INVESTMENT SUBADVISORY AGREEMENT
Between
Aetna Life Insurance and Annuity Company
and
Massachusetts Financial Services Company
INVESTMENT SUBADVISORY AGREEMENT, made as of the ______ day of August, 1997,
between Aetna Life Insurance and Annuity Company (the "Adviser"), an insurance
corporation organized and existing under the laws of the State of Connecticut,
and Massachusetts Financial Services Company ("Subadviser"), a business trust
organized and existing under the laws of the State of Delaware.
WHEREAS, the Adviser has entered into an Investment Advisory Agreement dated as
of the _____ day of ________, 1997 ("Advisory Agreement") with Portfolio
Partners, Inc. ("Company"), which is engaged in business as an open-end
management investment company registered under the Investment Company Act of
1940 ("1940 Act"); and
WHEREAS, the Company is and will continue to be a series fund having two or more
investment portfolios, each with its own assets, investment objectives, policies
and restrictions; and
WHEREAS, the Company shareholders are and will be separate accounts maintained
by insurance companies for variable life insurance policies and variable annuity
contracts (the "Policies") under which income, gains, and losses, whether or not
realized, from assets allocated to such accounts are, in accordance with the
Policies, credited to or charged against such accounts without regard to other
income, gains, or losses of such insurance companies; and
WHEREAS, the Subadviser is engaged principally in the business of rendering
investment advisory services and is registered as an investment adviser under
the Investment Advisers Act of 1940 ("Advisers Act"); and
WHEREAS, the Board of Directors and the Adviser desire to retain the Subadviser
as subadviser for MFS Emerging Equities Portfolio, MFS Research Growth Portfolio
and MFS Value Equity Portfolio, portfolios of the Company (collectively, the
"Portfolios"), to furnish certain investment advisory services to the Adviser
and the Company and the Subadviser is willing to furnish such services;
NOW, THEREFORE, in consideration of the premises and mutual promises herein set
forth, the parties hereto agree as follows:
1. Appointment. Adviser hereby appoints the Subadviser as its investment
Subadviser with respect to the Portfolios for the period and on the terms set
forth in this Agreement. The Subadviser accepts such appointment and agrees to
render the services herein set forth, for the compensation herein provided.
2. Duties of the Subadviser
A. Investment Subadvisory Services. Subject to the supervision of the
Company's Board of Directors ("Board") and the Adviser, the Subadviser shall
act as the investment Subadviser and shall supervise and direct the
investments of each Portfolio in accordance with its investment objective,
policies, and restrictions as provided in the Company's Prospectus and
Statement of Additional Information, as currently in effect and as amended or
supplemented from time to time (hereinafter referred to as the "Prospectus"),
and such other limitations as the Company may impose by notice in writing to
the Subadviser. The Subadviser shall obtain and evaluate such information
relating to the economy, industries, businesses, securities markets, and
individual securities as it may deem necessary or useful in the discharge of
its obligations hereunder and shall formulate and implement a continuing
program for the management of the assets and resources of each Portfolio in a
manner consistent with each Portfolio's investment objective, policies, and
restrictions, and in compliance with the requirements applicable to
registered investment companies under applicable laws and those requirements
applicable to both regulated investment companies and segregated asset
accounts under Subchapters M and L of the Internal Revenue Code of 1986, as
amended ("Code"). To implement its duties, the Subadviser is hereby
authorized to:
(i) buy, sell, exchange, convert, lend, and otherwise trade in any
stocks, bonds, and other securities or assets on behalf of each
Portfolio; and
(ii) place orders and negotiate the commissions (if any) for the
execution of transactions in securities or other assets with or
through such brokers, dealers, underwriters or issuers as the
Subadviser may select.
