<PAGE>
As filed with the Securities and Exchange Commission on February 26, 1998
File Nos. 333-15119
811-07893
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 2
AND
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 3
VARIABLE ANNUITY PORTFOLIOS
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
6 ST. JAMES AVENUE, BOSTON, MASSACHUSETTS 02116
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 617-423-1679
PHILIP W. COOLIDGE, 6 ST. JAMES AVENUE, BOSTON, MASSACHUSETTS 02116
(NAME AND ADDRESS OF AGENT FOR SERVICE)
COPY TO:
ROGER P. JOSEPH, BINGHAM DANA LLP, 150 FEDERAL STREET,
BOSTON, MASSACHUSETTS 02110
It is proposed that this filing will become effective on May 1, 1998
pursuant to paragraph (a) of Rule 485.
<PAGE>
VARIABLE ANNUITY PORTFOLIOS
(CITISELECT(R) VIP FOLIO 200, CITISELECT(R) VIP FOLIO 300,
CITISELECT(R) VIP FOLIO 400, CITISELECT(R) VIP FOLIO 500 AND
CITIFUNDSSM SMALL CAP GROWTH VIP PORTFOLIO)
REGISTRATION STATEMENT ON FORM N-1A
CROSS REFERENCE SHEET
N-1A
ITEM NO. N-1A ITEM LOCATION
- -------- --------- --------
PART A PROSPECTUS
- ------ ----------
Item 1. Cover Page .......................... Cover Page
Item 2. Synopsis ............................ Not Applicable
Item 3. Condensed Financial Information ..... Condensed Financial Information
Item 4. General Description of Registrant ... Investment Information;
General Information; Appendix
Item 5. Management of the Fund .............. Management; Expenses
Item 5A. Management's Discussion of Fund
Performance ......................... Not Applicable
Item 6. Capital Stock and Other Securities .. General Information; Purchase
and Redemption of Shares;
Dividends and Distributions;
Tax Matters
Item 7. Purchase of Securities Being Offered Purchase and Redemption of
Shares
Item 8. Redemption or Repurchase ............ Purchase and Redemption of
Shares
Item 9. Pending Legal Proceedings ........... Not Applicable
STATEMENT OF ADDITIONAL
PART B INFORMATION
- ------ -----------------------
Item 10. Cover Page .......................... Cover Page
Item 11. Table of Contents ................... Cover Page
Item 12. General Information and History ..... The Trust
Item 13. Investment Objectives and Policies .. Investment Objectives;
Description of Permitted
Investments and Investment
Practices; Investment
Restrictions
Item 14. Management of the Fund .............. Management
Item 15. Control Persons and Principal Holders
of Securities ....................... Management
Item 16. Investment Advisory and Other
Services ............................ Management
Item 17. Brokerage Allocation and Other
Practices ........................... Portfolio Transactions
Item 18. Capital Stock and Other Securities... Description of Shares, Voting
Rights and Liabilities
Item 19. Purchase, Redemption and Pricing of
Securities Being Offered ............ Description of Shares, Voting
Rights and Liabilities;
Determination of Net Asset
Value; Valuation of
Securities; Additional
Redemption Information
Item 20. Tax Status .......................... Certain Additional Tax Matters
Item 21. Underwriters ........................ Management
Item 22. Calculation of Performance Data ..... Performance Information
Item 23. Financial Statements ................ Financial Statements
PART C Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration
Statement.
<PAGE>
PROSPECTUS
----------
May 1, 1998
CITISELECT(R) VIP FOLIO 200 CITISELECT(R) VIP FOLIO 300
CITISELECT(R) VIP FOLIO 400 CITISELECT(R) VIP FOLIO 500
CitiSelect(R) VIP Folio 200, CitiSelect(R) VIP Folio 300, CitiSelect(R) VIP
Folio 400 and CitiSelect(R) VIP Folio 500 are investment vehicles for variable
annuity contracts and variable life insurance policies offered by the separate
accounts ("Separate Accounts") of participating life insurance companies
("Participating Insurance Companies").
The Funds are asset allocation funds that offer investors a convenient way
to own a professionally managed portfolio tailored to specific investment goals.
Each Fund is a total return fund that allocates its investments among three
primary classes of assets - equity, fixed income and money market securities.
+++++++++Each Fund's asset mix is designed to offer a different level of
potential return within a corresponding level of risk. The Funds' investment
objectives are described below. There is, of course, no assurance that any Fund
will achieve its investment objective.
CitiSelect VIP Folio 200's objective is as high a total return over time as
is consistent with a primary emphasis on a combination of fixed income and money
market securities, and a secondary emphasis on equity securities.
CitiSelect VIP Folio 300's objective is as high a total return over time as
is consistent with a balanced emphasis on equity and fixed income securities.
CitiSelect VIP Folio 400's objective is as high a total return over time as
is consistent with a primary emphasis on equity securities, and a secondary
emphasis on fixed income securities.
CitiSelect VIP Folio 500's objective is as high a total return over time as
is consistent with a dominant emphasis on equity securities and a small
allocation to fixed income securities.
Citibank, N.A. is the investment manager for each of the Funds. PROSPECTIVE
INVESTORS SHOULD BE AWARE THAT SHARES OF THE FUNDS ARE NOT DEPOSITS OR
OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, CITIBANK, N.A. OR ANY OF ITS
AFFILIATES, ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, AND
INVOLVE INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
Shares of the Funds are not offered to the general public but may only be
purchased by the Separate Accounts of Participating Insurance Companies for the
purpose of funding variable annuity contracts and variable life insurance
policies.
This Prospectus concisely sets forth information about the Funds that a
prospective investor should know before investing. A Statement of Additional
Information dated May 1, 1998 (and incorporated by reference in this Prospectus)
has been filed with the Securities and Exchange Commission. Copies of the
Statement of Additional Information may be obtained without charge, and further
inquiries about the Funds may be made, by contacting the Funds' distributor at
(617) 423-1679 or a Participating Insurance Company. The Statement of Additional
Information and other related materials are available on the SEC's Internet web
site (http://www.sec.gov).
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Condensed Financial Information ......................................... 2
Investment Information .................................................. 3
Risk Considerations ..................................................... 8
Valuation of Shares ..................................................... 9
Purchase and Redemption of Shares ....................................... 9
Dividends and Distributions ............................................. 10
Management .............................................................. 11
Tax Matters ............................................................. 14
Performance Information ................................................. 15
General Information ..................................................... 15
Appendix -- Permitted Investments
and Investment Practices .............................................. 17
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
INVESTORS SHOULD READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE REFERENCE.
<PAGE>
CONDENSED FINANCIAL INFORMATION
- -------------------------------------------------------------------------------
The following table provides condensed financial information about the Funds
for the periods indicated. This information should be read in conjunction with
the financial statements appearing in the Funds' Annual Report to Shareholders,
which are incorporated by reference in the Statement of Additional Information.
The financial statements and notes, as well as the table below, have been
audited by Price Waterhouse LLP, independent accountants. The accountants'
reports are included in the Funds' Annual Report. Copies of the Annual Report
may be obtained without charge from an investor's participating insurance
company.
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
FOR THE PERIOD FROM COMMENCEMENT OF OPERATIONS TO DECEMBER 31, 1997
CITISELECT VIP CITISELECT VIP CITISELECT VIP CITISELECT VIP
FOLIO 200+ FOLIO 300+ FOLIO 400+ FOLIO 500+
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ............. $ $ $ $
---------- ---------- ---------- ---------
INCOME FROM OPERATIONS:
Net investment income ............................
Net realized loss on investments .................
---------- ---------- ---------- ---------
Total from operations ...........................
---------- ---------- ---------- ---------
Net Asset Value, end of period ................... $ $ $ $
---------- ---------- ---------- ---------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted) ........ $ $ $ $
Ratio of expenses to average net assets .......... % % % %
Ratio of net investment income to average net assets % % % %
Total return ..................................... % % % %
Note: If agents of the Funds had not voluntarily agreed to waive a portion of their fees, and the sub-administrator not assumed
expenses for the periods indicated, the net investment income per share and the ratios would have been as follows:
Net investment income per share .................. $ $ $ $
---------- ---------- ---------- ---------
Ratios:
Expenses to average net assets ................... % % % %
Net investment income to average net assets ...... % % % %
+ For the period February 10, 1997 (commencement of operations) to December 31, 1997.
* Annualized.
** Not annualized.
</TABLE>
<PAGE>
INVESTMENT INFORMATION
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INVESTMENT OBJECTIVES:
Each Fund is a total return fund that allocates its investments among three
primary classes of assets - equity, fixed income and money market securities.
Each Fund's asset mix is designed to offer a different level of potential return
within a corresponding level of risk. The investment objective of each Fund is
as follows:
The investment objective of CITISELECT VIP FOLIO 200 is as high a total
return over time as is consistent with a primary emphasis on a combination of
fixed income and money market securities, and a secondary emphasis on equity
securities.
The investment objective of CITISELECT VIP FOLIO 300 is as high a total
return over time as is consistent with a balanced emphasis on equity and fixed
income securities.
The investment objective of CITISELECT VIP FOLIO 400 is as high a total
return over time as is consistent with a primary emphasis on equity securities,
and a secondary emphasis on fixed income securities.
The investment objective of CITISELECT VIP FOLIO 500 is as high a total
return over time as is consistent with a dominant emphasis on equity securities
and a small allocation to fixed income securities.
The investment objective of each Fund may be changed without approval by
that Fund's shareholders, but shareholders will be given written notice at least
30 days before any change is implemented. Of course, there can be no assurance
that any Fund will achieve its investment objective.
INVESTMENT POLICIES:
THE FUNDS
CITISELECT VIP FOLIO 200 is expected to be the least volatile of the four
Funds and is designed for the investor who is seeking relatively lower risk
provided by substantial investments in fixed income and money market securities,
but who also seeks some capital growth. CITISELECT VIP FOLIO 300 is designed for
the investor seeking a balanced approach by emphasizing stocks for their higher
capital appreciation potential but retaining a significant fixed income
investment component to temper volatility. CITISELECT VIP FOLIO 400 and
CITISELECT VIP FOLIO 500 are designed for the investor willing and able to take
higher risks in the pursuit of long-term capital appreciation. CitiSelect VIP
Folio 500 is expected to be the most volatile of the four Funds, and is designed
for investors who can withstand greater market swings to seek potential
long-term rewards. CitiSelect VIP Folio 400 is designed for investors seeking
long-term rewards, but with less volatility.
INVESTMENT STRATEGY
Each Fund is a carefully selected and professionally managed diversified mix
of equity, fixed income and money market investments. As the Funds' Investment
Manager, Citibank allocates each Fund's assets among these three classes of
investments to seek to achieve certain risk and return objectives. In making
asset allocations, Citibank considers long-term performance and valuation
measures within and between asset classes and the effects of market and economic
variables on those relationships. Each Fund's allocation or asset mix is
determined by Citibank to be an optimal combination of stocks, bonds and money
market instruments that reduces risk and maximizes potential return for that
Fund's distinct investment objective.
The Funds' asset allocations generally correlate to different levels of
investment risk and return. Equity securities typically have the potential to
outperform fixed income securities over the long term. Equity securities have
the greatest potential for growth of capital, yet are generally the most
volatile of the three asset types. Fixed income and money market securities
sometimes move in the opposite direction of equity securities and may provide
investment balance to a Fund. The risks of each asset class will vary.
Citibank expects that, in general, each Fund's assets will be allocated
among the equity, fixed income and money market asset classes as provided in the
following chart. However, cash flows of a Fund or changes in market valuations
could produce different results. Citibank will review each Fund's asset
allocation quarterly and expects, in general, to rebalance the Fund's
investments, if necessary, at that time. Rebalancing may be accomplished over a
period of time and may be limited by tax and regulatory requirements.
ASSET CLASS RANGE
-------------------------------------
FIXED MONEY
EQUITY INCOME MARKET
- ------------------------------------------------------------------------------
CITISELECT VIP FOLIO 200 25-45% 35-55% 10-30%
CITISELECT VIP FOLIO 300 40-60% 35-55% 1-10%
CITISELECT VIP FOLIO 400 55-85% 15-35% 1-10%
CITISELECT VIP FOLIO 500 70-95% 5-20 1-10%
- ------------------------------------------------------------------------------
Each asset class includes other investments described in the Appendix or
elsewhere in this Prospectus that are deemed related to the management of that
asset class. Percentage ranges shown for the equity and fixed income classes
include investment positions that seek equivalent asset class exposure or to
enhance income for that asset class. When money market instruments are used in
connection with these positions they will be counted towards the assets of the
applicable asset class and not towards the money market class.
Citibank will diversify the equity class of each Fund by allocating the
Fund's portfolio of equity securities among large capitalization securities,
small capitalization securities and international securities. Citibank will
diversify the fixed income class of each Fund by allocating the Fund's portfolio
of fixed income securities among U.S. and foreign government and corporate
bonds. There is no requirement that Citibank allocate a Fund's assets among all
of the foregoing types of equity and fixed income securities at all times. These
types of securities have been selected because Citibank believes that this
additional level of asset diversification will provide each Fund with the
potential for higher returns with lower overall volatility.
From time to time the Funds may employ Subadvisers to perform the daily
management of a particular asset class for the Funds or of specific types of
securities within a particular asset class. Citibank will monitor and supervise
the activities of the Subadvisers and may terminate the services of any
Subadviser at any time. See "Management." In allocating each Fund's investments
among various asset classes and in supervising the Subadvisers, Citibank employs
a multi-style and multi-manager diversification strategy. Citibank believes that
there are periods when securities with particular characteristics, or an
investment style, outperform other types of securities in the same asset class.
For example, at certain times, equity securities with growth characteristics
outperform equities with income characteristics, and vice versa. Citibank will
seek to take advantage of this by blending asset classes and investment styles
on a complementary basis in an effort to maximize the consistency of returns
over longer time periods, and to reduce volatility.
In supervising the Subadvisers, Citibank will also be taking into account
the expertise they have demonstrated in particular areas and the historical
results they have achieved within selected asset classes or investment styles.
By combining these attributes with selected asset classes and styles, Citibank
will seek to increase returns.
The following Subadvisers are responsible for the daily management of the
following kinds of securities: large capitalization value securities, Miller
Anderson & Sherrerd, LLP; small capitalization value securities, Franklin
Advisory Services, Inc.; international equity securities, Hotchkis and Wiley;
and foreign government securities, Pacific Investment Management Company.
Citibank is responsible for the daily management of all other kinds of
securities of the Funds, including large capitalization growth securities, small
capitalization growth securities, fixed income securities and money market
securities.
INITIAL ASSET ALLOCATIONS
Initially one or more of the Funds may be of such a size that it is not
practicable for the Fund to invest in all of the above-mentioned asset classes
and types of securities. Until in Citibank's judgment a Fund has sufficient
assets to fully employ an investment strategy, Citibank may allocate assets
across fewer of the asset classes and fewer of the types of securities
identified above than it otherwise would. As a Fund's asset size increases,
Citibank will add asset classes and types of securities until the desired asset
allocation is reached. There may also be a delay in investing in asset classes
or types of securities due to market conditions and availability of suitable
investments.
THE EQUITY CLASS
Equity securities include common stocks, securities convertible into common
stocks, preferred stocks, warrants for the purchase of stock and depositary
receipts (receipts which represent the right to receive the securities of
non-U.S. issuers deposited in a U.S. or correspondent bank). While equity
securities historically have experienced a higher level of volatility risk than
fixed income securities, they also historically have produced higher levels of
total return. Long-term, investors with diversified equity portfolios have a
higher probability of achieving their investment goals with lower levels of
volatility than those who have not diversified.
Each Fund will diversify its equity portfolio by investing those assets
which are allocated to the equity class among equity securities issued by large
capitalization issuers, small capitalization issuers and international issuers.
The mix of equity securities will vary from Fund to Fund. For example, the
equity class of CitiSelect VIP Folio 400 will emphasize securities of small cap
issuers. The equity class of CitiSelect VIP Folio 300 will emphasize securities
of large cap and small cap issuers. There is no requirement that each Fund
invest in each type of equity security.
LARGE CAP ISSUERS. Large cap issuers are those with market capitalizations
within the top 1,000 stocks of the equity market. In the selection of equity
securities of large cap issuers, securities issued by established companies with
stable operating histories are emphasized.
SMALL CAP ISSUERS. Small cap issuers are those with market capitalizations below
the top 1,000 stocks of the equity market. These stocks are comparable to, but
not limited to, the stocks comprising the Russell 2000 Index, an index of small
capitalization stocks. Small cap companies are generally represented in new or
rapidly changing industries. They may offer more profit opportunity in growing
industries and during certain economic conditions than do large and medium sized
companies. However, small cap companies also involve special risks. Often,
liquidity and overall business stability of a small cap company may be less than
that associated with larger capitalized companies. Small cap stocks frequently
involve smaller, rapidly growing companies with high growth rates, negligible
dividend yields and extremely high levels of volatility.
INTERNATIONAL ISSUERS. International issuers are those based outside the United
States. In the selection of equity securities of international issuers,
securities included in the Morgan Stanley Capital International Europe,
Australia and Far East Index (called the EAFE Index) are emphasized. The EAFE
Index contains approximately 1,100 equity securities of companies located in
Australia, Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong,
Ireland, Italy, Japan, Malaysia, The Netherlands, Norway, Singapore, Spain,
Sweden, Switzerland and the United Kingdom. In addition, securities of issuers
located in emerging markets may be selected. The U.S. investor may benefit from
exposure to international equity securities and foreign economies, which may be
influenced by distinctly different factors impacting a country's rate of
economic growth, interest rate structure, currency, industry and local stock
market environment. In addition, investments in the non-U.S. equity markets
allow for further diversification as many countries and regions have risk/reward
characteristics and market performance that are not highly correlated to each
other or to the U.S. market. International investments, however, particularly in
emerging countries, are subject to special risks not generally present in
domestic equity investments.
See "Risk Considerations" for certain risks associated with investing in
equity securities.
THE FIXED INCOME CLASS
Fixed income securities include bonds and short-term obligations. Fixed
income securities, in general, offer a fixed stream of cash flow and may provide
good to moderate relative total return benefits over time. Most bond investments
focus on generating income, while the potential for capital appreciation is a
secondary objective. The bond markets provide diversification benefits to a
holder of equity securities depending upon the characteristics of the bonds
comprising the fixed income class of each Fund. The value of fixed income
securities generally fluctuates inversely with changes in interest rates, and
also fluctuates based on other market and credit factors as well.
Each Fund will diversify its fixed income portfolio by investing those
assets which are allocated to the fixed income class among investment grade
corporate debt obligations and securities issued by the U.S. Government and its
agencies and instrumentalities and by foreign governments. Investment grade
securities are those rated Baa or better by Moody's Investors Service, Inc. or
BBB or better by Standard & Poor's Ratings Group or securities which are not
rated by these rating agencies, but which Citibank or a Subadviser believes to
be of comparable quality. Securities rated Baa or BBB and securities of
comparable quality may have speculative characteristics.
The mix of fixed income securities may vary from Fund to Fund. There is no
requirement that each Fund invest in each type of fixed income security. The
Funds may invest in securities with all maturities, including long bonds (10+
years), intermediate notes (3 to 10 years) and short-term notes (1 to 3 years).
GOVERNMENT SECURITIES. U.S. Government securities may provide opportunities
for income with minimal credit risk. U.S. Treasury securities are considered
the safest of all government securities. U.S. Government securities are high
quality instruments issued or guaranteed as to principal and interest by the
U.S. Government or by an agency or instrumentality of the U.S. Government.
Securities issued or guaranteed as to principal and interest by foreign
governments or agencies or instrumentalities of foreign governments (which
include securities of supranational agencies) also may provide opportunities
for income with minimal credit risk. Government securities are, however, not
immune from the market risk of principal fluctuation associated with changing
interest rates.
CORPORATE BONDS. Investment in bonds of U.S. and foreign corporate issuers may
provide relatively higher levels of current income. These bonds are used by U.S.
and foreign corporate issuers to borrow money from investors, and may have
varying maturities. Corporate bonds have varying degrees of quality and varying
degrees of sensitivity to changes in interest rates. The value of these
investments fluctuates based on changes in interest rates and in the underlying
credit quality of the bond issuers represented in the portfolio.
See "Risk Considerations" for certain risks associated with investing in
fixed income securities.
THE MONEY MARKET CLASS
Each Fund will invest those assets which are allocated to the money market
class in cash and in U.S. dollar-denominated high quality money market and
short-term instruments. These instruments include short-term obligations of the
U.S. Government and repurchase agreements covering these obligations, commercial
paper of U.S. and foreign issuers, bank obligations (such as certificates of
deposit, bankers' acceptances and fixed time deposits) of U.S. and non-U.S.
banks and obligations issued or guaranteed by the governments of Western Europe,
Scandinavia, Australia, Japan and Canada. These investments provide
opportunities for income with low credit risk, and may result in a lower yield
than would be available from investments with a lower quality or a longer term.
ADDITIONAL INVESTMENT POLICIES:
FUTURES. Each of the Funds may use financial futures in order to protect the
Fund from fluctuations in interest rates (sometimes called "hedging") without
actually buying or selling debt securities, or to manage the effective maturity
or duration of fixed income securities in the Fund's portfolio in an effort to
reduce potential losses or enhance potential gain. The Funds also may purchase
stock index and foreign currency futures in order to protect against declines in
the value of portfolio securities or increases in the cost of securities or
other assets to be acquired and, subject to applicable law, to enhance potential
gain. Futures contracts provide for the future sale by one party and purchase by
another party of a specified amount of a security at a specified future time and
price, or for making payment of a cash settlement based on changes in the value
of a security, an index of securities or other assets. In many cases, the
futures contracts that may be purchased by the Funds are standardized contracts
traded on commodities exchanges or boards of trade. See the Appendix for more
information.
TEMPORARY INVESTMENTS. During periods of unusual economic or market conditions
or for temporary defensive purposes or liquidity, each Fund may invest without
limit in cash and in U.S. dollar-denominated high quality money market and
short-term instruments. These investments may result in a lower yield than would
be available from investments with a lower quality or longer term.
OTHER PERMITTED INVESTMENTS. For more information regarding the Funds' permitted
investments and investment practices, see the Appendix -- Permitted Investments
and Investment Practices on page 17. The Funds will not necessarily invest or
engage in each of the investments and investment practices in the Appendix but
reserve the right to do so.
INVESTMENT RESTRICTIONS. The Statement of Additional Information contains a list
of specific investment restrictions which govern the investment policies of the
Funds, including a limitation that each Fund may borrow money from banks in an
amount not to exceed 1/3 of the Fund's net assets for extraordinary or emergency
purposes (e.g., to meet redemption requests). As a matter of operating policy,
however, the Funds will not borrow money in excess of 10% of their respective
total assets (taken at cost), except that each Fund may borrow up to 25% of its
total assets when such borrowing is necessary to meet redemption requests. Also,
as a matter of operating policy, no Fund will purchase any securities at any
time at which borrowings exceed 5% of its total assets (taken at market value).
Except as otherwise indicated, the Funds' investment objectives and policies may
be changed without shareholder approval. If a percentage or rating restriction
(other than a restriction as to borrowing) is adhered to at the time an
investment is made, a later change in percentage or rating resulting from
changes in a Fund's securities will not be a violation of policy.
PORTFOLIO TURNOVER. Securities of each Fund will be sold whenever it is
appropriate to do so in light of the Fund's investment objective, without regard
to the length of time a particular security may have been held. For the period
February 10, 1997 (commencement of operations) through December 31, 1997, the
portfolio turnover rates for the Funds were as follows: CitiSelect VIP Folio
200, %; CitiSelect VIP Folio 300, %; CitiSelect VIP Folio 400, % and
CitiSelect VIP Folio 500, %, respectively. The amount of brokerage commissions
and realization of taxable capital gains will tend to increase as the level of
portfolio activity increases.
BROKERAGE TRANSACTIONS. In connection with the selection of brokers or dealers
for securities transactions for the Funds and the placing of such orders,
brokers or dealers may be selected who also provide brokerage and research
services to the Funds or the other accounts over which Citibank, the Subadvisers
or their affiliates exercise investment discretion. Each Fund 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 Fund 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.
STATE INSURANCE REGULATION. Each Fund provides an investment vehicle for
variable annuity contracts and variable life insurance policies to be offered by
the Separate Accounts of Participating Insurance Companies. Certain states have
regulations concerning concentration of investments and purchase and sale of
futures contracts, among other techniques. If these regulations are applied to a
Fund, the Fund may be limited in its ability to engage in such techniques and to
manage its investments with the flexibility provided herein. It is each Fund's
intention to operate in material compliance with current insurance laws and
regulations, as applied in each jurisdiction in which contracts or policies of
Separate Accounts of Participating Insurance Companies are offered.
RISK CONSIDERATIONS
- -------------------------------------------------------------------------------
The risks of investing in each Fund vary depending upon the nature of the
securities held, and the investment practices employed, on its behalf. Certain
of these risks are described below.
CHANGES IN NET ASSET VALUE. Each Fund's net asset value will fluctuate based on
changes in the values of the underlying portfolio securities. This means that an
investor's shares may be worth more or less at redemption than at the time of
purchase. Equity securities fluctuate in response to general market and economic
conditions and other factors, including actual and anticipated earnings, changes
in management, political developments and the potential for takeovers and
acquisitions. During periods of rising interest rates the value of debt
securities generally declines, and during periods of falling rates the value of
these securities generally increases. Changes by recognized rating agencies in
the rating of any debt security, and actual or perceived changes in an issuer's
ability to make principal or interest payments, also affect the value of these
investments.
CREDIT RISK OF DEBT SECURITIES. Investors should be aware that securities
offering above average yields may at times involve above average risks.
Securities rated Baa by Moody's or BBB by S&P and equivalent securities may have
speculative characteristics. Adverse economic or changing circumstances are more
likely to lead to a weakened capacity to make principal and interest payments
than is the case for higher grade obligations.
NON-U.S. SECURITIES. Investments in non-U.S. securities involve risks relating
to political, social and economic developments abroad, as well as risks
resulting from the differences between the regulations to which U.S. and non-
U.S. issuers and markets are subject. These risks may include expropriation,
confiscatory taxation, withholding taxes on dividends and interest,
limitations on the use or transfer of portfolio assets and political or social
instability. Enforcing legal rights may be difficult, costly and slow in non-
U.S. countries, and there may be special problems enforcing claims against
non-U.S. governments. In addition, non-U.S. companies may not be subject to
accounting standards or governmental supervision comparable to U.S. companies,
and there may be less public information about their operations. Non-U.S.
markets may be less liquid and more volatile than U.S. markets, and may offer
less protection to investors such as the Funds. Prices at which a Fund may
acquire securities may be affected by trading by persons with material non-
public information and by securities transactions by brokers in anticipation
of transactions by the Fund.
Because non-U.S. securities often are denominated in currencies other than
the U.S. dollar, changes in currency exchange rates will affect a Fund's net
asset value, the value of dividends and interest earned and gains and losses
realized on the sale of securities. In addition, some non-U.S. currency values
may be volatile and there is the possibility of governmental controls on
currency exchanges or governmental intervention in currency markets.
The Funds may invest in issuers located in developing countries, which are
generally defined as countries in the initial stages of their industrialization
cycles with low per capita income. All of the risks of investing in non-U.S.
securities are heightened by investing in developing countries. Shareholders
should be aware that investing in the equity and fixed income markets of
developing countries involves exposure to economic structures that are generally
less diverse and mature, and to political systems which can be expected to have
less stability, than those of developed countries. Historical experience
indicates that the markets of developing countries have been more volatile than
the markets of developed countries with more mature economies; such markets
often have provided higher rates of return, and greater risks, to investors.
These heightened risks include (i) greater risks of expropriation, confiscatory
taxation and nationalization, and less social, political and economic stability;
(ii) the small current size of markets for securities of issuers based in
developing countries and the currently low or non-existent volume of trading,
resulting in a lack of liquidity and in price volatility; (iii) certain national
policies which may restrict a Fund's investment opportunities including
restrictions on investing in issuers or industries deemed sensitive to relevant
national interests; and (iv) the absence of developed legal structures. Such
characteristics can be expected to continue in the future.
Equity securities traded in certain foreign countries may trade at
price-earnings multiples higher than those of comparable companies trading on
securities markets in the United States, which may not be sustainable. Rapid
increases in money supply in certain countries may result in speculative
investment in equity securities which may contribute to volatility of trading
markets.
The costs attributable to non-U.S. investing, such as the costs of
maintaining custody of securities in non-U.S. countries, frequently are higher
than those involved in U.S. investing. As a result, the operating expense
ratios of the Funds may be higher than those of investment companies investing
exclusively in U.S. securities.
SMALL CAP COMPANIES. Investors in the Funds should be aware that the securities
of companies with small market capitalizations may have more risks than the
securities of other companies. Small cap companies may be more susceptible to
market downturns or setbacks because they may have limited product lines,
markets, distribution channels, and financial and management resources. Further,
there is often less publicly available information about small cap companies
than about more established companies. As a result of these and other factors,
the prices of securities issued by small cap companies may be volatile. Shares
of the Funds, therefore, may be subject to greater fluctuation in value than
shares of a fund with more of its investments in securities of larger, more
established companies.
INVESTMENT PRACTICES. Certain of the investment practices employed for the Funds
may entail certain risks. These risks are in addition to the risks described
above and are described in the Appendix. See the Appendix -- Permitted
Investments and Investment Practices on page 17.
VALUATION OF SHARES
- --------------------------------------------------------------------------------
Net asset value per share of each Fund is determined each day the New York
Stock Exchange is open for trading (a "Business Day"). This determination is
made once each day as of the close of regular trading on the Exchange (normally
4:00 p.m. Eastern time) by adding the market value of all securities and other
assets attributable to a Fund, then subtracting the liabilities charged to the
Fund, and then dividing the result by the number of outstanding shares of the
Fund.
Fund securities and other assets are valued primarily on the basis of market
quotations, or if quotations are not available, by a method believed to
accurately reflect fair value. Non-U.S. securities are valued based on
quotations from the primary market in which they are traded and are translated
from the local currency into U.S. dollars using current exchange rates. In light
of the non-U.S. nature of some of each Fund's investments, trading may take
place in securities held by the Funds on days which are not Business Days and on
which it will not be possible to purchase or redeem shares of the Funds.
PURCHASE AND
REDEMPTION OF SHARES
- --------------------------------------------------------------------------------
Investors may not purchase or redeem shares of the Funds directly, but only
through variable annuity contracts and variable life insurance policies offered
through the Separate Accounts of Participating Insurance Companies. Investors
should refer to the prospectus of the Participating Insurance Company's Separate
Account for information on how to purchase a variable annuity contract or
variable life insurance policy, how to select specific Funds as investment
options for the applicable contract or policy and how to redeem monies from the
applicable contract or policy.
The Separate Accounts of the Participating Insurance Companies place orders
to purchase and redeem shares of the Funds based on, among other things, the
amount of premium payments to be invested and the amount of surrender and
transfer requests (as defined in the prospectus describing the variable annuity
contracts and variable life insurance policies issued by the Participating
Insurance Companies) to be effected on that day pursuant to variable annuity
contracts and variable life insurance policies. Orders received by the Funds are
effected on Business Days only. Orders for the purchase of shares of a Fund are
effected at the net asset value per share next calculated after an order is
received in proper form by the Fund or its designee so long as payment for the
shares is received by the end of the next Business Day. Redemptions are effected
at the net asset value per share next calculated after receipt in proper form of
a redemption request by a Fund or its designee. For purposes of the purchase and
redemption of shares of the Funds, the Separate Account of a Participating
Insurance Company shall be a designee of the Fund for receipt of requests for
purchase and redemption, and receipt by such designee shall constitute receipt
by the Fund, provided that the Fund receives notice of such requests in
accordance with applicable requirements on the next following Business Day.
Separate Accounts must transmit purchase and redemption orders promptly. Payment
for redemptions will be made by the Funds within seven days after the request is
received. The Funds may suspend the right of redemption under certain
extraordinary circumstances in accordance with the rules of the Securities and
Exchange Commission.
The Funds do not assess any sales charges or redemption fees. Sales charges,
mortality and expense risk fees and other charges may be assessed by
Participating Insurance Companies under the variable annuity contracts or
variable life insurance policies. The Participating Insurance Companies are
required to describe these fees in the prospectuses for the contracts or
policies.
Shares of the Funds may be sold to and held by Separate Accounts that fund
variable annuity and variable life insurance contracts issued by both affiliated
and unaffiliated Participating Insurance Companies. The Funds currently do not
foresee any disadvantages to the holders of variable annuity contracts and
variable life insurance policies of affiliated and unaffiliated Participating
Insurance Companies arising from the fact that interests of the holders of
variable annuity contracts and variable life insurance policies may differ due
to differences of tax treatment or other considerations or due to conflicts
between the affiliated or unaffiliated Participating Insurance Companies.
Nevertheless, the Trustees will monitor events to seek to identify any material
irreconcilable conflicts which may possibly arise and to determine what action,
if any, should be taken in response to such conflicts. Should a material
irreconcilable conflict arise between the holders of variable annuity contracts
and variable life insurance policies of affiliated or unaffiliated Participating
Insurance Companies, the Participating Insurance Companies may be required to
withdraw the assets allocable to some or all of the Separate Accounts from the
Funds. Any such withdrawal could disrupt orderly portfolio management to the
potential detriment of such holders. The variable annuity contracts and variable
life insurance policies are described in the separate prospectuses issued by the
Participating Insurance Companies. The Funds assume no responsibility for such
prospectuses.
DIVIDENDS AND
DISTRIBUTIONS
- --------------------------------------------------------------------------------
Substantially all of each Fund's net income, if any, from dividends and
interest is distributed annually on or about the last day of December. Net
realized short-term and long-term capital gains, if any, will be distributed
annually, in December. Each Fund may also make additional distributions to the
extent necessary to avoid the application of the 4% non-deductible excise tax on
certain undistributed income and net capital gains of mutual funds.
All dividends and distributions will be automatically reinvested in
additional shares of a Fund issued at the net asset value of such shares on the
payment date of such dividends and distributions.
MANAGEMENT
- --------------------------------------------------------------------------------
TRUSTEES AND OFFICERS: Each Fund is supervised by the Board of
Trustees of Variable Annuity Portfolios. A majority of the Trustees are not
affiliated with Citibank. More information on the Trustees and officers of the
Funds appears under "Management" in the Statement of Additional Information.
INVESTMENT MANAGER: Citibank offers a wide range of banking and investment
services to customers across the United States and throughout the world, and has
been managing money since 1822. Its portfolio managers are responsible for
investing in money market, equity and fixed income securities. Citibank and its
affiliates manage more than $88 billion in assets worldwide. Citibank is a
wholly-owned subsidiary of Citicorp. Citibank also serves as investment adviser
to other registered investment companies. Citibank's address is 153 East 53rd
Street, New York, New York 10043.
Subject to policies set by the Trustees, Citibank is responsible for overall
management of the Funds' business affairs, and has a separate Management
Agreement with each Fund. Citibank also provides certain administrative services
to the Funds. These administrative services include providing general office
facilities and supervising the overall administration of the Funds. Pursuant to
sub-administrative services agreements, the distributor performs such
sub-administrative duties for the Funds as from time to time are agreed upon by
Citibank and the distributor. The distributor's compensation as
sub-administrator is paid by Citibank.
Lawrence P. Keblusek, U.S. Chief Investment Officer of Citibank since 1995,
has been the overall portfolio manager of the Funds since their inception and is
responsible for determining asset allocations, supervising and monitoring the
performance of the Citibank personnel described below who are responsible for
the Funds' securities, and supervising and monitoring the performance of the
Subadvisers. Prior to joining Citibank in 1995, Mr. Keblusek, who has 25 years
experience in the investment management industry, was Senior Vice President and
Director of Portfolio Management for The Northern Trust Company with
responsibility for investment performance in the organization's High Net Worth,
Corporate and Institutional and Mutual Fund Group. Earlier in his career, Mr.
Keblusek held senior investment positions with Maryland National Bank and the
National Bank of Washington.
The following individuals at Citibank are responsible for daily management
of the following kinds of securities of the Funds (and related investments).
LARGE CAPITALIZATION GROWTH SECURITIES
Grant D. Hobson and Richard Goldman, Vice Presidents, have been responsible for
the daily management of large cap growth securities since November, 1997. Since
joining Citibank in 1993, Mr. Hobson has been responsible for managing U.S.
equity portfolios for mutual funds, trust and pension accounts of Citibank
Global Asset Management and currently manages, or co-manages, more than $4
billion of total assets at Citibank. Prior to joining Citibank, Mr. Hobson was a
securities analyst and sector manager for pension accounts and mutual funds for
Axe Houghton, formerly a division of USF&G. Since 1994, Mr. Goldman has been
responsible for managing U.S. equity portfolios for mutual funds and
institutional accounts, and for quantitative equity research for the U.S.
institutional business of Citibank Global Asset Management. He currently
manages, or co-manages, approximately $4 billion of total assets at Citibank. He
joined Citicorp's Investment Management Division in 1985 and from 1988 to 1994
was responsible for running Citicorp's Institutional Investor Relations
Department.
SMALL CAPITALIZATION GROWTH SECURITIES
Linda J. Intini, Vice President, has been responsible for the daily management
of small cap growth securities since February 1997. Ms. Intini has over nine
years of experience specializing in the management of small cap equities,
including over $300 million of Citibank's small cap portfolios for trusts and
individuals. Prior to joining Citibank as a portfolio manager in 1992, she was a
Portfolio Manager and Research Analyst with Manufacturers Hanover in the Special
Equity area. She also specialized in equity research at Eberstadt Fleming.
DOMESTIC FIXED INCOME SECURITIES
Mark Lindbloom, Vice President, has been responsible for the daily management of
domestic fixed income securities since the Funds' inception, and has been a
portfolio manager for fixed income securities since joining Citibank in 1986.
Mr. Lindbloom has more than 12 years of investment management experience. Prior
to joining Citibank, Mr. Lindbloom was a Fixed Income Portfolio Manager with
Brown Brothers Harriman & Co., where he managed fixed income assets for
discretionary corporate portfolios.
MONEY MARKET SECURITIES
Kevin Kennedy, Vice President, has been responsible for the daily management
of money market securities since the Funds' inception. Mr. Kennedy has managed
the Liquidity Management Unit of the U.S. Fixed Income Department of Citibank
Global Asset Management since joining Citibank in 1993. Prior to joining
Citibank, Mr. Kennedy was with the Metropolitan Life Insurance Company as the
Managing Trader of the Treasurer's Division. He was responsible for the
management of more than $9 billion in short duration fixed income assets. Mr.
Kennedy has more than 15 years of fixed income management experience.
The following Subadvisers are responsible for the daily management of the
following kinds of securities of the Funds (and related investments).
LARGE CAPITALIZATION VALUE SECURITIES
Miller Anderson & Sherrerd, LLP, One Tower Bridge, West Conshohocken,
Pennsylvania 19428. Miller Anderson has been a registered investment adviser
since 1974. Miller Anderson is an indirect, wholly-owned subsidiary of Morgan
Stanley, Dean Witter, Discover & Co., a financial services company with three
major businesses: full service brokerage, credit services and asset management.
Robert Marcin, CFA, has been responsible for the daily management of large cap
value securities since the Funds' inception. Mr. Marcin has been an investment
professional with Miller Anderson since 1988.
SMALL CAPITALIZATION VALUE SECURITIES
Franklin Advisory Services, Inc., One Parker Plaza, 16th Floor, Fort Lee, New
Jersey 07024. Franklin Advisory Services, a wholly-owned subsidiary of
Franklin Resources, Inc., is a registered investment adviser. William J.
Lippman, President of Franklin Advisory Services or its predecessor since
1988, has been responsible for the daily management of U.S. small
capitalization value securities since the Funds' inception. Mr. Lippman also
serves as Senior Vice President of Franklin Resources, Inc. and Franklin
Advisers, Inc. He has been in the securities industry for over 30 years and
with the Franklin Templeton Group since 1988.
INTERNATIONAL EQUITY SECURITIES
Hotchkis and Wiley, 800 West Sixth Street, Fifth Floor, Los Angeles, California
90017. Hotchkis and Wiley is a division of the Merrill Lynch Capital Management
Group, which is an operating business unit of Merrill Lynch Asset Management,
L.P., a registered investment adviser. Harry W. Hartford and Sarah H. Ketterer
have been responsible for the daily management of international equity
securities since the Funds' inception. Mr. Hartford and Ms. Ketterer manage
international equity accounts and are also responsible for international
investment research. Each has served on the Investment Policy Committee at
Hotchkis and Wiley since joining the firm. Prior to joining the predecessor of
Hotchkis and Wiley in 1994, Mr. Hartford was with The Investment Bank of
Ireland, as a Senior Manager, where he gained 10 years of experience in both
international and global equity management. Prior to joining the predecessor of
Hotchkis and Wiley in 1990, Ms. Ketterer was an associate with Bankers Trust and
an analyst at Dean Witter.
FOREIGN GOVERNMENT SECURITIES
Pacific Investment Management Company, 840 Newport Center Drive, Suite 360, P.O.
Box 6430, Newport Beach, California 92658-9030. PIMCO is a registered investment
adviser and is a subsidiary partnership of PIMCO Advisors L.P. A majority
interest of PIMCO Advisors L.P. is held by PIMCO Partners, G.P., a general
partnership between Pacific Investment Management Company, a California
corporation and indirect wholly-owned subsidiary of Pacific Mutual Life
Insurance Company, and PIMCO Partners, L.L.C., a limited liability company
controlled by the Managing Directors of PIMCO. Lee R. Thomas, III, Senior
International Portfolio Manager, has been responsible for the daily management
of foreign government securities since the Funds' inception. He joined PIMCO in
1995. Previously he was a member of Investcorp's Management Committee, where he
was responsible for global securities and foreign exchange trading. Prior to
Investcorp, he was associated with Goldman Sachs, where he was an Executive
Director in the fixed income division of the London office.
Management's discussion of each Fund's performance is included in the Funds'
Annual Report to Shareholders, which investors may obtain without charge by
calling their participating insurance company.
MANAGEMENT FEES. For the services of Citibank under the Management Agreements
and the services of the Subadvisers, the Funds pay an aggregate fee, which is
accrued daily and paid monthly, of 0.75% of each Fund's average daily net assets
on an annualized basis for that Fund's then-current fiscal year. This fee is
higher than the management fee paid by most mutual funds. Citibank may
voluntarily agree to waive a portion of its management fee from any Fund.
The management fee is allocated among the Subadvisers at the annual rates
equal to the percentages specified below of the aggregate assets of the Funds
allocated to the particular Subadviser. Citibank retains any management fee in
excess of amounts payable to the Subadvisers. Citibank pays the Subadvisers'
fees to the extent they exceed the aggregate fee stated above. Citibank may
voluntarily agree to waive its portion of the management fee from any Fund.
Miller Anderson & Sherrerd, LLP
0.625% on first $25 million
0.375% on next $75 million
0.250% on next $400 million
0.20% on assets in excess of $500 million
Franklin Advisory Services, Inc.
0.55% on first $250 million
0.50% on remaining assets
Hotchkis and Wiley
0.60% on first $10 million
0.55% on next $40 million
0.45% on next $100 million
0.35% on next $150 million
0.30% on remaining assets
PIMCO
0.35% on first $200 million
0.30% on remaining assets
For the period from February 10, 1977 (commencement of operations) to
December 31, 1997 the management fees paid to Citibank by CitiSelect VIP Folio
200, CitiSelect VIP Folio 300, CitiSelect VIP 400 and CitiSelect VIP Folio 500
were %, %, % and % of the applicable Fund's average daily net assets for that
period, respectively.
BANKING RELATIONSHIPS. Citibank and its affiliates may have deposit, loan and
other relationships with the issuers of securities purchased on behalf of the
Funds, including outstanding loans to such issuers which may be repaid in whole
or in part with the proceeds of securities so purchased. Citibank has informed
the Funds that, in making its investment decisions, it does not obtain or use
material inside information in the possession of any division or department of
Citibank or in the possession of any affiliate of Citibank.
BANK REGULATORY MATTERS The Glass-Steagall Act prohibits certain financial
institutions, such as Citibank, from underwriting securities of open-end
investment companies, such as the Funds. Citibank believes that its services
under the Management Agreements and the activities performed by it as
administrator are not underwriting and are consistent with the Glass-Steagall
Act and other relevant federal and state laws. However, there is no controlling
precedent regarding the performance of the combination of investment advisory
and administrative activities by banks. State laws on this issue may differ from
applicable federal law and banks and financial institutions may be required to
register as dealers pursuant to state securities laws. Changes in either federal
or state statutes or regulations, or in their interpretations, could prevent
Citibank or its affiliates from continuing to perform these services for the
Funds. If Citibank or its affiliates were to be prevented from acting as the
Manager or administrator, the affected Funds would seek alternative means for
obtaining these services. The Funds do not expect that shareholders would suffer
any adverse financial consequences as a result of any such occurrence.
DISTRIBUTOR: Pursuant to a Distribution Agreement, CFBDS, Inc., 6 St. James
Avenue, Boston, MA 02116 (telephone: (617) 423-1679), serves as the
distributor of shares of each Fund. CFBDS receives no fee for performing
distribution services for the Funds.
CUSTODIAN, TRANSFER AGENT AND FUND ACCOUNTANT: State Street Bank and Trust
Company acts as transfer agent, dividend disbursing agent and custodian for each
Fund. Securities may be held by a sub-custodian bank approved by the Trustees.
State Street also provides certain fund accounting services and calculates the
daily net asset value for the Funds. The principal business address of State
Street is 225 Franklin Street, Boston, Massachusetts 02110.
TAX MATTERS
- --------------------------------------------------------------------------------
This discussion of the federal income taxation of the Funds and their
distributions is for general information only. Purchasers of variable annuity
contracts or variable life insurance policies issued by Participating Insurance
Companies should refer to the prospectuses for those contracts or policies for
additional tax information and should consult their own tax advisers about their
particular situations.
Each Fund will be treated as a separate entity for federal income tax
purposes. Each Fund intends to qualify as a "regulated investment company" under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"),
which would relieve a Fund of liability for Federal income and excise taxes to
the extent the Fund's earnings are distributed in accordance with the timing
requirements of the Code. In order to so qualify, a Fund must comply with
certain distribution, diversification, source of income, and other applicable
requirements. If for any taxable year a Fund does not qualify for the special
Federal tax treatment afforded regulated investment companies, all of the Fund's
taxable income would be subject to tax at regular corporate rates without any
deduction for distributions to shareholders. In such event, a Fund's
distributions to segregated asset accounts holding shares of the Fund would be
taxable as ordinary income to the extent of the Fund's current and accumulated
earnings and profits. A failure of a Fund to qualify as a regulated investment
company could also have the adverse effects on investors noted below.
A segregated asset account upon which a variable annuity contract or
variable life insurance policy is based must meet certain diversification tests
set forth in U.S. Treasury regulations. If, as is intended, the Fund meets these
tests and complies with certain other conditions, a segregated asset account
investing solely in shares of a Fund will also be deemed to meet these
diversification requirements. However, a failure of the Fund to qualify as a
regulated investment company or to meet such conditions and to comply with such
tests could cause the owners of variable annuity contracts and variable life
insurance policies based on such accounts to recognize ordinary income each year
in the amount of any net appreciation of such contract or policy during the year
(including the annual costs of life insurance, if any, provided under such
policy).
Provided that the Fund and a segregated asset account investing in the Fund
satisfy the above requirements, any distributions from the Fund will be exempt
from current Federal income taxation to the extent that such distributions
accumulate in a variable annuity contract or a variable life insurance contract.
The foregoing discussion of federal income tax consequences is based on tax
laws and regulations in effect on the date of this Prospectus which are subject
to change by legislative or administrative action.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
Each Fund's performance may be quoted in advertising, shareholder reports
and other communications in terms of yield or total rate of return. All
performance information is historical and is not intended to indicate future
performance. Yield and total rates of return fluctuate in response to market
conditions and other factors, and the value of an investor's shares when
redeemed may be more or less than their original cost.
Each Fund may provide its period and average annualized "total rates of
return." The "total rate of return" refers to the change in the value of an
investment in the Fund over a stated period which was made at the maximum public
offering price and reflects any change in net asset value per share and is
compounded to include the value of any shares purchased with any dividends or
capital gains declared during such period. Period total rates of return may be
"annualized." An "annualized" total rate of return assumes that the period total
rate of return is generated over a one-year period.
Each Fund may provide annualized "yield" quotations. The "yield" of a Fund
refers to the income generated by an investment in the Fund over a 30-day or
one-month period (which period is stated in any such advertisement or
communication). This income is then annualized; that is, the amount of income
generated by the investment over that period is assumed to be generated each
month over a one-year period and is shown as a percentage of the maximum public
offering price on the last day of that period. A "yield" quotation, unlike a
total rate of return quotation, does not reflect changes in net asset value.
Yields and total returns quoted for the Funds include the effect of
deducting the Funds' expenses, but may not include charges and expenses
attributable to a particular variable annuity contract or variable life
insurance policy. Since shares of the Funds can be purchased only through a
variable annuity contract or variable life insurance policy, a prospective
purchaser should carefully review the prospectus of the variable annuity
contract or variable life insurance policy he or she has chosen for information
on relevant charges and expenses. Including these charges in the quotations of
the Funds' yield and total return would have the effect of decreasing
performance. Performance information for the Funds must always be accompanied
by, and be reviewed with, performance information for the insurance product
which invests in the Funds. See the Statement of Additional Information for more
information concerning the calculation of yield and total rate of return
quotations for the Funds.
GENERAL INFORMATION
- --------------------------------------------------------------------------------
ORGANIZATION: Each Fund is a diversified series of Variable Annuity
Portfolios, an open-end investment company organized as a Massachusetts
business trust on October 18, 1996.
Under the 1940 Act, a diversified series or diversified investment company
must invest at least 75% of its assets in cash and cash items, U.S. Government
securities, investment company securities and other securities limited as to any
one issuer to not more than 5% of the total assets of the investment company and
not more than 10% of the voting securities of the issuer.
Under Massachusetts law, shareholders of a business trust may, under certain
circumstances, be held personally liable as partners for the trust's
obligations. However, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which both
inadequate insurance existed and the trust itself was unable to meet its
obligations.
VOTING AND OTHER RIGHTS: The Funds may issue an unlimited number of shares
($0.00001 par value), may create new series of shares and may divide shares in
each series into classes. Each share of each Fund gives the shareholder one vote
in Trustee elections and other matters submitted to shareholders for vote. All
shares of the Funds have equal voting rights except that, in matters affecting
only a particular Fund, only shares of that particular Fund are entitled to
vote.
As series of a Massachusetts business trust, the Funds are not required to
hold annual shareholder meetings. Shareholder approval will usually be sought
only for changes in a Fund's fundamental investment restrictions and for the
election of Trustees under certain circumstances. Trustees may be removed by
shareholders under certain circumstances. Each share of each Fund is entitled to
participate equally in dividends and other distributions and the proceeds of any
liquidation of that Fund.
The rights accompanying Fund shares are legally vested in the Separate
Accounts. However, in accordance with current law and interpretations thereof,
Participating Insurance Companies will vote shares held in the Separate Accounts
in a manner consistent with timely voting instructions received from the holders
of variable annuity contracts and variable life insurance policies. Each
Participating Insurance Company will vote Fund shares held in Separate Accounts
for which no timely instructions are received from the holders of variable
annuity contracts and variable life insurance policies, as well as shares it
owns, in the same proportion as those shares for which voting instructions are
received. For a further discussion, please refer to the insurance company's
Separate Account prospectus.
CERTIFICATES: The Funds' Transfer Agent maintains a share register for
shareholders of record, i.e., the Separate Accounts of the Participating
Insurance Companies. Share certificates are not issued.
EXPENSES: In addition to amounts payable to Citibank and the Subadvisers under
the Management and Submanagement Agreements each Fund is responsible for its own
expenses, including, among other things, the costs of securities transactions,
the compensation of Trustees that are not affiliated with Citibank, government
fees, taxes, accounting and legal fees, expenses of communicating with
shareholders, interest expense, and insurance premiums.
For the period from February 10, 1997 (commencement of operations), to
December 31, 1997, the annualized expenses were % for CitiSelect VIP Folio 200,
% for CitiSelect VIP Folio 300, % for CitiSelect VIP Folio 400 and %
for CitiSelect VIP Folio 500, of each Fund's average daily net assets for that
period.
All fee waivers are voluntary and may be reduced or terminated at any time.
COUNSEL AND INDEPENDENT AUDITOR: Bingham, Dana LLP, 150 Federal Street, Boston,
MA 02110, is counsel for each Fund. Price Waterhouse LLP, 160 Federal Street,
Boston, MA 02110, serves as independent accountants for each Fund.
------------------------
The Statement of Additional Information dated the date hereof contains more
detailed information about the Funds, including information relating to (i)
investment policies and restrictions, (ii) the Trustees, officers and investment
manager, (iii) securities transactions, (iv) the Funds' shares, including rights
and liabilities of shareholders, (v) the method used to calculate performance
information, and (vi) the determination of net asset value.
No person has been authorized to give any information or make any
representations not contained in this Prospectus or the Statement of Additional
Information in connection with the offering made by this Prospectus and, if
given or made, such information or representations must not be relied upon as
having been authorized by the Funds or their distributor. This Prospectus does
not constitute an offering by the Funds or their distributor in any jurisdiction
in which such offering may not lawfully be made.
<PAGE>
APPENDIX
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PERMITTED INVESTMENTS AND
INVESTMENT PRACTICES
REPURCHASE AGREEMENTS. Each Fund may enter into repurchase agreements in order
to earn a return on temporarily available cash. Repurchase agreements are
transactions in which an institution sells the Fund a security at one price,
subject to the Fund's obligation to resell and the selling institution's
obligation to repurchase that security at a higher price normally within a seven
day period. There may be delays and risks of loss if the seller is unable to
meet its obligation to repurchase.
REVERSE REPURCHASE AGREEMENTS. Each Fund may enter into reverse repurchase
agreements. Reverse repurchase agreements involve the sale of securities held by
the Fund and the agreement by the Fund to repurchase the securities at an
agreed-upon price, date and interest payment. When a Fund enters into reverse
repurchase transactions, securities of a dollar amount equal in value to the
securities subject to the agreement will be maintained in a segregated account
with the Fund's custodian. The segregation of assets could impair the Fund's
ability to meet its current obligations or impede investment management if a
large portion of the Fund's assets are involved. Reverse repurchase agreements
are considered to be a form of borrowing.
LENDING OF PORTFOLIO SECURITIES. Consistent with applicable regulatory
requirements and in order to generate additional income, each Fund may lend its
portfolio securities to broker-dealers and other institutional borrowers. Such
loans must be callable at any time and continuously secured by collateral (cash
or U.S. Government securities) in an amount not less than the market value,
determined daily, of the securities loaned. It is intended that the value of
securities loaned by a Fund would not exceed 30% of the Fund's total assets.
In the event of the bankruptcy of the other party to a securities loan,
repurchase agreement or reverse repurchase agreement, a Fund could experience
delays in recovering either the securities or cash. To the extent that, in the
meantime, the value of the securities loaned or sold has increased or the value
of the securities purchased has decreased, the Fund could experience a loss.
CONVERTIBLE SECURITIES. Each Fund may invest in convertible securities. A
convertible security is a fixed-income security (a bond or preferred stock)
which may be converted at a stated price within a specified period of time into
a certain quantity of common stock or other equity securities of the same or a
different issuer. Convertible securities rank senior to common stock in a
corporation's capital structure but are usually subordinated to similar
non-convertible securities. While providing a fixed-income stream (generally
higher in yield than the income derivable from common stock but lower than that
afforded by a similar non-convertible security), a convertible security also
affords an investor the opportunity, through its conversion feature, to
participate in the capital appreciation attendant upon a market price advance in
the convertible security's underlying common stock. Convertible securities
purchased are not subject to the rating requirements applicable to the Funds'
purchase of fixed income investments.
In general, the market value of a convertible security is at least the
higher of its "investment value" (i.e., its value as a fixed-income security) or
its "conversion value" (i.e., its value upon conversion into its underlying
stock). As a fixed-income security, a convertible security tends to increase in
market value when interest rates decline and tends to decrease in value when
interest rates rise. However, the price of a convertible security is also
influenced by the market value of the security's underlying common stock. The
price of a convertible security tends to increase as the market value of the
underlying stock rises, whereas it tends to decrease as the market value of the
underlying stock declines. While no securities investment is without some risk,
investments in convertible securities generally entail less risk than
investments in the common stock of the same issuer.
