EXHIBIT 4(d)(1)
INTERIM INVESTMENT SUB-ADVISORY AGREEMENT
This AGREEMENT made this 29th day of August, 2001, by and between THE VARIABLE
ANNUITY LIFE INSURANCE COMPANY, hereinafter referred to as "VALIC," and AMERICAN
GENERAL INVESTMENT MANAGEMENT, L.P., or its affiliate, hereinafter referred to
as the "SUB-ADVISER."
VALIC and the SUB-ADVISER recognize the following:
(a) VALIC 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, as amended ("Advisers Act").
(b) VALIC is engaged as the investment adviser of North
American - AG Core Bond Fund, North American - AG
Strategic Bond Fund and North American - AG High
Yield Bond Fund (each a "Fund" and collectively, the
"Funds") pursuant to an Interim Investment Advisory
Agreement of even date herewith between VALIC and
North American Funds Variable Product Series II
("NAFV II"), an investment company organized under
the laws of Delaware as a business trust. NAFV II is
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, as amended ("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 - ▇▇▇▇▇▇▇ ▇▇▇▇▇ Large Cap Growth Fund
North American International Growth Fund
North American - INVESCO Mid Cap Growth Fund
North American - ▇.▇. ▇▇▇▇▇▇ Small Cap Growth Fund
North American - ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ Mid Cap Value Fund
North American Small Cap Value Fund
North American - State Street Large Cap Value Fund
In accordance with the NAFV II Agreement and
Declaration of Trust (the "Declaration"), new Funds
may be added to NAFV II upon approval of the Board of
Trustees without the approval of shareholders. This
Agreement will apply only to the Fund(s) set forth on
the attached Schedule A ("Covered Fund(s)").
(d) The SUB-ADVISER is engaged principally in the
business of rendering investment advisory services
and is registered as an investment adviser under the
Advisers Act.
(e) VALIC desires to enter into an Investment
Sub-Advisory Agreement with the SUB-ADVISER for all
or a portion of the assets of the Covered Fund(s)
which VALIC determines from time to time to assign to
the SUB-ADVISER.
1
VALIC and the SUB-ADVISER AGREE AS FOLLOWS:
1. SERVICES RENDERED AND EXPENSES PAID BY THE SUB-ADVISER
The SUB-ADVISER, subject to the control, direction, and supervision of
VALIC and the NAFV II Board of Trustees and in material conformity with
the 1940 Act, all applicable laws and regulations thereunder, all other
applicable federal and state securities and tax laws and regulations,
including section 817(h) and Subchapter M of the Internal Revenue Code
of 1986, as amended (the "Code"), the NAFV II Declaration, Bylaws,
registration statements, prospectus and stated investment objectives,
policies and restrictions and any applicable procedures adopted by the
NAFV II Board of Trustees and provided to the SUB-ADVISER shall:
(a) manage the investment and reinvestment of the assets
of the Covered Fund(s) 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 orders for the
purchase and sale of portfolio investments (including
futures contracts and options thereon) for each
Covered Fund's account with brokers or dealers
(including futures commission merchants) selected by
the SUB-ADVISER, or arrange for any other entity to
provide a trading desk and to place orders with
brokers and dealers (including futures commission
merchants) selected by the SUB-ADVISER, subject to
the SUB-ADVISER's control, direction, and
supervision, which brokers or dealers may include
brokers or dealers (including futures commission
merchants) affiliated with the SUB-ADVISER, subject
to applicable law.
In performing the services described in paragraph (b) above, the
SUB-ADVISER shall use its best efforts to obtain for the Covered
Fund(s) the best execution of portfolio transactions. Subject to
approval by the NAFV II Board of Trustees of appropriate policies and
procedures, the SUB-ADVISER may cause the Covered Fund(s) 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 to the SUB-ADVISER. The SUB-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 in
accordance with such authorization.
