[Federal Register Volume 65, Number 114 (Tuesday, June 13, 2000)]
[Notices]
[Pages 37188-37190]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-14849]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-24490; 812-12050]


American General Series Portfolio Company 2, et al., Notice of 
Application

June 7, 2000.
AGENCY: Securities and Exchange Commission (``SEC'' or ``Commission'').

ACTION: Notice of an application under section 17(b) of the Investment 
Company Act of 1940 (``Act'') for an exemption from section 17(a) of 
the Act.

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    Summary of Application: Applicants request an order to permit 
certain series of the North American Funds (``NAF'') to acquire all of 
the assets and liabilities of certain series of the American General 
Series Portfolio Company 2 (``AGSPC2''). Because of certain 
affiliations, applicants may not rely on rule 17a-8 under the Act.
    Applicants: AGSPC2, NAF, The Variable Annuity Life Insurance 
Company (``VALIC''), and American General Corporation (``American 
General'').
    Filing Dates: The application was filed on March 24, 2000. 
Applicants agree to file an amendment during the notice period, the 
substance of which is reflected in this notice.
    Hearing or Notification of Hearing: An order granting the 
application will be issued unless the SEC orders a hearing. Interested 
persons may request a hearing by writing to the SEC's Secretary and 
serving applicants with a copy of the request, personally or by mail. 
Hearing requests should be received by the SEC by 5:30 p.m. on June 29, 
2000, and should be accompanied by proof of service on applicants, in 
the form of an affidavit, or, for lawyers, a certificate of service. 
Hearing requests should state the nature of the writer's interest, the 
reason for the request, and the issues contested. Persons who wish to 
be notified of a hearing may request notification by writing to the 
SEC's Secretary.

ADDRESSES: Secretary, SEC, 450 Fifth Street, NW, Washington, DC 20549-
0609. Applicants: AGSPC2, VALIC, and American General 2929 Allen 
Parkway, Houston, Texas 77019; NAF, 286 Congress Street, Boston, 
Massachusetts, 02210.

FOR FURTHER INFORMATION CONTACT: J. Amanda Machen, Senior Counsel, at 
(202) 942-7120, or Christine Y. Greenlees, Branch Chief, at (202) 942-
0564 (Division of Investment Management, Office of Investment Company 
Regeulation).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained for a fee at the 
SEC's Public Reference Branch, 450 Fifth Street, NW, Washington, DC 
20549-0102 (telephone (202) 942-8090).

Applicants' Representations

    1. AGSPC2, a Delaware business trust, is registered under the Act 
as an open-end management investment company and is comprised of 
twenty-four series, twenty-two of which are involved in the proposed 
transactions (the ``Acquired Series''). NAF, a Massachusetts business 
trust, is registered under the Act as an open-end management investment 
company and is comprised of twenty-five series, twenty of which are 
involved in the proposed transactions (The ``Acquiring Series''). Ten 
of the Acquiring Series are newly organized for purposes of the 
proposed transactions.\1\ The Acquiring Series and the Acquired Series 
are collectively referred to as the ``Series.''
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    \1\ A post-effective amendment to the registration statement for 
the ten newly created Acquiring Series was filed with the Commission 
on March 17, 2000, and became effective on May 31, 2000.
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    2. VALIC serves as investment adviser to the Acquired Series and is 
registered under the Investment Advisers Act of 1940 (``Advisers 
Act''). VALIC has delegated responsibility for the day-to-day 
management of five of the Acquired Series to American General 
Investment Management, L.P. (``AGIM''), an investment adviser 
registered under the Advisers Act. American General Asset Management 
Corp. (``AGAM'') is the investment adviser for NAF and is registered 
under the Advisers Act. VALIC, AGIM, and AGAM are wholly-owned 
subsidiaries of American General.
    3. Currently, VALIC and American General's employee pension plan, 
the American General Retirement Plan (the ``Affiliated Plan''), each 
hold of record in excess of 5% (in some cases, more

