To approve a change to each Fund’s sub-classification under 1ELECTION OF DIRECTORS
SHAREHOLDERS OF ALL FUNDS VOTING TOGETHER
Background
The Board currently consists of seven Directors, five of whom are not “interested persons” (as that term is defined in Section 2(a)(19) of the Investment Company Act of 1940 (the “1940 Act”)) of the Company and VALIC (the “Independent Directors”). Dr. Judith L. Craven, Dr. Timothy J. Ebner and Dr. John E. Maupin, Jr. are Independent Directors who were previously elected to the Board by the Company’s shareholders on December 28, 2001. Thomas J. Brown and Yvonne M. Curl, both of whom are Independent Directors, have not been elected by shareholders and were elected by the Board as Directors on November 14, 2005, and November 1, 2020, respectively. Peter A. Harbeck is an “interested” Director under the 1940 Act due to his ownership of AIG stock and his prior relationships with VALIC and SunAmerica. Eric S. Levy is an “interested” Director under the 1940 Act due to his current affiliations with VALIC and AIG. Mr. Harbeck and Mr. Levy are referred to as “Interested Directors”. Mr. Harbeck was previously elected to the Board by the Company’s shareholders on December 28, 2001. Mr. Levy has not been elected by shareholders and was elected by the Board as a Director on May 1, 2017. Each Director serves on the Board until his or her successor is duly elected and qualified.
The Board has nominated each of the current Directors listed above for election to the Board. In addition, it has also approved an increase in the size of the Board to ten directors and nominated each of Cheryl Creuzot, Darlene T. DeRemer and Eileen A. Kamerick for election to the Board. The Board believes that the Company and the Funds’ shareholders would benefit from the expertise of Mses. Creuzot, DeRemer and Kamerick, who would be valuable additions to the Board and who would serve as Independent Directors if elected. Each nominee has consented to serving as a Director of the Company if elected and has also consented to being named in this Proxy Statement. If all nominees are elected, the Board would be comprised of ten Directors, eight of whom would be Independent Directors, each Director to hold office until his or her successor is elected and qualified.
The Board is asking shareholders of the Company to elect the ten nominees as Directors so that all members of the Board will have been elected by the shareholders. The 1940 Act requires that immediately after any vacancy on a registered investment company’s board of directors is filled (in a manner other than election by shareholders), at least two-thirds of the directors then holding office have been elected by the fund’s shareholders. The 1940 Act also provides that in the event that at any time less than a majority of the directors of a fund are elected by shareholders, a shareholder meeting must be held as promptly as possible for the purpose of electing directors to fill any vacancies. If all ten nominees are elected by shareholders at the Special Meeting, then in the event of any future vacancies, the remaining Directors may elect up to five additional Board members (assuming no subsequent changes to the composition of the Board).
In addition to the foregoing, in order to rely on certain exemptive rules promulgated by the Securities and Exchange Commission (the “SEC”), the Company must comply with certain requirements, including the requirement that a majority of the Directors on the Board be Independent Directors. The Board believes that it is in the best interests of the Company and the Funds’ shareholders to be able to rely on the exemptive rules. The Board also believes that good governance practices involve having a majority of its members be Independent Directors.
Information Regarding the Nominees
The following table lists the nominees for Director, their ages, current position(s) held with the Company, length of time served, principal occupations during the past five years, number of funds overseen
within the fund complex and other directorships/trusteeships held outside of the fund complex. Each nominee for Director was reviewed by the Governance Committee of the Board and nominated by the full Board. Dr. John E. Maupin, Jr. serves as the Chair of the Board. Unless otherwise noted, the address of each Director is 2929 Allen Parkway, Houston, Texas 77019. Information about the officers of the Company is provided in Exhibit A.
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Name and Age | | Position(s) Held With Company(1) | | Term of Office and Length of Time Served | | Principal Occupation(s) During Past 5 Years | | Number of Funds in Fund Complex Overseen By Director or Nominee for Director(2) | | Other Directorship(s) Held By Director or Nominee for Director(3) |
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Independent Director Nominees | | | | | | |
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Thomas J. Brown Age: 76 | | Director | | 2005 – Present | | Retired. | | 36 | | Trustee, Virtus Funds (2011-2020). |
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Dr. Judith L. Craven Age: 76 | | Director | | 1998 – Present | | Retired. | | 36 | | Director, A.G. Belo Corporation, a media company (1992-2014); Director, SYSCO Corporation, a food marketing and distribution company (1996-2017); Director, Luby’s Inc. (1998-2019). |
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Cheryl Creuzot Age: 63 | | N/A | | N/A | | President and Chief Executive Officer of Wealth Development Strategies, LLC (2012-2019); President Emeritus, Wealth Development Strategies LLC (2019-Present). | | 36 | | Director, The Bancorp, Inc. – Audit and Risk Committees (2021-Present); Director, Amegy Bank (2021); Director, The Frenchy’s Companies (2013-Present); Commissioner, Port of Houston – Audit, Governance, Dredge Task Force and Community Relations Committees (2020 -Present); Executive Committee Member, MD Anderson University Cancer Foundation Board of Visitors (2010-Present); Director, Unity National Bank – Chair of Compliance, Audit, and Investment Committees (2008-2015). |
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Name and Age | | Position(s) Held With Company(1) | | Term of Office and Length of Time Served | | Principal Occupation(s) During Past 5 Years | | Number of Funds in Fund Complex Overseen By Director or Nominee for Director(2) | | Other Directorship(s) Held By Director or Nominee for Director(3) |
Yvonne M. Curl Age: 67 | | Director | | 2020 – Present | | Retired. | | 36 | | Director, Encompass Health, provider of post-acute healthcare services (2004-Present); Director, Community Foundation of the Lowcountry (2018-Present); Director, Nationwide Insurance, insurance company (1998-2019); Director, Hilton Head Humane Association, animal shelter (2006-2019). |
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Darlene T. DeRemer Age: 66 | | N/A | | N/A | | Managing Partner, Grail Partners LLC (2005-2019). | | 36 | | Trustee, ARK ETF Trust (2014-Present); Trustee, Member of Investment and Endowment Committee of Syracuse University (2010-Present); Director, Alpha Healthcare Acquisition Corp. III (2021-Present); Interested Trustee, Esoterica Thematic Trust (2020-2021); Interested Trustee, American Independence Funds (2015-2019); Trustee, Risk X Investment Funds (2016-2020); Director, United Capital Financial Planners (2008-2019); Director, Hillcrest Asset Management (since 2007); Board Member, Confluence Technologies LLC (2018-2021). |
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Name and Age | | Position(s) Held With Company(1) | | Term of Office and Length of Time Served | | Principal Occupation(s) During Past 5 Years | | Number of Funds in Fund Complex Overseen By Director or Nominee for Director(2) | | Other Directorship(s) Held By Director or Nominee for Director(3) |
Dr. Timothy J. Ebner Age: 73 | | Director | | 1998 – Present | | Professor and Head- Department of Neuroscience Medical School (1980-Present) and Pickworth Chair (2000-Present), University of Minnesota; Scientific Director, Society for Research on the Cerebellum (2008-Present); President, Association of Medical School Neuroscience Department Chairpersons (2011-2014). | | 36 | | Trustee, Minnesota Medical Foundation (2003-2013). |
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Eileen A. Kamerick Age: 64 | | N/A | | N/A | | Chief Executive Officer, The Governance Partners, LLC (consulting firm) (2015-Present); National Association of Corporate Directors Board Leadership Fellow (2016-Present, with Directorship Certification since 2019) and financial expert; Adjunct Professor, Georgetown University Law Center (2021-Present); Adjunct Professor, The University of Chicago Law School (2018-Present); formerly, Chief Financial Officer, Press Ganey | | 36 | | Director of the Legg Mason Closed-End Funds (2013-Present); Director of ACV Auctions Inc. (2021-Present); Director of Hochschild Mining plc (precious metals company) (2016-Present); Director of Associated Banc-Corp (financial services company) (2007-Present). |
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Name and Age | | Position(s) Held With Company(1) | | Term of Office and Length of Time Served | | Principal Occupation(s) During Past 5 Years | | Number of Funds in Fund Complex Overseen By Director or Nominee for Director(2) | | Other Directorship(s) Held By Director or Nominee for Director(3) |
| | | | | | Associates (health care informatics company) (2012 to 2014); Managing Director and Chief Financial Officer, Houlihan Lokey (international investment bank) and President, Houlihan Lokey Foundation (2010 to 2012). | | | | |
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Dr. John E. Maupin, Jr. Age: 75 | | Director and Chair | | 1998 – Present | | Retired. President/CEO, Morehouse School of Medicine, Atlanta, Georgia (2006-2014). | | 36 | | Director, HealthSouth, Corporation, rehabilitation health care services (2004-Present); Director, Regions Financials Inc., bank holding company (2007-2019); Director, LifePoint Hospitals, Inc., hospital management (1999-2018) |
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Interested Director Nominee |
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Peter A. Harbeck(4) Harborside 5 185 Hudson Street Suite 3300 Jersey City, NJ 07311-4992 Age: 68 | | Director | | 2001 – Present | | Retired June 2019, formerly President (1995-2019), CEO (1997-2019) and Director (1992-2019), SunAmerica; Director, AIG Capital Services, Inc. (“ACS”) (1993-2019); Chairman, President and CEO, Advisor Group, Inc. (2004-2016). | | 36 | | None. |
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Name and Age | | Position(s) Held With Company(1) | | Term of Office and Length of Time Served | | Principal Occupation(s) During Past 5 Years | | Number of Funds in Fund Complex Overseen By Director or Nominee for Director(2) | | Other Directorship(s) Held By Director or Nominee for Director(3) |
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Eric S. Levy(5) 2919 Allen Parkway Houston, TX 77019 Age: 57 | | Director | | 2017 – Present | | Executive Vice President, VALIC (2015-Present); Executive Vice President, Group Retirement, AIG (2015-Present); and Senior Vice President, Lincoln Financial Group (2010-2015). | | 36 | | None. |
(1) | Directors serve until their successors are duly elected and qualified. |
(2) | The term “Fund Complex” means two or more registered investment companies that (i) hold themselves out to investors as related companies for purposes of investment and investor services or (ii) have a common investment adviser or an investment adviser that is an affiliated person of the investment adviser of any of the other registered investment companies, VALIC. The Fund Complex includes the Company (36 funds), SunAmerica Series Trust (61 portfolios), and Seasons Series Trust (19 portfolios). |
(3) | Directorships of companies required to report to the SEC under the Securities Exchange Act of 1934 (i.e., “public companies”) or other investment companies regulated under the 1940 Act, other than those listed under the preceding column. |
(4) | Mr. Harbeck is considered to be an Interested Director because he owns shares of AIG, the ultimate parent of VALIC, and because of his prior relationships with VALIC and SunAmerica. Until his retirement on June 28, 2019, he served as President, CEO and Director of SunAmerica and Director of ACS. |
(5) | Mr. Levy is considered to be an Interested Director because he serves as an officer of VALIC and AIG, VALIC’s ultimate parent company. |
Board’s Consideration of Each Nominee’s Qualifications, Experience, Attributes or Skills
The Board believes that the significance of each nominee’s experience, qualifications, attributes or skills is an individual matter (meaning that experience or knowledge that is important for one nominee may not have the same value for another) and that these factors are best evaluated at the Board level, with no single factor being a controlling factor. Among the attributes common to all nominees are their ability to review critically, evaluate, question and discuss information provided to them, to interact effectively with the other Directors (in the case of nominees who currently serve as Directors), VALIC, the sub-advisers, other service providers, legal counsel and the independent registered public accounting firm, and to exercise effective business judgment in the performance of their duties as Directors. The Board has also considered the contributions that each nominee can make to the Board and the Funds. A nominee’s ability to perform his or her duties effectively may have been attained through the nominee’s executive, business, consulting, public service and/or academic positions; experience from service as a Director of the Company (in the case of nominees who currently serve as Directors) and the other funds/portfolios in the Fund Complex (and/or in other capacities), other investment funds, public companies, or non-profit entities or other organizations; educational background or professional training; and/or other life experiences.
Additional information about each Director is set forth below, which supplements the information provided in the table above and describes some of the specific experiences, qualifications, attributes, or skills that each nominee possesses that the Board believes prepares them to be effective Directors.
Independent Directors
Thomas J. Brown. Mr. Brown has served as Director since 2005. Mr. Brown is also the chair of the Audit Committee and serves as the Audit Committee Financial Expert and as a member of each of the Brokerage, the Compliance and Ethics, and the Governance Committees. An “Audit Committee Financial Expert” is defined as a person who has the following attributes: (i) an understanding of generally accepted accounting principles and financial statements; (ii) the ability to assess the general application of such principles in connection with the accounting for estimates, accruals and reserves; (iii) experience preparing, auditing, analyzing or evaluating financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of issues that can reasonably be expected to be raised by the registrant’s financial statements, or experience actively supervising one or more persons engaged in such activities; (iv) an understanding of internal controls and procedures for financial reporting; and (v) an understanding of audit committee functions. Mr. Brown is a retired Chief Operating Officer and Chief Financial Officer of American General Asset Management, and previously was the Treasurer and CFO of the North American Funds. Mr. Brown also has substantial experience serving on boards of other mutual fund complexes.
Dr. Judith L. Craven. Dr. Craven has served as Director since 1998. Dr. Craven is also the chair of the Compliance and Ethics Committee and serves as a member of each of the Audit, the Brokerage, and the Governance Committees. Dr. Craven is a retired administrator, and has held numerous executive and directorship positions within the healthcare industry. Dr. Craven has substantial experience serving on local, state, and national boards, and is currently a director of Luby’s Restaurant and SYSCO Corporation, among other organizations.
Cheryl Creuzot. If elected to the Board, Ms. Creuzot is expected to serve as a member of each of the Audit, the Brokerage, the Compliance and Ethics, and the Governance Committees. Ms. Creuzot was formerly the President and Chief Executive Officer and Principal of Wealth Development Strategies, LLC and Wealth Development Investment Advisory, LLC, both Financial Industry Regulatory Authority and SEC regulated, financial advisory firms. Ms. Creuzot also has substantial experience serving on non-profit boards, and has significant securities and financial planning experience.
Yvonne M. Curl. Ms. Curl has served as Director since 2020. Ms. Curl is also the chair of the Brokerage Committee and serves as a member of each of the Audit, the Compliance and Ethics, and the Governance Committees. In addition, she has nearly 30 years of executive and business experience in various industries. Ms. Curl also has corporate governance experience serving on multiple public company and non-profit boards for nearly 30 years.
Darlene T. DeRemer. If elected to the Board, Ms. DeRemer is expected to serve as a member of each of the Audit, the Brokerage, the Compliance and Ethics, and the Governance Committees. Ms. DeRemer was formerly Managing Partner of Grail Partners, an advisory merchant bank serving the investment management industry. Prior to becoming an investment banker at Putnam Lovell NBF in 2003, Ms. DeRemer spent twenty-five years as a leading adviser to the financial services industry. Ms. DeRemer also has substantial experience serving on investment company boards and currently serves as Chair of ARK ETF Trust.
