Exhibit 5(b)
FORM OF SUB-MANAGEMENT AGREEMENT
ASSET ALLOCATION PORTFOLIOS
SUB-MANAGEMENT AGREEMENT, dated as of February __, 1996, by and between
Citibank, N.A., a national banking association (the "Adviser"), and Franklin
Advisers, Inc., a California corporation (the "Subadviser").
W I T N E S S E T H:
WHEREAS, the Adviser has been retained by Asset Allocation Portfolios, a
New York trust (the "Trust"), to act as investment adviser to the Trust with
respect to the series of the Trust designated as Asset Allocation Portfolio
200, Asset Allocation Portfolio 300, Asset Allocation Portfolio 400 and Asset
Allocation Portfolio 500 (each individually a "Portfolio" and collectively the
"Portfolios"), 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 Adviser wishes to engage the Subadviser to provide certain
investment advisory services for the Portfolios, and the Subadviser is willing
to provide such investment advisory services for the Portfolios 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 Adviser (the "Management
Agreement"), the Adviser hereby appoints the Subadviser to act as subadviser
with respect to each of the Portfolios 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 Portfolios for the
compensation provided by this Agreement.
2. Duties of the Subadviser. The Subadviser shall provide the Adviser with
such investment advice and supervision as the Adviser may from time to time
consider necessary for the proper supervision of such portion of each
Portfolio's investment assets as the Adviser may designate from time to time.
Notwithstanding any provision of this Agreement, the Adviser 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 Portfolio allocated by the Adviser to the Subadviser shall
be held uninvested, subject always to the restrictions of the Trust's
Declaration of Trust, dated December 14, 1995, 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 Portfolio, and subject, further, to the Subadviser
notifying the Adviser 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 Adviser, it being understood that the Subadviser shall
be responsible for compliance with any restrictions imposed in writing by the
Adviser from time to time in order to facilitate compliance with the
above-mentioned restrictions and such other restrictions as the Adviser may
determine. Further, the Adviser 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 Portfolio and what portion, if any, of the assets of a Portfolio allocated by
the Adviser to the Subadviser shall be held uninvested. The Subadviser shall
also, as requested, make recommendations to the Adviser as to the manner in
which proxies, voting rights, rights to consent to corporate action and any
other rights pertaining to a Portfolio's portfolio securities shall be
exercised. Should the Board of Trustees of the Trust or the Adviser at any
time, however, make any definite determination as to investment policy
applicable to a Portfolio 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 Portfolio, 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 Portfolio'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 Portfolio as to
deliveries of securities and payments of cash for the account of that
Portfolio. The Subadviser will advise the Adviser 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 Portfolio 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 Portfolio 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 Portfolio to determine if the commissions
paid over representative periods of time were reasonable in relation to the
benefits to the Portfolio. In making purchases or sales of securities or other
property for the account of a Portfolio, 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
Portfolio all of its own expenses allocable to that Portfolio including,
without limitation, organization costs of the Portfolio; 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 beneficial
interests and servicing investor accounts; expenses of preparing, typesetting,
printing and mailing investor reports, notices, proxy statements and reports to
governmental officers and commissions and to investors in the Portfolio;
expenses connected with the execution, recording and settlement of security
transactions; insurance premiums; fees and expenses of the custodian for all
services to the Portfolio, including safekeeping of Portfolios and securities
and maintaining required books and accounts; expenses of calculating the net
asset value of the Portfolio (including but not limited to the fees of
independent pricing services); expenses of meetings of the Portfolio's
investors; expenses relating to the issuance of beneficial interests in the
Portfolio; 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 Portfolio 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 Adviser shall pay to the Subadviser out of the
management fee it receives from the Trust, and only to the extent thereof, 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
Portfolios allocated to the Subadviser:
0.58% 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 Portfolios shall be liable to the
Subadviser for the compensation of the Subadviser.
If in any fiscal year the aggregate expenses of a Portfolio 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
Portfolio and any fund investing its assets therein, the Adviser may deduct
from the fees to be paid hereunder, or the Subadviser will bear such excess
expense on a pro-rata basis with the Adviser, in the proportion that the
subadvisory fee payable pursuant to this Agreement bears to the fee payable to
the Adviser 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 Portfolio, except as
permitted by the 1940 Act, will not take a long or short position in beneficial
interests of a Portfolio 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 Portfolio 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 Portfolio, 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
Portfolios, 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
Portfolios 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 Portfolios. It is understood that Trustees, officers, and
investors of the Trust or the Adviser 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 Adviser and that the Subadviser may be
or may become interested in the Trust as an investor 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 February __, 1998, on which date it will terminate unless its
continuance after February __, 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 Adviser 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 Portfolio.
This Agreement may be terminated as to any Portfolio 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 Portfolio, or (iii) the Adviser, 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 Portfolio at any
time without the payment of any penalty by the Subadviser on not less than 90
days' written notice to the Adviser. This Agreement shall automatically
terminate in the event of its "assignment." Termination of this Agreement as to
any Portfolio shall not terminate this Agreement as it applies to the remaining
Portfolios.
This Agreement constitutes the entire agreement between the parties and
may be amended as to any Portfolio only if such amendment is approved by the
Subadviser and the "vote of a majority of the outstanding voting securities" of
that Portfolio (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 Portfolio shall not, without more, amend
such term with respect to any other Portfolio.
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.
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.
CITIBANK, X.X. XXXXXXXX ADVISERS, 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 Portfolios
or otherwise, any obligation to the Subadviser.
ASSET ALLOCATION PORTFOLIOS
on behalf of Asset Allocation Portfolio 200,
Asset Allocation Portfolio 300,
Asset Allocation Portfolio 400 and
Asset Allocation Portfolio 500
By:
Title:
