INVESTMENT MANAGEMENT SERVICES AGREEMENT
This Agreement dated as of December 1, 2002, is by and between AXP
Variable Portfolio - Managed Series, Inc., (the "Corporation"), a Minnesota
corporation, on behalf of its underlying series AXP Variable Portfolio -
Diversified Equity Income Fund and AXP Variable Portfolio - Managed Fund,
(individually the "Fund" collectively the "Funds") and American Express
Financial Corporation ("AEFC"), a Delaware corporation.
Part One: INVESTMENT MANAGEMENT AND OTHER SERVICES
(1) The Corporation hereby retains AEFC, and AEFC hereby agrees, for
the period of this Agreement and under the terms and conditions hereinafter set
forth, to furnish the Corporation continuously with suggested investment
planning; to determine, consistent with the Funds' investment objectives and
policies, which securities in AEFC's discretion shall be purchased, held or
sold, and to execute or cause the execution of purchase or sell orders; to
prepare and make available to the Funds all necessary research and statistical
data in connection therewith; to furnish all other services of whatever nature
required in connection with the management of the Funds including transfer agent
and dividend-disbursing agent services; to furnish or pay for all supplies,
printed material, office equipment, furniture and office space as the Funds may
require; and to pay or reimburse such expenses of the Funds as provided for in
Part Three under this Agreement; subject always to the direction and control of
the Board of Directors (the "Board"), the Executive Committee and the authorized
officers of the Corporation. AEFC agrees to maintain an adequate organization of
competent persons to provide the services and to perform the functions herein
mentioned. AEFC agrees to meet with any persons at such times as the Board deems
appropriate for the purpose of reviewing AEFC's performance under this
Agreement.
(2) AEFC agrees that the investment planning and investment decisions
will be in accordance with general investment policies of the Funds as disclosed
to AEFC from time to time by the Funds and as set forth in its prospectus and
registration statement filed with the United States Securities and Exchange
Commission (the "SEC").
(3) AEFC agrees that it will maintain all required records, memoranda,
instructions or authorizations relating to the acquisition or disposition of
securities for the Funds.
(4) The Corporation agrees that it will furnish to AEFC any information
that the latter may reasonably request with respect to the services performed or
to be performed by AEFC under this Agreement.
(5) AEFC is authorized to select the brokers or dealers that will
execute the purchases and sales of portfolio securities for the Funds and is
directed to use its best efforts to obtain the best available price and most
favorable execution, except as
prescribed herein. Subject to prior authorization by the Board of appropriate
policies and procedures, and subject to termination at any time by the Board,
AEFC may also be authorized to effect individual securities transactions at
commission rates in excess of the minimum commission rates available, to the
extent authorized by law, if AEFC determines in good faith that such amount of
commission was 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 AEFC's overall responsibilities with respect to the
Funds and other funds for which it acts as investment adviser.
(6) It is understood and agreed that in furnishing the Funds with the
services as herein provided, neither AEFC, nor any officer, director or agent
thereof shall be held liable to the Funds, shareholders, the Corporation or its
creditors for errors of judgment or for anything except willful misfeasance, bad
faith, or gross negligence in the performance of its duties, or reckless
disregard of its obligations and duties under the terms of this Agreement. It is
further understood and agreed that AEFC may rely upon information furnished to
it reasonably believed to be accurate and reliable.
Part Two: COMPENSATION TO INVESTMENT MANAGER
(1) The Corporation agrees to pay to AEFC on behalf of each Fund, and
AEFC covenants and agrees to accept from the Corporation in full payment for the
services furnished, a fee composed of an asset charge and a performance
incentive adjustment.
(a) The Asset Charge
(i) The asset charge for each calendar day of each year
shall be equal to the total of 1/365th (1/366th in each
leap year) of the amount computed in accordance with
paragraph (ii) below. The computation shall be made for
each calendar day on the basis of net assets as of the
close of the preceding business day. In the case of the
suspension of the computation of net asset value, the
fee for each calendar day during such suspension shall
be computed as of the close of business on the last
full business day on which the net assets were
computed. Net assets as of the close of a full business
day shall include all transactions in shares of a Fund
recorded on the books of the Fund for that day.
(ii) The asset charge shall be based on the net assets of
the Funds as set forth in the following tables.
AXP Variable Portfolio - Diversified Equity Income Fund
Asset Charge
Assets Annual Rate At
(Billions) Each Asset Level
First $0.50 0.560%
Next 0.50 0.545
Next 1.00 0.530
Next 1.00 0.515
Next 3.00 0.500
Over 6.00 0.470
AXP Variable Portfolio - Managed Fund
Asset Charge
Assets Annual Rate At
(Billions) Each Asset Level
First $0.50 0.630%
Next 0.50 0.615
Next 1.00 0.600
Next 1.00 0.585
Next 3.00 0.570
Over 6.00 0.550
(b) The Performance Incentive Adjustment
(i) Calculating the Performance Incentive Adjustment. The
performance incentive adjustment shall be calculated monthly
by:
(A) Determining the difference in performance (the
"Performance Difference") between the Fund and an index of
similar funds (the "Index"), as described in paragraph
(b)(ii). For AXP Variable Portfolio - Diversified Equity
Income Fund the Index is the Lipper Equity Income Funds
Index. For AXP Variable Portfolio - Managed Fund the Index
is the Lipper Balanced Funds Index.
(B) Using the Performance Difference calculated under
paragraph (b)(ii) to determine the Adjustment Rate, as
illustrated in paragraph (b)(iii).
(C) Multiplying the current month's Adjustment Rate
by the Fund's average net assets for the comparison
period, then dividing the result by the number of months
in the comparison period to determine the monthly
adjustment. Where the performance of the Fund exceeds the
Index, the amount so determined shall be an increase in
fees as computed under paragraph (1)(a). Where Fund
performance is exceeded by the Index, the amount so
determined shall be a decrease in such fees.
(ii) Computing the Performance Difference. The Performance
Difference, calculated monthly, is determined by measuring the
percentage difference between the performance of one Class A
share of the Fund and the performance of the Index. The
performance of one Class A share of the Fund shall be measured
by computing the percentage
difference, carried to two decimal places, between the net
asset value as of the last business day of the period
selected for comparison and the net asset value of such
share as of the last business day of the prior period,
adjusted for dividends or capital gain distributions treated
as reinvested immediately. The performance of the Index will
be established by measuring the percentage difference,
carried to two decimal places, between the ending and
beginning Index for the comparison period, with dividends or
capital gain distributions on the securities that comprise
the Index being treated as reinvested immediately.
(iii) Determining the Adjustment Rate. The Adjustment Rate
for AXP Variable Portfolio - Diversified Equity Income Fund
computed to five decimal places, is determined in accordance
with the following table:
------------------ -------------------------------------------------------------
Performance Adjustment Rate
Difference
------------------ -------------------------------------------------------------
0.00%-0.50% 0
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0.50%-1.00% 6 basis points times the performance difference over 0.50%
(maximum of 3 basis points if a 1% performance difference)
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1.00%-2.00% 3 basis points, plus 3 basis points times the performance
difference over 1.00% (maximum 6 basis points if a 2%
performance difference)
------------------ -------------------------------------------------------------
2.00%-4.00% 6 basis points, plus 2 basis points times the performance
difference over 2.00% (maximum 10 basis points if a 4%
performance difference)
------------------ -------------------------------------------------------------
4.00%-6.00% 10 basis points, plus 1 basis point times the performance
difference over 4.00% (maximum 12 basis points if a 6%
performance difference)
------------------ -------------------------------------------------------------
6.00% or more 12 basis points
------------------ -------------------------------------------------------------
The Adjustment Rate for AXP Variable Portfolio - Managed Fund, computed to five
decimal places, is determined in accordance with the following table:
------------------ -------------------------------------------------------------
Performance Adjustment Rate
Difference
------------------ -------------------------------------------------------------
0.00%-0.50% 0
------------------ -------------------------------------------------------------
0.50%-1.00% 6 basis points times the performance difference over 0.50%
(maximum of 3 basis points if a 1% performance difference)
------------------ -------------------------------------------------------------
1.00%-2.00% 3 basis points, plus 3 basis points times the performance
difference over 1.00% (maximum 6 basis points if a 2%
performance difference)
------------------ -------------------------------------------------------------
2.00%-3.00% 6 basis points, plus 2 basis points times the performance
difference over 2.00% (maximum 8 basis points if a 3%
performance difference)
------------------ -------------------------------------------------------------
3.00% or more 8 basis points
------------------ -------------------------------------------------------------
For example, if the performance difference is 2.38%, the
adjustment rate is 0.000676 (0.0006 [6 basis points] plus
0.0038 [the 0.38% performance difference over 2.00%] x
0.0002[2 basis points] x 100 (0.000076)). Rounded to five
decimal places, the Adjustment Rate is 0.00068.
(iv) The maximum adjustment rate for AXP Variable
Portfolio - Diversified Equity Income Fund is 0.00120 per
year. The maximum adjustment rate for AXP Variable Portfolio -
Managed Fund is 0.00080 per year.
(v) For AXP Variable Portfolio - Diversified Equity Income
Fund, for a period of six months beginning Dec. 1, 2002, the
adjustment will be calculated based on the lesser of the
amount due under the adjustment described above or under the
adjustment used prior to Dec. 1, 2002. For AXP Variable
Portfolio - Managed Fund, the first adjustment will be made on
June 1, 2003 and will cover the six-month period beginning
December 1, 2002. The 12 month comparison period will roll
over with each succeeding month, so that it always equals 12
months, ending with the month for which the performance
incentive adjustment is being computed.
(vi) If an Index ceases to be published for a period of
more than 90 days, changes in any material respect or
otherwise becomes impracticable to use for purposes of the
adjustment, no adjustment will be made under (b) until such
time as the Board approves a substitute index.
(2) The fee shall be paid on a monthly basis and, in the event of the
termination of this Agreement, the fee accrued shall be prorated on the basis of
the number of days that this Agreement is in effect during the month with
respect to which such payment is made.
(3) The fee provided for hereunder shall be paid in cash by the
Corporation to AEFC within five business days after the last day of each month.
Part Three: ALLOCATION OF EXPENSES
(1) The Corporation agrees to pay:
a) Fees payable to AEFC for its services under the terms of this
Agreement.
b) All fees, costs, expenses and allowances payable to any
person, firm or corporation for services under any agreement
entered into by the Corporation on behalf of the Fund covering
the offering for sale, sale and distribution of the Fund's
shares.
c) All taxes of any kind payable by the Corporation on behalf of
the Fund other than federal original issuance taxes on shares
issued by the Fund.
d) All brokerage commissions and charges in the purchase and sale
of assets. e) All custodian or trustee fees, costs and
expenses.
f) Costs and expenses in connection with the auditing and
certification of the records and accounts of the Fund by
independent certified public accountants.
g) Costs of obtaining and printing of dividend checks, reports to
shareholders, notices, proxies, proxy statements and tax
notices to
shareholders, and also the cost of envelopes in which such are to
be mailed.
h) Postage on all communications, notices and statements to
brokers, dealers, and the Fund's shareholders.
i) All fees and expenses paid to directors of the Corporation,
except that the Corporation will not pay any fees or expenses
of any person who is an officer or employee of AEFC or its
affiliates.
j) Costs of fidelity and surety bonds covering officers,
directors and employees of the Corporation.
k) All fees and expenses of attorneys who are not officers or
employees of AEFC or any of its affiliates.
l) All fees paid for the qualification and registration for public
sales of the securities of the Fund under the laws of the United
States and of the several states of the United States in which
the securities of the Fund shall be offered for sale.
m) Cost of printing prospectuses, statements of additional
information and application forms for existing shareholders,
and any supplements thereto.
n) Any losses due to theft and defalcation of the assets of the
Fund, or due to judgments or adjustments not covered by surety
or fidelity bonds, and not covered by agreement or obligation.
o) Expenses incurred in connection with lending portfolio
securities of the Fund. p) Expenses properly payable by the
Corporation on behalf of the Fund, approved by the Board.
(2) AEFC agrees to pay all expenses associated with the services it
provides under the terms of this Agreement.
Part Four: MISCELLANEOUS
(1) AEFC shall be deemed to be an independent contractor and, except as
expressly provided or authorized in this Agreement, shall have no authority to
act for or represent the Corporation.
(2) A "full business day" shall be as defined in the By-laws of the
Corporation.
(3) The Corporation recognizes that AEFC now renders and may continue
to render investment advice and other services to other investment companies and
persons which may or may not have investment policies and investments similar to
those of the Funds and that AEFC manages its own investments and/or those of its
subsidiaries. AEFC shall be free to render such investment advice and other
services and the Corporation hereby consents thereto.