Dr. Timothy J. Ebner. Dr. Ebner has served as Director since 1998. Dr. Ebner is also the chair of the Governance Committee and serves as a member of each of the Audit, the Compliance and Ethics, and the Brokerage Committees. Dr. Ebner is Head of the Department of Neuroscience of the Medical School at the University of Minnesota. Dr. Ebner has experience serving on the boards of other mutual funds, as well as on the boards of several scientific foundations and non-profit organizations. Dr. Ebner is also an editor for the Journal of Neuroscience and is on the editorial board of three other neuroscience journals.
Eileen A. Kamerick. If elected to the Board, Ms. Kamerick is expected to serve as a member of each of the Audit, the Brokerage, the Compliance and Ethics, and the Governance Committees. Ms. Kamerick has
substantial experience in business and finance, including financial reporting, and experience as a board member of a highly regulated financial services company. Ms. Kamerick also has substantial experience serving on investment company boards and is currently a board member of the Legg Mason Closed End Funds, for which she serves as audit committee financial expert.
Dr. John E. Maupin, Jr. Dr. Maupin has served as Director since 1998. Dr. Maupin is the Chair of the Board and also serves as a member of each of the Audit, the Brokerage, the Compliance and Ethics, and the Governance Committees. Dr. Maupin is the retired President and Chief Executive Officer of Morehouse School of Medicine in Atlanta, Georgia, and has extensive executive and administrative experience at other organizations and companies within the healthcare industry. Dr. Maupin also currently serves on the boards of LifePoint Hospitals, Inc., HealthSouth Corporation, and Regions Financials, Inc.
Interested Directors
Peter A. Harbeck. Mr. Harbeck previously served as President, Chief Executive Officer and Director of SunAmerica and Director of ACS. As President and Chief Executive Officer, Mr. Harbeck was responsible for all of SunAmerica’s mutual fund businesses. During his over twenty-year tenure at SunAmerica, Mr. Harbeck held various positions, including Chief Operating Officer and Chief Administrative Officer. In addition, Mr. Harbeck has extensive experience on various fund and annuity boards.
Eric S. Levy. Mr. Levy has served as Director since May 1, 2017. Mr. Levy is Executive Vice President of VALIC and Executive Vice President, Group Retirement of AIG. Mr. Levy is also a Registered Principal for VALIC Financial Advisors, Inc., an affiliate of VALIC. Mr. Levy’s experience spans thirty-five years in financial services, including mutual funds, sub-advisory services, retirement services and insurance products at Fidelity, Allmerica Financial, Putnam Investments, Mercer and Lincoln Financial Group.
Leadership Structure and Oversight Responsibilities
Overall responsibility for oversight of the Company and its Funds rests with the Board. The Company, on behalf of the Funds, has engaged VALIC as the investment adviser which oversees the day-to-day operations of the Funds, and has engaged sub-advisers who manage the Funds’ assets on a day-to-day basis. VALIC has also engaged SunAmerica as the Funds’ administrator. The Board is responsible for overseeing VALIC, SunAmerica and the sub-advisers and any other service providers in the operations of the Funds in accordance with the provisions of the 1940 Act, applicable provisions of state and other laws, the Company’s charter and Bylaws, and each Fund’s investment objectives and strategies. The Board is presently composed of seven members, five of whom are Independent Directors. The Board currently conducts regular meetings at least quarterly and holds special in-person or telephonic meetings, or informal conference calls, to discuss specific matters that may arise or require action between regular Board meetings. The Independent Directors also meet at least quarterly in executive session, at which no Interested Director is present. The Independent Directors have engaged independent legal counsel to assist them in performing their oversight responsibilities.
The Board has appointed Dr. Maupin, an Independent Director, to serve as Chair of the Board. The Chair’s role is to preside at all meetings of the Board and to act as a liaison with service providers, including VALIC, SunAmerica, officers, attorneys, and other Directors generally, between meetings. The Chair may also perform such other functions as may be delegated by the Board from time to time. The Board has established four committees, i.e., Audit Committee, Governance Committee, Brokerage Committee and Compliance and Ethics Committee (each, a “Committee”) to assist the Board in the oversight and direction of the business and affairs of the Funds, and from time to time may establish informal working groups to review and address the policies and practices of the Funds with respect to certain specified matters. The Committee system facilitates the timely and efficient consideration of matters by the Directors, and facilitates effective oversight of compliance with legal and regulatory requirements and of the Funds’ activities and associated risks. The standing Committees currently conduct an annual review of their charters, which includes a review of their responsibilities
and operations. The Governance Committee and the Board as a whole also conduct an annual evaluation of the performance of the Board, including consideration of the effectiveness of the Board’s committee structure. The Board has determined that the Board’s leadership structure is appropriate because it allows the Board to exercise informed and independent judgment over the matters under its purview and it allocates areas of responsibility among the Committees and the full Board in a manner that enhances efficient and effective oversight.
The Funds are subject to a number of risks, including, among others, investment, compliance, operational, regulatory and valuation risks. Risk oversight forms part of the Board’s general oversight of the Funds and is addressed as part of various Board and Committee activities. Day-to-day risk management functions are subsumed within the responsibilities of VALIC and SunAmerica, who carry out the Funds’ investment management and business affairs, and also by the Funds’ sub-advisers and other service providers in connection with the services they provide to the Funds. Each of VALIC, SunAmerica, the sub-advisers and other service providers have their own independent interest in risk management, and their policies and methods of risk management will depend on their functions and business models. As part of its regular oversight of the Funds, the Board, directly and/or through a Committee, interacts with and reviews reports from, among others, VALIC, SunAmerica, the sub-advisers and the Funds’ other service providers (including the Funds’ distributor and transfer agent), the Funds’ Chief Compliance Officer, the independent registered public accounting firm for the Funds, legal counsel to the Funds, and internal auditors for SunAmerica or its affiliates, as appropriate, relating to the operations of the Funds. The Board recognizes that it may not be possible to identify all of the risks that may affect each Fund or to develop processes and controls to eliminate or mitigate their occurrence or effects. The Board may, at any time and in its discretion, change the manner in which it conducts risk oversight.
Effective January 1, 2022, Independent Directors receive an annual retainer of $263,000 (Chair receives an additional $57,750 retainer). The Independent Directors receive a fee of $4,000 for additional special meetings ($13,125 if it is determined a full meeting fee is appropriate). The Audit Committee chair, also the Audit Committee Financial Expert, receives a retainer of $38,500. The Governance Committee chair receives a retainer of $26,000, the Compliance and Ethics Committee chair receives a retainer of $15,000, and the Brokerage Committee chair receives a retainer of $15,000.
The Audit Committee is comprised of all Independent Directors, with Mr. Brown as chair and Mr. Brown serving as the “Audit Committee Financial Expert.” The Audit Committee recommends to the Board the selection of independent registered public accounting firm for the Funds and reviews with such independent accounting firm the scope and results of the annual audit, reviews the performance of the accounts, and considers any comments of the independent accounting firm regarding the Funds’ financial statements or books of account. The Audit Committee has a Sub-Committee to approve audit and non-audit services and it is comprised of Mr. Brown, Dr. Ebner and Dr. Maupin. The Board has adopted an Audit Committee charter, a copy of which is found in Exhibit B. During the fiscal year ended May 31, 2022, the Audit Committee held four (4) meetings.
The Governance Committee is comprised of all Independent Directors, with Dr. Ebner as chair. The Governance Committee recommends to the Board nominees for Independent Director membership, reviews governance procedures and Board composition, and periodically reviews Director compensation. The Funds do not have a standing compensation committee. The Board has adopted a Governance Committee charter, a copy of which is found in Exhibit C. During the fiscal year ended May 31, 2022, the Governance Committee held six (6) meetings.
The Brokerage Committee is comprised of all Independent Directors, with Ms. Curl as chair. The Brokerage Committee reviews brokerage issues but does not meet on a formal basis. During the fiscal year ended May 31, 2022, the Brokerage Committee held three (3) meetings.
The Compliance and Ethics Committee is comprised of all Independent Directors, with Dr. Craven as chair. The Compliance and Ethics Committee addresses issues that arise under the Code of Ethics for the Principal Executive and Principal Accounting Officers as well as any material compliance matters arising under
Rule 38a-1 policies and procedures as approved by the Board. During the fiscal year ended May 31, 2022, the Compliance and Ethics Committee held one (1) meeting.
The Independent Directors are reimbursed for certain out-of-pocket expenses by the Company.
Compensation of Independent Directors
The following table sets forth the aggregate compensation paid to each Independent Director by the Company for his/her service as Director during the most recently completed fiscal year and by the Company and/or other registered investment companies in the Fund Complex for the most recently completed calendar year. Interested Directors are not eligible for compensation or retirement benefits and thus, are not shown below.
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Name of Director1 | | Aggregate Compensation from Company | | | Total Compensation From Fund Complex Paid to Directors2 | |
Mr. Thomas J. Brown | | $ | 305,375 | | | $ | 305,375 | |
Dr. Judith L. Craven | | $ | 281,875 | | | $ | 343,999 | |
Ms. Yvonne M. Curl | | $ | 266,875 | | | $ | 266,875 | |
Dr. Timothy Ebner3 | | $ | 260,700 | | | $ | 260,700 | |
Dr. John E. Maupin, Jr. | | $ | 324,625 | | | $ | 324,625 | |
1 | Directors receive no pension or retirement benefits from the Company or any other funds in the Fund Complex. |
2 | Includes the Company, VALIC Company II, SunAmerica Senior Floating Rate Fund, Inc., SunAmerica Income Funds, SunAmerica Equity Funds, SunAmerica Series, Inc., SunAmerica Specialty Series, SunAmerica Money Market Funds, Inc. and Anchor Series Trust. |
3 | Dr. Ebner previously deferred a portion of compensation under the Deferred Compensation Plan discussed below. As of May 31, 2022, the current value of the deferred compensation is $862,903. |
The Board has approved a Deferred Compensation Plan (the “Deferred Plan”) for its Independent Directors who are not officers, directors, or employees of VALIC or an affiliate of VALIC. The purpose of the Deferred Plan is to permit such Independent Directors to elect to defer receipt of all or some portion of the fees payable to them for their services to the Company, therefore allowing postponement of taxation of income and tax-deferred growth on the earnings. Under the Deferred Plan, an Independent Director may make an annual election to defer all or a portion of his/her future compensation from the Company.
The Company’s retirement policy provides that each Independent Director shall retire from service as an Independent Director at the end of the calendar year in which he or she turns 75 years of age, except that for an Independent Director whose term of service began prior to January 1, 2016, such Independent Director may request an additional year of eligibility as an Independent Director subject to approval by the other Independent Directors up to a maximum of five additional years (to age 80).
Director Ownership of Fund Shares
The following table shows the dollar range of shares beneficially owned by the Director nominees that they are nominated to oversee as of [ ], 2022.
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Name of Director | | Dollar Range of Equity Securities in the Company | | | Aggregate Dollar Range of Equity Securities in All Registered Investment Companies Overseen by Director in Family(1) | |
Independent Directors/Nominees: | | | | | | | | |
Mr. Thomas J. Brown | | $ | [ | ] | | $ | [ | ] |
Dr. Judith L. Craven | | | [ | ] | | | [ | ] |
Ms. Cheryl Creuzot | | | [ | ] | | | [ | ] |
Ms. Yvonne M. Curl | | | [ | ] | | | [ | ] |
Ms. Darlene T. DeRemer | | | [ | ] | | | [ | ] |
Dr. Timothy Ebner | | | [ | ] | | | [ | ] |
Ms. Eileen A. Kamerick | | | [ | ] | | | [ | ] |
Dr. John E. Maupin, Jr. | | | [ | ] | | | [ | ] |
Interested Director/Nominee: | | | | | | | | |
Mr. Peter A. Harbeck | | $ | [ | ] | | $ | [ | ] |
Mr. Eric S. Levy | | | [ | ] | | | [ | ] |
(1) | Includes the Company (36 series). |
As of [ ], 2022, the Directors and officers of the Company owned in the aggregate less than 1% of the total outstanding shares of each Fund which they oversee (or are nominated to oversee).
As of [ ], 2022, no Independent Directors nor any of their immediate family members owned beneficially or of record any securities in VALIC, any sub-adviser or the distributor or any person other than a registered investment company, directly or indirectly, controlling, controlled by or under common control with such entities.
Shareholder Communications with the Board
Shareholders wishing to communicate with members of the Board may submit a written communication to the Board of Directors, c/o the Secretary of VALIC Company I at 2929 Allen Parkway, Houston, Texas 77019.
Other Board-Related Matters
During the Company’s fiscal year ended May 31, 2022, the Board held six (6) meetings (including regularly scheduled and special meetings), and each Director proposed for election at the Special Meeting who currently serves on the Board attended at least 75% of the meetings of the Board and all committees of which he or she was a member.
Fees Paid to Independent Registered Public Accounting Firm
PricewaterhouseCoopers LLP (“PwC”) serves as the independent registered public accounting firm for the Funds. In addition, PwC prepares each Fund’s federal and state annual income tax returns and provides
certain non-audit services. The Audit Committee has selected PwC as the Funds’ independent registered public accounting firm for the current fiscal year and such selection has been ratified by the Board. Representatives of PwC are not expected to be present at the Special Meeting, but have been given the opportunity to make a statement if they so desire and will be available should any matter arise requiring their presence. PwC has informed the Company that it has no material direct or indirect financial interest in any Fund.
The table below sets forth the aggregate fees billed by PwC for each Fund’s most recent two fiscal years for (1) professional services rendered for audit services, including the audit or review of each Fund’s financial statements and services normally provided in connection with statutory and regulatory filings or engagements for those fiscal years; (2) audit-related services reasonably related to the audit or review of each Fund’s financial statements not reported under (1); (3) professional services rendered for tax compliance, tax advice, and tax planning; and (4) other products and services not reported under (1) through (3).