The SUB-ADVISER shall maintain records adequately demonstrating
compliance with its obligations under this Agreement and report
periodically to VALIC and the NAFV II Board of Trustees regarding the
performance of its services under this Agreement. The SUB-ADVISER will
make available to VALIC and NAFV II promptly upon their reasonable
written request all of the Covered Fund(s)' investment records and
ledgers to assist VALIC and NAFV II in compliance with respect to each
Covered Fund's securities transactions as required by the 1940 Act and
the Advisers Act, as well as other applicable laws. The SUB-ADVISER
will furnish the Board of Trustees such periodic and special reports as
VALIC and the NAFV II Board of Trustees may reasonably request. The
SUB-ADVISER will furnish to regulatory authorities any information or
reports in connection with such services which may be requested in
order to ascertain whether the operations of the Covered Fund(s) are
being conducted in a manner consistent with applicable laws and
regulations. The SUB-ADVISER will not disclose or use any records or
information obtained pursuant to this Agreement in any manner
whatsoever except as expressly authorized in this Agreement, and will
keep confidential any non-public information obtained directly as a
result of this service relationship, and the SUB-ADVISER shall disclose
such non-public information only if VALIC or the Board of Trustees has
authorized such disclosure, or if such information is or hereafter
otherwise is known by the SUB-ADVISER or has been disclosed, directly
or indirectly, by VALIC or NAFV II to others becomes ascertainable from
public or published information or trade sources, or if such disclosure
is expressly required or requested by applicable federal or state
regulatory authorities, or to the extent such disclosure is reasonably
required by auditors or attorneys of the SUB-ADVISER
2
in connection with the performance of their professional services.
Notwithstanding the foregoing, the SUB-ADVISER may disclose the total
return earned by the Covered Fund(s) and may include such total return
in the calculation of composite performance information without prior
approval by VALIC or the NAFV II Board of Trustees.
Should VALIC at any time make any definite determination as to any
investment policy and notify the SUB-ADVISER in writing of such
determination, the SUB-ADVISER 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, provided such
determination will permit SUB-ADVISER to comply with the first
paragraph of this Section.
The SUB-ADVISER will not hold money or investments on behalf of the
Fund. The money and investments will be held by the Custodian of the
Fund. The SUB-ADVISER will arrange for the transmission to the
Custodian for the Fund, on a daily basis, such confirmation, trade
tickets and other documents as may be necessary to enable it to perform
its administrative responsibilities with respect to the Covered
Fund(s). The SUB-ADVISER further shall have the authority to instruct
the custodian of the Fund (i) to pay cash for securities and other
property delivered to the Custodian for the Fund (ii) to deliver
securities and other property against payment for the Fund, and (iii)
to transfer assets and funds to such brokerage accounts as the
SUB-ADVISER may designate, all consistent with the powers, authorities
and limitations set forth herein. The SUB-ADVISER shall not have the
authority to cause the Custodian to deliver securities and other
property except as expressly provided for in this Agreement.
The SUB-ADVISER may aggregate sales and purchase orders of securities
held by the Fund with similar orders being made simultaneously for
other accounts managed by the SUB-ADVISER or with accounts of the
affiliates of the SUB-ADVISER, if in the SUB-ADVISER's reasonable
judgment such aggregation shall result in an overall economic benefit
to the Fund considering 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. VALIC acknowledges that the
determination of such economic benefit to the Fund by the SUB-ADVISER
is subjective and represents the SUB-ADVISER's evaluation that the 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.
The SUB-ADVISER shall for all purposes herein be deemed to be an
independent contractor and shall, unless otherwise provided or
authorized, have no authority to act or represent VALIC or NAFV II
other than in furtherance of the SUB-ADVISER's duties and
responsibilities as set forth in this Agreement.
Except as otherwise agreed, or as otherwise provided herein, the
SUB-ADVISER shall bear the expense of discharging its responsibilities
hereunder and VALIC shall pay, or arrange for others to pay, all
VALIC's expenses, except that VALIC shall in all events pay the
compensation described in Section 2 of the Agreement.
2. COMPENSATION OF THE SUB-ADVISER
VALIC shall pay to the SUB-ADVISER, as compensation for the services
rendered and expenses paid by the SUB-ADVISER, a monthly fee or fees
based on each Covered Fund's average monthly net asset value computed
for each Covered Fund as provided for herein and 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 NAFV II Declaration and Bylaws. Any change
in Schedule A pertaining to any new or existing 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 the NAFV II Declaration, for each business day
during a given calendar month. VALIC shall pay this fee for each
calendar month as soon as practicable after the end of that month, but
in any event no later than ten (10) days following the end of the
month.