[[Page 37189]]

than 25%) of the outstanding voting securities of certain of the 
Acquired Series. VALIC holds its shares for its own account and, thus, 
may be deemed to have an economic interest in the shares. The 
Affiliated Plan holds its shares in a fiduciary capacity and does not 
have an economic interest in these shares.
    4. On February 27, 2000, and March 2, 2000, respectively, the board 
of trustees of each of NAF (the ``NAF Board'') and AGSPC2 (the ``AGSPC 
Board,'' and together with the NAF Board, the ``Boards''), including in 
each case a majority of the trustees who are not ``interested 
persons,'' as defined in section 2(a)(19) of the Act (``Independent 
Trustees''), approved plans of reorganization between the Acquiring 
Funds and the Acquired Funds (the ``Plans,'' and the transactions, the 
``Fund Reorganizations'').\2\ The Fund Reorganizations are expected to 
occur on June 30, 2000 (the ``Closing Date''). Under the Plans, the 
Acquiring Series will acquire substantially all of the assets, subject 
to the liabilities, of the Acquired Series in exchange for shares of 
designated classes of the corresponding Acquiring Series having an 
aggregate net asset value (``NAV'') equal to the aggregate NAV of the 
corresponding Acquired Series' shares, determined as of 4 p.m. Eastern 
Time on the Closing Date. The aggregate NAV of the Series' shares will 
be computed in the manner set forth in the Acquiring Series' 
prospectuses and statements of additional information. Upon 
consummation of the proposed transactions, each Acquired Series will 
distribute its full fractional shares of the Acquiring Series pro rata 
to its shareholders of record, determined as of the Closing Date, and 
the Acquired Series will be liquidated.
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    \2\ The Acquired Series and Acquiring Series will combine as 
follows: (1) AGSPC2 Large Cap Growth Fund into NAF Large Cap Growth 
Fund; (2) AGSPC2 International Growth Fund and AGSPC2 International 
Value Fund into NAF International Equity Fund; (3) AGSPC2 Large Cap 
Value Fund into NAF Growth & Income Fund; (4) AGSPC2 Balanced Fund 
into NAF Balanced Fund; (5) ASPC2 Mid Cap Growth Fund into NAF Mid 
Cap Growth Fund; (6) AGSPC2 Small Cap Growth Fund into NAF Small Cap 
Growth Fund; (7) AGSPC2 Strategic Bond Fund into NAF Strategic 
Income Fund; (8) AGSPC2 Municipal Bond Fund into NAF Municipal Bond 
Fund; (9) AGSPC2 Money Market Fund into NAF Money Market Fund; (10) 
AGSPC2 Core Bond Fund and AGSPC2 Domestic Bond Fund into NAF Core 
Bond Fund; (11) AGSPC2 Mid Cap Value Fund into NAF Mid Cap Value 
Fund; (12) AGSPC2 Stock Index Fund into NAF Stock Index Fund; (13) 
AGSPC2 Small Cap Index Fund into NAF Small Cap Index Fund; (14) 
AGSPC2 Socially Responsible Fund into NAF Socially Responsible Fund; 
(15) AGSPC2 High Yield Bond Fund into NAF High Yield Bond Fund; (16) 
AGSPC2 Growth Lifestyle Fund into NAF Aggressive Growth Lifestyle 
Fund; (17) AGSPC2 Moderate Growth Lifestyle Fund into NAF Moderate 
Growth Lifestyle Fund; (18) AGSPC2 Conservative Growth Lifestyle 
Fund into NAF Conservative Growth Lifestyle Fund; (19) AGSPC2 
Municipal Money Market Fund into NAF Municipal Money Market Fund; 
and (20) AGSPC2 Science & Technology Fund into NAF Science & 
Technology Fund.
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    5. Applicants state that the investment objective of each Acquired 
Series and its corresponding Acquiring Series are similar. Applicants 
also state that the investment restrictions and limitations of each 
Acquired Series and its corresponding Acquiring Series generally are 
similar, but in some cases involve differences that reflect the 
differences in the general investment strategies used by the Series.
    6. The Series offer four classes of shares: Class A, Class B, 
Institutional Class I, and Institutional Class II. The various expenses 
of each class of shares of the Acquired and Acquiring Series are as 
follows:
    a. Class A: Class A shares of both the Acquired Series and the 