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Fund | | Fiscal Year | | | Audit Services | | | Audit- Related Services | | | Tax Services | | | Other Services | |
Aggressive Growth Lifestyle Fund | | | 2022 | | | $ | 24,365 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
| | | 2021 | | | $ | 23,655 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
Asset Allocation Fund | | | 2022 | | | $ | 36,214 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
| | | 2021 | | | $ | 35,160 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
Blue Chip Growth Fund | | | 2022 | | | $ | 24,594 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
| | | 2021 | | | $ | 23,878 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
Capital Appreciation Fund | | | 2022 | | | $ | 36,550 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
| | | 2021 | | | $ | 35,485 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
Conservative Growth Lifestyle Fund | | | 2022 | | | $ | 24,365 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
| | | 2021 | | | $ | 23,655 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
Core Bond Fund | | | 2022 | | | $ | 36,550 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
| | | 2021 | | | $ | 35,485 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
Dividend Value Fund | | | 2022 | | | $ | 24,594 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
| | | 2021 | | | $ | 23,878 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
Dynamic Allocation Fund | | | 2022 | | | $ | 25,279 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
| | | 2021 | | | $ | 24,543 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
Emerging Economies Fund | | | 2022 | | | $ | 35,897 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
| | | 2021 | | | $ | 34,851 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
Global Real Estate Fund | | | 2022 | | | $ | 25,939 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
| | | 2021 | | | $ | 25,183 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
Global Strategy Fund | | | 2022 | | | $ | 38,326 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
| | | 2021 | | | $ | 37,210 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
Government Securities Fund | | | 2022 | | | $ | 30,926 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
| | | 2021 | | | $ | 30,025 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
Growth Fund | | | 2022 | | | $ | 24,593 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
| | | 2021 | | | $ | 23,877 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
High Yield Bond Fund | | | 2022 | | | $ | 36,550 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
| | | 2021 | | | $ | 35,485 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
Inflation Protected Fund | | | 2022 | | | $ | 32,975 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
| | | 2021 | | | $ | 32,014 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
International Equities Index Fund | | | 2022 | | | $ | 35,897 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
| | | 2021 | | | $ | 34,851 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
International Government Bond Fund | | | 2022 | | | $ | 36,576 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
| | | 2021 | | | $ | 35,511 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
International Growth Fund | | | 2022 | | | $ | 34,147 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
| | | 2021 | | | $ | 33,152 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
International Opportunities Fund | | | 2022 | | | $ | 36,550 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
| | | | | | | | | | | | | | | | | | | | |
Fund | | Fiscal Year | | | Audit Services | | | Audit- Related Services | | | Tax Services | | | Other Services | |
| | | 2021 | | | $ | 35,485 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
International Socially Responsible Fund | | | 2022 | | | $ | 26,344 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
| | | 2021 | | | $ | 25,577 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
International Value Fund | | | 2022 | | | $ | 34,147 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
| | | 2021 | | | $ | 33,152 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
Large Capital Growth Fund | | | 2022 | | | $ | 24,592 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
| | | 2021 | | | $ | 23,876 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
Mid Cap Index Fund | | | 2022 | | | $ | 26,342 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
| | | 2021 | | | $ | 25,575 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
Mid Cap Strategic Growth Fund | | | 2022 | | | $ | 24,593 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
| | | 2021 | | | $ | 23,877 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
Mid Cap Value Fund | | | 2022 | | | $ | 36,550 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
| | | 2021 | | | $ | 35,485 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
Moderate Growth Lifestyle Fund | | | 2022 | | | $ | 24,365 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
| | | 2021 | | | $ | 23,655 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
Nasdaq-100® Index Fund | | | 2022 | | | $ | 26,343 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
| | | 2021 | | | $ | 25,576 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
Science & Technology Fund | | | 2022 | | | $ | 24,593 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
| | | 2021 | | | $ | 23,877 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
Small Cap Growth Fund | | | 2022 | | | $ | 36,550 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
| | | 2021 | | | $ | 35,485 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
Small Cap Index Fund | | | 2022 | | | $ | 26,342 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
| | | 2021 | | | $ | 25,575 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
Small Cap Special Values Fund | | | 2022 | | | $ | 24,592 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
| | | 2021 | | | $ | 23,876 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
Small Cap Value Fund | | | 2022 | | | $ | 36,550 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
| | | 2021 | | | $ | 35,485 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
Stock Index Fund | | | 2022 | | | $ | 26,342 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
| | | 2021 | | | $ | 25,575 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
Systematic Core Fund | | | 2022 | | | $ | 26,344 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
| | | 2021 | | | $ | 25,577 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
Systematic Value Fund | | | 2022 | | | $ | 24,594 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
| | | 2021 | | | $ | 23,878 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
U.S. Socially Responsible Fund | | | 2022 | | | $ | 36,550 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
| | | 2021 | | | $ | 35,485 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
There were no fees for audit-related services, tax services or other services approved by the Audit Committee pursuant to Rule 2-01(c)(7)(i)(C) of Regulation S-X for the 2021 or 2022 fiscal years. Fees for audit-related services, tax services or other services required to be approved by the Audit Committee pursuant to Rule 2-01(c)(7)(ii) of Regulation S-X for the 2021 or 2022 fiscal years were $610,825 and $403,601, respectively.
There were no fees billed by PwC to VALIC or any entity controlling, controlled by, or under common control with VALIC (the “VALIC Affiliates”) for the 2021 or 2022 fiscal years that are required by Rule 2-01(c)(7)(i) to be pre-approved by the Audit Committee.
The Audit Committee pre-approves all audit services provided by PwC to the Company and approves all non-audit services provided by PwC to the Company, VALIC, and VALIC Affiliates, if an engagement by VALIC or a VALIC Affiliate relates directly to the operations and financial reporting of the Company. The Audit Committee has not established any pre-approval policies and procedures that permit the pre-approval of the
above services other than by the full Audit Committee. Certain de minimis exceptions are permitted for non-audit services in accordance with Rule 2-01(c)(7)(i)(C) of Regulation S-X.
No fees billed to the Company, VALIC or VALIC Affiliates for audit-related services, tax services, or other services were approved pursuant to Rule 2-01(c)(7)(i)(C) of Regulation S-X.
PwC billed aggregate fees for non-audit services rendered to the Company, VALIC, and VALIC Affiliates that provide ongoing services to the Company of $849,920 for the 2021 fiscal year and $403,601 for the 2022 fiscal year. The Audit Committee was not required to consider whether non-audit services provided by PwC to VALIC, or to VALIC Affiliates that provide ongoing services to the Company, that were notpre-approved pursuant to Rule 2-01(c)(7)(ii) of Regulation S-X, were compatible with maintaining PwC’s independence.
THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE ELECTION OF EACH NOMINEE TO THE BOARD.
PROPOSAL 2
APPROVAL OF INVESTMENT ADVISORY AGREEMENTS
SHAREHOLDERS OF THE FUNDS VOTING SEPARATELY WITH RESPECT TO THEIR FUND
Background
As required by the 1940 Act, the Company’s current investment advisory agreement with VALIC automatically terminates in the event of an assignment, which includes a direct or indirect transfer of a controlling block of the voting securities of VALIC. This provision effectively requires a Fund’s shareholders to vote on a new investment advisory agreement if VALIC experiences a transfer of a controlling block of its voting securities for purposes of the 1940 Act.
As discussed above, it is anticipated that one or more of the transactions contemplated by the Separation Plan could be deemed a Change of Control Event resulting in the automatic termination of VALIC’s existing investment advisory agreement (the “Current Advisory Agreement”) and investment sub-advisory agreements, although Corebridge’s initial public offering is not anticipated to result in a Change of Control Event. In order to ensure that the existing investment advisory and sub-advisory services can continue uninterrupted, the Board has approved a new investment advisory agreement with VALIC in connection with the Separation Plan. Shareholders are being asked to approve the new investment advisory agreement with VALIC, the Funds’ current investment adviser, (the “Proposed Agreement”), which would be effective after the first Change of Control Event that occurs after shareholder approval. As part of Proposal 2, shareholders are also voting to approve any future advisory agreements with VALIC (the “Future Agreements” and together with the Proposed Agreement, the “New Advisory Agreements”) if there are subsequent Change of Control Events arising from completion of the Separation Plan that terminate the Proposed Agreement after the first Change of Control Event.
If there is a change from the facts described in this Proxy Statement that is material to shareholders of the Funds in the context of a vote on an advisory agreement, any shareholder approval received at the Special Meeting would no longer be valid to approve Future Agreements that would otherwise be approved in the event of subsequent Change of Control Events. This judgment will be made by VALIC in consultation with counsel to the Company and reviewed by the Board. If an investment advisory agreement were to terminate without valid shareholder approval, the Board and the shareholders of each Fund may be asked to approve new investment advisory agreements to permit VALIC to continue to provide services to the Funds.
Information about VALIC
VALIC is located at 2929 Allen Parkway, Houston, Texas 77019. VALIC serves as investment adviser for all of the Funds. As investment adviser, VALIC oversees the day-to-day operations of each Fund and supervises the purchase and sale of Fund investments. VALIC employs investment sub-advisers that make investment decisions for the Funds. VALIC is a Texas corporation, and managed or advised assets in excess of $28 billion as of June 30, 2022. VALIC is an indirect, majority-owned subsidiary of American General Life Insurance Company (“AGL”). AGL is a stock life insurance company organized under the laws of the state of Texas and is located at 2727-A Allen Parkway, Houston, Texas 77019. It is an indirect, wholly-owned subsidiary of Corebridge. Corebridge is currently a direct, majority-owned subsidiary of AIG and is located at 21650 Oxnard Street, Suite 750, Woodland Hills, California 91367.
The following table lists the names and principal occupations of VALIC’s principal executive officers and directors. The business address of each person listed below is 2929 Allen Parkway, Houston, Texas 77019.
| | |
Name | | Principal Occupation |
Roger A. Craig | | Senior Vice President, General Counsel and Assistant Secretary |
Emily W. Gingrich | | Director, Senior Vice President, Chief Actuary and Corporate Illustration Actuary |
Elias F. Habayeb | | Director, Executive Vice President and Chief Financial Officer |
Kevin T. Hogan | | Chairman of the Board, Chief Executive Officer and President |
Gilliane E. Isabelle | | Director, Senior Vice President and Chief Distribution Officer |
Kyle L. Jennings | | Senior Vice President and Chief Compliance Officer |
Todd A. McGrath | | Executive Vice President and Chief Operating Officer |
Jonathan J. Novak | | Chief Executive Officer, Institutional Markets |
Sabra R. Purtill | | Director, Senior Vice President and Chief Investment Officer |
Sabyasachi Ray | | Director and Senior Vice President |
Robert J. Scheinerman | | Director and Chief Executive Officer, Group Retirement |
Description of the New Advisory Agreements
The description of the Proposed Agreement that follows is qualified entirely by reference to the form of Proposed Agreement included in Exhibit D to this Proxy Statement. (As indicated below, the advisory fee rate for each Fund is provided in Exhibit E.) For purposes of this subsection, references to the Proposed Agreement include the Future Agreement. The Proposed Agreement is substantially identical in all material respects to the Current Advisory Agreement, except for new effective and termination dates, an updated list of Funds, the addition of language regarding VALIC’s payment due date and proration, and the addition of notices and counterparts provisions. The Proposed Agreement would become effective after the first Change of Control Event resulting from the Separation Plan that occurs after shareholder approval, and each Future Agreement would become effective upon a subsequent Change of Control Event resulting from the Separation Plan. The material terms of the Proposed Agreement are discussed in more detail below.
Services
No changes to the services provided by VALIC as specified under the Current Advisory Agreement are proposed in connection with Proposal 2.
Both the Current Advisory Agreement and the Proposed Agreement provide that VALIC shall, subject to the control, direction, and supervision of the Board and in conformity with all applicable laws and regulations, the Company’s organizational documents and its registration statement, (a) manage the investment and reinvestment of the assets of the 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 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 Fund’s account with brokers or dealers selected by VALIC, or arrange for any other entity to provide a trading desk and to place orders with brokers and dealers selected by VALIC, subject to VALIC’s control, direction, and supervision; and (c) furnish to the Funds office space, facilities, equipment and personnel adequate to provide the services described above and pay the compensation to the Company’s Directors and officers who are interested persons of VALIC.
Appointment of Sub-advisers
No changes to the authority of VALIC to appoint sub-advisers are proposed in connection with Proposal 2.
Both the Current Advisory Agreement and the Proposed Agreement permit VALIC to employ a sub-adviser for each of its Funds for the purpose of providing investment management services with respect to the Fund, provided that (a) the compensation to be paid to such sub-adviser shall be the sole responsibility of VALIC, (b) the duties and responsibilities of the sub-adviser shall be as set forth in a sub-advisory agreement including VALIC and the 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.
VALIC and the Company may rely on an exemptive order from the SEC that permits VALIC to enter into and materially amend sub-advisory agreements with unaffiliated sub-advisers without obtaining shareholder approval (the “VALIC Order”). The VALIC Order applies to the Company and its Funds, and is subject to certain conditions, including the requirement that the Board, including a majority of Independent Directors, approve any new sub-advisory agreement or material amendment to a sub-advisory agreement and that VALIC send shareholders an information statement complying with the conditions of Regulation 14C under the Securities Exchange Act of 1934, as amended, within 90 days after the retention of a new sub-adviser or a material amendment to an existing sub-advisory agreement.
As with the Current Advisory Agreement, the current sub-advisory agreements between VALIC and any sub-advisers with respect to a Fund will automatically terminate upon any Change of Control Event. VALIC and the Company expect to rely on the VALIC Order to enter into new sub-advisory agreements with the current, unaffiliated sub-advisers to the Funds.
Expenses
No changes to the expenses provisions of the Current Advisory Agreement are proposed in connection with Proposal 2.
Both the Current Advisory Agreement and the Proposed Agreement provide that VALIC shall bear the expense of discharging its responsibilities under the Agreement and the Company shall pay, or arrange for others to pay, all its expenses other than those which the Agreement expressly states are payable by VALIC. Expenses payable by the Company 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 Directors and officers other than those persons who are interested persons of VALIC; (iv) fees of outside counsel to and of independent auditors of the Company selected by the Board; (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 the Company 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 Company; (xi) all other expenses incidental to holding meetings of the Company’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 Company’s membership in trade associations approved by the Board; and (xv) such non-recurring expenses as may arise, including those associated with actions, suits, or proceedings to which the Company is a party and the legal obligation which the Company may have to indemnify its officers, Directors and employees with respect thereto. The Company shall allocate the foregoing expenses among the Funds.
Contractual Advisory Fees
No changes in the contractual advisory fees for the Funds are proposed in connection with Proposal 2. Exhibit E includes the fee schedules for each Fund. Exhibit F provides information on the compensation paid to VALIC by each registered investment company with an investment objective similar to the investment objectives of the Funds.
Liability
No changes to the liability provisions of the Current Advisory Agreement are proposed in connection with Proposal 2.
Both the Current Advisory Agreement and the Proposed Agreement provide that VALIC shall not be liable to the Company, or to any shareholder of the Company, for any act or omission in rendering services under the Agreements, 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 VALIC.
Term and Continuance
No changes to the term and continuance provisions of the Current Advisory Agreement are proposed in connection with Proposal 2. The Current Advisory Agreement and the Proposed Agreement would differ only to the extent of their effective and termination dates.
If approved by shareholders, the Proposed Agreement will be effective after the first Change of Control Event resulting from the Separation Plan that occurs after shareholder approval or any subsequent Change of Control Event resulting from the Separation Plan in the case of a Future Agreement. After an initial two-year term, the Proposed Agreement would continue in effect only so long as such continuance is approved at least annually by the vote of a majority of the Company’s Directors who are not parties to the 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 a majority of the Company’s Board or a majority of a Fund’s outstanding voting securities.
Termination
No changes to the termination provisions of the Current Advisory Agreement are proposed in connection with Proposal 2.
Both the Current Advisory Agreement and the Proposed Agreement provide that the Agreement may be terminated at any time as to a Fund, without payment of any penalty, as to any Fund at any time by the Company’s Board or by the vote of a majority of that Fund’s outstanding voting securities on 30-60 days’ prior written notice to VALIC, or by VALIC, on not more than 60 days’ nor less than 30 days’ written notice, or upon such shorter notice as may be mutually agreed upon. The Agreement automatically terminates in the event of its assignment.
