Exhibit 5(c)
SUB-MANAGEMENT AGREEMENT
VARIABLE ANNUITY PORTFOLIOS
SUB-MANAGEMENT AGREEMENT, dated as of November 8, 1996, by and between
Variable Annuity Portfolios, a Massachusetts business trust (the "Trust"), and
Hotchkis & Wiley, a division of the Capital Management Group of Xxxxxxx Xxxxx
Asset Management, L.P. (the "Subadviser").
W I T N E S S E T H:
WHEREAS, Citibank, N.A. (the "Manager") has been retained by 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 has requested that the Trust 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 Trust 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 provide an
investment program with respect to the Funds for the compensation provided by
this Agreement.
2. Duties of the Subadviser. The Subadviser shall provide the Funds and
the Manager with such investment advice and supervision as the Manager may from
time to time consider necessary for the proper supervision of such portion of
each Fund's investment assets as the Manager may designate from time to time.
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 furnish continuously an investment program and 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 25, 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. 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 itself or with the Trustees of the Trust or the Trust's underwriter or
distributor, 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.
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 Trust shall pay to the Subadviser from the assets
of the Funds pro rata 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:
0.60% on the first $10 million;
0.55% on the next $40 million;
0.45% on the next $100 million;
0.35% on the next $150 million; and
0.30% 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.
If in any fiscal year the aggregate expenses of a Fund and any fund
investing its assets therein (including fees pursuant to the Management
Agreement, but excluding interest, taxes, brokerage and, with the prior written
consent of the necessary state securities commissions, extraordinary expenses)
exceed the expense limitation of any state having jurisdiction over that Fund
and any fund investing its assets therein, the Trust may deduct from the fees to
be paid hereunder, or the Subadviser will bear such excess expense on a pro-rata
basis with the Manager, in the proportion that the subadvisory fee payable
pursuant to this Agreement bears to the fee payable to the Manager pursuant to
the Management Agreement, to the extent required by state law. The Subadviser's
obligation pursuant hereto will be limited to the amount of its fees hereunder.
Such deduction or payment, if any, will be estimated daily, and reconciled and
effected or paid, as the case may be, on a monthly basis.
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 Manager 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. 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.
8. 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 November 8, 1998, on which date it will terminate unless
its continuance after November 8, 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 Trust and 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.
Each party acknowledges and agrees that all obligations of the Trust
under this Agreement are binding only with respect to the particular Fund to
which a particular obligation relates; that any liability of the Trust under
this Agreement, or in connection with the transactions contemplated herein,
shall be discharged only out of the assets of the particular Fund to which a
particular obligation relates; and that no other Fund or other series of the
Trust shall be liable with respect to this Agreement or in connection with the
transactions contemplated herein.
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, and the obligations of this Agreement are not binding upon any of
the Trustees, officers or shareholders of the Trust individually.
9. 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.
VARIABLE ANNUITY PORTFOLIOS HOTCHKIS & WILEY
on behalf of CitiSelectSM VIP Folio 200, a division of the Capital
CitiSelectSM VIP Folio 300, Management Group of Merrill
CitiSelectSM VIP Folio 400 and Xxxxx Asset Management, L.P.
CitiSelectSM VIP Folio 500
By: Xxxxxx Xxxxxxxx By: Xxxxx X. Xxxxx
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Title: President Title: CFO
The foregoing is acknowledged:
Citibank, N.A.
By: Xxxxxxxx Xxxxxxxx
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Title: CIO
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