[Federal Register Volume 61, Number 112 (Monday, June 10, 1996)]
[Notices]
[Pages 29435-29438]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-14497]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 22001; 812-10096]
Sierra Asset Management Trust, et al.; Notice of Application
June 3, 1996.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of Application for an Order under the Investment Company
Act of 1940 (the ``Act'').
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APPLICANTS: Sierra Asset Management Trust (the ``Trust''); Sierra Trust
Funds (``Sierra Trust''); Sierra Investment Advisors Corporation
(``SIAC''); and Sierra Investment Services Corporation (``SISC'').
RELEVANT ACT SECTIONS: Order requested under section 6(c) of the Act
from
[[Page 29436]]
section 12(d)(1) of the Act and under sections 6(c) and 17(b) of the
Act from section 17(a) of the Act.
SUMMARY OF APPLICATION: Applicants request an order that would permit
the Trust to operate as a ``fund of funds.''
FILING DATE: The application was filed on April 24, 1996 and amended on
May 30, 1996.
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 27, 1996,
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 may request
notification of a hearing by writing to the SEC's Secretary.
ADDRESSES: Secretary, SEC, 450 Fifth Street, NW., Washington, DC 20549.
Applicants, 9301 Corbin Avenue, Northridge, California 91324.
FOR FURTHER INFORMATION CONTACT: Marianne H. Khawly, Staff Attorney, at
(202) 942-0562, or Alison E. Baur, Branch Chief, at (202) 942-0564
(Division of Investment Management, Office of Investment Company
Regulation).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained for a fee from
the SEC's Public Reference Branch.
Applicants' Representations
1. The Trust is an open-end management investment company. The
Trust's registration statement was filed on March 27, 1996, but has not
yet been declared effective. The Trust will consist of five separate
investment portfolios: Aggressive Growth, Growth, Balanced, Fixed, and
Value (collectively, the ``SAM Funds''). Each SAM Fund will seek to
provide diversification among major asset categories (e.g., stocks,
bonds, and cash equivalents) and stock and bond sub-categories (e.g.,
large company stocks, small company stocks, and international stocks,
corporate bonds and government mortgage securities). Certain of the SAM
Funds will be designed to provide exposure to the growth potential of
the stock market, while other SAM Funds will be designed to provide
exposure to the income potential of the bond market. A defined range
will be established for each asset category in each of the SAM Funds.
2. Applicants propose a fund of funds arrangement whereby each SAM
Fund will invest in shares of the portfolios of Sierra Trust, a
registered open-end management investment company comprised of sixteen
portfolios (the ``Underlying Portfolios''). Any assets that are not
invested in Underlying Portfolio shares will be invested directly in
other types of instruments, including money-market instruments.
Applicants request that any relief granted pursuant to the application
also apply to any open-end management investment company that currently
or in the future is part of the same ``group of investment companies,''
as defined in rule 11a-3 under the Act, as the Trust (collectively, the
``Sierra Funds'').\1\
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\1\ Rule 11a-3 under the Act defines ``group of investment
companies'' as two or more companies that: (a) Hold themselves out
to investors as related companies for purposes of investment and
investor services; and (b) that have a common investment adviser or
principal underwriter or the investment adviser or principal
underwriter of one of the companies is an affiliated person, as
defined in section 2(a)(3) of the Act, of the investment adviser or
principal underwriter of each of the other companies. Although
certain existing registered investment companies, or portfolios
thereof, that are Sierra Funds do not presently intend to rely on
the requested order, any such registered investment company, or
portfolios thereof, would be covered by the order if they later
proposed to enter into a fund of funds arrangement in accordance
with the terms described in the application.
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3. In accordance with a written plan adopted pursuant to rule 18f-3
under the Act, the SAM Funds will offer two classes of shares, Class A
shares and Class B shares. Class A shares will be subject to a maximum
front-end sales charge ranging from 4.50% to 5.75%. Purchases of $1
million or more and certain other purchases are not subject to a front-
end sales charge but may be subject to a 1.00% contingent deferred
sales charge (``CDSC''). Class A shares also will be subject to a .25%
rule 12b-1 fee. Class B shares may be subject to a CDSC and will be
subject to a .75% rule 12b-1 fee and a .25% shareholder servicing fee.
4. The Underlying Portfolios are authorized to issue multiple
classes of shares in accordance with a written plan adopted pursuant to
rule 18f-3 under the Act. Applicants propose that the Underlying
Portfolios will offer a new class of shares, Class I shares, to the SAM
Funds. Initially, Class I shares will not be subject to any sales
charges, rule 12b-1 fees, or shareholder servicing fees.
5. SISC is registered as a broker-dealer under the Securities
Exchange Act of 1934 and as an investment adviser under the Investment
Advisers Act of 1940 (the ``Advisers Act''). SISC also is a member of
the National Association of Securities Dealers, Inc. (``NASD''). SISC
serves as Sierra Trust's principal underwriter. In addition, SISC will
serve as the SAM Funds' investment adviser and principal underwriter.
