INTERIM INVESTMENT ADVISORY AGREEMENT
This AGREEMENT made this 29th day of August, 2001, by and between THE
VARIABLE ANNUITY LIFE INSURANCE COMPANY, hereinafter referred to as the
"ADVISER," and NORTH AMERICAN FUNDS VARIABLE PRODUCT SERIES II, hereinafter
referred to as "NAFV II."
The ADVISER and NAFV II recognize the following:
(a) The ADVISER is a life insurance company organized under Chapter 3 of
the Texas Insurance Code and an investment adviser registered under the
Investment Advisers Act of 1940.
(b) NAFV II is an investment company organized under the laws of Delaware
as a business trust, as a series type of investment company issuing separate
classes (or series) of shares of beneficial interest and is registered as an
open-end, management investment company under the Investment Company Act of
1940 (the "1940 Act"). The 1940 Act prohibits any person from acting as an
investment adviser of a registered investment company except pursuant to a
written contract.
(c) NAFV II currently consists of fifteen portfolios ("Funds"):
North American - AG Aggressive Growth Lifestyle Fund
North American - AG Conservative Growth Lifestyle Fund
North American - AG Core Bond Fund
North American - AG High Yield Bond Fund
North American - AG Moderate Growth Lifestyle Fund
North American - AG 2 Money Market Fund
North American - AG Socially Responsible Fund
North American - AG Strategic Bond Fund
North American - Xxxxxxx Xxxxx Large Cap Growth Fund
North American International Growth Fund
North American - INVESCO MidCap Growth Fund
North American - X.X. Xxxxxx Small Cap Growth Fund
North American - Xxxxxxxxx Xxxxxx XxxXxx Value Fund
North American Small Cap Value Fund
North American - State Street Large Cap Value Fund
In accordance with NAFV II's Agreement and Declaration of Trust (the
"Declaration") and Bylaws, new Funds may be added to NAFV II upon approval of
NAFV II's Board of Trustees without approval of NAFV II's shareholders. This
Agreement will apply only to the Funds set forth on the attached Schedule A
("Covered Funds").
The ADVISER and NAFV II AGREE AS FOLLOWS:
1. Services Rendered and Expenses Paid by ADVISER
The ADVISER, subject to the control, direction, and supervision of NAFV II's
Board of Trustees and in conformity with the 1940 Act, all applicable laws and
regulations thereunder, all other applicable federal and state laws and
regulations, including 817(b) of the Internal Revenue Code of 1986, as amended
(the "Code"), NAFV II's Declaration, Bylaws, registration statements,
prospectus and stated investment objectives, policies and restrictions shall:
(a) manage the investment and reinvestment of the assets of the Covered
Funds including, for example, the evaluation of pertinent economic,
statistical, financial, and other data, the determination of the industries
and companies to be represented in each Covered Fund's portfolio, and the
formulation and implementation of investment programs.
(b) maintain a trading desk and place all orders for the purchase and sale
of portfolio investments for each Covered Fund's account with brokers or
dealers selected by the ADVISER, or arrange for any other entity to provide a
trading desk and to place orders with brokers and dealers selected by the
ADVISER, subject to the ADVISER's control, direction, and supervision.
(c) furnish to the Covered Funds office space, facilities, equipment and
personnel adequate to provide the services described above and pay the
compensation to NAFV II's trustees and officers who are interested persons of
the ADVISER.
In performing the services described in paragraph (b) above, the ADVISER shall
use its best efforts to obtain for the Covered Funds the most favorable overall
price and execution. Subject to prior authorization by NAFV II's Board of
Trustees of appropriate policies and procedures, the ADVISER may cause the
Covered Funds to pay to a broker a commission, for effecting a portfolio
transaction, in excess of the commission another broker would have charged for
effecting the same transaction, if the first broker provided brokerage and/or
research services, including statistical data, to the ADVISER. The ADVISER
shall not be deemed to have acted unlawfully, or to have breached any duty
created by this Agreement, or otherwise, solely by reason of acting according
to such authorization.
The ADVISER shall maintain records adequately demonstrating compliance with
its obligations under this Agreement and report periodically to NAFV II's Board
of Trustees regarding the performance of services under this Agreement.
Except as otherwise agreed, or as otherwise provided herein, the ADVISER shall
bear the expense of discharging its responsibilities hereunder and NAFV II
shall pay, or arrange for others to pay, all its expenses other than those
which part 2 of this Agreement expressly states are payable to the ADVISER.
Expenses payable by NAFV II include, but are not limited to, (i) interest and
taxes; (ii) brokerage commissions and other expenses of purchasing and
selling portfolio investments; (iii) compensation of its trustees and officers
other than those persons who are interested persons of the ADVISER; (iv) fees
of outside counsel to and of independent auditors of NAFV II selected by the
Board of Trustees; (v) fees for accounting services; (vi) custodial,
registration, and transfer agency fees; (vii) expenses related to the
repurchase or redemption of its shares including expenses related to a program
of periodic repurchases or redemptions; (viii) expenses related to issuance of
its shares against payment therefor by, or on behalf of, the subscribers
thereto; (ix) fees and related expenses of registering and qualifying NAFV II
and its shares for distribution under state and federal securities laws; (x)
expenses of printing and mailing to existing shareholders of registration
statements, prospectuses, reports, notices and proxy solicitation materials of
NAFV II; (xi) all other expenses incidental to holding meetings of NAFV II's
shareholders including proxy solicitations therefor; (xii) expenses for
servicing shareholder accounts; (xiii) insurance premiums for fidelity coverage
and errors and omissions insurance; (xiv) dues for NAFV II's membership in
trade associations approved by the Board of Trustees; and (xv) such
non-recurring expenses as may arise, including those associated with actions,
suits, or proceedings to which NAFV II is a party and the legal obligation
which NAFV II may have to indemnify its officers, trustees and employees with
respect thereto. NAFV II shall allocate the foregoing expenses among the
Covered Funds and, to the extent that any of the foregoing expenses are
allocated between the Covered Funds and any other Funds or entities, such
allocations shall be made pursuant to methods approved by the Board of
Trustees.
2. Compensation of ADVISER
NAFV II shall pay to the ADVISER, as compensation for the services rendered,
facilities furnished and expenses paid by the ADVISER, a monthly fee based on
each Covered Fund's average monthly net asset value computed for each Covered
Fund as provided for in the fee schedule attached hereto as Schedule A.
Schedule A may be amended from time to time, provided that amendments are made
in conformity with applicable laws and regulations and the Declaration and
Bylaws of NAFV II. Any change in Schedule A pertaining to any existing or new
Fund shall not be deemed to affect the interest of any other Fund and shall not
require the approval of shareholders of any other Fund.
The average monthly net asset value shall be determined by taking the mean
average of all of the determinations of net asset value, made in the manner
provided in NAFV II's Declaration, for each business day during a given
calendar month. NAFV II shall pay this fee for each calendar month as soon as
practicable after the end of that month.
The ADVISER shall promptly reduce its monthly fee by the amount of any
commissions, tender and exchange offer solicitation fees, other fees, or
similar payments received by the ADVISER, or any affiliated person of the
ADVISER, in connection with any Covered Fund's portfolio transactions, less
the amount of any direct expenses incurred by the ADVISER, or any affiliated
person of the ADVISER, in obtaining such commissions, fees, or payments.
If the ADVISER serves for less than a whole month, the foregoing compensation
shall be prorated.
During the term of this Agreement, the following conditions apply:
(a) The fee shall be held in an interest-bearing escrow account with State
Street Bank and Trust Company;
(b) If a majority of a Covered Fund's outstanding voting securities approve
a new investment advisory agreement (the "New Agreement") with the ADVISER
within 150 days after the date hereof, the amount in the escrow account
(including interest earned thereon) with respect to such Covered Fund shall be
paid to the ADVISER; and
(c) If a majority of a Covered Fund's outstanding voting securities do not
approve a New Agreement with the ADVISER within such 150-day period, the
ADVISER shall be paid from the escrow account, the lesser of an amount equal
to
(i) any costs incurred in performing this Agreement (plus interest earned
on that amount in the escrow account); or
(ii) the total amount in the escrow account (plus interest earned thereon).
3. Scope of ADVISER's Duties
The ADVISER, and any person controlling, controlled by or under common
control with the ADVISER, shall remain free to provide similar investment
advisory services to other persons or engage in any other business or
activity which does not impair the services which the ADVISER renders to the
Covered Funds.
Except as otherwise required by the 1940 Act, any of the shareholders,
trustees, officers and employees of NAFV II may be a shareholder, director,
officer or employee of, or be otherwise interested in, the ADVISER, and in any
person controlling, controlled by or under common control with the ADVISER;
and the ADVISER, and any person controlling, controlled by or under common
control with the ADVISER, may have an interest in NAFV II.
The ADVISER shall not be liable to NAFV II, or to any shareholder in NAFV II,
for any act or omission in rendering services under this Agreement, or for any
losses sustained in the purchase, holding, or sale of any portfolio security,
so long as there has been no willful misfeasance, bad faith, negligence, or
reckless disregard of obligations or duties on the part of the ADVISER.
The ADVISER may from time to time employ or associate with itself any person
or persons believed to be particularly fitted to assist in its performance of
services under this Agreement, provided that any such person who serves or
acts as an investment adviser separate from the ADVISER will do so pursuant to
a sub-advisory agreement as provided in the following paragraph. The
compensation of any such persons will be paid by the ADVISER, and no obligation
will be incurred by, or on behalf of, NAFV II with respect to them.
