[Federal Register Volume 63, Number 159 (Tuesday, August 18, 1998)]
[Notices]
[Pages 44295-44297]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-22113]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 23386; 812-11082]
American General Series Portfolio Company 2, et al.; Notice of
Application
August 12, 1998.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice of an application under section 6(c) of the Investment
Company Act of 1940 (the ``Act'') for an exemption from section 15(a)
of the Act and rule 18f-2 under the Act.
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SUMMARY OF THE APPLICATION: American General Series Portfolio Company 2
(``AGSPC 2''), American General Series Portfolio Company 3 (``AGSPC
3'')
[[Page 44296]]
(together, the ``Funds,'') and The Variable Annuity Life Insurance
Company (``VALIC'' or the ``Manager'') seek an order to allow
applicants to enter into and materially amend investment sub-advisory
agreements without shareholder approval.
FILING DATES: The application was filed on March 19, 1998. Applicants
have agreed to file an amendment to the application during the notice
period, the substance of which is reflected in this notice.
HEARING OR NOTIFICATION OF HEARING: An order granting the application
will be issued unless the Commission orders a hearing. Interested
persons may request a hearing by writing to the Commission's Secretary
and serving the applicants with a copy of the request, personally or by
mail. Hearing requests should be received by the Commission by 5:30
p.m. on September 8, 1998 and should be accompanied by proof of service
on the applicants in the form of an affidavit or, for lawyers, a
certificate of service. Hearing requests should state the nature of the
writer's interest, the reason for the request, and the issues
contested. Persons who wish to be notified of a hearing may request
notification by writing to the Commission's Secretary.
ADDRESSES: Secretary, Securities and Exchange Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549. Applicants, c/o Nori L. Gabert,
Esq., 2929 Allen Parkway, L4-01, Houston, Texas 77019.
FOR FURTHER INFORMATION CONTACT: Emerson S. Davis, Senior Counsel, at
(202) 942-0714, or George J. Zornada, Branch Chief, at (202) 942-0564
(Division of Investment Management, Office of Investment Company
Regulation).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained for a fee from
the Commission's Public Reference Branch, 450 Fifth Street, N.W.,
Washington, D.C. 20549 (telephone (202) 942-8090).
Applicant's Representations
1. AGSPC 2, a Delaware business trust, is registered as an open-end
management investment company under the Act. AGSPC 2 consists of
twenty-three series (each a ``Portfolio'', each of which has its own
investment objective and policies. AGSPC 2 intends to offer classes of
the shares of its Portfolios for sale to the public.
2. AGSPC 3, also a Delaware business trust, is registered as an
open-end management investment company under the Act. AGSPC 3 consists
of eighteen series (each a ``Portfolio''), each of which has its own
investment objective and policies. AGSPC 3 intends to offer shares of
its Portfolios for sale through separate accounts of VALIC, separate
accounts of life insurance companies that are affiliated with VALIC,
employee thrift plans maintained by VALIC or its affiliates, separate
accounts of life insurance companies that are not affiliated with VALIC
and, subject to applicable laws, the public.\1\
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\1\ Applicants also request that the relief apply to future
portfolios of AGSPC 2 and 3 and to any other registered open-end
management investment company or series thereof for which the
Manager, or any person controlling, controlled by, or under common
control with the Manager, serves as investment adviser (``Future
Fund''). All existing investment companies that currently intend to
rely on the order have been named as applicants, and any Future Fund
that relies on the order will comply with the terms and conditions
in the application.
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3. VALIC, a Texas life insurance company, is an indirect wholly-
owned subsidiary of American General Corporation and is registered as
an investment adviser under the Investment Advisers Act of 1940 (the
``Advisers Act''). The Funds and VALIC have entered into an investment
advisory agreement in which VALIC will have overall supervisory and
administrative responsibility for the Funds and, subject to the general
supervision of the board of trustees of each Fund (``Board''), will
select and contract with sub-advisers to provide each Portfolio with
portfolio management services (``Manager/Sub-Adviser Strategy''). VALIC
also will monitor and evaluate each sub-adviser's performance, and may
recommend to the Board of each Fund whether a sub-advisory agreement
(``Sub-Advisory Agreement'') will be renewed, modified or terminated.
VALIC is paid a management fee by each Portfolio and VALIC will be
responsible for paying each sub-adviser. Each sub-adviser is either
registered under the Adviser's Act or exempted from registration.