RULE 144A SECURITIES. Each Fund may purchase restricted securities that are not
registered for sale to the general public. If it is determined that there is a
dealer or institutional market in the securities, the securities will not be
treated as illiquid for purposes of the Fund's investment limitations. The
Trustees will review these determinations. These securities are known as "Rule
144A securities," because they are traded under SEC Rule 144A among qualified
institutional buyers. Institutional trading in Rule 144A securities is
relatively new, and the liquidity of these investments could be impaired if
trading in Rule 144A securities does not develop or if qualified institutional
buyers become, for a time, uninterested in purchasing Rule 144A securities.
PRIVATE PLACEMENTS AND ILLIQUID INVESTMENTS. Each Fund may invest up to 10% of
its net assets in securities for which there is no readily available market.
These illiquid securities may include privately placed restricted securities for
which no institutional market exists. The absence of a trading market can make
it difficult to ascertain a market value for illiquid investments. Disposing of
illiquid investments may involve time-consuming negotiation and legal expenses,
and it may be difficult or impossible for a Fund to sell them promptly at an
acceptable price.
"WHEN-ISSUED" SECURITIES. In order to ensure the availability of suitable
securities, each Fund may purchase securities on a "when-issued" or on a
"forward delivery" basis, which means that the securities would be delivered to
the Fund at a future date beyond customary settlement time. Under normal
circumstances, the Fund takes delivery of the securities. In general, the Fund
does not pay for the securities until received and does not start earning
interest until the contractual settlement date. While awaiting delivery of the
securities, the Fund establishes a segregated account consisting of cash, cash
equivalents or high quality debt securities equal to the amount of the Fund's
commitments to purchase "when-issued" securities. An increase in the percentage
of the Fund's assets committed to the purchase of securities on a "when-issued"
basis may increase the volatility of its net asset value.
COMMERCIAL PAPER. Each Fund may invest in commercial paper, which is unsecured
debt of corporations usually maturing in 270 days or less from its date of
issuance.
DEPOSITARY RECEIPTS FOR SECURITIES. American Depositary Receipts ("ADRs"),
European Depositary Receipts ("EDRs"), Global Depositary Receipts ("GDRs") and
other forms of depositary receipts for securities of non-U.S. issuers provide an
alternative method for a Fund to make non-U.S. investments. These securities are
not usually traded in the same currency as the securities into which they may be
converted. Generally, ADRs, in registered form, are designed for use in U.S.
securities markets and EDRs and GDRs, in bearer form, are designed for use in
European and global securities markets. ADRs are receipts typically issued by a
U.S. bank or trust company evidencing ownership of the underlying securities.
EDRs and GDRs are European and global receipts, respectively, evidencing a
similar arrangement.
OTHER INVESTMENT COMPANIES. Subject to applicable statutory and regulatory
limitations, assets of each Fund may be invested in shares of other investment
companies. Each Fund may invest up to 5% of its assets in closed-end
investment companies which primarily hold securities of non-U.S. issuers.
CURRENCY EXCHANGE CONTRACTS. Forward currency exchange contracts may be entered
into for each Fund for the purchase or sale of non-U.S. currency to hedge
against adverse rate changes or otherwise to achieve the Fund's investment
objectives. A currency exchange contract allows a definite price in dollars to
be fixed for securities of non-U.S. issuers that have been purchased or sold
(but not settled) for the Fund.
Each Fund may also enter into proxy hedges and cross hedges. In a proxy
hedge, which generally is less costly than a direct hedge, a Fund, having
purchased a security, will sell a currency whose value is believed to be closely
linked to the currency in which the security is denominated. Interest rates
prevailing in the country whose currency was sold would be expected to be closer
to those in the U.S. and lower than those of securities denominated in the
currency of the original holding. This type of hedging entails greater risk than
a direct hedge because it is dependent on a stable relationship between the two
currencies paired as proxies and the relationships can be very unstable at
times. A Fund may enter into a cross hedge if a particular currency is expected
to decrease against another currency. The Fund would sell the currency expected
to decrease and purchase a currency which is expected to increase against the
currency sold in an amount equal to some or all of the Fund's holdings
denominated in the currency sold.
Entering into exchange contracts may result in the loss of all or a portion
of the benefits which otherwise could have been obtained from favorable
movements in exchange rates. In addition, entering into such contracts means
incurring certain transaction costs and bearing the risk of incurring losses if
rates do not move in the direction anticipated.
SECURITIES RATED Baa OR BBB. Each Fund may purchase securities rated Baa by
Moody's or BBB by S&P and securities of comparable quality, which may have poor
protection of payment of principal and interest. These securities are often
considered to be speculative and involve greater risk of default or price
changes than securities assigned a higher quality rating due to changes in the
issuer's creditworthiness. The market prices of these securities may fluctuate
more than higher-rated securities and may decline significantly in periods of
general economic difficulty which may follow periods of rising interest rates.
ASSET-BACKED SECURITIES. Each Fund may invest in corporate asset-backed
securities. These securities, issued by trusts and special purpose corporations,
are backed by a pool of assets, such as credit card or automobile loan
receivables, representing the obligations of a number of different parties.
Corporate asset-backed securities present certain risks. For instance, in the
case of credit card receivables, these securities may not have the benefit of
any security interest in the related collateral.
Each Fund also may purchase mortgage-backed securities issued or guaranteed
as to payment of principal and interest by the U.S. Government or one of its
agencies and backed by the full faith and credit of the U.S. Government,
including direct pass-through certificates of GNMA, as well as mortgage-backed
securities for which principal and interest payments are backed by the credit of
particular agencies of the U.S. Government. Mortgage- backed securities are
generally backed or collateralized by a pool of mortgages. These securities are
sometimes called collateralized mortgage obligations or CMOs.
Even if the U.S. Government or one of its agencies guarantees principal and
interest payments of a mortgage-backed security, the market price of a
mortgage-backed security is not insured and may be subject to market volatility.
When interest rates decline, mortgage-backed securities experience higher rates
of prepayment, because the underlying mortgages are refinanced to take advantage
of the lower rates. Thus the prices of mortgage-backed securities may not
increase as much as prices of other debt obligations when interest rates
decline, and mortgage-backed securities may not be an effective means of locking
in a particular interest rate. In addition, any premium paid for a
mortgage-backed security may be lost when it is prepaid. When interest rates go
up, mortgage-backed securities experience lower rates of prepayment. This has
the effect of lengthening the expected maturity of a mortgage-backed security.
As a result, prices of mortgage-backed securities may decrease more than prices
of other debt obligations when interest rates go up.
Additionally mortgage-backed securities are also subject to maturity
extension risk, that is, the possibility that rising interest rates may cause
prepayments to occur at a slower than expected rate. This particular risk may
effectively convert a security that was considered short or intermediate-term at
the time of purchase into a long-term security. Long-term securities generally
fluctuate more widely in response to changes in interest rates than short or
intermediate-term securities. Thus, a rising interest rate would not only likely
decrease the value of a Fund's securities, but would also increase the inherent
volatility of the Fund by effectively converting short term debt instruments
into long term debt instruments.
DOLLAR ROLLS. The Funds also may enter into "dollar rolls." A dollar roll is a
transaction pursuant to which a Fund sells mortgage-backed securities for
delivery in the current month and simultaneously contracts to repurchase
substantially similar (same type, coupon and maturity) securities on a specified
future date. During the roll period, the Fund foregoes principal and interest
paid on the mortgage-backed securities. The Fund is compensated by the
difference between the current sales price and the lower forward price for the
future purchase (often referred to as the "drop") as well as by the interest
earned on the cash proceeds of the initial sale. A "covered roll" is a specific
type of dollar roll for which a Fund establishes a segregated account with
liquid high grade debt securities equal in value to the securities subject to
repurchase by the Fund. The Funds will invest only in covered rolls.
SWAPS AND RELATED TRANSACTIONS. Each Fund may enter into swap agreements with
other institutional investors with respect to foreign currencies, interest rates
and securities indexes and may enter into other types of available swap
agreements, such as caps, collars and floors, for the purpose of attempting to
obtain a particular desired return at a lower cost to the Fund than if the Fund
had invested directly in an instrument that yielded that desired return. In a
standard swap agreement, two parties agree to exchange the returns (or
differentials in rates of return) earned or realized on a particular
predetermined investment or investments.
Each Fund may also purchase and sell caps, floors and collars. In a typical
cap or floor agreement, one party agrees to make payments only under specified
circumstances, usually in return for payment of a fee by the counterparty. For
example, the purchase of an interest rate cap entitles the buyer, to the extent
that a specified index exceeds a predetermined interest rate, to receive
payments of interest on a contractually-based principal amount from the
counterparty selling such interest rate cap. The sale of an interest rate floor
obligates the seller to make payments to the extent that a specified interest
rate falls below an agreed-upon level. A collar arrangement combines elements of
buying and selling a floor.
Swap agreements are subject to each Fund's overall limit that not more than
10% of its net assets may be invested in illiquid securities, and no Fund will
enter into a swap agreement with any single party if the net amount owed or to
be received under existing contracts with that party would exceed 5% of the
Fund's assets.
FUTURES. Because the value of a futures contract changes based on the price of
the underlying security or other asset, futures contracts are considered to be
"derivatives." Futures contracts are a generally accepted part of modern
portfolio management and are regularly utilized by many mutual funds and other
institutional investors. When a Fund purchases or sells a futures contract, it
is required to make an initial margin deposit. Although the amount may vary,
initial margin can be as low as 1% or less of the face amount of the contract.
Additional margin may be required as the contract fluctuates in value. Since the
amount of margin is relatively small compared to the value of the securities
covered by a futures contract, the potential for gain or loss on a futures
contract is much greater than the amount of a Fund's initial margin deposit.
None of the Funds currently intends to enter into a futures contract if, as a
result, the initial margin deposits on all of that Fund's futures contracts
would exceed approximately 5% of the Fund's net assets. Also, each Fund intends
to limit its futures contracts so that the value of the securities covered by
its futures contracts would not generally exceed 50% of the Fund's other assets
and to segregate sufficient assets to meet its obligations under outstanding
futures contracts.
The ability of a Fund to utilize futures contracts successfully will depend
on the Fund's ability to predict interest rate, stock price or currency
movements, which cannot be assured. In addition to general risks associated with
any investment, the use of futures contracts entails the risk that, to the
extent the Fund's view as to interest rate, stock price or currency movements is
incorrect, the use of futures contracts, even for hedging purposes, could result
in losses greater than if they had not been used. This could happen, for
example, if there is a poor correlation between price movements of futures
contracts and price movements in a Fund's related portfolio position. Also, the
futures markets may not be liquid in all circumstances. As a result, in certain
markets, a Fund might not be able to close out a transaction without incurring
substantial losses, if at all. When futures contracts are used for hedging, even
if they are successful in minimizing the risk of loss due to a decline in the
value of the hedged position, at the same time they limit any potential gain
which might result from an increase in value of such position. As noted, each
Fund may also enter into transactions in futures contracts for other than
hedging purposes (subject to applicable law), including speculative
transactions, which involve greater risk. In particular, in entering into such
transactions, a Fund may experience losses which are not offset by gains on
other portfolio positions, thereby reducing its gross income. In addition, the
markets for such instruments may be extremely volatile from time to time, which
could increase the risks incurred by the Fund in entering into such
transactions.
The use of futures contracts potentially exposes a Fund to the effects of
"leveraging," which occurs when futures are used so that the Fund's exposure to
the market is greater than it would have been if the Fund had invested directly
in the underlying securities. "Leveraging" increases a Fund's potential for both
gain and loss. As noted above, each of the Funds intends to adhere to certain
policies relating to the use of futures contracts, which should have the effect
of limiting the amount of leverage by the Fund.
OPTIONS. Each Fund may write (sell) covered call and put options and purchase
call and put options on securities. A Fund will write options on securities for
the purpose of increasing its return on such securities and/or to protect the
values of its portfolio. In particular, where the Fund writes an option which
expires unexercised or is closed out by the Fund at a profit, it will retain the
premium paid for the option which will increase its gross income and will offset
in part the reduced value of the portfolio security underlying the option, or
the increased cost of portfolio securities to be acquired. If the price of the
underlying security moves adversely to the Fund's position, the option may be
exercised and the Fund will be required to purchase or sell the underlying
security at a disadvantageous price, which may only be partially offset by the
amount of the premium.
By writing a call option on a security, a Fund limits its opportunity to
profit from any increase in the market value of the underlying security, since
the holder will usually exercise the call option when the market value of the
underlying security exceeds the exercise price of the call. However, the Fund
retains the risk of depreciation in value of securities on which it has written
call options.
Each of the Funds also may purchase options on a non-U.S. currency in
order to protect against currency rate fluctuations. If a Fund purchases a put
option on a non-U.S. currency and the value of the U.S. currency declines, the
Fund will have the right to sell the non-U.S. currency for a fixed amount in
U.S. dollars and will thereby offset, in whole or in part, the adverse effect
on the Fund which otherwise would have resulted. Conversely, where a rise in
the U.S. dollar value of another currency is projected, and where the Fund
anticipates investing in securities traded in such currency, the Fund may
purchase call options on the non-U.S. currency. Each Fund also may buy and
write options on stock indices.
Each Fund may purchase and write options to buy or sell interest rate
futures contracts and options on stock index futures contracts. Such investment
strategies will be used for hedging and non-hedging purposes, subject to
applicable law. Put and call options on futures contracts may be traded by a
Fund in order to protect against declines in values of portfolio securities or
against increases in the cost of securities to be acquired. Purchases of options
on futures contracts may present less risk in hedging the portfolio of a Fund
than the purchase or sale of the underlying futures contracts since the
potential loss is limited to the amount of the premium plus related transaction
costs. The writing of such options, however, does not present less risk than the
trading of futures contracts and will constitute only a partial hedge, up to the
amount of the premium received. In addition, if an option is exercised, the Fund
may suffer a loss on the transaction.
Each Fund may enter into forward foreign currency contracts for the purchase
or sale of a fixed quantity of a foreign currency at a future date at a price
set at the time of the contract. A Fund may enter into forward contracts for
hedging and non-hedging purposes including transactions entered into for the
purpose of profiting from anticipated changes in foreign currency exchange
rates. Each Fund has established procedures consistent with statements of the
SEC and its staff regarding the use of forward contracts by registered
investment companies, which requires use of segregated assets or "cover" in
connection with the purchase and sale of such contracts.
Forward contracts are traded over-the-counter, and not on organized
commodities or securities exchanges. As a result, such contracts operate in a
manner distinct from exchange-traded instruments, and their use involves certain
risks beyond those associated with transactions in the futures and options
contracts described herein.
Transactions in options may be entered into on U.S. exchanges regulated by
the SEC, in the over-the-counter market and on foreign exchanges, while forward
contracts may be entered into only in the over-the-counter market. Futures
contracts and options on futures contracts may be entered into on U.S. exchanges
regulated by the Commodity Futures Trading Commission and on foreign exchanges.
The securities underlying options and futures contracts traded by a Fund may
include domestic as well as foreign securities. Investors should recognize that
transactions involving foreign securities or foreign currencies, and
transactions entered into in foreign countries, may involve considerations and
risks not typically associated with investing in U.S. markets.
Transactions in options, futures contracts, options on futures contracts and
forward contracts entered into for non-hedging purposes involve greater risk and
could result in losses which are not offset by gains on other portfolio assets.
For example, a Fund may sell futures contracts on an index of securities in
order to profit from any anticipated decline in the value of the securities
comprising the underlying index. In such instances, any losses on the futures
transactions will not be offset by gains on any portfolio securities comprising
such index, as might occur in connection with a hedging transaction.
Options, futures contracts, options on futures contracts, forward contracts
and swaps may be used alone or in combinations in order to create synthetic
exposure to securities in which a Fund otherwise invests, such as non-U.S.
government securities. In such instances, the Fund will also be subject to the
risks associated with these types of securities, such as counterparty risk in
swap transactions.
<PAGE>
CSP/398 [recycle symbol] Printed on recycled paper
<PAGE>
PROSPECTUS
- --------------------------------------------------------------------------------
MAY 1, 1998
CITIFUNDS(SM) SMALL CAP GROWTH VIP PORTFOLIO
CitiFunds(SM) Small Cap Growth VIP Portfolio (the "Fund") is an investment
vehicle for variable annuity contracts and variable life insurance policies
offered by the separate accounts ("Separate Accounts") of participating life
insurance companies ("Participating Insurance Companies").
The Fund's objective is long-term capital growth; dividend income, if any,
is incidental to this investment objective. The Fund invests primarily in
stocks of U.S. issuers that have small market capitalizations. In addition,
the Fund may invest in companies that are believed to be emerging companies
relative to their potential markets. There is, of course, no assurance that
the Fund will achieve its investment objective.
Citibank, N.A. is the investment manager for the Fund.
- --------------------------------------------------------------------------------
PROSPECTIVE INVESTORS SHOULD BE AWARE THAT SHARES OF THE FUND ARE NOT
DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, CITIBANK, N.A. OR
ANY OF ITS AFFILIATES, ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, AND INVOLVE INVESTMENT RISKS, INCLUDING POSSIBLE LOAN LOSS OF
PRINCIPAL AMOUNTS INVESTED.
- --------------------------------------------------------------------------------
Shares of the Fund are not offered to the general public but may only be
purchased by the Separate Accounts of Participating Insurance Companies for
the purpose of funding variable annuity contracts and variable life insurance
policies.
- --------------------------------------------------------------------------------
This Prospectus concisely sets forth information about the Fund that a
prospective investor should know before investing. A
Statement of Additional Information dated May 1, 1998 (and incorporated by
reference in this Prospectus) has been filed with the Securities and Exchange
Commission. Copies of the Statement of Additional Information may be obtained
without charge, and further inquiries about the Fund may be made, by
contacting the Fund's distributor at (617) 423-1679 or a Participating
Insurance Company. The Statement of Additional Information and other related
materials are available on the SEC's internet web site
(http://www.sec.gov).
TABLE OF CONTENTS
Condensed Financial Information .........................................2
Investment Information ..................................................3
Risk Considerations .....................................................4
Valuation of Shares .....................................................5
Purchase and Redemption of Shares .......................................5
Dividends and Distributions .............................................6
Management ..............................................................6
Tax Matters .............................................................7
Performance Information .................................................8
General Information .....................................................9
Appendix -- Permitted Investments and
Investment Practices .......................................11
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
INVESTORS SHOULD READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE REFERENCE.
<PAGE>
CONDENSED FINANCIAL INFORMATION
- -------------------------------
- --------------------------------------------------------------------------------
The following table provides condensed financial information about the Fund
for the period indicated. This information should be read in conjunction with
the financial statements appearing in the Fund's Annual Report to
Shareholders, which are incorporated by reference in the Statement of
Additional Information. The financial statements and notes, as well as the
table below, have been audited by Price Waterhouse LLP, independent
accountants. The accountants' reports are included in the Fund's Annual
Report. Copies of the Annual Report may be obtained without charge from an
investor's participating insurance company.
----------------------------
CITIFUNDS SMALL CAP
GROWTH VIP PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR THE PERIOD FROM COMMENCEMENT OF OPERATIONS TO FOR THE PERIOD
DECEMBER 31, 1997 FEBRUARY 10, 1997+
TO DECEMBER 31, 1997
- -------------------------------------------------------------------------------
Net Asset Value, beginning of period ...................... $
------
Income from Operations:
Net investment loss .......................................
Net realized loss on investment ...........................
------
Total from operations .................................
------
Net Asset Value, end of period ............................ $
======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted) ................. $
Ratio of expenses to average net assets ................... %
Ratio of net investment loss to average net assets ........ %
Total return .............................................. %
Note: If Agents of the Fund had not voluntarily agreed to waive a portion of
their fees and the sub-administrator not assumed expenses for the period
indicated, the net investment income per share would have been as follows:
Net income per share ...................................... $
RATIOS:
Expenses to average net assets ............................ %
Net investment income to average net assets ............... %
+ Commencement of operations.
* Annualized.
** Not annualized.
<PAGE>
INVESTMENT INFORMATION
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE: The investment objective of the Fund is long-term
capital growth. Dividend income, if any, is incidental to this investment
objective.
The investment objective of the Fund may be changed by its Trustees
without approval by the Fund's shareholders, but shareholders will be given
written notice at least 30 days before any change is implemented. Of course,
there can be no assurance that the Fund will achieve its investment objective.
INVESTMENT POLICIES: The Fund seeks its objective by investing in a
diversified portfolio consisting primarily of equity securities of U.S.
companies that have small market capitalizations. Under normal circumstances,
at least 65% of the Fund's total assets is invested in equity securities of
these companies. Small market capitalization companies are those with market
capitalizations of below the top 1,000 stocks of the equity market. In
addition, the Fund may invest in companies that are believed to be emerging
companies relative to their potential markets.
The Manager may also select other securities for the Fund that it believes
provide an opportunity for appreciation, such as fixed income securities and
convertible and non-convertible bonds. Most of the Fund's long-term non-
convertible debt investments are investment grade securities, and less than 5%
of the Fund's investments consist of securities rated Baa by Moody's Investors
Service, Inc. or BBB by Standard & Poor's Ratings Group.
The Fund will not sell the equity securities of an issuer solely due to
the fact that the issuer's market capitalization has grown above the small cap
level. The Fund will evaluate the continued appropriateness of such securities
within its investment criteria.
ADDITIONAL INVESTMENT POLICIES:
NON-U.S. SECURITIES. While the Fund emphasizes U.S. securities, the Fund
may invest a portion of its assets in non-U.S. equity and debt securities,
including depository receipts. The Fund does not intend to invest more than
25% of its assets in non-U.S. securities, including sponsored American
Depositary Receipts, which represent the right to receive securities of non-
U.S. issuers deposited in a U.S. or correspondent bank. The Fund may invest up
to 5% of its assets in closed-end investment companies which primarily hold
non-U.S. securities.
TEMPORARY INVESTMENTS. During periods of unusual economic or market
conditions or for temporary defensive purposes or liquidity, the Fund may
invest without limit in cash and in U.S. dollar-denominated high quality money
market and short-term instruments. These investments may result in a lower
yield than would be available from investments with a lower quality or longer
term.
OTHER PERMITTED INVESTMENTS. For more information regarding the Fund's
permitted investments and investment practices, see the Appendix -- Permitted
Investments and Investment Practices on page 11. The Fund will not necessarily
invest or engage in each of the investments and investment practices in the
Appendix but reserves the right to do so.
INVESTMENT RESTRICTIONS. The Statement of Additional Information contains
a list of specific investment restrictions which govern the investment
policies of the Fund, including a limitation that the Fund may borrow money
from banks in an amount not to exceed 1/3 of the Fund's net assets for
extraordinary or emergency purposes (e.g., to meet redemption requests). As a
matter of operating policy, however, the Fund will not borrow money in excess
of 10% of its total assets (taken at cost), except that it may borrow up to
25% of its total assets when such borrowing is necessary to meet redemption
requests. Also, as a matter of operating policy, the Fund will not purchase
any securities at any time at which borrowings exceed 5% of its total assets
(taken at market value). Except as otherwise indicated, the Fund's investment
objective and policies may be changed without shareholder approval. If a
percentage or rating restriction (other than a restriction as to borrowing) is
adhered to at the time an investment is made, a later change in percentage or
rating resulting from changes in the Fund's securities will not be a violation
of policy.
PORTFOLIO TURNOVER. Securities of the Fund will be sold whenever it is
appropriate to do so in light of the Fund's investment objective, without
regard to the length of time a particular security may have been held. For the
period February 10, 1997 (commencement of operations) through December 31,
1997, the Fund's portfolio turnover rate was %. The amount of brokerage
commissions and realization of taxable capital gains will tend to increase as
the level of portfolio activity increases.
BROKERAGE TRANSACTIONS. The primary consideration in placing the Fund's
security transactions with broker-dealers for execution is to obtain and
maintain the availability of execution at the most favorable prices and in the
most effective manner possible.
STATE INSURANCE REGULATION. The Fund provides an investment vehicle for
variable annuity contracts and variable life insurance policies to be offered
by the Separate Accounts of Participating Insurance Companies. Certain states
have regulations concerning concentration of investments and purchase and sale
of futures contracts, among other techniques. If these regulations are applied
to the Fund, the Fund may be limited in its ability to engage in such
techniques and to manage its investments with the flexibility provided herein.
It is the Fund's intention to operate in material compliance with current
insurance laws and regulations, as applied in each jurisdiction in which
contracts or policies of Separate Accounts of Participating Insurance
Companies are offered.
RISK CONSIDERATIONS
- --------------------------------------------------------------------------------
The risks of investing in the Fund vary depending upon the nature of the
securities held, and the investment practices employed, on its behalf. Certain
of these risks are described below.
CHANGES IN NET ASSET VALUE. The Fund's net asset value will fluctuate
based on changes in the values of the underlying portfolio securities. This
means that an investor's shares may be worth more or less at redemption than
at the time of purchase. Equity securities fluctuate in response to general
market and economic conditions and other factors, including actual and
anticipated earnings, changes in management, political developments and the
potential for takeovers and acquisitions. During periods of rising interest
rates the value of debt securities generally declines, and during periods of
falling rates the value of these securities generally increases. Changes by
recognized rating agencies in the rating of any debt security, and actual or
perceived changes in an issuer's ability to make principal or interest
payments, also affect the value of these investments.
CREDIT RISK OF DEBT SECURITIES. Investors should be aware that securities
offering above average yields may at times involve above average risks.
Securities rated Baa by Moody's or BBB by S&P and equivalent securities may
have speculative characteristics. Adverse economic or changing circumstances
are more likely to lead to a weakened capacity to make principal and interest
payments than is the case for higher grade obligations.
SMALL CAP COMPANIES. Investors in the Fund should be aware that the
securities of companies with small market capitalizations may have more risks
than the securities of other companies. Small cap companies may be more
susceptible to market downturns or setbacks because they may have limited
product lines, markets, distribution channels, and financial and management
resources. Further, there is often less publicly available information about
small cap companies than about more established companies. As a result of
these and other factors, the prices of securities issued by small cap
companies may be volatile. Shares of the Fund, therefore, may be subject to
greater fluctuation in value than shares of an equity fund with more of its
investments in securities of larger, more established companies.
NON-U.S. SECURITIES. Investments in non-U.S. securities involve risks
relating to political, social and economic developments abroad, as well as
risks resulting from the differences between the regulations to which U.S. and
non-U.S. issuers and markets are subject. These risks may include
expropriation, confiscatory taxation, withholding taxes on dividends and
interest, limitations on the use or transfer of portfolio assets and political
or social instability. Enforcing legal rights may be difficult, costly and
slow in non-U.S. countries, and there may be special problems enforcing claims
against non-U.S. governments. In addition, non-U.S. companies may not be
subject to accounting standards or governmental supervision comparable to U.S.
companies, and there may be less public information about their operations.
Non-U.S. markets may be less liquid and more volatile than U.S. markets, and
may offer less protection to investors such as the Fund. Prices at which the
Fund may acquire securities may be affected by trading by persons with
material non-public information and by securities transactions by brokers in
anticipation of transactions by the Fund.
Because non-U.S. securities often are denominated in currencies other than
the U.S. dollar, changes in currency exchange rates will affect the Fund's net
asset value, the value of dividends and interest earned and gains and losses
realized on the sale of securities. In addition, some non-U.S. currency values
may be volatile and there is the possibility of governmental controls on
currency exchanges or governmental intervention in currency markets.
The costs attributable to non-U.S. investing, such as the costs of
maintaining custody of securities in non-U.S. countries, frequently are higher
than those involved in U.S. investing. As a result, the operating expense
ratio of the Fund may be higher than those of investment companies investing
exclusively in U.S. securities.
The Fund may invest in securities of issuers in developing countries, and
all of these risks are increased for investments in issuers in developing
countries.
INVESTMENT PRACTICES. Certain of the investment practices employed for
the Fund may entail certain risks. These risks are in addition to the risks
described above and are described in the Appendix. See the Appendix -- Permitted
Investments and Investment Practices on page 11.
VALUATION OF SHARES
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Net asset value per share of the Fund is determined each day the New York
Stock Exchange is open for trading (a "Business Day"). This determination is
made once each day as of the close of regular trading on the Exchange
(normally 4:00 p.m. Eastern time) by adding the market value of all securities
and other assets of the Fund, then subtracting the liabilities charged to the
Fund, and then dividing the result by the number of outstanding shares of the
Fund.
Portfolio securities and other assets are valued primarily on the basis of
market quotations, or if quotations are not available, by a method believed to
accurately reflect fair value. Non-U.S. securities are valued based on
quotations from the primary market in which they are traded and are translated
from the local currency into U.S. dollars using current exchange rates. In
light of the non-U.S. nature of some of the Fund's investments, trading may
take place in securities held by the Fund on days which are not Business Days
and on which it will not be possible to purchase or redeem shares of the Fund.
PURCHASE AND REDEMPTION
OF SHARES
- --------------------------------------------------------------------------------
Investors may not purchase or redeem shares of the Fund directly, but only
through variable annuity contracts and variable life insurance policies
offered through the Separate Accounts of Participating Insurance Companies.
Investors should refer to the prospectus of the Participating Insurance
Company's Separate Account for information on how to purchase a variable
annuity contract or variable life insurance policy, how to select the Fund as
an investment option for the applicable contract or policy and how to redeem
monies from the applicable contract or policy.
The Separate Accounts of the Participating Insurance Companies place
orders to purchase and redeem shares of the Fund based on, among other things,
the amount of premium payments to be invested and the amount of surrender and
transfer requests (as defined in the prospectus describing the variable
annuity contracts and variable life insurance policies issued by the
Participating Insurance Companies) to be effected on that day pursuant to
variable annuity contracts and variable life insurance policies. Orders
received by the Fund are effected on Business Days only. Orders for the
purchase of shares of the Fund are effected at the net asset value per share
next calculated after an order is received in proper form by the Fund or its
designee so long as payment for the shares is received by the end of the next
Business Day. Redemptions are effected at the net asset value per share next
calculated after receipt in proper form of a redemption request by the Fund or
its designee. For purposes of the purchase and redemption of shares of the
Fund, the Separate Account of a Participating Insurance Company shall be a
designee of the Fund for receipt of requests for purchase and redemption, and
receipt by such designee shall constitute receipt by the Fund, provided that
the Fund receives notice of such requests in accordance with applicable
requirements on the next following Business Day. Separate Accounts must
transmit purchase and redemption orders promptly. Payment for redemptions will
be made by the Fund within seven days after the request is received. The Fund
may suspend the right of redemption under certain extraordinary circumstances
in accordance with the rules of the Securities and Exchange Commission.
The Fund does not assess any sales charges or redemption fees. Sales
charges, mortality and expense risk fees and other charges may be assessed by
Participating Insurance Companies under the variable annuity contracts or
variable life insurance policies. The Participating Insurance Companies are
required to describe these fees in the prospectuses for the contracts or
policies.
Shares of the Fund may be sold to and held by Separate Accounts that fund
variable annuity and variable life insurance contracts issued by both
affiliated and unaffiliated Participating Insurance Companies. The Fund
currently does not foresee any disadvantages to the holders of variable
annuity contracts and variable life insurance policies of affiliated and
unaffiliated Participating Insurance Companies arising from the fact that
interests of the holders of variable annuity contracts and variable life
insurance policies may differ due to differences of tax treatment or other
considerations or due to conflicts between the affiliated or unaffiliated
Participating Insurance Companies. Nevertheless, the Trustees will monitor
events to seek to identify any material irreconcilable conflicts which may
possibly arise and to determine what action, if any, should be taken in
response to such conflicts. Should a material irreconcilable conflict arise
between the holders of variable annuity contracts and variable life insurance
policies of affiliated or unaffiliated Participating Insurance Companies, the
Participating Insurance Companies may be required to withdraw the assets
allocable to some or all of the Separate Accounts from the Fund. Any such
withdrawal could disrupt orderly portfolio management to the potential
detriment of such holders. The variable annuity contracts and variable life
insurance policies are described in the separate prospectuses issued by the
Participating Insurance Companies. The Fund assumes no responsibility for such
prospectuses.
DIVIDENDS AND DISTRIBUTIONS
- --------------------------------------------------------------------------------
Substantially all of the Fund's net income from dividends and interest is
distributed annually on or about the last day of December. Net realized short-
term and long-term capital gains, if any, will be distributed annually, in
December. The Fund may also make additional distributions to the extent
necessary to avoid the application of the 4% non-deductible excise tax on
certain undistributed income and net capital gains of mutual funds.
All dividends and distributions will be automatically reinvested in
additional shares of the Fund issued at the net asset value of such shares on
the payment date of such dividends and distributions.
MANAGEMENT
- --------------------------------------------------------------------------------
TRUSTEES AND OFFICERS: The Fund is supervised by the Board of Trustees of
Variable Annuity Portfolios. A majority of the Trustees are not affiliated
with Citibank. More information on the Trustees and officers of the Fund
appears under "Management" in the Statement of Additional Information.
INVESTMENT MANAGER: CITIBANK. The Fund draws on the strength and experience of
Citibank. Citibank offers a wide range of banking and investment services to
customers across the United States and throughout the world, and has been
managing money since 1822. Its portfolio managers are responsible for
investing in money market, equity and fixed income securities. Citibank and
its affiliates manage more than $88 billion in assets worldwide. Citibank is a
wholly-owned subsidiary of Citicorp. Citibank also serves as investment
adviser to other registered investment companies. Citibank's address is 153
East 53rd Street, New York, New York 10043.
Citibank manages the Fund's assets pursuant to a Management Agreement.
Subject to policies set by the Trustees, Citibank is responsible for overall
management of the Fund's business affairs. Citibank also provides certain
administrative services to the Fund. These administrative services include
providing general office facilities and supervising the overall administration
of the Fund. Pursuant to a sub-administrative services agreement, the
Distributor performs such sub-administrative duties for the Fund as from time
to time are agreed upon by Citibank and the Distributor. The Distributor's
compensation as sub-administrator is paid by Citibank.
Linda J. Intini, Vice President, has managed the Fund since April 1997.
Ms. Intini has over nine years of experience specializing in the management of
small cap equities, including over $300 million of Citibank's small cap
portfolios for trusts and individuals. Prior to joining Citibank as a
portfolio manager in 1992, she was a Portfolio Manager and Research Analyst
with Manufacturers Hanover in the Special Equity area. She also specialized in
equity research at Eberstadt Fleming.
Management's discussion of Fund performance is included in the Fund's
Annual Report to Shareholders, which investors may obtain without charge by
calling their participating insurance company.
MANAGEMENT FEES. For its services under the Management Agreement, Citibank
receives a fee, which is accrued daily and paid monthly, of 0.75% of the
Fund's average daily net assets on an annualized basis for the Fund's then-
current fiscal year. This fee is higher those those paid by most investment
companies. Citibank may voluntarily agree to waive a portion of its investment
advisory fee.
For the period from February 10, 1997 (commencement of operations) to
December 31, 1997 the management fees paid to Citibank by the Fund were % of
the Fund's average daily net assets for that period.
BANKING RELATIONSHIPS. Citibank and its affiliates may have deposit, loan
and other relationships with the issuers of securities purchased on behalf of
the Fund, including outstanding loans to such issuers which may be repaid in
whole or in part with the proceeds of securities so purchased. Citibank has
informed the Fund that, in making its investment decisions, it does not obtain
or use material inside information in the possession of any division or
department of Citibank or in the possession of any affiliate of Citibank.
BANK REGULATORY MATTERS. The Glass-Steagall Act prohibits certain
financial institutions, such as Citibank, from underwriting securities of
open-end investment companies, such as the Fund. Citibank believes that its
services under the Management Agreement and the activities performed by it as
administrator are not underwriting and are consistent with the Glass-Steagall
Act and other relevant federal and state laws. However, there is no
controlling precedent regarding the performance of the combination of
investment advisory and administrative activities by banks. State laws on this
issue may differ from applicable federal law and banks and financial
institutions may be required to register as dealers pursuant to state
securities laws. Changes in either federal or state statutes or regulations,
or in their interpretations, could prevent Citibank or its affiliates from
continuing to perform these services for the Fund. If Citibank or its
affiliates were to be prevented from acting as the Manager or administrator,
the Fund would seek alternative means for obtaining these services. The Fund
does not expect that shareholders would suffer any adverse financial
consequences as a result of any such occurrence.
DISTRIBUTOR: CFBDS, Inc. ("CFBDS"), 6 St. James Avenue, Boston, Massachusetts
02116 (telephone: (617) 423-1679), is the distributor of shares of the Fund.
CFBDS receives no fee for its distribution services.
CUSTODIAN, TRANSFER AGENT AND FUND ACCOUNTANT: State Street Bank and Trust
Company acts as transfer agent, dividend disbursing agent and custodian for
the Fund. Securities may be held by a sub-custodian bank approved by the
Trustees. State Street also provides certain fund accounting services and
calculates the daily net asset value for the Funds. The principal business
address of State Street is 225 Franklin Street, Boston, Massachusetts 02110.
TAX MATTERS
- --------------------------------------------------------------------------------
This discussion of the federal income taxation of the Fund and its
distribution is for general information only. Purchasers of variable annuity
contracts or variable life insurance policies issued by Participating
Insurance Companies should refer to the prospectuses for those contracts or
policies for additional tax information and should consult their own tax
advisers about their particular situations.
The Fund will be treated as a separate entity for federal income tax
purposes. The Fund intends to qualify as a "regulated investment company"
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"), which would relieve the Fund of liability for Federal income and
excise taxes to the extent the Fund's earnings are distributed in accordance
with the timing requirements of the Code. In order to so qualify, the Fund
must comply with certain distribution, diversification, source of income, and
other applicable requirements. If for any taxable year the Fund does not
qualify for the special Federal tax treatment afforded regulated investment
companies, all of the Fund's taxable income would be subject to tax at regular
corporate rates without any deduction for distributions to shareholders. In
such event, the Fund's distributions to segregated asset accounts holding
shares of the Fund would be taxable as ordinary income to the extent of the
Fund's current and accumulated earnings and profits. A failure of the Fund to
qualify as a regulated investment company could also have the adverse effects
on investors noted below.
A segregated asset account upon which a variable annuity contract or
variable life insurance policy is based must meet certain diversification
tests set forth in U.S. Treasury regulations. If, as is intended, the Fund
meets these tests and complies with certain other conditions, a segregated
asset account investing solely in shares of the Fund will also be deemed to
meet these diversification requirements. However, a failure of the Fund to
qualify as a regulated investment company or to meet such conditions and to
comply with such tests could cause the owners of variable annuity contracts
and variable life insurance policies based on such accounts to recognize
ordinary income each year in the amount of any net appreciation of such
contract or policy during the year (including the annual costs of life
insurance, if any, provided under such policy).
Provided that the Fund and a segregated asset account investing in the
Fund satisfy the above requirements, any distributions from the Fund will be
exempt from current Federal income taxation to the extent that such
distributions accumulate in a variable annuity contract or a variable life
insurance contract.
The foregoing discussion of federal income tax consequences is based on
tax laws and regulations in effect on the date of this Prospectus which are
subject to change by legislative or administrative action.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
Fund performance may be quoted in advertising, shareholder reports and
other communications in terms of yield or total rate of return. All
performance information is historical and is not intended to indicate future
performance. Yield and total rates of return fluctuate in response to market
conditions and other factors, and the value of an investor's shares when
redeemed may be more or less than their original cost.
The Fund may provide its period and average annualized "total rates of
return." The "total rate of return" refers to the change in the value of an
investment in the Fund over a stated period which was made at the maximum
public offering price and reflects any change in net asset value per share and
is compounded to include the value of any shares purchased with any dividends
or capital gains declared during such period. Period total rates of return may
be "annualized." An "annualized" total rate of return assumes that the period
total rate of return is generated over a one-year period.
The Fund may provide annualized "yield" quotations. The "yield" of the
Fund refers to the income generated by an investment in the Fund over a 30-day
or one-month period (which period is stated in any such advertisement or
communication). This income is then annualized; that is, the amount of income
generated by the investment over that period is assumed to be generated each
month over a one-year period and is shown as a percentage of the maximum
public offering price on the last day of that period. A "yield" quotation,
unlike a total rate of return quotation, does not reflect changes in net asset
value.
Yields and total returns quoted for the Fund include the effect of
deducting the Fund's expenses, but may not include charges and expenses
attributable to a particular variable annuity contract or variable life
insurance policy. Since shares of the Fund can be purchased only through a
variable annuity contract or variable life insurance policy, a prospective
purchaser should carefully review the prospectus of the variable annuity
contract or variable life insurance policy he or she has chosen for
information on relevant charges and expenses. Including these charges in the
quotations of the Fund's yield and total return would have the effect of
decreasing performance. Performance information for the Fund must always be
accompanied by, and be reviewed with, performance information for the
insurance product which invests in the Fund. See the Statement of Additional
Information for more information concerning the calculation of yield and total
rate of return quotations for the Fund.
GENERAL INFORMATION
- --------------------------------------------------------------------------------
ORGANIZATION: The Fund is a diversified series of Variable Annuity
Portfolios, an open-end investment company organized as a Massachusetts
business trust on October 18, 1996. Prior to March 2, 1998, the Fund was
called Landmark Small Cap Equity VIP Fund.
The Fund is a diversified mutual fund. Under the 1940 Act, a diversified
mutual fund must invest at least 75% of its assets in cash and cash items,
U.S. Government securities, investment company securities and other securities
limited as to any one issuer to not more than 5% of the total assets of the
investment company and not more than 10% of the voting securities of the
issuer.
Under Massachusetts law, shareholders of a business trust may, under
certain circumstances, be held personally liable as partners for the trust's
obligations. However, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which both
inadequate insurance existed and the trust itself was unable to meet its
obligations.
VOTING AND OTHER RIGHTS: The Fund may issue an unlimited number of shares
($0.00001 par value), may create new series of shares and may divide shares in
each series into classes. Each share of the Fund gives the shareholder one
vote in Trustee elections and other matters submitted to shareholders for
vote. All shares of each series of Variable Annuity Portfolios have equal
voting rights except that, in matters affecting only a particular series, only
shares of that particular series are entitled to vote.
As a series of a Massachusetts business trust, the Fund is not required to
hold annual shareholder meetings. Shareholder approval will usually be sought
only for changes in the Fund's fundamental investment restrictions and for the
election of Trustees under certain circumstances. Trustees may be removed by
shareholders under certain circumstances. Each share of the Fund is entitled
to participate equally in dividends and other distributions and the proceeds
of any liquidation of that Fund.
The rights accompanying Fund shares are legally vested in the Separate
Accounts. However, in accordance with current law and interpretations thereof,
Participating Insurance Companies will vote shares held in the Separate
Accounts in a manner consistent with timely voting instructions received from
the holders of variable contracts and variable life insurance policies. Each
Participating Insurance Company will vote Fund shares held in Separate
Accounts for which no timely instructions are received from the holders of
variable annuity contracts and variable life insurance policies, as well as
shares it owns, in the same proportion as those shares for which voting
instructions are received. For a further discussion, please refer to the
insurance company's Separate Account prospectus.
CERTIFICATES: The Funds' Transfer Agent maintains a share register for
shareholders of record, i.e., the Separate Accounts of the Participating
Insurance Companies. Share certificates are not issued.
EXPENSES: In addition to amounts payable under the Management Agreement, up to
0.15% of the Fund's average daily net assets on an annualized basis for the
Fund's then-current fiscal year may be paid to certain service providers and
others in order to cover Fund operating expenses. Such expenses may include,
among other things, the costs of securities transactions, the compensation of
Trustees that are not affiliated with the Manager or CFBDS, government fees,
taxes, accounting and legal fees, expenses of communicating with shareholders,
interest expense, and insurance premiums.
For the period from February 10, 1997 (commencement of operations) to
December 31, 1997, the annualized expenses of the Fund were % of the Fund's
average daily net assets for that period.
All fee waivers are voluntary and may be reduced or terminated at any
time.
COUNSEL AND INDEPENDENT AUDITOR: Bingham Dana LLP, 150 Federal Street, Boston,
Massachusetts 02110, is counsel for the Fund. Price Waterhouse LLP, 160
Federal Street, Boston, Massachusetts 02110, serves as independent auditor for
the Fund.
The Statement of Additional Information dated the date hereof contains
more detailed information about the Fund, including information related to (i)
investment policies and restrictions, (ii) the Trustees, officers and
Administrator, (iii) securities transactions, (iv) the Fund's shares,
including rights and liabilities of shareholders, (v) the method used to
calculate performance information, and (vi) the determination of net asset
value.
No person has been authorized to give any information or make any
representations not contained in this Prospectus or the Statement of
Additional Information in connection with the offering made by this Prospectus
and, if given or made, such information or representations must not be relied
upon as having been authorized by the Fund or its distributor. This Prospectus
does not constitute an offering by the Fund or its distributor in any
jurisdiction in which such offering may not lawfully be made.
<PAGE>
APPENDIX
- --------------------------------------------------------------------------------
PERMITTED INVESTMENTS AND
INVESTMENT PRACTICES
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements in
order to earn a return on temporarily available cash. Repurchase agreements are
transactions in which an institution sells the Fund a security at one price,
subject to the Fund's obligation to resell and the selling institution's
obligation to repurchase that security at a higher price normally within a seven
day period. There may be delays and risks of loss if the seller is unable to
meet its obligation to repurchase.
REVERSE REPURCHASE AGREEMENTS. The Fund may enter into reverse repurchase
agreements. Reverse repurchase agreements involve the sale of securities held
by the Fund and the agreement by the Fund to repurchase the securities at an
agreed-upon price, date and interest payment. When the Fund enters into
reverse repurchase transactions, securities of a dollar amount equal in value
to the securities subject to the agreement will be maintained in a segregated
account with the Fund's custodian. The segregation of assets could impair the
Fund's ability to meet its current obligations or impede investment management
if a large portion of the Fund's assets are involved. Reverse repurchase
agreements are considered to be a form of borrowing.
LENDING OF PORTFOLIO SECURITIES. Consistent with applicable regulatory
requirements and in order to generate additional income, the Fund may lend its
portfolio securities to broker-dealers and other institutional borrowers. Such
loans must be callable at any time and continuously secured by collateral
(cash or U.S. Government securities) in an amount not less than the market
value, determined daily, of the securities loaned. It is intended that the
value of securities loaned by a Portfolio would not exceed 30% of the Fund's
total assets.
In the event of the bankruptcy of the other party to a securities loan,
repurchase agreement or reverse repurchase agreement, the Fund could
experience delays in recovering either the securities or cash. To the extent
that, in the meantime, the value of the securities loaned or sold have
increased or the value of the securities purchased has decreased, the Fund
could experience a loss.
CONVERTIBLE SECURITIES. The Fund may invest in convertible securities. A
convertible security is a fixed-income security (a bond or preferred stock)
which may be converted at a stated price within a specified period of time
into a certain quantity of common stock or other equity securities of the same
or a different issuer. Convertible securities rank senior to common stock in a
corporation's capital structure but are usually subordinated to similar non-
convertible securities. While providing a fixed-income stream (generally
higher in yield than the income derivable from common stock but lower than
that afforded by a similar non-convertible security), a convertible security
also affords an investor the opportunity, through its conversion feature, to
participate in the capital appreciation attendant upon a market price advance
in the convertible security's underlying common stock. Convertible securities
purchased are not subject to the rating requirements applicable to the Fund's
purchase of fixed income investments.
In general, the market value of a convertible security is at least the
higher of its "investment value" (i.e., its value as a fixed-income security)
or its "conversion value" (i.e., its value upon conversion into its underlying
stock). As a fixed-income security, a convertible security tends to increase
in market value when interest rates decline and tends to decrease in value
when interest rates rise. However, the price of a convertible security is also
influenced by the market value of the security's underlying common stock. The
price of a convertible security tends to increase as the market value of the
underlying stock rises, whereas it tends to decrease as the market value of
the underlying stock declines. While no securities investment is without some
risk, investments in convertible securities generally entail less risk than
investments in the common stock of the same issuer.
RULE 144A SECURITIES. The Fund may purchase restricted securities that are
not registered for sale to the general public. If the Manager determines that
there is a dealer or institutional market in the securities, the securities
will not be treated as illiquid for purposes of the Fund's investment
limitations. The Trustees will review these determinations. These securities
are known as "Rule 144A securities," because they are traded under SEC Rule
144A among qualified institutional buyers. Institutional trading in Rule 144A
securities is relatively new, and the liquidity of these investments could be
impaired if trading in Rule 144A securities does not develop or if qualified
institutional buyers become, for a time, uninterested in purchasing Rule 144A
securities.
COMMERCIAL PAPER. The Fund may invest in commercial paper, which is
unsecured debt of corporations usually maturing in 270 days or less from its
date of issuance.
PRIVATE PLACEMENTS AND ILLIQUID INVESTMENTS. The Fund may invest up to 15%
of its net assets in securities for which there is no readily available
market. These illiquid securities may include privately placed restricted
securities for which no institutional market exists. The absence of a trading
market can make it difficult to ascertain a market value for illiquid
investments. Disposing of illiquid investments may involve time-consuming
negotiation and legal expenses, and it may be difficult or impossible for the
Fund to sell them promptly at an acceptable price.
"WHEN-ISSUED" SECURITIES. In order to ensure the availability of suitable
securities, the Fund may purchase securities on a "when-issued" or on a
"forward delivery" basis, which means that the securities would be delivered
to the Fund at a future date beyond customary settlement time. Under normal
circumstances, the Fund takes delivery of the securities. In general, the Fund
does not pay for the securities until received and does not start earning
interest until the contractual settlement date. While awaiting delivery of the
securities, the Fund establishes a segregated account consisting of cash, cash
equivalents or high quality debt securities equal to the amount of the Fund's
commitments to purchase "when-issued" securities. An increase in the
percentage of the Fund's assets committed to the purchase of securities on a
"when-issued" basis may increase the volatility of its net asset value.
FUTURES CONTRACTS. The Fund may purchase stock index futures in order to
protect against declines in the value of portfolio securities or increases in
the cost of securities or other assets to be acquired and, subject to
applicable law, to enhance potential gain. Futures contracts provide for the
future sale by one party and purchase by another party of a specified amount
of a security at a specified future time and price, or for making payment of a
cash settlement based on changes in the value of a security, an index of
securities or other assets. In many cases, the futures contracts that may be
purchased by the Fund are standardized contracts traded on commodities
exchanges or boards of trade. Because the value of a futures contract changes
based on the price of the underlying security or other asset, futures
contracts are considered to be "derivatives." Futures contracts are a
generally accepted part of modern portfolio management and are regularly
utilized by many mutual funds and other institutional investors.
When the Fund purchases or sells a futures contract, it is required to
make an initial margin deposit. Although the amount may vary, initial margin
can be as low as 1% or less of the face amount of the contract. Additional
margin may be required as the contract fluctuates in value. Since the amount
of margin is relatively small compared to the value of the securities covered
by a futures contract, the potential for gain or loss on a futures contract is
much greater than the amount of the Fund's initial margin deposit. The Fund
currently does not intend to enter into a futures contract if, as a result,
the initial margin deposits on all of the Fund's futures contracts would
exceed approximately 5% of the Fund's net assets. Also, the Fund intends to
limit its futures contracts so that the value of the securities covered by its
futures contracts would not generally exceed 50% of the market value of its
total assets other than its futures contracts and to segregate sufficient
assets to meet its obligations under outstanding futures contracts.
The ability of the Fund to utilize futures contracts successfully will
depend on the Adviser's ability to predict interest rate or stock price
movements, which cannot be assured. In addition to general risks associated
with any investment, the use of futures contracts entails the risk that, to
the extent the Adviser's view as to interest rate or stock price movements is
incorrect, the use of futures contracts, even for hedging purposes, could
result in losses greater than if they had not been used. This could happen,
for example, if there is a poor correlation between price movements of futures
contracts and price movements in the Fund's related portfolio position. Also,
the futures markets may not be liquid in all circumstances. As a result, in
certain markets, the Fund might not be able to close out a transaction without
incurring substantial losses, if at all. When futures contracts are used for
hedging, even if they are successful in minimizing the risk of loss due to a
decline in the value of the hedged position, at the same time they limit any
potential gain which might result from an increase in value of such position.
As noted, the Fund may also enter into transactions in futures contracts for
other than hedging purposes (subject to applicable law), including speculative
transactions, which involve greater risk. In particular, in entering into such
transactions, the Fund may experience losses which are not offset by gains on
other portfolio positions, thereby reducing its gross income. In addition, the
markets for such instruments may be extremely volatile from time to time,
which could increase the risks incurred by the Fund in entering into such
transactions.
The use of futures contracts potentially exposes the Fund to the effects
of "leveraging," which occurs when futures are used so that the Fund's
exposure to the market is greater than it would have been if the Fund had
invested directly in the underlying securities. "Leveraging" increases the
Fund's potential for both gain and loss. As noted above, the Fund intends to
adhere to certain policies relating to the use of futures contracts, which
should have the effect of limiting the amount of leverage by the Fund. The use
of futures contracts may increase the amount of taxable income of the Fund and
may affect in other ways the amount, timing and character of the Fund's income
for tax purposes, as more fully discussed in the section entitled "Certain
Additional Tax Matters" in the Statement of Additional Information.
The use of futures by the Fund and some of their risks are described more
fully in the Statement of Additional Information.
SECURITIES OF ISSUERS IN DEVELOPING COUNTRIES. Shareholders should be
aware that investing in the equity and fixed income markets of developing
countries involves exposure to economic structures that are generally less
diverse and mature, and to political systems which can be expected to have
less stability, than those of developed countries. Historical experience
indicates that the markets of developing countries have been more volatile
than the markets of developed countries with more mature economies; such
markets often have provided higher rates of return, and greater risks, to
investors. These heightened risks include (i) greater risks of expropriation,
confiscatory taxation and nationalization, and less social, political and
economic stability; (ii) the small current size of markets for securities of
issuers based in developing countries and the currently low or non-existent
volume of trading, resulting in a lack of liquidity and in price volatility;
(iii) certain national policies which may restrict a Fund's investment
opportunities including restrictions on investing in issuers or industries
deemed sensitive to relevant national interests; and (iv) the absence of
developed legal structures. Such characteristics can be expected to continue
in the future.
LOWER-RATED DEBT SECURITIES. The Fund may purchase lower-rated securities
(those rated Baa or better by Moody's or BBB by S&P) and equivalent securities
which may have poor protection of payment of principal and interest. These
securities are often considered to be speculative and involve greater risk of
default or price changes than securities assigned a higher quality rating due
to changes in the issuer's creditworthiness. The market prices of these
securities may fluctuate more than higher-rated securities and may decline
significantly in periods of general economic difficulty which may follow
periods of rising interest rates.
SHORT SALES "AGAINST THE BOX." In a short sale, a fund sells a borrowed
security and has a corresponding obligation to the lender to return the
identical security. The Fund may engage in short sales only if at the time of
the short sale it owns or has the right to obtain, at no additional cost, an
equal amount of the security being sold short. This investment technique is
known as a short sale "against the box." The Fund may make a short sale as a
hedge, when it believes that the value of a security owned by the Fund (or a
security convertible or exchangeable for such security) may decline. Not more
than 40% of the Fund's total assets would be involved in short sales "against
the box."
<PAGE>
Statement of
Additional Information
May 1, 1998
CITISELECT(R) VIP FOLIO 200
CITISELECT(R) VIP FOLIO 300
CITISELECT(R) VIP FOLIO 400
CITISELECT(R) VIP FOLIO 500
Variable Annuity Portfolios (the "Trust") is an investment company
which was organized as a business trust under the laws of the Commonwealth of
Massachusetts on October 18, 1996. The Trust offers shares of four investment
funds -- CitiSelect(R) VIP Folio 200, CitiSelect(R) VIP Folio 300, CitiSelect(R)
VIP Folio 400 and CitiSelect(R) VIP Folio 500 (each, a "Fund" and collectively,
the "Funds"), as well as the shares of one other series. The shares of the Funds
are offered only to separate accounts ("Separate Accounts") of participating
life insurance companies ("Participating Insurance Companies") for the purpose
of funding variable annuity contracts and variable life insurance policies. The
address and telephone number of the Trust are 6 St. James Avenue, Boston,
Massachusetts 02116, (617) 423-1679.
FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, CITIBANK, N.A. OR ANY OF ITS AFFILIATES, ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER AGENCY, AND INVOLVE
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
Table of Contents
Page
The Trust 2
Investment Objectives 2
Description of Permitted Investments and
Investment Practices 3
Investment Restrictions 18
Performance Information 20
Determination of Net Asset Value; Valuation of
Securities; Additional Redemption Information 21
Management 23
Portfolio Transactions 28
Description of Shares, Voting Rights and Liabilities 29
Certain Additional Tax Matters 31
Financial Statements 31
This Statement of Additional Information sets forth information which
may be of interest to investors but which is not necessarily included in the
Trust's Prospectus, dated May 1, 1998, by which shares of the Funds are offered.
This Statement of Additional Information should be read in conjunction with the
Prospectus, a copy of which may be obtained by an investor without charge by
contacting the Trust's distributor at (617) 423-1679 or a Participating
Insurance Company.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS AUTHORIZED
FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR ACCOMPANIED BY AN
EFFECTIVE PROSPECTUS.
<PAGE>
1. THE TRUST
Variable Annuity Portfolios, the Trust, is an investment company
organized as a business trust under the laws of the Commonwealth of
Massachusetts on October 18, 1996. This Statement of Additional Information
relates to four Funds offered by the Trust -- CitiSelect(R) VIP Folio 200,
CitiSelect(R) VIP Folio 300, CitiSelect(R) VIP Folio 400 and CitiSelect(R) VIP
Folio 500. The Funds are investment vehicles for variable annuity contracts and
variable life insurance policies offered by Separate Accounts of Participating
Insurance Companies.
Citibank, N.A. ("Citibank" or the "Manager") is investment adviser to
each of the Funds. The Manager manages the investments of the Funds from day to
day in accordance with each Fund's investment objectives and policies. The
selection of investments for the Funds and the way they are managed depend on
the conditions and trends in the economy and the financial marketplaces.
The Board of Trustees of the Trust provides broad supervision over the
affairs of the Funds. Shares of the Funds are continuously sold by CFBDS, Inc.,
the Funds' distributor ("CFBDS" or the "Distributor"), only to Separate
Accounts.
2. INVESTMENT OBJECTIVES
Each Fund is a total return fund that allocates its investments among
three primary classes of assets equity, fixed income and money market
securities. Each Fund's asset mix is designated to offer a different level of
potential return within a corresponding level of risk. The investment objective
of each Fund is as follows:
The investment objective of CitiSelect VIP Folio 200 is as high a total
return over time as is consistent with a primary emphasis on a combination of
fixed income and money market securities, and a secondary emphasis on equity
securities.
The investment objective of CitiSelect VIP Folio 300 is as high a total
return over time as is consistent with a balanced emphasis on equity and fixed
income securities.
The investment objective of CitiSelect VIP Folio 400 is as high a total
return over time as is consistent with a primary emphasis on equity securities,
and a secondary emphasis on fixed income securities.
The investment objective of CitiSelect VIP Folio 500 is as high a total
return over time as is consistent with a dominant emphasis on equity securities
and a small allocation to fixed income securities.
The investment objective of each Fund may be changed by its Trustees
without approval by that Fund's shareholders, but shareholders will be given
written notice at least 30 days before any change is implemented. Of course,
there can be no assurance that any Fund will achieve its investment objective.
The Prospectus contains a discussion of the various types of securities
in which each Fund may invest and the risks involved in such investments. The
following supplements the information contained in the Prospectus concerning the
investment objective, policies and techniques of each Fund.
CitiSelect VIP Folio 200 is expected to be the least volatile of the
four Funds and is designed for the investor who is seeking relatively lower risk
provided by substantial investments in fixed income and money market securities,
but who also seeks some capital growth. CitiSelect VIP Folio 300 is designed for
the investor seeking a balanced approach by emphasizing stocks for their higher
capital appreciation potential but retaining a significant fixed income
investment to temper volatility. CitiSelect VIP Folio 400 and CitiSelect VIP
Folio 500 are designed for the investor willing and able to take higher risks in
the pursuit of long-term capital appreciation. CitiSelect VIP Folio 500 is
expected to be the most volatile of the four Funds, and is designed for
investors who can withstand greater market swings to seek potential long-term
rewards. CitiSelect VIP Folio 400 is designed for investors seeking long-term
rewards, but with less volatility.
The Trust has also adopted the following policies with respect to each
Fund's investments in (i) warrants and (ii) securities of issuers with less than
three years' continuous operation. The Trust's purchases of warrants for each
Fund will not exceed 5% of the Fund's net assets. Included within that amount,
but not exceeding 2% of its net assets, may be warrants which are not listed on
the New York Stock Exchange or the American Stock Exchange. Any such warrants
will be valued at their market value except that warrants which are attached to
securities at the time such securities are acquired for a Fund will be deemed to
be without value for the purpose of this restriction. The Trust will not invest
more than 5% of each Fund's assets in companies which, including their
respective predecessors, have a record of less than three years' continuous
operation.
3. DESCRIPTION OF PERMITTED INVESTMENTS AND INVESTMENT PRACTICES
BANK OBLIGATIONS
Each of the Funds may invest in bank obligations, i.e., certificates of
deposit, time deposits (including Eurodollar time deposits) and bankers'
acceptances and other short-term debt obligations issued by domestic banks,
foreign subsidiaries or foreign branches of domestic banks, domestic and foreign
branches of foreign banks, domestic savings and loan associations and other
banking institutions. A bankers' acceptance is a bill of exchange or time draft
drawn on and accepted by a commercial bank. It is used by corporations to
finance the shipment and storage of goods and to furnish dollar exchange.
Maturities are generally six months or less. A certificate of deposit is a
negotiable interest-bearing instrument with a specific maturity. Certificates of
deposit are issued by banks and savings and loan institutions in exchange for
the deposit of funds and normally can be traded in the secondary market prior to
maturity. A time deposit is a non-negotiable receipt issued by a bank in
exchange for the deposit of funds. Like a certificate of deposit, it earns a
specified rate of interest over a definite period of time; however, it cannot be
traded in the secondary market. Time deposits with a withdrawal penalty are
considered to be illiquid securities.
MORTGAGE-BACKED SECURITIES
Each of the Funds may invest in mortgage-backed securities, which are
securities representing interests in pools of mortgage loans. Interests in pools
of mortgage-related securities differ from other forms of debt securities which
normally provide for periodic payment of interest in fixed amounts with
principal payments at maturity or specified call dates. Instead, these
securities provide a monthly payment which consists of both interest and
principal payments. In effect, these payments are a "pass-through" of the
monthly payments made by the individual borrowers on their mortgage loans, net
of any fees paid to the issuer or guarantor of such securities. Additional
payments are caused by prepayments of principal resulting from the sale,
refinancing or foreclosure of the underlying property, net of fees or costs
which may be incurred. The market value and interest yield of these instruments
can vary due to market interest rate fluctuations and early prepayments of
underlying mortgages.
The principal governmental issuers or guarantors of mortgage-backed
securities are the Government National Mortgage Association ("GNMA"), Federal
National Mortgage Association ("FNMA"), and Federal Home Loan Mortgage
Corporation ("FHLMC"). Obligations of GNMA are backed by the full faith and
credit of the United States Government while obligations of FNMA and FHLMC are
supported by the respective agency only. Although GNMA certificates may offer
yields higher than those available from other types of U.S. Government
securities, GNMA certificates may be less effective than other types of
securities as a means of "locking in" attractive long-term rates because of the
prepayment feature. For instance, when interest rates decline, the value of a
GNMA certificate likely will not rise as much as comparable debt securities due
to the prepayment feature. In addition, these prepayments can cause the price of
a GNMA certificate originally purchased at a premium to decline in price to its
par value, which may result in a loss.
Each Fund may also invest a portion of its assets in collateralized
mortgage obligations or "CMOs," a type of mortgage-backed security. CMOs are
securities collateralized by mortgages, mortgage pass-through certificates,
mortgage pay-through bonds (bonds representing an interest in a pool of
mortgages where the cash flow generated from the mortgage collateral pool is
dedicated to bond repayment), and mortgage-backed bonds (general obligations of
the issuers payable out of the issuers' general funds and additionally secured
by a first lien on a pool of single family detached properties). Many CMOs are
issued with a number of classes or series which have different maturities and
are retired in sequence.
Investors purchasing such CMOs in the shortest maturities receive or
are credited with their pro rata portion of the scheduled payments of interest
and principal on the underlying mortgages plus all unscheduled prepayments of
principal up to a predetermined portion of the total CMO obligation. Until that
portion of such CMO obligations is repaid, investors in the longer maturities
receive interest only. Accordingly, the CMOs in the longer maturity series are
less likely than other mortgage pass-through certificates to be prepaid prior to
their stated maturity. Although some of the mortgages underlying CMOs may be
supported by various types of insurance, and some CMOs may be backed by GNMA
certificates or other mortgage pass-through certificates issued or guaranteed by
U.S. Government agencies or instrumentalities, the CMOs themselves are not
generally guaranteed.
MORTGAGE "DOLLAR ROLL" TRANSACTIONS
As described in the Prospectus, the Funds may enter into mortgage
"dollar roll" transactions pursuant to which they sell mortgage-backed
securities for delivery in the future and simultaneously contract to repurchase
substantially similar securities on a specified future date. During the roll
period, a Fund foregoes principal and interest paid on the mortgage-backed
securities. The Fund is compensated for the lost principal and interest by the
difference between the current sales price and the lower price for the future
purchase (often referred to as the "drop") as well as by the interest earned on
the cash proceeds of the initial sale. The Fund may also be compensated by
receipt of a commitment fee.
CORPORATE ASSET-BACKED SECURITIES
Each of the Funds may invest in corporate asset-backed securities.
These securities, issued by trusts and special purpose corporations, are backed
by a pool of assets, such as credit card and automobile loan receivables,
representing the obligations of a number of different parties.
Corporate asset-backed securities present certain risks. For instance,
in the case of credit card receivables, these securities may not have the
benefit of any security interest in the related collateral. Credit card
receivables are generally unsecured and the debtors are entitled to the
protection of a number of state and federal consumer credit laws, many of which
give such debtors the right to set off certain amounts owed on the credit cards,
thereby reducing the balance due. Most issuers of automobile receivables permit
the servicers to retain possession of the underlying obligations. If the
servicer were to sell these obligations to another party, there is a risk that
the purchaser would acquire an interest superior to that of the holders of the
related automobile receivables. In addition, because of the large number of
vehicles involved in a typical issuance and technical requirements under state
laws, the trustee for the holders of the automobile receivables may not have a
proper security interest in all of the obligations backing such receivables.
Therefore, there is the possibility that recoveries on repossessed collateral
may not, in some cases, be available to support payments on these securities.
The underlying assets (e.g., loans) are also subject to prepayments which
shorten the securities' weighted average life and may lower their return.
Corporate asset-backed securities are often backed by a pool of assets
representing the obligations of a number of different parties. To lessen the
effect of failures by obligors on underlying assets to make payments, the
securities may contain elements of credit support which fall into two
categories: (i) liquidity protection and (ii) protection against losses
resulting from ultimate default by an obligor on the underlying assets.
Liquidity protection refers to the provision of advances, generally by the
entity administering the pool of assets, to ensure that the receipt of payments
on the underlying pool occurs in a timely fashion. Protection against losses
resulting from ultimate default ensures payment through insurance policies or
letters of credit obtained by the issuer or sponsor from third parties. A Fund
will not pay any additional or separate fees for credit support. The degree of
credit support provided for each issue is generally based on historical
information respecting the level of credit risk associated with the underlying
assets. Delinquency or loss in excess of that anticipated or failure of the
credit support could adversely affect the return on an investment in such a
security.
RULE 144A SECURITIES
Consistent with applicable investment restrictions, each of the Funds
may purchase securities that are not registered ("restricted securities") under
the Securities Act of 1933, as amended, (the "Securities Act"), but can be
offered and sold to "qualified institutional buyers" under Rule 144A under the
Securities Act. However, none of the Funds invests more than 10% of its net
assets in illiquid investments, which include securities for which there is no
readily available market, securities subject to contractual restrictions on
resale and restricted securities, unless the Board of Trustees of the Trust
determines, based on the trading markets for the specific restricted security,
that it is liquid. The Trustees have adopted guidelines and delegated to the
Manager and to each Subadviser the daily function of determining and monitoring
liquidity of restricted securities. The Trustees, however, retain sufficient
oversight and are ultimately responsible for the determinations.
Since it is not possible to predict with assurance exactly how the
market for restricted securities sold and offered under Rule 144A will develop,
the Trust's Trustees will carefully monitor each Fund's investments in these
securities, focusing on such factors, among others, as valuation, liquidity and
availability of information.
SECURITIES OF NON-U.S. ISSUERS
Each of the Funds may invest in securities of non-U.S. issuers.
Investing in securities of foreign issuers may involve significant risks not
present in domestic investments. For example, the value of such securities
fluctuates based on the relative strength on the U.S. dollar. In addition, there
is generally less publicly available information about foreign issuers,
particularly those not subject to the disclosure and reporting requirements of
the U.S. securities laws. Non-U.S. issuers are generally not bound by uniform
accounting, auditing and financial reporting requirements comparable to those
applicable to domestic issuers. Investments in securities of non-U.S. issuers
also involve the risk of possible adverse changes in investment or exchange
control regulations, expropriation or confiscatory taxation, limitation on the
removal of funds or other assets of the Fund, political or financial instability
or diplomatic and other developments which would affect such investments.
Further, economies of other countries or areas of the world may differ favorably
or unfavorably from the economy of the U.S.
It is anticipated that in most cases the best available market for
securities of non-U.S. issuers would be on exchanges or in over-the-counter
markets located outside the U.S. Non-U.S. stock markets, while growing in volume
and sophistication, are generally not as developed as those in the U.S., and
securities of some non-U.S. issuers (particularly those located in developing
countries) may be less liquid and more volatile than securities of comparable
U.S. companies. Non-U.S. security trading practices, including those involving
securities settlement where the Fund's assets may be released prior to receipt
of payments, may expose the Fund to increased risk in the event of a failed
trade or the insolvency of a non-U.S. broker-dealer. In addition, foreign
brokerage commissions are generally higher than commissions on securities traded
in the U.S. and may be non-negotiable. In general, there is less overall
governmental supervision and regulation of non-U.S. securities exchanges,
brokers and listed companies than in the U.S.
Investments in closed-end investment companies which primarily hold
securities of non-U.S. issuers may entail the risk that the market value of such
investments may be substantially less than their net asset value and that there
would be duplication of investment management and other fees and expenses.
American Depositary Receipts ("ADRs"), European Depositary Receipts
("EDRs"), Global Depositary Receipts ("GDRs") and other forms of depositary
receipts for securities of non-U.S. issuers provide an alternative method for
the Funds to make non-U.S. investments. These securities are not usually
denominated in the same currency as the securities into which they may be
converted. Generally, ADRs, in registered form, are designed for use in U.S.
securities markets and EDRs and GDRs, in bearer form, are designed for use in
European and global securities markets. ADRs are receipts typically issued by a
U.S. bank or trust company evidencing ownership of the underlying securities.
EDRs and GDRs are European and global receipts, respectively, evidencing a
similar arrangement.
ADRs, EDRs, and GDRs may be issued pursuant to sponsored or unsponsored
programs. In sponsored programs, an issuer has made arrangements to have its
securities traded in the form of depositary receipts. In unsponsored programs,
the issuer may not be directly involved in the creation of the program. Although
regulatory requirements with respect to sponsored and unsponsored programs are
generally similar, in some cases it may be easier to obtain financial
information from an issuer that has participated in the creation of a sponsored
program. Accordingly, there may be less information available regarding issuers
of securities underlying unsponsored programs, and there may not be a
correlation between such information and the market value of the depositary
receipts.
The Funds may invest in securities of non-U.S. issuers that impose
restrictions on transfer within the United States or to United States persons.
Although securities subject to such transfer restrictions may be marketable
abroad, they may be less liquid than securities of non-U.S. issuers of the same
class that are not subject to such restrictions.
REPURCHASE AGREEMENTS
Each of the Funds may invest in repurchase agreements collateralized by
securities in which that Fund may otherwise invest. Repurchase agreements are
agreements by which a Fund purchases a security and simultaneously commits to
resell that security to the seller (which is usually a member bank of the U.S.
Federal Reserve System or a member firm of the New York Stock Exchange (or a
subsidiary thereof)) at an agreed upon date within a number of days (usually not
more than seven) from the date of purchase. The resale price reflects the
purchase price plus an agreed upon market rate of interest which is unrelated to
the coupon rate or maturity of the purchased security. A repurchase agreement
involves the obligation of the seller to pay the agreed upon price, which
obligation is in effect secured by the value of the underlying security, usually
U.S. Government or Government agency issues. Under the Investment Company Act of
1940, as amended (the "1940 Act"), repurchase agreements may be considered to be
loans by the buyer. A Fund's risk is limited to the ability of the seller to pay
the agreed-upon amount on the delivery date. If the seller defaults, the
underlying security constitutes collateral for the seller's obligation to pay
although that Fund may incur certain costs in liquidating this collateral and in
certain cases may not be permitted to liquidate this collateral. All repurchase
agreements entered into by the Funds are fully collateralized, with such
collateral being marked to market daily.
LENDING OF SECURITIES
Consistent with applicable regulatory requirements and in order to
generate income, each of the Funds may lend its securities to broker-dealers and
other institutional borrowers. Such loans will usually be made only to member
banks of the U.S. Federal Reserve System and to member firms of the New York
Stock Exchange (and subsidiaries thereof). Loans of securities would be secured
continuously by collateral in cash, cash equivalents, or U.S. Treasury
obligations maintained on a current basis at an amount at least equal to the
market value of the securities loaned. The cash collateral would be invested in
high quality short-term instruments. Either party has the right to terminate at
any time on customary industry settlement notice (which will not usually exceed
three business days). During the existence of a loan, a Fund would continue to
receive the equivalent of the interest or dividends paid by the issuer on the
securities loaned and with respect to cash collateral would also receive
compensation based on investment of the collateral (subject to a rebate payable
to the borrower). Where the borrower provides a Fund with collateral consisting
of U.S. Treasury obligations, the borrower is also obligated to pay the Fund a
fee for use of the borrowed securities. The Fund, would not, however, have the
right to vote any securities having voting rights during the existence of the
loan, but would call the loan in anticipation of an important vote to be taken
among holders of the securities or of the giving or withholding of their consent
on a material matter affecting the investment. As with other extensions of
credit, there are risks of delay in recovery or even loss of rights in the
collateral should the borrower fail financially. However, the loans would be
made only to entities deemed by the Manager or a Subadviser to be of good
standing, and when, in the judgment of the Manager or a Subadviser, the
consideration which can be earned currently from loans of this type justifies
the attendant risk. In addition, a Fund could suffer a loss if the borrower
terminates the loan and the Fund is forced to liquidate investments in order to
return the cash collateral to the buyer. If the Manager or a Subadviser
determines to make loans, it is not intended that the value of the securities
loaned would exceed 30% of the value of the respective Fund's total assets.
WHEN-ISSUED SECURITIES
Each of the Funds may purchase securities on a "when-issued" or on a
"forward delivery" basis. It is expected that, under normal circumstances, the
applicable Fund would take delivery of such securities. When a Fund commits to
purchase a security on a "when-issued" or on a "forward delivery" basis, it sets
up procedures consistent with Securities and Exchange Commission policies. Since
those policies currently require that an amount of a Fund's assets equal to the
amount of the purchase be held aside or segregated to be used to pay for the
commitment, the respective Fund expects always to have cash, cash equivalents,
or high quality debt securities sufficient to cover any commitments or to limit
any potential risk. However, even though the Funds do not intend to make such
purchases for speculative purposes and intend to adhere to the provisions of
Securities and Exchange Commission policies, purchases of securities on such
bases may involve more risk than other types of purchases. For example, a Fund
may have to sell assets which have been set aside in order to meet redemptions.
Also, if the Manager or a Subadviser determines it is advisable as a matter of
investment strategy to sell the "when-issued" or "forward delivery" securities,
the Fund would be required to meet its obligations from the then available cash
flow or the sale of securities, or, although it would not normally expect to do
so, from the sale of the "when-issued" or "forward delivery" securities
themselves (which may have a value greater or less than the Fund's payment
obligation).
FOREIGN CURRENCY EXCHANGE TRANSACTIONS
Because each of the Funds may buy and sell securities denominated in
currencies other than the U.S. dollar, and receive interest, dividends and sale
proceeds in currencies other than the U.S. dollar, the Funds may enter into
foreign currency exchange transactions to convert United States currency to
foreign currency and foreign currency to United States currency, as well as
convert foreign currency to other foreign currencies. A Fund either enters into
these transactions on a spot (i.e., cash) basis at the spot rate prevailing in
the foreign currency exchange market, or uses forward contracts to purchase or
sell foreign currencies. The Funds may also enter into foreign currency hedging
transactions (including proxy hedges and cross hedges) in an attempt to protect
the value of the assets of the respective Fund as measured in U.S. dollars from
unfavorable changes in currency exchange rates and control regulations.
(Although each Fund's assets are valued daily in terms of U.S. dollars, the
Trust does not intend to convert a Fund's holdings of other currencies into U.S.
dollars on a daily basis.)
The Funds may convert currency on a spot basis from time to time, and
investors should be aware of the costs of currency conversion. Although currency
exchange dealers do not charge a fee for conversion, they do realize a profit
based on the difference (the "spread") between the prices at which they are
buying and selling various currencies. Thus, a dealer may offer to sell a
currency at one rate, while offering a lesser rate of exchange should the Fund
desire to resell that currency to the dealer.
A forward contract involves an obligation to purchase or sell a
specific currency at a future date, which may be any fixed number of days from
the date of the contract, agreed upon by the parties, at a price set at the time
of the contract. These contracts are traded in the interbank market conducted
directly between currency traders (usually large commercial banks) and their
customers. A forward contract generally has no deposit requirement, and no fees
or commissions are charged at any stage for trades.
When a Fund enters into a contract for the purchase or sale of a
security denominated in a non-U.S. currency, it may desire to "lock in" the U.S.
dollar price of the security. By entering into a forward contract for the
purchase or sale, for a fixed amount of U.S. dollars, of the amount of non-U.S.
currency involved in the underlying security transaction, the Fund will be able
to protect against a possible loss resulting from an adverse change in the
relationship between the U.S. dollar and the non-U.S. currency during the period
between the date the security is purchased or sold and the date on which payment
is made or received.
When the Manager or a Subadviser believes that the currency of a
particular country may suffer a substantial decline against the U.S. dollar, a
Fund may enter into a forward contract to sell, for a fixed amount of U.S.
dollars, the amount of non-U.S. currency approximating the value of some or all
of the Fund's securities denominated in such non-U.S. currency. The precise
matching of the forward contract amounts and the value of the securities
involved is not generally possible since the future value of such securities in
non-U.S. currencies changes as a consequence of market movements in the value of
those securities between the date the forward contract is entered into and the
date it matures. The projection of a short-term hedging strategy is highly
uncertain. The Funds do not enter into such forward contracts or maintain a net
exposure to such contracts where the consummation of the contracts obligates a
Fund to deliver an amount of non-U.S. currency in excess of the value of the
Fund's securities or other assets denominated in that currency. Under normal
circumstances, consideration of the prospect for currency parities will be
incorporated in the investment decisions made with regard to overall
diversification strategies. However, the Manager believes that it is important
to have the flexibility to enter into such forward contracts when it determines
that the best interests of the Fund will be served.
The Funds generally would not enter into a forward contract with a term
greater than one year. At the maturity of a forward contract, a Fund will either
sell the security and make delivery of the non-U.S. currency, or retain the
security and terminate its contractual obligation to deliver the non-U.S.
currency by purchasing an "offsetting" contract with the same currency trader
obligating it to purchase, on the same maturity date, the same amount of the
non-U.S. currency. If a Fund retains the security and engages in an offsetting
transaction, the Fund will incur a gain or a loss (as described below) to the
extent that there has been movement in forward contract prices. If a Fund
engages in an offsetting transaction, it may subsequently enter into a new
forward contract to sell the non-U.S. currency. Should forward prices decline
during the period between the date a Fund enters into a forward contract for the
sale of the non-U.S. currency and the date it enters into an offsetting contract
for the purchase of such currency, the Fund will realize a gain to the extent
the selling price of the currency exceeds the purchase price of the currency.
Should forward prices increase, the Fund will suffer a loss to the extent that
the purchase price of the currency exceeds the selling price of the currency.
It is impossible to forecast with precision the market value of Fund
securities at the expiration of the contract. Accordingly, it may be necessary
for a Fund to purchase additional non-U.S. currency on the spot market if the
market value of the security is less than the amount of non-U.S. currency the
Fund is obligated to deliver and if a decision is made to sell the security and
make delivery of such currency. Conversely, it may be necessary to sell on the
spot market some of the non-U.S. currency received upon the sale of the security
if its market value exceeds the amount of such currency the Fund is obligated to
deliver.
Each of the Funds may also purchase put options on a non-U.S. currency
in order to protect against currency rate fluctuations. If a Fund purchases a
put option on a non-U.S. currency and the value of the non-U.S. currency
declines, the Fund will have the right to sell the non-U.S. currency for a fixed
amount in U.S. dollars and will thereby offset, in whole or in part, the adverse
effect on the Fund which otherwise would have resulted. Conversely, where a rise
in the U.S. dollar value of another currency is projected, and where the Fund
anticipates investing in securities traded in such currency, the Fund may
purchase call options on the non-U.S. currency.
The purchase of such options could offset, at least partially, the
effects of the adverse movements in exchange rates. However, the benefit to the
Fund from purchases of foreign currency options will be reduced by the amount of
the premium and related transaction costs. In addition, where currency exchange
rates do not move in the direction or to the extent anticipated, the Fund could
sustain losses on transactions in foreign currency options which would require
it to forgo a portion or all of the benefits of advantageous changes in such
rates.
The Funds may write options on non-U.S. currencies for hedging purposes
or otherwise to achieve their investment objectives. For example, where a Fund
anticipates a decline in the value of the U.S. dollar value of a foreign
security due to adverse fluctuations in exchange rates it could, instead of
purchasing a put option, write a call option on the relevant currency. If the
expected decline occurs, the option will most likely not be exercised, and the
diminution in value of the security held by the Fund will be offset by the
amount of the premium received.
Similarly, instead of purchasing a call option to hedge against an
anticipated increase in the cost of a foreign security to be acquired because of
an increase in the U.S. dollar value of the currency in which the underlying
security is primarily traded, a Fund could write a put option on the relevant
currency which, if rates move in the manner projected, will expire unexercised
and allow the Fund to hedge such increased cost up to the amount of the premium.
However, the writing of a currency option will constitute only a partial hedge
up to the amount of the premium, and only if rates move in the expected
direction. If this does not occur, the option may be exercised and the Fund
would be required to purchase or sell the underlying currency at a loss which
may not be offset by the amount of the premium. Through the writing of options
on currencies, a Fund also may be required to forgo all or a portion of the
benefits which might otherwise have been obtained from favorable movements in
exchange rates.
Put and call options on non-U.S. currencies written by a Fund will be
covered by segregation of cash, short-term money market instruments or high
quality debt securities in an account with the custodian in an amount sufficient
to discharge the Fund's obligations with respect to the option, by acquisition
of the non-U.S. currency or of a right to acquire such currency (in the case of
a call option) or the acquisition of a right to dispose of the currency (in the
case of a put option), or in such other manner as may be in accordance with the
requirements of any exchange on which, or the counterparty with which, the
option is traded and applicable laws and regulations.
Investing in ADRs and other depositary receipts presents many of the
same risks regarding currency exchange rates as investing directly in securities
traded in currencies other than the U.S. dollar. Because the securities
underlying ADRs are traded primarily in non-U.S. currencies, changes in currency
exchange rates will affect the value of these receipts. For example, decline in
the U.S. dollar value of another currency in which securities are primarily
traded will reduce the U.S. dollar value of such securities, even if their value
in the other non-U.S. currency remains constant, and thus will reduce the value
of the receipts covering such securities. A Fund may employ any of the above
described foreign currency hedging techniques to protect the value of its assets
invested in depositary receipts.
Of course, a Fund is not required to enter into the transactions
described above and does not do so unless deemed appropriate by the Manager or a
Subadviser. It should also be realized that this method of protecting the value
of a Fund's securities against a decline in the value of a currency does not
eliminate fluctuations in the underlying prices of the securities. Additionally,
although such contracts tend to minimize the risk of loss due to a decline in
the value of the hedged currency, they also tend to limit any potential gain
which might result should the value of such currency increase.
Each Fund has established procedures consistent with policies of the
Securities and Exchange Commission concerning forward contracts. Since those
policies currently recommend that an amount of a Fund's assets equal to the
amount of the purchase be held aside or segregated to be used to pay for the
commitment, each Fund expects to always have cash, cash equivalents or high
quality debt securities available sufficient to cover any commitments under
these contracts or to limit any potential risk.
OPTIONS
Each of the Funds may write covered call and put options and purchase
call and put options on securities. Call and put options written by a Fund may
be covered in the manner set forth below.
A call option written by a Fund is "covered" if the Fund owns the
security underlying the call or has an absolute and immediate right to acquire
that security without additional cash consideration (or for additional cash
consideration held in a segregated account by its custodian) upon conversion or
exchange of other securities held in its portfolio. A call option is also
covered if a Fund holds a call on the same security and in the same principal
amount as the call written where the exercise price of the call held (a) is
equal to or less than the exercise price of the call written or (b) is greater
than the exercise price of the call written if the difference is maintained by a
Fund in cash, short-term money market instruments or high quality debt
securities in a segregated account with its custodian. A put option written by a
Fund is "covered" if the Fund maintains cash, short term money market
instruments or high quality debt securities with a value equal to the exercise
price in a segregated account with its custodian, or else holds a put on the
same security and in the same principal amount as the put written where the
exercise price of the put held is equal to or greater than the exercise price of
the put written or where the exercise price of the put held is less than the
exercise price of the put written if the difference is maintained by the Fund in
cash, short-term money market instruments or high quality debt securities in a
segregated account with its custodian. Put and call options written by a Fund
may also be covered in such other manner as may be in accordance with the
requirements of the exchange on which, or the counter party with which, the
option is traded, and applicable laws and regulations. If the writer's
obligation is not so covered, it is subject to the risk of the full change in
value of the underlying security from the time the option is written until
exercise.
Each of the Funds may purchase options for hedging purposes or to
increase the Fund's return. Put options may be purchased to hedge against a
decline in the value of portfolio securities. If such decline occurs, the put
options will permit a Fund to sell the securities at the exercise price, or to
close out the options at a profit. By using put options in this way, the Fund
will reduce any profit it might otherwise have realized in the underlying
security by the amount of the premium paid for the put option and by transaction
costs.
Each of the Funds may purchase call options to hedge against an
increase in the price of securities that the Fund anticipates purchasing in the
future. If such increase occurs, the call option will permit the Fund to
purchase the securities at the exercise price, or to close out the options at a
profit. The premium paid for the call option plus any transaction costs will
reduce the benefit, if any, realized by the Fund upon exercise of the option,
and, unless the price of the underlying security rises sufficiently, the option
may expire worthless to the Fund.
Each of the Funds may write (sell) covered call and put options and
purchase call and put options on stock indices. In contrast to an option on a
security, an option on a stock index provides the holder with the right, but not
the obligation, to make or receive a cash settlement upon exercise of the
option, rather than the right to purchase or sell a security. The amount of this
settlement is equal to (i) the amount, if any, by which the fixed exercise price
of the option exceeds (in the case of a call) or is below (in the case of a put)
the closing value of the underlying index on the date of exercise, multiplied by
(ii) a fixed "index multiplier."
Each of the Funds may cover call options on stock indices by owning
securities whose price changes, in the opinion of the Manager or a Subadviser,
are expected to be similar to those of the underlying index, or by having an
absolute and immediate right to acquire such securities without additional cash
consideration (or for additional cash consideration held in a segregated account
by its custodian) upon conversion or exchange of other securities in its
portfolio. Where a Fund covers a call option on a stock index through ownership
of securities, such securities may not match the composition of the index and,
in that event, the Fund will not be fully covered and could be subject to risk
of loss in the event of adverse changes in the value of the index. A Fund may
also cover call options on stock indices by holding a call on the same index and
in the same principal amount as the call written where the exercise price of the
call held (a) is equal to or less than the exercise price of the call written or
(b) is greater than the exercise price of the call written if the difference is
maintained by the Fund in cash, short-term money market instruments or high
quality debt securities in a segregated account with its custodian. A Fund may
cover put options on stock indices by maintaining cash, short-term money market
instruments or high quality debt securities with a value equal to the exercise
price in a segregated account with its custodian, or by holding a put on the
same stock index and in the same principal amount as the put written where the
exercise price of the put held is equal to or greater than the exercise price of
the put written or where the exercise price of the put held is less than the
exercise price of the put written if the difference is maintained by the Fund in
cash, short-term money market instruments or high quality debt securities in a
segregated account with its custodian. Put and call options on stock indices may
also be covered in such other manner as may be in accordance with the rules of
the exchange on which, or the counterparty with which, the option is traded and
applicable laws and regulations.
A Fund will receive a premium from writing a put or call option, which
increases the Fund's gross income in the event the option expires unexercised or
is closed out at a profit. If the value of an index on which a Fund has written
a call option falls or remains the same, the Fund will realize a profit in the
form of the premium received (less transaction costs) that could offset all or a
portion of any decline in the value of the securities it owns. If the value of
the index rises, however, the Fund will realize a loss in its call option
position, which will reduce the benefit of any unrealized appreciation in the
Fund's stock investments. By writing a put option, a Fund assumes the risk of a
decline in the index. To the extent that the price changes of securities owned
by a Fund correlate with changes in the value of the index, writing covered put
options on indices will increase the Fund's losses in the event of a market
decline, although such losses will be offset in part by the premium received for
writing the option.
Each of the Funds may also purchase put options on stock indices to
hedge the Fund's investments against a decline in value. By purchasing a put
option on a stock index, a Fund will seek to offset a decline in the value of
securities it owns through appreciation of the put option. If the value of the
Fund's investments does not decline as anticipated, or if the value of the
option does not increase, the Fund's loss will be limited to the premium paid
for the option plus related transaction costs. The success of this strategy will
largely depend on the accuracy of the correlation between the changes in value
of the index and the changes in value of the Fund's security holdings.
The purchase of call options on stock indices may be used by a Fund to
attempt to reduce the risk of missing a broad market advance, or an advance in
an industry or market segment, at a time when the Fund holds uninvested cash or
short-term debt securities awaiting investment. When purchasing call options for
this purpose, a Fund will also bear the risk of losing all or a portion of the
premium paid if the value of the index does not rise. The purchase of call
options on stock indices when a Fund is substantially fully invested is a form
of leverage, up to the amount of the premium and related transaction costs, and
involves risks of loss and of increased volatility similar to those involved in
purchasing calls on securities the Fund owns.
Each of the Funds may purchase and write options on foreign currencies
in a manner similar to that in which futures contracts on foreign currencies, or
forward contracts, will be utilized.
FUTURES CONTRACTS
Each of the Funds may enter into interest rate futures contracts, stock
index futures contracts and/or foreign currency futures contracts. Such
investment strategies will be used for hedging purposes and for nonhedging
purposes, subject to applicable law.
A futures contract is an agreement between two parties for the purchase
or sale for future delivery of securities or for the payment or acceptance of a
cash settlement based upon changes in the value of the securities or of an index
of securities. A "sale" of a futures contract means the acquisition of a
contractual obligation to deliver the securities called for by the contract at a
specified price, or to make or accept the cash settlement called for by the
contract, on a specified date. A "purchase" of a futures contract means the
acquisition of a contractual obligation to acquire the securities called for by
the contract at a specified price, or to make or accept the cash settlement
called for by the contract, on a specified date. Futures contracts have been
designed by exchanges which have been designated "contract markets" by the
Commodity Futures Trading Commission ("CFTC") and must be executed through a
futures commission merchant, or brokerage firm, which is a member of the
relevant contract market. Futures contracts trade on these markets, and the
exchanges, through their clearing organizations, guarantee that the contracts
will be performed as between the clearing members of the exchange.
While futures contracts based on debt securities do provide for the
delivery and acceptance of securities, such deliveries and acceptances are very
seldom made. Generally, a futures contract is terminated by entering into an
offsetting transaction. Brokerage fees will be incurred when a Fund purchases or
sells a futures contract. At the same time such a purchase or sale is made, the
Fund must provide cash or securities as a deposit ("initial deposit") known as
"margin." The initial deposit required will vary, but may be as low as 1% or
less of a contract's face value. Daily thereafter, the futures contract is
valued through a process known as "marking to market," and the Fund may receive
or be required to pay additional "variation margin" as the futures contract
becomes more or less valuable. At the time of delivery of securities pursuant to
such a contract, adjustments are made to recognize differences in value arising
from the delivery of securities with a different interest rate than the specific
security that provides the standard for the contract. In some (but not many)
cases, securities called for by a futures contract may not have been issued when
the contract was entered into.
A Fund may purchase or sell futures contracts to attempt to protect the
Fund from fluctuations in interest rates, or to manage the effective maturity or
duration of the Fund's portfolio in an effort to reduce potential losses or
enhance potential gain, without actually buying or selling debt securities. For
example, if interest rates were expected to increase, the Fund might enter into
futures contracts for the sale of debt securities. Such a sale would have much
the same effect as if the Fund sold bonds that it owned, or as if the Fund sold
longer-term bonds and purchased shorter-term bonds. If interest rates did
increase, the value of the Fund's debt securities would decline, but the value
of the futures contracts would increase, thereby keeping the net asset value of
the Fund from declining as much as it otherwise would have. Similar results
could be accomplished by selling bonds, or by selling bonds with longer
maturities and investing in bonds with shorter maturities. However, by using
futures contracts, the Fund avoids having to sell its securities.
Similarly, when it is expected that interest rates may decline, a Fund
might enter into futures contracts for the purchase of debt securities. Such a
purchase would be intended to have much the same effect as if the Fund purchased
bonds, or as if the Fund sold shorter-term bonds and purchased longer-term
bonds. If interest rates did decline, the value of the futures contracts would
increase.
Each of the Funds may enter into stock index futures contracts to gain
stock market exposure while holding cash available for investments and
redemptions.
Each of the Funds may purchase and sell foreign currency futures
contracts to attempt to protect its current or intended investments from
fluctuations in currency exchange rates. Such fluctuations could reduce the
dollar value of portfolio securities denominated in foreign currencies, or
increase the cost of foreign-denominated securities to be acquired, even if the
value of such securities in the currencies in which they are denominated remains
constant. A Fund may sell futures contracts on a foreign currency, for example,
where it holds securities denominated in such currency and it anticipates a
decline in the value of such currency relative to the dollar. In the event such
decline occurs, the resulting adverse effect on the value of foreign-denominated
securities may be offset, in whole or in part, by gains on the futures
contracts.
Conversely, the Fund could protect against a rise in the dollar cost of
foreign-denominated securities to be acquired by purchasing futures contracts on
the relevant currency, which could offset, in whole or in part, the increased
cost of such securities resulting from a rise in the dollar value of the
underlying currencies. Where the Fund purchases futures contracts under such
circumstances, however, and the prices of securities to be acquired instead
decline, the Fund will sustain losses on its futures position which could reduce
or eliminate the benefits of the reduced cost of portfolio securities to be
acquired.
Although the use of futures for hedging should tend to minimize the
risk of loss due to a decline in the value of the hedged position (e.g., if a
Fund sells a futures contract to protect against losses in the debt securities
held by the Fund), at the same time the futures contract limits any potential
gain which might result from an increase in value of a hedged position.
In addition, the ability effectively to hedge all or a portion of a
Fund's investments through transactions in futures contracts depends on the
degree to which movements in the value of the debt securities underlying such
contracts correlate with movements in the value of the Fund's securities. If the
security underlying a futures contract is different than the security being
hedged, they may not move to the same extent or in the same direction. In that
event, the Fund's hedging strategy might not be successful and the Fund could
sustain losses on these hedging transactions which would not be offset by gains
on the Fund's other investments or, alternatively, the gains on the hedging
transaction might not be sufficient to offset losses on the Fund's other
investments. It is also possible that there may be a negative correlation
between the security underlying a futures contract and the securities being
hedged, which could result in losses both on the hedging transaction and the
securities. In these and other instances, the Fund's overall return could be
less than if the hedging transactions had not been undertaken. Similarly, even
where a Fund enters into futures transactions other than for hedging purposes,
the effectiveness of its strategy may be affected by lack of correlation between
changes in the value of the futures contracts and changes in value of the
securities which the Fund would otherwise buy and sell.
The ordinary spreads between prices in the cash and futures markets,
due to differences in the nature of those markets, are subject to distortions.
First, all participants in the futures market are subject to initial deposit and
variation margin requirements. Rather than meeting additional variation margin
requirements, investors may close out futures contracts through offsetting
transactions which could distort the normal relationship between the cash and
futures markets. Second, there is the potential that the liquidity of the
futures market may be lacking. Prior to expiration, a futures contract may be
terminated only by entering into a closing purchase or sale transaction, which
requires a secondary market on the contract market on which the futures contract
was originally entered into. While a Fund will establish a futures position only
if there appears to be a liquid secondary market therefor, there can be no
assurance that such a market will exist for any particular futures contract at
any specific time. In that event, it may not be possible to close out a position
held by the Fund, which could require the Fund to purchase or sell the
instrument underlying the futures contract or to meet ongoing variation margin
requirements. The inability to close out futures positions also could have an
adverse impact on the ability effectively to use futures transactions for
hedging or other purposes.
The liquidity of a secondary market in a futures contract may be
adversely affected by "daily price fluctuation limits" established by the
exchanges, which limit the amount of fluctuation in the price of a futures
contract during a single trading day and prohibit trading beyond such limits
once they have been reached. The trading of futures contracts also is subject to
the risk of trading halts, suspensions, exchange or clearing house equipment
failures, government intervention, insolvency of a brokerage firm or clearing
house or other disruptions of normal trading activity, which could at times make
it difficult or impossible to liquidate existing positions or to recover excess
variation margin payments.
Investments in futures contracts also entail the risk that if the
Manager's or a Subadviser's investment judgment about the general direction of
interest rates or stock prices is incorrect, the Fund's overall performance may
be poorer than if any such contract had not been entered into. For example, if a
Fund hedged against the possibility of an increase in interest rates which would
adversely affect the price of the Fund's bonds and interest rates decrease
instead, part or all of the benefit of the increased value of the Fund's bonds
which were hedged will be lost because the Fund will have offsetting losses in
its futures positions. Similarly, if a Fund purchases futures contracts
expecting a decrease in interest rates and interest rates instead increased, the
Fund will have losses in its futures positions which will increase the amount of
the losses on the securities in its portfolio which will also decline in value
because of the increase in interest rates. In addition, in such situations, if
the Fund has insufficient cash, the Fund may have to sell bonds from its
investments to meet daily variation margin requirements, possibly at a time when
it may be disadvantageous to do so.
Each contract market on which futures contracts are traded has
established a number of limitations governing the maximum number of positions
which may be held by a trader, whether acting alone or in concert with others.
The Manager does not believe that these trading and position limits would have
an adverse impact on a Fund's hedging strategies.
CFTC regulations require compliance with certain limitations in order
to assure that a Fund is not deemed to be a "commodity pool" under such
regulations. In particular, CFTC regulations prohibit a Fund from purchasing or
selling futures contracts (other than for bona fide hedging transactions) if,
immediately thereafter, the sum of the amount of initial margin required to
establish that Fund's non-hedging futures positions would exceed 5% of that
Fund's net assets.
Each Fund will comply with this CFTC requirement, and each Fund
currently intends to adhere to the additional policies described below. First,
an amount of cash or cash equivalents will be maintained by each Fund in a
segregated account with the Fund's custodian so that the amount so segregated,
plus the initial margin held on deposit, will be approximately equal to the
amount necessary to satisfy the Fund's obligations under the futures contract.
The second is that a Fund will not enter into a futures contract if immediately
thereafter the amount of initial margin deposits on all the futures contracts
held by the Fund would exceed approximately 5% of the net assets of the Fund.
The third is that the aggregate market value of the futures contracts held by a
Fund not exceed approximately 50% of the market value of the Fund's total assets
other than its futures contracts. For purposes of this third policy, "market
value" of a futures contract is deemed to be the amount obtained by multiplying
the number of units covered by the futures contract times the per unit price of
the securities covered by that contract.
The use of futures contracts may increase the amount of taxable income
of a Fund and may affect the amount, timing and character of a Fund's income for
tax purposes, as more fully discussed herein in the section entitled "Certain
Additional Tax Matters."
OPTIONS ON FUTURES CONTRACTS
Each of the Funds may purchase and write options to buy or sell futures
contracts in which the Fund may invest. Such investment strategies will be used
for hedging purposes and for non-hedging purposes, subject to applicable law.
An option on a futures contract provides the holder with the right to
enter into a "long" position in the underlying futures contract, in the case of
a call option, or a "short" position in the underlying futures contract, in the
case of a put option, at a fixed exercise price up to a stated expiration date
or, in the case of certain options, on such date. Upon exercise of the option by
the holder, the contract market clearinghouse establishes a corresponding short
position for the writer of the option, in the case of a call option, or a
corresponding long position in the case of a put option. In the event that an
option is exercised, the parties will be subject to all the risks associated
with the trading of futures contracts, such as payment of initial and variation
margin deposits. In addition, the writer of an option on a futures contract,
unlike the holder, is subject to initial and variation margin requirements on
the option position.
A position in an option on a futures contract may be terminated by the
purchaser or seller prior to expiration by effecting a closing purchase or sale
transaction, subject to the availability of a liquid secondary market, which is
the purchase or sale of an option of the same series, (i.e., the same exercise
price and expiration date) as the option previously purchased or sold. The
difference between the premiums paid and received represents the trader's
profits or loss on the transaction.
Options on futures contracts that are written or purchased by a Fund on
U.S. exchanges are traded on the same contract market as the underlying futures
contract, and, like futures contracts, are subject to regulation by the CFTC and
the performance guarantee of the exchange clearinghouse. In addition, options on
futures contracts may be traded on foreign exchanges.
Each of the Funds may cover the writing of call options on futures
contracts (a) through purchases of the underlying futures contract, (b) through
ownership of the instrument, or instruments included in the index, underlying
the futures contract, or (c) through the holding of a call on the same futures
contract and in the same principal amount as the call written where the exercise
price of the call held (i) is equal to or less than the exercise price of the
call written or (ii) is greater than the exercise price of the call written if
the difference is maintained by the Fund in cash or securities in a segregated
account with its custodian. A Fund may cover the writing of put options on
futures contracts (a) through sales of the underlying futures contract, (b)
through segregation of cash, short-term money market instruments or high quality
debt securities in an amount equal to the value of the security or index
underlying the futures contract, (c) through the holding of a put on the same
futures contract and in the same principal amount as the put written where the
exercise price of the put held is equal to or greater than the exercise price of
the put written or where the exercise price of the put held is less than the
exercise price of the put written if the difference is maintained by a Fund in
cash, short-term money market instruments or high quality debt securities in a
segregated account with its custodian. Put and call options on futures contracts
may also be covered in such other manner as may be in accordance with the rules
of the exchange on which the option is traded and applicable laws and
regulations. Upon the exercise of a call option on a futures contract written by
a Fund, the Fund will be required to sell the underlying futures contract which,
if the Fund has covered its obligation through the purchase of such contract,
will serve to liquidate its futures position. Similarly, where a put option on a
futures contract written by a Fund is exercised, the Fund will be required to
purchase the underlying futures contract which, if the Fund has covered its
obligation through the sale of such contract, will close out its futures
position.
The writing of a call option on a futures contract constitutes a
partial hedge against declining prices of the securities deliverable on exercise
of the futures contract. A Fund will receive an option premium when it writes
the call, and, if the price of the futures contract at expiration of the option
is below the option exercise price, the Fund will retain the full amount of this
option premium, which provides a partial hedge against any decline that may have
occurred in the Fund's security holdings. Similarly, the writing of a put option
on a futures contract constitutes a partial hedge against increasing prices of
the securities deliverable upon exercise of the futures contract. If a Fund
writes an option on a futures contract and that option is exercised, the Fund
may incur a loss, which loss will be reduced by the amount of the option premium
received, less related transaction costs. A Fund's ability to hedge effectively
through transactions in options on futures contracts depends on, among other
factors, the degree of correlation between changes in the value of securities
held by the Fund and changes in the value of its futures positions. This
correlation cannot be expected to be exact, and the Fund bears a risk that the
value of the futures contract being hedged will not move in the same amount, or
even in the same direction, as the hedging instrument. Thus it may be possible
for a Fund to incur a loss on both the hedging instrument and the futures
contract being hedged.
Each of the Funds may purchase options on futures contracts for hedging
purposes instead of purchasing or selling the underlying futures contracts. For
example, where a decrease in the value of portfolio securities is anticipated as
a result of a projected market-wide decline or changes in interest or exchange
rates, a Fund could, in lieu of selling futures contracts, purchase put options
thereon. In the event that such decrease occurs, it may be offset, in whole or
part, by a profit on the option. Conversely, where it is projected that the
value of securities to be acquired by a Fund will increase prior to acquisition,
due to a market advance or changes in interest or exchange rates, the Fund could
purchase call options on futures contracts, rather than purchasing the
underlying futures contracts.
CONVERTIBLE SECURITIES
Each Fund may invest in convertible securities. A convertible security
is a fixed-income security (a bond or preferred stock) which may be converted at
a stated price within a specified period of time into a certain quantity of
common stock or other equity securities of the same or a different issuer.
Convertible securities rank senior to common stock in a corporation's capital
structure but are usually subordinated to similar non-convertible securities.
While providing a fixed-income stream (generally higher in yield than the income
derivable from common stock but lower than that afforded by a similar
non-convertible security), a convertible security also affords an investor the
opportunity, through its conversion feature, to participate in the capital
appreciation attendant upon a market price advance in the convertible security's
underlying common stock. Convertible securities purchased are not subject to the
rating requirements applicable to the Funds' purchase of fixed income
investments.
In general, the market value of a convertible security is at least the
higher of its "investment value" (i.e., its value as a fixed income security) or
its "conversion value" (i.e., its value upon conversion into its underlying
stock). As a fixed-income security, a convertible security tends to increase in
market value when interest rates decline and tends to decrease in value when
interest rates rise. However, the price of a convertible security is also
influenced by the market value of the security's underlying common stock. The
price of a convertible security tends to increase as the market value of the
underlying stock rises, whereas it tends to decrease as the market value of the
underlying stock declines. While no securities investment is without some risk,
investments in convertible securities generally entail less risk than
investments in the common stock of the same issuer.
SWAPS AND RELATED TRANSACTIONS
Each Fund may enter into interest rate swaps, currency swaps, equity
swaps and other types of available swap agreements, such as caps, collars and
floors, for the purpose of attempting to obtain a particular desired return at a
lower cost to the Fund than if the Fund had invested directly in an instrument
that yielded that desired return. Interest rate swaps involve the exchange by
the Fund with another party of their respective commitments to pay or receive
interest. An equity swap is an agreement to exchange cash flows on a principal
amount based on changes in the values of the reference index. A currency swap is
an agreement to exchange cash flows on a principal amount based on changes in
the values of the currency exchange rates. In a typical cap or floor agreement,
one party agrees to make payments only under specified circumstances, usually in
return for payment of a fee by the counterparty. A collar arrangement combines
elements of buying and selling a floor.
A Fund will maintain liquid assets with its custodian to cover its
current obligations under swap transactions. If the Fund enters into a swap
agreement on a net basis (i.e., the two payments streams are netted out, with
the Fund receiving or paying, as the case may be, only the net amount of the two
payments), the Fund will maintain liquid assets with its custodian with a daily
value at least equal to the excess, if any, of the Fund's accrued obligations
under the swap agreement over the accrued amount the Fund is entitled to receive
under the agreement. If the Fund enters into a swap agreement on other than a
net basis, it will maintain liquid assets with a value equal to the full amount
of the Fund's accrued obligations under the agreement.
The most significant factor in the performance of swaps, caps, floors
and collars is the change in the specific interest rate, equity, currency or
other factor that determines the amount of payments to be made under the
arrangement. If the Manager or a Subadviser is incorrect in its forecasts of
such factors, the investment performance of the Fund would be less than what it
would have been if these investment techniques had not been used. If a swap
agreement calls for payments by the Fund, the Fund must be prepared to make such
payments when due. No Fund will enter into any swap unless the Manager or
Subadviser deems the counterparty to be creditworthy. If the counterparty's
creditworthiness declined, the value of the swap agreement would be likely to
decline, potentially resulting in losses. If the counterparty defaults, the
Fund's risk of loss consists of the net amount of payments that the Fund is
contractually entitled to receive. Each Fund anticipates that it will be able to
eliminate or reduce its exposure under these arrangements by assignment or other
disposition or by entering into an offsetting agreement with the same or another
counterparty.
4. INVESTMENT RESTRICTIONS
The Trust, on behalf of the Funds, has adopted the following policies
which may not be changed with respect to any Fund without approval by holders of
a majority of the outstanding voting securities of that Fund, which as used in
this Statement of Additional Information means the vote of the lesser of (i) 67%
or more of the outstanding voting securities of the Fund present at a meeting at
which the holders of more than 50% of the outstanding voting securities of the
Fund are present or represented by proxy, or (ii) more than 50% of the
outstanding voting securities of the Fund. The term "voting securities" as used
in this paragraph has the same meaning as in the 1940 Act.
None of the Funds may:
(1) Borrow money, except that as a temporary measure for extraordinary
or emergency purposes it may borrow in an amount not to exceed 1/3 of the
current value of its net assets, including the amount borrowed (nor purchase any
securities at any time at which borrowings exceed 5% of the total assets of the
Fund, taken at market value). It is intended that a Fund would borrow money only
from banks and only to accommodate requests for the repurchase of shares of the
Fund while effecting an orderly liquidation of portfolio securities.
(2) Make loans to other persons except (a) through the lending of its
portfolio securities and provided that any such loans not exceed 30% of the
Fund's total assets (taken at market value), (b) through the use of repurchase
agreements or the purchase of short-term obligations or (c) by purchasing all or
a portion of an issue of debt securities of types commonly distributed privately
to financial institutions. The purchase of short-term commercial paper or a
portion of an issue of debt securities which is part of an issue to the public
shall not be considered the making of a loan.
(3) Purchase securities of any issuer if such purchase at the time
thereof would cause with respect to 75% of the total assets of the Fund more
than 10% of the voting securities of such issuer to be held by the Fund, except
that a Fund may invest all or substantially all of its investable assets in
another registered investment company having the same investment objectives and
policies and substantially the same investment restrictions as those with
respect to the Fund (a "Qualifying Portfolio").
(4) Purchase securities of any issuer if such purchase at the time
thereof would cause as to 75% of the Fund's total assets more than 5% of the
Fund's assets (taken at market value) to be invested in the securities of such
issuer (other than securities or obligations issued or guaranteed by the United
States, any state or political subdivision thereof, or any political subdivision
of any such state, or any agency or instrumentality of the United States or of
any state or of any political subdivision of any state), except that, with
respect to each Fund, the Fund may invest all or substantially all of its
investable assets in a Qualifying Portfolio.
(5) Concentrate its investments in any particular industry, but if it
is deemed appropriate for the achievement of the Fund's investment objectives,
up to 25% of its assets, at market value at the time of each investment, may be
invested in any one industry.
(6) Underwrite securities issued by other persons, except that all the
assets of the Fund may be invested in a Qualifying Portfolio and except in so
far as the Fund may technically be deemed an underwriter under the Securities
Act in selling a security.
(7) Purchase or sell real estate (including limited partnership
interests but excluding securities secured by real estate or interests therein),
interests in oil, gas or mineral leases, commodities or commodity contracts in
the ordinary course of business (each Fund reserves the freedom of action to
hold and to sell real estate acquired as a result of the ownership of securities
by the Fund).
(8) Issue any senior security (as that term is defined in the 1940 Act)
if such issuance is specifically prohibited by the 1940 Act or the rules and
regulations promulgated thereunder, provided that collateral arrangements with
respect to options, futures contracts, and options on futures contracts,
including deposits of initial and variation margin, are not considered to be the
issuance of a senior security for purposes of this restriction and except as
appropriate to evidence a debt incurred without violating Investment Restriction
(1) above.