Notwithstanding any other provision of this Agreement, NAFV II hereby
authorizes the ADVISER to employ an investment sub-adviser for any one or
more of the Covered Funds for the purpose of providing investment management
services with respect to such Covered Funds, provided that (a) the compensation
to be paid to such investment sub-adviser shall be the sole responsibility of
the ADVISER, (b) the duties and responsibilities of the investment sub-adviser
shall be as set forth in a sub-advisory agreement including the ADVISER and the
investment sub-adviser as parties, (c) such sub-advisory agreement shall be
adopted and approved in conformity with applicable laws and regulations, and
(d) such sub-advisory agreement may be terminated at any time, on not more
than 60 days' written notice, by the ADVISER on notice to the sub-adviser and
NAFV II, by the sub-adviser on notice to the ADVISER and NAFV II, and by NAFV
II's Board of Trustees or by a majority vote of the Covered Fund's outstanding
voting securities on notice to the sub-adviser and the ADVISER.
4. Duration of Agreement
This Agreement shall become effective as to the Covered Funds as of the date
hereof and will continue in effect as to a Covered Fund until a New Agreement
is approved by shareholders of such Covered Fund or for 150 days, whichever
is less.
This Agreement shall automatically terminate in the event of its assignment.
This Agreement may be terminated, without the payment of any penalty, as to
any Covered Fund at any time by NAFV II's Board of Trustees or by vote of a
majority of that Covered Fund's outstanding voting securities, on not more than
ten calendar days' written notice to the ADVISER, or by the ADVISER, on not
more than 60 days' nor less than 30 days' written notice, or upon such shorter
notice as may be mutually agreed upon.
5. Applicability of Federal Securities Laws
This Agreement shall be interpreted in accordance with applicable federal
securities laws and regulations, including definitions therein and such
exemptions as may be granted to the ADVISER or NAFV II by the Securities and
Exchange Commission (the "Commission") or such interpretive positions as may be
taken by the Commission or its staff. To the extent that the applicable law
of the State of Texas, or any of the provisions herein, conflict with
applicable provisions of the federal securities laws, the latter shall control.
6. Miscellaneous Provisions
For the purposes of this Agreement, the terms "affiliated person,"
"assignment," "interested person," and "majority of outstanding voting
securities" shall have their respective meanings defined in the 1940 Act and
the Rules and Regulations thereunder, subject, however, to such exemptions as
may be granted to either the ADVISER or NAFV II by the Commission, or such
interpretive positions as may be taken by the Commission or its staff, under
the 1940 Act, and the term "brokerage and research services" shall have the
meaning given in the Securities Exchange Act of 1934 and the Rules and
Regulations thereunder.
The parties hereto have each caused this Agreement to be signed in duplicate on
its behalf by its duly authorized officer on the above date.
NORTH AMERICAN FUNDS VARIABLE PRODUCT SERIES II
By: _______________________________________________________
Name:
Title:
ATTEST:
____________________________________
Secretary
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
By: _______________________________________________________
Name:
Title:
ATTEST:
____________________________________
Secretary
SCHEDULE A
to Investment Advisory Agreement
(Effective August 29, 2001)
Annual Fee computed at the following annual rate, based on average monthly net
asset value and payable monthly:
North American International 0.90% on the first $100 million
Growth Fund 0.80% over $100 million
North American - State Street 0.50%
Large Cap Value Fund
North American - Xxxxxxx Sachs 0.55%
Large Cap Growth Fund
North American - Neuberger 0.75% on the first $100 million
Xxxxxx MidCap Value Fund 0.725% on the next $150 million
0.70% on the next $250 million
0.675% on the next $250 million
0.65% over $750 million
North American - INVESCO 0.65% on the first $25 million
MidCap Growth Fund 0.55% on the next $25 million
0.45% over $50 million
North American Small Cap 0.75% on the first $50 million
Value Fund 0.65% over $50 million
North American - X.X. Xxxxxx 0.85%
Small Cap Growth Fund
North American - AG Socially 0.25%
Responsible Fund
North American - AG 2 Money 0.25%
Market Fund
North American - AG Conservative 0.10%
Growth Lifestyle Fund
North American - AG Moderate 0.10%
Growth Lifestyle Fund
North American - AG Aggressive 0.10%
Growth Lifestyle Fund
North American - AG Core 0.50% on first $200 million
Bond Fund 0.45% on next $300 million
0.40% over $500 million
North American - AG Strategic 0.60% on first $200 million
Bond Fund 0.50% on next $300 million
0.45% over $500 million
North American - AG High 0.70% on first $200 million
Yield Bond Fund 0.60% on next $300 million
0.55% over $500 million
