[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