NON-FUNDAMENTAL RESTRICTIONS
Each Fund does not as a matter of operating policy:
(i) borrow money in excess of 10% of the total assets of the Fund
(taken at cost), except that such Fund may borrow up to 25% of its total assets
when such borrowing is necessary to meet redemption requests (moreover, the Fund
will not purchase any securities for the Fund at any time at which borrowings
exceed 5% of the total assets of the Fund (taken at market value)),
(ii) invest more than 20% of is total assets in the securities of
issuers located in any one foreign country, except that the Fund may have an
additional 15% of its total assets in the securities of issuers located in any
one of the following countries: Australia, Canada, France, Japan, the United
Kingdom, or Germany.
These policies are not fundamental and may be changed by each Fund
without the approval of its shareholders.
PERCENTAGE AND RATING RESTRICTIONS
If a percentage or rating restriction on investment or utilization of
assets set forth above or referred to in this Registration Statement is adhered
to at the time an investment is made or assets are so utilized, a later change
in percentage resulting from changes in the value of the securities or a later
change in the rating of the securities held for the Fund will not be considered
a violation of policy.
5. PERFORMANCE INFORMATION
A total rate of return quotation for a Fund is calculated for any
period by (a) dividing (i) the sum of the net asset value per share on the last
day of the period and the net asset value per share on the last day of the
period of shares purchasable with dividends and capital gains distributions
declared during such period with respect to a share held at the beginning of
such period and with respect to shares purchased with such dividends and capital
gains distributions, by (ii) the public offering price per share on the first
day of such period, and (b) subtracting 1 from the result. Any annualized total
rate of return quotation is calculated by (x) adding 1 to the period total rate
of return quotation calculated above, (y) raising such sum to a power which is
equal to 365 divided by the number of days in such period, and (z) subtracting 1
from the result. Total rates of return may also be calculated on investments at
various sales charge levels or at net asset value. Any performance data which is
based on a reduced sales charge or net asset value would be reduced if the
maximum sales charge were taken into account.
Any current yield quotation for a Fund consists of an annualized
historical yield, carried at least to the nearest hundredth of one percent,
based on a 30 calendar day or one month period and is calculated by (a) raising
to the sixth power the sum of 1 plus the quotient obtained by dividing the
Fund's net investment income earned during the period by the product of the
average daily number of shares outstanding during the period that were entitled
to receive dividends and the maximum public offering price per share on the last
day of the period, (b) subtracting 1 from the result, and (c) multiplying the
result by 2.
Yields and total returns quoted for a Fund include the effect of
deducting the Fund's expenses, but may not include charges and expenses
attributable to a particular variable annuity contract or variable life
insurance policy. Since shares of the Funds can be purchased only through a
variable annuity contract or variable life insurance policy, a purchaser of such
contract or policy should carefully review the prospectus for the applicable
variable annuity contract or variable life insurance policy for information on
relevant charges and expenses. Including these charges in the quotations of a
Fund's yield and total return would have the effect of decreasing performance.
Performance information for the Funds must always be accompanied by, and be
reviewed with, performance information for the insurance product which invests
in the Funds.
Set forth below is total rate of return information for the shares of
each Fund for the period indicated, assuming that dividends and capital gains
distributions, if any, were reinvested.
Redeemable Value of a
Annualized Hypothetical
Total Rate $1,000 Investment
of Return at the end of the Period
CITISELECT VIP FOLIO 200
February 10, 1997
(commencement
of operations) to
December 31, 1997 --------% $--------
CITISELECT VIP FOLIO 300
February 10, 1997
(commencement
of operations) to
December 31, 1997 --------% $--------
CITISELECT VIP FOLIO 400
February 10, 1997
(commencement
of operations) to
December 31, 1997 --------% $--------
CITISELECT VIP FOLIO 500
February 10, 1997
(commencement
of operations) to
December 31, 1997 --------% $--------
6. DETERMINATION OF NET ASSET VALUE; VALUATION OF
SECURITIES; ADDITIONAL REDEMPTION INFORMATION
The net asset value of each share of each Fund is determined each day
during which the New York Stock Exchange is open for trading. As of the date of
this Statement of Additional Information, the Exchange is open for trading every
weekday except for the following holidays (or the days on which they are
observed): New Year's Day, Martin Luther King Jr. Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day. This determination of net asset value of shares of a Fund is made
once each day as of the close of regular trading on such Exchange by dividing
the value of the Fund's net assets (i.e., the value of its assets less its
liabilities, including expenses payable or accrued) by the number of shares of
the Fund outstanding at the time the determination is made. A share's net asset
value is effective for orders received by the Trust prior to its calculation and
received by the Distributor prior to the close of the business day on which such
net asset value is determined.
For purposes of calculating net asset value per share, all assets and
liabilities initially expressed in non-U.S. currencies will be converted into
U.S. dollars at the prevailing market rates at the time of valuation. Equity
securities are valued at the last sale price on the exchange on which they are
primarily traded or on the NASDAQ system for unlisted national market issues, or
at the last quoted bid price for securities in which there were no sales during
the day or for unlisted securities not reported on the NASDAQ system. Securities
listed on a foreign exchange are valued at the last quoted sale price available
before the time when net assets are valued. Bonds and other fixed income
securities (other than short-term obligations) are valued on the basis of
valuations furnished by a pricing service, use of which has been approved by the
Board of Trustees of the Trust. In making such valuations, the pricing service
utilizes both dealer-supplied valuations and electronic data processing
techniques which take into account appropriate factors such as
institutional-size trading in similar groups of securities, yield, quality,
coupon rate, maturity, type of issue, trading characteristics and other market
data, without exclusive reliance upon quoted prices or exchange or
over-the-counter prices, since such valuations are believed to reflect more
accurately the fair value of such securities. In certain instances, securities
are valued on the basis of valuations received from a single dealer, which is
usually an established market maker in the security. In these instances,
additional dealer valuations are obtained monthly. Short-term obligations
(maturing in 60 days or less) are valued at amortized cost, which constitutes
fair value as determined by the Board of Trustees of the Trust. Futures
contracts are normally valued at the settlement price on the exchange on which
they are traded. Securities for which there are no such valuations are valued at
fair value as determined in good faith by or at the direction of the Board of
Trustees of the Trust.
Trading in securities on most foreign exchanges and over-the-counter
markets is normally completed before the close of regular trading on the
Exchange and may also take place on days on which the Exchange is closed. If
events materially affecting the value of foreign securities occur between the
time when the exchange on which they are traded closes and the time when a
Fund's net asset value is calculated, such securities may be valued at fair
value in accordance with procedures established by and under the general
supervision of the Board of Trustees of the Trust.
Interest income on long-term obligations held for a Fund is determined
on the basis of interest accrued plus amortization of "original issue discount"
(generally, the difference between issue price and stated redemption price at
maturity) and premiums (generally, the excess of purchase price over stated
redemption price at maturity). Interest income on short-term obligations is
determined on the basis of interest accrued plus amortization of premium.
Subject to compliance with applicable regulations, the Trust has
reserved the right to pay the redemption or repurchase price of shares of the
Funds, either totally or partially, by a distribution in kind of readily
marketable securities (instead of cash). The securities so distributed would be
valued at the same amount as that assigned to them in calculating the net asset
value for the shares or beneficial interests being sold. If a holder of shares
or beneficial interests received a distribution in kind, such holder could incur
brokerage or other charges in converting the securities to cash.
The Trust may suspend the right of redemption or postpone the date of
payment for shares of a Fund more than seven days during any period when (a)
trading in the markets a Fund normally utilizes is restricted, or an emergency,
as defined by the rules and regulations of the Securities and Exchange
Commission (the "SEC"), exists making disposal of a Fund's investments or
determination of its net asset value not reasonably practicable; (b) the New
York Stock Exchange is closed (other than customary weekend and holiday
closings); or (c) the SEC has by order permitted such suspension.
7. MANAGEMENT
TRUSTEES
The Trustees and officers of the Trust, their ages and their principal
occupations during the past five years are set forth below. Their titles may
have varied during that period. Asterisks indicate that those Trustees and
officers are "interested persons" (as defined in the 1940 Act) of the Trust.
Unless otherwise indicated below, the address of each Trustee and officer is 6
St. James Avenue, Boston, Massachusetts.
TRUSTEES OF THE TRUST
ELLIOTT J. BERV (aged 55) -- Chairman and Director, Catalyst, Inc. (Management
Consultants) (since June, 1992); President, Chief Operating Officer and
Director, Deven International, Inc. (International Consultants) (June, 1991 to
June, 1992); President and Director, Elliott J. Berv & Associates (Management
Consultants) (since May, 1984). His address is 15 Stornoway Drive, Cumberland
Foreside, Maine.
PHILIP W. COOLIDGE* (aged 46) -- President of the Trust; Chief Executive Officer
and President, Signature Financial Group, Inc. and CFBDS.
MARK T. FINN (aged 54) -- President and Director, Delta Financial, Inc. (since
June, 1983); Chairman of the Board and Chief Executive Officer, FX 500 Ltd.
(Commodity Trading Advisory Firm) (since April, 1990); Director, Vantage
Consulting Group, Inc. (since October, 1988). His address is 3500 Pacific
Avenue, P.O. Box 539, Virginia Beach, Virginia.
RILEY C. GILLEY (aged 71) -- Vice President and General Counsel, Corporate
Property Investors (November, 1988 to December, 1991); Partner, Breed, Abbott &
Morgan (Attorneys) (retired, December, 1987). His address is 4041 Gulf Shore
Boulevard North, Naples, Florida.
DIANA R. HARRINGTON (aged 58) -- Professor, Babson College (since September,
1993); Visiting Professor, Kellogg Graduate School of Management, Northwestern
University (September, 1992 to September, 1993); Professor, Darden Graduate
School of Business, University of Virginia (September, 1978 to September, 1993);
Trustee, The Highland Family of Funds (since March, 1997). Her address is 120
Goulding Street, Holliston, Massachusetts.
SUSAN B. KERLEY (aged 46) -- President, Global Research Associates, Inc.
(Investment Research) (since August, 1990); Adviser, Rockefeller & Co. (March,
1988 to July, 1990); Trustee, Mainstay Institutional Funds (since December,
1990). Her address is P.O. Box 9572, New Haven, Connecticut.
C. OSCAR MORONG, JR. (aged 63) -- Managing Director, Morong Capital Management
(since February, 1993); Senior Vice President and Investment Manager, CREF
Investments, Teachers Insurance & Annuity Association (retired January, 1993);
Director, Indonesia Fund; Trustee, MAS Funds (since 1993). His address is 1385
Outlook Drive West, Mountainside, New Jersey.
WALTER E. ROBB, III (aged 71) -- President, Benchmark Consulting Group, Inc.
(since 1991); Principal, Robb Associates (Corporate Financial Advisors) (since
1978); President, Benchmark Advisors, Inc. (Corporate Financial Advisors) (since
1989); Trustee of certain registered investment companies in the MFS Family of
Funds. His address is 35 Farm Road, Sherborn, Massachusetts.
E. KIRBY WARREN (aged 63) -- Professor of Management, Graduate School of
Business, Columbia University (since 1987); Samuel Bronfman Professor of
Democratic Business Enterprise (1978 to 1987). His address is Columbia
University, Graduate School of Business, 725 Uris Hall, New York, New York.
WILLIAM S. WOODS, JR. (aged 77) -- Vice President-Investments, Sun Company, Inc.
(retired, April, 1984). His address is 35 Colwick Road, Cherry Hill, New Jersey.
OFFICERS OF THE TRUST
PHILIP W. COOLIDGE* (aged 46) -- President of the Trust; Chief Executive Officer
and President, Signature Financial Group, Inc. and CFBDS.
CHRISTINE A. DRAPEAU* (aged 27) -- Assistant Secretary and Assistant Treasurer
of the Trust; Assistant Vice President, Signature Financial Group, Inc. (since
January, 1996); Paralegal and Compliance Officer, various financial companies
(July, 1992 to January, 1996); Graduate Student, Bentley College (prior to
December, 1994).
TAMIE EBANKS-CUNNINGHAM* (aged 25) -- Assistant Secretary of the Trust; Office
Manager, Signature Financial Group (Cayman) Ltd. (Since April 1995);
Administrator, Cayman Islands Primary School (prior to April 1995). Her address
is P.O. Box 2494, Elizabethan Square, George Town, Grand Cayman, Cayman Islands,
B.W.I.
JOHN R. ELDER* (aged 49) -- Treasurer of the Trust; Vice President, Signature
Financial Group, Inc. (since April, 1995); Treasurer, CFBDS (since April, 1995);
Treasurer, Phoenix Family of Mutual Funds (Phoenix Home Life Mutual Insurance
Company) (1983 to March, 1995).
LINDA T. GIBSON* (aged 32) -- Secretary of the Trust; Vice President, Signature
Financial Group, Inc. (since May, 1992); Assistant Secretary, CFBDS (since
October, 1992).
JOAN R. GULINELLO* (aged 42) -- Assistant Secretary and Assistant Treasurer of
the Trust; Vice President, Signature Financial Group, Inc. (since October,
1993); Secretary, CFBDS (since October, 1995); Vice President and Assistant
General Counsel, Massachusetts Financial Services Company (prior to October,
1993).
JAMES E. HOOLAHAN* (aged 51) -- Vice President, Assistant Secretary and
Assistant Treasurer of the Trust; Senior Vice President, Signature Financial
Group, Inc.
SUSAN JAKUBOSKI* (aged 34) -- Vice President, Assistant Secretary and Assistant
Treasurer of the Trust; Vice President, Signature Financial Group (Cayman) Ltd.
(since August, 1994); Fund Compliance Administrator, Concord Financial Group
(November, 1990 to August, 1994). Her address is Suite 193, 12 Church Street,
Hamilton HM11, Bermuda.
MOLLY S. MUGLER* (aged 46) -- Assistant Secretary and Assistant Treasurer of the
Trust; Vice President, Signature Financial Group, Inc.; Assistant Secretary,
CFBDS.
CLAIR TOMALIN* (aged 29) -- Assistant Secretary of the Trust; Office Manager,
Signature Financial Group (Europe) Limited (since 1993). Her address is 117
Charterhouse Street, London ECIM 6AA.
SHARON M. WHITSON* (aged 49) -- Assistant Secretary and Assistant Treasurer of
the Trust; Assistant Vice President, Signature Financial Group, Inc.
JULIE J. WYETZNER* (aged 38) -- Vice President, Assistant Secretary and
Assistant Treasurer of the Trust; Vice President, Signature Financial Group,
Inc.
The Trustees and officers of the Trust also hold comparable positions
with certain other funds for which CFBDS, Signature Financial Group, Inc. or
their affiliates serve as the distributor or administrator.
As of February 24, 1998, all Trustees and officers as a group owned
less than 1% of the outstanding shares of each Fund. As of the same date, First
Citicorp Life Insurance Company owned of record 57%, 76%, 72% and 27% of the
shares of CitiSelect VIP Folio 200, CitiSelect VIP Folio 300, CitiSelect VIP
Folio 400 and CitiSelect VIP Folio 500, respectively; and Citicorp Life
Insurance Company owned of record 43%, 24%, 28% and 73% of the shares of
CitiSelect VIP Folio 200, CitiSelect VIP Folio 300, CitiSelect VIP Folio 400 and
CitiSelect VIP Folio 500, respectively.
The Declaration of Trust of the Trust provides that the Trust will
indemnify its Trustees and officers against liabilities and expenses incurred in
connection with litigation in which they may be involved because of their
offices with the Trust unless, as to liability to the Trust, or its investors,
it is finally adjudicated that they engaged in willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in their offices,
or unless with respect to any other matter it is finally adjudicated that they
did not act in good faith in the reasonable belief that their actions were in
the best interests of the Trust. In the case of settlement, such indemnification
will not be provided unless it has been determined by a court or other body
approving the settlement or other disposition, or by a reasonable determination,
based upon a review of readily available facts, by vote of a majority of
disinterested Trustees of the Trust, or in a written opinion of independent
counsel, that such officers or Trustees have not engaged in willful misfeasance,
bad faith, gross negligence or reckless disregard of their duties.
The Trustees of the Trust received the following remuneration from the
Trust during its fiscal year ended December 31, 1997:
<TABLE>
<CAPTION>
TOTAL
PENSION OR COMPENSATION
AGGREGATE RETIREMENT ESTIMATED FROM REGISTRANT
COMPENSATION BENEFITS ACCRUED ANNUAL AND FUND
NAME OF PERSON, FROM AS PART OF FUND BENEFITS UPON COMPLEX PAID
POSITION REGISTRANT (1) EXPENSES RETIREMENT TO TRUSTEES (1)
------------------ ------------------ ------------------ -------------- -----------------
<S> <C> <C> <C> <C>
H.B. ALVORD(2) $_____ NONE NONE $_____
ELLIOTT J. BERV $_____ NONE NONE $_____
PHILIP W. COOLIDGE NONE NONE NONE NONE
MARK T. FINN $_____ NONE NONE $_____
RILEY C. GILLEY $_____ NONE NONE $_____
DIANA R. HARRINGTON $_____ NONE NONE $_____
SUSAN B. KERLEY $_____ NONE NONE $_____
C. OSCAR MORONG, JR. $_____ NONE NONE $_____
WALTER E. ROBB, III $_____ NONE NONE $_____
E. KIRBY WARREN $_____ NONE NONE $_____
WILLIAM S. WOODS, JR. $_____ NONE NONE $_____
</TABLE>
(1) Information relates to the fiscal year ended December 31, 1997. Messrs.
Berv, Coolidge, Finn, Gilley, Morong, Robb, Warren and Woods and Mses.
Harrington and Kerley are trustees of 31, 55, 26, 31, 28, 24, 28, 30, 29 and
29 funds, respectively, in the family of open-end registered investment
companies advised or managed by Citibank. (2) Mr. Alvord retired as a
Trustee on May 31, 1997.
MANAGER
Citibank manages the assets of each Fund and provides certain
administrative services to the Trust pursuant to separate management agreements
(the "Management Agreements"). Citibank furnishes at its own expense all
services, facilities and personnel necessary in connection with managing each
Fund's investments and effecting securities transactions for each Fund. The
Management Agreements provide that Citibank may delegate the daily management of
securities of each Fund to one or more subadvisers and that the Funds may employ
one or more subadvisers to be responsible for the daily management of securities
of each Fund. The Management Agreements provide that in each case Citibank will
supervise and monitor the performance of the subadvisers. The Management
Agreements will continue in effect until November 8, 1998 and thereafter as long
as such continuance is specifically approved at least annually by the Board of
Trustees of the Trust or by a vote of a majority of the outstanding voting
securities of the applicable Fund, and, in either case, by a majority of the
Trustees of the Trust who are not parties to the Management Agreement or
interested persons of any such party, at a meeting called for the purpose of
voting on the Management Agreement.
Citibank provides the Trust with general office facilities and
supervises the overall administration of the Trust, including, among other
responsibilities, the negotiation of contracts and fees with, and the monitoring
of performance and billings of, the Trust's independent contractors and agents;
the preparation and filing of all documents required for compliance by the Trust
with applicable laws and regulations; and arranging for the maintenance of books
and records of the Trust. Trustees, officers, and investors in the Trust are or
may be or may become interested in Citibank, as directors, officers, employees,
or otherwise and directors, officers and employees of Citibank are or may become
similarly interested in the Trust.
Each Management Agreement provides that Citibank may render services to
others. Each Management Agreement is terminable without penalty on not more than
60 days' nor less than 30 days' written notice by the Trust when authorized
either by a vote of a majority of the outstanding voting securities of the
applicable Fund or by a vote of a majority of the Board of Trustees of the
Trust, or by Citibank on not more than 60 days' nor less than 30 days' written
notice, and will automatically terminate in the event of its assignment. Each
Management Agreement provides that neither Citibank nor its personnel shall 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 the applicable 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 under the Management Agreement.
The Prospectus contains a description of the aggregate fees payable to
Citibank for services under each of the Management Agreements and to the
Subadvisers for services under each of the Submanagement Agreements described
below. Citibank and the Subadvisers, if required by state law, will reimburse
the Funds or waive all or a portion of their management fees to the extent that
the expenses of a Fund exceed the expense limitation prescribed by any state in
which that Fund is qualified for offer or sale.
For the period from February 10, 1997, commencement of operations, to
December 31, 1997, the fees payable to Citibank under the Management Agreements
were as follows: CitiSelect VIP Folio 200 $__________ (of which $__________ was
voluntarily waived), CitiSelect VIP Folio 300 $__________ (of which $__________
was voluntarily waived), CitiSelect VIP Folio 400 $__________ (of which
$__________ was voluntarily waived) and CitiSelect VIP Folio 500 $__________ (of
which $__________ was voluntarily waived).
Pursuant to a sub-administrative services agreement with Citibank,
CFBDS performs such sub-administrative duties for the Trust as from time to time
are agreed upon by Citibank and CFBDS. For performing such sub-administrative
services, CFBDS receives compensation as from time to time is agreed upon by
Citibank. All such compensation is paid by Citibank.
The Funds have entered into separate Submanagement Agreements with the
Subadvisers listed below for the kinds of assets of each Fund noted opposite the
Subadvisers' names. Each Subadviser's compensation is described in the
Prospectus.
Large cap value securities Miller Anderson & Sherrerd, LLP
Small cap value securities Franklin Advisory Services, Inc.
International equity securities Hotchkis and Wiley
Foreign government securities Pacific Investment Management Company
It is the responsibility of the Subadviser to make the day-to-day
investment decisions for their allocated assets of the Funds, and to place the
purchase and sales orders for securities transactions concerning those assets,
subject in all cases to the general supervision of Citibank. Each Subadviser
furnishes at its own expense all services, facilities and personnel necessary in
connection with managing the assets of the Funds allocated to it and effecting
securities transactions concerning those assets.
Each Submanagement Agreement will continue in effect as to each
applicable Fund until November 8, 1998 and thereafter as long as such
continuance is specifically approved at least annually by the Board of Trustees
of the Trust as to that Fund or by a vote of a majority of the outstanding
voting securities of that Fund, and, in either case, by a majority of the
Trustees of the Trust who are not parties to the Submanagement Agreement or
interested persons of any such party, at a meeting called for the purpose of
voting on the Submanagement Agreement.
Each Submanagement Agreement provides that the applicable Subadviser
may render services to others. Each Submanagement Agreement is terminable as to
any Fund without penalty on not more than 60 days' nor less than 30 days'
written notice by the Trust, when authorized either by a vote of a majority of
the outstanding voting securities of the applicable Fund or by a vote of a
majority of the Board of Trustees of the Trust, or by Citibank on not more than
60 days' nor less than 30 days' written notice, and will automatically terminate
in the event of its assignment. Each Submanagement Agreement may be terminated
by the applicable Subadviser on not less than 90 days' written notice to the
Trust and to Citibank. Each Submanagement Agreement provides that neither the
Subadviser nor its personnel shall 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 security transactions for any Fund, except for
willful misfeasance, bad faith or gross negligence or reckless disregard of its
or their obligations and duties under the Submanagement Agreement.
The aggregate fees paid by Citibank to each of the Subadvisers under
the Submanagement Agreements were as follows:
FEBRUARY 10, 1997
(COMMENCEMENT
OF OPERATIONS) TO
DECEMBER 31, 1997:
SUBADVISER:
Miller Anderson & Sherrerd, LLP
$----------
Franklin Advisory Services, Inc.
$----------
Hotchkis and Wiley $__________
Pacific Investment Management
Company $__________
DISTRIBUTOR
CFBDS serves as the Distributor of the Trust's shares pursuant to a
Distribution Agreement with the Trust. Unless otherwise terminated, the
Distribution Agreement continues in effect from year to year upon annual
approval by the Trust's Board of Trustees, or by the vote of a majority of the
outstanding shares of the Trust and by the vote of a majority of the Board of
Trustees of the Trust who are not parties to the Agreement or interested persons
of any party to the Agreement, cast in person at a meeting called for the
purpose of voting on such approval. The Agreement will terminate in the event of
its assignment, as defined in the 1940 Act. CFBDS is not currently paid a fee
for the provision of distribution services with respect to shares of the Funds.
TRANSFER AGENT AND CUSTODIAN
The Trust has entered into a Transfer Agency and Service Agreement with
State Street Bank and Trust Company ("State Street") pursuant to which State
Street acts as transfer agent for each Fund. The Trust also has entered into a
Custodian Agreement and a Fund Accounting Agreement with State Street, pursuant
to which custodial and fund accounting services, respectively, are provided for
each Fund. See "Custodian, Transfer Agent and Fund Accountant" in the Prospectus
for additional information. The principal business address of State Street is
225 Franklin Street, Boston, Massachusetts 02110.
AUDITORS
Price Waterhouse LLP are the independent accountants for the Trust,
providing audit services and assistance and consultation with respect to the
preparation of filings with the SEC. The address of Price Waterhouse LLP is 160
Federal Street, Boston, Massachusetts 02110.
8. PORTFOLIO TRANSACTIONS
The Trust trades securities for a Fund if it believes that a
transaction net of costs (including custodian charges) will help achieve the
Fund's investment objective. Changes in the Fund's investments are made without
regard to the length of time a security has been held, or whether a sale would
result in the recognition of a profit or loss. Therefore, the rate of turnover
is not a limiting factor when changes are appropriate. Specific decisions to
purchase or sell securities for each Fund are made by a portfolio manager who is
an employee of Citibank or a Subadviser and who is appointed and supervised by
senior officers of Citibank or by a Subadviser. The portfolio manager or
Subadviser may serve other clients in a similar capacity.
In connection with the selection of brokers or dealers and the placing
of portfolio securities transactions, 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 Manager, the Subadvisers or their affiliates exercise
investment discretion. The Manager and the Subadvisers are authorized to pay a
broker or dealer who provides such brokerage and research services a commission
for executing a portfolio transaction for the Fund which is in excess of the
amount of commission another broker or dealer would have charged for effecting
that transaction if the Manager or the applicable 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 Manager, the Subadvisers and their
affiliates have with respect to accounts over which they exercise investment
discretion.
The investment advisory fee that each Fund pays to Citibank will not be
reduced as a consequence of Citibank's receipt of brokerage and research
services. While such services are not expected to reduce the expenses of
Citibank, Citibank would, through the use of the services, avoid the additional
expenses which would be incurred if it should attempt to develop comparable
information through its own staff or obtain such services independently.
In certain instances there may be securities that are suitable as an
investment for a Fund as well as for one or more of Citibank's or a Subadviser's
other clients. Investment decisions for each Fund and for Citibank's and the
Subadvisers' other clients are made with a view to achieving their respective
investment objectives. It may develop that a particular security is bought or
sold for only one client even though it might be held by, or bought or sold for,
other clients. Likewise, a particular security may be bought for one or more
clients when one or more clients are selling the same security. Some
simultaneous transactions are inevitable when several clients receive investment
advice from the same investment adviser, particularly when the same security is
suitable for the investment objectives of more than one client. When two or more
clients are simultaneously engaged in the purchase or sale of the same security,
the securities are allocated among clients in a manner believed to be equitable
to each. It is recognized that in some cases this system could adversely affect
the price of or the size of the position obtainable in a security for a Fund.
When purchases or sales of the same security for a Fund and for other portfolios
managed by Citibank or a Subadviser occur contemporaneously, the purchase or
sale orders may be aggregated in order to obtain any price advantages available
to large volume purchases or sales.
For the period from February 10, 1997, commencement of operations, to December
31, 1997, the Funds paid brokerage commissions in the following amounts:
CitiSelect VIP Folio 200 $__________, CitiSelect VIP Folio 300 $__________,
CitiSelect VIP Folio 400 $__________ and CitiSelect VIP Folio 500 $__________.
9. DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
The Trust's Declaration of Trust permits the Trustees to issue an
unlimited number of full and fractional Shares of Beneficial Interest ($0.00001
par value per share) of each series and to divide or combine the shares of any
series into a greater or lesser number of shares of that series without thereby
changing the proportionate beneficial interests in that series. The Funds and
CitiFunds Small Cap Growth VIP Portfolio are the only current series of shares
of the Trust and the Trust has reserved the right to create and issue additional
series of shares. Each share of each Fund represents an equal proportionate
interest in the Fund with each other share. Shares of each series participate
equally in the earnings, dividends and distribution of net assets of the
particular series upon liquidation or dissolution. Shares of each series are
entitled to vote separately to approve advisory agreements or changes in
investment policy, but shares of all series may vote together in the election or
selection of Trustees and accountants for the Trust.
Shareholders are entitled to one vote for each share held on matters on
which they are entitled to vote. Shareholders in the Trust do not have
cumulative voting rights, and shareholders owning more than 50% of the
outstanding shares of the Trust may elect all of the Trustees of the Trust if
they choose to do so and in such event the other shareholders in the Trust would
not be able to elect any Trustee. The Trust is not required and has no present
intention to hold annual meetings of shareholders but the Trust will hold
special meetings of shareholders when in the judgment of the Trustees it is
necessary or desirable to submit matters for a shareholder vote. Shareholders
have, under certain circumstances (e.g., upon the application and submission of
certain specified documents to the Trustees by a specified number of
shareholders), the right to communicate with other shareholders in connection
with requesting a meeting of shareholders for the purpose of removing one or
more Trustees. Shareholders also have under certain circumstances the right to
remove one or more Trustees without a meeting by a declaration in writing by a
specified number of shareholders. No material amendment may be made to the
Trust's Declaration of Trust without the affirmative vote of the holders of a
majority of the outstanding shares of each series affected by the amendment.
(See "Investment Restrictions.")
The Trust may enter into a merger or consolidation, or sell all or
substantially all of its assets (or all or substantially all of the assets
belonging to any series of the Trust), if approved by a vote of the holders of
two-thirds of the Trust's outstanding shares, voting as a single class, or of
the affected series of the Trust, as the case may be, except that if the
Trustees of the Trust recommend such sale of assets, merger or consolidation,
the approval by vote of the holders of a majority of the Trust's outstanding
shares would be sufficient. The Trust or any series of the Trust, as the case
may be, may be terminated (i) by a vote of a majority of the outstanding voting
securities of the Trust or the affected series or (ii) by the Trustees by
written notice to the shareholders of the Trust or the affected series. If not
so terminated, the Trust will continue indefinitely.
The rights accompanying Fund shares are legally vested in the Separate
Accounts. However, in accordance with current law and interpretations thereof,
Participating Insurance Companies will vote shares held in the Separate Accounts
in a manner consistent with timely voting instructions received from the holders
of variable annuity contracts and variable life insurance policies. Each
Participating Insurance Company will vote Fund shares held in Separate Accounts
for which no timely instructions are received from the holders of variable
annuity contracts and variable life insurance policies, as well as shares it
owns, in the same proportion as those shares for which voting instructions are
received. For a further discussion, please refer to the insurance company's
Separate Account prospectus.
Share certificates will not be issued.
The Trust is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders of such a business trust
may, under certain circumstances, be held personally liable as partners for its
obligations and liabilities. However, the Declaration of Trust contains an
express disclaimer of shareholder liability for acts or obligations of the Trust
and provides for indemnification and reimbursement of expenses out of Trust
property for any shareholder held personally liable for the obligations of the
Trust. The Declaration of Trust also provides that the Trust may maintain
appropriate insurance (for example, fidelity bonding and errors and omissions
insurance) for the protection of the Trust, its investors, Trustees, officers,
employees and agents covering possible tort and other liabilities. Thus, the
risk of an investor incurring financial loss on account of investor liability is
limited to circumstances in which both inadequate insurance existed and the
Trust itself was unable to meet its obligations.
10. CERTAIN ADDITIONAL TAX MATTERS
Any investment in zero coupon bonds, certain stripped securities, and
certain securities purchased at a market discount will cause a Fund to recognize
income prior to the receipt of cash payments with respect to those securities.
In order to distribute this income and avoid a tax on the Fund, the Fund may be
required to liquidate portfolio securities that it might otherwise have
continued to hold, potentially resulting in additional taxable gain or loss to
the Fund. A Fund's transactions in options, futures contracts, and forward
contracts will be subject to special tax rules that may affect the amount,
timing and character of Fund income and distributions to shareholders. Certain
positions held by a Fund that substantially diminish its risk of loss with
respect to other positions in its portfolio may constitute "straddles," and may
be subject to special tax rules that would cause deferral of Fund losses,
adjustments in the holding periods of Fund securities, and conversion of
short-term into long-term capital losses. Certain tax elections exist for
straddles that may alter the effects of these rules. A Fund will limit its
activities in options, futures contracts, and forward contracts to the extent
necessary to meet the requirements of Subchapter M of the Internal Revenue Code.
Special tax considerations apply with respect to foreign investments.
Use of foreign currencies for non-hedging purposes may be limited in order to
avoid a tax on a Fund. Investment by a Fund in certain "passive foreign
investments companies" may also be limited in order to avoid a tax on the Fund.
A Fund may elect to mark to market any investments in "passive foreign
investment companies" on the last day of each year. This election may cause the
Fund to recognize income prior to the receipt of cash payments with respect to
those investments; in order to distribute this income and avoid a tax on the
Fund, the Fund may be required to liquidate portfolio securities that it might
otherwise have continued to hold.
Investment income received by a Fund from foreign securities may be
subject to foreign income taxes withheld at the source. The United States has
entered into tax treaties with many foreign countries that may entitle a Fund to
a reduced rate of tax or an exemption from tax on such income; each of the Funds
intends to qualify for treaty reduced rates where available. It is not possible,
however, to determine a Fund's effective rate of foreign tax in advance since
the amount of a Fund's assets to be invested within various countries is not
known.
11. FINANCIAL STATEMENTS
To be added by amendment.
<PAGE>
Statement of
Additional Information
May 1, 1998
CITIFUNDS(SM) SMALL CAP GROWTH VIP PORTFOLIO
Variable Annuity Portfolios (the "Trust") is an investment company
which was organized as a business trust under the laws of the Commonwealth of
Massachusetts on October 18, 1996. The Trust offers shares of CitiFundsSM Small
Cap Growth VIP Portfolio (the "Fund"), as well as the shares of four other
series. The shares of the Fund are offered only to separate accounts ("Separate
Accounts") of participating life insurance companies ("Participating Insurance
Companies") for the purpose of funding variable annuity contracts and variable
life insurance policies. The address and telephone number of the Trust are 6 St.
James Avenue, Boston, Massachusetts 02116, (617) 423-1679.
FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, CITIBANK, N.A. OR ANY OF ITS AFFILIATES, ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER AGENCY, AND INVOLVE
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
Table of Contents
Page
The Trust 2
Investment Objective and Policies 2
Description of Permitted Investments and
Investment Practices 3
Investment Restrictions 12
Performance Information 13
Determination of Net Asset Value; Valuation of
Securities; Additional Redemption Information 14
Management 15
Portfolio Transactions 20
Description of Shares, Voting Rights and Liabilities 21
Certain Additional Tax Matters 22
Financial Statements 23
This Statement of Additional Information sets forth information which
may be of interest to investors but which is not necessarily included in the
Trust's Prospectus, dated May 1, 1998, by which shares of the Fund are offered.
This Statement of Additional Information should be read in conjunction with the
Prospectus, a copy of which may be obtained by an investor without charge by
contacting the Trust's distributor at (617) 423-1679 or a Participating
Insurance Company.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS AUTHORIZED
FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR ACCOMPANIED BY AN
EFFECTIVE PROSPECTUS.
<PAGE>
1. THE TRUST
Variable Annuity Portfolios, the Trust, is an investment company
organized as a business trust under the laws of the Commonwealth of
Massachusetts on October 18, 1996. This Statement of Additional Information
relates to CitiFunds Small Cap Growth VIP Portfolio, a series of the Trust.
Prior to March 2, 1998 the Fund was called Landmark Small Cap Equity VIP Fund.
The Fund is an investment vehicle for variable annuity contracts and variable
life insurance policies offered by Separate Accounts of Participating Insurance
Companies.
Citibank, N.A. ("Citibank" or the "Manager") is the Manager of the
Fund. Citibank manages the investments of the Fund from day to day in accordance
with the Fund's investment objective and policies. The selection of investments
for the Fund and the way they are managed depend on the conditions and trends in
the economy and the financial marketplaces.
The Board of Trustees of the Trust provides broad supervision over the
affairs of the Fund. Shares of the Fund are continuously sold by CFBDS, Inc.,
the Funds' distributor ("CFBDS" or the "Distributor"), only to Separate
Accounts.
2. INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is long-term capital growth.
Dividend income, if any, is incidental to the Fund's investment objective.
The investment objective of the Fund may be changed by its Trustees
without approval by the Fund's shareholders, but shareholders will be given
written notice at least 30 days before any change is implemented. Of course,
there can be no assurance that the Fund will achieve its investment objective.
The Prospectus contains a discussion of the various types of securities
in which the Fund may invest and the risks involved in such investments. The
following supplements the information contained in the Prospectus concerning the
investment objective, policies and techniques of the Fund.
While it is the policy of the Fund to invest its assets in a broadly
diversified portfolio of equity securities consisting mainly of common stocks of
U.S. issuers, the Fund may also invest in other types of securities such as
fixed income securities and convertible and non-convertible bonds.
The Trust has also adopted the following policies with respect to the
Fund's investments in (i) warrants and (ii) securities of issuers with less than
three years' continuous operation. The Trust's purchases of warrants for the
Fund will not exceed 5% of the Fund's net assets. Included within that amount,
but not exceeding 2% of its net assets, may be warrants which are not listed on
the New York Stock Exchange or the American Stock Exchange. Any such warrants
will be valued at their market value except that warrants which are attached to
securities at the time such securities are acquired for the Fund will be deemed
to be without value for the purpose of this restriction. The Trust will not
invest more than 5% of the Fund's assets in companies which, including their
respective predecessors, have a record of less than three years' continuous
operation.
3. DESCRIPTION OF PERMITTED INVESTMENTS AND INVESTMENT PRACTICES
FUTURES CONTRACTS
The Fund may enter into stock index futures contracts and/or foreign
currency futures contracts. Such investment strategies will be used for hedging
purposes and for nonhedging purposes, subject to applicable law.
A futures contract is an agreement between two parties for the purchase
or sale for future delivery of securities or for the payment or acceptance of a
cash settlement based upon changes in the value of the securities or of an index
of securities. A "sale" of a futures contract means the acquisition of a
contractual obligation to deliver the securities called for by the contract at a
specified price, or to make or accept the cash settlement called for by the
contract, on a specified date. A "purchase" of a futures contract means the
acquisition of a contractual obligation to acquire the securities called for by
the contract at a specified price, or to make or accept the cash settlement
called for by the contract, on a specified date. Futures contracts have been
designed by exchanges which have been designated "contract markets" by the
Commodity Futures Trading Commission ("CFTC") and must be executed through a
futures commission merchant, or brokerage firm, which is a member of the
relevant contract market. Futures contracts trade on these markets, and the
exchanges, through their clearing organizations, guarantee that the contracts
will be performed as between the clearing members of the exchange.
While futures contracts based on securities do provide for the delivery
and acceptance of securities, such deliveries and acceptances are very seldom
made. Generally, a futures contract is terminated by entering into an offsetting
transaction. Brokerage fees will be incurred when the Fund purchases or sells a
futures contract. At the same time such a purchase or sale is made, the Fund
must provide cash or securities as a deposit ("initial deposit") known as
"margin." The initial deposit required will vary, but may be as low as 1% or
less of a contract's face value. Daily thereafter, the futures contract is
valued through a process known as "marking to market," and the Fund may receive
or be required to pay additional "variation margin" as the futures contract
becomes more or less valuable.
The Fund may enter into stock index futures contracts to gain stock
market exposure while holding cash available for investments and redemptions.
The Fund may purchase and sell foreign currency futures contracts to
attempt to protect its current or intended investments from fluctuations in
currency exchange rates. Such fluctuations could reduce the dollar value of
portfolio securities denominated in foreign currencies, or increase the cost of
foreign-denominated securities to be acquired, even if the value of such
securities in the currencies in which they are denominated remains constant. The
Fund may sell futures contracts on a foreign currency, for example, where it
holds securities denominated in such currency and it anticipates a decline in
the value of such currency relative to the dollar. In the event such decline
occurs, the resulting adverse effect on the value of foreign-denominated
securities may be offset, in whole or in part, by gains on the futures
contracts.
Conversely, the Fund could protect against a rise in the dollar cost of
foreign-denominated securities to be acquired by purchasing futures contracts on
the relevant currency, which could offset, in whole or in part, the increased
cost of such securities resulting from a rise in the dollar value of the
underlying currencies. Where the Fund purchases futures contracts under such
circumstances, however, and the prices of securities to be acquired instead
decline, the Fund will sustain losses on its futures position which could reduce
or eliminate the benefits of the reduced cost of portfolio securities to be
acquired.
Although the use of futures for hedging should tend to minimize the
risk of loss due to a decline in the value of the hedged position (e.g., if the
Fund sells a futures contract to protect against losses in the securities held
by the Fund), at the same time the futures contract limits any potential gain
which might result from an increase in value of a hedged position.
In addition, the ability effectively to hedge all or a portion of the
Fund's investments through transactions in futures contracts depends on the
degree to which movements in the value of the securities underlying such
contracts correlate with movements in the value of the Fund's securities. If the
security underlying a futures contract is different than the security being
hedged, they may not move to the same extent or in the same direction. In that
event, the Fund's hedging strategy might not be successful and the Fund could
sustain losses on these hedging transactions which would not be offset by gains
on the Fund's other investments or, alternatively, the gains on the hedging
transaction might not be sufficient to offset losses on the Fund's other
investments. It is also possible that there may be a negative correlation
between the security underlying a futures contract and the securities being
hedged, which could result in losses both on the hedging transaction and the
securities. In these and other instances, the Fund's overall return could be
less than if the hedging transactions had not been undertaken. Similarly, even
where the Fund enters into futures transactions other than for hedging purposes,
the effectiveness of its strategy may be affected by lack of correlation between
changes in the value of the futures contracts and changes in value of the
securities which the Fund would otherwise buy and sell.
The ordinary spreads between prices in the cash and futures markets,
due to differences in the nature of those markets, are subject to distortions.
First, all participants in the futures market are subject to initial deposit and
variation margin requirements. Rather than meeting additional variation margin
requirements, investors may close out futures contracts through offsetting
transactions which could distort the normal relationship between the cash and
futures markets. Second, there is the potential that the liquidity of the
futures market may be lacking. Prior to expiration, a futures contract may be
terminated only by entering into a closing purchase or sale transaction, which
requires a secondary market on the contract market on which the futures contract
was originally entered into. While the Fund will establish a futures position
only if there appears to be a liquid secondary market therefor, there can be no
assurance that such a market will exist for any particular futures contract at
any specific time. In that event, it may not be possible to close out a position
held by the Fund, which could require the Fund to purchase or sell the
instrument underlying the futures contract or to meet ongoing variation margin
requirements. The inability to close out futures positions also could have an
adverse impact on the ability effectively to use futures transactions for
hedging or other purposes.
The liquidity of a secondary market in a futures contract may be
adversely affected by "daily price fluctuation limits" established by the
exchanges, which limit the amount of fluctuation in the price of a futures
contract during a single trading day and prohibit trading beyond such limits
once they have been reached. The trading of futures contracts also is subject to
the risk of trading halts, suspensions, exchange or clearing house equipment
failures, government intervention, insolvency of a brokerage firm or clearing
house or other disruptions of normal trading activity, which could at times make
it difficult or impossible to liquidate existing positions or to recover excess
variation margin payments.
Each contract market on which futures contracts are traded has
established a number of limitations governing the maximum number of positions
which may be held by a trader, whether acting alone or in concert with others.
The Manager does not believe that these trading and position limits would have
an adverse impact on the Fund's hedging strategies.
CFTC regulations require compliance with certain limitations in order
to assure that the Fund is not deemed to be a "commodity pool" under such
regulations. In particular, CFTC regulations prohibit the Fund from purchasing
or selling futures contracts (other than for bona fide hedging transactions) if,
immediately thereafter, the sum of the amount of initial margin required to
establish the Fund's non-hedging futures positions would exceed 5% of the Fund's
net assets.
The Fund will comply with this CFTC requirement, and the Fund currently
intends to adhere to the additional policies described below. First, an amount
of cash or cash equivalents will be maintained by the Fund in a segregated
account with the Fund's custodian so that the amount so segregated, plus the
initial margin held on deposit, will be approximately equal to the amount
necessary to satisfy the Fund's obligations under the futures contract. The
second is that the Fund will not enter into a futures contract if immediately
thereafter the amount of initial margin deposits on all the futures contracts
held by the Fund would exceed approximately 5% of the net assets of the Fund.
The third is that the aggregate market value of the futures contracts held by
the Fund not exceed approximately 50% of the market value of the Fund's total
assets other than its futures contracts. For purposes of this third policy,
"market value" of a futures contract is deemed to be the amount obtained by
multiplying the number of units covered by the futures contract times the per
unit price of the securities covered by that contract.
The use of futures contracts may increase the amount of taxable income
of the Fund and may affect the amount, timing and character of the Fund's income
for tax purposes, as more fully discussed herein in the section entitled
"Certain Additional Tax Matters."
REPURCHASE AGREEMENTS
The Fund may invest in repurchase agreements collateralized by
securities in which the Fund may otherwise invest. Repurchase agreements are
agreements by which the Fund purchases a security and simultaneously commits to
resell that security to the seller (which is usually a member bank of the U.S.
Federal Reserve System or a member firm of the New York Stock Exchange (or a
subsidiary thereof)) at an agreed upon date within a number of days (usually not
more than seven) from the date of purchase. The resale price reflects the
purchase price plus an agreed upon market rate of interest which is unrelated to
the coupon rate or maturity of the purchased security. A repurchase agreement
involves the obligation of the seller to pay the agreed upon price, which
obligation is in effect secured by the value of the underlying security, usually
U.S. Government or Government agency issues. Under the Investment Company Act of
1940, as amended (the "1940 Act"), repurchase agreements may be considered to be
loans by the buyer. The Fund's risk is limited to the ability of the seller to
pay the agreed-upon amount on the delivery date. If the seller defaults, the
underlying security constitutes collateral for the seller's obligation to pay
although the Fund may incur certain costs in liquidating this collateral and in
certain cases may not be permitted to liquidate this collateral. All repurchase
agreements entered into by the Fund are fully collateralized, with such
collateral being marked to market daily.
SECURITIES OF NON-U.S. ISSUERS
The Fund may invest in securities of non-U.S. issuers. Investing in
securities issued by companies whose principal business activities are outside
the United States may involve significant risks not present in domestic
investments. For example, the value of such securities fluctuates based on the
relative strength on the U.S. dollar. In addition, there is generally less
publicly available information about non-U.S. issuers, particularly those not
subject to the disclosure and reporting requirements of the U.S. securities
laws. Non-U.S. issuers are generally not bound by uniform accounting, auditing
and financial reporting requirements comparable to those applicable to domestic
issuers. Investments in securities of non-U.S. issuers also involve the risk of
possible adverse changes in investment or exchange control regulations,
expropriation or confiscatory taxation, limitation on the removal of funds or
other assets of the Fund, political or financial instability or diplomatic and
other developments which would affect such investments. Further, economies of
other countries or areas of the world may differ favorably or unfavorably from
the economy of the U.S.
It is anticipated that in most cases the best available market for
securities of non-U.S. issuers would be on exchanges or in over-the-counter
markets located outside the U.S. Non-U.S. stock markets, while growing in volume
and sophistication, are generally not as developed as those in the U.S., and
securities of some non-U.S. issuers (particularly those located in developing
countries) may be less liquid and more volatile than securities of comparable
U.S. companies. Non-U.S. security trading practices, including those involving
securities settlement where the Fund's assets may be released prior to receipt
of payments, may expose the Fund to increased risk in the event of a failed
trade or the insolvency of a non-U.S. broker-dealer. In addition, foreign
brokerage commissions are generally higher than commissions on securities traded
in the U.S. and may be non-negotiable. In general, there is less overall
governmental supervision and regulation of non-U.S. securities exchanges,
brokers and listed companies than in the U.S.
Investments in closed-end investment companies which primarily hold
securities of non-U.S. issuers may entail the risk that the market value of such
investments may be substantially less than their net asset value and that there
would be duplication of investment management and other fees and expenses.
American Depositary Receipts ("ADRs"), European Depositary Receipts
("EDRs"), Global Depositary Receipts ("GDRs") and other forms of depositary
receipts for securities of non-U.S. issuers provide an alternative method for
the Fund to make non-U.S. investments. These securities are not usually
denominated in the same currency as the securities into which they may be
converted. Generally, ADRs, in registered form, are designed for use in U.S.
securities markets and EDRs and GDRs, in bearer form, are designed for use in
European and global securities markets. ADRs are receipts typically issued by a
U.S. bank or trust company evidencing ownership of the underlying securities.
EDRs and GDRs are European and global receipts, respectively, evidencing a
similar arrangement.
ADRs, EDRs, and GDRs may be issued pursuant to sponsored or unsponsored
programs. In sponsored programs, an issuer has made arrangements to have its
securities traded in the form of depositary receipts. In unsponsored programs,
the issuer may not be directly involved in the creation of the program. Although
regulatory requirements with respect to sponsored and unsponsored programs are
generally similar, in some cases it may be easier to obtain financial
information from an issuer that has participated in the creation of a sponsored
program. Accordingly, there may be less information available regarding issuers
of securities underlying unsponsored programs, and there may not be a
correlation between such information and the market value of the depositary
receipts.
The Fund may invest in securities of non-U.S. issuers that impose
restrictions on transfer within the United States or to United States persons.
Although securities subject to such transfer restrictions may be marketable
abroad, they may be less liquid than securities of non-U.S. issuers of the same
class that are not subject to such restrictions.
The risks described above, including the risks of nationalization or
expropriation of assets, are typically increased to the extent that the Fund
invests in issuers located in less developed and developing nations, whose
securities markets are sometimes referred to as "emerging securities markets."
Investments in securities located in such countries are speculative and subject
to certain special risks. Political and economic structures in many of these
countries may be in their infancy and developing rapidly, and such countries may
lack the social, political and economic stability characteristic of more
developed countries. Certain of these countries have in the past failed to
recognize private property rights and have at times nationalized and
expropriated the assets of private companies.
In addition, unanticipated political or social developments may affect
the value of the Fund's investments in these countries and the availability to
the Fund of additional investments in these countries. The small size, limited
trading volume and relative inexperience of the securities markets in these
countries may make the Fund's investment in such countries illiquid and more
volatile than investments in more developed countries, and the Fund may be
required to establish special custodial or other arrangements before making
investments in these countries. There may be little financial or accounting
information available with respect to issuers located in these countries, and it
may be difficult as a result to assess the value or prospects of an investment
in such issuers.
SHORT SALES "AGAINST THE BOX"
In a short sale, a fund sells a borrowed security and has a
corresponding obligation to the lender to return the identical security. The
Fund, in accordance with its investment restrictions, may engage in short sales
only if at the time of the short sale it owns or has the right to obtain, at no
additional cost, an equal amount of the security being sold short. This
investment technique is known as a short sale "against the box."
In a short sale, the seller does not immediately deliver the securities
sold and is said to have a short position in those securities until delivery
occurs. If the Fund engages in a short sale, the collateral for the short
position is maintained for the Fund by the custodian or qualified sub-custodian.
While the short sale is open, an amount of securities equal in kind and amount
to the securities sold short or securities sold convertible into or exchangeable
for such equivalent securities are maintained in a segregated account for the
Fund. These securities constitute the Fund's long position.
The Fund does not engage in short sales against the box for investment
purposes. The Fund may, however, make a short sale against the box as a hedge,
when it believes that the price of a security may decline, causing a decline in
the value of a security owned by the Fund (or a security convertible or
exchangeable for such security). In such case, any future losses in the Fund's
long position should be reduced by a gain in the short position. Conversely, any
gain in the long position should be reduced by a loss in the short position. The
extent to which such gains or losses are reduced depends upon the amount of the
security sold short relative to the amount the Fund owns. There are certain
additional transaction costs associated with short sales against the box, but
the Fund endeavors to offset these costs with the income from the investment of
the cash proceeds of short sales.
The Manager does not expect that more than 40% of the Fund's total
assets would be involved in short sales against the box. The Manager does not
currently intend to engage in such sales.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS
Because the Fund may buy and sell securities denominated in currencies
other than the U.S. dollar, and receive interest, dividends and sale proceeds in
currencies other than the U.S. dollar, the Fund may enter into currency exchange
transactions to convert U.S. currency to non-U.S. currency and non-U.S. currency
to U.S. currency, as well as convert one non-U.S. currency to another non-U.S.
currency. The Fund either enters into these transactions on a spot (i.e., cash)
basis at the spot rate prevailing in the foreign currency exchange markets, or
uses forward contracts to purchase or sell non-U.S. currencies. The Fund may
also enter into currency hedging transactions in an attempt to protect the value
of its assets as measured in U.S. dollars from unfavorable changes in currency
exchange rates and control regulations. (Although the Fund's assets are valued
daily in terms of U.S. dollars, the Trust does not intend to convert the Fund's
holdings of non-U.S. currencies into U.S. dollars on a daily basis.) It is not
currently intended that the Fund speculate in currency exchange rates or forward
contracts.
The Fund may convert currency on a spot basis from time to time, and
investors should be aware of the costs of currency conversion. Although currency
exchange dealers do not charge a fee for conversion, they do realize a profit
based on the difference (the "spread") between the prices at which they are
buying and selling various currencies. Thus, a dealer may offer to sell a
currency at one rate, while offering a lesser rate of exchange should the Fund
desire to resell that currency to the dealer.
A forward contract involves an obligation to purchase or sell a
specific currency at a future date, which may be any fixed number of days from
the date of the contract, agreed upon by the parties, at a price set at the time
of the contract. These contracts are traded in the interbank market conducted
directly between currency traders (usually large commercial banks) and their
customers. A forward contract generally has no deposit requirement, and no fees
or commissions are charged at any stage for trades.
When the Fund enters into a contract for the purchase or sale of a
security denominated in a non-U.S. currency, it may desire to "lock in" the U.S.
dollar price of the security. By entering into a forward contract for the
purchase or sale, for a fixed amount of U.S. dollars, of the amount of non-U.S.
currency involved in the underlying security transaction, the Fund may be able
to protect against a possible loss resulting from an adverse change in the
relationship between the U.S. dollar and the non-U.S. currency during the period
between the date the security is purchased or sold and the date on which payment
is made or received.
When the Manager believes that the currency of a particular country may
suffer a substantial decline against the U.S. dollar, the Fund may enter into a
forward contract to sell, for a fixed amount of U.S. dollars, the amount of
non-U.S. currency approximating the value of some or all of the Fund's
securities denominated in such non-U.S. currency. The precise matching of the
forward contract amounts and the value of the securities involved is not
generally possible since the future value of such securities in non-U.S.
currencies changes as a consequence of market movements in the value of those
securities between the date the forward contract is entered into and the date it
matures. The projection of a short-term hedging strategy is highly uncertain.
The Fund does not enter into such forward contracts or maintain a net exposure
to such contracts where the consummation of the contracts obligates the Fund to
deliver an amount of non-U.S. currency in excess of the value of the Fund's
securities or other assets denominated in that currency. Under normal
circumstances, consideration of the prospect for currency parities will be
incorporated in the investment decisions made with regard to overall
diversification strategies. However, the Manager believes that it is important
to have the flexibility to enter into such forward contracts when it determines
that the best interests of the Fund will be served.
The Fund generally would not enter into a forward contract with a term
greater than one year. At the maturity of a forward contract, the Fund will
either sell the security and make delivery of the non-U.S. currency, or retain
the security and terminate its contractual obligation to deliver the non-U.S.
currency by purchasing an "offsetting" contract with the same currency trader
obligating it to purchase, on the same maturity date, the same amount of the
non-U.S. currency. If the Fund retains the security and engages in an offsetting
transaction, the Fund will incur a gain or a loss (as described below) to the
extent that there has been movement in forward contract prices. If the Fund
engages in an offsetting transaction, it may subsequently enter into a new
forward contract to sell the non-U.S. currency. Should forward prices decline
during the period between the date the Fund enters into a forward contract for
the sale of the non-U.S. currency and the date it enters into an offsetting
contract for the purchase of such currency, the Fund will realize a gain to the
extent the selling price of the currency exceeds the purchase price of the
currency. Should forward prices increase, the Fund will suffer a loss to the
extent that the purchase price of the currency exceeds the selling price of the
currency.