For more information on when the Current Advisory Agreement was last approved by shareholders, see Exhibit E.
Factors Considered by the Board
At various meetings over the prior year, the Board discussed the Separation Plan with VALIC and certain AIG representatives. The Board was informed that in connection with the Separation Plan, Corebridge and AIG entered into agreements to effectuate, through a series of steps, a contribution of substantially all of the
entities that conduct AIG’s investment management operations, including VALIC and SunAmerica, from AIG to Corebridge. The Board understands that it is anticipated that one or more of the transactions contemplated by the Separation Plan could be deemed a Change of Control Event resulting in the automatic termination of the Current Advisory Agreement and Current Sub-Advisory Agreements (the “Current Advisory Contracts”) and that in order to ensure that the existing investment advisory and sub-advisory services can continue uninterrupted, the Board would need to approve a new investment advisory agreement with VALIC, as well as new sub-advisory agreements with the existing sub-advisers to certain Funds, in connection with the Separation Plan. Shareholders of each Fund will be asked to approve the New Advisory Agreements and shareholders of the SunAmerica Sub-Advised Funds will be asked to approve the New Sub-Advisory Agreements between VALIC and SunAmerica. Shareholder approval of new sub-advisory agreements with the current, unaffiliated sub-advisers to the Funds is not required due to the Funds’ current exemptive order that permits VALIC, subject to the approval of the Board, but without the need for shareholder approval, to enter into and materially amend sub-advisory agreements with unaffiliated sub-advisers.
At meetings held on August 2-3, 2022, the Board, including the Independent Directors, unanimously approved with respect to all of the Funds, the Proposed Agreement, the New SunAmerica Sub-Advisory Agreement and the new sub-advisory agreements between VALIC and each of the following sub-advisers of the Funds (collectively, the “New Advisory Contracts”): AllianceBernstein L.P. Allspring Global Investments, LLC, BlackRock Investment Management, LLC, Boston Partners Global Investors, Inc., Brandywine Global Investment Management, LLC, ClearBridge Investments, LLC, Columbia Management Investment Advisers, LLC, Delaware Investments Fund Advisers, Franklin Advisers, Inc., Goldman Sachs Asset Management, L.P., Invesco Advisers, Inc., Invesco Asset Management Limited, J.P. Morgan Investment Management Inc., Janus Capital Management, LLC, Macquarie Investment Management Global Limited, Macquarie Funds Management Hong Kong Limited, Massachusetts Financial Services Company, Morgan Stanley Investment Management Company, Morgan Stanley Investment Management Inc., PineBridge Investments LLC, SunAmerica, T. Rowe Price Associates, Inc., T. Rowe Price Investment Management, Inc., Voya Investment Management Co. LLC and Wellington Management Company LLP (each a “Sub-Adviser,” and collectively, the “Sub-Advisers”).1 The Board also determined to recommend that shareholders of each Fund approve the New Advisory Agreements and shareholders of the SunAmerica Sub-Advised Funds approve the New Sub-Advisory Agreements.
At these meetings, which included meetings of the full Board and separate meetings of the Independent Directors, the Board considered, among other things, whether it would be in the best interests of each Fund and its respective shareholders to approve the New Advisory Contracts, and the anticipated impacts of the Separation Plan on each Fund and its shareholders. The Independent Directors met with representatives of VALIC to discuss the Separation Plan and the New Advisory Contracts. Throughout the process, the Independent Directors were assisted by their independent legal counsel and counsel to the Funds, who advised them on, among other things, their duties and obligations relating to their consideration of the New Advisory Contracts. The Independent Directors also met separately with their independent legal counsel to discuss the New Advisory Contracts outside of the presence of management.
Before or during the meetings, the Board sought additional information as it deemed necessary and appropriate. The Board’s evaluation of the New Advisory Contracts reflected the information provided specifically in connection with its review of the New Advisory Contracts, as well as, where relevant, information
1 | On March 25, 2020 and June 19, 2020, as a result of health and safety measures put in place to combat the global COVID-19 pandemic, the SEC issued exemptive orders (the “Orders”) pursuant to Sections 6(c) and 38(a) of the 1940 Act, that temporarily exempt registered investment management companies from the in-person voting requirements under the 1940 Act, subject to certain requirements, including that votes taken pursuant to the Orders are ratified at the next in-person meeting. The Board determined that reliance on the Orders was necessary or appropriate due to the circumstances related to current or potential effects of COVID-19 and therefore, the August 2-3, 2022 meeting was held by videoconference in reliance on the Orders. |
that was separately provided to the Board in connection with the most recent renewal of the Current Advisory Contracts at meetings held on July 11, 2022 and August 2-3, 2022 (the “2022 Contracts Review Meeting”) and at other Board meetings held throughout the prior year. The Board’s evaluation of the New Advisory Contracts also reflected the knowledge gained as Board members of the Funds with respect to services provided by VALIC, its affiliates, including SunAmerica, and each other Sub-Adviser to the Funds. In connection with their consideration of the New Advisory Contracts, the Independent Directors worked with their independent legal counsel to prepare requests for information that were submitted to VALIC. The Board’s requests for information sought information relevant to the Board’s consideration of the New Advisory Contracts, distribution arrangements, and other anticipated impacts of the Separation Plan on the Funds and their shareholders. VALIC provided documents and information in response to these requests for information. Representatives of senior management from VALIC participated in a portion of the meetings and addressed various questions from the Board.
The Board’s approvals and recommendations were based on its determination, within its reasonable business judgment, that it would be in the best interests of each Fund and its respective shareholders, for VALIC and, as applicable, the Sub-Advisers, to provide investment advisory, investment sub-advisory, and related services to the Funds, following the consummation of the Separation Plan.
In connection with the approval of the New Advisory Contracts, VALIC advised the Board about a variety of matters, including, but not limited to, the following:
The Current Advisory Contracts were last renewed by the Board, including all the Independent Directors, at the 2022 Contracts Review Meeting. In connection with that renewal, the Directors reviewed information regarding the nature, extent and quality of services provided by VALIC and each Sub-Adviser; the investment results of each Fund; the advisory fees paid to VALIC by the Funds and the sub-advisory fees paid to each Sub-Adviser by VALIC; VALIC’s and each Sub-Adviser’s costs in managing the Funds and their profitability from the Funds; and other benefits received by VALIC, each Sub-Adviser and their affiliates as a result of their relationship with the Funds.
The New Advisory Contracts are not expected to result in any changes to the nature, extent and quality of services provided by VALIC or any Sub-Adviser.
The personnel responsible for the management operations of the Funds, including each Company officer, are not expected to change as a result of the Separation Plan.
The New Advisory Contracts are not expected to result in any changes to the portfolio management of any Fund, including no changes to the Funds’ investment objectives, principal investment strategies or principal investment risks and the same portfolio managers are expected to continue to provide day-to-day management of the applicable Fund.
The New Advisory Contracts are not expected to result in any changes to the contractual investment advisory fees charged to the Funds.
The support expressed by the senior management of VALIC for the Separation Plan and VALIC’s recommendation that the Board approve the New Advisory Contracts.
That the Funds and VALIC or its affiliates will split the costs of the Special Meeting, including legal, audit, filing fees and other related expenses.
In addition to the matters noted above, in their deliberations regarding approval of the New Advisory Contracts, the Board considered the factors discussed below, among others.
Nature, Extent and Quality of Services.
The Board considered the benefits to shareholders of retaining VALIC and the Sub-Advisers and approving the New Advisory Contracts, particularly in light of the nature, extent, and quality of the services that have been provided by VALIC and the Sub-Advisers. The Board considered the services provided by VALIC and the Sub-Advisers in rendering investment management services to the Funds. The Board considered that VALIC is responsible for the management of the day-to-day operations of the Company, including but not limited to, general supervision of and coordination of the services provided by the Sub-Advisers, and is also responsible for monitoring and reviewing the activities of the Sub-Advisers and other third-party service providers. The Board also noted that VALIC’s and the Sub-Advisers’ management of the Company is subject to the oversight of the Board, and must be made in accordance with the investment objectives, policies and restrictions set forth in the Company’s prospectus and statement of additional information. The Board noted that VALIC monitors the performance of the Funds and from time-to-time recommends Sub-Adviser changes and/or other changes intended to improve the performance of the Funds. The Board considered the quality of the portfolio management services which have benefited and should continue to benefit each Fund and its shareholders, the organizational depth and resources of VALIC and each Sub-Adviser including the background and experience of VALIC’s and each Sub-Adviser’s management personnel, and the expertise of VALIC’s and each Sub-Adviser’s portfolio management team, as well as the investment methodology used by VALIC and each Sub-Adviser.
The Board noted that VALIC personnel meet on a regular basis to discuss the performance of the Company, as well as the positioning of the insurance products, employer-sponsored retirement plans and the Funds generally vis-à-vis competitors. The Board also considered VALIC’s financial condition and whether it continues to have the financial wherewithal to provide the services under the New Advisory Agreement with respect to each Fund. The Board also considered VALIC’s risk management processes. The Board further considered the significant risks assumed by VALIC in connection with the services provided to the Funds, including entrepreneurial risk in sponsoring new Funds and ongoing risks such as operational, reputational, liquidity, litigation, regulatory and compliance risks with respect to all Funds.
With respect to the services provided by the Sub-Advisers, the Board considered information provided to the Board regarding the services provided by each Sub-Adviser, including information presented throughout the previous year and at the 2022 Contracts Review Meeting. The Board noted that each Sub-Adviser (i) determines the securities to be purchased or sold on behalf of the Fund(s) it manages as may be necessary in connection therewith; (ii) provides VALIC with records concerning its activities, which VALIC or the Funds are required to maintain; and (iii) renders regular reports to VALIC and to officers and Directors of the Funds concerning its discharge of the foregoing responsibilities. The Board reviewed each Sub-Adviser’s history and investment experience as well as information regarding the qualifications, background and responsibilities of the Sub-Adviser’s investment, compliance and other personnel who provide services to the Funds. The Board also took into account the financial condition of each Sub-Adviser. The Board also considered each Sub-Adviser’s brokerage practices and risk management processes.
The Board reviewed VALIC’s and SunAmerica’s compliance program and personnel. The Board also considered the performance of certain portions of the business continuity plan which have been invoked in response to the COVID-19 pandemic. The Board noted that SunAmerica is an affiliated company of VALIC and serves as the administrator to the Funds, as well as sub-advises certain Funds. The Board also considered VALIC’s and each Sub-Adviser’s regulatory history, including information regarding whether it was currently involved in any regulatory actions or investigations as well as material litigation.
The Board concluded that the scope and quality of the advisory services provided by VALIC and the Sub-Advisers were satisfactory and that there was a reasonable basis on which to conclude that each would provide a high quality of investment services to the Funds.
Fees and Expenses; Investment Performance. The Board noted that it had received and reviewed total expense information, advisory fee information, and sub-advisory fee information at the 2022 Contracts Review Meeting. The Board also noted that it had received and reviewed information prepared by management and by an independent third-party provider of mutual fund data regarding each Fund’s investment performance compared against its benchmark and performance group and performance universe at the 2022 Contracts Review Meeting. At the 2022 Contracts Review Meeting, the Board had concluded that each Fund’s overall performance was satisfactory in light of the circumstances or was being appropriately addressed by management. The Board also concluded that the advisory fee and sub-advisory fee for each Fund are fair and reasonable in light of the usual and customary charges made for services of the same nature and quality and the other factors considered. In this regard, the Board noted that the same personnel would be providing portfolio management services to each of the Funds.
Cost of Services and Indirect Benefits/Profitability. The Board noted that it had considered profitability to VALIC and the Sub-Advisers at the 2022 Contracts Review Meeting. At the 2022 Contract Review Meeting, the Board also reviewed VALIC’s profitability on a Fund-by-Fund basis, as well as an Investment Management Profitability Analysis prepared by an independent information service, noting that VALIC’s profitability was generally in the range of the profitability of companies contained in the report. The Board also considered that the New Advisory Contracts would not result in any changes to fees. The Board additionally considered that VALIC had represented to the Board that it will use its best efforts to ensure that VALIC and its affiliates do not take any action that imposes an “unfair burden” on the Funds as a result of the Separation Plan or as a result of any express or implied terms, conditions or understandings applicable to a Change in Control Event resulting from the Separation Plan, for so long as the requirements of Section 15(f) of the 1940 Act apply.
Economies of Scale. The Board noted that it had considered economies of scale at the 2022 Contracts Review Meeting. The Board noted that the advisory fee rate and sub-advisory fee rates payable to VALIC and each of the Sub-Advisers with respect to most of the Funds contain breakpoints, which allows the Funds to participate in any economies of scale.
Terms of the Advisory Contracts. The Board reviewed the terms of the New Advisory Contracts including the duties and responsibilities undertaken by the parties. The Board also reviewed the terms of payment for services rendered by VALIC and the Sub-Advisers and noted that VALIC would compensate the Sub-Advisers out of the advisory fees it receives from the Funds. The Board noted that the new sub-advisory agreements provide that each Sub-Adviser will pay all of its own expenses in connection with the performance of their respective duties as well as the cost of maintaining the staff and personnel as necessary for it to perform its obligations. The Board also considered the termination and liability provisions of the New Advisory Contracts and other terms contained therein. The Board additionally considered that the material terms of the Current Advisory Agreement are substantially similar to the material terms of the Proposed Agreement. The Board also considered that the material terms of the Current SunAmerica Sub-Advisory Agreement is substantially similar to the material terms of the New SunAmerica Sub-Advisory Agreement, and noted certain differences in the terms of such Agreements, which are described below under Proposal 3. The Board also considered that the material terms of the current sub-advisory agreements with the unaffiliated Sub-Advisers are substantially similar to the material of the new sub-advisory agreements with the unaffiliated Sub-Advisers. The Board concluded that the terms of each of the New Advisory Contracts were reasonable.
Compliance. The Board noted that it had reviewed VALIC’s and the Sub-Advisers’ compliance personnel and regulatory history, including information on whether they were currently involved in any regulatory actions or investigations in connection with the 2022 Contracts Review Meeting and had concluded that there was no information provided that would have a material adverse effect on their abilities to provide services to the Funds.
Conclusions. In reaching its decision to approve the New Advisory Contracts, the Board did not identify any single factor as being controlling, but based its recommendation on all of the factors it considered.
Each Director may have contributed different weight to the various factors. Based upon the materials reviewed, the representations made and the considerations described above, and as part of their deliberations, the Board, including the Independent Directors, concluded that VALIC and each Sub-Adviser possess the capability and resources to perform the duties required of them under their respective New Advisory Contracts.
Further, based upon its review of the New Advisory Contracts, the materials provided, and the considerations described above, the Board, including the Independent Directors, concluded that (1) the terms of the New Advisory Contracts are reasonable, fair and in the best interests of each Fund and its respective shareholders, and (2) the fee rates payable under the New Advisory Contracts are fair and reasonable in light of the usual and customary charges made for services of the same nature and quality.
