Exhibit (h)(10)
EXPENSE LIMITATION AGREEMENT
FREE ENTERPRISE ACTION FUND
SERIES OF
VARIABLE INSURANCE FUNDS
This EXPENSE LIMITATION AGREEMENT, dated March 1, 2005, and amended and restated
effective January 1, 2006, is by and between Action Fund Management, LLC (the
"Adviser") and Variable Insurance Funds (the "Trust"), on behalf of its series,
the Free Enterprise Action Fund (the "Fund").
WHEREAS the Trust is a business trust organized under Massachusetts law, and is
registered under the Investment Company Act of 1940 (the "1940 Act") as an
open-end management investment company of the series type (the Fund being a
series of the Trust); and
WHEREAS the Trust and the Adviser have entered into an Investment Advisory
Agreement dated effective March 1, 2005 ("Advisory Agreement"), pursuant to
which the Adviser provides investment advisory services to the Fund for
compensation based on the value of the average daily net assets of the Fund; and
WHEREAS the Trust and the Adviser have determined that it is appropriate and in
the best interests of the Fund and its shareholders to maintain the expenses of
the Fund at a level below the level to which the Fund might otherwise be
subject; NOW, THEREFORE, the parties to this Agreement acknowledge and agree to
the following:
1. EXPENSE LIMITATION
1.1 OPERATING EXPENSE LIMIT. The maximum operating expense limit ("Operating
Expense Limit") in any year with respect to the Fund is the amount specified in
Schedule A, which is based on a percentage of the average daily net assets of
the Fund.
1.2 APPLICABLE EXPENSE LIMIT. To the extent that the aggregate expenses incurred
by the Fund in any fiscal year (referred to as "Portfolio Operating Expenses")
exceed the Operating Expense Limit, the excess amount ("Excess Amount") will be
the liability of the Adviser. Portfolio Operating Expenses may include, but are
not limited to, investment advisory fees of the Adviser. Portfolio Operating
Expenses do not include interest, taxes, brokerage commissions, other
expenditures capitalized in accordance with generally accepted accounting
principles, and other extraordinary expenses not incurred in the ordinary course
of the Fund's business.
1.3 METHOD OF COMPUTATION. To determine the Adviser's liability with respect to
the Excess Amount, each month the Portfolio Operating Expenses for the Fund will
be annualized as of the last day of the month. If the annualized Portfolio
Operating Expenses of the Fund exceed the Operating Expense Limit of the Fund
for the month, the Adviser
will waive its investment advisory fees and/or remit to the Fund an amount
sufficient to reduce the Excess Amount so that the annualized Portfolio
Operating Expenses equal or fall below the applicable Operating Expense Limit.
Such waivers and/or remittance will be effected on a monthly basis.
1.4 YEAR-END ADJUSTMENT. If necessary, on or before the last day of the first
month of each fiscal year, an annual adjustment payment will be made by the
appropriate party in order that the amount of the investment advisory fees
waived or reduced by the Adviser, as well as other payments remitted by the
Adviser to the Fund with respect to adjustments made to the Portfolio Operating
Expenses for the previous fiscal year, shall equal the Excess Amount.
2. REIMBURSEMENT OF FEE WAIVERS AND EXPENSE REIMBURSEMENTS
2.1 REIMBURSEMENT. If during any month in which the Advisory Agreement is still
in effect, the estimated aggregate Portfolio Operating Expenses of the Fund for
the month are less than the Operating Expense Limit for that month, the Adviser
will be entitled to reimbursement of fees waived or amounts remitted by the
Adviser to the Fund pursuant to Section 1 of this Agreement. The total amount of
reimbursement recoverable by the Adviser (the "Reimbursement Amount") is the sum
of all fees previously waived or remitted by the Adviser to the Fund during any
of the previous three (3) years, pursuant to Section 1 of this Agreement, less
any reimbursement previously paid by the Fund to the Adviser with respect to any
waivers, reductions, and payments made with respect to the Fund. The
Reimbursement Amount may not include any additional charges or fees, such as
interest accruable on the Reimbursement Amount.
2.2 BOARD APPROVAL. No Reimbursement Amount will be paid to the Adviser in any
month unless the Trust's Board of Trustees has determined that a reimbursement
is in the best interest of the Fund and its shareholders. The Trust's Board of
Trustees will determine quarterly in advance whether any Reimbursement Amount
may be paid to the Adviser during the quarter.
3. TERM AND TERMINATION OF AGREEMENT
After April 30, 2006, the Adviser may, upon ninety (90) days' prior written
notice to the Trust, terminate this Agreement with respect to the Fund listed in
Schedule A. If this Agreement is not terminated, it will continue and remain in
effect from year to year after that date.
This Agreement shall automatically terminate upon termination of the Advisory
Agreement.
4. MISCELLANEOUS
4.1 CAPTIONS. The captions in this Agreement are included for convenience of
reference only and do not define or delineate any of the provisions of the
Agreement, or otherwise affect their construction or effect.
4.2 INTERPRETATION. Nothing in this Agreement requires the Trust or the Fund to
take any action contrary to the Trust's Declaration of Trust, Bylaws, or any
applicable statutory or regulatory requirement to which the Trust or Fund is
subject, nor does this Agreement relieve or deprive the Board of Trustees of its
responsibility for and control of the conduct of the affairs of the Trust or the
Fund.
4.3 DEFINITIONS. Any questions of interpretation of any term or provision of
this Agreement has the same meaning and is to be resolved by reference to, the
1940 Act and the Advisory Agreement between the parties.
4.4. GOVERNING LAW. This Agreement shall be governed by and its provisions shall
be construed in accordance with the laws of the Commonwealth of Massachusetts,
notwithstanding the conflict of law provisions of that state, and shall be
construed to promote the operation of the Trust as an open-end management
investment company.
4.56. MISCELLANEOUS. It is expressly agreed that the obligations of the Trust
hereunder shall not be binding upon any of the Trustees, shareholders, nominees,
officers, agents or employees of the Trust personally, but shall bind only the
trust property of the Trust. The execution and delivery of this Agreement have
been authorized by the Trustees, and this Agreement has been signed and
delivered by an authorized officer of the Trust, acting as such, and neither
such authorization by the 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 trust
property of the Trust as provided in the Trust's Declaration of Trust.
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed by their
respective duly authorized officers, as of the day and year first above written.
VARIABLE INSURANCE FUNDS
By:
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ACTION FUND MANAGEMENT, LLC
By:
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▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Managing Director
SCHEDULE A
EXPENSE LIMITATION AGREEMENT
FREE ENTERPRISE ACTION FUND
SERIES OF
VARIABLE INSURANCE FUNDS
OPERATING EXPENSE LIMITS
This Agreement relates to the following Fund of the Trust:
MAXIMUM OPERATING
EXPENSE LIMIT
(AS A PERCENTAGE OF
NAME OF FUND AVERAGE NET ASSETS)
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Free Enterprise Action Fund 1.75%*
* For fiscal year ended December 31, 2005, the maximum expense limit was at
2.00% of the average daily net assets of the Fund.
