of the Funds for the period and on the terms set forth in
this Agreement. The Subadviser accepts such appointment and agrees to manage the
Fund assets as are allocated to it by the Manager for the compensation provided
by this Agreement.
2. Duties of the Subadviser. The Subadviser shall manage the Fund assets as
are allocated to it by the Manager. Notwithstanding any provision of this
Agreement, the Manager shall retain all rights and ultimate responsibilities to
supervise and, in its discretion, conduct investment advisory activities
relating to the Trust. The Subadviser shall determine from time to time what
securities shall be purchased, sold or exchanged and what portion of the assets
of a Fund allocated by the Manager to the Subadviser shall be held uninvested,
subject always to the restrictions of the Trust's Declaration of Trust, dated
October 18, 1996, and By-laws, as each may be amended from time to time
(respectively, the "Declaration" and the "By-Laws"), the provisions of the 1940
Act, the then-current Registration Statement of the Trust with respect to that
Fund, and subject, further, to the Subadviser notifying the Manager in advance
of the Subadviser's intention to purchase any securities except insofar as the
requirement for such notification may be waived or limited by the Manager, it
being understood that the Subadviser shall be responsible for compliance with
any restrictions imposed in writing by the Manager from time to time in order to
facilitate compliance with the above-mentioned restrictions and such other
restrictions as the Manager may determine. Further, the Manager or the Trustees
of the Trust may at any time, upon written notice to the Subadviser, suspend or
restrict the right of the Subadviser to determine what securities shall be
purchased or sold on behalf of a Fund and what portion, if any, of the assets of
a Fund allocated by the Manager to the Subadviser shall be held uninvested. The
Subadviser shall also, as requested, make recommendations to the Manager as to
the manner in which proxies, voting rights, rights to consent to corporate
action and any other rights pertaining to a Fund's portfolio securities shall be
exercised. However, in no event shall the Subadviser have the power to exercise
proxies or voting rights or be responsible for record-keeping relating to such
items. Should the Board of Trustees of the Trust or the Manager at any time,
however, make any definite determination as to investment policy applicable to a
Fund and notify the Subadviser thereof in writing, the Subadviser shall be bound
by such determination for the period, if any, specified in such notice or until
similarly notified that such determination has been revoked.
The Subadviser shall take, on behalf of each Fund, all actions which it
deems necessary to implement the investment policies determined as provided
above, and in particular to place all orders for the purchase or sale of
securities for each Fund's account with the brokers or dealers selected by it,
and to that end the Subadviser is authorized as the agent of the Trust to give
instructions to the custodian and any subcustodian of a Fund as to deliveries of
securities and payments of cash for the account of that Fund. The Subadviser
will advise the Manager on the same day it gives any such instructions. In
connection with the selection of such brokers or dealers and the placing of such
orders, 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 a Fund and/or the other accounts over which the
Subadviser or its affiliates exercise investment discretion. The Subadviser 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 Subadviser determines in good
faith that such amount of commission is reasonable in relation to the value of
the brokerage and research services provided by such broker or dealer. This
determination may be viewed in terms of either that particular transaction or
the overall responsibilities which the Subadviser and its affiliates have with
respect to accounts over which they exercise investment discretion. The Trustees
of the Trust shall periodically review the commissions paid by each Fund to
determine if the commissions paid over representative periods of time were
reasonable in relation to the benefits to the Fund. In making purchases or sales
of securities or other property for the account of a Fund, the Subadviser may
deal with affiliated brokers and/or dealers as defined by the 1940 Act and to
the extent such actions are permitted by the 1940 Act. The Board of Trustees of
the Trust, in its discretion, may instruct the Subadviser to effect all or a
portion of its securities transactions with one or more brokers and/or dealers
selected by the Board of Trustees, if it determines that the use of such brokers
and/or dealers is in the best interest of the Trust. The Subadviser shall not be
responsible for and shall be held harmless with respect to any execution costs
incurred by the Trust relating to securities transactions conducted with brokers
and/or dealers in accordance with instructions given to the Subadviser by the
Trust's Board of Trustees. In addition, the Board of Trustees acknowledges that
to the extent the Subadviser is directed to use a particular broker and/or
dealer, it may not be able to obtain best execution on all trades executed
through that broker and/or dealer.
