1
EXHIBIT 5(a)
INVESTMENT ADVISORY AGREEMENT
This AGREEMENT made this _____ day of __________, 1998, by and between THE
VARIABLE ANNUITY LIFE INSURANCE COMPANY, hereinafter referred to as the
"ADVISER," and AMERICAN GENERAL SERIES PORTFOLIO COMPANY 3, hereinafter referred
to as the "FUND."
The ADVISER and the FUND 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) The FUND 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) The FUND currently consists of eighteen portfolios
("Funds"): American General S&P 500 Index Fund, American General Mid
Cap Index Fund, American General Small Cap Index Fund, American General
Small Cap Value Fund, American General Mid Cap Growth Fund, American
General International Value Fund, American General Domestic Bond Fund,
American General Balanced Fund, American General Large Cap Growth Fund,
American General Small Cap Growth Fund, American General Mid Cap Value
Fund, American General Large Cap Value Fund, American General
International Growth Fund, American General Money Market Fund, American
General Socially Responsible Fund, American General Growth Lifestyle
Fund, American General Moderate Growth Lifestyle Fund, and American
General Conservative Growth Lifestyle Fund. In accordance with the
FUND's Agreement and Declaration of Trust (the "Declaration") and
Bylaws, new Funds may be added to the FUND upon approval of the FUND's
Board of Trustees without approval of the FUND's shareholders. This
Agreement will apply only to the Fund(s) and any other Fund as may be
added or deleted by amendment to the attached Schedule A ("Covered
Funds").
(d) The FUND currently sells its shares to separate accounts
established by the ADVISER and its affiliates to fund certain variable
annuity contracts and to employee thrift plans maintained by the
ADVISER and/or its affiliates.
The ADVISER and the FUND AGREE AS FOLLOWS:
1. SERVICES RENDERED AND EXPENSES PAID BY ADVISER
The ADVISER, subject to the control, direction, and supervision of the
FUND's Board of Trustees and in conformity with applicable laws, the FUND'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.
2
(c) conduct and manage the day to day operations of each
Covered Fund including, for example, the preparation of registration
statements, prospectuses, reports, proxy solicitation materials and
amendments thereto, and the furnishing of legal services (except those
services provided by outside counsel to the FUND selected by the Board
of Trustees).
(d) furnish to the Covered Funds office space, facilities,
equipment and personnel adequate to provide the services described
above and pay the compensation to the FUND'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. The ADVISER shall also use its best
efforts to obtain for the Covered Funds any tender and exchange offer
solicitation fees, other fees, and similar payments available in connection with
the portfolio transactions of the Covered Funds. Subject to prior authorization
by the FUND'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 the FUND'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
the FUND 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 the FUND include, but are not limited to, (i)
interest and taxes; (ii) broker's commissions and other expenses of purchasing
and selling portfolio investments; (iii) compensation of 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 the FUND 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 of issuing its shares against payment therefor by,
or on behalf of, the subscribers thereto; (ix) fees and related expenses of
registering and qualifying the FUND 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 the FUND; (xi) all other expenses incidental to
holding meetings of the FUND'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 the FUND's membership in trade associations approved by the Board of
Trustees; (xv) such non-recurring expenses as may arise, including those
associated with actions, suits, or proceedings to which the FUND is a party and
the legal obligation which the FUND may have to indemnify its officers, trustees
and employees with respect thereto. The FUND 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
The FUND 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 the FUND. 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.
2
3
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 FUND's Declaration, for each business day during a given
calendar month. The FUND 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.
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 Investment Company Act of 1940, any
of the shareholders, trustees, officers and employees of the FUND 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
the FUND.
The ADVISER shall not be liable to the FUND, or to any shareholder in
the FUND, 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, the FUND with respect to them.
Notwithstanding any other provision of this Agreement, the FUND 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 the FUND,
by the sub-adviser on notice to the ADVISER and the FUND, and by the FUND'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 set forth
on Schedule A on the date hereof and as to any other Funds on the date of the
Amendment to Schedule A adding such Fund in accordance with this Agreement.
Unless sooner terminated as provided herein, this Agreement shall continue in
effect for two years from the effective
3
4
date. Thereafter this Agreement shall continue in effect, but with respect to
any Covered Fund, subject to the termination provisions and all other terms and
conditions hereof, only so long as such continuance is approved at least
annually by the vote of a majority of the FUND's trustees who are not parties to
this Agreement or interested persons of any such parties, cast in person at a
meeting called for the purpose of voting on such approval, and by a vote of a
majority of the FUND's Board of Trustees or a majority of that Fund's
outstanding voting securities.
This Agreement shall automatically terminate in the event of its
assignment. The Agreement may be terminated as to any Covered Fund at any time
by the FUND's Board of Trustees, by vote of a majority of that Fund's
outstanding voting securities, 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. Such termination shall be without the payment of any
penalty.
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 the FUND 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.
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 the FUND by the Securities and Exchange
Commission (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 execution of this Agreement has been authorized by the FUND's
Trustees and by the sole shareholder. This Agreement is executed on behalf of
the FUND or the Trustees of the FUND as Trustees and not individually and that
the obligations of this Agreement are not binding upon any of the Trustees,
officers or shareholders of the FUND individually, but are not binding only upon
the assets and property of the FUND. A Certificate of Trust in respect of the
FUND is on file with the Secretary of State of Delaware.
All questions concerning the validity, meaning and effect of this
Agreement shall be determined in accordance with the laws (without giving effect
to the conflict-of-law principles thereof) of the State of Delaware applicable
to contracts made and to be performed in that state.
4
5
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.
AMERICAN GENERAL SERIES PORTFOLIO
COMPANY 3
By:
--------------------------------------
Name:
Title:
ATTEST:
--------------------------------------
Secretary
THE VARIABLE ANNUITY LIFE
INSURANCE COMPANY
By:
--------------------------------------
Name:
Title:
ATTEST:
--------------------------------------
Secretary
5
6
SCHEDULE A
to Investment Advisory Agreement
Annual Fee computed at the following annual rate, based on average monthly net
asset value and payable monthly:
American General International
Value Fund...................... 1.00% on the first $25 million
0.85% on the next $25 million
0.675% on the next $200 million
0.625% over $250 million
American General International
Growth Fund................... 0.90% on the first $100 million
0.80% over $100 million
American General Large Cap
Value Fund...................... 0.50%
American General Large Cap
Growth Fund................... 0.55%
American General Mid Cap
Value Fund...................... 0.75% on the first $100 million
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
American General Mid Cap
Growth Fund................... 0.65% on the first $25 million
0.55% on the next $25 million
0.45% over $50 million
American General Small Cap
6
7
Value Fund...................... 0.75% on the first $50 million
0.65% over $50 million
American General Small Cap
Growth Fund................... 0.85%
American General Socially
Responsible Fund............ 0.25%
American General Money
Market Fund.................... 0.25%
American General Domestic
Bond Fund....................... 0.80% on the first $50 million
0.45% on the next $50 million
0.43% on the next $200 million
0.40% over $300 million
American General S&P 500
Index Fund....................... 0.27% on the first $500 million
0.26% over $500 million
American General Mid Cap
Index Fund....................... 0.28% on the first $500 million
0.27% over $500 million
American General Small Cap
Index Fund....................... 0.28% on the first $500 million
0.27% over $500 million
American General Balanced
Fund...............................0.80% on the first $25 million
0.65% on the next $25 million
0.45% over $50 million
American General Conservative
Growth Lifestyle Fund.... 0.10%
7
8
American General Moderate
Growth Lifestyle Fund.... 0.10%
American General Growth
Lifestyle Fund................. 0.10%
8