B. Subadviser Undertakings. In all matters relating to the performance of
this Agreement, the Subadviser shall act in conformity with the Company's
Articles of Incorporation, By-Laws, and current Prospectus and with the
written instructions and directions of the Board and the Adviser. The
Subadviser hereby agrees to:
(i) regularly (but no less frequently than quarterly) report to the
Board and the Adviser (in such form as the Adviser and Subadviser
mutually agree) with respect to the implementation of the investment
program and, in addition, provide such statistical information and
special reports concerning the Portfolios and/or important
developments materially affecting the investments held, or
contemplated to be purchased, by the Portfolios, as may reasonably
be requested by the Board or the Adviser and agreed to by the
Subadviser, including attendance at Board
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meetings, as reasonably requested, to present such information and
reports to the Board;
(ii) consult with the Company's pricing agent regarding the valuation of
securities that are not registered for public sale, not traded on
any securities markets, or otherwise may be deemed illiquid for
purposes of the 1940 Act and for which market quotations are not
readily available;
(iii) provide any and all information, records and supporting
documentation about accounts the Subadviser manages that have
investment objectives, policies, and strategies substantially
similar to those employed by the Subadviser in managing the
Portfolios which may be reasonably necessary, under applicable laws,
to allow the Company or its agent to present historical performance
information concerning the Subadviser's similarly managed accounts,
for inclusion in the Company's Prospectus and any other reports and
materials prepared by the Company or its agent, in accordance with
regulatory requirements;
(iv) establish appropriate personal contacts with the Adviser and the
Company's Administrator in order to provide the Adviser and
Administrator with information as reasonably requested by the
Adviser or Administrator; and
(v) execute account documentation, agreements, contracts and other
documents as the Adviser shall be requested by brokers, dealers,
counterparties and other persons to execute in connection with its
management of the assets of the Portfolios, provided that the
Subadviser receives the express agreement and consent of the Adviser
and/or the Board to execute such documentation, agreements,
contracts and other documents. In such respect, and only for this
limited purpose, the Subadviser shall act as the Adviser and/or the
Portfolios' agent and attorney-in-fact.
C. The Subadviser, at its expense, will furnish: (i) all necessary investment
and management facilities and investment personnel, including salaries,
expenses and fees of any personnel required for it to faithfully perform its
duties under this Agreement; and (ii) administrative facilities, including
bookkeeping, clerical personnel and equipment required for it to faithfully
and fully perform its duties and obligations under this Agreement.
D. The Subadviser will select brokers and dealers to effect all Portfolio
transactions subject to the conditions set forth herein. The Subadviser will
place all necessary orders with brokers, dealers, or issuers, and will
negotiate brokerage commissions if applicable. The Subadviser is directed at
all times to seek to execute brokerage transactions for the Portfolios in
accordance with such policies or practices as may be established by the Board
and the Adviser and described in the current Prospectus as amended from time
to time. In placing orders for the purchase or sale of investments for the
Portfolios, in the name of the Portfolios or their nominees, the Subadviser
shall use its best efforts to obtain for the Portfolios the most favorable
price and best execution available, considering all of the
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circumstances, and shall maintain records adequate to demonstrate compliance
with this requirement.
Subject to the appropriate policies and procedures approved by the Adviser
and the Board, the Subadviser may, to the extent authorized by Section 28(e)
of the Securities Exchange Act of 1934, cause the Portfolio to pay a broker
or dealer that provides brokerage or research services to the Subadviser, an
amount of commission for effecting a portfolio transaction 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 relationship to the value of such
brokerage or research services provided viewed in terms of that particular
transaction or the Subadviser's overall responsibilities to the Portfolio or
its other advisory clients. To the extent authorized by said Section 28(e)
and the Adviser and the Board, the Subadviser shall not be deemed to have
acted unlawfully or to have breached any duty created by this Agreement or
otherwise solely by reason of such action. In addition, subject to seeking
the best execution available, the Subadviser may also consider sales of
shares of the Portfolio as a factor in the selection of brokers and dealers.
E. On occasions when the Subadviser deems the purchase or sale of a security
to be in the best interest of a Portfolio as well as other clients of the
Subadviser, the Subadviser to the extent permitted by applicable laws and
regulations, and subject to the Adviser approval of the Subadviser
procedures, may, but shall be under no obligation to, aggregate the orders
for securities to be purchased or sold to attempt to obtain a more favorable
price or lower brokerage commissions and efficient execution. In such event,
allocation of the securities so purchased or sold, as well as the expenses
incurred in the transaction, will be made by the Subadviser in the manner the
Subadviser considers to be the most equitable and consistent with its
fiduciary obligations to the Portfolios and to its other clients.