3
If the SUB-ADVISER serves for less than a whole month, the foregoing
compensation shall be prorated.
The payment of advisory fees related to the services of the SUB-ADVISER
under this Agreement shall be the sole responsibility of VALIC and
shall not be the responsibility of the Fund.
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 sub-advisory agreement
(the "New Sub-Advisory Agreement") with the SUB-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 SUB-ADVISER; and
c. If a majority of a Covered Fund's outstanding voting
securities do not approve a New Sub-Advisory Agreement with
the SUB-ADVISER within such 150-day period, the SUB-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 THE SUB-ADVISER'S ACTIVITIES
VALIC understands that the SUB-ADVISER and its affiliates now act, will
continue to act and may act in the future as investment adviser to
fiduciary and other managed accounts and as investment adviser to other
investment companies, and VALIC has no objection to the SUB-ADVISER so
acting, provided that whenever a Covered Fund and one or more other
accounts or investment companies advised by the SUB-ADVISER have
available funds for investment, investments suitable and appropriate
for each will be allocated in accordance with a methodology believed to
be equitable to each entity. The SUB-ADVISER similarly agrees to
allocate opportunities to sell securities. VALIC recognizes that, in
some cases, this procedure may limit the size of the position that may
be acquired or sold for a Covered Fund. In addition, VALIC understands
that the persons employed by the SUB-ADVISER to assist in the
performance of the SUB-ADVISER's duties hereunder will not devote their
full time to such service and nothing contained herein shall be deemed
to limit or restrict the right of the SUB-ADVISER or any affiliate of
the SUB-ADVISER to engage in and devote time and attention to other
business or to render services of whatever kind or nature.
Except as otherwise required by the 1940 Act, any of the shareholders,
directors, officers and employees of VALIC may be a shareholder,
director, officer or employee of, or be otherwise interested in, the
SUB-ADVISER, and in any person controlling, controlled by or under
common control with the SUB-ADVISER; and the SUB-ADVISER, and any
person controlling, controlled by or under common control with the
SUB-ADVISER, may have an interest in VALIC.
The SUB-ADVISER shall not be liable to VALIC, NAFV II, the Fund, or to
any shareholder in the Fund, and VALIC shall indemnify the SUB-ADVISER,
for any act or omission in rendering services under this Agreement, or
for any losses sustained in connection with the matters to which this
agreement relates, so long as there has been no willful misfeasance,
bad faith, gross negligence, or reckless disregard of obligations or
duties on the part of the SUB-ADVISER in performing its duties under
this Agreement.
VALIC shall perform quarterly and annual tax compliance tests and
promptly furnish reports of such tests to the SUB-ADVISER after each
quarter end to ensure that the Fund is in compliance with Subchapter M
of the
4
Code and Section 817(h) of the Code. VALIC shall apprise the
SUB-ADVISER promptly after each quarter end of any potential
non-compliance with the diversification requirements in such Code
provisions. If so advised, the SUB-ADVISER shall take prompt action so
that NAFV II(s) comply with such Code diversification provisions, as
directed by VALIC.
4. REPRESENTATIONS OF THE SUB-ADVISER AND VALIC
The SUB-ADVISER represents, warrants, and agrees as follows:
(a) The SUB-ADVISER (i) is registered as an investment adviser
under the Advisers Act and will continue to be so registered
for so long as this Agreement remains in effect: (ii) is not
prohibited by the 1940 Act or the Advisers Act from performing
the services contemplated by this Agreement; (iii) has met,
and will continue to meet for so long as this Agreement
remains in effect, any applicable federal or state
requirements, or the applicable requirements of any regulatory
or industry self-regulatory agency, necessary to be met in
order to perform the services contemplated by this Agreement,
(iv) has the authority to enter into and perform the services
contemplated by this Agreement, and (v) will immediately
notify VALIC of the occurrence of any event that would
disqualify the SUB-ADVISER from serving as an investment
adviser of an investment company pursuant to Section 9(a) of
the 1940 Act or otherwise.
(b) The SUB-ADVISER has adopted a written code of ethics complying
with the requirements of Rule 17j-1 under the 1940 Act and if
it has not already done so, will provide VALIC with a copy of
such code of ethics together with evidence of its adoption.