It is impossible to forecast with precision the market value of the
Fund's securities at the expiration of the contract. Accordingly, it may be
necessary for the Fund to purchase additional non-U.S. currency on the spot
market if the market value of the security is less than the amount of non-U.S.
currency the Fund is obligated to deliver and if a decision is made to sell the
security and make delivery of such currency. Conversely, it may be necessary to
sell on the spot market some of the non-U.S. currency received upon the sale of
the security if its market value exceeds the amount of such currency the Fund is
obligated to deliver.
The Fund may also purchase put options on a non-U.S. currency in order
to protect against currency rate fluctuations. If the Fund purchases a put
option on a non-U.S. currency and the value of the U.S. currency declines, the
Fund will have the right to sell the non-U.S. currency for a fixed amount in
U.S. dollars and will thereby offset, in whole or in part, the adverse effect on
the Fund which otherwise would have resulted. Conversely, where a rise in the
U.S. dollar value of another currency is projected, and where the Fund
anticipates investing in securities traded in such currency, the Fund may
purchase call options on the non-U.S. currency.
The purchase of such options could offset, at least partially, the
effects of adverse movements in exchange rates. However, the benefit to the Fund
from purchases of non-U.S. currency options will be reduced by the amount of the
premium and related transaction costs. In addition, where currency exchange
rates do not move in the direction or to the extent anticipated, the Fund could
sustain losses on transactions in non-U.S. currency options which would require
it to forgo a portion or all of the benefits of advantageous changes in such
rates.
The Fund may write options on non-U.S. currencies for hedging purposes
or otherwise to achieve its investment objectives. For example, where the Fund
anticipates a decline in the value of the U.S. dollar value of a non-U.S.
security due to adverse fluctuations in exchange rates it could, instead of
purchasing a put option, write a call option on the relevant currency. If the
expected decline occurs, the option will most likely not be exercised, and the
diminution in value of the security held by the Fund will be offset by the
amount of the premium received.
Similarly, instead of purchasing a call option to hedge against an
anticipated increase in the cost of a non-U.S. security to be acquired because
of an increase in the U.S. dollar value of the currency in which the underlying
security is primarily traded, the Fund could write a put option on the relevant
currency which, if rates move in the manner projected, will expire unexercised
and allow the Fund to hedge such increased cost up to the amount of the premium.
However, the writing of a currency option will constitute only a partial hedge
up to the amount of the premium, and only if rates move in the expected
direction. If this does not occur, the option may be exercised and the Fund
would be required to purchase or sell the underlying currency at a loss which
may not be offset by the amount of the premium. Through the writing of options
on currencies, the Fund also may be required to forgo all or a portion of the
benefits which might otherwise have been obtained from favorable movements in
exchange rates.
Put and call options on non-U.S. currencies written by the Fund will be
covered by segregation of cash, short-term money market instruments or high
quality debt securities in an account with the custodian in an amount sufficient
to discharge the Fund's obligations with respect to the option, by acquisition
of the non-U.S. currency or of a right to acquire such currency (in the case of
a call option) or the acquisition of a right to dispose of the currency (in the
case of a put option), or in such other manner as may be in accordance with the
requirements of any exchange on which, or the counterparty with which, the
option is traded and applicable laws and regulations.
Investing in ADRs and other depositary receipts presents many of the
same risks regarding currency exchange rates as investing directly in securities
denominated in currencies other than the U.S. dollar. Because the securities
underlying these receipts are traded primarily in non-U.S. currencies, changes
in currency exchange rates will affect the value of these receipts. For example,
a decline in the U.S. dollar value of another currency in which securities are
primarily traded will reduce the U.S. dollar value of such securities, even if
their value in the other currency remains constant, and thus will reduce the
value of the receipts covering such securities. The Fund may employ any of the
above described non-U.S. currency hedging techniques to protect the value of its
assets invested in depositary receipts.
Of course, the Fund is not required to enter into such transactions and
does not do so unless deemed appropriate by the Manager. It should also be
realized that these methods of protecting the value of the Fund's securities
against a decline in the value of a currency do not eliminate fluctuations in
the underlying prices of the securities. Additionally, although such contracts
tend to minimize the risk of loss due to a decline in the value of the hedged
currency, they also tend to limit any potential gain which might result should
the value of such currency increase.
The Fund has established procedures consistent with policies of the
Securities and Exchange Commission (the "SEC") concerning forward contracts.
Since those policies currently recommend that an amount of the Fund's assets
equal to the amount of the purchase be held aside or segregated to be used to
pay for the commitment, the Fund expects always to have cash, cash equivalents
or high quality debt securities available sufficient to cover any commitments
under these contracts or to limit any potential risk.
LENDING OF SECURITIES
Consistent with applicable regulatory requirements and in order to
generate income, the Fund may lend its securities to broker-dealers and other
institutional borrowers. Such loans will usually be made only to member banks of
the U.S. Federal Reserve System and to member firms of the New York Stock
Exchange (and subsidiaries thereof). Loans of securities would be secured
continuously by collateral in cash, cash equivalents, or U.S. Treasury
obligations maintained on a current basis at an amount at least equal to the
market value of the securities loaned. The cash collateral would be invested in
high quality short-term instruments. Either party has the right to terminate at
any time on customary industry settlement notice (which will not usually exceed
three business days). During the existence of a loan, the Fund would continue to
receive the equivalent of the interest or dividends paid by the issuer on the
securities loaned and with respect to cash collateral would also receive
compensation based on investment of the collateral (subject to a rebate payable
to the borrower). Where the borrower provides the Fund with collateral
consisting of U.S. Treasury obligations, the borrower is also obligated to pay
the Fund a fee for use of the borrowed securities. The Fund, would not, however,
have the right to vote any securities having voting rights during the existence
of the loan, but would call the loan in anticipation of an important vote to be
taken among holders of the securities or of the giving or withholding of their
consent on a material matter affecting the investment. As with other extensions
of credit, there are risks of delay in recovery or even loss of rights in the
collateral should the borrower fail financially. However, the loans would be
made only to entities deemed by the Manager to be of good standing, and when, in
the judgment of the Manager, the consideration which can be earned currently
from loans of this type justifies the attendant risk. In addition, the Fund
could suffer a loss if the borrower terminates the loan and the Fund is forced
to liquidate investments in order to return the cash collateral to the buyer. If
the Manager determines to make loans, it is not intended that the value of the
securities loaned would exceed 30% of the value of the Fund's total assets.
WHEN-ISSUED SECURITIES
The Fund may purchase securities on a "when-issued" or on a "forward
delivery" basis. It is expected that, under normal circumstances, the Fund would
take delivery of such securities. When the Fund commits to purchase a security
on a "when-issued" or on a "forward delivery" basis, it sets up procedures
consistent with Securities and Exchange Commission policies. Since those
policies currently require that an amount of the Fund's assets equal to the
amount of the purchase be held aside or segregated to be used to pay for the
commitment, the Fund expects always to have cash, cash equivalents, or high
quality debt securities sufficient to cover any commitments or to limit any
potential risk. However, even though the Fund does not intend to make such
purchases for speculative purposes and intends to adhere to the provisions of
Securities and Exchange Commission policies, purchases of securities on such
bases may involve more risk than other types of purchases. For example, the Fund
may have to sell assets which have been set aside in order to meet redemptions.
Also, if the Manager determines it is advisable as a matter of investment
strategy to sell the "when-issued" or "forward delivery" securities, the Fund
would be required to meet its obligations from the then available cash flow or
the sale of securities, or, although it would not normally expect to do so, from
the sale of the "when-issued" or "forward delivery" securities themselves (which
may have a value greater or less than the Fund's payment obligation).
CONVERTIBLE SECURITIES
The Fund may invest in convertible securities. A convertible security
is a fixed-income security (a bond or preferred stock) which may be converted at
a stated price within a specified period of time into a certain quantity of
common stock or other equity securities of the name or a different issuer.
Convertible securities rank senior to common stock in a corporation's capital
structure but are usually subordinated to similar non-convertible securities.
While providing a fixed-income stream (generally higher in yield than the income
derivable from common stock but lower than that afforded by a smaller
non-convertible security), a convertible security also affords an investor the
opportunity, through its conversion feature, to participate in the capital
appreciation attendant upon a market price advance in the convertible security's
underlying common stock. Convertible securities purchased are not subject to the
rating requirements applicable to the Funds' purchase of fixed income
investments.
In general, the market value of a convertible security is at least the
higher of its "investment value" (i.e., its value as a fixed-income security) or
its "conversion value" (i.e., its value upon conversion into its underlying
stock). As a fixed-income security, a convertible security tends to increase in
market value when interest rates decline and tends to decrease in value when
interest rates rise. However, the price of a convertible security is also
influenced by the market value of the security's underlying common stock. The
price of a convertible security tends to increase as the market value of the
underlying stock rises, whereas it tends to decrease as the market value of the
underlying stock declines. While no securities investment is without some risk,
investments in convertible securities generally entail less risk than
investments in the common stock of the same issuer.
RULE 144A SECURITIES
Consistent with applicable investment restrictions, the Fund may
purchase securities that are not registered ("restricted securities") under the
Securities Act of 1933, as amended (the "Securities Act"), but can be offered
and sold to "qualified institutional buyers" under Rule 144A under the
Securities Act. However, the Fund will not invest more than 15% of its net
assets in illiquid investments, which include securities for which there is no
readily available market, securities subject to contractual restrictions on
resale and restricted securities, unless the Board of Trustees of the Trust
determines, based on the trading markets for the specific restricted security,
that it is liquid. The Trustees have adopted guidelines and delegated to the
Manager the daily function of determining and monitoring liquidity of restricted
securities. The Trustees, however, retain sufficient oversight and are
ultimately responsible for the determinations.
Since it is not possible to predict with assurance exactly how the
market for restricted securities sold and offered under Rule 144A will develop,
the Trust's Trustees will carefully monitor the Fund's investments in these
securities, focusing on such factors, among others, as valuation, liquidity and
availability of information. The liquidity of investments in Rule 144A
securities could be impaired if trading in Rule 144A securities does not develop
or if qualified institutional buyers become for a time uninterested in
purchasing Rule 144A securities.
4. INVESTMENT RESTRICTIONS
The Trust, on behalf of the Fund, has adopted the following policies
which may not be changed with respect to the Fund without approval by holders of
a majority of the outstanding voting securities of the Fund, which as used in
this Statement of Additional Information means the vote of the lesser of (i) 67%
or more of the outstanding voting securities of the Fund present at a meeting at
which the holders of more than 50% of the outstanding voting securities of the
Fund are present or represented by proxy, or (ii) more than 50% of the
outstanding voting securities of the Fund. The term "voting securities" as used
in this paragraph has the same meaning as in the 1940 Act.
The Fund may not:
(1) Borrow money, except that as a temporary measure for extraordinary
or emergency purposes it may borrow in an amount not to exceed 1/3 of the
current value of its net assets, including the amount borrowed (nor purchase any
securities at any time at which borrowings exceed 5% of the total assets of the
Fund, taken at market value). It is intended that the Fund would borrow money
only from banks and only to accommodate requests for the repurchase of shares of
the Fund while effecting an orderly liquidation of portfolio securities.
(2) Make loans to other persons except (a) through the lending of its
portfolio securities and provided that any such loans not exceed 30% of the
Fund's total assets (taken at market value), (b) through the use of repurchase
agreements or the purchase of short-term obligations or (c) by purchasing all or
a portion of an issue of debt securities of types commonly distributed privately
to financial institutions. The purchase of short-term commercial paper or a
portion of an issue of debt securities which is part of an issue to the public
shall not be considered the making of a loan.
(3) Purchase securities of any issuer if such purchase at the time
thereof would cause with respect to 75% of the total assets of the Fund more
than 10% of the voting securities of such issuer to be held by the Fund, except
that the Fund may invest all or substantially all of its investable assets in
another registered investment company having the same investment objective and
policies and substantially the same investment restrictions as those with
respect to the Fund (a "Qualifying Portfolio").
(4) Purchase securities of any issuer if such purchase at the time
thereof would cause as to 75% of the Fund's total assets more than 5% of the
Fund's assets (taken at market value) to be invested in the securities of such
issuer (other than securities or obligations issued or guaranteed by the United
States, any state or political subdivision thereof, or any political subdivision
of any such state, or any agency or instrumentality of the United States or of
any state or of any political subdivision of any state), except that the Fund
may invest all or substantially all of its investable assets in a Qualifying
Portfolio.
(5) Concentrate its investments in any particular industry, but if it
is deemed appropriate for the achievement of the Fund's investment objective, up
to 25% of its assets, at market value at the time of each investment, may be
invested in any one industry.
(6) Underwrite securities issued by other persons, except that all the
assets of the Fund may be invested in a Qualifying Portfolio and except in so
far as the Fund may technically be deemed an underwriter under the Securities
Act in selling a security.
(7) Purchase or sell real estate (including limited partnership
interests but excluding securities secured by real estate or interests therein),
interests in oil, gas or mineral leases, commodities or commodity contracts in
the ordinary course of business (the Fund reserves the freedom of action to hold
and to sell real estate acquired as a result of the ownership of securities by
the Fund).
(8) Issue any senior security (as that term is defined in the 1940 Act)
if such issuance is specifically prohibited by the 1940 Act or the rules and
regulations promulgated thereunder, except as appropriate to evidence a debt
incurred without violating Investment Restriction (1) above.
NON-FUNDAMENTAL RESTRICTIONS
The Fund does not as a matter of operating policy:
(i) borrow money in excess of 10% of the total assets of the Fund
(taken at cost), except that the Fund may borrow up to 25% of its total assets
when such borrowing is necessary to meet redemption requests (moreover, the Fund
will not purchase any securities for the Fund at any time at which borrowings
exceed 5% of the total assets of the Fund (taken at market value)),
(ii) invest more than 20% of is total assets in the securities of
issuers located in any one foreign country, except that the Fund may have an
additional 15% of its total assets in the securities of issuers located in any
one of the following countries: Australia, Canada, France, Japan, the United
Kingdom, or Germany.
These policies are not fundamental and may be changed by the Fund
without the approval of its shareholders.
PERCENTAGE AND RATING RESTRICTIONS
If a percentage or rating restriction on investment or utilization of
assets set forth above or referred to in this Registration Statement is adhered
to at the time an investment is made or assets are so utilized, a later change
in percentage resulting from changes in the value of the securities or a later
change in the rating of the securities held for the Fund will not be considered
a violation of policy.
5. PERFORMANCE INFORMATION
A total rate of return quotation for the Fund is calculated for any
period by (a) dividing (i) the sum of the net asset value per share on the last
day of the period and the net asset value per share on the last day of the
period of shares purchasable with dividends and capital gains distributions
declared during such period with respect to a share held at the beginning of
such period and with respect to shares purchased with such dividends and capital
gains distributions, by (ii) the public offering price per share on the first
day of such period, and (b) subtracting 1 from the result. Any annualized total
rate of return quotation is calculated by (x) adding 1 to the period total rate
of return quotation calculated above, (y) raising such sum to a power which is
equal to 365 divided by the number of days in such period, and (z) subtracting 1
from the result. Total rates of return may also be calculated on investments at
various sales charge levels or at net asset value. Any performance data which is
based on a reduced sales charge or net asset value would be reduced if the
maximum sales charge were taken into account.
Any current yield quotation for the Fund consists of an annualized
historical yield, carried at least to the nearest hundredth of one percent,
based on a 30 calendar day or one month period and is calculated by (a) raising
to the sixth power the sum of 1 plus the quotient obtained by dividing the
Fund's net investment income earned during the period by the product of the
average daily number of shares outstanding during the period that were entitled
to receive dividends and the maximum public offering price per share on the last
day of the period, (b) subtracting 1 from the result, and (c) multiplying the
result by 2.
Yields and total returns quoted for the Fund include the effect of
deducting the Fund's expenses, but may not include charges and expenses
attributable to a particular variable annuity contract or variable life
insurance policy. Since shares of the Fund can be purchased only through a
variable annuity contract or variable life insurance policy, a purchaser of such
contract or policy should carefully review the prospectus for the applicable
variable annuity contract or variable life insurance policy for information on
relevant charges and expenses. Including these charges in the quotations of the
Fund's yield and total return would have the effect of decreasing performance.
Performance information for the Fund must always be accompanied by, and be
reviewed with, performance information for the insurance product which invests
in the Fund.
Set forth below is total rate of return information for the shares of
the Fund for the period indicated, assuming that dividends and capital gains
distributions, if any, were reinvested.
Redeemable Value of a
Hypothetical
Annualized $1,000 Investment
Total Rate of Return at the end of the Period
February 10, 1997
(commencement
of operations) to
December 31, 1997 --------% $--------
6. DETERMINATION OF NET ASSET VALUE; VALUATION OF
SECURITIES; ADDITIONAL REDEMPTION INFORMATION
The net asset value per share of the Fund is determined each day during
which the New York Stock Exchange is open for trading. As of the date of this
Statement of Additional Information, the Exchange is open for trading every
weekday except for the following holidays (or the days on which they are
observed): New Year's Day, Martin Luther King Jr. Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day. This determination of net asset value of shares of the Fund is
made once each day as of the close of regular trading on such Exchange (normally
4:00 p.m. Eastern time) by dividing the value of the Fund's net assets (i.e.,
the value of its assets less its liabilities, including expenses payable or
accrued) by the number of shares of the Fund outstanding at the time the
determination is made. A share's net asset value is effective for orders
received by the Trust prior to its calculation and received by the Distributor
prior to the close of the business day on which such net asset value is
determined.
For purposes of calculating net asset value per share, all assets and
liabilities initially expressed in non-U.S. currencies will be converted into
U.S. dollars at the prevailing market rates at the time of valuation. Equity
securities are valued at the last sale price on the exchange on which they are
primarily traded or on the NASDAQ system for unlisted national market issues, or
at the last quoted bid price for securities in which there were no sales during
the day or for unlisted securities not reported on the NASDAQ system. Securities
listed on a foreign exchange are valued at the last quoted sale price available
before the time when net assets are valued. Bonds and other fixed income
securities (other than short-term obligations) are valued on the basis of
valuations furnished by a pricing service, use of which has been approved by the
Board of Trustees of the Trust. In making such valuations, the pricing service
utilizes both dealer-supplied valuations and electronic data processing
techniques which take into account appropriate factors such as
institutional-size trading in similar groups of securities, yield, quality,
coupon rate, maturity, type of issue, trading characteristics and other market
data, without exclusive reliance upon quoted prices or exchange or
over-the-counter prices, since such valuations are believed to reflect more
accurately the fair value of such securities. In certain instances, securities
are valued on the basis of valuations received from a single dealer, which is
usually an established market maker in the security. In these instances,
additional dealer valuations are obtained monthly. Short-term obligations
(maturing in 60 days or less) are valued at amortized cost, which constitutes
fair value as determined by the Board of Trustees of the Trust. Futures
contracts are normally valued at the settlement price on the exchange on which
they are traded. Securities for which there are no such valuations are valued at
fair value as determined in good faith by or at the direction of the Board of
Trustees of the Trust.
Trading in securities on most foreign exchanges and over-the-counter
markets is normally completed before the close of regular trading on the
Exchange and may also take place on days on which the New York Stock Exchange is
closed. If events materially affecting the value of foreign securities occur
between the time when the exchange on which they are traded closes and the time
when the Fund's net asset value is calculated, such securities may be valued at
fair value in accordance with procedures established by and under the general
supervision of the Board of Trustees of the Trust.
Interest income on long-term obligations held for the Fund is
determined on the basis of interest accrued plus amortization of "original issue
discount" (generally, the difference between issue price and stated redemption
price at maturity) and premiums (generally, the excess of purchase price over
stated redemption price at maturity). Interest income on short-term obligations
is determined on the basis of interest accrued plus amortization of any
premiums.
Subject to compliance with applicable regulations, the Trust has
reserved the right to pay the redemption or repurchase price of shares of the
Fund, either totally or partially, by a distribution in kind of readily
marketable securities (instead of cash). The securities so distributed would be
valued at the same amount as that assigned to them in calculating the net asset
value for the shares or beneficial interests being sold. If a holder of shares
or beneficial interests received a distribution in kind, such holder could incur
brokerage or other charges in converting the securities to cash.
The Trust may suspend the right of redemption or postpone the date of
payment for shares of the Fund more than seven days during any period when (a)
trading in the markets the Fund normally utilizes is restricted, or an
emergency, as defined by the rules and regulations of the SEC, exists making
disposal of the Fund's investments or determination of its net asset value not
reasonably practicable; (b) the New York Stock Exchange is closed (other than
customary weekend and holiday closings); or (c) the SEC has by order permitted
such suspension.
7. MANAGEMENT
TRUSTEES
The Trustees and officers of the Trust, their ages and their principal
occupations during the past five years are set forth below. Their titles may
have varied during that period. Asterisks indicate that those Trustees and
officers are "interested persons" (as defined in the 1940 Act) of the Trust.
Unless otherwise indicated below, the address of each Trustee and officer is 6
St. James Avenue, Boston, Massachusetts.
TRUSTEES OF THE TRUST
ELLIOTT J. BERV (aged 55) -- Chairman and Director, Catalyst, Inc. (Management
Consultants) (since June, 1992); President, Chief Operating Officer and
Director, Deven International, Inc. (International Consultants) (June, 1991 to
June, 1992); President and Director, Elliott J. Berv & Associates (Management
Consultants) (since May, 1984). His address is 15 Stornoway Drive, Cumberland
Foreside, Maine.
PHILIP W. COOLIDGE* (aged 46) -- President of the Trust; Chief Executive Officer
and President, Signature Financial Group, Inc. and CFBDS.
MARK T. FINN (aged 54) -- President and Director, Delta Financial, Inc. (since
June, 1983); Chairman of the Board and Chief Executive Officer, FX 500 Ltd.
(Commodity Trading Advisory Firm) (since April, 1990); Director, Vantage
Consulting Group, Inc. (since October, 1988). His address is 3500 Pacific
Avenue, P.O. Box 539, Virginia Beach, Virginia.
RILEY C. GILLEY (aged 71) -- Vice President and General Counsel, Corporate
Property Investors (November, 1988 to December, 1991); Partner, Breed, Abbott &
Morgan (Attorneys) (retired, December, 1987). His address is 4041 Gulf Shore
Boulevard North, Naples, Florida.
DIANA R. HARRINGTON (aged 58) -- Professor, Babson College (since September,
1993); Visiting Professor, Kellogg Graduate School of Management, Northwestern
University (September, 1992 to September, 1993); Professor, Darden Graduate
School of Business, University of Virginia (September, 1978 to September, 1993);
Trustee, The Highland Family of Funds (since March, 1997). Her address is 120
Goulding Street, Holliston, Massachusetts.
SUSAN B. KERLEY (aged 46) -- President, Global Research Associates, Inc.
(Investment Research) (since August, 1990); Adviser, Rockefeller & Co. (March,
1988 to July, 1990); Trustee, Mainstay Institutional Funds (since December,
1990). Her address is P.O. Box 9572, New Haven, Connecticut.
C. OSCAR MORONG, JR. (aged 63) -- Managing Director, Morong Capital Management
(since February, 1993); Senior Vice President and Investment Manager, CREF
Investments, Teachers Insurance & Annuity Association (retired January, 1993);
Director, Indonesia Fund; Trustee, MAS Funds (since 1993). His address is 1385
Outlook Drive West, Mountainside, New Jersey.
WALTER E. ROBB, III (aged 71) -- President, Benchmark Consulting Group, Inc.
(since 1991); Principal, Robb Associates (Corporate Financial Advisors) (since
1978); President, Benchmark Advisors, Inc. (Corporate Financial Advisors) (since
1989); Trustee of certain registered investment companies in the MFS Family of
Funds. His address is 35 Farm Road, Sherborn, Massachusetts.
E. KIRBY WARREN (aged 63) -- Professor of Management, Graduate School of
Business, Columbia University (since 1987); Samuel Bronfman Professor of
Democratic Business Enterprise (1978 to 1987). His address is Columbia
University, Graduate School of Business, 725 Uris Hall, New York, New York.
WILLIAM S. WOODS, JR. (aged 77) -- Vice President-Investments, Sun Company, Inc.
(retired, April, 1984). His address is 35 Colwick Road, Cherry Hill, New Jersey.
OFFICERS OF THE TRUST
PHILIP W. COOLIDGE* (aged 46) -- President of the Trust; Chief Executive Officer
and President, Signature Financial Group, Inc. and CFBDS.
CHRISTINE A. DRAPEAU* (aged 27) -- Assistant Secretary and Assistant Treasurer
of the Trust; Assistant Vice President, Signature Financial Group, Inc. (since
January, 1996); Paralegal and Compliance Officer, various financial companies
(July, 1992 to January, 1996); Graduate Student, Bentley College (prior to
December, 1994).
TAMIE EBANKS-CUNNINGHAM* (aged 25) -- Assistant Secretary of the Trust; Office
Manager, Signature Financial Group (Cayman) Ltd. (Since April 1995);
Administrator, Cayman Islands Primary School (prior to April 1995). Her address
is P.O. Box 2494, Elizabethan Square, George Town, Grand Cayman, Cayman Islands,
B.W.I.
JOHN R. ELDER* (aged 49) -- Treasurer of the Trust; Vice President, Signature
Financial Group, Inc. (since April, 1995); Treasurer, CFBDS (since April, 1995);
Treasurer, Phoenix Family of Mutual Funds (Phoenix Home Life Mutual Insurance
Company) (1983 to March, 1995).
LINDA T. GIBSON* (aged 32) -- Secretary of the Trust; Vice President, Signature
Financial Group, Inc. (since May, 1992); Assistant Secretary, CFBDS (since
October, 1992).
JOAN R. GULINELLO* (aged 42) -- Assistant Secretary and Assistant Treasurer of
the Trust; Vice President, Signature Financial Group, Inc. (since October,
1993); Secretary, CFBDS (since October, 1995); Vice President and Assistant
General Counsel, Massachusetts Financial Services Company (prior to October,
1993).
JAMES E. HOOLAHAN* (aged 51) -- Vice President, Assistant Secretary and
Assistant Treasurer of the Trust; Senior Vice President, Signature Financial
Group, Inc.
SUSAN JAKUBOSKI* (aged 34) -- Vice President, Assistant Secretary and Assistant
Treasurer of the Trust; Vice President, Signature Financial Group (Cayman) Ltd.
(since August, 1994); Fund Compliance Administrator, Concord Financial Group
(November, 1990 to August, 1994). Her address is Suite 193, 12 Church Street,
Hamilton HM11, Bermuda.
MOLLY S. MUGLER* (aged 46) -- Assistant Secretary and Assistant Treasurer of the
Trust; Vice President, Signature Financial Group, Inc.; Assistant Secretary,
CFBDS.
CLAIR TOMALIN* (aged 29) -- Assistant Secretary of the Trust; Office Manager,
Signature Financial Group (Europe) Limited (since 1993). Her address is 117
Charterhouse Street, London ECIM 6AA.
SHARON M. WHITSON* (aged 49) -- Assistant Secretary and Assistant Treasurer of
the Trust; Assistant Vice President, Signature Financial Group, Inc.
JULIE J. WYETZNER* (aged 38) -- Vice President, Assistant Secretary and
Assistant Treasurer of the Trust; Vice President, Signature Financial Group,
Inc.
The Trustees and officers of the Trust also hold comparable positions
with certain other funds for which CFBDS, Signature Financial Group, Inc. or
their affiliates serve as the distributor or administrator.
As of February 24, 1998, all Trustees and officers as a group owned
less than 1% of the outstanding shares of the Fund. As of the same date, First
Citicorp Life Insurance Company owned 69% of the shares of the Fund and Citicorp
Life Insurance Company owned 31% of the shares of the Fund.
The Declaration of Trust of the Trust provides that the Trust will
indemnify its Trustees and officers against liabilities and expenses incurred in
connection with litigation in which they may be involved because of their
offices with the Trust unless, as to liability to the Trust, or its investors,
it is finally adjudicated that they engaged in willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in their offices,
or unless with respect to any other matter it is finally adjudicated that they
did not act in good faith in the reasonable belief that their actions were in
the best interests of the Trust. In the case of settlement, such indemnification
will not be provided unless it has been determined by a court or other body
approving the settlement or other disposition, or by a reasonable determination,
based upon a review of readily available facts, by vote of a majority of
disinterested Trustees of the Trust, or in a written opinion of independent
counsel, that such officers or Trustees have not engaged in willful misfeasance,
bad faith, gross negligence or reckless disregard of their duties.
The Trustees of the Trust received the following remuneration from the
Trust during its fiscal year ended December 31, 1997:
<TABLE>
<CAPTION>
TOTAL
PENSION OR COMPENSATION
AGGREGATE RETIREMENT ESTIMATED FROM REGISTRANT
COMPENSATION BENEFITS ACCRUED ANNUAL AND FUND
NAME OF PERSON, FROM AS PART OF FUND BENEFITS UPON COMPLEX PAID
POSITION REGISTRANT (1) EXPENSES RETIREMENT TO TRUSTEES (1)
------------------ ------------------ ------------------ -------------- -----------------
<S> <C> <C> <C> <C>
H.B. ALVORD(2) $_____ NONE NONE $_____
ELLIOTT J. BERV $_____ NONE NONE $_____
PHILIP W. COOLIDGE NONE NONE NONE NONE
MARK T. FINN $_____ NONE NONE $_____
RILEY C. GILLEY $_____ NONE NONE $_____
DIANA R. HARRINGTON $_____ NONE NONE $_____
SUSAN B. KERLEY $_____ NONE NONE $_____
C. OSCAR MORONG, JR. $_____ NONE NONE $_____
WALTER E. ROBB, III $_____ NONE NONE $_____
E. KIRBY WARREN $_____ NONE NONE $_____
WILLIAM S. WOODS, JR. $_____ NONE NONE $_____
</TABLE>
(1) Information relates to the fiscal year ended December 31, 1997. Messrs.
Berv, Coolidge, Finn, Gilley, Morong, Robb, Warren and Woods and Mses.
Harrington and Kerley are trustees of 31, 55, 26, 31, 28, 24, 28, 30, 29 and
29 funds, respectively, in the family of open-end registered investment
companies advised or managed by Citibank. (2) Mr. Alvord retried as a
Trustee on May 31, 1997.
MANAGER
Citibank manages the assets of the Fund and provides certain administrative
services to the Trust pursuant to a management agreement (the "Management
Agreement") with the Trust. Citibank furnishes at its own expense all services,
facilities and personnel necessary in connection with managing the Fund's
investments and effecting securities transactions for the Fund. The Management
Agreement with the Trust will continue in effect until November 8, 1998 and
thereafter as long as such continuance is specifically approved at least
annually by the Board of Trustees of the Trust or by a vote of a majority of the
outstanding voting securities of the Fund, and, in either case, by a majority of
the Trustees of the Trust who are not parties to the Management Agreement or
interested persons of any such party, at a meeting called for the purpose of
voting on the Management Agreement.
Citibank provides the Trust with general office facilities and supervises the
overall administration of the Trust, including, among other responsibilities,
the negotiation of contracts and fees with, and the monitoring of performance
and billings of, the Trust's independent contractors and agents; the preparation
and filing of all documents required for compliance by the Trust with applicable
laws and regulations; and arranging for the maintenance of books and records of
the Trust. Trustees, officers, and investors in the Trust are or may be or may
become interested in Citibank, as directors, officers, employees, or otherwise
and directors, officers and employees of Citibank are or may become similarly
interested in the Trust.
The Management Agreement provides that Citibank may render services to others.
The Management Agreement is terminable without penalty on not more than 60 days'
nor less than 30 days' written notice by the Trust, when authorized either by a
vote of a majority of the outstanding voting securities of the Fund or by a vote
of a majority of the Board of Trustees of the Trust, or by Citibank on not more
than 60 days' nor less than 30 days' written notice, and will automatically
terminate in the event of its assignment. The Management Agreement provides that
neither Citibank nor its personnel shall 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 the 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 under
the Management Agreement with the Trust.
The Prospectus contains a description of the fees payable to Citibank for
services under the Management Agreement. Citibank, if required by state law,
will reimburse the Fund or waive all or a portion of its management fees to the
extent that the expenses of the Fund exceed the expense limitation prescribed by
any state in which the Fund is qualified for offer or sale.
For the period from February 10, 1997, commencement of operations, to
December 31, 1997, the fees payable to Citibank under the Management Agreement
were $__________ (of which $__________ was voluntarily waived).
Pursuant to a sub-administrative services agreement with Citibank, CFBDS
performs such sub-administrative duties for the Trust as from time to time are
agreed upon by Citibank and CFBDS. For performing such sub-administrative
services, CFBDS receives compensation as from time to time is agreed upon by
Citibank, not in excess of the amount paid to Citibank for its services under
the Management Agreement with the Trust. All such compensation is paid by
Citibank.
CFBDS is a wholly-owned subsidiary of Signature Financial Group, Inc.
DISTRIBUTOR
CFBDS serves as the Distributor of the Trust's shares pursuant to a
Distribution Agreement with the Trust. Unless otherwise terminated, the
Distribution Agreement continues in effect from year to year upon annual
approval by the Trust's Board of Trustees, or by the vote of a majority of the
outstanding shares of the Trust and by the vote of a majority of the Board of
Trustees of the Trust who are not parties to the Agreement or interested persons
of any party to the Agreement, cast in person at a meeting called for the
purpose of voting on such approval. The Agreement will terminate in the event of
its assignment, as defined in the 1940 Act. CFBDS is not currently paid a fee
for the provision of distribution services with respect to shares of the Fund.
TRANSFER AGENT AND CUSTODIAN
The Trust has entered into a Transfer Agency and Service Agreement with
State Street Bank and Trust Company ("State Street") pursuant to which State
Street acts as transfer agent for the Fund. The Trust also has entered into a
Custodian Agreement and Fund Accounting Agreement with State Street, pursuant to
which custodial and fund accounting services, respectively, are provided for the
Fund. See "Custodian, Transfer Agent and Fund Accountant" in the Prospectus for
additional information. The principal business address of State Street is 225
Franklin Street, Boston, Massachusetts 02110.
AUDITORS
Price Waterhouse LLP are the independent accountants for the Trust,
providing audit services and assistance and consultation with respect to the
preparation of filings with the SEC. The address of Price Waterhouse LLP is 160
Federal Street, Boston, Massachusetts 02110.
8. PORTFOLIO TRANSACTIONS
The Trust trades securities for the Fund if it believes that a
transaction net of costs (including custodian charges) will help achieve the
Fund's investment objective. Changes in the Fund's investments are made without
regard to the length of time a security has been held, or whether a sale would
result in the recognition of a profit or loss. Therefore, the rate of turnover
is not a limiting factor when changes are appropriate. Specific decisions to
purchase or sell securities for the Fund are made by a portfolio manager who is
an employee of the Manager and who is appointed and supervised by its senior
officers. The portfolio manager may serve other clients of the Manager in a
similar capacity.
The primary consideration in placing portfolio securities transactions
with broker-dealers for execution is to obtain and maintain the availability of
execution at the most favorable prices and in the most effective manner
possible. The Manager attempts to achieve this result by selecting
broker-dealers to execute transactions on behalf of the Fund and other clients
of the Manager on the basis of their professional capability, the value and
quality of their brokerage services, and the level of their brokerage
commissions. In the case of securities traded in the over-the-counter market
(where no stated commissions are paid but the prices include a dealer's markup
or markdown), the Manager normally seeks to deal directly with the primary
market markers, unless in its opinion, best execution is available elsewhere. In
the case of securities purchased from underwriters, the cost of such securities
generally includes a fixed underwriting commission or concession. From time to
time, soliciting dealer fees are available to the Manager on the tender of the
Fund's securities in so-called tender or exchange offers. Such soliciting dealer
fees are in effect recaptured for the Fund by the Manager. At present no other
recapture arrangements are in effect.
Under the Management Agreement, in connection with the selection of
such brokers or dealers and the placing of such orders, the Manager is directed
to seek for the Fund in its best judgment, prompt execution in an effective
manner at the most favorable price. Subject to this requirement of seeking the
most favorable price, securities may be bought from or sold to broker-dealers
who have furnished statistical, research and other information or services to
the Manager or the Fund, subject to any applicable laws, rules and regulations.
The investment advisory fee that the Fund pays to the Manager will not
be reduced as a consequence of the Manager's receipt of brokerage and research
services. While such services are not expected to reduce the expenses of the
Manager, the Manager would, through the use of the services, avoid the
additional expenses which would be incurred if it should attempt to develop
comparable information through its own staff or obtain such services
independently.
In certain instances there may be securities that are suitable as an
investment for the Fund as well as for one or more of the Manager's other
clients. Investment decisions for the Fund and for the Manager's other clients
are made with a view to achieving their respective investment objectives. It may
develop that a particular security is bought or sold for only one client even
though it might be held by, or bought or sold for, other clients. Likewise, a
particular security may be bought for one or more clients when one or more
clients are selling the same security. Some simultaneous transactions are
inevitable when several clients receive investment advice from the same
investment adviser, particularly when the same security is suitable for the
investment objectives of more than one client. When two or more clients are
simultaneously engaged in the purchase or sale of the same security, the
securities are allocated among clients in a manner believed to be equitable to
each. It is recognized that in some cases this system could adversely affect the
price of or the size of the position obtainable in a security for the Fund. When
purchases or sales of the same security for the Fund and for other portfolios
managed by the Manager occur contemporaneously, the purchase or sale orders may
be aggregated in order to obtain any price advantages available to large volume
purchases or sales.
For the period from February 10, 1997, commencement of operations, to
December 31, 1997, the Fund paid $_______________ in brokerage commissions.
9. DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
The Trust's Declaration of Trust permits the Trustees to issue an
unlimited number of full and fractional Shares of Beneficial Interest ($0.00001
par value per share) of each series and to divide or combine the shares of any
series into a greater or lesser number of shares of that series without thereby
changing the proportionate beneficial interests in that series. The Fund,
CitiSelect(R) VIP Folio 200, CitiSelect(R) VIP Folio 300, CitiSelect(R) VIP
Folio 400 and CitiSelect(R) VIP Folio 500 are the only current series of shares
of the Trust and the Trust has reserved the right to create and issue additional
series of shares. Each share of the Fund represents an equal proportionate
interest in the Fund with each other share. Shares of each series participate
equally in the earnings, dividends and distribution of net assets of the
particular series upon liquidation or dissolution. Shares of each series are
entitled to vote separately to approve advisory agreements or changes in
investment policy, but shares of all series may vote together in the election or
selection of Trustees and accountants for the Trust.
Shareholders are entitled to one vote for each share held on matters on
which they are entitled to vote. Shareholders in the Trust do not have
cumulative voting rights, and shareholders owning more than 50% of the
outstanding shares of the Trust may elect all of the Trustees of the Trust if
they choose to do so and in such event the other shareholders in the Trust would
not be able to elect any Trustee. The Trust is not required and has no present
intention to hold annual meetings of shareholders but the Trust will hold
special meetings of shareholders when in the judgment of the Trustees it is
necessary or desirable to submit matters for a shareholder vote. Shareholders
have, under certain circumstances (e.g., upon the application and submission of
certain specified documents to the Trustees by a specified number of
shareholders), the right to communicate with other shareholders in connection
with requesting a meeting of shareholders for the purpose of removing one or
more Trustees. Shareholders also have under certain circumstances the right to
remove one or more Trustees without a meeting by a declaration in writing by a
specified number of shareholders. No material amendment may be made to the
Trust's Declaration of Trust without the affirmative vote of the holders of a
majority of the outstanding shares of each series affected by the amendment.
(See "Investment Restrictions.")
The Trust may enter into a merger or consolidation, or sell all or
substantially all of its assets (or all or substantially all of the assets
belonging to any series of the Trust), if approved by a vote of the holders of
two-thirds of the Trust's outstanding shares, voting as a single class, or of
the affected series of the Trust, as the case may be, except that if the
Trustees of the Trust recommend such sale of assets, merger or consolidation,
the approval by vote of the holders of a majority of the Trust's outstanding
shares would be sufficient. The Trust or any series of the Trust, as the case
may be, may be terminated (i) by a vote of a majority of the outstanding voting
securities of the Trust or the affected series or (ii) by the Trustees by
written notice to the shareholders of the Trust or the affected series. If not
so terminated, the Trust will continue indefinitely.
The rights accompanying Fund shares are legally vested in the Separate
Accounts. However, in accordance with current law and interpretations thereof,
Participating Insurance Companies will vote shares held in the Separate Accounts
in a manner consistent with timely voting instructions received from the holders
of variable annuity contracts and variable life insurance policies. Each
Participating Insurance Company will vote Fund shares held in Separate Accounts
for which no timely instructions are received from the holders of variable
annuity contracts and variable life insurance policies, as well as shares it
owns, in the same proportion as those shares for which voting instructions are
received. For a further discussion, please refer to the insurance company's
Separate Account prospectus.
Share certificates will not be issued.
The Trust is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders of such a business trust
may, under certain circumstances, be held personally liable as partners for its
obligations and liabilities. However, the Declaration of Trust contains an
express disclaimer of shareholder liability for acts or obligations of the Trust
and provides for indemnification and reimbursement of expenses out of Trust
property for any shareholder held personally liable for the obligations of the
Trust. The Declaration of Trust also provides that the Trust may maintain
appropriate insurance (for example, fidelity bonding and errors and omissions
insurance) for the protection of the Trust, its investors, Trustees, officers,
employees and agents covering possible tort and other liabilities. Thus, the
risk of an investor incurring financial loss on account of investor liability is
limited to circumstances in which both inadequate insurance existed and the
Trust itself was unable to meet its obligations.
The Trust's Declaration of Trust further provides that obligations of
the Trust are not binding upon the Trustees individually but only upon the
property of the Trust and that the Trustees will not be liable for any action or
failure to act, but nothing in the Declaration of Trust of the Trust protects a
Trustee against any liability to which he or she would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his or her office.
10. CERTAIN ADDITIONAL TAX MATTERS
Any investment in zero coupon bonds, certain stripped securities, and
certain securities purchased at a market discount will cause the Fund to
recognize income prior to the receipt of cash payments with respect to those
securities. In order to distribute this income and avoid a tax on the Fund, the
Fund may be required to liquidate portfolio securities that it might otherwise
have continued to hold, potentially resulting in additional taxable gain or loss
to the Fund. The Fund's transactions in options, futures contracts, and forward
contracts will be subject to special tax rules that may affect the amount,
timing and character of Fund income and distributions to shareholders. Certain
positions held by the Fund that substantially diminish its risk of loss with
respect to other positions in its portfolio may constitute "straddles," and may
be subject to special tax rules that would cause deferral of Fund losses,
adjustments in the holding periods of Fund securities, and conversion of
short-term into long-term capital losses. Certain tax elections exist for
straddles that may alter the effects of these rules. The Fund will limit its
activities in options, futures contracts, and forward contracts to the extent
necessary to meet the requirements of Subchapter M of the Internal Revenue Code.
Special tax considerations apply with respect to foreign investments.
Use of foreign currencies for non-hedging purposes may be limited in order to
avoid a tax on the Fund. Investment by the Fund in certain "passive foreign
investments companies" may also be limited in order to avoid a tax on the Fund.
The Fund may elect to mark to market any investments in "passive foreign
investment companies" on the last day of each year. This election may cause the
Fund to recognize income prior to the receipt of cash payments with respect to
those investments; in order to distribute this income and avoid a tax on the
Fund, the Fund may be required to liquidate portfolio securities that it might
otherwise have continued to hold.
Investment income received by the Fund from foreign securities may be
subject to foreign income taxes withheld at the source. The United States has
entered into tax treaties with many foreign countries that may entitle the Fund
to a reduced rate of tax or an exemption from tax on such income; the Fund
intends to qualify for treaty reduced rates where available. It is not possible,
however, to determine the Fund's effective rate of foreign tax in advance since
the amount of the Fund's assets to be invested within various countries is not
known.
11. FINANCIAL STATEMENTS
To be added by amendment.
<PAGE>
PART C
Item 24. Financial Statements and Exhibits.
(a) Financial Statements Included in Part A:
To be filed by amendment.
Financial Statements Included in Part B:
To be filed by amendment.
(b) Exhibits
* 1(a) Amended and Restated Declaration of Trust of the Registrant
1(b) Form of Amended and Restated Designation of Series of the
Registrant
* 2(a) By-Laws of the Registrant
2(b) Amendment to the By-Laws of the Registrant
5(a) Management Agreements between the Registrant and Citibank,
N.A., as investment manager and administrator
5(b) Sub-Management Agreement with Miller Anderson &
Sherrerd, LLP
5(c) Sub-Management Agreement with Hotchkis & Wiley
5(d) Sub-Management Agreement with Pacific Investment Management
Company
5(e) Sub-Management Agreement with Franklin Advisory Services,
Inc.
6 Distribution Agreement between the Registrant and CFBDS,
Inc. (formerly known as The Landmark Funds Broker-Dealer
Services, Inc.) ("CFBDS"), as distributor
8 Custodian Agreement between the Registrant, on behalf of
the Funds, and State Street Bank and Trust Company ("State
Street"), as custodian
9 Transfer Agency and Service Agreement between the
Registrant and State Street, as transfer agent
** 10 Opinion of Bingham, Dana & Gould LLP
25 Powers of Attorney
- ------------------
* Incorporated by reference to the Registrant's Initial Registration Statement
on Form N-1A (File No. 333-15119) as filed with the Securities and Exchange
Commission on October 30, 1996.
** Incorporated by reference to Pre-Effective Amendment No. 1 to the
Registrant's Registration Statement on Form N-1A (File No. 333-15119) as
filed with the Securities and Exchange Commission on November 15, 1996.
Item 25. Persons Controlled by or under Common Control with Registrant.
Not applicable.
Item 26. Number of Holders of Securities.
Title of Class Number of Record Holders
-------------- ------------------------
Shares of Beneficial Interest
(par value $0.00001 per share) As of January 31, 1998
CitiFunds(SM) Small Cap Growth VIP Portfolio 6
CitiSelect(R)VIP Folio 200 6
CitiSelect(R)VIP Folio 300 5
CitiSelect(R)VIP Folio 400 5
CitiSelect(R)VIP Folio 500 6
Item 27. Indemnification.
Reference is hereby made to (a) Article V of the Registrant's
Declaration of Trust, incorporated by reference herein; (b) Section 6 of the
Distribution Agreement between the Registrant and CFBDS, filed herewith; and (c)
the undertaking of the Registrant regarding indemnification set forth in its
Registration Statement on Form N-1A.
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to Trustees, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a Trustee, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
Trustee, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The Trustees and officers of the Registrant and the personnel of the
Registrant's administrator are insured under an errors and omissions liability
insurance policy. The Registrant and its officers are also insured under the
fidelity bond required by Rule 17g-1 under the Investment Company Act of 1940.
Item 28. Business and Other Connections of Investment Advisers.
Citibank, N.A. ("Citibank") is a commercial bank offering a wide range
of banking and investment services to customers across the United States and
around the world. Citibank is a wholly-owned subsidiary of Citicorp, a
registered bank holding company. Citibank also serves as investment adviser to
the following registered investment companies (or series thereof): Asset
Allocation Portfolios (Large Cap Value Portfolio, Small Cap Value Portfolio,
International Portfolio, Foreign Bond Portfolio, Intermediate Income Portfolio
and Short-Term Portfolio), The Premium Portfolios (Growth & Income Portfolio,
Balanced Portfolio, Large Cap Growth Portfolio, Government Income Portfolio,
International Equity Portfolio, Emerging Asian Markets Equity Portfolio and
Small Cap Growth Portfolio), Tax Free Reserves Portfolio, U.S. Treasury Reserves
Portfolio, Cash Reserves Portfolio, Landmark Fixed Income Funds (Landmark
Intermediate Income Fund), CitiFunds(SM) Multi-State Tax Free Trust
(CitiFunds(SM) New York Tax Free Reserves, CitiFunds(SM) Connecticut Tax Free
Reserves and CitiFunds(SM) California Tax Free Reserves), Landmark Tax Free
Income Funds (Landmark National Tax Free Income Fund and Landmark New York Tax
Free Income Fund) and CitiFunds(SM) Institutional Trust (CitiFunds(SM)
Institutional Cash Reserves). Citibank and its affiliates manage assets in
excess of $88 billion worldwide. The principal place of business of Citibank is
located at 399 Park Avenue, New York, New York 10043.
John S. Reed is the Chairman of the Board and a Director of Citibank.
The following are Vice Chairmen of the Board and Directors of Citibank: Paul J.
Collins and William R. Rhodes. Other Directors of Citibank are D. Wayne
Calloway, former Chairman and Chief Executive Officer, PepsiCo, Inc.; John M.
Deutch, Institute Professor, Massachusetts Institute of Technology; Reuben Mark,
Chairman and Chief Executive Officer, Colgate-Palmolive Company; Richard D.
Parsons, President, Time Warner, Inc.; Rozanne L. Ridgway, Former Assistant
Secretary of State for Europe and Canada; Robert B. Shapiro, Chairman, President
and Chief Executive Officer, Monsanto Company; Frank A. Shrontz, Chairman
Emeritus, The Boeing Company; and Franklin A. Thomas, former President, The Ford
Foundation.
Each of the individuals named above is also a Director of Citicorp. In
addition, the following persons have the affiliations indicated:
D. Wayne Calloway Director, Exxon Corporation
Director, General Electric Company
Retired Chairman and Chief Executive Officer and
Director, PepsiCo, Inc.
Paul J. Collins Director, Kimberly-Clark Corporation
John M. Deutch Director, Ariad Pharmaceuticals, Inc.
Director, CMS Energy
Director, Palomar Medical Technologies, Inc.
Director, Cummins Engine Company, Inc.
Director, Schlumberger, Ltd.
Reuben Mark Director, Chairman and Chief Executive Officer
Colgate-Palmolive Company
Director, New York Stock Exchange
Director, Time Warner, Inc.
Non-Executive Director, Pearson, PLC
Richard D. Parsons Director, Federal National Mortgage Association
Director, Philip Morris Companies Incorporated
Member, Board of Representatives, Time Warner
Entertainment Company, L.P.
Director and President, Time Warner, Inc.
John S. Reed Director, Monsanto Company
Director, Philip Morris Companies
Incorporated
Stockholder, Tampa Tank & Welding, Inc.
William R. Rhodes Director, Private Export Funding Corporation
Rozanne L. Ridgway Director, 3M
Director, Bell Atlantic Corporation
Director, Boeing Company
Director, Emerson Electric Company
Member-International Advisory Board,
New Perspective Fund, Inc.
Director, RJR Nabisco, Inc.
Director, Sara Lee Corporation
Director, Union Carbide Corporation
Robert B. Shapiro Director, Chairman and Chief Executive Officer,
Monsanto Company
Director, Silicon Graphics
Frank A. Shrontz Director, 3M
Director, Baseball of Seattle, Inc.
Director and Chairman Emeritus, Boeing Company
Director, Boise Cascade Corp.
Director, Chevron Corporation
Franklin A. Thomas Director, Aluminum Company of America
Director, Cummins Engine Company, Inc.
Director, Lucent Technologies
Director, PepsiCo, Inc.
Franklin Advisory Services, Inc. ("Franklin"), a sub-adviser of the
Registrant, maintains its principal office at One Parker Plaza, 16th Floor, Fort
Lee, New Jersey 07024. Franklin, a Delaware corporation incorporated in 1996, is
a registered investment adviser under the Investment Advisers Act of 1940 and is
a wholly-owned subsidiary of Franklin Resources, Inc., a publicly owned holding
company. Franklin is an investment adviser to various open-end and closed-end
investment companies.
William J. Lippman is the President and Director of Franklin Advisory
Services, Inc. Mr. Lippman holds a master of business administration degree from
New York University and a bachelor of business administration degree from City
College of New York. Mr. Lippman also serves as Senior Vice President of
Franklin Resources, Inc. and Franklin Management, Inc. and has been with the
Franklin Templeton Group since 1988. Prior to joining Franklin Advisers Inc.,
Mr. Lippman was president of L.F. Rothschild Fund Management, Inc. and has been
in the securities industry for over 30 years.
Each of the individuals named below is an officer and/or Director of
Franklin and has the affiliations indicated:
Name: Affiliations:
William J. Lippman Senior Vice President, Franklin Resources, Inc.
President and Director Senior Vice President, Franklin Advisers, Inc.
Senior Vice President, Franklin Templeton
Distributors, Inc.
Senior Vice President, Franklin Management, Inc.
Mr. Lippman also serves as officer and/or
director or trustee of eight of the investment
companies in the Franklin Templeton Group of
Funds.
Charles B. Johnson President, Chief Executive Officer and Director,
Chairman of the Board Franklin Resources, Inc.
and Director Chairman of the Board and Director, Franklin
Advisers, Inc.
Chairman of the Board and Director, Franklin
Investment Advisory Services, Inc.
Chairman of the Board and Director, Franklin
Templeton Distributors, Inc.
Director, Franklin/Templeton Investor Services,
Inc.
Director, Franklin Templeton Services, Inc.
Director, General Host Corporation
Mr. Johnson also serves as officer and/or
director or trustee, as the case may be, of most
of the other subsidiaries of Franklin Resources,
Inc. and of 54 of the investment companies in
the Franklin Templeton Group of Funds.
Rupert H. Johnson, Jr. Executive Vice President and Director, Franklin
Senior Vice President Resources, Inc.
and Director Executive Vice President and Director, Franklin
Templeton Distributors, Inc.
President and Director, Franklin Advisers, Inc.
Senior Vice President and Director, Franklin
Investment Advisory Services, Inc.
Director, Franklin/Templeton Investor Services,
Inc.
Mr. Johnson also serves as officer and/or
director, trustee or managing general partner,
as the case may be, of most other subsidiaries
of Franklin Resources, Inc. and of 60 of the
investment companies in the Franklin Templeton
Group of Funds.
Deborah R. Gatzek Senior Vice President and General Counsel,
Vice President and Franklin Resources, Inc.
Assistant Secretary Senior Vice President, Franklin Templeton
Distributors, Inc.
Vice President, Franklin Advisers, Inc.
Vice President, Franklin Investment Advisory
Services, Inc.
Ms. Gatzek also serves as officer of 60 of the
investment companies in the Franklin Templeton
Group of Funds.
Martin L. Flanagan Senior Vice President, Chief Financial Officer
Treasurer and Treasurer, Franklin Resources, Inc.
Executive Vice President, Templeton Worldwide,
Inc.
Senior Vice President and Treasurer, Franklin
Advisers, Inc.
Senior Vice President and Treasurer, Franklin
Templeton Distributors, Inc.
Senior Vice President, Franklin/Templeton
Investor Services, Inc.
Treasurer, Franklin Investment Advisory
Services, Inc.
Mr. Flanagan also serves as officer of most
other subsidiaries of Franklin Resources, Inc.
and officer, director and/or trustee of 60 of
the investment companies in the Franklin
Templeton Group of Funds.
Leslie M. Kratter Vice President, Franklin Resources, Inc.
Secretary Vice President, Franklin Institutional Services
Corporation
President and Director, Franklin/Templeton
Travel, Inc.
Pacific Investment Management Company ("PIMCO"), a sub-adviser of the
Registrant, maintains its principal office at 840 Newport Center Drive, Suite
360, P.O. Box 6480, Newport Beach, California 92658-9030. PIMCO is a registered
investment adviser under the Investment Advisers Act of 1940.
Lee R. Thomas, III joined PIMCO in 1995 and is the Senior International
Portfolio Manager at PIMCO, as well as a Managing Director of PIMCO. Previously
he was a member of Investcorp's Management Committee, where he was responsible
for global securities and foreign exchange trading. Prior to Investcorp, he was
associated with Goldman Sachs, where he was an Executive Director in the fixed
income division of their London office.
Each of the individuals named below is a Managing Director of PIMCO and has
the affiliations indicated:
Name and Position: Other Affiliations:
William R. Benz None
William H. Gross, CFA None
Senior Fixed Income Portfolio Manager
David H. Edington None
Senior Fixed Income Portfolio Manager
John L. Hague None
Senior Fixed Income Portfolio Manager
Brent R. Harris, CFA None
Director of Marketing
Dean S. Meiling, CFA None
Account Manager
James F. Muzzy, CFA None
Account Manager
William F. Podlich, III Director, Maxager Technology, Inc.
William C. Powers None
Senior Fixed Income Portfolio Manager
Frank B. Rabinovitch None
Senior Fixed Income Portfolio Manager
Lee R. Thomas, III None
Senior International Portfolio
Manager
William S. Thompson Director, Spieker Properties Inc.