F. With respect to the provision of services by the Subadviser hereunder, the
Subadviser will maintain all accounts, books and records with respect to each
Portfolio as are required of an investment adviser of a registered investment
company pursuant to the 1940 Act and the Advisers Act and the rules under
both statutes.
G. The Subadviser and the Adviser acknowledge that the Subadviser is not the
compliance agent for the Portfolios, and does not have access to all of the
Company's books and records necessary to perform certain compliance testing.
However, to the extent that the Subadviser has agreed to perform the services
specified in this Agreement, the Subadviser shall perform compliance testing
with respect to the Portfolios based upon information in its possession and
upon information and written instructions received from the Adviser or the
Administrator and shall not be held in breach of this Agreement so long as it
performs in accordance with such information and instructions. The Adviser or
Administrator shall promptly provide the Subadviser with copies of the
Company's current Prospectus and any written policies or procedures adopted
by the Board applicable to the Portfolios and any amendments or revisions
thereto.
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H. Unless the Adviser gives the Subadviser written instructions to the
contrary, the Subadviser shall use its good faith judgment in a manner which
it reasonably believes best serves the interests of a Portfolio's
shareholders to vote or abstain from voting all proxies solicited by or with
respect to the issuers of securities in which assets of the Portfolio may be
invested. The Adviser shall furnish the Subadviser with any further
documents, materials or information that the Subadviser may reasonably
request to enable it to perform its duties pursuant to this Agreement.
I. Subadviser hereby authorizes Adviser to use Subadviser's name and any
applicable trademarks in the Company's Prospectus, as well as in any
advertisement or sales literature used by the Adviser or its agents to
promote the Company and/or to provide information to shareholders of the
Portfolios.
During the term of this Agreement, the Adviser shall furnish to the
Subadviser at its principal office all prospectuses, proxy statements,
reports to shareholders, sales literature, or other material prepared for
distribution to shareholders of the Company or the public, which refer to the
Subadviser or its clients in any way, prior to the use thereof, and the
Adviser shall not use any such materials if the Subadviser reasonably objects
within three business days (or such other time as may be mutually agreed)
after receipt thereof. The Adviser shall ensure that materials prepared by
employees or agents of the Adviser or its affiliates that refer to the
Subadviser or its clients in any way are consistent with those materials
previously approved by the Subadviser.
3. Compensation of Subadviser. The Adviser will pay the Subadviser, with respect
to each Portfolio, the compensation specified in Appendix A to this Agreement.
Payments shall be made to the Subadviser on the second day of each month;
however, this advisory fee will be calculated based on the daily average value
of the aggregate assets of all Portfolios subject to the Subadviser's management
and accrued on a daily basis. Compensation for any partial period shall be
pro-rated based on the length of the period.
4. Liability of Subadviser. Neither the Subadviser nor any of its directors,
officers, employees or agents shall be liable to the Adviser or the Company for
any loss or expense suffered by the Adviser or the Company resulting from its
acts or omissions as Subadviser to the Portfolios, except for losses or expenses
to the Adviser or the Company resulting from willful misconduct, bad faith, or
gross negligence in the performance of, or from reckless disregard of, the
Subadviser's duties under this Agreement. Neither the Subadviser nor any of its
agents shall be liable to the Adviser or the Company for any loss or expense
suffered as a consequence of any action or inaction of other service providers
to the Company in failing to observe the instructions of the Adviser, provided
such action or inaction of such other service providers to the Company is not a
result of the willful misconduct, bad faith or gross negligence in the
performance of, or from reckless disregard of, the duties of the Subadviser
under this Agreement.
5. Non-Exclusivity. The services of the Subadviser to the Portfolios and the
Company are not to be deemed to be exclusive, and the Subadviser shall be free
to render investment advisory or other services to others (including other
investment companies) and to engage in other activities.
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It is understood and agreed that the directors, officers, and employees of the
Subadviser are not prohibited from engaging in any other business activity or
from rendering services to any other person, or from serving as partners,
officers, directors, trustees, or employees of any other firm or corporation,
including other investment companies.