(c) The SUB-ADVISER has provided VALIC with a copy of its Form ADV
as most recently filed with the SEC and will promptly after
filing any amendment to its Form ADV with the SEC, furnish a
copy of such amendment to VALIC.
VALIC represents, warrants, and agrees as follows:
VALIC: (i) is registered as an investment adviser under the Advisers
Act and will continue to be so registered for so long as this Agreement
remains in effect: (ii) is not prohibited by the 1940 Act or the
Advisers Act from performing the services contemplated by this
Agreement; (iii) has met, and will continue to meet for so long as this
Agreement remains in effect, any applicable federal or state
requirements, or the applicable requirements of any regulatory or
industry self-regulatory agency, necessary to be met in order to
perform the services contemplated by this Agreement, (iv) has the
authority to enter into and perform the services contemplated by this
Agreement, and (v) will immediately notify the SUB-ADVISER of the
occurrence of any event that would disqualify VALIC from serving as an
investment adviser of an investment company pursuant to Section 9(a) of
the 1940 Act or otherwise.
5. TERM OF AGREEMENT
This Agreement shall become effective as to the Covered Fund(s) as of
the date hereof and will continue in effect as to a Covered Fund until
a new Investment Sub-advisory Agreement is approved by shareholders of
the Covered Fund(s) or for 150 days, whichever is less.
This Agreement shall automatically terminate in the event of its
assignment as that term is defined in the 1940 Act, or in the event of
the termination of the Investment Advisory Agreement between VALIC and
NAFV II as it relates to any Covered Fund. The Agreement may be
terminated as to any Covered Fund at any time, without the payment of
any penalty, by vote of 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' prior written notice to the SUB-ADVISER.
This Agreement may also be terminated by VALIC: (i) on 30-60 days'
prior written notice to the SUB-ADVISER, without the payment of any
penalty; or (ii) if the SUB-ADVISER becomes unable to
5
discharge its duties and obligations under this Agreement. The
SUB-ADVISER may terminate this Agreement at any time, or preclude its
renewal without the payment of any penalty, on at least 60 days' prior
written notice to VALIC.
6. OTHER MATTERS
The SUB-ADVISER may from time to time employ or associate with itself
any person or persons believed to be particularly fit to assist in its
performance of services under this Agreement, provided no such person
serves or acts as an investment adviser separate from the SUB-ADVISER
so as to require a new written contract pursuant to the 1940 Act. The
compensation of any such persons will be paid by the SUB-ADVISER, and
no obligation will be incurred by, or on behalf of, VALIC or the Fund
with respect to them.
The SUB-ADVISER agrees that all books and records which it maintains
for the Fund are the Fund's property. The SUB-ADVISER also agrees upon
request of VALIC or the Fund, to promptly surrender the books and
records in accordance with the 1940 Act and rules thereunder. The
SUB-ADVISER further agrees to preserve for the periods prescribed by
Rule 31a-2 under the 1940 Act the records required to be maintained by
Rule 31a-1 under the 1940 Act.
VALIC has herewith furnished the SUB-ADVISER copies of the Fund's
Prospectus, Statement of Additional Information, Declaration and Bylaws
as currently in effect and agrees during the continuance of this
Agreement to furnish the SUB-ADVISER copies of any amendments or
supplements thereto before or at the time the amendments or supplements
become effective. Until VALIC delivers any amendments or supplements to
the SUB-ADVISER, the SUB-ADVISER shall be fully protected in relying on
the documents previously furnished to it.
The SUB-ADVISER is authorized to honor and act on any notice,
instruction or confirmation given by VALIC on behalf of the Fund in
writing signed or sent by any of the persons whose names, addresses and
specimen signatures will be provided by VALIC from time to time. The
SUB-ADVISER shall not be liable for so acting in good faith upon such
instructions, confirmation or authority, notwithstanding that it shall
subsequently be shown that the same was not given or signed or sent by
an authorized person.
VALIC agrees to furnish the SUB-ADVISER at its principal office prior
to use thereof, copies of all prospectuses, proxy statements, reports
to shareholders, sales literature, or other material prepared for
distribution to interest holders of the Fund or the public that refer
in any way to the SUB-ADVISER, and not to use such material if the
SUB-ADVISER reasonably objects in writing within ten (10) business days
(or such other time as may be mutually agreed) after receipt thereof.