Acquiring Series have a front-end sales load of up to 5.75% (4.75% for 
the fixed income Acquired Series), but no contingent deferred sales 
charge (``CDSC''). The Acquired Series and the Acquiring Series 
generally are subject to a 12b-1 fee of up to 0.25% and 0.35%, 
respectively (0.15% for the NAF Municipal Bond Fund). Class A shares of 
the AGSPC2 Growth Lifestyle Fund, the AGSPC2 Moderate Growth Lifestyle 
Fund, and the AGSPC2 Conservative Growth Lifestyle Fund (collectively, 
the ``American General Lifestyle Funds'') are not subject to a rule 
12b-1 fee, but Class A shares of the corresponding Acquiring Series 
will be subject to a rule 12b-1 fee of up to 0.35%. Class A shares of 
the NAF Money Market Fund are not subject to a front-end sales charge 
or a rule 12b-1 fee.
    b. Class B: Class B shares of each Acquired and Acquiring Series 
have no front-end sales load. Class B shares of the Acquired Series 
have a maximum CDSC of 5%, which decreases by one percentage point each 
year until the fifth year, when the fee is 1% and zero thereafter. 
Class B shares of the Acquiring Series have a maximum CDSC of 5% in the 
first two years, which decreases by one percentage point each year 
until the sixth year, when the fee is 1% and zero thereafter. For 
purposes of calculating the CDSC on Class B shares, shareholders of the 
Acquired Series will be deemed to have held Class B shares of the 
Acquiring Series since the date the shareholders initially purchased 
the shares of the Acquired Series. Class B shares of each Acquired and 
Acquiring Series have a rule 12b-1 fee of up to 1%, except for Class B 
shares of the American General Lifestyle Funds and the NAF Money Market 
Fund, which do not have a rule 12b-1 fee. Class B shares of the 
Acquiring Series and the Acquired Series convert to Class A shares 
eight and six years, respectively, after purchase. After the Fund 
Reorganizations, Class B shares will convert to Class A shares six 
years after purchase.
    c. Institutional Class I: Institutional Class I shares of the 
Acquired Series have no front-end sales load, CDSC, or 12b-1 fee, but 
are subject to a 0.25% administrative services fee. Institutional Class 
I shares of the corresponding Acquired Series, will have the same 
characteristics as the corresponding Acquiring Series, except for the 
corresponding Acquiring Series of the American General Lifestyle Funds, 
which will not be subject to the 0.25% administrative services fee. All 
of the Acquired Series have Institutional Class I Shares, except for 
AGSPC2 Stock Index Fund, AGSPC2 Small Cap Index Fund, AGSPC2 Municipal 
Money Market Fund, and AGSPC2 Municipal Bond Fund, Institutional Class 
I Shares will be offered by all of the Acquiring Series, except for NAF 
Municipal Money Market Fund and NAF Municipal Bond Fund.
    d. Institutional Class II: Currently, on AGSPC2 High Yield Bond 
Fund and AGSPC2 Core Bond Fund have Institutional Class II 
shareholders. The Institutional Class II shares of these Acquired 
Series have no front-end sales load, CDSC, or rule 12b-1 fee. The 
Institutional Class II shares of the corresponding Acquiring Series 
will have the same characteristics as the two corresponding Acquired 
Series. Shareholders of the Acquired Series will not incur any sales 
charges in connection with the Fund Reorganizations. American General 
will pay the expenses of the Fund Reorganizations.
    7. The Boards of AGSPC2 and NAF, including in each case a majority 
of the Independent Trustees, found that participation in the Fund 
Reorganizations is in the best interests of the shareholders of each of 
the Acquired and Acquiring Series and that the interests of existing 
shareholders will not be diluted as a result of the Fund 
Reorganizations. In approving the Fund Reorganizations, the Boards of 
AGSPC2 and NAF considered, among other things: (a) The terms and 
conditions of each Fund Reorganization; (b) the expense ratios of the 
Acquired Series and the Acquiring Series before the Fund Reorganization 
and the estimated expense ratios of the