4. VALIC will employ its expertise to select sub-advisers that have
shown the ability, over a period of time, to select specific
investments to achieve well-defined objectives. The specific investment
decisions for the Funds employing a sub-adviser will be made by one or
more sub-advisers, each of which has discretionary authority to invest
all or a portion of the assets of a particular Portfolio, subject to
the general supervision of VALIC and the Board of the Fund. No sub-
adviser will have responsibility for the on-going administration and
corporate maintenance of a Fund or for servicing of the shareholders.
VALIC will review the historical investment results of a number of sub-
advisers and perform fact-to-face evaluations of the sub-adviser and
its personnel. VALIC seeks to select sub-advisers that have shown a
consistent ability to achieve targeted results within select asset
classes and investment styles and that have demonstrated expertise in
particular areas. VALIC performs internal due diligence on prospective
sub-advisers for each Portfolio and thereafter will monitor sub-adviser
performance to identify a departure by a sub-adviser from its
investment style, a deterioration in its investment performance, or an
adverse change in its personnel or organization, and will recommend
changes in sub-advisers accordingly. VALIC has responsibility for
communicating performance expectations and evaluations to be sub-
advisers, supervising and monitoring compliance with the Portfolio's
investment objectives and policies, authorizing a sub-adviser to engage
in certain investment techniques for a Portfolio and recommending to
the Board of each Fund whether Sub-Advisory Agreements should be
renewed, modified, or terminated.
5. Applicants request relief to permit VALIC to enter into and
amend Sub-Advisory Agreements with shareholder approval. The requested
relief will not extend to a sub-adviser that is an affiliated person,
as defined in section 2(a)(3) of the Act, of either the Funds or VALIC,
other than by reason of serving as a sub-adviser to one or more of the
Portfolios (Affiliated Sub-adviser'').
Applicant's Legal Analysis
1. Section 15(a) of the Act makes it unlawful for any person at act
as investment adviser to a register and investment company except
pursuant to a written contract that has been approved by a majority of
the company's outstanding voting shares. Rule 18f-2 under the Act
provides that each series or class of stock in a series company
affected by a matter must approve such matter if the Act requires
shareholder approval.
2. Section 6(c) of the Act provides that the Commission may exempt
any person, security, or transaction from any provision of the Act if,
and to the extent that, such exemption is necessary or appropriate in
the public interest and consistent with the protection of investors and
the purposes fairly intended by the policy and provisions of the Act.
Applicants request an exemption under section 6(c) from section 15(a)
of the Act and rule 18f-2 under the Act permit them to enter into
[[Page 44297]]
and materially amend Sub-Advisory Agreements without shareholder
approval.
3. Applicants believe that under their Manager/Sub-Advisor
Strategy, sub-advisers take the place of individual portfolio managers
in a conventional fund context. Applicants assert that investors in the
Portfolios have determined to rely on VALIC's ability to select,
monitor, and terminate sub-advisers. Applicants state that investors
expect VALIC to select and retain sub-advisers who successfully meet
the Portfolio's objectives and policies and replace those who do not.
Applicants contend that requiring shareholder approval of sub-advisers
and Sub-Advisory Agreements would impose costs and unnecessary delays
on the Portfolios. Specifically, applicants believe that without the
requested exemptions, VALIC may be precluded from promptly and timely
employing a sub-adviser, or the applicable Portfolio of the Fund may be
subjected to additional expenses of proxy solicitations when employing
or replacing a sub-adviser. Applicants believe that the effective
functioning of the Manager/Sub-Adviser Strategy would be greatly
facilitated if applicants are permitted promptly to implement changes
in the sub-advisers, or, in the event of circumstances constituting an
assignment of a Sub-Advisory Agreement, if VALIC could enter into and
materially amend a new sub-advisory agreement with the sub-adviser, or
its successor, without the expense and delay of a proxy solicitation
and special shareholder's meeting. Applicants also note that each
Portfolio's investment advisory agreement with VALIC will remain
subject to section 15(a) of the Act and rule 18f-2 under the Act.