In the event of termination of this agreement, VALIC will continue to
furnish to the SUB-ADVISER copies of any of the above-mentioned
materials that refer in any way to the SUB-ADVISER. VALIC shall furnish
or otherwise make available to the SUB-ADVISER such other information
relating to the business affairs of VALIC and the Fund as the
SUB-ADVISER at any time, or from time to time, may reasonably request
in order to discharge obligations hereunder. Subject to provisions of
this paragraph, SUB-ADVISER grants VALIC and the Fund a non-exclusive
right to use the "American General Investment Management" name in
connection with the SUB-ADVISER's management of the Fund (i) for so
long as this Agreement, any other investment management agreement
between VALIC and SUB-ADVISER with respect to NAFV II, or to any
extension, renewal or amendment thereof, remain in effect, and (ii) for
subsequent periods as long as required by law, rule or regulation or to
the extent necessary to refer to or illustrate the historical
performance of the Fund.
VALIC agrees to indemnify the SUB-ADVISER for losses, costs, fees,
expenses and claims which arise directly or indirectly (i) as a result
of a failure by VALIC to provide the services or furnish materials
required under the terms of this Investment Sub-Advisory Agreement, or
(ii) as the result of any untrue statement of a material fact or any
omission to state a material fact required to be stated or necessary to
make the statements, in light of the circumstances under which they
were made, not misleading in any registration statements, proxy
materials, reports, advertisements, sales literature, or other
materials pertaining to the Fund, except insofar as any such
6
statement or omission was specifically made in reliance on written
information provided by the SUB-ADVISER to VALIC.
The SUB-ADVISER agrees to indemnify VALIC for losses and claims which
arise (i) as a result of a failure by SUB-ADVISER to provide the
services or furnish the materials required under the terms of this
Investment Sub-Advisory Agreement, or (ii) as the result of any untrue
statement of a material fact or any omission to state a material fact
required to be stated or necessary to make the statements, in light of
the circumstances under which they were made, not misleading in any
registration statements, proxy materials, reports, advertisements,
sales literature, or other materials pertaining to the Fund, but only
to the extent that such statement or omission was specifically made in
reliance on written information provided by the SUB-ADVISER to VALIC.
Provided, however, that the SUB-ADVISER's responsibility, if any, to
provide VALIC with indemnification pursuant to this paragraph or any
other provision of this Agreement for any failure on the SUB-ADVISER's
part to comply with the diversification requirements specified in
Section 817(h) of the Code or the qualification standards of Subchapter
M of the Code shall not for any Covered Fund exceed the lesser of $1
million or 2% of the Covered Fund's net assets (measured as of the end
of the first calendar quarter during which non-compliance with Section
817(h) or Subchapter M of the Code first occurred).
7
7. APPLICABILITY OF FEDERAL SECURITIES LAWS
This Agreement shall be interpreted in accordance with the laws of the
State of Texas and applicable federal securities laws and regulations,
including definitions therein and such exemptions as may be granted to
VALIC or the SUB-ADVISER by the Securities and Exchange 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.
8. AMENDMENT AND WAIVER
Provisions of this Agreement may be amended, waived, discharged or
terminated only by an instrument in writing signed by the party against
which enforcement of the change, waiver, discharge or termination is
sought. The Agreement may be amended by mutual written consent of the
parties, subject to the requirements of the 1940 Act and the rules and
regulations promulgated and orders granted thereunder.
9. NOTICES
All notices hereunder shall be given in writing (and shall be deemed to
have been duly given upon receipt) by delivery in person, by facsimile,
by registered or certified mail or by overnight delivery (postage
prepaid, return receipt requested) to VALIC and to SUB-ADVISER at the
address of each set forth below:
If to VALIC:
Attn: ▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Tel: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
If to SUB-ADVISER:
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
American General Investment Management, L.P.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
8
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.
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
By:
----------------------------------------
Name:
Title:
ATTEST:
-------------------------
AMERICAN GENERAL INVESTMENT MANAGEMENT, L.P.
By:
----------------------------------------
Name:
Title:
ATTEST:
-------------------------
9