6. Adviser Oversight and Cooperation with Regulators. The Adviser and Subadviser
shall cooperate with each other in providing records, reports and other
materials to regulatory and administrative bodies having proper jurisdiction
over the Company, the Adviser and the Subadviser, in connection with the
services provided pursuant to this Agreement; provided, however, that this
agreement to cooperate does not apply to the provision of information, reports
and other materials which either the Subadviser or Adviser reasonably believes
the regulatory or administrative body does not have the authority to request or
which is privileged or confidential information of the Subadviser.
7. Records. The records relating to the services provided under this Agreement
required to be established and maintained by an investment adviser under
applicable law or those required by the Adviser or the Board of Directors for
the Subadviser to prepare and provide shall be the property of the Company and
shall be under its control; however, the Company shall permit the Subadviser to
retain such records (either in original or in duplicate form) as it shall
reasonably require. In the event of the termination of this Agreement, such
records shall promptly be returned to the Company by the Subadviser free from
any claim or retention of rights therein; provided however, that the Subadviser
may retain copies thereof. The Subadviser shall keep confidential any nonpublic
information concerning the Adviser or any Subadviser's duties hereunder and
shall disclose such information only if the Company has authorized such
disclosure or if such disclosure is expressly required or requested by
applicable federal or state regulatory authorities.
8. Duration of Agreement. This Agreement shall become effective with respect to
the Portfolios on the later of the date of its execution or the date of the
commencement of operations of the Portfolios. This Agreement will continue in
effect for a period of more than two years from the date of its execution only
so long as such continuance is specifically approved at least annually by the
Board, provided that in such event such continuance shall also be approved by
the vote of a majority of the Directors who are not "interested persons" (as
defined in the 1940 Act) ("Independent Directors") of any party to this
Agreement cast in person at a meeting called for the purpose of voting on such
approval or by a vote of a majority of the outstanding voting securities (as
determined in accordance with the 1940 Act).
9. Representations of Subadviser. The Subadviser represents, warrants, and
agrees as follows:
A. The Subadviser: (i) is registered as an investment adviser under the
Advisers Act and will continue to be so registered for so long as this
Agreement remains in effect; (ii) is not prohibited by the 1940 Act or the
Advisers Act from performing the services contemplated by this Agreement;
(iii) has met, and will continue to meet for so long as this Agreement
remains in effect, any other applicable federal or state requirements, or the
applicable requirements of any regulatory or industry self-regulatory
organization, necessary to be met
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in order to perform the services contemplated by this Agreement; (iv) has the
authority to enter into and perform the services contemplated by this
Agreement; and (v) will immediately notify the Adviser of the occurrence of
any event that would disqualify the Subadviser from serving as an investment
adviser of an investment company pursuant to Section 9(a) of the 1940 Act or
otherwise.
B. The Subadviser has adopted a written code of ethics complying with the
requirements of Rule 17j-1 under the 1940 Act and, if it has not already done
so, will provide the Adviser and the Company with a copy of such code of
ethics, together with evidence of its adoption.
C. The Subadviser has provided the Adviser and the Company with a copy of its
Form ADV as most recently filed with the SEC and will, promptly after filing
any amendment to its Form ADV with the SEC, furnish a copy of such amendment
to the Adviser.
10. Provision of Certain Information by Subadviser. The Subadviser will promptly
notify the Adviser in writing of the occurrence of any of the following events:
A. the Subadviser fails to be registered as an investment adviser under the
Advisers Act or under the laws of any jurisdiction in which the Subadviser is
required to be registered as an investment adviser in order to perform its
obligations under this Agreement;
B. the Subadviser is served or otherwise receives notice of any action, suit,
proceeding, inquiry, or investigation, at law or in equity, before or by any
court, public board, or body, involving the affairs of the Company;
C. a controlling stockholder of the Subadviser or the portfolio manager of a
Portfolio changes or there is otherwise an actual change in control or
management of the Subadviser.