[[Page 37190]]

Acquiring Series after the Fund Reorganizations; (c) the fact that the 
costs estimated to be incurred by the Series as a result of the Fund 
Reorganizations will not be borne by the Series, but by American 
General; and (d) the tax-free nature of the Fund Reorganizations.
    8. The Plans are subject to a number of conditions precedent, 
including that: (a) the Plans will have been approved by the Boards of 
each of the Acquired Series and the Acquiring Series and by the 
shareholders of each of the Acquired Series; (b) each Acquired Series 
will solicit proxies from its shareholders pursuant to definitive proxy 
materials filed with the Commission; (c) the applicants will have 
received an opinion of counsel concerning the federal income tax 
aspects of the Fund Reorganizations; and (d) applicants will have 
received from the Commission exemptive relief from section 17(a) of the 
Act for the Fund Reorganizations. Each Plan may be terminated by mutual 
agreement of the Boards at any time prior to the Closing Date. 
Applicants agree not to make any material changes to the Plans that 
affect the application without prior SEC approval.
    9. Definitive proxy materials have been filed with the Commission 
and were mailed to shareholders of each Acquired Series on or about 
June 1, 2000. A special meeting of the shareholders of each Acquired 
Series is scheduled to be held on or about June 22, 2000.

Applicant's Legal Analysis

    1. Section 17(a) of the Act generally prohibits an affiliated 
person of a registered investment company, or an affiliated person of 
such a person, acting as principal, from selling any security to, or 
purchasing any security from, the company. Section 2(a)(3) of the Act 
defines an ``affiliated person'' of another person to include: (a) any 
person directly or indirectly owning, controlling, or holding with 
power to vote 5% or more of the outstanding voting securities of the 
other person; (b) any person 5% or more of whose securities are 
directly or indirectly owned, controlled, or held with power to vote by 
the other person; (c) any person directly or indirectly controlling, 
controlled by, or under common control with the other person; and (d) 
if the other person is an investment company, any investment adviser of 
that company. Applicants state that the Series may be deemed affiliated 
persons and, thus, the Fund Reorganizations may be prohibited by 
section 17(a).
    2. Rule 17a-8 under the Act exempts from the prohibitions of 
section 17(a) mergers, consolidations, or purchasers or sales of 
substantially all of the assets of registered investment companies that 
are affiliated persons, or affiliated persons of an affiliated person, 
solely by reason of having a common investment adviser, common 
directors, and/or common officers, provided that certain conditions set 
forth in the rule are satisfied.
    3. Applicants believe that they may not rely on rule 17a-8 in 
connection with the Fund Reorganizations because certain Series may be 
deemed to be affiliated for reasons other than those set forth in the 
rule. By virtue of the direct or indirect ownership by VALIC and the 
Affiliated Plan of more than 5% (in some cases, more than 25%) of the 
outstanding voting securities of certain of the Acquired Series, each 
Acquired Series may be deemed an affiliated person of an affiliated 
person of the corresponding Acquiring Series.
    4. Section 17(b) of the Act provides that the SEC may exempt a 
transaction from the provisions of section 17(a) if the evidence 
establishes that the terms of the proposed transaction, including the 
consideration to be paid, are reasonable and fair and do not involve 
overreaching on the part of any person concerned, and that the proposed 
transaction is consistent with the policy of each registered investment 
company concerned and with the general purposes of the Act.
    5. Applicants request an order under section 17(b) of the Act 
exempting them from section 17(a) of the Act to the extent necessary to 
permit applicants to consummate the Fund Reorganizations. Applicants 
submit that the Fund Reorganizations satisfy the standards of section 
17(b) of the Act. Applicants submit that the Fund Reorganizations 
satisfy the standards of section 17(b) of the Act. Applicants state 
that the Boards of AGSPC2 and NAF, including in each case a majority of 
their Independent Trustees, found that participating in the Fund 
Reorganizations is in the best interests of the shareholders of each of 
the Series, and that the interests of the shareholders will not be 
diluted as a result of the Fund Reorganizations. Applicants also note 
that the exchange of the Acquired Series' assets for shares of the 
Acquiring Series will be based on the Series' relative NAVs.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-14849 Filed 6-12-00; 8:45 am]
BILLING CODE 8010-01-M