(4) Neither this Agreement nor any transaction had pursuant hereto
shall be invalidated or in any way affected by the fact that directors,
officers, agents and/or shareholders of the Corporation are or may be interested
in AEFC or any successor or assignee thereof, as directors, officers,
stockholders or otherwise; that directors, officers, stockholders or agents of
AEFC are or may be interested in the Funds or the Corporation as directors,
officers, shareholders, or otherwise; or that AEFC or any successor or assignee,
is or may be interested in the Funds as shareholder or otherwise, provided,
however, that neither AEFC, nor any officer, director or employee thereof or of
the Corporation, shall sell to or buy from the Funds any property or security
other than shares issued by the Funds, except in accordance with applicable
regulations or orders of the SEC.
(5) Any notice under this Agreement shall be given in writing,
addressed, and delivered, or mailed postpaid, to the party to this Agreement
entitled to receive such, at such party's principal place of business in
Minneapolis, Minnesota, or to such other address as either party may designate
in writing mailed to the other.
(6) AEFC agrees that no officer, director or employee of AEFC will deal
for or on behalf of the Funds with himself as principal or agent, or with any
corporation or partnership in which he may have a financial interest, except
that this shall not prohibit:
(a) Officers, directors or employees of AEFC from having a
financial interest in the Funds or in AEFC.
(b) The purchase of securities for the Funds, or the sale of
securities owned by the Funds, through a security broker or
dealer, one or more of whose partners, officers, directors
or employees is an officer, director or employee of AEFC,
provided such transactions are handled in the capacity of
broker only and provided commissions charged do not exceed
customary brokerage charges for such services.
(c) Transactions with the Funds by a broker-dealer affiliate of
AEFC as may be allowed by rule or order of the SEC and if
made pursuant to procedures adopted by the Board.
(7) AEFC agrees that, except as herein otherwise expressly provided or
as may be permitted consistent with the use of a broker-dealer affiliate of AEFC
under applicable provisions of the federal securities laws, neither it nor any
of its officers, directors or employees shall at any time during the period of
this Agreement, make, accept or receive, directly or indirectly, any fees,
profits or emoluments of any character in connection with the purchase or sale
of securities (except shares issued by the Funds) or other assets by or for the
Funds.
(8) This Agreement shall be governed by the laws of the State of
Minnesota.
Part Five: RENEWAL AND TERMINATION
(1) This Agreement shall continue in effect until November 30, 2004 or
until a new agreement is approved by a vote of the majority of the outstanding
shares of the
Funds and by vote of the Funds' Board, including the vote required by (b) of
this paragraph, and if no new agreement is so approved, this Agreement shall
continue from year to year thereafter unless and until terminated by either
party as hereinafter provided, except that such continuance shall be
specifically approved at least annually (a) by the Board or by a vote of the
majority of the outstanding shares of the Funds and (b) by the vote of a
majority of the directors 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. As used in this paragraph, the term "interested person"
shall have the same meaning as set forth in the Investment Company Act of 1940,
as amended (the "1940 Act").
(2) This Agreement may be terminated by either the Corporation on
behalf of a Fund or AEFC at any time by giving the other party 60 days' written
notice of such intention to terminate, provided that any termination shall be
made without the payment of any penalty, and provided further that termination
may be effected either by the Board or by a vote of the majority of the
outstanding voting shares of the Fund. The vote of the majority of the
outstanding voting shares of the Fund for the purpose of this Part Five shall be
the vote at a shareholders' regular meeting, or a special meeting duly called
for the purpose, of 67% or more of the Fund's shares present at such meeting if
the holders of more than 50% of the outstanding voting shares are present or
represented by proxy, or more than 50% of the outstanding voting shares of the
Fund, whichever is less.
(3) This Agreement shall terminate in the event of its assignment, the
term "assignment" for this purpose having the same meaning as set forth in the
1940 Act.
IN WITNESS THEREOF, the parties hereto have executed the foregoing Agreement as
of the day and year first above written.
AXP VARIALBE PORTFOLIO - MANAGED SERIES, INC.
AXP Variable Portfolio - Diversified Equity Income Fund
AXP Variable Portfolio - Managed Fund
By /s/ Xxxxxx X. Xxx
----------------------
Xxxxxx X. Xxx
Vice President
AMERICAN EXPRESS FINANCIAL CORPORATION
By /s/ Xxxxx X. Xxxxx
-----------------------
Xxxxx X. Xxxxx
Senior Vice President and General Manager- Mutual Funds