Section 15(f) of the 1940 Act
Section 15(f) of the 1940 Act is a non-exclusive safe harbor that provides in substance that, when a sale of a controlling interest in an investment adviser occurs, the investment adviser or any of its affiliated persons may receive any amount or benefit in connection with the sale as long as two conditions are met. If either condition of Section 15(f) is not met, the safe harbor is not available. The first condition specifies that, during the three-year period immediately following consummation of the transaction, at least 75% of the investment company’s board of directors/trustees must not be “interested persons” (as defined in the 1940 Act) of the investment adviser or predecessor adviser. During the three-year period immediately following the consummation of a Change of Control Event resulting from the Separation Plan, it is anticipated that at least 75% of the Directors will not be “interested persons” (as defined in the 1940 Act) of VALIC. The second condition specifies that no “unfair burden” may be imposed on the investment company as a result of the transaction relating to the sale of the controlling interest in the investment adviser, or any express or implied terms, conditions or understandings applicable thereto. The term “unfair burden,” as defined in the 1940 Act, includes any arrangement, during the two-year period after the transaction occurs, whereby the investment adviser (or predecessor or successor adviser), or any interested person of any such investment adviser, receives or is entitled to receive any compensation, directly or indirectly (i) from any person in connection with the purchase or sale of securities or other property, to, from or on behalf of the investment company (other than bona fide ordinary compensation as principal underwriter for the investment company) or (ii) from the investment company or its security holders for other than bona fide investment advisory or other services. VALIC will not impose or seek to impose any “unfair burden” on the Funds as a result of a Change of Control Event resulting from the Separation Plan.
THE BOARD UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS OF EACH FUND VOTE “FOR” PROPOSAL 2.
PROPOSAL 3
APPROVAL OF INVESTMENT SUB-ADVISORY AGREEMENTS
SHAREHOLDERS OF THE DYNAMIC ALLOCATION FUND, MID CAP INDEX FUND, NASDAQ-100® INDEX FUND, SMALL CAP INDEX FUND, STOCK INDEX FUND, GROWTH FUND, INTERNATIONAL EQUITIES INDEX FUND, INTERNATIONALLY SOCIALLY RESPONSIBLE FUND AND U.S. SOCIALLY RESPONSIBLE FUND (PREVIOUSLY DEFINED AS THE “SUNAMERICA-ADVISED FUNDS”) VOTING SEPARATELY WITH RESPECT TO THEIR FUND
Background
SunAmerica currently serves as a sub-adviser to each of the SunAmerica-Advised Funds pursuant to three Investment Sub-Advisory Agreements between VALIC and SunAmerica. The three Investment Sub-Advisory Agreements consist of: (1) the Investment Sub-Advisory Agreement between VALIC and SunAmerica, dated January 1, 2002 (the “2002 Agreement”), with respect to the Dynamic Allocation Fund; (2) the Investment Sub-Advisory Agreement between VALIC and SunAmerica, dated March 26, 2010 (the “2010 Agreement”), with respect to the Mid Cap Index Fund, Nasdaq-100® Index Fund, Small Cap Index Fund and Stock Index Fund; and (3) the Investment Sub-Advisory Agreement between VALIC and SunAmerica, dated June 16, 2014 (the “2014 Agreement,” and collectively with the 2002 Agreement and the 2010 Agreement, the “Current SunAmerica Sub-Advisory Agreements”), with respect to the Growth Fund, International Equities Index Fund, Internationally Socially Responsible Fund and U.S. Socially Responsible Fund.
As discussed in Proposal 2, it is anticipated that one or more of the transactions contemplated by the Separation Plan could be deemed a Change of Control Event resulting in the automatic termination of the Current Advisory Agreement and existing investment sub-advisory agreements between VALIC and the Funds’ sub-advisers, including the Current SunAmerica Sub-Advisory Agreements, although Corebridge’s initial public offering is not anticipated to result in a Change of Control Event]. In order to ensure that the existing sub-advisory services can continue uninterrupted, the Board has approved new investment sub-advisory agreements between VALIC and each sub-adviser in connection with the Separation Plan.
As noted in Proposal 2, the Company and VALIC may rely on the VALIC Order to enter into new investment sub-advisory agreements with unaffiliated sub-advisers without seeking shareholder approval. The VALIC Order, however, does not permit VALIC to enter into sub-advisory agreements with a sub-adviser that is an affiliated person of VALIC or the Company without first obtaining shareholder approval. Since SunAmerica is an affiliate of VALIC and the Company, the Board is seeking your approval of a new investment sub-advisory agreement with respect to the SunAmerica-Advised Funds to ensure that the existing sub-advisory services can continue uninterrupted. Rather than approve three separate new investment sub-advisory agreements between VALIC and SunAmerica, however, it is proposed that all of the SunAmerica-Advised Funds be party to the same sub-advisory agreement between VALIC and SunAmerica (the “New SunAmerica Sub-Advisory Agreement”) to reduce administrative complexity and regulatory burden. The terms of the New SunAmerica Sub-Advisory Agreement are substantially similar to those of the 2014 Agreement.
Shareholders are being asked to approve the New SunAmerica Sub-Advisory Agreement, which would be effective after the first Change of Control Event resulting from the Separation Plan that occurs after shareholder approval. As part of Proposal 2, shareholders are also voting to approve future sub-advisory agreements between VALIC and SunAmerica (the “Future SunAmerica Sub-Advisory Agreements” and together with the New SunAmerica Sub-Advisory Agreement, the “New Sub-Advisory Agreements”) if there are subsequent Change of Control Events resulting from the Separation Plan arising from completion of the Separation Plan that terminates the New SunAmerica Sub-Advisory Agreement after the first Change of Control Event.
If there is a change from the facts described in this Proxy Statement that is material to shareholders of the SunAmerica-Advised Funds in the context of a vote on a sub-advisory agreement, any shareholder approval received at the Special Meeting would no longer be valid to approve Future SunAmerica Sub-Advisory Agreements that would otherwise be approved in the event of subsequent Change of Control Events resulting from the Separation Plan. This judgment will be made by VALIC in consultation with counsel to the Company and reviewed by the Board. If an investment sub-advisory agreement were to terminate without valid shareholder approval, the Board and the shareholders of such Fund may be asked to approve a new investment sub-advisory agreement to permit SunAmerica to continue to provide sub-advisory services to the Fund.
In addition, if shareholders of the SunAmerica-Advised Funds approve Proposal 4 (described below), VALIC and the Board may also consider reliance on the New Relief to continue to retain SunAmerica following such events, subject to the conditions of the New Relief.
Information about SunAmerica
SunAmerica is located at Harborside 5, 185 Hudson Street, Suite 3300, Jersey City, New Jersey 07311. SunAmerica serves as the sub-adviser, or a sub-adviser, for each of the SunAmerica-Advised Funds. Subject to the control and supervision of VALIC and the Board of the Company, SunAmerica manages all or a portion of the assets of each SunAmerica-Advised Fund and supervises the daily business affairs of each SunAmerica-Advised Fund. SunAmerica is a limited liability company organized under the laws of Delaware, and managed, advised or administered assets in excess of $68.9 billion as of June 30, 2022. SunAmerica is an indirect, majority-owned subsidiary of AGL. AGL is a stock life insurance company organized under the laws of the state of Texas and is located at 2727-A Allen Parkway, Houston, Texas 77019. AGL is an indirect, wholly-owned subsidiary of Corebridge. Corebridge is currently a direct, majority-owned subsidiary of AIG and is located at 21650 Oxnard Street, Suite 750, Woodland Hills, California 91367.
The following table lists the names and principal occupations of SunAmerica’s principal executive officers and directors. The business address of each person listed below is Harborside 5, 185 Hudson Street, Suite 3300, Jersey City, New Jersey 07311.
| | |
Name | | Principal Occupation |
Gregory N. Bressler | | Senior Vice President, General Counsel, Chief Legal Officer and Assistant Secretary |
Frank P. Curran | | Senior Vice President and Controller |
John T. Genoy | | Director, President and Chief Operating Officer of SunAmerica. Vice President, AIG Capital Services, Inc.; Vice President, Chief Financial Officer & Controller, AFS. |
Matthew J. Hackethal | | Chief Compliance Officer and Vice President |
Todd McGrath | | Director of SunAmerica. Director, AIG Fund Services, Inc. (“AFS”); President and Director, VALIC Retirement Services Company; Chief Administrative Officer, AIG Life Holdings, Inc.; Chief Operating Officer and Executive Vice President, The Variable Annuity Life Insurance Company. |
Bryan Pinsky | | Director of SunAmerica. Senior Vice President, American General Life Insurance Company & The United States Life Insurance Company in the City of New York. |
Description of the New Sub-Advisory Agreements
The description of the New SunAmerica Sub-Advisory Agreement that follows is qualified entirely by reference to the form of New SunAmerica Sub-Advisory Agreement included in Exhibit G to this Proxy Statement. For purposes of this subsection, references to the New SunAmerica Sub-Advisory Agreement include
the Future SunAmerica Sub-Advisory Agreement. The New SunAmerica Sub-Advisory Agreement is substantially similar in all material respects to the 2014 Agreement, except for (i) the effective and termination dates; (ii) replacement of brokerage account terms with expanded language that authorizes and directs SunAmerica to do and perform all acts necessary to perform its duties and obligations under the New SunAmerica Sub-Advisory Agreement with respect to any investments, including derivatives; (iii) revisions to the confidentiality provision to expand the usage of confidential information to a party’s Representatives (as defined in the New SunAmerica Sub-Advisory Agreement) who have a need to know confidential information, to address the return, destruction and retention of confidential information and to address the treatment of privileged confidential information, among other things; (iv) revisions to the compensation provision to reflect that the sub-advisory fee is based on average daily net assets as opposed to average daily net asset value; (v) the addition of a counterparts provision, (vi) a revised notices provision, and (vii) the addition of new series to Schedule A.
The differences are not expected to have any impact on the day-to-day management of the SunAmerica-Advised Funds.
The New SunAmerica Sub-Advisory Agreement would become effective after the first Change of Control Event resulting from the Separation Plan that occurs after shareholder approval, and each Future SunAmerica Sub-Advisory Agreement would become effective upon a subsequent Change of Control Event resulting from the Separation Plan. The material terms of the New SunAmerica Sub-Advisory Agreement are discussed in more detail below.
Services
No changes to the services provided by SunAmerica as specified under the 2014 Agreement are proposed in connection with Proposal 3.
The 2014 Agreement and the New SunAmerica Sub-Advisory Agreement provide that SunAmerica shall, subject to the control and supervision of VALIC and the Board and in material conformity with all applicable laws and regulations, the Company’s organizational documents, its registration statement, and applicable procedures adopted by the Board and provided to SunAmerica, (a) manage the investment and reinvestment of the assets of the Funds including, for example, the evaluation of pertinent economic, statistical, financial, and other data, the determination, in its discretion without prior consultation with VALIC or the Board, of the industries, securities and other investments to be represented in each 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 (including futures contracts or other derivatives) for each Fund’s account with brokers or dealers (including futures commission merchants) selected by SunAmerica, 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 SunAmerica, subject to SunAmerica’s control, direction, and supervision, which brokers or dealers may include brokers or dealers (including futures commission merchants) affiliated with SunAmerica, subject to applicable law; and (c) delegate, at its own discretion, any or all of its discretionary investment, advisory and other rights, powers and functions hereunder to any advisory affiliate, without further written consent of VALIC provided that SunAmerica shall always remain liable for its obligations thereunder.
Expenses
No changes to the expenses provisions of the 2014 Agreement are proposed in connection with Proposal 3.
The 2014 Agreement and the New SunAmerica Sub-Advisory Agreement provide that SunAmerica shall bear the expense of discharging its responsibilities and VALIC shall pay, or arrange for others to pay, all VALIC’s expenses, except that VALIC shall in all events pay the compensation set forth in the Agreements. In addition, the Company will be ultimately responsible for all brokerage commissions, taxes, custodian fees and other transaction-related fees incurred on behalf of the SunAmerica-Advised Funds.
Contractual Sub-Advisory Fees
No changes in the contractual sub-advisory fees for the SunAmerica-Advised Funds are proposed in connection with Proposal 3.
Liability
No changes to the liability provisions of the 2014 Agreement are proposed in connection with Proposal 3.
The 2014 Agreement and the New SunAmerica Sub-Advisory Agreement provide that SunAmerica shall not be liable to VALIC, the Company, the SunAmerica-Advised Funds, or to any shareholder of the SunAmerica-Advised Funds, and VALIC shall indemnify SunAmerica, for any act or omission in rendering services under the Agreements, or for any losses sustained in connection with the matters to which the Agreements relate, so long as there has been no willful misfeasance, bad faith, gross negligence, or reckless disregard of obligations or duties on the part of SunAmerica in performing its duties under the Agreements.
Term and Continuance
No changes to the term and continuance provisions of the 2014 Agreement are proposed in connection with Proposal 3. The 2014 Agreement and the New SunAmerica Sub-Advisory Agreement would differ only to the extent of their effective and termination dates.
If approved by shareholders, the New SunAmerica Sub-Advisory Agreement will be effective after the first Change of Control Event resulting from the Separation Plan, and any Future SunAmerica Sub-Advisory Agreement will be effective after a subsequent Change of Control Event resulting from the Separation Plan. After an initial two-year term, the New SunAmerica Sub-Advisory Agreement would continue in effect, but with respect to any Fund, subject to the termination provisions and all other terms and conditions thereof, only so long as such continuance is approved at least annually by the vote of a majority of the Company’s Directors who are not parties to the 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 Company’s Board or a majority of that Fund’s outstanding voting securities (as defined in the 1940 Act).
Termination
No changes to the termination provisions of the 2014 Agreement are proposed in connection with Proposal 3.
Both the 2014 Agreement and the New SunAmerica Sub-Advisory Agreement provide that the Agreement may be terminated as to any SunAmerica-Advised Fund at any time, without the payment of any penalty, by vote of the Company’s Board or by vote of a majority of that Fund’s outstanding voting securities on not more than 60 days’ nor less than 30 days’ prior written notice to SunAmerica, or upon such shorter notice as may be mutually agreed upon by the parties. The Agreements may also be terminated by VALIC: (i) on not more than 60 days’ nor less than 30 days’ prior written notice to SunAmerica, or upon such shorter notice as may be mutually agreed upon by the parties, without the payment of any penalty; or (ii) if SunAmerica becomes unable to discharge its duties and obligations under this Agreement. SunAmerica may terminate the Agreements at any time, or preclude its renewal without the payment of any penalty, on not more than 60 days’ nor less than 30 days’ prior written notice to VALIC, or upon such shorter or longer notice as may be mutually agreed upon by the parties. The Agreements automatically terminate upon assignment or in the event of the termination of the investment advisory agreement between VALIC and the Company as it relates to any SunAmerica-Advised Fund(s).
For information concerning the material differences in the terms of the New SunAmerica Sub-Advisory Agreement and each of the 2002 Agreement and the 2010 Agreement, see Exhibit H. Please also see Exhibit H for information on when the Current SunAmerica Sub-Advisory Agreements were last approved by shareholders.
Factors Considered by the Board
At the meetings held on August 2-3, 2022 at which the Board approved your Fund’s Proposed Agreement, the Board, including the Independent Directors, also unanimously approved the New SunAmerica Sub-Advisory Agreement.