11. Provision of Certain Information by the Adviser. The Adviser will promptly
notify the Subadviser in writing of the occurrence of any of the following
events:
A. the Adviser fails to be registered as an investment adviser under the
Advisers Act or under the laws of any jurisdiction in which the Adviser is
required to be registered as an investment adviser in order to perform its
obligations under this Agreement;
B. the Adviser is served or otherwise receives notice of any action, suit,
proceeding, inquiry, or investigation, at law or in equity, before or by any
court, public board, or body, involving the affairs of the Company;
C. a controlling stockholder of the Adviser changes or there is otherwise an
actual change in control or management of the Adviser.
12. Termination of Agreement. Notwithstanding the foregoing, this Agreement may
be terminated at any time with respect to a Portfolio, without the payment of
any penalty, by vote of the Board or by a vote of a majority of the outstanding
voting securities of such Portfolio on 60
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days' prior written notice to the Subadviser. This Agreement may also be
terminated by the Adviser: (i) on at least 120 days' prior written notice to the
Subadviser, without the payment of any penalty; (ii) upon material breach by the
Subadviser of any of the repretsentations and warranties, if such breach shall
not have been cured within a 20-day period after notice of such breach; or (iii)
if the Subadviser becomes unable to discharge its duties and obligations under
this Agreement. The Subadviser may terminate this Agreement at any time, without
the payment of any penalty, on at least 90 days' prior notice to the Adviser.
This Agreement shall terminate automatically in the event of its assignment or
upon termination of the Advisory Agreement between the Company and the Adviser.
13. Amendment of Agreement. No provision of this Agreement may be changed,
waived, discharged, or terminated orally, but only by an instrument in writing
signed by the party against which enforcement of the change, waiver, discharge,
or termination is sought, and no material amendment of this Agreement shall be
effective until approved by vote of a majority of the Independent Directors cast
in person at a meeting called for the purpose of such approval.
14. Miscellaneous.
A. Governing Law. This Agreement shall be construed in accordance with the
laws of the State of Maryland without giving effect to the conflicts of laws
principles thereof, and the 1940 Act. To the extent that the applicable laws
of the State of Maryland conflict with the applicable provisions of the 1940
Act, the latter shall control.
B. Captions. The Captions contained in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect.
C. Entire Agreement. This Agreement represents the entire agreement and
understanding of the parties hereto and shall supersede any prior agreements
between the parties concerning management of the Portfolios and all such
prior agreements shall be deemed terminated upon the effectiveness of this
Agreement.
D. Interpretation. Nothing herein contained shall be deemed to require the
Company to take any action contrary to its Articles of Incorporation,
By-Laws, or any applicable statutory or regulatory requirement to which it is
subject or by which it is bound, or to relieve or deprive the Board of its
responsibility for and control of the conduct of the affairs of the Company.
E. Definitions. Any question of interpretation of any term or provision of
this Agreement having a counterpart in or otherwise derived from a term or
provision of the 1940 Act shall be resolved by reference to such term or
provision of the 1940 Act and to interpretations thereof, if any, by the
United States courts or, in the absence of any controlling decision of any
such court, by rules, releases or orders of the SEC validly issued pursuant
to the Act. As used in this Agreement, the terms "majority of the outstanding
voting securities," "affiliated person," "interested person," "assignment,"
"broker," "investment adviser," "net
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assets," "sale," "sell," and "security" shall have the same meaning as such
terms have in the 1940 Act, subject to such exemptions as may be granted by
the SEC by any rule, release or order. Where the effect of a requirement of
the federal securities laws reflected in any provision of this Agreement is
made less restrictive by a rule, release, or order of the SEC, whether of
special or general application, such provision shall be deemed to incorporate
the effect of such rule, release, or order.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their duly authorized signatories as of the date and year first
above written.
Aetna Life Insurance and Annuity Company
Attest: By:_____________________________________
___________________________________
Massachusetts Financial Services Company
Attest: By:_____________________________________
___________________________________
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Appendix A
Fee Schedule
MFS Emerging Equities .425% on the first $150 million of
aggregate average daily
MFS Research Growth net assets under management
MFS Value Equity .40% on the next $150 million
.375% on the next $450 million
.35% on the next $550 million
.30% on the next $200 million
.25% on assets over $1.5 billion
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