Chief Executive Officer
Benjamin Trosky None
Hotchkis and Wiley, a division of the Capital Management Group of Merrill
Lynch Asset Management, L.P. ("Hotchkis"), a sub-adviser of the Registrant,
maintains its principal office at 800 West Sixth Street, Fifth Floor, Los
Angeles, California 90017. Harry Hartford and Sarah Ketterer manage
international equity accounts and are also responsible for international
investment research. Each serves on the Investment Policy Committee at Hotchkis.
Prior to joining Hotchkis, Mr. Hartford was with the Investment Bank of Ireland,
where he gained 10 years of experience in both international and global equity
management. Prior to joining Hotchkis, Ms. Ketterer was an associate with
Bankers Trust and an analyst at Dean Witter.
Hotchkis became a division of the Capital Management Group of Merrill
Lynch Asset Management, L.P. upon the completion of the acquisition of Hotchkis
and Wiley, a Delaware Limited Liability Company and the general partner of
Hotchkis & Wiley, by Merrill Lynch & Co., Inc., a Delaware corporation, in
November of 1996.
Following are the managing personnel of Hotchkis:
Name and Position: Other Affiliations:
John F. Hotchkis Trustee, Hotchkis and Wiley Funds
Portfolio Manager Board of Governors, The Music Center
Chairman Director, The Music Center Foundation
Director, Los Angeles Philharmonic Orchestra
Director, Big Brothers of Greater Los Angeles
Director, Executive Service Corps of
Southern California
Director, KCET
Director, Teach for America
Trustee, The Lawrenceville School
Trustee, Robert Louis Stevenson School
Director, Fountainhead Water Company, Inc.
Michael L. Quinn Head of Merrill Lynch Capital Management Group
Chief Executive Officer Director, The University of Denver
Director, Valley Hospital
Director, The Peddie School
Director, Christian Brothers Academy
Director, Ridgewood, New Jersey Board of Education
Miller Anderson & Sherrerd, LLP ("MAS"), a sub-adviser of the Registrant,
maintains its principal office at One Tower Bridge, West Conshohocken,
Pennsylvania 19428. MAS has been a registered investment adviser under the
Investment Advisers Act of 1940 since 1974. MAS serves as the Investment Adviser
and Fund Administrator for the MAS Funds and is also the parent company of MAS
Fund Distribution, Inc. ("MASDI"), a registered limited purpose broker-dealer
that was formed in 1992 solely to distribute shares of the MAS Funds. All
registered representatives of MASDI are also employees of MAS. MAS Fixed Income
Partnership I, L.P. ("MAS I") and MAS Fixed Income Partnership II, L.P. ("MAS
II") are investment partnerships established by MAS. MAS has established MAS
Fixed Income I, L.L.C., MAS Fixed Income II, L.L.C., MAS Management, Inc., and
MAS Investors I, LLP to administer and manage the investment partnerships.
MAS is a Pennsylvania limited liability partnership and became an indirect
wholly-owned subsidiary of Morgan Stanley, Dean Witter, Discover & Co. MAS's
general partner and the owner of 95% of the MAS partnership interests is Morgan
Stanley Asset Management Holdings, Inc. ("MSAMH"), a direct wholly-owned
subsidiary of Morgan Stanley Asset Management Inc. MSAMH is also one of MAS's
three limited partners. The other two limited partners of MAS are MSL
Incorporated and MS Holdings Incorporated, which are both holding companies
within Morgan Stanley's corporate structure and own the remaining 3% and 2% of
MAS's partnership interests, respectively.
Following are the officers and directors of Morgan Stanley Asset Management
Holdings, Inc.
Name and Position: Affiliations:
James M. Allwin Director and Managing Director of Morgan Stanley
President and Director Asset Management Inc. since 1993 and
President since 1995;
Employee of Morgan Stanley & Co. Incorporated
since 1976 and Managing Director since 1985;
President of Morgan Stanley Realty, Inc. since
1988;
Member of the Board of Overseers, Dartmouth
College;
Member of the Executive Board, The National
Realty Committee;
Trustee, The Urban Land Institute;
Chairman, Cities in Schools, Inc.
Barton M. Biggs Chairman and Director of Morgan Stanley Asset
Chairman of the Board Management Inc. since 1980;
and Director Chairman and Director of Morgan Stanley Asset
Management Limited;
Managing Director of Morgan Stanley & Co.
Incorporated since 1973;
Director of Morgan Stanley Group Inc. since
1991;
Member of the Investment Advisory Council of The
Thailand Fund;
Director, The Rand McNally Company;
Member, Yale Development Board;
Director and officer of various investment
companies managed by Morgan Stanley Asset
Management Inc.
Harold J. Schaaff, Jr. Principal of Morgan Stanley & Co. Incorporated;
Secretary and Director General Counsel and Secretary of Morgan Stanley
Asset Management Inc. since 1989;
Officer of various investment companies managed
by Morgan Stanley Asset Management Inc.
Debra M. Aaron Employee of Morgan Stanley & Co. Incorporated
Vice President since 1984, Vice President since 1986 and a
Principal since 1989
Bruce R. Sandberg Employee of Morgan Stanley & Co. Incorporated
Vice President since 1981, Vice President since 1988 and a
Principal since 1992
Eileen Murray Employee of Morgan Stanley & Co. Incorporated
Treasurer since 1984;
Treasurer and Managing Director of Morgan
Stanley Asset Management Inc. and Morgan
Stanley & Co. Incorporated since June of 1996
Madeline D. Barkhorn Employee of Morgan Stanley & Co. Incorporated
Assistant Secretary since 1994 and of Morgan Stanley Asset
Management Inc. since 1988
Charlene R. Herzer Employee of Morgan Stanley & Co. Incorporated
Assistant Secretary since 1990 and Vice President since 1995
The primary portfolio managers for MAS's Value Portfolio are Robert J.
Marcin, CFA, Richard M. Behler, PhD, and Nicholas J. Kovich, CFA. All other
members of the MAS equity investment management department serve as analyst
resources for the value team in the management of the portfolio while
maintaining responsibility for other MAS equity related portfolios.
Each of the individuals named below is a former partner of MAS and has
the affiliations indicated:
Name: Other Affiliations:
Richard B. Worley University of Pennsylvania, Trustee
Medical Center of the University of
Pennsylvania, Trustee
Pennsylvania Academy of Fine Arts, Trustee
Thomas L. Bennett, CFA MAS Funds, Chairman
MAS Fund Distribution, Inc., Director
Robert L. Hagin, PhD Society of Quantitative Analysts, Advisory Board
John D. Connolly, CFA Financial Analysts of Philadelphia, President,
1994-95
Kenneth B. Dunn, PhD Journal of Fixed Income, Associate Editor
Institute for the Study of Security Markets,
Board of Directors
Ellen D. Harvey, CFA St. Timothy's School, Trustee, 1985-94
Investment Chairman, 1994-present
Bryn Mawr Rehabilitation Hospital, Trustee
Main Line Health System, Trustee
Owosso Corporation, Director
Gary G. Schlarbaum, CFA, PhD Coe College, Trustee
MAS Funds Distribution, Inc., Director
James D. Schmid MAS Funds, President
Head of Mutual Funds MAS Fund Distribution, Inc., Director
The Minerva Fund, Inc., Chairman of the Board of
Directors
Arden C. Armstrong, CFA American Friends Service Committee, Investment
Committee
Wharton Fellow's Fund, Board of Overseers
Stephen F. Esser, CFA None
J. David Germany, PhD None
Nicholas J. Kovich, CFA None
Robert J. Marcin, CFA None
Mary Ann Milias California Pacific Medical Center Foundation,
Trustee
Schools of the Sacred Heart, Trustee
Sisters of the Presentation - Investment
Advisory Committee
Marin Community Foundation - Investment
Advisory Committee
Scott F. Richard, DBA Journal of Fixed Income, Associate Editor
Horacio A. Valeiras, CFA None
Glenn E. Becker Germantown Academy, Education Committee
The Salvation Army Advisory Board of
Greater Philadelphia
Philadelphia Leadership Foundation, Director
Steven K. Kreider, CFA Lehigh University, Investment Committee
Marna C. Whittington, PhD Rohm & Haas Company, Director
Tower Hill School, Trustee
Upland Country Day School, Trustee
The Philadelphia Contributionship, Director
Federated Department Stores, Inc., Director
Berwind Group, Director
Item 29. Principal Underwriters.
(a) CFBDS, the Registrant's Distributor, is also the distributor for
CitiFunds(SM) International Growth & Income Portfolio, Landmark International
Equity Fund, Landmark Emerging Asian Markets Equity Fund, CitiFunds(SM) U.S.
Treasury Reserves, CitiFunds(SM) Cash Reserves, CitiFunds(SM) Premium U.S.
Treasury Reserves, CitiFunds(SM) Premium Liquid Reserves, CitiFunds(SM)
Institutional U.S. Treasury Reserves, CitiFunds(SM) Institutional Liquid
Reserves, CitiFunds(SM) Institutional Cash Reserves, CitiFunds(SM) Tax Free
Reserves, CitiFunds(SM) Institutional Tax Free Reserves, CitiFunds(SM)
California Tax Free Reserves, CitiFunds(SM) Connecticut Tax Free Reserves,
CitiFunds(SM) New York Tax Free Reserves, Landmark Intermediate Income Fund,
Landmark U.S. Government Income Fund, Landmark Balanced Fund, CitiFunds(SM)
Small Cap Value Portfolio, CitiFunds(SM) Growth & Income Portfolio, Landmark
Equity Fund, Landmark Small Cap Equity Fund, Landmark National Tax Free Income
Fund, Landmark New York Tax Free Income Fund, CitiSelect(R) Folio 200,
CitiSelect(R) Folio 300, CitiSelect(R) Folio 400, and CitiSelect(R) Folio 500.
CFBDS is also the placement agent for Large Cap Value Portfolio, Small Cap Value
Portfolio, International Portfolio, Foreign Bond Portfolio, Intermediate Income
Portfolio, Short-Term Portfolio, Growth & Income Portfolio, Large Cap Growth
Portfolio, Small Cap Growth Portfolio, International Equity Portfolio, Balanced
Portfolio, Government Income Portfolio, Emerging Asian Markets Equity Portfolio,
Tax Free Reserves Portfolio, Cash Reserves Portfolio and U.S. Treasury Reserves
Portfolio.
(b) The information required by this Item 29 with respect to each
director and officer of CFBDS is incorporated by reference to Schedule A of Form
BD filed by CFBDS pursuant to the Securities and Exchange Act of 1934 (File No.
8-32417).
(c) Not applicable.
Item 30. Location of Accounts and Records.
The accounts and records of the Registrant are located, in whole or in
part, at the office of the Registrant and the following locations:
NAME ADDRESS
CFBDS, Inc. 6 St. James Avenue
(distributor) Boston, MA 02116
State Street Bank and Trust Company 1776 Heritage Drive
(custodian and transfer agent) North Quincy, MA 02171
Citibank, N.A. 153 East 53rd Street
(investment manager) New York, NY 10043
Item 31. Management Services.
Not applicable.
Item 32. Undertakings.
(a) Not applicable.
(b) The Registrant hereby undertakes to call a meeting of shareholders
for the purpose of voting upon the question of removal of one or more of the
Trust's Trustees when requested in writing to do so by the holders of at least
10% of the Registrant's outstanding shares, and in connection therewith to
comply with the provisions of Section 16(c) of the Investment Company Act of
1940 relating to shareholder communication.
(c) The Registrant undertakes to furnish to each person to whom a
prospectus of CitiSelect(R) VIP Folio 200, CitiSelect(R) VIP Folio 300,
CitiSelect(R) VIP Folio 400, CitiSelect(R) VIP Folio 500 and CitiSelect(SM)
Small Cap Growth VIP Portfolio is delivered with a copy of its latest Annual
Report to Shareholders, upon request without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Post-Effective Amendment to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Boston and Commonwealth of
Massachusetts on the 23rd day of February, 1998.
VARIABLE ANNUITY PORTFOLIOS
By: Philip W. Coolidge
-----------------------------
Philip W. Coolidge
President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to this Registration Statement has been signed below by
the following persons in the capacities indicated below on February 23, 1998.
Signature Title
President, Principal Executive
Philip W. Coolidge Officer and Trustee
- ---------------------------------
Philip W. Coolidge
Principal Accounting and
John R. Elder Financial Officer
- ---------------------------------
John R. Elder
Elliott J. Berv* Trustee
- ---------------------------------
Elliott J. Berv
Mark T. Finn* Trustee
- ---------------------------------
Mark T. Finn
Riley C. Gilley* Trustee
- ---------------------------------
Riley C. Gilley
Diana R. Harrington* Trustee
- ---------------------------------
Diana R. Harrington
Susan B. Kerley* Trustee
- ---------------------------------
Susan B. Kerley
C. Oscar Morong, Jr.* Trustee
- ---------------------------------
C. Oscar Morong, Jr.
Walter E. Robb, III* Trustee
- ---------------------------------
Walter E. Robb, III
E. Kirby Warren* Trustee
- ---------------------------------
E. Kirby Warren
William S. Woods, Jr.* Trustee
- ---------------------------------
William S. Woods, Jr.
*By: Philip W. Coolidge
---------------------------
Philip W. Coolidge
Executed by Philip W.
Coolidge on behalf of those
indicated pursuant to
Powers of Attorney.
<PAGE>
EXHIBIT INDEX
Exhibit No.: Description:
1(b) Form of Amended and Restated Designation of Series
of the Registrant
2(b) Amendment to the By-Laws of the Registrant
5(a) Management Agreements between the Registrant and
Citibank, N.A., as investment manager and
administrator
5(b) Sub-Management Agreement with Miller Anderson &
Sherrerd, LLP
5(c) Sub-Management Agreement with Hotchkis & Wiley
5(d) Sub-Management Agreement with Pacific Investment
Management Company
5(e) Sub-Management Agreement with Franklin Advisory
Services, Inc.
6 Distribution Agreement between the Registrant and
CFBDS, Inc. (formerly known as The Landmark Funds
Broker-Dealer Services, Inc.) ("CFBDS"), as
distributor
8 Custodian Agreement between the Registrant, on behalf
of the Funds, and State Street Bank and Trust Company
("State Street"), as custodian
9 Transfer Agency and Service Agreement between the
Registrant and State Street, as transfer agent
25 Powers of Attorney
<PAGE>
Exhibit 1(b)
VARIABLE ANNUITY PORTFOLIOS
FORM OF AMENDED AND RESTATED
ESTABLISHMENT AND DESIGNATION OF SERIES OF
SHARES OF BENEFICIAL INTEREST ($0.00001 PAR VALUE PER SHARE)
Pursuant to Section 6.9 of the Amended and Restated Declaration of
Trust, dated October 25, 1996 (the "Declaration of Trust"), of Variable Annuity
Portfolios (the "Trust"), the undersigned, being a majority of the Trustees of
the Trust, do hereby amend and restate the Trust's existing Establishment and
Designation of Series of Shares of Beneficial Interest ($0.00001 par value per
share) in order to change the name of one series of Shares (as defined in the
Declaration of Trust) which was previously established and designated. No other
changes to the special and relative rights of the existing series are intended
by this amendment and restatement. This amendment and restatement shall become
effective on such date as any officer of the Trust may select by written notice
to the Trust.
1. The series shall be as follows:
The series previously designated as Landmark Small Cap Equity VIP
Fund shall be redesignated as "CitiFunds Small Cap Growth VIP
Portfolio."
The remaining series are as follows: CitiSelect(R) VIP Folio 200;
CitiSelect(R) VIP Folio 300; CitiSelect(R) VIP Folio 400; and
CitiSelect(R) VIP Folio 500
2. Each series shall be authorized to invest in cash, securities,
instruments and other property as from time to time described in the Trust's
then currently effective registration statement under the Securities Act of 1933
to the extent pertaining to the offering of Shares of each series. Each Share of
each series shall be redeemable, shall be entitled to one vote or fraction
thereof in respect of a fractional share on matters on which shares of that
series shall be entitled to vote, shall represent a pro rata beneficial interest
in the assets allocated or belonging to such series, and shall be entitled to
receive its pro rata share of the net assets of such series upon liquidation of
the series, all as provided in Section 6.9 of the Declaration of Trust.
3. Shareholders of each series shall vote separately as a class on any
matter to the extent required by, and any matter shall be deemed to have been
effectively acted upon with respect to each series as provided in, Rule 18f-2,
as from time to time in effect, under the Investment Company Act of 1940, as
amended, or any successor rule, and by the Declaration of Trust.
4. The assets and liabilities of the Trust shall be allocated to each
series as set forth in Section 6.9 of the Declaration of Trust.
5. Subject to the provisions of Section 6.9 and Article IX of the
Declaration of Trust, the Trustees (including any successor Trustees) shall have
the right at any time and from time to time to reallocate assets and expenses or
to change the designation of any series now or hereafter created or otherwise to
change the special and relative rights of any such series.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Establishment
and Designation of Series on separate counterparts this 14th day of November,
1997.
- ------------------------------ -------------------------------
ELLIOTT J. BERV PHILIP W. COOLIDGE
As trustee and not individually As trustee and not individually
- ------------------------------ -------------------------------
MARK T. FINN RILEY C. GILLEY
As trustee and not individually As trustee and not individually
- ------------------------------ -------------------------------
DIANA R. HARRINGTON SUSAN B. KERLEY
As trustee and not individually As trustee and not individually
- ------------------------------ -------------------------------
C. OSCAR MORONG, JR. WALTER E. ROBB, III
As trustee and not individually As trustee and not individually
- ------------------------------ -------------------------------
E. KIRBY WARREN WILLIAM S. WOODS, JR.
As trustee and not individually As trustee and not individually
<PAGE>
Exhibit 2(b)
AMENDMENT TO THE BY-LAWS OF LANDMARK FUNDS I, LANDMARK FUNDS II, LANDMARK
INTERNATIONAL FUNDS, LANDMARK FIXED INCOME FUNDS, LANDMARK TAX FREE INCOME
FUNDS, LANDMARK FUNDS III, LANDMARK PREMIUM FUNDS, LANDMARK MULTI-STATE TAX FREE
FUNDS, LANDMARK INSTITUTIONAL TRUST, LANDMARK TAX FREE RESERVES AND VARIABLE
ANNUITY PORTFOLIOS - AS ADOPTED BY THE BOARDS OF TRUSTEES ON AUGUST 8, 1997:
VOTED: That Article III, Section 4 of the By-Laws of the Trust be and
hereby is amended in its entirety to read as follows*:
Section 4. Proxies. At any meeting of Shareholders, any holder of
Shares entitled to vote thereat may vote by proxy, provided that no proxy
shall be voted at any meeting unless it shall have been placed on file
with the Secretary, or with such other officer or agent of the Trust as
the Secretary may direct, for verification prior to the time at which such
vote shall be taken. [Any Shareholder may give authorization through
telephonic or telegraphic methods of communication for another person to
execute his or her proxy.] Pursuant to a vote of a majority of the
Trustees, proxies may be solicited in the name of one or more Trustees or
one or more of the officers of the Trust. Only Shareholders of record
shall be entitled to vote. Each full Share shall be entitled to one vote
and fractional Shares shall be entitled to a vote of such fraction. When
any Share is held jointly by several persons, any one of them may vote at
any meeting in person or by proxy in respect of such Share, but if more
than one of them shall be present at such meeting in person or by proxy,
and such joint owners or their proxies so present disagree as to any vote
to be cast, such vote shall not be received in respect of such Share. A
proxy purporting to be executed by or on behalf of a Shareholder shall be
deemed valid unless challenged at or prior to its exercise, and the burden
of proving invalidity shall rest on the challenger. If the holder of any
such Share is a minor or a person of unsound mind, and subject to
guardianship or to the legal control of any other person as regards the
charge or management of such Share, such Share may be voted by such
guardian or such other person appointed or having such control, and such
vote may be given in person or by proxy. [Unless otherwise specifically
limited by their terms, proxies shall entitle the holder thereof to vote
at any adjournment of a meeting.]
*New language is bracketed.
<PAGE>
Exhibit 5(a)
MANAGEMENT AGREEMENT
VARIABLE ANNUITY PORTFOLIOS
CitiSelectSM VIP Folio 200
MANAGEMENT AGREEMENT, dated as of November 8, 1996, by and between
Variable Annuity Portfolios, Massachusetts business trust (the "Trust"), and
Citibank, N.A., a national banking association ("Citibank" or the "Manager").
W I T N E S S E T H:
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 Trust wishes to engage Citibank to provide certain
investment advisory and administrative services for the series of the Trust
designated as CitiSelectSM VIP Folio 200 (the "Fund"), and Citibank is willing
to provide such investment advisory and administrative services for the Fund 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. Duties of Citibank. (a) Citibank shall act as the Manager for the
Fund and as such 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 the Fund 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, and the then-current Registration Statement of the Trust with respect to
the Fund. The Manager shall also make recommendations as to the manner in which
voting rights, rights to consent to corporate action and any other rights
pertaining to the Fund's portfolio securities shall be exercised. Should the
Board of Trustees of the Trust at any time, however, make any definite
determination as to investment policy applicable to the Fund and notify the
Manager thereof in writing, the Manager 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 Manager shall take, on behalf of the
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 the Fund's account with the brokers or
dealers selected by it, and to that end the Manager is authorized as the agent
of the Trust to give instructions to the custodian or any subcustodian of the
Fund as to deliveries of securities and payments of cash for the account of the
Fund. 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 the Fund and/or the other accounts over
which the Manager or its affiliates exercise investment discretion. The Manager
is authorized to pay a broker or dealer who provides such brokerage and research
services a commission for executing a portfolio transaction for the Fund which
is in excess of the amount of commission another broker or dealer would have
charged for effecting that transaction if the Manager 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 Manager 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 the 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 the Fund, the Manager 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. In
providing the services and assuming the obligations set forth herein, the
Manager may employ at its own expense, or may request that the Trust employ at
the Fund's expense, one or more subadvisers; provided that in each case the
Manager shall supervise the activities of each subadviser. Any agreement between
the Manager and a subadviser shall be subject to the renewal, termination and
amendment provisions applicable to this Agreement. Any agreement between the
Trust on behalf of the Fund and a subadviser may be terminated by the Manager at
any time on not more than 60 days' nor less than 30 days' written notice to the
Trust and the subadviser.
(b) Subject to the direction and control of the Board of Trustees of
the Trust, Citibank shall perform such administrative and management services as
may from time to time be reasonably requested by the Trust, which shall include
without limitation: (a) providing office space, equipment and clerical personnel
necessary for maintaining the organization of the Trust and for performing the
administrative and management functions herein set forth; (b) supervising the
overall administration of the Trust, including negotiation of contracts and fees
with and the monitoring of performance and billings of the Trust's transfer
agent, custodian and other independent contractors or agents; (c) preparing and,
if applicable, filing all documents required for compliance by the Trust with
applicable laws and regulations, including registration statements, prospectuses
and statements of additional information, semi-annual and annual reports to
shareholders, proxy statements and tax returns; (d) preparation of agendas and
supporting documents for and minutes of meetings of Trustees, committees of
Trustees and shareholders; and (e) arranging for maintenance of books and
records of the Trust. Notwithstanding the foregoing, Citibank shall not be
deemed to have assumed any duties with respect to, and shall not be responsible
for, the distribution of shares of beneficial interest in the Fund, nor shall
Citibank be deemed to have assumed or have any responsibility with respect to
functions specifically assumed by any transfer agent, fund accounting agent or
custodian of the Trust or the Fund. In providing administrative and management
services as set forth herein, Citibank may, at its own expense, employ one or
more subadministrators; provided that Citibank shall remain fully responsible
for the performance of all administrative and management duties set forth herein
and shall supervise the activities of each subadministrator.
2. Allocation of Charges and Expenses. Citibank shall furnish at its
own expense all necessary services, facilities and personnel in connection with
its responsibilities under Section 1 above. Except as provided in the foregoing
sentence, it is understood that the Trust will pay from the assets of the Fund
all of its own expenses allocable to the 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 interest and servicing shareholder
accounts; expenses of preparing, typesetting, printing and mailing prospectuses,
statements of additional information, shareholder reports, notices, proxy
statements and reports to governmental officers and commissions and to existing
shareholders of 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, registration and qualification of shares of
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.
3. Compensation of Citibank. For the services to be rendered and the
facilities to be provided by Citibank hereunder, the Trust shall pay to Citibank
from the assets of the Fund a management fee computed daily and paid monthly at
an annual rate equal to 0.75% of the Fund's average daily net assets for the
Fund's then-current fiscal year minus the Fund's Aggregate Subadviser Fee (as
defined below), if any. To the extent that the Fund's Aggregate Subadviser Fee
exceeds 0.75% of the Fund's average daily net assets for the Fund's then-current
fiscal year, the Manager shall pay such amount to the applicable subadvisers on
the Fund's behalf. The Fund's Aggregate Subadviser Fee is the aggregate amount
payable by the Fund to subadvisers pursuant to agreements between the Trust on
behalf of the Fund and the subadvisers. If Citibank provides services hereunder
for less than the whole of any period specified in this Section 3, the
compensation to Citibank shall be accordingly adjusted and prorated.
4. Covenants of Citibank. Citibank 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 the Fund, except as permitted by the 1940 Act,
will not take a long or short position in shares of the Fund except as permitted
by the Declaration, and will comply with all other provisions of the
Declaration, the By-Laws and the then-current Registration Statement applicable
to the Fund relative to Citibank and its directors and officers.
5. Limitation of Liability of Citibank. Citibank 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 the 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 5, the term
"Citibank" shall include directors, officers and employees of Citibank as well
as Citibank itself.
6. Activities of Citibank. The services of Citibank to the Fund are not
to be deemed to be exclusive, Citibank being free to render investment advisory,
administrative and/or other services to others. It is understood that Trustees,
officers, and shareholders of the Trust are or may be or may become interested
in Citibank, as directors, officers, employees, or otherwise and that directors,
officers and employees of Citibank are or may become similarly interested in the
Trust and that Citibank may be or may become interested in the Trust as a
shareholder or otherwise.
7. Duration, Termination and Amendments of this Agreement. This
Agreement shall become effective as of the day and year first above written,
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 Citibank 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 the Fund.
This Agreement may be terminated at any time without the payment of any
penalty by the Trustees or by the "vote of a majority of the outstanding voting
securities" of the Fund, or by Citibank, in each case on not more than 60 days'
nor less than 30 days' written notice to the other party. This Agreement shall
automatically terminate in the event of its "assignment."
This Agreement may be amended only if such amendment is approved by the
"vote of a majority of the outstanding voting securities" of the Fund (except
for any such amendment as may be effected in the absence of such approval
without violating the 1940 Act).
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 Fund; 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 Fund; and that no 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 as an officer under the Declaration, and the obligations of
this Agreement are not binding upon any of the Trustees, officers or
shareholders of the Trust individually.
8. Governing Law. This Agreement shall be construed and the provisions
thereof interpreted under and in accordance with the laws of The Commonwealth of
Massachusetts.
9. Use of Name. (a) The Trust hereby acknowledges that any and all
rights in or to the names "CitiSelect" and "CitiSelect Folios" which exist on
the date of this Agreement or which may arise hereafter are, and under any and
all circumstances shall continue to be, the sole property of Citibank; that
Citibank may assign any or all of such rights to another party or parties
without the consent of the Trust; and that Citibank may permit other parties,
including other investment companies, to use the word "CitiSelect" or the words
"CitiSelect Folios" in their names. If Citibank, or its assignee as the case may
be, ceases to serve as the adviser to the Trust, the Trust hereby agrees to take
promptly any and all actions which are necessary or desirable to change its name
so as to delete the word "CitiSelect" or the words "CitiSelect Folios."
(b) The Trust hereby acknowledges that any and all rights in or to the
names "Landmark" and "Landmark Funds" which exist on the date of this Agreement
or which may arise hereafter are, and under any and all circumstances shall
continue to be, the sole property of The Landmark Funds Broker-Dealer Services,
Inc. ("LFBDS"); that LFBDS may assign any or all of such rights to another party
or parties without the consent of the Trust; and that LFBDS may permit other
parties, including other investment companies, to use the word "Landmark" or the
words "Landmark Funds" in their names. If LFBDS, or its assignee as the case may
be, ceases to serve as the distributor of shares of the Trust, the Trust hereby
agrees to take promptly any and all actions which are necessary or desirable to
change its name so as to delete the word "Landmark" or the words "Landmark
Funds."
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 CITIBANK, N.A.
By: Philip Coolidge By: Lawrence Keblusek
------------------------- -------------------------
Title: President Title: CIO
------------------------- -------------------------
The Landmark Funds Broker-Dealer Services, Inc. joins is this Agreement for
purposes of Section 9(b) only.
THE LANDMARK FUNDS
BROKER-DEALER SERVICES, INC.
By: Philip Coolidge
-------------------------
Title: Chief Executive Officer
<PAGE>
MANAGEMENT AGREEMENT
VARIABLE ANNUITY PORTFOLIOS
CitiSelectSM VIP Folio 300
MANAGEMENT AGREEMENT, dated as of November 8, 1996, by and between
Variable Annuity Portfolios, Massachusetts business trust (the "Trust"), and
Citibank, N.A., a national banking association ("Citibank" or the "Manager").
W I T N E S S E T H:
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 Trust wishes to engage Citibank to provide certain
investment advisory and administrative services for the series of the Trust
designated as CitiSelectSM VIP Folio 300 (the "Fund"), and Citibank is willing
to provide such investment advisory and administrative services for the Fund 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. Duties of Citibank. (a) Citibank shall act as the Manager for the
Fund and as such 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 the Fund 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, and the then-current Registration Statement of the Trust with respect to
the Fund. The Manager shall also make recommendations as to the manner in which
voting rights, rights to consent to corporate action and any other rights
pertaining to the Fund's portfolio securities shall be exercised. Should the
Board of Trustees of the Trust at any time, however, make any definite
determination as to investment policy applicable to the Fund and notify the
Manager thereof in writing, the Manager 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 Manager shall take, on behalf of the
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 the Fund's account with the brokers or
dealers selected by it, and to that end the Manager is authorized as the agent
of the Trust to give instructions to the custodian or any subcustodian of the
Fund as to deliveries of securities and payments of cash for the account of the
Fund. 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 the Fund and/or the other accounts over
which the Manager or its affiliates exercise investment discretion. The Manager
is authorized to pay a broker or dealer who provides such brokerage and research
services a commission for executing a portfolio transaction for the Fund which
is in excess of the amount of commission another broker or dealer would have
charged for effecting that transaction if the Manager 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 Manager 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 the 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 the Fund, the Manager 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. In
providing the services and assuming the obligations set forth herein, the
Manager may employ at its own expense, or may request that the Trust employ at
the Fund's expense, one or more subadvisers; provided that in each case the
Manager shall supervise the activities of each subadviser. Any agreement between
the Manager and a subadviser shall be subject to the renewal, termination and
amendment provisions applicable to this Agreement. Any agreement between the
Trust on behalf of the Fund and a subadviser may be terminated by the Manager at
any time on not more than 60 days' nor less than 30 days' written notice to the
Trust and the subadviser.
(b) Subject to the direction and control of the Board of Trustees of
the Trust, Citibank shall perform such administrative and management services as
may from time to time be reasonably requested by the Trust, which shall include
without limitation: (a) providing office space, equipment and clerical personnel
necessary for maintaining the organization of the Trust and for performing the
administrative and management functions herein set forth; (b) supervising the
overall administration of the Trust, including negotiation of contracts and fees
with and the monitoring of performance and billings of the Trust's transfer
agent, custodian and other independent contractors or agents; (c) preparing and,
if applicable, filing all documents required for compliance by the Trust with
applicable laws and regulations, including registration statements, prospectuses
and statements of additional information, semi-annual and annual reports to
shareholders, proxy statements and tax returns; (d) preparation of agendas and
supporting documents for and minutes of meetings of Trustees, committees of
Trustees and shareholders; and (e) arranging for maintenance of books and
records of the Trust. Notwithstanding the foregoing, Citibank shall not be
deemed to have assumed any duties with respect to, and shall not be responsible
for, the distribution of shares of beneficial interest in the Fund, nor shall
Citibank be deemed to have assumed or have any responsibility with respect to
functions specifically assumed by any transfer agent, fund accounting agent or
custodian of the Trust or the Fund. In providing administrative and management
services as set forth herein, Citibank may, at its own expense, employ one or
more subadministrators; provided that Citibank shall remain fully responsible
for the performance of all administrative and management duties set forth herein
and shall supervise the activities of each subadministrator.
2. Allocation of Charges and Expenses. Citibank shall furnish at its
own expense all necessary services, facilities and personnel in connection with
its responsibilities under Section 1 above. Except as provided in the foregoing
sentence, it is understood that the Trust will pay from the assets of the Fund
all of its own expenses allocable to the 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 interest and servicing shareholder
accounts; expenses of preparing, typesetting, printing and mailing prospectuses,
statements of additional information, shareholder reports, notices, proxy
statements and reports to governmental officers and commissions and to existing
shareholders of 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, registration and qualification of shares of
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.
3. Compensation of Citibank. For the services to be rendered and the
facilities to be provided by Citibank hereunder, the Trust shall pay to Citibank
from the assets of the Fund a management fee computed daily and paid monthly at
an annual rate equal to 0.75% of the Fund's average daily net assets for the
Fund's then-current fiscal year minus the Fund's Aggregate Subadviser Fee (as
defined below), if any. To the extent that the Fund's Aggregate Subadviser Fee
exceeds 0.75% of the Fund's average daily net assets for the Fund's then-current
fiscal year, the Manager shall pay such amount to the applicable subadvisers on
the Fund's behalf. The Fund's Aggregate Subadviser Fee is the aggregate amount
payable by the Fund to subadvisers pursuant to agreements between the Trust on
behalf of the Fund and the subadvisers. If Citibank provides services hereunder
for less than the whole of any period specified in this Section 3, the
compensation to Citibank shall be accordingly adjusted and prorated.
4. Covenants of Citibank. Citibank 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 the Fund, except as permitted by the 1940 Act,
will not take a long or short position in shares of the Fund except as permitted
by the Declaration, and will comply with all other provisions of the
Declaration, the By-Laws and the then-current Registration Statement applicable
to the Fund relative to Citibank and its directors and officers.
5. Limitation of Liability of Citibank. Citibank 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 the 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 5, the term
"Citibank" shall include directors, officers and employees of Citibank as well
as Citibank itself.
6. Activities of Citibank. The services of Citibank to the Fund are not
to be deemed to be exclusive, Citibank being free to render investment advisory,
administrative and/or other services to others. It is understood that Trustees,
officers, and shareholders of the Trust are or may be or may become interested
in Citibank, as directors, officers, employees, or otherwise and that directors,
officers and employees of Citibank are or may become similarly interested in the
Trust and that Citibank may be or may become interested in the Trust as a
shareholder or otherwise.
7. Duration, Termination and Amendments of this Agreement. This
Agreement shall become effective as of the day and year first above written,
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 Citibank 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 the Fund.
This Agreement may be terminated at any time without the payment of any
penalty by the Trustees or by the "vote of a majority of the outstanding voting
securities" of the Fund, or by Citibank, in each case on not more than 60 days'
nor less than 30 days' written notice to the other party. This Agreement shall
automatically terminate in the event of its "assignment."
This Agreement may be amended only if such amendment is approved by the
"vote of a majority of the outstanding voting securities" of the Fund (except
for any such amendment as may be effected in the absence of such approval
without violating the 1940 Act).
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 Fund; 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 Fund; and that no 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 as an officer under the Declaration, and the obligations of
this Agreement are not binding upon any of the Trustees, officers or
shareholders of the Trust individually.
8. Governing Law. This Agreement shall be construed and the provisions
thereof interpreted under and in accordance with the laws of The Commonwealth of
Massachusetts.
9. Use of Name. (a) The Trust hereby acknowledges that any and all
rights in or to the names "CitiSelect" and "CitiSelect Folios" which exist on
the date of this Agreement or which may arise hereafter are, and under any and
all circumstances shall continue to be, the sole property of Citibank; that
Citibank may assign any or all of such rights to another party or parties
without the consent of the Trust; and that Citibank may permit other parties,
including other investment companies, to use the word "CitiSelect" or the words
"CitiSelect Folios" in their names. If Citibank, or its assignee as the case may
be, ceases to serve as the adviser to the Trust, the Trust hereby agrees to take
promptly any and all actions which are necessary or desirable to change its name
so as to delete the word "CitiSelect" or the words "CitiSelect Folios."
(b) The Trust hereby acknowledges that any and all rights in or to the
names "Landmark" and "Landmark Funds" which exist on the date of this Agreement
or which may arise hereafter are, and under any and all circumstances shall
continue to be, the sole property of The Landmark Funds Broker-Dealer Services,
Inc. ("LFBDS"); that LFBDS may assign any or all of such rights to another party
or parties without the consent of the Trust; and that LFBDS may permit other
parties, including other investment companies, to use the word "Landmark" or the
words "Landmark Funds" in their names. If LFBDS, or its assignee as the case may
be, ceases to serve as the distributor of shares of the Trust, the Trust hereby
agrees to take promptly any and all actions which are necessary or desirable to
change its name so as to delete the word "Landmark" or the words "Landmark
Funds."
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 CITIBANK, N.A.
By: Philip Coolidge By: Lawrence Keblusek
------------------------- -------------------------
Title: President Title: CIO
------------------------- -------------------------
The Landmark Funds Broker-Dealer Services, Inc. joins is this Agreement for
purposes of Section 9(b) only.
THE LANDMARK FUNDS
BROKER-DEALER SERVICES, INC.
By: Philip Coolidge
-------------------------
Title: Chief Executive Officer
<PAGE>
MANAGEMENT AGREEMENT
VARIABLE ANNUITY PORTFOLIOS
CitiSelectSM VIP Folio 400
MANAGEMENT AGREEMENT, dated as of November 8, 1996, by and between
Variable Annuity Portfolios, Massachusetts business trust (the "Trust"), and
Citibank, N.A., a national banking association ("Citibank" or the "Manager").
W I T N E S S E T H:
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 Trust wishes to engage Citibank to provide certain
investment advisory and administrative services for the series of the Trust
designated as CitiSelectSM VIP Folio 400 (the "Fund"), and Citibank is willing
to provide such investment advisory and administrative services for the Fund 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. Duties of Citibank. (a) Citibank shall act as the Manager for the
Fund and as such 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 the Fund 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, and the then-current Registration Statement of the Trust with respect to
the Fund. The Manager shall also make recommendations as to the manner in which
voting rights, rights to consent to corporate action and any other rights
pertaining to the Fund's portfolio securities shall be exercised. Should the
Board of Trustees of the Trust at any time, however, make any definite
determination as to investment policy applicable to the Fund and notify the
Manager thereof in writing, the Manager 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 Manager shall take, on behalf of the
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 the Fund's account with the brokers or
dealers selected by it, and to that end the Manager is authorized as the agent
of the Trust to give instructions to the custodian or any subcustodian of the
Fund as to deliveries of securities and payments of cash for the account of the
Fund. 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 the Fund and/or the other accounts over
which the Manager or its affiliates exercise investment discretion. The Manager
is authorized to pay a broker or dealer who provides such brokerage and research
services a commission for executing a portfolio transaction for the Fund which
is in excess of the amount of commission another broker or dealer would have
charged for effecting that transaction if the Manager 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 Manager 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 the 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 the Fund, the Manager 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. In
providing the services and assuming the obligations set forth herein, the
Manager may employ at its own expense, or may request that the Trust employ at
the Fund's expense, one or more subadvisers; provided that in each case the
Manager shall supervise the activities of each subadviser. Any agreement between
the Manager and a subadviser shall be subject to the renewal, termination and
amendment provisions applicable to this Agreement. Any agreement between the
Trust on behalf of the Fund and a subadviser may be terminated by the Manager at
any time on not more than 60 days' nor less than 30 days' written notice to the
Trust and the subadviser.
(b) Subject to the direction and control of the Board of Trustees of
the Trust, Citibank shall perform such administrative and management services as
may from time to time be reasonably requested by the Trust, which shall include
without limitation: (a) providing office space, equipment and clerical personnel
necessary for maintaining the organization of the Trust and for performing the
administrative and management functions herein set forth; (b) supervising the
overall administration of the Trust, including negotiation of contracts and fees
with and the monitoring of performance and billings of the Trust's transfer
agent, custodian and other independent contractors or agents; (c) preparing and,
if applicable, filing all documents required for compliance by the Trust with
applicable laws and regulations, including registration statements, prospectuses
and statements of additional information, semi-annual and annual reports to
shareholders, proxy statements and tax returns; (d) preparation of agendas and
supporting documents for and minutes of meetings of Trustees, committees of
Trustees and shareholders; and (e) arranging for maintenance of books and
records of the Trust. Notwithstanding the foregoing, Citibank shall not be
deemed to have assumed any duties with respect to, and shall not be responsible
for, the distribution of shares of beneficial interest in the Fund, nor shall
Citibank be deemed to have assumed or have any responsibility with respect to
functions specifically assumed by any transfer agent, fund accounting agent or
custodian of the Trust or the Fund. In providing administrative and management
services as set forth herein, Citibank may, at its own expense, employ one or
more subadministrators; provided that Citibank shall remain fully responsible
for the performance of all administrative and management duties set forth herein
and shall supervise the activities of each subadministrator.
2. Allocation of Charges and Expenses. Citibank shall furnish at its
own expense all necessary services, facilities and personnel in connection with
its responsibilities under Section 1 above. Except as provided in the foregoing
sentence, it is understood that the Trust will pay from the assets of the Fund
all of its own expenses allocable to the 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 interest and servicing shareholder
accounts; expenses of preparing, typesetting, printing and mailing prospectuses,
statements of additional information, shareholder reports, notices, proxy
statements and reports to governmental officers and commissions and to existing
shareholders of 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, registration and qualification of shares of
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.
3. Compensation of Citibank. For the services to be rendered and the
facilities to be provided by Citibank hereunder, the Trust shall pay to Citibank
from the assets of the Fund a management fee computed daily and paid monthly at
an annual rate equal to 0.75% of the Fund's average daily net assets for the
Fund's then-current fiscal year minus the Fund's Aggregate Subadviser Fee (as
defined below), if any. To the extent that the Fund's Aggregate Subadviser Fee
exceeds 0.75% of the Fund's average daily net assets for the Fund's then-current
fiscal year, the Manager shall pay such amount to the applicable subadvisers on
the Fund's behalf. The Fund's Aggregate Subadviser Fee is the aggregate amount
payable by the Fund to subadvisers pursuant to agreements between the Trust on
behalf of the Fund and the subadvisers. If Citibank provides services hereunder
for less than the whole of any period specified in this Section 3, the
compensation to Citibank shall be accordingly adjusted and prorated.
4. Covenants of Citibank. Citibank 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 the Fund, except as permitted by the 1940 Act,
will not take a long or short position in shares of the Fund except as permitted
by the Declaration, and will comply with all other provisions of the
Declaration, the By-Laws and the then-current Registration Statement applicable
to the Fund relative to Citibank and its directors and officers.
5. Limitation of Liability of Citibank. Citibank 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 the 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 5, the term
"Citibank" shall include directors, officers and employees of Citibank as well
as Citibank itself.
6. Activities of Citibank. The services of Citibank to the Fund are not
to be deemed to be exclusive, Citibank being free to render investment advisory,
administrative and/or other services to others. It is understood that Trustees,
officers, and shareholders of the Trust are or may be or may become interested
in Citibank, as directors, officers, employees, or otherwise and that directors,
officers and employees of Citibank are or may become similarly interested in the
Trust and that Citibank may be or may become interested in the Trust as a
shareholder or otherwise.
7. Duration, Termination and Amendments of this Agreement. This
Agreement shall become effective as of the day and year first above written,
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 Citibank 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 the Fund.
This Agreement may be terminated at any time without the payment of any
penalty by the Trustees or by the "vote of a majority of the outstanding voting
securities" of the Fund, or by Citibank, in each case on not more than 60 days'
nor less than 30 days' written notice to the other party. This Agreement shall
automatically terminate in the event of its "assignment."
This Agreement may be amended only if such amendment is approved by the
"vote of a majority of the outstanding voting securities" of the Fund (except
for any such amendment as may be effected in the absence of such approval
without violating the 1940 Act).
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 Fund; 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 Fund; and that no 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 as an officer under the Declaration, and the obligations of
this Agreement are not binding upon any of the Trustees, officers or
shareholders of the Trust individually.
8. Governing Law. This Agreement shall be construed and the provisions
thereof interpreted under and in accordance with the laws of The Commonwealth of
Massachusetts.
9. Use of Name. (a) The Trust hereby acknowledges that any and all
rights in or to the names "CitiSelect" and "CitiSelect Folios" which exist on
the date of this Agreement or which may arise hereafter are, and under any and
all circumstances shall continue to be, the sole property of Citibank; that
Citibank may assign any or all of such rights to another party or parties
without the consent of the Trust; and that Citibank may permit other parties,
including other investment companies, to use the word "CitiSelect" or the words
"CitiSelect Folios" in their names. If Citibank, or its assignee as the case may
be, ceases to serve as the adviser to the Trust, the Trust hereby agrees to take
promptly any and all actions which are necessary or desirable to change its name
so as to delete the word "CitiSelect" or the words "CitiSelect Folios."
(b) The Trust hereby acknowledges that any and all rights in or to the
names "Landmark" and "Landmark Funds" which exist on the date of this Agreement
or which may arise hereafter are, and under any and all circumstances shall
continue to be, the sole property of The Landmark Funds Broker-Dealer Services,
Inc. ("LFBDS"); that LFBDS may assign any or all of such rights to another party
or parties without the consent of the Trust; and that LFBDS may permit other
parties, including other investment companies, to use the word "Landmark" or the
words "Landmark Funds" in their names. If LFBDS, or its assignee as the case may
be, ceases to serve as the distributor of shares of the Trust, the Trust hereby
agrees to take promptly any and all actions which are necessary or desirable to
change its name so as to delete the word "Landmark" or the words "Landmark
Funds."
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 CITIBANK, N.A.
By: Philip Coolidge By: Lawrence Keblusek
------------------------- -------------------------
Title: President Title: CIO
------------------------- -------------------------
The Landmark Funds Broker-Dealer Services, Inc. joins is this Agreement for
purposes of Section 9(b) only.
THE LANDMARK FUNDS
BROKER-DEALER SERVICES, INC.
By: Philip Coolidge
-------------------------
Title: Chief Executive Officer
<PAGE>
MANAGEMENT AGREEMENT
VARIABLE ANNUITY PORTFOLIOS
CitiSelectSM VIP Folio 500
MANAGEMENT AGREEMENT, dated as of November 8, 1996, by and between
Variable Annuity Portfolios, Massachusetts business trust (the "Trust"), and
Citibank, N.A., a national banking association ("Citibank" or the "Manager").
W I T N E S S E T H:
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 Trust wishes to engage Citibank to provide certain
investment advisory and administrative services for the series of the Trust
designated as CitiSelectSM VIP Folio 500 (the "Fund"), and Citibank is willing
to provide such investment advisory and administrative services for the Fund 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. Duties of Citibank. (a) Citibank shall act as the Manager for the
Fund and as such 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 the Fund 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, and the then-current Registration Statement of the Trust with respect to
the Fund. The Manager shall also make recommendations as to the manner in which
voting rights, rights to consent to corporate action and any other rights
pertaining to the Fund's portfolio securities shall be exercised. Should the
Board of Trustees of the Trust at any time, however, make any definite
determination as to investment policy applicable to the Fund and notify the
Manager thereof in writing, the Manager 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 Manager shall take, on behalf of the
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 the Fund's account with the brokers or
dealers selected by it, and to that end the Manager is authorized as the agent
of the Trust to give instructions to the custodian or any subcustodian of the
Fund as to deliveries of securities and payments of cash for the account of the
Fund. 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 the Fund and/or the other accounts over
which the Manager or its affiliates exercise investment discretion. The Manager
is authorized to pay a broker or dealer who provides such brokerage and research
services a commission for executing a portfolio transaction for the Fund which
is in excess of the amount of commission another broker or dealer would have
charged for effecting that transaction if the Manager 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 Manager 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 the 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 the Fund, the Manager 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. In
providing the services and assuming the obligations set forth herein, the
Manager may employ at its own expense, or may request that the Trust employ at
the Fund's expense, one or more subadvisers; provided that in each case the
Manager shall supervise the activities of each subadviser. Any agreement between
the Manager and a subadviser shall be subject to the renewal, termination and
amendment provisions applicable to this Agreement. Any agreement between the
Trust on behalf of the Fund and a subadviser may be terminated by the Manager at
any time on not more than 60 days' nor less than 30 days' written notice to the
Trust and the subadviser.
(b) Subject to the direction and control of the Board of Trustees of
the Trust, Citibank shall perform such administrative and management services as
may from time to time be reasonably requested by the Trust, which shall include
without limitation: (a) providing office space, equipment and clerical personnel
necessary for maintaining the organization of the Trust and for performing the
administrative and management functions herein set forth; (b) supervising the
overall administration of the Trust, including negotiation of contracts and fees
with and the monitoring of performance and billings of the Trust's transfer
agent, custodian and other independent contractors or agents; (c) preparing and,
if applicable, filing all documents required for compliance by the Trust with
applicable laws and regulations, including registration statements, prospectuses
and statements of additional information, semi-annual and annual reports to
shareholders, proxy statements and tax returns; (d) preparation of agendas and
supporting documents for and minutes of meetings of Trustees, committees of
Trustees and shareholders; and (e) arranging for maintenance of books and
records of the Trust. Notwithstanding the foregoing, Citibank shall not be
deemed to have assumed any duties with respect to, and shall not be responsible
for, the distribution of shares of beneficial interest in the Fund, nor shall
Citibank be deemed to have assumed or have any responsibility with respect to
functions specifically assumed by any transfer agent, fund accounting agent or
custodian of the Trust or the Fund. In providing administrative and management
services as set forth herein, Citibank may, at its own expense, employ one or
more subadministrators; provided that Citibank shall remain fully responsible
for the performance of all administrative and management duties set forth herein
and shall supervise the activities of each subadministrator.
2. Allocation of Charges and Expenses. Citibank shall furnish at its
own expense all necessary services, facilities and personnel in connection with
its responsibilities under Section 1 above. Except as provided in the foregoing
sentence, it is understood that the Trust will pay from the assets of the Fund
all of its own expenses allocable to the 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 interest and servicing shareholder
accounts; expenses of preparing, typesetting, printing and mailing prospectuses,
statements of additional information, shareholder reports, notices, proxy
statements and reports to governmental officers and commissions and to existing
shareholders of 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, registration and qualification of shares of
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.
3. Compensation of Citibank. For the services to be rendered and the
facilities to be provided by Citibank hereunder, the Trust shall pay to Citibank
from the assets of the Fund a management fee computed daily and paid monthly at
an annual rate equal to 0.75% of the Fund's average daily net assets for the
Fund's then-current fiscal year minus the Fund's Aggregate Subadviser Fee (as
defined below), if any. To the extent that the Fund's Aggregate Subadviser Fee
exceeds 0.75% of the Fund's average daily net assets for the Fund's then-current
fiscal year, the Manager shall pay such amount to the applicable subadvisers on
the Fund's behalf. The Fund's Aggregate Subadviser Fee is the aggregate amount
payable by the Fund to subadvisers pursuant to agreements between the Trust on
behalf of the Fund and the subadvisers. If Citibank provides services hereunder
for less than the whole of any period specified in this Section 3, the
compensation to Citibank shall be accordingly adjusted and prorated.
4. Covenants of Citibank. Citibank 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 the Fund, except as permitted by the 1940 Act,
will not take a long or short position in shares of the Fund except as permitted
by the Declaration, and will comply with all other provisions of the
Declaration, the By-Laws and the then-current Registration Statement applicable
to the Fund relative to Citibank and its directors and officers.
5. Limitation of Liability of Citibank. Citibank 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 the 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 5, the term
"Citibank" shall include directors, officers and employees of Citibank as well
as Citibank itself.
6. Activities of Citibank. The services of Citibank to the Fund are not
to be deemed to be exclusive, Citibank being free to render investment advisory,
administrative and/or other services to others. It is understood that Trustees,
officers, and shareholders of the Trust are or may be or may become interested
in Citibank, as directors, officers, employees, or otherwise and that directors,
officers and employees of Citibank are or may become similarly interested in the
Trust and that Citibank may be or may become interested in the Trust as a
shareholder or otherwise.
7. Duration, Termination and Amendments of this Agreement. This
Agreement shall become effective as of the day and year first above written,
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 Citibank 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 the Fund.
This Agreement may be terminated at any time without the payment of any
penalty by the Trustees or by the "vote of a majority of the outstanding voting
securities" of the Fund, or by Citibank, in each case on not more than 60 days'
nor less than 30 days' written notice to the other party. This Agreement shall
automatically terminate in the event of its "assignment."
This Agreement may be amended only if such amendment is approved by the
"vote of a majority of the outstanding voting securities" of the Fund (except
for any such amendment as may be effected in the absence of such approval
without violating the 1940 Act).
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 Fund; 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 Fund; and that no 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 as an officer under the Declaration, and the obligations of
this Agreement are not binding upon any of the Trustees, officers or
shareholders of the Trust individually.
8. Governing Law. This Agreement shall be construed and the provisions
thereof interpreted under and in accordance with the laws of The Commonwealth of
Massachusetts.
9. Use of Name. (a) The Trust hereby acknowledges that any and all
rights in or to the names "CitiSelect" and "CitiSelect Folios" which exist on
the date of this Agreement or which may arise hereafter are, and under any and
all circumstances shall continue to be, the sole property of Citibank; that
Citibank may assign any or all of such rights to another party or parties
without the consent of the Trust; and that Citibank may permit other parties,
including other investment companies, to use the word "CitiSelect" or the words
"CitiSelect Folios" in their names. If Citibank, or its assignee as the case may
be, ceases to serve as the adviser to the Trust, the Trust hereby agrees to take
promptly any and all actions which are necessary or desirable to change its name
so as to delete the word "CitiSelect" or the words "CitiSelect Folios."
(b) The Trust hereby acknowledges that any and all rights in or to the
names "Landmark" and "Landmark Funds" which exist on the date of this Agreement
or which may arise hereafter are, and under any and all circumstances shall
continue to be, the sole property of The Landmark Funds Broker-Dealer Services,
Inc. ("LFBDS"); that LFBDS may assign any or all of such rights to another party
or parties without the consent of the Trust; and that LFBDS may permit other
parties, including other investment companies, to use the word "Landmark" or the
words "Landmark Funds" in their names. If LFBDS, or its assignee as the case may
be, ceases to serve as the distributor of shares of the Trust, the Trust hereby
agrees to take promptly any and all actions which are necessary or desirable to
change its name so as to delete the word "Landmark" or the words "Landmark
Funds."
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 CITIBANK, N.A.
By: Philip Coolidge By: Lawrence Keblusek
------------------------- -------------------------
Title: President Title: CIO
------------------------- -------------------------
The Landmark Funds Broker-Dealer Services, Inc. joins is this Agreement for
purposes of Section 9(b) only.
THE LANDMARK FUNDS
BROKER-DEALER SERVICES, INC.
By: Philip Coolidge
-------------------------
Title: Chief Executive Officer
<PAGE>
MANAGEMENT AGREEMENT
VARIABLE ANNUITY PORTFOLIOS
Landmark Small Cap Equity VIP Fund
MANAGEMENT AGREEMENT, dated as of November 8, 1996, by and between
Variable Annuity Portfolios, a Massachusetts trust (the "Trust"), and Citibank,
N.A., a national banking association ("Citibank" or the "Manager").
W I T N E S S E T H:
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 Trust wishes to engage Citibank to provide certain
investment advisory and administrative services for the series of the Trust
designated as Landmark Small Cap Equity VIP Fund (the "Fund"), and Citibank is
willing to provide such investment advisory and administrative services for the
Fund 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. Duties of Citibank. (a) Citibank shall act as the Manager for the
Fund and as such 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 the Fund 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, and the then-current Registration Statement of the Trust with respect to
the Fund. The Manager shall also make recommendations as to the manner in which
voting rights, rights to consent to corporate action and any other rights
pertaining to the Fund's portfolio securities shall be exercised. Should the
Board of Trustees of the Trust at any time, however, make any definite
determination as to investment policy applicable to the Fund and notify the
Manager thereof in writing, the Manager 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 Manager shall take, on behalf of the
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 the Fund's account with the brokers or
dealers selected by it, and to that end the Manager is authorized as the agent
of the Trust to give instructions to the custodian or any subcustodian of the
Fund as to deliveries of securities and payments of cash for the account of the
Fund. 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 the Fund and/or the other accounts over
which the Manager or its affiliates exercise investment discretion. The Manager
is authorized to pay a broker or dealer who provides such brokerage and research
services a commission for executing a portfolio transaction for the Fund which
is in excess of the amount of commission another broker or dealer would have
charged for effecting that transaction if the Manager 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 Manager 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 the 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 the Fund, the Manager 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.