Applicants' Conditions
Applicants agree that any order of the Commission granting the
requested relief will be subject to the following conditions:
1. Before a Portfolio may rely on the order, the operation of the
Portfolio in the manner described in the application will be approved
by a majority of the Portfolio's outstanding voting securities (or, if
the Portfolio serves as a funding medium for any sub-account of a
registered separate account, pursuant to voting instructions provided
by the unitholders of the sub-account), as defined in the Investment
Company Act, or, in the case of a new Portfolio whose public
shareholders purchases shares on the basis of a prospectus(es)
containing the disclosure contemplated by condition 2 below, by the
sole initial shareholder(s) before offering shares of such Portfolio to
the public (or the variable contract owners through a separate
account).
2. Any Portfolio relying on the requested relief will disclose in
its prospectus the existence, substance, and effect on any order
granted pursuant to the application. In addition, any such Portfolio
will hold itself out to the public as employing the Manager/Sub-Adviser
Strategy described in the application. The prospectus(es) will
prominently disclose that VALIC has ultimate responsibility to oversee
the sub-advisers and recommended their hiring, termination, and
replacement.
3. VALIC will provide management services to each Fund, including
overall supervisory responsibility for the general management and
investment of each Portfolio, and, subject to review and approval by
the applicable Board will (i) set each Portfolio's overall investment
strategies; (ii) evaluate, select and recommend sub-advisers to manage
all or part of a Portfolio's assets; (iii) when appropriate, allocate
and reallocate a Portfolio's assets among multiple sub-advisers; (iv)
monitor and evaluate the investment performance of sub-advisers; and
(v) implement procedures reasonably designed to ensure that the sub-
advisers comply with the relevant Portfolio's investment objective,
policies, and restrictions.
4. At all times, a majority of each Fund's Board will person who
are ``interested persons,'' within the meaning of section 2(a)(19) of
the Act, of the Fund (``Independent Trustees''), and the nomination of
new or additional Independent Trustees will be placed within the
discretion of the then existing Independent Trustees.
5. No Portfolio will enter into an Investment Sub-Advisory
Agreement with a sub-advisor that is an ``affiliated person'' of VALIC
or the Fund (as defined in section 2(a)(3) of the Investment Company
Act)) (``Affiliated Sub-Advisor'') other than by reason of serving as
sub-advisor to one or more Portfolios without such Agreement, including
the compensation to be paid thereunder, being approved by the
shareholders of the applicable Portfolio (or, if the Portfolio serves
as a funding medium for any sub-account of a registered separate
account, then pursuant to voting instructions by the unitholders of the
sub-account).
6. When a change of sub-adviser is proposed for a Portfolio with an
Affiliated Sub-adviser, each applicable Fund's Board of Trustees,
including a majority of the Independent Trustees, will make a separate
finding, reflected in the Fund's board minutes, that such change of
sub-adviser is in the best interests of the Portfolio and its
shareholders (or, if the Portfolio serves as a funding medium for any
sub-account of a registered separate account, in the best interests of
the Portfolio and the unitholders of any sub-account) and that the
change does not involve a conflict of interest from which VALIC or the
Affiliated Sub-Adviser derives an inappropriate advantage.
7. No director, trustee or officer of the Funds or VALIC will own
directly or indirectly (other than through a pooled investment vehicle
that is not controlled by any such director, trustee or officer) any
interest in a sub-adviser except for ownership of (a) interests in
VALIC or any entity that controls, is controlled by, or is under common
control with VALIC or (b) less than 1% of the outstanding securities of
any class of equity or debt of a publicly-traded company that is either
a sub-adviser or an entity that controls, is controlled by, or is under
common control with a sub-adviser.
8. Within 90 days of the hiring of any new sub-adviser, VALIC will
furnish shareholders (or, if the Portfolio serves as funding medium for
any sub-account of a registered separate account, the unitholders or
the sub-account) with respect to the appropriate Portfolio with an
information statement about the new sub-adviser or Investment Sub-
Advisory Agreement that would be include in a proxy statement. Such
information will include any changes caused by addition to a new sub-
adviser. To meet this condition, VALIC will provide shareholders (or,
if the Portfolio serves as a funding medium for any sub-account of a
registered separate account, then by providing unitholders of the sub-
account) with an information statement meeting the requirements of
Regulation 14C, Schedule 14C, and Item 22 of Schedule 14A under the
Securities Exchange Act of 1934.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-22113 Filed 8-17-98; 8:45 am]
BILLING CODE 8010-01-M
