[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'')

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(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