The Board’s considerations regarding all of the new sub-advisory agreements, including the New SunAmerica Sub-Advisory Agreement, are included in the Board Considerations under Proposal 2 above.
THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” PROPOSAL 3.
PROPOSAL 4
APPROVAL OF A “MANAGER-OF-MANAGERS” ARRANGEMENT THAT WOULD PERMIT VALIC TO ENTER INTO AND MATERIALLY AMEND SUB-ADVISORY AGREEMENTS WITH UNAFFILIATED AND AFFILIATED SUB-ADVISERS ON BEHALF OF THE FUNDS WITHOUT OBTAINING SHAREHOLDER APPROVAL
SHAREHOLDERS OF THE FUNDS VOTING SEPARATELY WITH RESPECT TO THEIR FUND
Background
Pursuant to Section 15(a) of the 1940 Act, an investment adviser to a mutual fund generally cannot enter into or materially amend a sub-advisory agreement without obtaining shareholder approval. The Company and VALIC currently rely on an exemptive order from the SEC that permits VALIC, subject to the approval of the Board, but without the need for shareholder approval, to enter into and materially amend sub-advisory agreements with unaffiliated sub-advisers (previously defined as the “VALIC Order”), commonly referred to as a “manager-of-managers” structure. The VALIC Order does not allow VALIC to enter into a sub-advisory agreement with a sub-adviser that is an affiliate of VALIC or the Company without shareholder approval. Shareholders of each Fund have previously approved the operation of such Fund under the existing manager-of-managers structure.
In addition to the VALIC Order, VALIC, as a control affiliate of SunAmerica, and the Funds may also rely on an exemptive order that SunAmerica and certain other registrants received from the SEC on December 3, 1996 (the “SunAmerica Order”), subject to shareholder approval. Similar to the VALIC Order, the SunAmerica Order permits SunAmerica to enter into or materially amend sub-advisory agreements with unaffiliated sub-advisers without obtaining shareholder approval. Unlike the VALIC Order, however, the SunAmerica Order also permits registrants to disclose the advisory fees paid by a fund to the adviser and the sub-advisory fees paid by the adviser to a sub-adviser on an aggregate basis, rather than disclosing the amounts paid to each individually (“aggregate fee disclosure”).
On May 29, 2019, the SEC granted a multi-manager exemptive order to Carillon Series Trust, et al. to permit Carillon Series Trust and Carillon Tower Advisers, Inc. (“Carillon”), its funds’ investment adviser, to enter into and materially amend sub-advisory agreements with unaffiliated sub-advisers and any sub-adviser that is an “affiliated person” (as such term is defined in Section 2(a)(3) of the 1940 Act) (“Affiliated Sub-Advisers”) of Carillon Series Trust or Carillon without shareholder approval and to utilize aggregate fee disclosure (“Carillon Order”).2 On July 9, 2019, the SEC staff granted no-action relief to The BNY Mellon Family of Funds, et al. (“BNY Mellon”) that extended BNY Mellon’s existing multi-manager exemptive order (which only covered both unaffiliated and wholly-owned sub-advisers) to Affiliated Sub-Advisers without requiring BNY Mellon to amend its order (the “BNY Letter,” and together with the “Carillon Order,” the “New Relief”). The no-action relief in the BNY Letter may be relied on by other fund complexes that have an existing multi-manager exemptive order, such as the VALIC Order and the SunAmerica Order, provided their advisers and funds comply with the terms and conditions set forth in the application for the Carillon Order in their entirety, which includes a requirement to obtain shareholder approval.
To reduce regulatory burden and operational and compliance complexity, VALIC and the Company are seeking shareholder approval so that the Company, on behalf of each of the Funds, and VALIC may rely on the SunAmerica Order. VALIC and the Company are also seeking shareholder approval so that the Company, on behalf of each of the Funds, and VALIC may rely on the New Relief, which would extend the SunAmerica Order to any sub-advisory agreements with Affiliated Sub-Advisers that may be entered into with respect to the Funds.
2 | Carillon Tower Advisers, Inc., et al., Investment Company Act Release Nos. 33464 (May 2, 2019) (notice) and 33494 (May 29, 2019) (order). |
Potential Benefits of the SunAmerica Order and the New Relief
Although similar, the VALIC Order and the SunAmerica Order contain different conditions. Permitting each Fund to rely on the SunAmerica Order will not only provide consistency and uniformity across the complexes, but it also will simplify the process of monitoring compliance with the conditions. In addition, it will permit each Fund to utilize aggregate fee disclosure.
In addition, VALIC believes that the New Relief is in the best interests of the Fund’s shareholders as it will provide VALIC and the Board with maximum flexibility to select, monitor and evaluate Affiliated Sub-Advisers without incurring the expense or delay of seeking specific shareholder approval. In addition, it will permit a Fund to more efficiently and quickly respond to changes in market conditions and other factors. Currently, in order for VALIC to appoint a new Affiliated Sub-Adviser or materially amend a sub-advisory agreement with an Affiliated Sub-Adviser, the Company must hold a special shareholder meeting and solicit votes from a Fund’s shareholders. This process is time consuming, slow and costly. Under the New Relief, VALIC and the Board would be able to act more quickly and with less expense to appoint a new Affiliated Sub-Adviser or materially amend a sub-advisory agreement with an Affiliated Sub-Adviser when VALIC and the Board believe that the appointment or amendment would benefit a Fund and its shareholders.
If shareholders approve Proposal 4, the Board would continue to oversee the sub-adviser selection process to help ensure that shareholders’ interests are protected. The Board, including a majority of the Independent Directors, would also continue to evaluate and approve all new sub-advisory agreements, as well as any material modifications to all sub-advisory agreements, analyzing all factors that it considers to be relevant to the determination, including the nature, quality and scope of services provided by the sub-advisers. Shareholder approval of the SunAmerica Order and the New Relief will not result in an increase or decrease in the total amount of investment advisory fees paid by a Fund to VALIC. These fees are directly paid by VALIC to the sub-advisers out of the investment advisory fees that VALIC receives from each Fund, and not by the Funds.
Similarities and Differences between the VALIC Order and the SunAmerica Order
The SunAmerica Order and the VALIC Order contain many identical or substantially similar conditions as set forth below.
The first set of conditions require that certain disclosures be made and that shareholders of an affected fund be informed each time a new sub-adviser is hired. Before a fund may rely on either order, the operation of the fund in the manner described in the application for the applicable order must be approved by a “majority of the outstanding voting securities” (as defined in the 1940 Act) of the fund. Each fund is required to disclose in its prospectus the existence, substance and effect of the applicable order. Moreover, within 60 days (for the SunAmerica Order) or 90 days (for the VALIC Order), the adviser is required to furnish shareholders of the affected fund with all of the information about the new sub-adviser that would be included in a proxy statement. Finally, the “manager-of-mangers” arrangement does not apply to a sub-advisory agreement with any affiliated sub-adviser and such an agreement, including the compensation to be paid thereunder, must be approved by the shareholders of the applicable fund.
A second set of conditions is designed to protect shareholder interests through certain restrictions on the board of directors and on ownership of certain securities, as well as careful oversight by the board of directors of changes of sub-advisers for funds with affiliated sub-advisers. Among these conditions is that a majority of a registrant’s board of directors must be persons who are not “interested persons” within the meaning of Section 2(a)(19) of the 1940 Act at all times, and the nomination of new or additional independent board members must be placed within the discretion of the then-existing independent board members. In addition, except in very limited circumstances, no trustee, director, or officer of the registrant or the adviser is permitted to own directly or indirectly (other than a pooled investment vehicle that is not controlled by such person) any interest in a sub-adviser.
| Finally, when a change of sub-adviser is proposed for a fund with an affiliated sub-adviser, the board of directors, including a majority of the independent board members, must make a separate finding that such change is in the best interests of the fund and its shareholders and does not involve a conflict of interest from which the adviser or the affiliated sub-adviser derives an inappropriate advantage. |
A third set of conditions requires that the adviser provide management services to the funds that operate under the applicable order, including overall supervisory responsibility for the general management and investment of each such fund’s assets, and subject to review and approval by the board of directors, (a) set each such fund’s overall investment strategies; (b) evaluate, select, and recommend sub-advisers to manage all or a part of each such fund’s assets; (c) allocate and when appropriate, reallocate each such fund’s assets among multiple sub-advisers; (d) monitor and evaluate the performance of the sub-advisers; and (e) implement procedures reasonably designed to ensure that the sub-advisers comply with each such fund’s investment objectives, policies, and restrictions.
The below conditions from the SunAmerica Order are not conditions of the VALIC Order. Accordingly, if VALIC and the Funds were to rely on the SunAmerica Order, the following additional conditions would be imposed:
The Company will disclose both as a dollar amount and as a percentage of a Fund’s net assets in its registration statement the respective aggregate fee disclosure.
The Independent Directors of the Company will be required to engage Independent Legal Counsel, as defined in Rule 0-1(a)(6) under the 1940 Act. The Independent Directors of the Company are currently represented by Independent Legal Counsel.
VALIC will be required to provide the Company’s Board, no less frequently than quarterly, information about VALIC’s profitability on a per-Fund basis. VALIC also will be required to provide the Company’s Board with information showing the expected impact on its profitability upon the hiring or termination of a sub-adviser.
Similarities and Differences between the SunAmerica Order and the New Relief
Under the terms of the New Relief, VALIC and the Company would continue to be subject to several conditions imposed by the SEC which are currently applicable under the SunAmerica Order. For example, in order to rely on the New Relief, as with the SunAmerica Order, at all times, a majority of the Board must consist of Independent Directors and the selection and nomination of new or additional Independent Directors must be placed within the discretion of the then-existing Independent Directors. In addition, the Independent Directors must be represented by “Independent Legal Counsel” (as such term is defined in Rule 0-1(a)(6) under the 1940 Act). Also, both the SunAmerica Order and the New Relief permit aggregate fee disclosure.
Under the terms of the New Relief, VALIC and the Company would also be subject to certain new or modified conditions. The significant differences between the SunAmerica Order and the New Relief are set forth below. Specifically, under the New Relief:
VALIC will no longer be required to obtain shareholder approval to enter into or materially amend sub-advisory agreements with Affiliated Sub-Advisers.
a Fund must continue to disclose in its prospectus the existence, substance and effect of the manager-of-managers order; however, it would now also be required to disclose prominently that VALIC has the ultimate responsibility, subject to oversight by the Board, to oversee the sub-advisers and recommend their hiring, termination and replacement.
a Fund must continue to furnish to its shareholders an information statement that contains information about a new sub-adviser and sub-advisory agreement; however, it will no longer be required to furnish such an information statement to shareholders when an existing
| sub-advisory agreement is materially modified. Moreover, the timeframe to inform shareholders of the hiring of a new sub-adviser pursuant to an information statement would be extended from within 60 days to within 90 days after the hiring of the new sub-adviser. |
the Board must evaluate any material conflicts that may be present in a sub-advisory arrangement whenever a sub-adviser change is proposed for a Fund or the Board considers an existing sub-advisory agreement as part of its annual review process.
there would be an explicit requirement to obtain shareholder approval for any new sub-advisory agreement or any amendment to an existing investment advisory agreement or sub-advisory agreement that directly or indirectly results in an increase in the aggregate advisory fee rate payable by a Fund.
VALIC would continue to provide the Board with information showing the expected impact on VALIC’s profitability whenever a sub-adviser is hired or terminated; however, VALIC would no longer be required to provide the Board with quarterly profitability reports on a per-Fund basis.
If shareholders approve the SunAmerica Order and New Relief with respect to their Fund(s), it is anticipated that the Funds will begin to rely on the SunAmerica Order as soon as reasonably practicable after the Special Meeting. In addition, a Fund’s prospectus and/or statement of additional information will be updated in advance of the New Relief being relied upon by the Fund. If shareholders do not approve the SunAmerica Order and the New Relief with respect to their Fund(s), the Fund(s) will continue to operate under a manager-of-managers structure pursuant to the VALIC Order and will continue to be required to seek shareholder approval to enter into or materially amend sub-advisory agreements with Affiliated Sub-Advisers. In the event that the New Relief is rescinded by the SEC after Proposal 4 is approved by shareholders or prior to such time that a Fund elects to rely on the New Relief, VALIC and the Funds intend to rely on the SunAmerica Order and to comply with its conditions.
THE BOARD UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS OF EACH FUND VOTE “FOR” PROPOSAL 4.
PROPOSALS 5A THROUGH 5H
APPROVAL TO ADOPT, REVISE OR ELIMINATE FUNDAMENTAL INVESTMENT RESTRICTIONS
SHAREHOLDERS OF THE FUNDS VOTING SEPARATELY WITH RESPECT TO THEIR FUND
The Funds, like all registered investment companies, are required by the 1940 Act to have certain specific investment policies that can be changed only with shareholder approval. These policies are often referred to as “fundamental” policies. (In this Proxy Statement, the word “restriction” is sometimes used to describe a policy.) Recently, VALIC performed a comprehensive review of the Funds’ fundamental investment restrictions. Based on VALIC’s recommendation and the Board’s own review of the Funds’ current fundamental investment restrictions, the Board has concluded that the restrictions should be modernized and standardized. A list of the fundamental investment restrictions that will apply to each Fund if each proposal is approved by shareholders of that Fund appears in Exhibit I. At the Special Meeting, shareholders of all Funds will be asked to adopt new restrictions, approve revised restrictions and/or remove other fundamental investment restrictions, as set forth in more detail below.
The new and revised restrictions provide consistency and uniformity across the Funds to the extent possible. The new and revised fundamental investment restrictions are expected to facilitate the management of each Fund’s assets and to simplify the process of monitoring compliance with a Fund’s fundamental investment restrictions.
In addition, the new and revised fundamental investment restrictions are intended to offer each Fund additional investment flexibility to respond to changing markets, new investment opportunities and future changes in applicable law. Accordingly, the restrictions are written and will be interpreted broadly. For example, many of the proposed new and revised fundamental investment restrictions allow the investment practice in question to be conducted to the extent permitted by the 1940 Act. It is possible that as the financial markets continue to evolve over time, the 1940 Act and the related rules may be further amended to address changed circumstances and new investment opportunities. It is also possible that the 1940 Act and the related rules could change for other reasons. For flexibility, the new and revised fundamental investment restrictions will be interpreted to refer to the 1940 Act and the related rules as they are in effect from time to time. This will allow the Funds to take advantage of future changes in applicable law without seeking additional costly and time-consuming shareholder approvals. To the extent the Funds engage in new investment practices, the Funds may be subject to additional risks. As noted below, before a Fund’s investment practices are changed in response to the revised restrictions, the Board would be consulted and, if appropriate, the Fund’s prospectus or statement of additional information would be supplemented to disclose the changes and any additional risks.
The proposed new and revised fundamental investment restrictions also refer to interpretations or modifications of, or relating to, the 1940 Act from the SEC or members of its staff, as well as interpretations or modifications of other authorities having jurisdiction over the Funds. These authorities could include courts. From time to time, the SEC and members of its staff, and others, issue formal or informal views on various provisions of the 1940 Act and the related rules, including through no-action letters and exemptive orders. The new and revised fundamental investment restrictions will be interpreted to refer to these interpretations or modifications as they are given from time to time. Again, this will allow the Funds the flexibility to evolve along with the markets and regulatory landscape without the expense and delay of seeking further shareholder approvals.