(b) Subject to the direction and control of the Board of Trustees of
the Trust, Citibank shall perform such administrative and management services as
may from time to time be reasonably requested by the Trust, which shall include
without limitation: (a) providing office space, equipment and clerical personnel
necessary for maintaining the organization of the Trust and for performing the
administrative and management functions herein set forth; (b) supervising the
overall administration of the Trust, including negotiation of contracts and fees
with and the monitoring of performance and billings of the Trust's transfer
agent, custodian and other independent contractors or agents; (c) preparing and,
if applicable, filing all documents required for compliance by the Trust with
applicable laws and regulations, including registration statements, prospectuses
and statements of additional information, semi-annual and annual reports to
shareholders, proxy statements and tax returns; (d) preparation of agendas and
supporting documents for and minutes of meetings of Trustees, committees of
Trustees and shareholders; and (e) arranging for maintenance of books and
records of the Trust. Notwithstanding the foregoing, Citibank shall not be
deemed to have assumed any duties with respect to, and shall not be responsible
for, the distribution of shares of beneficial interest in the Fund, nor shall
Citibank be deemed to have assumed or have any responsibility with respect to
functions specifically assumed by any transfer agent, fund accounting agent or
custodian of the Trust or the Fund. In providing administrative and management
services as set forth herein, Citibank may, at its own expense, employ one or
more subadministrators; provided that Citibank shall remain fully responsible
for the performance of all administrative and management duties set forth herein
and shall supervise the activities of each subadministrator.
2. Allocation of Charges and Expenses. Citibank shall furnish at its
own expense all necessary services, facilities and personnel in connection with
its responsibilities under Section 1 above. Except as provided in the foregoing
sentence, it is understood that the Trust will pay from the assets of the Fund
all of its own expenses allocable to the 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 interest and servicing shareholder
accounts; expenses of preparing, typesetting, printing and mailing prospectuses,
statements of additional information, shareholder reports, notices, proxy
statements and reports to governmental officers and commissions and to existing
shareholders of 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, registration and qualification of shares of
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.
3. Compensation of Citibank. For the services to be rendered and the
facilities to be provided by Citibank hereunder, the Trust shall pay to Citibank
from the assets of the Fund a management fee computed daily and paid monthly at
an annual rate equal to 0.80% of the Fund's average daily net assets for the
Fund's then-current fiscal year. If Citibank provides services hereunder for
less than the whole of any period specified in this Section 3, the compensation
to Citibank shall be accordingly adjusted and prorated.
4. Covenants of Citibank. Citibank 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 the Fund, except as permitted by the 1940 Act,
will not take a long or short position in shares of the Fund except as permitted
by the Declaration, and will comply with all other provisions of the
Declaration, the Trust's By-Laws, as in effect from time to time and the
then-current Registration Statement applicable to the Fund relative to Citibank
and its directors and officers.
5. Limitation of Liability of Citibank. Citibank 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 the 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 5, the term
"Citibank" shall include directors, officers and employees of Citibank as well
as Citibank itself.
6. Activities of Citibank. The services of Citibank to the Fund are not
to be deemed to be exclusive, Citibank being free to render investment advisory,
administrative and/or other services to others. It is understood that Trustees,
officers, and shareholders of the Trust are or may be or may become interested
in Citibank, as directors, officers, employees, or otherwise and that directors,
officers and employees of Citibank are or may become similarly interested in the
Trust and that Citibank may be or may become interested in the Trust as a
shareholder or otherwise.
7. Duration, Termination and Amendments of this Agreement. This
Agreement shall become effective as of the day and year first above written,
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 Citibank 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 the Fund.
This Agreement may be terminated at any time without the payment of any
penalty by the Trustees or by the "vote of a majority of the outstanding voting
securities" of the Fund, or by Citibank, in each case on not more than 60 days'
nor less than 30 days' written notice to the other party. This Agreement shall
automatically terminate in the event of its "assignment."
This Agreement may be amended only if such amendment is approved by the
"vote of a majority of the outstanding voting securities" of the Fund (except
for any such amendment as may be effected in the absence of such approval
without violating the 1940 Act).
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 Fund; 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 Fund; and that no 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 as an officer under the Declaration and the obligations of
this Agreement are not binding upon any of the Trustees, officers or
shareholders of the Trust individually.
8. Governing Law. This Agreement shall be construed and the provisions
thereof interpreted under and in accordance with the laws of The Commonwealth of
Massachusetts.
9. Use of Name. The Trust hereby acknowledges that any and all rights
in or to the names "Landmark" and "Landmark Funds" which exist on the date of
this Agreement or which may arise hereafter are, and under any and all
circumstances shall continue to be, the sole property of The Landmark Funds
Broker-Dealer Services, Inc. ("LFBDS"); that LFBDS may assign any or all of such
rights to another party or parties without the consent of the Trust; and that
LFBDS may permit other parties, including other investment companies, to use the
word "Landmark" or the words "Landmark Funds" in their names. If LFBDS, or its
assignee as the case may be, ceases to serve as the distributor of shares of the
Trust, the Trust hereby agrees to take promptly any and all actions which are
necessary or desirable to change its name so as to delete the word "Landmark" or
the words "Landmark Funds."
<PAGE>
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 CITIBANK, N.A.
By: Philip Coolidge By: Lawrence Keblusek
------------------------- -------------------------
Title: President Title: CIO
------------------------- -------------------------
The Landmark Funds Broker-Dealer Services, Inc. joins is this Agreement for
purposes of Section 9(b) only.
THE LANDMARK FUNDS
BROKER-DEALER SERVICES, INC.
By: Philip Coolidge
-------------------------
Title: Chief Executive Officer
<PAGE>
Exhibit 5(b)
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
Miller Anderson & Sherrerd, LLP, a limited liability partnership (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:
0.625% on the first $25 million;
0.375% on the next $75 million;
0.250% on the next $400 million; and
0.20% on assets in excess of $500 million.
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.
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 partners, 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, partners 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, partners, employees, or otherwise and that directors,
officers, partners 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.
<PAGE>
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 MILLER ANDERSON &
on behalf of CitiSelectSM VIP Folio 200, SHERRERD, LLP
CitiSelectSM VIP Folio 300,
CitiSelectSM VIP Folio 400 and
CitiSelectSM VIP Folio 500
By: Philip Coolidge By: MaryAnn Milias
---------------------------------- -----------------------
Title: President Title: Partner
---------------------------------- -----------------------
The foregoing is acknowledged:
Citibank, N.A.
By: Lawrence Keblusek
--------------------------------
Title: CIO
--------------------------------
<PAGE>
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 Merrill Lynch
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.
<PAGE>
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 Lynch Asset Management, L.P.
CitiSelectSM VIP Folio 500
By: Philip Coolidge By: Nancy D. Celik
---------------------------------- -----------------------
Title: President Title: CFO
The foregoing is acknowledged:
Citibank, N.A.
By: Lawrence Keblusek
---------------------------------
Title: CIO
---------------------------------
<PAGE>
Exhibit 5(d)
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
Pacific Investment Management Company, a Delaware general partnership (the
"Subadviser").
WITNESSETH:
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 Bylaws, as each may be amended from time to
time (respectively, the "Declaration" and the "ByLaws"), the provisions of the
1940 Act, the then-current Registration Statement of the Trust with respect to
that Fund, it being understood that the Subadviser shall be responsible for
compliance after a reasonable implementation period with any restrictions
imposed in writing by the Manager from time to time in order to facilitate
compliance with the abovementioned 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, following a reasonable implementation period, 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. The
Subadviser shall not be liable for any actions or omissions of brokers and/or
dealers selected by the Board of Trustees or the Manager.
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, its Subadvisers
and their employees 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:
0.35% on the first $200 million;
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.
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 partners, directors and offficers.
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 including without limitation, acts or omissions of any
brokers, dealers and custodians, except for willful misfeasance, bad faith or
gross negligence in the performance of Subadviser's 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, partners and
employees of the Subadviser as well as the Subadviser itself. The Manager is
expressly made a third party beneficiary of thus 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, partners, employees, or otherwise and that directors,
officers, partners 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. Aggregation of Orders. The Subadviser may aggregate sales and purchase
orders of securities with similar orders being made simultaneously for other
accounts managed by the Subadviser or with accounts of the affiliates of the
Subadviser, if in the Subadviser's reasonable judgment such aggregation shall
result in an overall economic benefit to the relevant Fund, taking into
consideration the advantageous selling or purchase price, brokerage commission
and other expenses. In accounting for such aggregated order price, commission
and other expenses shall be averaged on a per bond or share basis daily. The
Trust acknowledges that the determination of such economic benefit to the
relevant Fund by the Subadviser is subjective and represents the Subadviser's
evaluation that the relevant Fund is benefited by relatively better purchase or
sales prices, lower commission expenses and beneficial timing of transactions or
a combination of these and other factors.
9. All notices provided for in this Agreement shall be sent to:
If to the Subadviser:
Pacific Investment Management Company
840 Newport Center Drive
Newport Beach, CA 92660
Attention: James Muzzy and John Loftus.
If to the Manager:
Citibank Global Asset Management
Citibank, N.A.
153 E. 53rd Street, 6th Floor, Zone 6
New York, New York 10043
Attention: Andrew Shoup
If to the Trust:
Signature Financial Services, Inc.
6 St. James Avenue, 9th Floor
Boston, Massachusetts 02116
Attention: Philip Coolidge
10. Special Termination Rights. Notwithstanding anything in this Agreement
to the contrary, the Trust may terminate this Agreement without penalty within
five (5) days of its execution of this Agreement by giving written notice to
such effect to the Subadviser within such five (5) day period.
11. Delivery of Part II of Form ADV. Concurrently with execution of this
Agreement, the Subadviser is delivering to the Trust a copy of Part II of its
Form ADV, as amended, on file with the Securities and Exchange Commission. The
Trust hereby acknowledges receipt of such copy.
12. Delivery of CFTC Disclosure Document. Upon the solicitation of the
Trust, the Subadviser delivered to the Trust a copy of its Disclosure Document,
dated January 25, 1996, on file with the Commodity Futures Trading Commission.
The Trust hereby acknowledges receipt of such copy.
13. 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.
14. 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 PACIFIC INVESTMENT
on behalf of CitiSelectSM VIP Folio 200, MANAGEMENT COMPANY
CitiSelectSM VIP Folio 300,
CitiSelectSM VIP Folio 400 and By: PIMCO Management, Inc.
CitiSelectSM VIP Folio 500 its general partner
By: /s/ Philip Coolidge By: /s/ James F. Muzzy
------------------------ ---------------------------
Title: President Title: Managing Director
------------------------ ----------------------------
The foregoing is acknowledged:
CitiBank, N.A.
By: /s/ Lawrence Keblusek
---------------------------
Name: Lawrence Keblusek
Title: CIO
<PAGE>
Exhibit 5(e)
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
Franklin Advisory Services, Inc., a Delaware corporation (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 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 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, if
requested, 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 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:
0.55% 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. The fee shall be paid to Subadviser by the fifth business day
following the end of the month.
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. 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 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.
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.
<PAGE>
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. FRANKLIN ADVISORY
on behalf of CitiSelectSM VIP Folio 200, SERVICES, INC.
CitiSelectSM VIP Folio 300,
CitiSelectSM VIP Folio 400 and
CitiSelectSM VIP Folio 500
By: Philip Coolidge By: D. R. Gatzek
---------------------------------- -----------------------
Title: President Title: V.P.
---------------------------------- -----------------------
The foregoing is acknowledged:
Citibank, N.A.
By: Lawrence Keblusek
-------------------------------------
Title: U.S. Chief Investment Officer, V.P.
-------------------------------------
<PAGE>
Exhibit 6
DISTRIBUTION AGREEMENT
AGREEMENT, dated as of November 8, 1996, by and between Variable
Annuity Portfolios, a Massachusetts business trust (the "Trust"), and The
Landmark Funds Broker-Dealer Services, Inc., a Massachusetts corporation
("Distributor").
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 (the "1940 Act");
WHEREAS, the Trust's shares of beneficial interest ("Shares") are
divided into separate series representing interests in separate funds of
securities and other assets;
WHEREAS, the Trust wishes to retain the services of a distributor for
Shares of each class of each of the Trust's series listed on Exhibit A hereto
(the "Funds") and has registered the Shares of the Funds under the Securities
Act of 1933, as amended (the "1933 Act");
WHEREAS, Distributor has agreed to act as distributor of the Shares of
each class of the Funds for the period of this Agreement;
NOW, THEREFORE, it is hereby agreed between the parties hereto as
follows:
1. Appointment of Distributor.
(a) The Trust hereby appoints Distributor its exclusive agent for the
distribution of Shares of each class of the Funds in jurisdictions wherein such
Shares may be legally offered for sale; provided, however, that the Trust in its
absolute discretion may issue Shares of the Funds in connection with (i) the
payment or reinvestment of dividends or distributions; (ii) any merger or
consolidation of the Trust or of the Funds with any other investment company or
trust or any personal holding company, or the acquisition of the assets of any
such entity or another Fund of the Trust; or (iii) any offer of exchange
permitted by Section 11 of the 1940 Act.
(b) Distributor hereby accepts such appointment as exclusive agent for
the distribution of Shares of each class of the Funds and agrees that it will
sell the Shares as agent for the Trust at prices determined as hereinafter
provided and on the terms hereinafter set forth, all according to the
then-current prospectus and statement of additional information of each Fund
(collectively, the "Prospectus" and the "Statement of Additional Information"),
applicable laws, rules and regulations and the Declaration of Trust of the
Trust. Distributor agrees to use its best efforts to solicit orders for the sale
of Shares of the Funds, and agrees to transmit promptly to the Trust (or to the
transfer agent of the Funds, if so instructed in writing by the Trust) any
orders received by it for purchase or redemption of Shares.
(c) Distributor may sell Shares of the Funds to or through qualified
securities dealers, financial institutions or others. Distributor will require
each dealer or other such party to conform to the provisions of this Agreement,
the Prospectus, the Statement of Additional Information and applicable law; and
neither Distributor nor any such dealers or others shall withhold the placing of
purchase orders for Shares so as to make a profit thereby.
(d) Distributor shall order Shares of the Funds from the Trust only to
the extent that it shall have received unconditional purchase orders therefor.
Distributor will not make, or authorize any dealers or others to make: (i) any
short sales of Shares; or (ii) any sales of Shares to any Trustee or officer of
the Trust, any officer or director of Distributor or any corporation or
association furnishing investment advisory, managerial or supervisory services
to the Trust, or to any such corporation or association, unless such sales are
made in accordance with the Prospectus and the Statement of Additional
Information.
(e) Distributor is not authorized by the Trust to give any information
or make any representations regarding Shares of the Funds, except such
information or representations as are contained in the Prospectus, the Statement
of Additional Information or advertisements and sales literature prepared by or
on behalf of the Trust for Distributor's use.
(f) The Trust agrees to execute any and all documents, to furnish any
and all information and otherwise to take all actions which may be reasonably
necessary in the discretion of the Trust's officers in connection with the
qualification of Shares of each Fund for sale in such states as Distributor and
the Trust agree.
(g) No Shares of any Fund shall be offered by either Distributor or the
Trust under this Agreement, and no orders for the purchase or sale of such
Shares hereunder shall be accepted by the Trust, if and so long as the
effectiveness of the Trust's then current registration statement as to Shares of
that Fund or any necessary amendments thereto shall be suspended under any of
the provisions of the 1933 Act, or if and so long as a current prospectus for
Shares of that Fund as required by Section 10 of the 1933 Act is not on file
with the Securities and Exchange Commission; provided, however, that nothing
contained in this paragraph (g) shall in any way restrict the Trust's obligation
to repurchase any Shares from any shareholder in accordance with the provisions
of the applicable Fund's Prospectus or charter documents.
(h) Notwithstanding any provision hereof, the Trust may terminate,
suspend or withdraw the offering of Shares of any Fund whenever, in its sole
discretion, it deems such action to be desirable.
2. Offering Price of Shares. All Fund Shares sold under this Agreement
shall be sold at the public offering price per Share in effect at the time of
the sale, as described in the Prospectus. The excess, if any, of the public
offering price over the net asset value of the Shares sold by Distributor as
agent, and any contingent deferred sales charge applicable to Shares of any
class of any Fund as set forth in the applicable Fund's Prospectus, shall be
retained by Distributor as a commission for its services hereunder. Out of such
commission Distributor may allow commissions, concessions or agency fees to
dealers or other financial institutions, including banks, and may allow them to
others in its discretion in such amounts as Distributor shall determine from
time to time. Except as may be otherwise determined by Distributor from time to
time, such commissions, concessions or agency fees shall be uniform to all
dealers and other financial institutions. At no time shall the Trust receive
less than the full net asset value of the Shares of each Fund, determined in the
manner set forth in the Prospectus and the Statement of Additional Information.
3. Furnishing of Information.
(a) The Trust shall furnish to Distributor copies of any information,
financial statements and other documents that Distributor may reasonably request
for use in connection with the sale of Shares of the Funds under this Agreement.
The Trust shall also make available a sufficient number of copies of the Funds'
Prospectus and Statement of Additional Information for use by the Distributor.
(b) The Trust agrees to advise Distributor immediately in writing:
(i) of any request by the Securities and Exchange Commission
for amendments to any registration statement concerning a Fund or to a
Prospectus or for additional information;
(ii) in the event of the issuance by the Securities and
Exchange Commission of any stop order suspending the effectiveness of
any such registration statement or Prospectus or the initiation of any
proceeding for that purpose;
(iii) of the happening of any event which makes untrue any
statement of a material fact made in any such registration statement or
Prospectus or which requires the making of a change in such
registration statement or Prospectus in order to make the statements
therein not misleading; and
(iv) of all actions of the Securities and Exchange Commission
with respect to any amendments to any such registration statement or
Prospectus which may from time to time be filed with the Securities and
Exchange Commission.
4. Expenses.
(a) The Trust will pay or cause to be paid the following expenses:
organization costs of the Funds; 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 interest and
servicing shareholder accounts; expenses of preparing, typesetting, printing and
mailing prospectuses, statements of additional information, shareholder reports,
notices, proxy statements and reports to governmental officers and commissions
and to existing shareholders of the Funds; expenses connected with the
execution, recording and settlement of security transactions; insurance
premiums; fees and expenses of the custodian for all services to the Funds,
including safekeeping of funds and securities and maintaining required books and
accounts; expenses of calculating the net asset value of the Funds (including
but not limited to the fees of independent pricing services); expenses of
meetings of shareholders; expenses relating to the issuance, registration and
qualification of shares; and such non-recurring or extraordinary expenses as may
arise, including those relating to actions, suits or proceedings to which the
Trust may be a party and the legal obligation which the Trust may have to
indemnify its Trustees and officers with respect thereto.
(b) Except as otherwise provided in this Agreement, Distributor will
pay or cause to be paid all expenses connected with its own qualification as a
dealer under state and federal laws and all other expenses incurred by
Distributor in connection with the sale of Shares of each Fund as contemplated
by this Agreement.
5. Repurchase of Shares. Distributor as agent and for the account of
the Trust may repurchase Shares of the Funds offered for resale to it and redeem
such Shares at their net asset value.
6. Indemnification by the Trust. In the absence of willful misfeasance,
bad faith, gross negligence or reckless disregard of obligations or duties
hereunder on the part of Distributor, the Trust agrees to indemnify Distributor,
its officers and directors, and any person which controls Distributor within the
meaning of the 1933 Act against any and all claims, demands, liabilities and
expenses that any such indemnified party may incur under the 1933 Act, or common
law or otherwise, arising out of or based upon any alleged untrue statement of a
material fact contained in the registration statement for any Fund, any
Prospectus or Statement of Additional Information, or any advertisements or
sales literature prepared by or on behalf of the Trust for Distributor's use, or
any omission to state a material fact therein, the omission of which makes any
statement contained therein misleading, unless such statement or omission was
made in reliance upon and in conformity with information furnished to the Trust
in connection therewith by or on behalf of Distributor. Nothing herein contained
shall require the Trust to take any action contrary to any provision of its
Declaration of Trust or any applicable statute or regulation.
7. Indemnification by Distributor. Distributor agrees to indemnify the
Trust, its officers and Trustees and any person which controls the Trust within
the meaning of the 1933 Act against any and all claims, demands, liabilities and
expenses that any such indemnified party may incur under the 1933 Act, or common
law or otherwise, arising out of or based upon (i) any alleged untrue statement
of a material fact contained in the registration statement for any Fund, any
Prospectus or Statement of Additional Information, or any advertisements or
sales literature prepared by or on behalf of the Trust for Distributor's use, or
any omission to state a material fact therein, the omission of which makes any
statement contained therein misleading, if such statement or omission was made
in reliance upon and in conformity with information furnished to the Trust in
connection therewith by or on behalf of Distributor; and (ii) any act or deed of
Distributor or its sales representatives that has not been authorized by the
Trust in any Prospectus or Statement of Additional Information or by this
Agreement.
8. Term and Termination.
(a) Unless terminated as herein provided, this Agreement shall continue
in effect as to each Fund until November 8, 1997 and shall continue in full
force and effect as to each Fund for successive periods of one year thereafter,
but only so long as each such continuance is approved (i) by either the Trustees
of the Trust or by vote of a majority of the outstanding voting securities (as
defined in the 1940 Act) of the particular Fund, or (ii) by vote of a majority
of the Trustees of the Trust who are not parties to this Agreement or interested
persons (as defined in the 1940 Act) of any such party and who have no direct or
indirect financial interest in this Agreement or in any agreement related
thereto ("Independent Trustees"), cast at a meeting called for the purpose of
voting on such approval.
(b) This Agreement may be terminated as to any Fund on not less than
thirty days' nor more than sixty days' written notice to the other party.
(c) This Agreement shall automatically terminate in the event of its
assignment (as defined in the 1940 Act).
9. Limitation of Liability. The obligations of the Trust hereunder
shall not be binding upon any of the Trustees, officers or shareholders of the
Trust personally, but shall bind only the assets and property of the particular
Fund or Funds in question, and not any other Fund or series of the Trust. The
term "Variable Annuity Portfolios" means and refers to the Trustees from time to
time serving under the Declaration of Trust of the Trust, a copy of which is on
file with the Secretary of the Commonwealth of Massachusetts. The execution and
delivery of this Agreement has been authorized by the Trustees, and this
Agreement has been signed on behalf of the Trust by an authorized officer of the
Trust, acting as such and not individually, and neither such authorization by
such Trustees nor such execution and delivery by such officer shall be deemed to
have been made by any of them individually or to impose any liability on any of
them personally, but shall bind only the assets and property of the Trust as
provided in the Declaration of Trust.
10. This Agreement shall be governed by and construed in accordance
with the laws of the Commonwealth of Massachusetts and the provisions of the
1940 Act.
IN WITNESS THEREOF, the parties hereto have caused this Agreement to be
executed as of the date first written above.
Variable Annuity Portfolios
By: Philip Coolidge
-----------------------
President
The Landmark Funds Broker-Dealer
Services, Inc.
By: Philip Coolidge
-----------------------
Chief Executive Officer
<PAGE>
Exhibit A
Funds
CitiSelect(SM) VIP Folio 200
CitiSelect(SM) VIP Folio 300
CitiSelectSM VIP Folio 400
CitiSelect(SM) VIP Folio 500
Landmark Small Cap Equity VIP Fund
<PAGE>
Exhibit 8
CUSTODIAN CONTRACT
Between
VARIABLE ANNUITY PORTFOLIOS
and
STATE STREET BANK AND TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
Page
1. Employment of Custodian and Property to be Held By It....................1
2. Duties of the Custodian with Respect to Property of the Fund Held by the
Custodian in the United States...........................................2
2.1 Holding Securities..............................................2
2.2 Delivery of Securities..........................................2
2.3 Registration of Securities......................................4
2.4 Bank Accounts...................................................4
2.5 Availability of Federal Funds...................................5
2.6 Collection of Income............................................5
2.7 Payment of Fund Monies..........................................5
2.8 Liability for Payment in Advance of Receipt of Securities
Purchased.......................................................6
2.9 Appointment of Agents...........................................6
2.10 Deposit of Fund Assets in U.S. Securities System................7
2.11 Fund Assets Held in the Custodian's Direct Paper System.........8
2.12 Segregated Account..............................................9
2.13 Ownership Certificates for Tax Purposes.........................9
2.14 Proxies.........................................................9
2.15 Communications Relating to Portfolio Securities.................9
3. Duties of the Custodian with Respect to Property of the Fund Held
Outside of the United States............................................10
3.1 Appointment of Foreign Sub-Custodians..........................10
3.2 Assets to be Held..............................................10
3.3 Foreign Securities Systems.....................................10
3.4 Holding Securities.............................................11
3.5 Agreements with Foreign Banking Institutions...................11
3.6 Access of Independent Accountants of the Fund..................11
3.7 Reports by Custodian...........................................11
3.8 Transactions in Foreign Custody Account........................11
3.9 Liability of Foreign Sub-Custodians............................12
3.10 Liability of Custodian.........................................12
3.11 Reimbursement for Advances.....................................12
3.12 Monitoring Responsibilities....................................13
3.13 Branches of U.S. Banks.........................................13
3.14 Tax Law........................................................13
4. Payments for Sales or Repurchases or Redemptions of Shares of the Fund..14
5. Proper Instructions.....................................................14
6. Actions Permitted Without Express Authority.............................14
7. Evidence of Authority...................................................15
8. Duties of Custodian With Respect to the Books of Account and
Calculation of Net Asset Value and Net Income...........................15
9. Records.................................................................15
10. Opinion of Fund's Independent Accountants...............................16
11. Reports to Fund by Independent Public Accountants.......................16
12. Compensation of Custodian...............................................16
13. Responsibility of Custodian.............................................16
14. Effective Period, Termination and Amendment.............................18
15. Successor Custodian.....................................................18
16. Interpretive and Additional Provisions..................................19
17. Additional Funds........................................................19
18. Massachusetts Law to Apply..............................................19
19. Prior Contracts.........................................................19
20. Reproduction of Documents...............................................20
21. No Liability of Other Series............................................20
22. Shareholder Communications Election.....................................20
<PAGE>
CUSTODIAN CONTRACT
This Contract between Variable Annuity Portfolios, a business trust
organized and existing under the laws of Massachusetts, having its principal
place of business at 6 St. James Avenue, Boston, Massachusetts 02116 hereinafter
called the "Fund", and State Street Bank and Trust Company, a Massachusetts
trust company, having its principal place of business at 225 Franklin Street,
Boston, Massachusetts, 02110, hereinafter called the "Custodian",
WITNESSETH:
WHEREAS, the Fund is authorized to issue shares in separate series,
with each such series representing interests in a separate portfolio of
securities and other assets; and
WHEREAS, the Fund intends to initially offer shares in five series,
CitiSelectSM VIP Folio 200, CitiSelectSM VIP Folio 300, CitiSelectSM VIP Folio
400, CitiSelectSM VIP Folio 500 and Landmark Small Cap Equity VIP Fund (such
series together with all other series subsequently established by the Fund and
made subject to this Contract in accordance with paragraph 17, being herein
referred to as the "Portfolio(s)");
NOW THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto agree as follows:
1. Employment of Custodian and Property to be Held by It
The Fund hereby employs the Custodian as the custodian of the assets of
the Portfolios of the Fund, including securities which the Fund, on behalf of
the applicable Portfolio desires to be held in places within the United States
("domestic securities") and securities it desires to be held outside the United
States ("foreign securities") pursuant to the provisions of the Declaration of
Trust. The Fund on behalf of the Portfolio(s) agrees to deliver to the Custodian
all securities and cash of the Portfolios, and all payments of income, payments
of principal or capital distributions received by it with respect to all
securities owned by the Portfolio(s) from time to time, and the cash
consideration received by it for such new or treasury shares of beneficial
interest of the Fund representing interests in the Portfolios, ("Shares") as may
be issued or sold from time to time. The Custodian shall not be responsible for
any property of a Portfolio held or received by the Portfolio and not delivered
to the Custodian.
Upon receipt of "Proper Instructions" (within the meaning of Article
5), the Custodian shall on behalf of the applicable Portfolio(s) from time to
time employ one or more sub-custodians, located in the United States but only in
accordance with an applicable vote by the Board of Trustees of the Fund on
behalf of the applicable Portfolio(s), and provided that the Custodian shall
have no more or less responsibility or liability to the Fund on account of any
actions or omissions of any sub-custodian so employed than any such
sub-custodian has to the Custodian. The Custodian may employ as sub-custodian
for the Fund's foreign securities on behalf of the applicable Portfolio(s) the
foreign banking institutions and foreign securities depositories designated in
Schedule A hereto but only in accordance with the provisions of Article 3.
2. Duties of the Custodian with Respect to Property of the Fund Held By
the Custodian in the United States
2.1 Holding Securities. The Custodian shall hold and physically segregate
for the account of each Portfolio all non-cash property, to be held by
it in the United States including all domestic securities owned by such
Portfolio, other than (a) securities which are maintained pursuant to
Section 2.10 in a clearing agency which acts as a securities depository
or in a book-entry system authorized by the U.S. Department of the
Treasury (each, a U.S. Securities System") and (b) commercial paper of
an issuer for which State Street Bank and Trust Company acts as issuing
and paying agent ("Direct Paper") which is deposited and/or maintained
in the Direct Paper System of the Custodian (the "Direct Paper System")
pursuant to Section 2.11.
2.2 Delivery of Securities. The Custodian shall release and deliver
domestic securities owned by a Portfolio held by the Custodian or in a
U.S. Securities System account of the Custodian or in the Custodian's
Direct Paper book entry system account ("Direct Paper System Account")
only upon receipt of Proper Instructions from the Fund on behalf of the
applicable Portfolio, which may be continuing instructions when deemed
appropriate by the parties, and only in the following cases:
1) Upon sale of such securities for the account of the Portfolio and
receipt of payment therefor;
2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the
Portfolio;
3) In the case of a sale effected through a U.S. Securities System,
in accordance with the provisions of Section 2.10 hereof;
4) To the depository agent in connection with tender or other
similar offers for securities of the Portfolio;
5) To the issuer thereof or its agent when such securities are
called, redeemed, retired or otherwise become payable; provided
that, in any such case, the cash or other consideration is to be
delivered to the Custodian;
6) To the issuer thereof, or its agent, for transfer into the name
of the Portfolio or into the name of any nominee or nominees of
the Custodian or into the name or nominee name of any agent
appointed pursuant to Section 2.9 or into the name or nominee
name of any sub-custodian appointed pursuant to Article 1; or for
exchange for a different number of bonds, certificates or other
evidence representing the same aggregate face amount or number of
units; provided that, in any such case, the new securities are to
be delivered to the Custodian;
7) Upon the sale of such securities for the account of the
Portfolio, to the broker or its clearing agent, against a
receipt, for examination in accordance with "street delivery"
custom; provided that in any such case, the Custodian shall have
no responsibility or liability for any loss arising from the
delivery of such securities prior to receiving payment for such
securities except as may arise from the Custodian's own
negligence or willful misconduct;
8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or readjustment
of the securities of the issuer of such securities, or pursuant
to provisions for conversion contained in such securities, or
pursuant to any deposit agreement; provided that, in any such
case, the new securities and cash, if any, are to be delivered to
the Custodian;
9) In the case of warrants, rights or similar securities, the
surrender thereof in the exercise of such warrants, rights or
similar securities or the surrender of interim receipts or
temporary securities for definitive securities; provided that, in
any such case, the new securities and cash, if any, are to be
delivered to the Custodian;
10) For delivery in connection with any loans of securities made by
the Portfolio, but only against receipt of adequate collateral as
agreed upon from time to time by the Custodian and the Fund on
behalf of the Portfolio, which may be in the form of cash or
obligations issued by the United States government, its agencies
or instrumentalities, except that in connection with any loans
for which collateral is to be credited to the Custodian's account
in the book-entry system authorized by the U.S. Department of the
Treasury, the Custodian will not be held liable or responsible
for the delivery of securities owned by the Portfolio prior to
the receipt of such collateral;
11) For delivery as security in connection with any borrowings by the
Fund on behalf of the Portfolio requiring a pledge of assets by
the Fund on behalf of the Portfolio, but only against receipt of
amounts borrowed;
12) For delivery in accordance with the provisions of any agreement
among the Fund on behalf of the Portfolio, the Custodian and a
broker-dealer registered under the Securities Exchange Act of
1934 (the "Exchange Act") and a member of The National
Association of Securities Dealers, Inc. ("NASD"), relating to
compliance with the rules of The Options Clearing Corporation and
of any registered national securities exchange, or of any similar
organization or organizations, regarding escrow or other
arrangements in connection with transactions by the Portfolio of
the Fund;
13) For delivery in accordance with the provisions of any agreement
among the Fund on behalf of the Portfolio, the Custodian, and a
Futures Commission Merchant registered under the Commodity
Exchange Act, relating to compliance with the rules of the
Commodity Futures Trading Commission and/or any Contract Market,
or any similar organization or organizations, regarding account
deposits in connection with transactions by the Portfolio of the
Fund;
14) Upon receipt of instructions from the transfer agent ("Transfer
Agent") for the Fund, for delivery to such Transfer Agent or to
the holders of shares in connection with distributions in kind,
as may be described from time to time in the currently effective
prospectus and statement of additional information of the Fund,
related to the Portfolio ("Prospectus"), in satisfaction of
requests by holders of Shares for repurchase or redemption; and
15) For any other proper corporate purpose, but only upon receipt of,
in addition to Proper Instructions from the Fund on behalf of the
applicable Portfolio, a certified copy of a resolution of the
Board of Trustees or of the Executive Committee signed by an
officer of the Fund and certified by the Secretary or an
Assistant Secretary, specifying the securities of the Portfolio
to be delivered, setting forth the purpose for which such
delivery is to be made, declaring such purpose to be a proper
corporate purpose, and naming the person or persons to whom
delivery of such securities shall be made.
2.3 Registration of Securities. Domestic securities held by the Custodian
(other than bearer securities) shall be registered in the name of the
Portfolio or in the name of any nominee of the Fund on behalf of the
Portfolio or of any nominee of the Custodian which nominee shall be
assigned exclusively to the Portfolio, unless the Fund has authorized
in writing the appointment of a nominee to be used in common with other
registered investment companies having the same investment adviser as
the Portfolio, or in the name or nominee name of any agent appointed
pursuant to Section 2.9 or in the name or nominee name of any
sub-custodian appointed pursuant to Article 1. All securities accepted
by the Custodian on behalf of the Portfolio under the terms of this
Contract shall be in "street name" or other good delivery form. If,
however, the Fund directs the Custodian to maintain securities in
"street name", the Custodian shall utilize its best efforts only to
timely collect income due the Fund on such securities and to notify the
Fund on a best efforts basis only of relevant corporate actions
including, without limitation, pendency of calls, maturities, tender or
exchange offers.
2.4 Bank Accounts. The Custodian shall open and maintain a separate bank
account or accounts in the United States in the name of each Portfolio
of the Fund, subject only to draft or order by the Custodian acting
pursuant to the terms of this Contract, and shall hold in such account
or accounts, subject to the provisions hereof, all cash received by it
from or for the account of the Portfolio, other than cash maintained by
the Portfolio in a bank account established and used in accordance with
Rule 17f-3 under the Investment Company Act of 1940. Funds held by the
Custodian for a Portfolio may be deposited by it to its credit as
Custodian in the Banking Department of the Custodian or in such other
banks or trust companies as it may in its discretion deem necessary or
desirable; provided, however, that every such bank or trust company
shall be qualified to act as a custodian under the Investment Company
Act of 1940 and that each such bank or trust company and the funds to
be deposited with each such bank or trust company shall on behalf of
each applicable Portfolio be approved by vote of a majority of the
Board of Trustees of the Fund. Such funds shall be deposited by the
Custodian in its capacity as Custodian and shall be withdrawable by the
Custodian only in that capacity.
2.5 Availability of Federal Funds. Upon mutual agreement between the Fund
on behalf of each applicable Portfolio and the Custodian, the Custodian
shall, upon the receipt of Proper Instructions from the Fund on behalf
of a Portfolio, make federal funds available to such Portfolio as of
specified times agreed upon from time to time by the Fund and the
Custodian in the amount of checks received in payment for Shares of
such Portfolio which are deposited into the Portfolio's account.
2.6 Collection of Income. Subject to the provisions of Section 2.3, the
Custodian shall collect on a timely basis all income and other payments
with respect to registered domestic securities held hereunder to which
each Portfolio shall be entitled either by law or pursuant to custom in
the securities business, and shall collect on a timely basis all income
and other payments with respect to bearer domestic securities if, on
the date of payment by the issuer, such securities are held by the
Custodian or its agent thereof and shall credit such income, as
collected, to such Portfolio's custodian account. Without limiting the
generality of the foregoing, the Custodian shall detach and present for
payment all coupons and other income items requiring presentation as
and when they become due and shall collect interest when due on
securities held hereunder. Income due each Portfolio on securities
loaned pursuant to the provisions of Section 2.2 (10) shall be the
responsibility of the Fund. The Custodian will have no duty or
responsibility in connection therewith, other than to provide the Fund
with such information or data as may be necessary to assist the Fund in
arranging for the timely delivery to the Custodian of the income to
which the Portfolio is properly entitled.
2.7 Payment of Fund Monies. Upon receipt of Proper Instructions from the
Fund on behalf of the applicable Portfolio, which may be continuing
instructions when deemed appropriate by the parties, the Custodian
shall pay out monies of a Portfolio in the following cases only:
1) Upon the purchase of domestic securities, options, futures
contracts or options on futures contracts for the account of the
Portfolio but only (a) against the delivery of such securities or
evidence of title to such options, futures contracts or options
on futures contracts to the Custodian (or any bank, banking firm
or trust company doing business in the United States or abroad
which is qualified under the Investment Company Act of 1940, as
amended, to act as a custodian and has been designated by the
Custodian as its agent for this purpose) registered in the name
of the Portfolio or in the name of a nominee of the Custodian
referred to in Section 2.3 hereof or in proper form for transfer;
(b) in the case of a purchase effected through a U.S. Securities
System, in accordance with the conditions set forth in Section
2.10 hereof; (c) in the case of a purchase involving the Direct
Paper System, in accordance with the conditions set forth in
Section 2.11; (d) in the case of repurchase agreements entered
into between the Fund on behalf of the Portfolio and the
Custodian, or another bank, or a broker-dealer which is a member
of NASD, (i) against delivery of the securities either in
certificate form or through an entry crediting the Custodian's
account at the Federal Reserve Bank with such securities or (ii)
against delivery of the receipt evidencing purchase by the
Portfolio of securities owned by the Custodian along with written
evidence of the agreement by the Custodian to repurchase such
securities from the Portfolio or (e) for transfer to a time
deposit account of the Fund in any bank, whether domestic or
foreign; such transfer may be effected prior to receipt of a
confirmation from a broker and/or the applicable bank pursuant to
Proper Instructions from the Fund as defined in Article 5;
2) In connection with conversion, exchange or surrender of
securities owned by the Portfolio as set forth in Section 2.2
hereof;
3) For the redemption or repurchase of Shares issued by the
Portfolio as set forth in Article 4 hereof;
4) For the payment of any expense or liability incurred by the
Portfolio, including but not limited to the following payments
for the account of the Portfolio: interest, taxes, management,
accounting, transfer agent and legal fees, and operating expenses
of the Fund whether or not such expenses are to be in whole or
part capitalized or treated as deferred expenses;
5) For the payment of any dividends on Shares of the Portfolio
declared pursuant to the governing documents of the Fund;
6) For payment of the amount of dividends received in respect of
securities sold short;
7) For any other proper purpose, but only upon receipt of, in
addition to Proper Instructions from the Fund on behalf of the
Portfolio, a certified copy of a resolution of the Board of
Trustees or of the Executive Committee of the Fund signed by an
officer of the Fund and certified by its Secretary or an
Assistant Secretary, specifying the amount of such payment,
setting forth the purpose for which such payment is to be made,
declaring such purpose to be a proper purpose, and naming the
person or persons to whom such payment is to be made.
2.8 Liability for Payment in Advance of Receipt of Securities Purchased.
Except as specifically stated otherwise in this Contract, in any and
every case where payment for purchase of domestic securities for the
account of a Portfolio is made by the Custodian in advance of receipt
of the securities purchased in the absence of specific written
instructions from the Fund on behalf of such Portfolio to so pay in
advance, the Custodian shall be absolutely liable to the Fund for such
securities to the same extent as if the securities had been received by
the Custodian.
2.9 Appointment of Agents. The Custodian may at any time or times in its
discretion appoint (and may at any time remove) any other bank or trust
company which is itself qualified under the Investment Company Act of
1940, as amended, to act as a custodian, as its agent to carry out such
of the provisions of this Article 2 as the Custodian may from time to
time direct; provided, however, that the appointment of any agent shall
not relieve the Custodian of its responsibilities or liabilities
hereunder.
2.10 Deposit of Fund Assets in U.S. Securities Systems. The Custodian may
deposit and/or maintain securities owned by a Portfolio in a clearing
agency registered with the Securities and Exchange Commission under
Section 17A of the Securities Exchange Act of 1934, which acts as a
securities depository, or in the book-entry system authorized by the
U.S. Department of the Treasury and certain federal agencies,
collectively referred to herein as "U.S. Securities System" in
accordance with applicable Federal Reserve Board and Securities and
Exchange Commission rules and regulations, if any, and subject to the
following provisions:
1) The Custodian may keep securities of the Portfolio in a U.S.
Securities System provided that such securities are represented
in an account ("Account") of the Custodian in the U.S. Securities
System which shall not include any assets of the Custodian other
than assets held as a fiduciary, custodian or otherwise for
customers;
2) The records of the Custodian with respect to securities of the
Portfolio which are maintained in a U.S. Securities System shall
identify by book-entry those securities belonging to the
Portfolio;
3) The Custodian shall pay for securities purchased for the account
of the Portfolio upon (i) receipt of advice from the U.S.
Securities System that such securities have been transferred to
the Account, and (ii) the making of an entry on the records of
the Custodian to reflect such payment and transfer for the
account of the Portfolio. The Custodian shall transfer securities
sold for the account of the Portfolio upon (i) receipt of advice
from the U.S. Securities System that payment for such securities
has been transferred to the Account, and (ii) the making of an
entry on the records of the Custodian to reflect such transfer
and payment for the account of the Portfolio. Copies of all
advices from the U.S. Securities System of transfers of
securities for the account of the Portfolio shall identify the
Portfolio, be maintained for the Portfolio by the Custodian and
be provided to the Fund at its request. Upon request, the
Custodian shall furnish the Fund on behalf of the Portfolio
confirmation of each transfer to or from the account of the
Portfolio in the form of a written advice or notice and shall
furnish to the Fund on behalf of the Portfolio copies of daily
transaction sheets reflecting each day's transactions in the U.S.
Securities System for the account of the Portfolio;
4) The Custodian shall provide the Fund for the Portfolio with any
report obtained by the Custodian on the U.S. Securities System's
accounting system, internal accounting control and procedures for
safeguarding securities deposited in the U.S. Securities System;
5) The Custodian shall have received from the Fund on behalf of the
Portfolio the initial or annual certificate, as the case may be,
required by Article 14 hereof;
6) Anything to the contrary in this Contract notwithstanding, the
Custodian shall be liable to the Fund for the benefit of the
Portfolio for any loss or damage to the Portfolio resulting from
use of the U.S. Securities System by reason of any negligence,
misfeasance or misconduct of the Custodian or any of its agents
or of any of its or their employees or from failure of the
Custodian or any such agent to enforce effectively such rights as
it may have against the U.S. Securities System; at the election
of the Fund, it shall be entitled to be subrogated to the rights
of the Custodian with respect to any claim against the U.S.
Securities System or any other person which the Custodian may
have as a consequence of any such loss or damage if and to the
extent that the Portfolio has not been made whole for any such
loss or damage.
2.11 Fund Assets Held in the Custodian's Direct Paper System. The Custodian
may deposit and/or maintain securities owned by a Portfolio in the
Direct Paper System of the Custodian subject to the following
provisions:
1) No transaction relating to securities in the Direct Paper System
will be effected in the absence of Proper Instructions from the
Fund on behalf of the Portfolio;
2) The Custodian may keep securities of the Portfolio in the Direct
Paper System only if such securities are represented in an
account ("Account") of the Custodian in the Direct Paper System
which shall not include any assets of the Custodian other than
assets held as a fiduciary, custodian or otherwise for customers;
3) The records of the Custodian with respect to securities of the
Portfolio which are maintained in the Direct Paper System shall
identify by book-entry those securities belonging to the
Portfolio;
4) The Custodian shall pay for securities purchased for the account
of the Portfolio upon the making of an entry on the records of
the Custodian to reflect such payment and transfer of securities
to the account of the Portfolio. The Custodian shall transfer
securities sold for the account of the Portfolio upon the making
of an entry on the records of the Custodian to reflect such
transfer and receipt of payment for the account of the Portfolio;
5) The Custodian shall furnish the Fund on behalf of the Portfolio
confirmation of each transfer to or from the account of the
Portfolio, in the form of a written advice or notice, of Direct
Paper on the next business day following such transfer and shall
furnish to the Fund on behalf of the Portfolio copies of daily
transaction sheets reflecting each day's transaction in the U.S.
Securities System for the account of the Portfolio;
6) The Custodian shall provide the Fund on behalf of the Portfolio
with any report on its system of internal accounting control as
the Fund may reasonably request from time to time.
2.12 Segregated Account. The Custodian shall upon receipt of Proper
Instructions from the Fund on behalf of each applicable Portfolio
establish and maintain a segregated account or accounts for and on
behalf of each such Portfolio, into which account or accounts may be
transferred cash and/or securities, including securities maintained in
an account by the Custodian pursuant to Section 2.10 hereof, (i) in
accordance with the provisions of any agreement among the Fund on
behalf of the Portfolio, the Custodian and a broker-dealer registered
under the Exchange Act and a member of the NASD (or any futures
commission merchant registered under the Commodity Exchange Act),
relating to compliance with the rules of The Options Clearing
Corporation and of any registered national securities exchange (or the
Commodity Futures Trading Commission or any registered contract
market), or of any similar organization or organizations, regarding
escrow or other arrangements in connection with transactions by the
Portfolio, (ii) for purposes of segregating cash or government
securities in connection with options purchased, sold or written by the
Portfolio or commodity futures contracts or options thereon purchased
or sold by the Portfolio, (iii) for the purposes of compliance by the
Portfolio with the procedures required by Investment Company Act
Release No. 10666, or any subsequent release or releases of the
Securities and Exchange Commission relating to the maintenance of
segregated accounts by registered investment companies and (iv) for
other proper corporate purposes, but only, in the case of clause (iv),
upon receipt of, in addition to Proper Instructions from the Fund on
behalf of the applicable Portfolio, a certified copy of a resolution of
the Board of Trustees or of the Executive Committee signed by an
officer of the Fund and certified by the Secretary or an Assistant
Secretary, setting forth the purpose or purposes of such segregated
account and declaring such purposes to be proper corporate purposes.
2.13 Ownership Certificates for Tax Purposes. The Custodian shall execute
ownership and other certificates and affidavits for all federal and
state tax purposes in connection with receipt of income or other
payments with respect to domestic securities of each Portfolio held by
it and in connection with transfers of securities.
2.14 Proxies. The Custodian shall, with respect to the domestic securities
held hereunder, cause to be promptly executed by the registered holder
of such securities, if the securities are registered otherwise than in
the name of the Portfolio or a nominee of the Portfolio, all proxies,
without indication of the manner in which such proxies are to be voted,
and shall promptly deliver to the Portfolio such proxies, all proxy
soliciting materials and all notices relating to such securities.
2.15 Communications Relating to Portfolio Securities. Subject to the
provisions of Section 2.3, the Custodian shall transmit promptly to the
Fund for each Portfolio all written information (including, without
limitation, pendency of calls and maturities of domestic securities and
expirations of rights in connection therewith and notices of exercise
of call and put options written by the Fund on behalf of the Portfolio
and the maturity of futures contracts purchased or sold by the
Portfolio) received by the Custodian from issuers of the securities
being held for the Portfolio. With respect to tender or exchange
offers, the Custodian shall transmit promptly to the Portfolio all
written information received by the Custodian from issuers of the
securities whose tender or exchange is sought and from the party (or
his agents) making the tender or exchange offer. If the Portfolio
desires to take action with respect to any tender offer, exchange offer
or any other similar transaction, the Portfolio shall notify the
Custodian at least three business days prior to the date on which the
Custodian is to take such action.
3. Duties of the Custodian with Respect to Property of the Fund Held
Outside of the United States
3.1 Appointment of Foreign Sub-Custodians. The Fund hereby authorizes and
instructs the Custodian to employ as sub-custodians for the Portfolio's
securities and other assets maintained outside the United States the
foreign banking institutions and foreign securities depositories
designated on Schedule A hereto ("foreign sub-custodians"). Upon
receipt of "Proper Instructions", as defined in Section 5 of this
Contract, together with a certified resolution of the Fund's Board of
Trustees, the Custodian and the Fund may agree to amend Schedule A
hereto from time to time to designate additional foreign banking
institutions and foreign securities depositories to act as
sub-custodian. Upon receipt of Proper Instructions, the Fund may
instruct the Custodian to cease the employment of any one or more such
sub-custodians for maintaining custody of the Portfolio's assets.
3.2 Assets to be Held. The Custodian shall limit the securities and other
assets maintained in the custody of the foreign sub-custodians to: (a)
"foreign securities", as defined in paragraph (c)(1) of Rule 17f-5
under the Investment Company Act of 1940, and (b) cash and cash
equivalents in such amounts as the Custodian or the Fund may determine
to be reasonably necessary to effect the Portfolio's foreign securities
transactions. The Custodian shall identify on its books as belonging to
the Fund, the foreign securities of the Fund held by each foreign
sub-custodian.
3.3 Foreign Securities Systems. Except as may otherwise be agreed upon in
writing by the Custodian and the Fund, assets of the Portfolios shall
be maintained in a clearing agency which acts as a securities
depository or in a book-entry system for the central handling of
securities located outside the United States (each a "Foreign
Securities System") only through arrangements implemented by the
foreign banking institutions serving as sub-custodians pursuant to the
terms hereof (Foreign Securities Systems and U.S. Securities Systems
are collectively referred to herein as the "Securities Systems"). Where
possible, such arrangements shall include entry into agreements
containing the provisions set forth in Section 3.5 hereof.
3.4 Holding Securities. The Custodian may hold securities and other
non-cash property for all of its customers, including the Fund, with a
Foreign Sub-custodian in a single account that is identified as
belonging to the Custodian for the benefit of its customers, provided
however, that (i) the records of the Custodian with respect to
securities and other non-cash property of the Fund which are maintained
in such account shall identify by book-entry those securities and other
non-cash property belonging to the Fund and (ii) the Custodian shall
require that securities and other non-cash property so held by the
foreign sub-custodian be held separately from any assets of the foreign
sub-custodian or of others.
3.5 Agreements with Foreign Banking Institutions. Each agreement with a
foreign banking institution shall provide that: (a) the assets of each
Portfolio will not be subject to any right, charge, security interest,
lien or claim of any kind in favor of the foreign banking institution
or its creditors or agent, except a claim of payment for their safe
custody or administration; (b) beneficial ownership for the assets of
each Portfolio will be freely transferable without the payment of money
or value other than for custody or administration; (c) adequate records
will be maintained identifying the assets as belonging to each
applicable Portfolio; (d) officers of or auditors employed by, or other
representatives of the Custodian, including to the extent permitted
under applicable law the independent public accountants for the Fund,
will be given access to the books and records of the foreign banking
institution relating to its actions under its agreement with the
Custodian; and (e) assets of the Portfolios held by the foreign
sub-custodian will be subject only to the instructions of the Custodian
or its agents.
3.6 Access of Independent Accountants of the Fund. Upon request of the
Fund, the Custodian will use its best efforts to arrange for the
independent accountants of the Fund to be afforded access to the books
and records of any foreign banking institution employed as a foreign
sub-custodian insofar as such books and records relate to the
performance of such foreign banking institution under its agreement
with the Custodian.
3.7 Reports by Custodian. The Custodian will supply to the Fund from time
to time, as mutually agreed upon, statements in respect of the
securities and other assets of the Portfolio(s) held by foreign
sub-custodians, including but not limited to an identification of
entities having possession of the Portfolio(s) securities and other
assets and advices or notifications of any transfers of securities to
or from each custodial account maintained by a foreign banking
institution for the Custodian on behalf of each applicable Portfolio
indicating, as to securities acquired for a Portfolio, the identity of
the entity having physical possession of such securities.
3.8 Transactions in Foreign Custody Account. (a) Except as otherwise
provided in paragraph (b) of this Section 3.8, the provision of
Sections 2.2 and 2.7 of this Contract shall apply, mutatis mutandis to
the foreign securities of the Fund held outside the United States by
foreign sub-custodians.
(b) Notwithstanding any provision of this Contract to the contrary,
settlement and payment for securities received for the account of each
applicable Portfolio and delivery of securities maintained for the
account of each applicable Portfolio may be effected in accordance with
the customary established securities trading or securities processing
practices and procedures in the jurisdiction or market in which the
transaction occurs, including, without limitation, delivering
securities to the purchaser thereof or to a dealer therefor (or an
agent for such purchaser or dealer) against a receipt with the
expectation of receiving later payment for such securities from such
purchaser or dealer.
(c) Securities maintained in the custody of a foreign sub-custodian may
be maintained in the name of such entity's nominee to the same extent
as set forth in Section 2.3 of this Contract, and the Fund agrees to
hold any such nominee harmless from any liability as a holder of record
of such securities.
3.9 Liability of Foreign Sub-Custodians. Each agreement pursuant to which
the Custodian employs a foreign banking institution as a foreign
sub-custodian shall require the institution to exercise reasonable care
in the performance of its duties and to indemnify, and hold harmless,
the Custodian and the Fund from and against any loss, damage, cost,
expense, liability or claim arising out of or in connection with the
institution's performance of such obligations. At the election of the
Fund, it shall be entitled to be subrogated to the rights of the
Custodian with respect to any claims against a foreign banking
institution as a consequence of any such loss, damage, cost, expense,
liability or claim if and to the extent that the Fund has not been made
whole for any such loss, damage, cost, expense, liability or claim.
3.10 Liability of Custodian. The Custodian shall be liable for the acts or
omissions of a foreign banking institution to the same extent as set
forth with respect to sub-custodians generally in this Contract and,
regardless of whether assets are maintained in the custody of a foreign
banking institution, a foreign securities depository or a branch of a
U.S. bank as contemplated by paragraph 3.13 hereof, the Custodian shall
not be liable for any loss, damage, cost, expense, liability or claim
resulting from nationalization, expropriation, currency restrictions,
or acts of war or terrorism or any loss where the sub-custodian has
otherwise exercised reasonable care. Notwithstanding the foregoing
provisions of this paragraph 3.10, in delegating custody duties to
State Street London Ltd., the Custodian shall not be relieved of any
responsibility to the Fund for any loss due to such delegation, except
such loss as may result from (a) political risk (including, but not
limited to, exchange control restrictions, confiscation, expropriation,
nationalization, insurrection, civil strife or armed hostilities) or
(b) other losses (excluding a bankruptcy or insolvency of State Street
London Ltd. not caused by political risk) due to Acts of God, nuclear
incident or other losses under circumstances where the Custodian and
State Street London Ltd. have exercised reasonable care.
3.11 Reimbursement for Advances. If the Fund requires the Custodian to
advance cash or securities for any purpose for the benefit of a
Portfolio including the purchase or sale of foreign exchange or of
contracts for foreign exchange, or in the event that the Custodian or
its nominee shall incur or be assessed any taxes, charges, expenses,
assessments, claims or liabilities in connection with the performance
of this Contract, except such as may arise from its or its nominee's
own negligent action, negligent failure to act or willful misconduct,
any property at any time held for the account of the applicable
Portfolio shall be security therefor and should the Fund fail to repay
the Custodian promptly, the Custodian shall be entitled to utilize
available cash and to dispose of such Portfolio's assets to the extent
necessary to obtain reimbursement.