3. Allocation of Charges and Expenses. The Subadviser shall furnish at its
own expense all necessary services, facilities and personnel in connection with
its responsibilities under Section 2 above. Except as provided in the foregoing
sentence, it is understood that the Trust will pay from the assets of each Fund
all of its own expenses allocable to that Fund including, without limitation,
organization costs of the Fund; compensation of Trustees who are not "interested
persons" of the Trust; governmental fees; interest charges; loan commitment
fees; taxes; membership dues in industry associations allocable to the Trust;
fees and expenses of independent auditors, legal counsel and any transfer agent,
distributor, registrar or dividend disbursing agent of the Trust; expenses of
issuing and redeeming shares of beneficial interests and servicing shareholder
accounts; expenses of preparing, typesetting, printing and mailing shareholder
reports, notices, proxy statements and reports to governmental officers and
commissions and to shareholders in the Fund; expenses connected with the
execution, recording and settlement of security transactions; insurance
premiums; fees and expenses of the custodian for all services to the Fund,
including safekeeping of funds and securities and maintaining required books and
accounts; expenses of calculating the net asset value of the Fund (including but
not limited to the fees of independent pricing services); expenses of meetings
of the Fund's shareholders; expenses relating to the issuance of shares of
beneficial interests in the Fund; and such non-recurring or extraordinary
expenses as may arise, including those relating to actions, suits or proceedings
to which the Trust on behalf of the Fund may be a party and the legal obligation
which the Trust may have to indemnify its Trustees and officers with respect
thereto.
4. Compensation of the Subadviser. For the services to be rendered by the
Subadviser hereunder, the Manager shall pay to the Subadviser an investment
subadvisory fee, accrued daily and paid monthly, at an annual rate equal to the
percentages specified below of the aggregate assets of all Funds allocated to
the Subadviser:
0.55% on the first $250 million; and
0.50% on remaining assets.
If the Subadviser serves as investment subadviser for less than the whole of any
period specified in this Section 4, the compensation to the Subadviser shall be
prorated. Neither the Trust nor the Funds shall be liable to the Subadviser for
the compensation of the Subadviser.
5. Covenants of the Subadviser. The Subadviser agrees that it will not deal
with itself, or with the Trustees of the Trust or the Trust's principal
underwriter or distributor, as principals in making purchases or sales of
securities or other property for the account of a Fund, except as permitted by
the 1940 Act, will not take a long or short position in shares of beneficial
interests of a Fund except as permitted by the Declaration, and will comply with
all other provisions of the Declaration and By-Laws and the then-current
Registration Statement applicable to each Fund relative to the Subadviser and
its directors and officers.
6. Limitation of Liability of the Subadviser. The Subadviser shall not
be liable for any error of judgment or mistake of law or for any loss arising
out of any investment or for any act or omission in the execution of securities
transactions for a Fund, except for willful misfeasance, bad faith or gross
negligence in the performance of its duties, or by reason of reckless disregard
of its obligations and duties hereunder. As used in this Section 6, the term
"Subadviser" shall include directors, officers and employees of the Subadviser
as well as the Subadviser itself. The Trust, on behalf of the Funds, is
expressly made a third party beneficiary of this Agreement, and may enforce any
obligations of the Subadviser under this Agreement and recover directly from the
Subadviser for any liability the Subadviser may have hereunder.
7. Indemnification. The Trust and the Manager agree to indemnify and hold
harmless the Subadviser against any and all losses, claims, damages, liabilities
or expenses (including reasonable counsel fees) arising out of or based upon any
untrue statement or alleged untrue statement of any material fact contained in
the registration statement, prospectus or statement of additional information
for the Trust or contained in the sales literature or other promotional material
for the Trust (or any statement or supplement to any of the foregoing), or arise
out of or are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading provided that this agreement to indemnify shall not apply
as to the Subadviser if such statement or omission or such alleged statement or
omission was made in reasonable reliance upon and in conformity with information
furnished to the Trust or the Manager by or on behalf of the Subadviser for use
in the registration statement, prospectus or statement of additional information
for the Funds or sales literature or other promotional material (or any
amendment or supplement) or otherwise for use in connection with the sale of
shares of the Trust.