Finally, when a proposed new or revised fundamental investment restriction provides that an investment practice may be conducted as permitted by the 1940 Act, the restriction will be interpreted to mean either that the 1940 Act expressly permits the practice or that the 1940 Act does not prohibit the practice.
Each Fund has an investment objective or objectives as well as fundamental investment restrictions. The new and revised fundamental investment restrictions do not affect the Funds’ investment objectives, which remain unchanged.
The new and revised fundamental investment restrictions give the Funds an increased ability to engage in certain investment practices, as described in more detail below. If a particular Fund takes advantage of that increased ability, there could be a material increase in the level of investment risk associated with an investment in that Fund. Certain of the increased risks to the Funds are described below. Except for a change to the Blue Chip Growth Fund’s sub-classificationfrom “diversified” to “non-diversified”“non-diversified” described in Proposal 6, the actual investment practices of the Funds currently are not expected to change as a result of the new and revised policies. It is expected that each Fund will continue to be managed in accordance with its prospectus and statement of additional information (other than the fundamental policies being added or changed), as well as any policies or guidelines that may have been established by the Board or VALIC. However, a Fund’s investment practices could change in the future and for various reasons. Before a Fund’s investment practices are changed in response to the new or revised policies, the Board would be consulted and, if appropriate, the Fund’s prospectus or statement of additional information would be supplemented to disclose the changes and any additional risks.
VALIC has advised the Board that, except as described herein, the proposed additions and revisions to, and removal of, fundamental investment restrictions are not expected to materially affect the manner in which each Fund’s investment program is being conducted at this time. On this basis, the Board recommends that shareholders of each Fund vote to adopt, revise or remove that Fund’s fundamental investment restrictions as discussed below. The Funds affected by the proposed changes are indicated at the beginning of each section below. Each section sets out the fundamental policy that will apply to each Fund if shareholders of that Fund approve the policy in that section. The descriptions in each section of the Funds’ existing fundamental policies are general, and are qualified by reference to the actual text of the existing policies that appears in Exhibit I. The charts in Exhibit I set out in the left and middle columns, as applicable, the current fundamental policies of each Fund that are proposed to be revised or removed, and in the right column the proposed new or revised policy, if applicable.
Shareholders of each Fund will vote separately from shareholders of other Funds with respect to their Fund’s fundamental policies. In addition, shareholders will be asked to vote on each new or revised policy for their Fund separately on the enclosed proxy card or voting instruction card. No proposal to adopt, revise or remove any fundamental policy is contingent upon the approval of any other such proposal. As a result, it may be the case that certain of a Fund’s fundamental policies will be changed or removed, and others will not. If any proposal is not approved for a Fund, the Fund’s existing fundamental policy on that investment practice will remain in effect.
The new and revised policies that are approved will take effect as soon as reasonably practicable following approval at the Special Meeting, although the actual date could be later.
PROPOSAL 5A – TO REVISE THE FUNDAMENTAL INVESTMENT RESTRICTION
REGARDING BORROWING MONEY
Funds affected: all Funds
If shareholders of a Fund approve this proposal, the Fund’s current fundamental investment restriction on the borrowing of money will be revised to read as follows:
The Fund may not borrow money except as permitted by (i) the 1940 Act or interpretations or modifications by the SEC, SEC staff or other authority with appropriate jurisdiction, or (ii) exemptive or other relief or permission from the SEC, SEC staff or other authority.
Rationale. All mutual funds are required to have a fundamental policy about the borrowing of money. The 1940 Act permits a fund to borrow money in amounts of up to one-third of the fund’s total assets from banks for any purpose, and to eliminateborrow up to an additional 5% of the fund’s total assets from banks or other lenders for temporary purposes. To limit the risks attendant to borrowing, the 1940 Act requires the fund to maintain an “asset coverage” of at least 300% of the amount of its borrowings, provided that in the event that the fund’s asset coverage falls below 300%, the fund is required to reduce the amount of its borrowings so that it meets the 300% asset coverage threshold within three days (not including Sundays and holidays). Certain trading practices and investments dollar rolls and certain derivatives, may be considered to be borrowing and thus subject to the 1940 Act restrictions.
All of the Funds have the same current fundamental investment restriction on borrowing money. Currently, the borrowing policy of the Funds limits borrowings to 331⁄3% of the value of total assets for temporary or emergency purposes, or as permitted by law, and permits the Funds to obtain short-term credit as necessary for the clearance of purchases and sales of portfolio securities. In addition, the fundamental investment policy permits the Funds to borrow for investment purposes to the maximum extent permissible under the 1940 Act. The Funds’ current borrowing policy is disclosed in their prospectuses and/or statements of additional information. Please also see Exhibit I. The revised policy will permit the Funds to borrow money, and to engage in trading practices that may be considered to be borrowing, to the fullest extent permitted by the 1940 Act and related interpretations, as in effect from time to time.
As noted above, the revised policy will be interpreted to permit a Fund to engage in trading practices and investments that may be considered to be borrowings to the extent consistent with the 1940 Act. In addition, short-term credits necessary for the settlement of securities transactions and arrangements with respect to securities lending will not be considered to be borrowings under the revised investment restriction. Practices and investments that may involve leverage but are not considered to be borrowings are not subject to the revised investment restriction.
Borrowing may cause the value of a Fund’s shares to be more volatile than if the Fund did not borrow. This is because borrowing tends to magnify the effect of any increase or decrease in the value of the Fund’s relatedportfolio holdings. Borrowed money thus creates an opportunity for greater gains, but also greater losses. There also are costs associated with borrowing money, and these costs would offset and could eliminate a Fund’s net investment income in any given period.
VALIC has advised the Board that the proposed revisions to each Fund’s fundamental policy on borrowing are not expected to materially affect the manner in which the Fund’s investment program is being conducted at this time, as reflected in the Fund’s current prospectus and statement of additional information. Before a Fund’s investment practices are changed in response to the revised policy, the Board would be consulted and, if appropriate, the Fund’s prospectus or statement of additional information would be supplemented to disclose the changes and any additional risks.
THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” PROPOSAL 5A.
PROPOSAL 5B – TO REVISE THE FUNDAMENTAL INVESTMENT RESTRICTION REGARDING
UNDERWRITING
Funds affected: all Funds
If shareholders of a Fund approve this proposal, the Fund’s current fundamental investment restriction
on the underwriting of securities of other issuers will be revised to read as follows:The Fund may not engage in the business of underwriting the securities of other issuers except as permitted by (i) the 1940 Act or interpretations or modifications by the SEC, SEC staff or other authority with appropriate jurisdiction, or (ii) exemptive or other relief or permission from the SEC, SEC staff or other authority.
Rationale. All mutual funds are required to have a fundamental investment restriction about engaging in the business of underwriting the securities of other issuers. The 1940 Act permits a fund to have underwriting commitments within certain limits. All of the Funds have the same current underwriting policy, as disclosed in their prospectuses and/or statements of additional information. Please also see Exhibit I. The revised policy will permit the Funds to engage in the underwriting business and to underwrite the securities of other issuers to the fullest extent permitted by the 1940 Act and related interpretations, as in effect from time to time, and thus will give the Funds greater flexibility to respond to future investment opportunities, subject, of course, to the investment objectives and strategies applicable to each Fund.
Each Fund’s current fundamental policy states that the Fund will not be deemed to be an underwriter in connection with the sale or disposition of its portfolio securities. This exception refers to a technical provision of the Securities Act of 1933, as amended (the “1933 Act”), which deems certain persons to be “underwriters” if they purchase a security from the issuer and later sell it to the public. Although it is not believed that the application of this 1933 Act provision would cause a Fund to be engaged in the business of underwriting, the revised policy would be interpreted not to prevent a Fund from engaging in transactions involving the acquisition or disposition of portfolio securities, regardless of whether the Fund may be considered to be an underwriter under the 1933 Act. Under the 1933 Act, an underwriter may be liable for material omissions or misstatements in an issuer’s registration statement or prospectus.
Securities purchased from an issuer and not registered for sale under the 1933 Act are considered restricted securities. There may be a limited market for these securities. If these securities are registered under the 1933 Act, they may then be eligible for sale but participating in the sale may subject the seller to underwriter liability. These risks could apply to a Fund investing in restricted securities.
VALIC has advised the Board that the proposed revisions to each Fund’s fundamental policy on underwriting are not expected to materially affect the manner in which the Fund’s investment program is being conducted at this time, as reflected in the Fund’s current prospectus and statement of additional information. Before a Fund’s investment practices are changed in response to the revised policy, the Board would be consulted and, if appropriate, the Fund’s prospectus or statement of additional information would be supplemented to disclose the changes and any additional risks.
THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” PROPOSAL 5B.
PROPOSAL 5C – TO REVISE THE FUNDAMENTAL INVESTMENT RESTRICTION REGARDING
LENDING
Funds affected: all Funds
If shareholders of a Fund approve this proposal, the Fund’s current fundamental investment restriction on the lending of money or other assets will be revised to read as follows:
The Fund may not lend money or other assets except to the extent permitted by (i) the 1940 Act or interpretations or modifications by the SEC, SEC staff or other authority with appropriate jurisdiction, or (ii) exemptive or other relief or permission from the SEC, SEC staff or other authority.
Rationale. All mutual funds are required to have a fundamental policy about lending money and other assets. The 1940 Act permits a fund to make loans within certain limits. SEC staff interpretations currently prohibit funds from lending portfolio securities of more than one-third of their total assets.
All of the Funds, other than the Aggressive Growth Lifestyle Fund, Conservative Growth Lifestyle Fund and Moderate Growth Lifestyle Fund (the “Lifestyle Funds”), have the same current fundamental investment restriction on lending, which prohibits the making of loans, but specifies that investments in debt securities and repurchase agreements, the lending of portfolio securities, and the entering into of any other lending arrangement as permitted by or under the 1940 Act, by exemptive relief, or by any SEC staff interpretation of the 1940 Act, are not subject to the restriction. After reviewing the Lifestyle Funds’ current fundamental investment restrictions, VALIC has determined that the Lifestyle Funds’ fundamental investment restriction on lending is ambiguous. Accordingly, it is proposed that the Lifestyle Funds adopt the revised investment restriction to clarify and standardize their fundamental policy on making loans to other persons. It is also proposed that each of the other Funds adopt the revised investment restriction. The Funds’ current lending policies are disclosed in their prospectuses and/or statements of additional information. Please also see Exhibit I.
The revised investment restriction will permit a Fund to engage in securities lending, enter into repurchase agreements, acquire debt and other securities (to the extent deemed lending) and allow the Fund to lend money and other assets, in each case to the fullest extent permitted by the 1940 Act. The revised investment restriction will be interpreted not to prevent a Fund from purchasing or investing in debt obligations and loans. In addition, collateral arrangements with respect to options, forward currency and futures transactions and other derivative instruments, as well as delays in the settlement of securities transactions, will not be considered loans.
While lending securities may be a source of income to the Funds, as with other extensions of credit, there are risks of delay in recovery or even loss of rights in the underlying securities should the borrower fail financially. The Funds also will be permitted by this policy to make loans of money.
VALIC has advised the Board that the proposed revisions to each Fund’s fundamental policy on lending are not expected to materially affect the manner in which the Fund’s investment program is being conducted at this time, as reflected in the Fund’s current prospectus and statement of additional information. Before a Fund’s investment practices are changed in response to the revised policy, the Board would be consulted and, if appropriate, the Fund’s prospectus or statement of additional information would be supplemented to disclose the changes, the purpose of the changed practices and any additional risks.
A Fund would engage in lending money or other assets only to the extent consistent with its investment objective(s) and as approved by the Board.
THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” PROPOSAL 5C.
PROPOSAL 5D – TO REVISE THE FUNDAMENTAL INVESTMENT RESTRICTION REGARDING THE ISSUANCE OF SENIOR SECURITIES
Funds affected: all Funds
If shareholders of a Fund approve this proposal, the Fund’s current fundamental investment restriction on the issuance of senior securities will be revised to read as follows:
The Fund may not issue senior securities except as permitted by (i) the 1940 Act or interpretations or modifications by the SEC, SEC staff or other authority with appropriate jurisdiction, or (ii) exemptive or other relief or permission from the SEC, SEC staff or other authority.
Rationale. All mutual funds are required to have a fundamental policy about issuing “senior securities,” which are defined as fund obligations that have a priority over the fund’s shares with respect to the payment of dividends or the distribution of fund assets. The 1940 Act prohibits a mutual fund from issuing senior securities, except that the fund may borrow money in amounts of up to one-third of the fund’s total assets from banks for any purpose. A mutual fund also may borrow up to an additional 5% of the fund’s total assets from banks or other lenders for temporary purposes, and these borrowings are not considered senior securities.
Currently, the Funds are not permitted to issue senior securities, except as permitted by or under the 1940 Act or by any SEC staff interpretation of the 1940 Act. All of the Funds have the same current policy regarding the issuance of senior securities, as disclosed in their prospectuses and/or statements of additional information. Please also see Exhibit I. The revised policy will permit the Funds to issue senior securities in accordance with the most recent regulatory requirements, or, provided certain conditions are met, to engage in the types of transactions that have been interpreted by the SEC staff as not constituting the issuance of senior securities.
VALIC has advised the Board that the proposed revisions to each Fund’s fundamental policy on the issuance of senior securities are not expected to materially affect the manner in which the Fund’s investment program is being conducted at this time, as reflected in the Fund’s current prospectus and statement of additional information. Before a Fund’s investment practices are changed in response to the revised policy, the Board would be consulted and, if appropriate, the Fund’s prospectus or statement of additional information would be supplemented to disclose the changes, the purpose of the changed practices and any additional risks.
THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” PROPOSAL 5D.
PROPOSAL 5E – TO REVISE THE FUNDAMENTAL INVESTMENT RESTRICTION REGARDING
INVESTING IN REAL ESTATE
Funds affected: all Funds
If shareholders of a Fund approve this proposal, the Fund’s current fundamental investment restriction on investing in real estate will be revised to read as follows:
The Fund may not purchase or sell real estate except as permitted by (i) the 1940 Act or interpretations or modifications by the SEC, SEC staff or other authority with appropriate jurisdiction, or (ii) exemptive or other relief or permission from the SEC, SEC staff or other authority.
Rationale. All mutual funds are required to have a fundamental policy about purchasing and selling real estate. The 1940 Act does not prohibit a fund from owning real estate; however, a mutual fund is limited in the amount of illiquid investments it may purchase (real estate is generally considered illiquid). Investing in real estate may involve risks, including that real estate is generally considered illiquid and may be difficult to value and sell. Owners of real estate may be subject to various liabilities, including environmental liabilities.