3.12 Monitoring Responsibilities. The Custodian shall furnish annually to
the Fund, during the month of June, information concerning the foreign
sub-custodians employed by the Custodian. Such information shall be
similar in kind and scope to that furnished to the Fund in connection
with the initial approval of this Contract. In addition, the Custodian
will promptly inform the Fund in the event that the Custodian learns of
a material adverse change in the financial condition of a foreign
sub-custodian or any material loss of the assets of the Fund or in the
case of any foreign sub-custodian not the subject of an exemptive order
from the Securities and Exchange Commission is notified by such foreign
sub-custodian that there appears to be a substantial likelihood that
its shareholders' equity will decline below $200 million (U.S. dollars
or the equivalent thereof) or that its shareholders' equity has
declined below $200 million (in each case computed in accordance with
generally accepted U.S. accounting principles).
3.13 Branches of U.S. Banks. (a) Except as otherwise set forth in this
Contract, the provisions hereof shall not apply where the custody of
the Portfolios assets are maintained in a foreign branch of a banking
institution which is a "bank" as defined by Section 2(a)(5) of the
Investment Company Act of 1940 meeting the qualification set forth in
Section 26(a) of said Act. The appointment of any such branch as a
sub-custodian shall be governed by paragraph 1 of this Contract.
(b) Cash held for each Portfolio of the Fund in the United Kingdom
shall be maintained in an interest bearing account established for the
Fund with the Custodian's London branch, which account shall be subject
to the direction of the Custodian, State Street London Ltd. or both.
3.14 Tax Law. The Custodian shall have no responsibility or liability for
any obligations now or hereafter imposed on the Fund or the Custodian
as custodian of the Fund by the tax law of the United States of America
or any state or political subdivision thereof. It shall be the
responsibility of the Fund to notify the Custodian of the obligations
imposed on the Fund or the Custodian as custodian of the Fund by the
tax law of jurisdictions other than those mentioned in the above
sentence, including responsibility for withholding and other taxes,
assessments or other governmental charges, certifications and
governmental reporting. The sole responsibility of the Custodian with
regard to such tax law shall be to use reasonable efforts to assist the
Fund with respect to any claim for exemption or refund under the tax
law of jurisdictions for which the Fund has provided such information.
4. Payments for Sales or Repurchases or Redemptions of Shares of the Fund
The Custodian shall receive from the distributor for the Shares or from
the Transfer Agent of the Fund and deposit into the account of the appropriate
Portfolio such payments as are received for Shares of that Portfolio issued or
sold from time to time by the Fund. The Custodian will provide timely
notification to the Fund on behalf of each such Portfolio and the Transfer Agent
of any receipt by it of payments for Shares of such Portfolio.
From such funds as may be available for the purpose but subject to the
limitations of the Declaration of Trust and any applicable votes of the Board of
Trustees of the Fund pursuant thereto, the Custodian shall, upon receipt of
instructions from the Transfer Agent, make funds available for payment to
holders of Shares who have delivered to the Transfer Agent a request for
redemption or repurchase of their Shares. In connection with the redemption or
repurchase of Shares of a Portfolio, the Custodian is authorized upon receipt of
instructions from the Transfer Agent to wire funds to or through a commercial
bank designated by the redeeming shareholders. In connection with the redemption
or repurchase of Shares of the Fund, the Custodian shall honor checks drawn on
the Custodian by a holder of Shares, which checks have been furnished by the
Fund to the holder of Shares, when presented to the Custodian in accordance with
such procedures and controls as are mutually agreed upon from time to time
between the Fund and the Custodian.
5. Proper Instructions
Proper Instructions as used throughout this Contract means a writing
signed or initialled by one or more person or persons as the Board of Trustees
shall have from time to time authorized. Each such writing shall set forth the
specific transaction or type of transaction involved, including a specific
statement of the purpose for which such action is requested. Oral instructions
will be considered Proper Instructions if the Custodian reasonably believes them
to have been given by a person authorized to give such instructions with respect
to the transaction involved. The Fund shall cause all oral instructions to be
confirmed in writing. Upon receipt of a certificate of the Secretary or an
Assistant Secretary as to the authorization by the Board of Trustees of the Fund
accompanied by a detailed description of procedures approved by the Board of
Trustees, Proper Instructions may include communications effected directly
between electro-mechanical or electronic devices provided that the Board of
Trustees and the Custodian are satisfied that such procedures afford adequate
safeguards for the Portfolios' assets. For purposes of this Section, Proper
Instructions shall include instructions received by the Custodian pursuant to
any three - party agreement which requires a segregated asset account in
accordance with Section 2.12.
6. Actions Permitted without Express Authority
The Custodian may in its discretion, without express authority from the
Fund on behalf of each applicable Portfolio:
1) make payments to itself or others for minor expenses of handling
securities or other similar items relating to its duties under
this Contract, provided that all such payments shall be accounted
for to the Fund on behalf of the Portfolio;
2) surrender securities in temporary form for securities in
definitive form;
3) endorse for collection, in the name of the Portfolio, checks,
drafts and other negotiable instruments; and
4) in general, attend to all non-discretionary details in connection
with the sale, exchange, substitution, purchase, transfer and
other dealings with the securities and property of the Portfolio
except as otherwise directed by the Board of Trustees of the
Fund.
7. Evidence of Authority
The Custodian shall be protected in acting upon any instructions,
notice, request, consent, certificate or other instrument or paper believed by
it to be genuine and to have been properly executed by or on behalf of the Fund.
The Custodian may receive and accept a certified copy of a vote of the Board of
Trustees of the Fund as conclusive evidence (a) of the authority of any person
to act in accordance with such vote or (b) of any determination or of any action
by the Board of Trustees pursuant to the Declaration of Trust as described in
such vote, and such vote may be considered as in full force and effect until
receipt by the Custodian of written notice to the contrary.
8. Duties of Custodian with Respect to the Books of Account and
Calculation of Net Asset Value and Net Income
The Custodian shall cooperate with and supply necessary information to
the entity or entities appointed by the Board of Trustees of the Fund to keep
the books of account of each Portfolio and/or compute the net asset value per
share of the outstanding shares of each Portfolio or, if directed in writing to
do so by the Fund on behalf of the Portfolio, shall itself keep such books of
account and/or compute such net asset value per share. If so directed, the
Custodian shall also calculate daily the net income of the Portfolio as
described in the Fund's currently effective prospectus related to such Portfolio
and shall advise the Fund and the Transfer Agent daily of the total amounts of
such net income and, if instructed in writing by an officer of the Fund to do
so, shall advise the Transfer Agent periodically of the division of such net
income among its various components. The calculations of the net asset value per
share and the daily income of each Portfolio shall be made at the time or times
described from time to time in the Fund's currently effective prospectus related
to such Portfolio.
9. Records
The Custodian shall with respect to each Portfolio create and maintain
all records relating to its activities and obligations under this Contract in
such manner as will meet the obligations of the Fund under the Investment
Company Act of 1940, with particular attention to Section 31 thereof and Rules
31a-1 and 31a-2 thereunder. All such records shall be the property of the Fund
and shall at all times during the regular business hours of the Custodian be
open for inspection by duly authorized officers, employees or agents of the Fund
and employees and agents of the Securities and Exchange Commission. The
Custodian shall, at the Fund's request, supply the Fund with a tabulation of
securities owned by each Portfolio and held by the Custodian and shall, when
requested to do so by the Fund and for such compensation as shall be agreed upon
between the Fund and the Custodian, include certificate numbers in such
tabulations.
10. Opinion of Fund's Independent Accountant
The Custodian shall take all reasonable action, as the Fund on behalf
of each applicable Portfolio may from time to time request, to obtain from year
to year favorable opinions from the Fund's independent accountants with respect
to its activities hereunder in connection with the preparation of the Fund's
Form N-1A, and Form N-SAR or other annual reports to the Securities and Exchange
Commission and with respect to any other requirements of such Commission.
11. Reports to Fund by Independent Public Accountants
The Custodian shall provide the Fund, on behalf of each of the
Portfolios at such times as the Fund may reasonably require, with reports by
independent public accountants on the accounting system, internal accounting
control and procedures for safeguarding securities, futures contracts and
options on futures contracts, including securities deposited and/or maintained
in a Securities System, relating to the services provided by the Custodian under
this Contract; such reports, shall be of sufficient scope and in sufficient
detail, as may reasonably be required by the Fund to provide reasonable
assurance that any material inadequacies would be disclosed by such examination,
and, if there are no such inadequacies, the reports shall so state.
12. Compensation of Custodian
The Custodian shall be entitled to reasonable compensation for its
services and expenses as Custodian, as agreed upon from time to time between the
Fund on behalf of each applicable Portfolio and the Custodian.
13. Responsibility of Custodian
So long as and to the extent that it is in the exercise of reasonable
care, the Custodian shall not be responsible for the title, validity or
genuineness of any property or evidence of title thereto received by it or
delivered by it pursuant to this Contract and shall be held harmless in acting
upon any notice, request, consent, certificate or other instrument reasonably
believed by it to be genuine and to be signed by the proper party or parties,
including any futures commission merchant acting pursuant to the terms of a
three-party futures or options agreement. The Custodian shall be held to the
exercise of reasonable care in carrying out the provisions of this Contract, but
shall be kept indemnified by and shall be without liability to the Fund for any
action taken or omitted by it in good faith without negligence. It shall be
entitled to rely on and may act upon advice of counsel (who may be counsel for
the Fund) on all matters, and shall be without liability for any action
reasonably taken or omitted pursuant to such advice.
Except as may arise from the Custodian's own negligence or willful
misconduct or the negligence or willful misconduct of a sub-custodian or agent,
the Custodian shall be without liability to the Fund for any loss, liability,
claim or expense resulting from or caused by; (i) events or circumstances beyond
the reasonable control of the Custodian or any sub-custodian or Securities
System or any agent or nominee of any of the foregoing, including, without
limitation, nationalization or expropriation, imposition of currency controls or
restrictions, the interruption, suspension or restriction of trading on or the
closure of any securities market, power or other mechanical or technological
failures or interruptions, computer viruses or communications disruptions, acts
of war or terrorism, riots, revolutions, work stoppages, natural disasters or
other similar events or acts; (ii) errors by the Fund or the Investment Advisor
in their instructions to the Custodian provided such instructions have been in
accordance with this Contract; (iii) the insolvency of or acts or omissions by a
Securities System; (iv) any delay or failure of any broker, agent or
intermediary, central bank or other commercially prevalent payment or clearing
system to deliver to the Custodian's sub-custodian or agent securities purchased
or in the remittance or payment made in connection with securities sold; (v) any
delay or failure of any company, corporation, or other body in charge of
registering or transferring securities in the name of the Custodian, the Fund,
the Custodian's sub-custodians, nominees or agents or any consequential losses
arising out of such delay or failure to transfer such securities including
non-receipt of bonus, dividends and rights and other accretions or benefits;
(vi) delays or inability to perform its duties due to any disorder in market
infrastructure with respect to any particular security or Securities System; and
(vii) any provision of any present or future law or regulation or order of the
United States of America, or any state thereof, or any other country, or
political subdivision thereof or of any court of competent jurisdiction.
The Custodian shall be liable for the acts or omissions of a foreign
banking institution to the same extent as set forth with respect to
sub-custodians generally in this Contract.
If the Fund on behalf of the Portfolio requires the Custodian to take
any action with respect to securities, which action involves the payment of
money or which action may, in the opinion of the Custodian, result in the
Custodian or its nominee assigned to the Fund or the Portfolio being liable for
the payment of money or incurring liability of some other form, the Fund on
behalf of the Portfolio, as a prerequisite to requiring the Custodian to take
such action, shall provide indemnity to the Custodian in an amount and form
satisfactory to it.
If the Fund requires the Custodian, its affiliates, subsidiaries or
agents, to advance cash or securities for any purpose (including but not limited
to securities settlements, foreign exchange contracts and assumed settlement) or
in the event that the Custodian or its nominee shall incur or be assessed any
taxes, charges, expenses, assessments, claims or liabilities in connection with
the performance of this Contract, except such as may arise from its or its
nominee's own negligent action, negligent failure to act or willful misconduct,
any property at any time held for the account of the Portfolio shall be security
therefor and should the Fund fail to repay the Custodian promptly, the Custodian
shall be entitled to utilize available cash and to dispose of such Portfolio's
assets to the extent necessary to obtain reimbursement.
In no event shall the Custodian be liable for indirect, special or
consequential damages.
14. Effective Period, Termination and Amendment
This Contract shall become effective as of its execution, shall
continue in full force and effect until terminated as hereinafter provided, may
be amended at any time by mutual agreement of the parties hereto and may be
terminated by either party by an instrument in writing delivered or mailed,
postage prepaid to the other party, such termination to take effect not sooner
than thirty (30) days after the date of such delivery or mailing; provided,
however that the Custodian shall not with respect to a Portfolio act under
Section 2.10 hereof in the absence of receipt of an initial certificate of the
Secretary or an Assistant Secretary that the Board of Trustees of the Fund has
approved the initial use of a particular Securities System by such Portfolio, as
required by Rule 17f-4 under the Investment Company Act of 1940, as amended and
that the Custodian shall not with respect to a Portfolio act under Section 2.11
hereof in the absence of receipt of an initial certificate of the Secretary or
an Assistant Secretary that the Board of Trustees has approved the initial use
of the Direct Paper System by such Portfolio ; provided further, however, that
the Fund shall not amend or terminate this Contract in contravention of any
applicable federal or state regulations, or any provision of the Declaration of
Trust, and further provided, that the Fund on behalf of one or more of the
Portfolios may at any time by action of its Board of Trustees (i) substitute
another bank or trust company for the Custodian by giving notice as described
above to the Custodian, or (ii) immediately terminate this Contract in the event
of the appointment of a conservator or receiver for the Custodian by the
Comptroller of the Currency or upon the happening of a like event at the
direction of an appropriate regulatory agency or court of competent
jurisdiction.
Upon termination of the Contract, the Fund on behalf of each applicable
Portfolio shall pay to the Custodian such compensation as may be due as of the
date of such termination and shall likewise reimburse the Custodian for its
costs, expenses and disbursements.
15. Successor Custodian
If a successor custodian for the Fund, of one or more of the Portfolios
shall be appointed by the Board of Trustees of the Fund, the Custodian shall,
upon termination, deliver to such successor custodian at the office of the
Custodian, duly endorsed and in the form for transfer, all securities of each
applicable Portfolio then held by it hereunder and shall transfer to an account
of the successor custodian all of the securities of each such Portfolio held in
a Securities System.
If no such successor custodian shall be appointed, the Custodian shall,
in like manner, upon receipt of a certified copy of a vote of the Board of
Trustees of the Fund, deliver at the office of the Custodian and transfer such
securities, funds and other properties in accordance with such vote.
In the event that no written order designating a successor custodian or
certified copy of a vote of the Board of Trustees shall have been delivered to
the Custodian on or before the date when such termination shall become
effective, then the Custodian shall have the right to deliver to a bank or trust
company, which is a "bank" as defined in the Investment Company Act of 1940,
doing business in Boston, Massachusetts, of its own selection, having an
aggregate capital, surplus, and undivided profits, as shown by its last
published report, of not less than $25,000,000, all securities, funds and other
properties held by the Custodian on behalf of each applicable Portfolio and all
instruments held by the Custodian relative thereto and all other property held
by it under this Contract on behalf of each applicable Portfolio and to transfer
to an account of such successor custodian all of the securities of each such
Portfolio held in any Securities System. Thereafter, such bank or trust company
shall be the successor of the Custodian under this Contract.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Fund to procure the certified copy of the vote referred to or of
the Board of Trustees to appoint a successor custodian, the Custodian shall be
entitled to fair compensation for its services during such period as the
Custodian retains possession of such securities, funds and other properties and
the provisions of this Contract relating to the duties and obligations of the
Custodian shall remain in full force and effect.
16. Interpretive and Additional Provisions
In connection with the operation of this Contract, the Custodian and
the Fund on behalf of each of the Portfolios, may from time to time agree on
such provisions interpretive of or in addition to the provisions of this
Contract as may in their joint opinion be consistent with the general tenor of
this Contract. Any such interpretive or additional provisions shall be in a
writing signed by both parties and shall be annexed hereto, provided that no
such interpretive or additional provisions shall contravene any applicable
federal or state regulations or any provision of the Declaration of Trust of the
Fund. No interpretive or additional provisions made as provided in the preceding
sentence shall be deemed to be an amendment of this Contract.
17. Additional Funds
In the event that the Fund establishes one or more series of Shares in
addition to CitiSelectSM VIP Folio 200, CitiSelectSM VIP Folio 300, CitiSelectSM
VIP Folio 400, CitiSelectSM VIP Folio 500 and Landmark Small Cap Equity VIP Fund
with respect to which it desires to have the Custodian render services as
custodian under the terms hereof, it shall so notify the Custodian in writing,
and if the Custodian agrees in writing to provide such services, such series of
Shares shall become a Portfolio hereunder.
18. Massachusetts Law to Apply
This Contract shall be construed and the provisions thereof interpreted
under and in accordance with laws of The Commonwealth of Massachusetts.
19. Prior Contracts
This Contract supersedes and terminates, as of the date hereof, all
prior contracts between the Fund on behalf of each of the Portfolios and the
Custodian relating to the custody of the Fund's assets.
20. Reproduction of Documents
This Contract and all schedules, exhibits, attachments and amendments
hereto may be reproduced by any photographic, photostatic, microfilm,
micro-card, miniature photographic or other similar process. The parties hereto
all/each agree that any such reproduction shall be admissible in evidence as the
original itself in any judicial or administrative proceeding, whether or not the
original is in existence and whether or not such reproduction was made by a
party in the regular course of business, and that any enlargement, facsimile or
further reproduction of such reproduction shall likewise be admissible in
evidence.
21. No Liability of Other Series
Notwithstanding any other provision of this Agreement, the parties
agree that the assets and liabilities of each Portfolio are separate and
distinct from the assets and liabilities of each other Portfolio and that no
Portfolio shall be charged for any debt, obligation or liability of any other
Portfolio, whether arising under this Agreement or otherwise.
22. Shareholder Communications Election
Securities and Exchange Commission Rule 14b-2 requires banks which hold
securities for the account of customers to respond to requests by issuers of
securities for the names, addresses and holdings of beneficial owners of
securities of that issuer held by the bank unless the beneficial owner has
expressly objected to disclosure of this information. In order to comply with
the rule, the Custodian needs the Fund to indicate whether it authorizes the
Custodian to provide the Fund's name, address, and share position to requesting
companies whose securities the Fund owns. If the Fund tells the Custodian "no",
the Custodian will not provide this information to requesting companies. If the
Fund tells the Custodian "yes" or does not check either "yes" or "no" below, the
Custodian is required by the rule to treat the Fund as consenting to disclosure
of this information for all securities owned by the Fund or any funds or
accounts established by the Fund. For the Fund's protection, the Rule prohibits
the requesting company from using the Fund's name and address for any purpose
other than corporate communications. Please indicate below whether the Fund
consents or objects by checking one of the alternatives below.
YES [ ] The Custodian is authorized to release the Fund's name,
address, and share positions.
NO [ ] The Custodian is not authorized to release the Fund's name,
address, and share positions.
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this instrument to
be executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of the 8th day of November , 1996.
ATTEST VARIABLE ANNUITY PORTFOLIOS
Christine Drapeau By Philip Coolidge
- ----------------------------- --------------------------------
ATTEST STATE STREET BANK AND TRUST COMPANY
Francine A. Hayes By Donald E. Lynn
- ----------------------------- --------------------------------
Executive Vice President
<PAGE>
Exhibit 9
TRANSFER AGENCY AND SERVICE AGREEMENT
between
VARIABLE ANNUITY PORTFOLIOS
and
STATE STREET BANK AND TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
Page
----
1. Terms of Appointment; Duties of the Bank............................1
2. Fees and Expenses...................................................3
3. Representations and Warranties of the Bank..........................4
4. Representations and Warranties of the Fund..........................4
5. Data Access and Proprietary Information.............................5
6. Indemnification.....................................................6
7. Standard of Care....................................................8
8. Covenants of the Fund and the Bank..................................8
9. Termination of Agreement............................................9
10. Additional Funds....................................................9
11. Assignment..........................................................9
12. Amendment..........................................................10
13. Massachusetts Law to Apply.........................................10
14. Force Majeure......................................................10
15. Consequential Damages..............................................10
16. Merger of Agreement................................................10
17. Limitations of Liability of the Trustees
or Shareholders....................................................10
18. Counterparts.......................................................11
19. Reproduction of Documents..........................................11
<PAGE>
TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT made as of the 8th day of November, 1996, by and between VARIABLE
ANNUITY PORTFOLIOS, a Massachusetts business trust, having its principal office
and place of business at 6 St. James Avenue, Boston, Massachusetts 02116 (the
"Fund"), and STATE STREET BANK AND TRUST COMPANY, a Massachusetts trust company
having its principal office and place of business at 225 Franklin Street,
Boston, Massachusetts 02110 (the "Bank").
WHEREAS, the Fund is authorized to issue shares in separate series, with each
such series representing interests in a separate portfolio of securities and
other assets; and
WHEREAS, the Fund intends to initially offer shares in five series, CitiSelectSM
VIP Folio 200, CitiSelectSM VIP Folio 300, CitiSelectSM VIP Folio 400,
CitiSelectSM VIP Folio 500 and Landmark Small Cap Equity VIP Fund (each such
series, together with all other series subsequently established by the Fund and
made subject to this Agreement in accordance with Article 10, being herein
referred to as a "Portfolio", and collectively as the "Portfolios");
WHEREAS, the Fund on behalf of the Portfolios desires to appoint the Bank as its
transfer agent, dividend disbursing agent, custodian of certain retirement plans
and agent in connection with certain other activities, and the Bank desires to
accept such appointment;
NOW, THEREFORE, in consideration of the mutual covenants herein contained, the
parties hereto agree as follows:
l. Terms of Appointment; Duties of the Bank
1.1 Subject to the terms and conditions set forth in this Agreement, the
Fund, on behalf of the Portfolios, hereby employs and appoints the Bank
to act as, and the Bank agrees to act as its transfer agent for the
Fund's authorized and issued shares of its common stock, $0.0001 par
value, ("Shares"), dividend disbursing agent, custodian of certain
retirement plans and agent in connection with any accumulation,
open-account or similar plans provided to the shareholders of each of the
respective Portfolios of the Fund ("Shareholders") and set out in the
currently effective prospectus and statement of additional information
("prospectus") of the Fund on behalf of the applicable Portfolio,
including without limitation any periodic investment plan or periodic
withdrawal program.
1.2 The Bank agrees that it will perform the following services:
(a) In accordance with procedures established from time to time by
agreement between the Fund on behalf of each of the Portfolios, as
applicable and the Bank, the Bank shall:
(i) Receive for acceptance, orders for the purchase of Shares, and
promptly deliver payment and appropriate documentation thereof
to the Custodian of the Fund authorized pursuant to the
Declaration of Trust of the Fund (the "Custodian");
(ii) Pursuant to purchase orders, issue the appropriate number of
Shares and hold such Shares in the appropriate Shareholder
account;
(iii) Receive for acceptance redemption requests and redemption
directions and deliver the appropriate documentation thereof
to the Custodian;
(iv) In respect to the transactions in items (i), (ii) and (iii)
above, the Bank shall execute transactions directly with
broker-dealers authorized by the Fund who shall thereby be
deemed to be acting on behalf of the Fund;
(v) At the appropriate time as and when it receives monies paid to
it by the Custodian with respect to any redemption, pay over
or cause to be paid over in the appropriate manner such monies
as instructed by the redeeming Shareholders;
(vi) Effect transfers of Shares by the registered owners thereof
upon receipt of appropriate instructions;
(vii) Prepare and transmit payments for dividends and distributions
declared by the Fund on behalf of the applicable Portfolio;
(viii) Issue replacement certificates for those certificates alleged
to have been lost, stolen or destroyed upon receipt by the
Bank of indemnification satisfactory to the Bank and
protecting the Bank and the Fund, and the Bank at its option,
may issue replacement certificates in place of mutilated stock
certificates upon presentation thereof and without such
indemnity;
(ix) Maintain records of account for and advise the Fund and its
Shareholders as to the foregoing; and
(x) Record the issuance of shares of the Fund and maintain
pursuant to SEC Rule 17Ad-10(e) a record of the total number
of shares of the Fund which are authorized, based upon data
provided to it by the Fund, and issued and outstanding. The
Bank shall also provide the Fund on a regular basis with the
total number of shares which are authorized and issued and
outstanding and shall have no obligation, when recording the
issuance of shares, to monitor the issuance of such shares or
to take cognizance of any laws relating to the issue or sale
of such Shares, which functions shall be the sole
responsibility of the Fund.
(b) In addition to and neither in lieu nor in contravention of the
services set forth in the above paragraph (a), the Bank shall:
(i) perform the customary services of a transfer agent, dividend
disbursing agent, custodian of certain retirement plans and, as
relevant, agent in connection with accumulation, open-account or
similar plans (including without limitation any periodic investment
plan or periodic withdrawal program), including but not limited to:
maintaining all Shareholder accounts, preparing Shareholder meeting
lists, mailing proxies, mailing Shareholder reports and prospectuses
to current Shareholders, withholding taxes on U.S. resident and
non-resident alien accounts, preparing and filing U.S. Treasury
Department Forms 1099 and other appropriate forms required with
respect to dividends and distributions by federal authorities for all
Shareholders, preparing and mailing confirmation forms and statements
of account to Shareholders for all purchases and redemptions of
Shares and other confirmable transactions in Shareholder accounts,
preparing and mailing activity statements for Shareholders, and
providing Shareholder account information and (ii) provide a system
which will enable the Fund to monitor the total number of Shares sold
in each State.
(c) In addition, the Fund shall (i) identify to the Bank in writing those
transactions and assets to be treated as exempt from blue sky
reporting for each State and (ii) verify the establishment of
transactions for each State on the system prior to activation and
thereafter monitor the daily activity for each State. The
responsibility of the Bank for the Fund's blue sky State registration
status is solely limited to the initial establishment of transactions
subject to blue sky compliance by the Fund and the reporting of such
transactions to the Fund as provided above.
(d) Procedures as to who shall provide certain of these services in
Section 1 may be established from time to time by agreement between
the Fund on behalf of each Portfolio and the Bank per the attached
service responsibility schedule. The Bank may at times perform only a
portion of these services and the Fund or its agent may perform these
services on the Fund's behalf.
(e) The Bank shall provide additional services on behalf of the Fund
(i.e., escheatment services) which may be agreed upon in writing
between the Fund and the Bank.
2. Fees and Expenses
2.1 For the performance by the Bank pursuant to this Agreement, the Fund
agrees on behalf of each of the Portfolios to pay the Bank an annual
maintenance fee for each Shareholder account as set out in the initial
fee schedule attached hereto. Such fees and out-of-pocket expenses and
advances identified under Section 2.2 below may be changed from time to
time subject to mutual written agreement between the Fund and the Bank.
2.2 In addition to the fee paid under Section 2.1 above, the Fund agrees on
behalf of each of the Portfolios to reimburse the Bank for out-of-pocket
expenses, including but not limited to confirmation production, postage,
forms, telephone, microfilm, microfiche, tabulating proxies, records
storage, or advances incurred by the Bank for the items set out in the
fee schedule attached hereto. In addition, any other expenses incurred by
the Bank at the request or with the consent of the Fund, will be
reimbursed by the Fund on behalf of the applicable Portfolio.
2.3 The Fund agrees on behalf of each of the Portfolios to pay all fees and
reimbursable expenses within five days following the receipt of the
respective billing notice. Postage for mailing of dividends, proxies,
Fund reports and other mailings to all shareholder accounts shall be
advanced to the Bank by the Fund at least seven (7) days prior to the
mailing date of such materials.
3. Representations and Warranties of the Bank
The Bank represents and warrants to the Fund that:
3.1 It is a trust company duly organized and existing and in good standing
under the laws of The Commonwealth of Massachusetts.
3.2 It is duly qualified to carry on its business in The Commonwealth of
Massachusetts.
3.3 It is empowered under applicable laws and by its Charter and By-Laws to
enter into and perform this Agreement.
3.4 All requisite corporate proceedings have been taken to authorize it to
enter into and perform this Agreement.
3.5 It has and will continue to have access to the necessary facilities,
equipment and personnel to perform its duties and obligations under this
Agreement.
4. Representations and Warranties of the Fund
The Fund represents and warrants to the Bank that:
4.1 It is a business trust duly organized and existing and in good standing
under the laws of The Commonwealth of Massachusetts.
4.2 It is empowered under applicable laws and by its Declaration of Trust and
By-Laws to enter into and perform this Agreement.
4.3 All corporate proceedings required by said Declaration of Trust and
By-Laws have been taken to authorize it to enter into and perform this
Agreement.
4.4 It is an open-end and diversified management investment company
registered under the Investment Company Act of 1940, as amended.
4.5 A registration statement under the Securities Act of 1933, as amended on
behalf of each of the Portfolios is currently effective and will remain
effective, and appropriate state securities law filings have been made
and will continue to be made, with respect to all Shares of the Fund
being offered for sale.
5. Data Access and Proprietary Information
5.1 The Fund acknowledges that the data bases, computer programs, screen
formats, report formats, interactive design techniques, and documentation
manuals furnished to the Fund by the Bank as part of the Fund's ability
to access certain Fund-related data ("Customer Data") maintained by the
Bank on data bases under the control and ownership of the Bank or other
third party ("Data Access Services") constitute copyrighted, trade
secret, or other proprietary information (collectively, "Proprietary
Information") of substantial value to the Bank or other third party. In
no event shall Proprietary Information be deemed Customer Data. The Fund
agrees to treat all Proprietary Information as proprietary to the Bank
and further agrees that it shall not divulge any Proprietary Information
to any person or organization except as may be provided hereunder.
Without limiting the foregoing, the Fund agrees for itself and its
employees and agents:
(a) to access Customer Data solely from locations as may be designated in
writing by the Bank and solely in accordance with the Bank's
applicable user documentation;
(b) to refrain from copying or duplicating in any way the Proprietary
Information;
(c) to refrain from obtaining unauthorized access to any portion of the
Proprietary Information, and if such access is inadvertently
obtained, to inform in a timely manner of such fact and dispose of
such information in accordance with the Bank's instructions;
(d) to refrain from causing or allowing the data acquired hereunder from
being retransmitted to any other computer facility or other location,
except with the prior written consent of the Bank;
(e) that the Fund shall have access only to those authorized transactions
agreed upon by the parties;
(f) to honor all reasonable written requests made by the Bank to protect
at the Bank's expense the rights of the Bank in Proprietary
Information at common law, under federal copyright law and under
other federal or state law.
Each party shall take reasonable efforts to advise its employees of their
obligations pursuant to this Section 5. The obligations of this Section shall
survive any earlier termination of this Agreement.
5.2 If the Fund notifies the Bank that any of the Data Access Services do not
operate in material compliance with the most recently issued user
documentation for such services, the Bank shall endeavor in a timely
manner to correct such failure. Organizations from which the Bank may
obtain certain data included in the Data Access Services are solely
responsible for the contents of such data and the Fund agrees to make no
claim against the Bank arising out of the contents of such third-party
data, including, but not limited to, the accuracy thereof. DATA ACCESS
SERVICES AND ALL COMPUTER PROGRAMS AND SOFTWARE SPECIFICATIONS USED IN
CONNECTION THEREWITH ARE PROVIDED ON AN AS IS, AS AVAILABLE BASIS. THE
BANK EXPRESSLY DISCLAIMS ALL WARRANTIES EXCEPT THOSE EXPRESSLY STATED
HEREIN INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
5.3 If the transactions available to the Fund include the ability to
originate electronic instructions to the Bank in order to (i) effect the
transfer or movement of cash or Shares or (ii) transmit Shareholder
information or other information, then in such event the Bank shall be
entitled to rely on the validity and authenticity of such instruction
without undertaking any further inquiry as long as such instruction is
undertaken in conformity with security procedures established by the Bank
from time to time.
6. Indemnification
6.1 The Bank shall not be responsible for, and the Fund shall on behalf of
the applicable Portfolio indemnify and hold the Bank harmless from and
against, any and all losses, damages, costs, charges, counsel fees,
payments, expenses and liability arising out of or attributable to:
(a) All actions of the Bank or its agents or subcontractors required to
be taken pursuant to this Agreement, provided that such actions are
taken in good faith and without negligence or willful misconduct.
(b) The Fund's lack of good faith, negligence or willful misconduct which
arise out of the breach of any representation or warranty of the Fund
hereunder.
(c) The reliance on or use by the Bank or its agents or subcontractors of
information, records, documents or services which (i) are received by
the Bank or its agents or subcontractors, and (ii) have been
prepared, maintained or performed by the Fund or any other person or
firm on behalf of the Fund including but not limited to any previous
transfer agent or registrar.
(d) The reliance on, or the carrying out by the Bank or its agents or
subcontractors of any instructions or requests of the Fund on behalf
of the applicable Portfolio.
(e) The offer or sale of Shares in violation of any requirement under the
federal securities laws or regulations or the securities laws or
regulations of any state that such Shares be registered in such state
or in violation of any stop order or other determination or ruling by
any federal agency or any state with respect to the offer or sale of
such Shares in such state.
(f) The negotiation and processing by the Bank of checks not made payable
to the order of the Bank, the Fund, the Fund's management company,
transfer agent or distributor or the retirement account custodian or
trustee for a plan account investing in Shares, which checks are
tendered to the Bank for the purchase of Shares (i.e., checks made
payable to prospective or existing Shareholders, such checks are
commonly known as "third party checks").
6.2 At any time the Bank may apply to any officer of the Fund for
instructions, and may consult with legal counsel with respect to any
matter arising in connection with the services to be performed by the
Bank under this Agreement, and the Bank and its agents or subcontractors
shall not be liable and shall be indemnified by the Fund on behalf of the
applicable Portfolio for any action taken or omitted by it in reliance
upon such instructions or upon the opinion of such counsel. The Bank, its
agents and subcontractors shall be protected and indemnified in acting
upon any paper or document, reasonably believed to be genuine and to have
been signed by the proper person or persons, or upon any instruction,
information, data, records or documents provided the Bank or its agents
or subcontractors by machine readable input, telex, CRT data entry or
other similar means authorized by the Fund, and shall not be held to have
notice of any change of authority of any person, until receipt of written
notice thereof from the Fund. The Bank, its agents and subcontractors
shall also be protected and indemnified in recognizing stock certificates
which are reasonably believed to bear the proper manual or facsimile
signatures of the officers of the Fund, and the proper countersignature
of any former transfer agent or former registrar, or of a co-transfer
agent or co-registrar.
6.3 In order that the indemnification provisions contained in this Section 6
shall apply, upon the assertion of a claim for which the Fund may be
required to indemnify the Bank, the Bank shall promptly notify the Fund
of such assertion, and shall keep the Fund advised with respect to all
developments concerning such claim. The Fund shall have the option to
participate with the Bank in the defense of such claim or to defend
against said claim in its own name or in the name of the Bank. The Bank
shall in no case confess any claim or make any compromise in any case in
which the Fund may be required to indemnify the Bank except with the
Fund's prior written consent.
7. Standard of Care
The Bank shall at all times act in good faith and agrees to use its best
efforts within reasonable limits to insure the accuracy of all services
performed under this Agreement, but assumes no responsibility and shall
not be liable for loss or damage due to errors unless said errors are
caused by its negligence, bad faith, or willful misconduct or that of its
employees.
8. Covenants of the Fund and the Bank
8.1 The Fund shall on behalf of each of the Portfolios promptly furnish to
the Bank the following:
(a) A certified copy of the resolution of the Board of Trustees of the
Fund authorizing the appointment of the Bank and the execution and
delivery of this Agreement.
(b) A copy of the Declaration of Trust and By-Laws of the Fund and all
amendments thereto.
8.2 The Bank hereby agrees to establish and maintain facilities and
procedures reasonably acceptable to the Fund for safekeeping of stock
certificates, check forms and facsimile signature imprinting devices, if
any; and for the preparation or use, and for keeping account of, such
certificates, forms and devices.
8.3 The Bank shall keep records relating to the services to be performed
hereunder, in the form and manner as it may deem advisable. To the extent
required by Section 31 of the Investment Company Act of 1940, as amended,
and the Rules thereunder, the Bank agrees that all such records prepared
or maintained by the Bank relating to the services to be performed by the
Bank hereunder are the property of the Fund and will be preserved,
maintained and made available in accordance with such Section and Rules,
and will be surrendered promptly to the Fund on and in accordance with
its request.
8.4 The Bank and the Fund agree that all books, records, information and data
pertaining to the business of the other party which are exchanged or
received pursuant to the negotiation or the carrying out of this
Agreement shall remain confidential, and shall not be voluntarily
disclosed to any other person, except as may be required by law.
8.5 In case of any requests or demands for the inspection of the Shareholder
records of the Fund, the Bank will endeavor to notify the Fund and to
secure instructions from an authorized officer of the Fund as to such
inspection. The Bank reserves the right, however, to exhibit the
Shareholder records to any person whenever it is advised by its counsel
that it may be held liable for the failure to exhibit the Shareholder
records to such person.
9. Termination of Agreement
9.1 This Agreement may be terminated by either party upon one hundred twenty
(120) days written notice to the other.
9.2 Should the Fund exercise its right to terminate, all out-of-pocket
expenses associated with the movement of records and material will be
borne by the Fund on behalf of the applicable Portfolio(s). Additionally,
the Bank reserves the right to charge for any other reasonable expenses
associated with such termination and/or a charge equivalent to the
average of three (3) months' fees.
10. Additional Funds
In the event that the Fund establishes one or more series of Shares in
addition to CitiSelectSM VIP Folio 200, CitiSelectSM VIP Folio 300,
CitiSelectSM VIP Folio 400, CitiSelectSM VIP Folio 500 and Landmark Small
Cap Equity VIP Fund with respect to which it desires to have the Bank
render services as transfer agent under the terms hereof, it shall so
notify the Bank in writing, and if the Bank agrees in writing to provide
such services, such series of Shares shall become a Portfolio hereunder.
11. Assignment
11.1 Except as provided in Section 11.3 below, neither this Agreement nor any
rights or obligations hereunder may be assigned by either party without
the written consent of the other party.
11.2 This Agreement shall inure to the benefit of and be binding upon the
parties and their respective permitted successors and assigns.
11.3 The Bank may, without further consent on the part of the Fund,
subcontract for the performance hereof with (i) Boston Financial Data
Services, Inc., a Massachusetts corporation ("BFDS") which is duly
registered as a transfer agent pursuant to Section 17A(c)(2) of the
Securities Exchange Act of 1934, as amended ("Section 17A(c)(2)"), (ii) a
BFDS subsidiary duly registered as a transfer agent pursuant to Section
17A(c)(2) or (iii) a BFDS affiliate; provided, however, that the Bank
shall be as fully responsible to the Fund for the acts and omissions of
any subcontractor as it is for its own acts and omissions.
12. Amendment
This Agreement may be amended or modified by a written agreement executed
by both parties and authorized or approved by a resolution of the Board
of Trustees of the Fund.
13. Massachusetts Law to Apply
This Agreement shall be construed and the provisions thereof interpreted
under and in accordance with the laws of The Commonwealth of
Massachusetts.
14. Force Majeure
In the event either party is unable to perform its obligations under the
terms of this Agreement because of acts of God, strikes, equipment or
transmission failure or damage reasonably beyond its control, or other
causes reasonably beyond its control, such party shall not be liable for
damages to the other for any damages resulting from such failure to
perform or otherwise from such causes.
15. Consequential Damages
Neither party to this Agreement shall be liable to the other party for
consequential damages under any provision of this Agreement or for any
consequential damages arising out of any act or failure to act hereunder.
16. Merger of Agreement
This Agreement constitutes the entire agreement between the parties
hereto and supersedes any prior agreement with respect to the subject
matter hereof whether oral or written.
17. Limitations of Liability of the Trustees and Shareholders
A copy of the Declaration of Trust of the Trust is on file with the
Secretary of the Commonwealth of Massachusetts, and notice is hereby
given that this instrument is executed on behalf of the Trustees of the
Trust as Trustees and not individually and that the obligations of this
instrument are not binding upon any of the Trustees or Shareholders
individually but are binding only upon the assets and property of the
Fund.
18. Counterparts
This Agreement may be executed by the parties hereto on any number of
counterparts, and all of said counterparts taken together shall be deemed
to constitute one and the same instrument.
19. Reproduction of Documents
This Agreement and all schedules, exhibits, attachments and amendments
hereto may be reproduced by any photographic, photostatic, microfilm,
micro-card, miniature photographic or other similar process. The parties
hereto all/each agree that any such reproduction shall be admissible in
evidence as the original itself in any judicial or administrative
proceeding, whether or not the original is in existence and whether or
not such reproduction was made by a party in the regular course of
business, and that any enlargement, facsimile or further reproduction of
such reproduction shall likewise be admissible in evidence.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
in their names and on their behalf by and through their duly authorized
officers, as of the day and year first above written.
VARIABLE ANNUITY PORTFOLIOS
BY: Philip Coolidge
-------------------------------
ATTEST:
Christine Drapeau
- ------------------------------
STATE STREET BANK AND TRUST
COMPANY
BY: Donald E. Lynn
-------------------------------
Executive Vice President
ATTEST:
Francine A. Hayes
- -------------------------------
<PAGE>
STATE STREET BANK & TRUST COMPANY
FUND SERVICE RESPONSIBILITIES*
Service Performed Responsibility
- ----------------- --------------
Bank Fund
---- ----
1. Receives orders for the purchase of Shares.
2. Issue Shares and hold Shares in Shareholders
accounts.
3. Receive redemption requests.
4. Effect transactions 1-3 above directly with
broker-dealers.
5. Pay over monies to redeeming Shareholders.
6. Effect transfers of Shares.
7. Prepare and transmit dividends and
distributions.
8. Issue Replacement Certificates.
9. Reporting of abandoned property.
10. Maintain records of account.
11. Maintain and keep a current and accurate
control book for each issue of securities.
12. Mail proxies.
13. Mail Shareholder reports.
14. Mail prospectuses to current Shareholders.
15. Withhold taxes on U.S. resident and
non-resident alien accounts.
16. Prepare and file U.S. Treasury Department
forms.
17. Prepare and mail account and confirmation
statements for Shareholders.
18. Provide Shareholder account information.
19. Blue sky reporting.
* Such services are more fully described in Section 1.2 (a), (b) and (c) of the
Agreement.
<PAGE>
Exhibit 25
VARIABLE ANNUITY PORTFOLIOS
The undersigned hereby constitutes and appoints John R. Elder, Susan Jakuboski,
Molly S. Mugler and Linda T. Gibson, and each of them, with full powers of
substitution as his true and lawful attorneys and agents to execute in his name
and on his behalf in any and all capacities the Registration Statements on Form
N-1A, and any and all amendments thereto, filed by Variable Annuity Portfolios
(on behalf of each of its series now or hereinafter created) (the "Registrant")
with the Securities and Exchange Commission under the Securities Act of 1933, as
amended, and under the Investment Company Act of 1940, as amended, and any and
all other instruments which such attorneys and agents, or any of them, deem
necessary or advisable to enable the Registrant to comply with the Securities
Act of 1933, as amended, and the Investment Company Act of 1940, as amended, the
rules, regulations and requirements of the Securities and Exchange Commission,
and the securities or Blue Sky laws of any state or other jurisdiction; and the
undersigned hereby ratifies and confirms as his own act and deed any and all
that such attorneys and agents, or any of them, shall do or cause to be done by
virtue hereof. Any one of such attorneys and agents shall have, and may
exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 6th day of
February, 1998.
Philip W. Coolidge
- -------------------------------
Philip W. Coolidge
<PAGE>
VARIABLE ANNUITY PORTFOLIOS
The undersigned hereby constitutes and appoints Philip W. Coolidge, John R.
Elder, Susan Jakuboski, Molly S. Mugler and Linda T. Gibson, and each of them,
with full powers of substitution as his true and lawful attorneys and agents to
execute in his name and on his behalf in any and all capacities the Registration
Statements on Form N-1A, and any and all amendments thereto, filed by Variable
Annuity Portfolios (on behalf of each of its series now or hereinafter created)
(the "Registrant") with the Securities and Exchange Commission under the
Securities Act of 1933, as amended, and under the Investment Company Act of
1940, as amended, and any and all other instruments which such attorneys and
agents, or any of them, deem necessary or advisable to enable the Registrant to
comply with the Securities Act of 1933, as amended, and the Investment Company
Act of 1940, as amended, the rules, regulations and requirements of the
Securities and Exchange Commission, and the securities or Blue Sky laws of any
state or other jurisdiction; and the undersigned hereby ratifies and confirms as
his own act and deed any and all that such attorneys and agents, or any of them,
shall do or cause to be done by virtue hereof. Any one of such attorneys and
agents shall have, and may exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 6th day of
February, 1998.
Riley C. Gilley
- -------------------------------
Riley C. Gilley
<PAGE>
VARIABLE ANNUITY PORTFOLIOS
The undersigned hereby constitutes and appoints Philip W. Coolidge, John R.
Elder, Susan Jakuboski, Molly S. Mugler and Linda T. Gibson, and each of them,
with full powers of substitution as his true and lawful attorneys and agents to
execute in his name and on his behalf in any and all capacities the Registration
Statements on Form N-1A, and any and all amendments thereto, filed by Variable
Annuity Portfolios (on behalf of each of its series now or hereinafter created)
(the "Registrant") with the Securities and Exchange Commission under the
Securities Act of 1933, as amended, and under the Investment Company Act of
1940, as amended, and any and all other instruments which such attorneys and
agents, or any of them, deem necessary or advisable to enable the Registrant to
comply with the Securities Act of 1933, as amended, and the Investment Company
Act of 1940, as amended, the rules, regulations and requirements of the
Securities and Exchange Commission, and the securities or Blue Sky laws of any
state or other jurisdiction; and the undersigned hereby ratifies and confirms as
his own act and deed any and all that such attorneys and agents, or any of them,
shall do or cause to be done by virtue hereof. Any one of such attorneys and
agents shall have, and may exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 6th day of
February, 1998.
C. Oscar Morong, Jr.
- -------------------------------
C. Oscar Morong, Jr.
<PAGE>
VARIABLE ANNUITY PORTFOLIOS
The undersigned hereby constitutes and appoints Philip W. Coolidge, John R.
Elder, Susan Jakuboski, Molly S. Mugler and Linda T. Gibson, and each of them,
with full powers of substitution as his true and lawful attorneys and agents to
execute in his name and on his behalf in any and all capacities the Registration
Statements on Form N-1A, and any and all amendments thereto, filed by Variable
Annuity Portfolios (on behalf of each of its series now or hereinafter created)
(the "Registrant") with the Securities and Exchange Commission under the
Securities Act of 1933, as amended, and under the Investment Company Act of
1940, as amended, and any and all other instruments which such attorneys and
agents, or any of them, deem necessary or advisable to enable the Registrant to
comply with the Securities Act of 1933, as amended, and the Investment Company
Act of 1940, as amended, the rules, regulations and requirements of the
Securities and Exchange Commission, and the securities or Blue Sky laws of any
state or other jurisdiction; and the undersigned hereby ratifies and confirms as
his own act and deed any and all that such attorneys and agents, or any of them,
shall do or cause to be done by virtue hereof. Any one of such attorneys and
agents shall have, and may exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 6th day of
February, 1998.
E. Kirby Warren
- -------------------------------
E. Kirby Warren
<PAGE>
VARIABLE ANNUITY PORTFOLIOS
The undersigned hereby constitutes and appoints Philip W. Coolidge, John R.
Elder, Susan Jakuboski, Molly S. Mugler and Linda T. Gibson, and each of them,
with full powers of substitution as his true and lawful attorneys and agents to
execute in his name and on his behalf in any and all capacities the Registration
Statements on Form N-1A, and any and all amendments thereto, filed by Variable
Annuity Portfolios (on behalf of each of its series now or hereinafter created)
(the "Registrant") with the Securities and Exchange Commission under the
Securities Act of 1933, as amended, and under the Investment Company Act of
1940, as amended, and any and all other instruments which such attorneys and
agents, or any of them, deem necessary or advisable to enable the Registrant to
comply with the Securities Act of 1933, as amended, and the Investment Company
Act of 1940, as amended, the rules, regulations and requirements of the
Securities and Exchange Commission, and the securities or Blue Sky laws of any
state or other jurisdiction; and the undersigned hereby ratifies and confirms as
his own act and deed any and all that such attorneys and agents, or any of them,
shall do or cause to be done by virtue hereof. Any one of such attorneys and
agents shall have, and may exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 6th day of
February, 1998.
William S. Woods, Jr.
- -------------------------------
William S. Woods, Jr.
<PAGE>
VARIABLE ANNUITY PORTFOLIOS
The undersigned hereby constitutes and appoints Philip W. Coolidge, John R.
Elder, Susan Jakuboski, Molly S. Mugler and Linda T. Gibson, and each of them,
with full powers of substitution as his true and lawful attorneys and agents to
execute in his name and on his behalf in any and all capacities the Registration
Statements on Form N-1A, and any and all amendments thereto, filed by Variable
Annuity Portfolios (on behalf of each of its series now or hereinafter created)
(the "Registrant") with the Securities and Exchange Commission under the
Securities Act of 1933, as amended, and under the Investment Company Act of
1940, as amended, and any and all other instruments which such attorneys and
agents, or any of them, deem necessary or advisable to enable the Registrant to
comply with the Securities Act of 1933, as amended, and the Investment Company
Act of 1940, as amended, the rules, regulations and requirements of the
Securities and Exchange Commission, and the securities or Blue Sky laws of any
state or other jurisdiction; and the undersigned hereby ratifies and confirms as
his own act and deed any and all that such attorneys and agents, or any of them,
shall do or cause to be done by virtue hereof. Any one of such attorneys and
agents shall have, and may exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 6th day of
February, 1998.
Elliott J. Berv
- -------------------------------
Elliott J. Berv
<PAGE>
VARIABLE ANNUITY PORTFOLIOS
The undersigned hereby constitutes and appoints Philip W. Coolidge, John R.
Elder, Susan Jakuboski, Molly S. Mugler and Linda T. Gibson, and each of them,
with full powers of substitution as his true and lawful attorneys and agents to
execute in his name and on his behalf in any and all capacities the Registration
Statements on Form N-1A, and any and all amendments thereto, filed by Variable
Annuity Portfolios (on behalf of each of its series now or hereinafter created)
(the "Registrant") with the Securities and Exchange Commission under the
Securities Act of 1933, as amended, and under the Investment Company Act of
1940, as amended, and any and all other instruments which such attorneys and
agents, or any of them, deem necessary or advisable to enable the Registrant to
comply with the Securities Act of 1933, as amended, and the Investment Company
Act of 1940, as amended, the rules, regulations and requirements of the
Securities and Exchange Commission, and the securities or Blue Sky laws of any
state or other jurisdiction; and the undersigned hereby ratifies and confirms as
his own act and deed any and all that such attorneys and agents, or any of them,
shall do or cause to be done by virtue hereof. Any one of such attorneys and
agents shall have, and may exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 6th day of
February, 1998.
Mark T. Finn
- -------------------------------
Mark T. Finn
<PAGE>
VARIABLE ANNUITY PORTFOLIOS
The undersigned hereby constitutes and appoints Philip W. Coolidge, Susan
Jakuboski, Molly S. Mugler and Linda T. Gibson, and each of them, with full
powers of substitution as his true and lawful attorneys and agents to execute in
his name and on his behalf in any and all capacities the Registration Statements
on Form N-1A, and any and all amendments thereto, filed by Variable Annuity
Portfolios (on behalf of each of its series now or hereinafter created) (the
"Registrant") with the Securities and Exchange Commission under the Securities
Act of 1933, as amended, and under the Investment Company Act of 1940, as
amended, and any and all other instruments which such attorneys and agents, or
any of them, deem necessary or advisable to enable the Registrant to comply with
the Securities Act of 1933, as amended, and the Investment Company Act of 1940,
as amended, the rules, regulations and requirements of the Securities and
Exchange Commission, and the securities or Blue Sky laws of any state or other
jurisdiction; and the undersigned hereby ratifies and confirms as his own act
and deed any and all that such attorneys and agents, or any of them, shall do or
cause to be done by virtue hereof. Any one of such attorneys and agents shall
have, and may exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 6th day of
February, 1998.
John R. Elder
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John R. Elder
<PAGE>
VARIABLE ANNUITY PORTFOLIOS
The undersigned hereby constitutes and appoints Philip W. Coolidge, John R.
Elder, Susan Jakuboski, Molly S. Mugler and Linda T. Gibson, and each of them,
with full powers of substitution as his true and lawful attorneys and agents to
execute in his name and on his behalf in any and all capacities the Registration
Statements on Form N-1A, and any and all amendments thereto, filed by Variable
Annuity Portfolios (on behalf of each of its series now or hereinafter created)
(the "Registrant") with the Securities and Exchange Commission under the
Securities Act of 1933, as amended, and under the Investment Company Act of
1940, as amended, and any and all other instruments which such attorneys and
agents, or any of them, deem necessary or advisable to enable the Registrant to
comply with the Securities Act of 1933, as amended, and the Investment Company
Act of 1940, as amended, the rules, regulations and requirements of the
Securities and Exchange Commission, and the securities or Blue Sky laws of any
state or other jurisdiction; and the undersigned hereby ratifies and confirms as
his own act and deed any and all that such attorneys and agents, or any of them,
shall do or cause to be done by virtue hereof. Any one of such attorneys and
agents shall have, and may exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 6th day of
February, 1998.
Walter E. Robb, III
- -------------------------------
Walter E. Robb, III
<PAGE>
VARIABLE ANNUITY PORTFOLIOS
The undersigned hereby constitutes and appoints Philip W. Coolidge, John R.
Elder, Susan Jakuboski, Molly S. Mugler and Linda T. Gibson, and each of them,
with full powers of substitution as her true and lawful attorneys and agents to
execute in her name and on her behalf in any and all capacities the Registration
Statements on Form N-1A, and any and all amendments thereto, filed by Variable
Annuity Portfolios (on behalf of each of its series now or hereinafter created)
(the "Registrant") with the Securities and Exchange Commission under the
Securities Act of 1933, as amended, and under the Investment Company Act of
1940, as amended, and any and all other instruments which such attorneys and
agents, or any of them, deem necessary or advisable to enable the Registrant to
comply with the Securities Act of 1933, as amended, and the Investment Company
Act of 1940, as amended, the rules, regulations and requirements of the
Securities and Exchange Commission, and the securities or Blue Sky laws of any
state or other jurisdiction; and the undersigned hereby ratifies and confirms as
her own act and deed any and all that such attorneys and agents, or any of them,
shall do or cause to be done by virtue hereof. Any one of such attorneys and
agents shall have, and may exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto set her hand this 6th day of
February, 1998.
Diana R. Harrington
- -------------------------------
Diana R. Harrington
<PAGE>
VARIABLE ANNUITY PORTFOLIOS
The undersigned hereby constitutes and appoints Philip W. Coolidge, John R.
Elder, Susan Jakuboski, Molly S. Mugler and Linda T. Gibson, and each of them,
with full powers of substitution as her true and lawful attorneys and agents to
execute in her name and on her behalf in any and all capacities the Registration
Statements on Form N-1A, and any and all amendments thereto, filed by Variable
Annuity Portfolios (on behalf of each of its series now or hereinafter created)
(the "Registrant") with the Securities and Exchange Commission under the
Securities Act of 1933, as amended, and under the Investment Company Act of
1940, as amended, and any and all other instruments which such attorneys and
agents, or any of them, deem necessary or advisable to enable the Registrant to
comply with the Securities Act of 1933, as amended, and the Investment Company
Act of 1940, as amended, the rules, regulations and requirements of the
Securities and Exchange Commission, and the securities or Blue Sky laws of any
state or other jurisdiction; and the undersigned hereby ratifies and confirms as
her own act and deed any and all that such attorneys and agents, or any of them,
shall do or cause to be done by virtue hereof. Any one of such attorneys and
agents shall have, and may exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto set her hand this 6th day of
February, 1998.
Susan B. Kerley
- -------------------------------
Susan B. Kerley