The Subadviser agrees to indemnify and hold harmless the Trust and the
Manager against any and all losses, claims, damages, liabilities or expenses
(including reasonable counsel fees) arising out of or based upon any untrue
statement or alleged untrue statement of any material fact contained in the
registration statement, prospectus or statement of additional information for
the Trust or contained in the sales literature or other promotional material for
the Trust (or any statement or supplement to any of the foregoing), or arise out
of or are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, provided that this agreement to indemnify shall apply as
to the Trust and/or the Manager only if such statement or omission or such
alleged statement or omission was made in reasonable reliance upon and in
conformity with information furnished to the Trust or the Manager by or on
behalf of the Subadviser for use in the registration statement, prospectus or
statement of additional information for the Funds or sales literature or other
promotional material (or any amendment or supplement) or otherwise for use in
connection with the sale of shares of the Trust.
8. Activities of the Subadviser. The services of the Subadviser to the
Funds are not to be deemed to be exclusive, the Subadviser being free to render
investment advisory and/or other services to others, including accounts or
investment management companies with similar or identical investment objectives
to the Funds. It is understood that Trustees, officers, and shareholders of the
Trust or the Manager are or may be or may become interested in the Subadviser,
as directors, officers, employees, or otherwise and that directors, officers,
and employees of the Subadviser are or may become similarly interested in the
Trust or the Manager and that the Subadviser may be or may become interested in
the Trust as a shareholder or otherwise.
9. Duration, Termination and Amendments of this Agreement. This Agreement
shall become effective as of the day and year first above written, and shall
govern the relations between the parties hereto thereafter and shall remain in
force until _________ __, 1998, on which date it will terminate unless its
continuance after _________ __, 1998 is "specifically approved at least
annually" (a) by the vote of a majority of the Trustees of the Trust who are not
"interested persons" of the Trust or of the Manager or of the Subadviser at a
meeting specifically called for the purpose of voting on such approval, and (b)
by the Board of Trustees of the Trust or by "vote of a majority of the
outstanding voting securities" of each Fund.
This Agreement may be terminated as to any Fund at any time without the
payment of any penalty by (i) the Trustees, (ii) the "vote of a majority of the
outstanding voting securities" of that Fund, or (iii) the Manager, in each case
on not more than 60 days' nor less than 30 days' written notice to the other
party. This Agreement may be terminated as to any Fund at any time without the
payment of any penalty by the Subadviser on not less than 90 days' written
notice to the Manager. This Agreement shall automatically terminate in the event
of its "assignment." Termination of this Agreement as to any Fund shall not
terminate this Agreement as it applies to the remaining Funds.
This Agreement constitutes the entire agreement between the parties and may
be amended as to any Fund only if such amendment is approved by the Subadviser
and the "vote of a majority of the outstanding voting securities" of that Fund
(except for any such amendment as may be effected in the absence of such
approval without violating the 1940 Act). Amendment of any term of this
Agreement with respect to any single Fund shall not, without more, amend such
term with respect to any other Fund.
The terms "specifically approved at least annually," "vote of a majority of
the outstanding voting securities," "assignment," "affiliated person," and
"interested persons," when used in this Agreement, shall have the respective
meanings specified in, and shall be construed in a manner consistent with, the
1940 Act, subject, however, to such exemptions as may be granted by the
Securities and Exchange Commission under said Act.
10. Governing Law. This Agreement shall be construed and the provisions
thereof interpreted under and in accordance with the laws of The Commonwealth of
Massachusetts provided, however, that nothing herein will be construed in a
manner inconsistent with the 1940 Act, the Investment Advisers Act of 1940 or
any rules or regulations of the Securities and Exchange Commission thereunder.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered in their names and on their behalf by the undersigned,
thereunto duly authorized, all as of the day and year first above written.
CITIBANK, X.X. XXXXXXXX ADVISORY
SERVICES, INC.
By:______________________ By:______________________
Title:___________________ Title:___________________
The foregoing is acknowledged:
The undersigned officer of the Trust has executed this Agreement not
individually but in his capacity as an officer of the Trust under the
Declaration. The Trust does not hereby undertake, on behalf of the Funds or
otherwise, any obligation to the Subadviser.
VARIABLE ANNUITY PORTFOLIOS
on behalf of CitiSelectSM VIP Folio 200,
CitiSelectSM VIP Folio 300,
CitiSelectSM VIP Folio 400 and
CitiSelectSM VIP Folio 500
By:_____________________________________
Title:__________________________________