Currently, all of the Funds, other than the Lifestyle Funds, are not permitted to invest in real estate, but they are permitted to own securities of companies, such as real estate investment trusts, that deal in real estate or interests therein. The Funds also are not permitted to hold or sell real estate except for real estate they acquire as a result of their ownership of securities. After reviewing the Lifestyle Funds’ current fundamental investment restrictions, VALIC has determined that the Lifestyle Funds’ fundamental investment restriction on investing in real estate is ambiguous. Accordingly, it is proposed that the Lifestyle Funds adopt the revised investment restriction to clarify and standardize their fundamental policy on purchasing and selling real estate. It is also proposed that each of the other Funds adopt the revised investment restriction. The Funds’ current investment restriction concerning investment in real estate is disclosed in their prospectuses and/or statements of additional information. Please also see Exhibit I.
As a general rule, the Funds currently do not intend to purchase or sell real estate. However, the Funds wish to preserve the flexibility to invest in real estate, as well as real estate-related companies and companies whose business consists in whole or in part of investing in real estate, to the fullest extent permitted by the 1940 Act and related interpretations, as in effect from time to time, consistent with their investment programs. Accordingly, the Funds will not be restricted by the revised policy from purchasing or selling real estate. However, a Fund’s investment program may not contemplate these investments.
As noted above, the revised investment restriction will be interpreted to permit the Funds to invest in real estate-related companies, companies whose businesses consist in whole or in part of investing in real estate, instruments (like mortgages) that are secured by real estate or interests therein, or real estate investment trust securities.
VALIC has advised the Board that the proposed revisions to each Fund’s fundamental policy on investing in real estate are not expected to materially affect the manner in which the Fund’s investment program is being conducted at this time, as reflected in the Fund’s current prospectus and statement of additional information. Before a Fund’s investment practices are changed in response to revised policy, the Board would be consulted and, if appropriate, the Fund’s prospectus or statement of additional information would be supplemented to disclose the changes, the purpose of the changed practices and any additional risks.
To the extent that investments in real estate are considered illiquid, a Fund will be limited in the amount of illiquid investments it may purchase. Pursuant to Rule 22e-4 under the 1940 Act, not more than 15% of a Fund’s net assets may be invested in illiquid investments.
THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” PROPOSAL 5E.
PROPOSAL 5F – TO REVISE THE FUNDAMENTAL INVESTMENT RESTRICTION REGARDING
INVESTING IN COMMODITIES
Funds affected: all Funds
If shareholders of a Fund approve this proposal, the Fund’s current fundamental investment restriction on investing in commodities will be revised to read as follows:
The Fund may not purchase or sell commodities or contracts related to commodities except to the extent permitted by (i) the 1940 Act or interpretations or modifications by the SEC, SEC staff or other authority with appropriate jurisdiction, or (ii) exemptive or other relief or permission from the SEC, SEC staff or other authority.
Rationale. All mutual funds are required to have a fundamental policy about purchasing and selling commodities. The 1940 Act does not prohibit a fund from owning commodities, whether physical commodities or contracts related to physical commodities (such as oil or grains and related futures contracts), or financial commodities and contracts related to financial commodities (such as currencies). However, a mutual fund is limited in the amount of illiquid assets it may purchase (certain commodities (especially physical commodities) may be considered to be illiquid). The value of commodities and commodity-related instruments may be extremely volatile and may be affected either directly or indirectly by a variety of factors. There also may be storage charges and risks of loss associated with physical commodities.
The fundamental policies of the Funds currently prohibit them from purchasing or selling physical commodities, except that each Fund, other than the Lifestyle Funds, may (i) hold and sell physical commodities acquired as a result of the Fund’s ownership of securities or other instruments; (ii) purchase or sell securities or other instruments backed by physical commodities; or (iii) purchase or sell commodity options and futures contracts in accordance with its investment practices and policies. After reviewing the Lifestyle Funds’ current fundamental investment restrictions, VALIC has determined that the Lifestyle Funds’ fundamental investment restriction on investing in commodities is ambiguous. Accordingly, it is proposed that the Lifestyle Funds adopt the revised investment restriction to clarify and standardize their fundamental policy on purchasing and selling commodities. It is also proposed that each of the other Funds adopt the revised investment restriction. The Funds’ current policies regarding investment in commodities are disclosed in their prospectuses and/or statements of additional information. Please also see Exhibit I.
The revised policy will permit the Funds to purchase or sell commodities or contracts related to commodities to the fullest extent permitted by the 1940 Act and related interpretations, as in effect from time to time. VALIC believes that the revised policy is in the best interests of the Funds because it accounts for potential future situations in which SEC staff takes action (for example, no-action letters) or other federal agencies promulgate rules impacting the restriction. The change expands the scope of circumstances in which the Funds could purchase or sell commodities or contracts related to commodities, enabling the Funds to accommodate industry and market developments.
The Funds do not currently anticipate that their investment strategies with respect to investing in commodities or commodity contracts will change as a result of a change in fundamental policy.
VALIC has advised the Board that the proposed revisions to each Fund’s fundamental policy on investment in commodities and commodity contracts are not expected to materially affect the manner in which the Fund’s investment program is being conducted at this time, as reflected in the Fund’s current prospectus and statement of additional information. Before a Fund’s investment practices are changed in response to the revised policy, the Board would be consulted and, if appropriate, the Fund’s prospectus or statement of additional information would be supplemented to disclose the changes, the purpose of the changed practices and any additional risks.
To the extent that investments in commodities are considered illiquid, a Fund will be limited in the amount of illiquid investments it may purchase. Pursuant to Rule 22e-4 under the 1940 Act, not more than 15% of a Fund’s net assets may be invested in illiquid investments.
THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” PROPOSAL 5F.
PROPOSAL 5G – TO REVISE OR ADOPT, AS APPLICABLE, A FUNDAMENTAL INVESTMENT RESTRICTION REGARDING CONCENTRATION
1. Funds affected: all Funds otherthan
Nasdaq-100® Index Fund
Global Real Estate Fund
If shareholders of a Fund approve this proposal, the Fund’s current fundamental investment restriction regarding concentration will be revised to read as follows:
The Fund may not, except as permitted by exemptive or other relief or permission from the SEC, SEC staff or other authority with appropriate jurisdiction, make any investment if, as a result, the Fund’s investments will be concentrated in any one industry.
Rationale. All mutual funds are required to recite their fundamental policy about concentration of their investments in a particular industry. While the 1940 Act does not define what constitutes “concentration” in an industry, the SEC generally has taken the position that investment of 25% or more of a fund’s total assets in one or more issuers conducting their principal activities in the same industry or group of industries constitutes concentration. It is possible that interpretations of concentration could change in the future.
Currently, all of the Funds, other than the Lifestyle Funds, are not permitted to concentrate their investments in the securities of issuers primarily engaged in any particular industry (other than securities issued or guaranteed by the U.S. Government or its agencies or instrumentalities and repurchase agreements secured thereby), or domestic bank money market instruments. After reviewing the Lifestyle Funds’ current fundamental investment restrictions, VALIC has determined that the Lifestyle Funds’ fundamental investment restriction on regarding concentration is ambiguous. Accordingly, it is proposed that the Lifestyle Funds adopt the revised investment restriction to clarify and standardize their fundamental policy regarding concentrating their investments. It is also proposed that each of the other Funds adopt the revised investment restriction. The Funds’ current policies about concentration are disclosed in their prospectuses and/or statements of additional information. Please also see Exhibit I.
The proposed policy will be interpreted to refer to concentration as that term may be interpreted from time to time. The proposed policy also will be interpreted to permit investment without limit in the following: securities of the U.S. government and its agencies or instrumentalities; securities of state, territory, possession or municipal governments and their authorities, agencies, instrumentalities or political subdivisions; securities of foreign governments; and repurchase agreements collateralized by any of such obligations. There also will be no limit on investment in issuers domiciled in a single jurisdiction or country. The revised policy also will be interpreted to give broad authority to the Funds as to how to classify issuers within or among industries.
The Dynamic Allocation Fund and each of the Lifestyle Funds, which are funds-of-funds, do not consider investment companies to be an industry for purposes of this restriction and the investment by one of these Funds in an underlying fund that concentrates its investments in a particular industry or group of industries will not be considered an investment by the Fund in that particular industry or group of industries.
2. Funds affected: Nasdaq-100® Index Fund
If shareholders of the Fund approve this proposal, the Fund’s current fundamental investment restriction regarding concentration will read as follows:
The Fund may not, except as permitted by exemptive or other relief or permission from the SEC, SEC staff or other authority with appropriate jurisdiction, make any investment if, as a result, the Fund’s investments will be concentrated in any one industry, except to approximately the same extent that its benchmark index is concentrated in one or more particular industries.
Rationale. All mutual funds are required to recite their fundamental policy about concentration of their investments in a particular industry. While the 1940 Act does not define what constitutes “concentration” in an industry, the SEC generally has taken the position that investment of 25% or more of a fund’s total assets in one or more issuers conducting their principal activities in the same industry or group of industries constitutes concentration. It is possible that interpretations of concentration could change in the future.
The Nasdaq-100® Index Fund does not have a fundamental policy regarding concentration. It is proposed that the new fundamental policy be added to reflect that Fund may concentrate its investments to approximately the same extent that its benchmark index is concentrated in one or more particular industries. The new policy is intended to help the Fund more closely track the risk and return performance of its benchmark index, the Nasdaq-100® Index, by allowing the Fund to take advantage of certain investment opportunities when the index is concentrated in certain industries.
3. Funds affected: Global Real Estate Fund
If shareholders of the Fund approve this proposal, the Fund’s current fundamental investment restriction regarding concentration will read as follows:
The Fund may not, except as permitted by exemptive or other relief or permission from the SEC, SEC staff or other authority with appropriate jurisdiction, make any investment if, as a result, the Fund’s investments will be concentrated in any one industry, except that the Fund will concentrate its investments in the real estate industry.
Rationale. All mutual funds are required to recite their fundamental policy about concentration of their investments in a particular industry. While the 1940 Act does not define what constitutes “concentration” in an industry, the SEC generally has taken the position that investment of 25% or more of a fund’s total assets in one or more issuers conducting their principal activities in the same industry or group of industries constitutes concentration. It is possible that interpretations of concentration could change in the future. A fund that invests a significant percentage of its total assets in a single industry may be particularly susceptible to adverse events affecting that industry and may be more risky than a fund that does not concentrate in an industry.
The Global Real Estate Fund does not have a fundamental policy regarding concentration. It is proposed that the new fundamental policy be added to reflect that the Fund may concentrate in the real estate industry. This new policy aligns with the Fund’s principal investment strategies, which states that the Fund will invest, under normal circumstances, at least 80% of its net assets in a diversified portfolio of equity investments in real estate and real estate-related companies.
VALIC has advised the Board that the proposed revisions to each Fund’s fundamental policy on concentration are not expected to materially affect the manner in which the Fund’s investment program is being conducted at this time, as reflected in the Fund’s current prospectus and statement of additional information. Before a Fund’s investment practices are changed in response to the new or revised policy, the Board would be consulted and, if appropriate, the Fund’s prospectus or statement of additional information would be supplemented to disclose the changes, the purpose of the changed practices and any additional risks.
THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” PROPOSAL 5G.
PROPOSAL 5H – TO ELIMINATE THE FUNDAMENTAL INVESTMENT RESTRICTION
REGARDING DIVERSIFICATION
Funds affected: all Funds otherthan
Growth Fund
International Government Bond Fund
Nasdaq-100®Index Fund
Science & Technology Fund
If shareholders of a Fund approve this proposal, the Fund’s current fundamental policy requiring diversification of investments will be eliminated. Despite this change, each Fund’s status as a diversified fund will continue to be changeable only with the approval of the Fund’s shareholders. With the exception of the Blue Chip Growth Fund, there are no current plans to seek shareholder approval to change any of these Funds to non-diversified funds.
Rationale. The 1940 Act requires every mutual fund to state whether it is diversified (meaning that it is subject to certain restrictions that limit the percentage of the fund’s assets that may be invested in a single issuer) or non-diversified, and requires any change from diversified to non-diversified status to be approved in advance by fund shareholders. In addition, funds (including the Funds) are subject to diversification tests under the Internal Revenue Code of 1986, as amended (the “Code”), that limit investments in a single issuer or small number of issuers. The Funds currently comply with both the 1940 Act and the Internal Revenue Service requirements. However, the 1940 Act does not require that investment policies on diversification be fundamental policies.
A Fund classified as “diversified” may not purchase securities of an issuer (other than obligations issued or guaranteed by the U.S. government, its agencies or instrumentalities) if, with respect to 75% of its total assets, (a) more than 5% of the Fund’s total assets would be invested in securities of that issuer or (b) the Fund would hold more than 10% of the outstanding voting securities of that issuer. A Fund classified as “non-diversified” is not subject to these limitations. To qualify as a “regulated investment company” (“RIC”) for purposes of the Code, a Fund must, among other things, limit its investments so that, at the close of each quarter of the taxable year (a) not more than 25% of the market value of the fund’s total assets will be invested in the securities of a single issuer and (b) with respect to 50% of the market value of its total assets, not more than 5% of the market value of its total assets will be invested in the securities of a single issuer and the fund will not own more than 10% of the outstanding voting securities of a single issuer. Qualification as a RIC under the Code relieves the Funds of any liability for federal income tax to the extent their earnings are distributed to shareholders.
Under the existing policy on diversification, a Fund generally may not (1) invest more than 5% of the Fund’s total assets in the securities of any one issuer, provided that this limitation shall apply only to 75% of the value of each Fund’s total assets and, provided further, that the limitation shall not apply to obligations issued or guaranteed by U.S. Government, its agencies or instrumentalities, or (2) as to 75% of its total assets, purchase more than 10% of the outstanding voting securities of any one issuer. The policy generally reflects the 1940 Act requirements as in effect today. Accordingly, elimination of the policy will not change the extent to which these Funds’ assets may be invested in a single issuer.
As noted above, if a Fund wishes to become non-diversified in the future, the Fund would need to obtain shareholder approval of that change. Until that approval is obtained, the Fund must continue to comply with the diversification requirements of the 1940 Act. This is true despite the elimination of the Fund’s fundamental policy on diversification.
THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” PROPOSAL 5H.
PROPOSAL 6
APPROVAL OF A CHANGE TO THE BLUE CHIP GROWTH FUND’S SUB-CLASSIFICATION UNDER THE 1940 ACT FROM “DIVERSIFIED” TO “NON-DIVERSIFIED”
SHAREHOLDERS OF THE BLUE CHIP GROWTH FUND
Shareholders are being asked to review and consider reclassifying the diversification status of the Blue Chip Growth Fund from diversified to non-diversified. The Blue Chip Growth Fund is currently sub-classified as a “diversified” fund for purposes of Section 5(b)(1) of the Investment Company Act of 1940 as amended (the “1940 Act”).Act. As a diversified fund, eachthe Fund is limited as to the amount it may invest in any single issuer. Specifically, with respect to 75% of its total assets, eachthe Fund currently may not invest in a security if, as a result of such investment, more than 5% of its total assets (calculated at the time of purchase) would be invested in securities of any one issuer. In addition, with respect to 75% of its total assets, eachthe Fund may not hold more than 10% of the outstanding voting securities of any one issuer. The restrictions in Section 5(b)(1) do not apply to U.S. government securities, securities of other investment companies, cash and cash items (including receivables).