SIAC, a registered investment adviser under the Advisers Act, serves as
Sierra Trust's investment adviser. SISC and SIAC are wholly-owned
subsidiaries of Sierra Capital Management Corporation (``Sierra
Capital'').
6. SISC will charge the SAM Funds, and SIAC will charge the
Underlying Portfolios, investment advisory fees. SIAC and SISC may,
however, agree to waive all or a portion of the advisory fees at one or
both levels. In addition, SIAC, SISC, their affiliates, and other
service providers will charge the SAM Funds and Underlying Portfolios
for all other operational services, including administration and
custody fees.
Applicants' Legal Analysis
1. Applicants request an order under section 6(c) of the Act for an
exemption from section 12(d)(1) of the Act and under sections 6(c) and
17(b) of the Act for an exemption from section 17(a) of the Act. The
requested relief would permit the Trust to acquire up to 100% of the
voting shares of any Underlying Portfolio.
2. Section 12(d)(1)(A) of the Act provides that no registered
investment company may acquire securities of another investment company
if such securities represent more than 3% of the acquired company's
outstanding voting stock, more than 5% of the acquiring company's total
assets, or if such securities, together with the securities of any
other acquired investment companies, represent more than 10% of the
acquiring company's total assets. Section 12(d)(1)(B) provides that no
registered open-end investment company may sell its securities to
another investment company if the sale will cause the acquiring company
to own more than 3% of the acquired company's voting stock, or if the
sale will cause more than 10% of the acquired company's voting stock to
be owned by investment companies.
3. Section 6(c) of the Act provides that the SEC may exempt persons
or transactions from any provision of the Act if such exemption is
necessary or appropriate in the public interest and consistent with the
protection of investors and the purposes fairly intended by the policy
and provisions of the Act. Applicants request an order permitting the
SAM Funds to acquire
[[Page 29437]]
shares of the Underlying Portfolios in excess of the section 12(d)(1)
limits.
4. The restrictions in section 12(d)(1) were intended to prevent
certain abuses perceived to be associated with the pyramiding of
investment companies, including: (a) Unnecessary duplication of costs,
e.g., sales loads, advisory fees, and administrative costs; (b)
additional diversification without any clear benefit; (c) undue
influence by the fund holding company over its underlying funds; (d)
the threat of large scale redemptions of the securities of the
underlying investment companies; and (e) unnecessary complexity. For
the following reasons, applicants believe that the proposed arrangement
will not create these dangers and, therefore, that the requested relief
is appropriate.
5. Applicants assert that the proposed arrangement will not raise
the fee layering concerns contemplated by section 12(d)(1). The
proposed arrangement will not involve the layering of advisory fees
since, before approving any advisory contract under section 15(a) of
the Act, the board of trustees of the Trust, including a majority of
the trustees who are not ``interested persons,'' as defined in section
2(a)(19) of the Act, will find that the advisory fees charged under the
contract are based on services provided that are in addition to, rather
than duplicative of, services provided under any Underlying Portfolio
advisory contract. In addition, the proposed structure will not involve
layering of sales charges. Any sales charges or service fees relating
to the shares of a SAM Fund will not exceed the limits set forth in
Article III, section 26 of the Rules of Fair Practice of the NASD when
aggregated with any sales charges or service fees that the SAM Funds
pay relating to Underlying Portfolio shares. The aggregate sales
charges at both levels, therefore, will not exceed the limit that
otherwise lawfully could be charged at any single level. Furthermore,
applicants expect that administrative and other expenses will be
reduced at both levels under the proposed arrangement.
6. Applicants state that the proposed arrangement will provide true
diversification benefits. Each SAM Fund will pursue a different
investment strategy by investing in Underlying Portfolios that also
pursue distinct investment strategies. The proposed arrangement also
will be structured to minimize undue influence concerns. The SAM Funds
only will acquire shares of Underlying Portfolios that are Sierra
Funds. Because SIAC serves as investment adviser to the Underlying
Portfolios, and SISC, a company under common control with SIAC, will
serve as investment adviser to the SAM Funds, a redemption from one
Underlying Portfolio will simply lead to the investment of the proceeds
in another Underlying Portfolio.
7. Applicants also state that the proposed arrangement,
furthermore, will be structured to minimize large scale redemption
concerns. The SAM Funds will be designed for long-term investors. This
will reduce the possibility of the SAM Funds from being used as short-
term trading vehicles and further protect the SAM Funds and the
Underlying Portfolios from unexpected large redemptions. The proposed
arrangement will not be unnecessarily complex. No Underlying Portfolio
will acquire securities of any other investment company in excess of
the limits contained in section 12(d)(1)(A) of the Act.
8. Section 17(a) of the Act makes it unlawful for an affiliated
person of a registered investment company to sell securities to, or
purchase securities from, the company. The SAM Funds and the Underlying
Portfolios may be considered affiliated persons by virtue of being
under common control of Sierra Capital. They may also be deemed to be
affiliated persons of one another to the extent that each SAM Fund owns
5% or more of an Underlying Portfolio. Therefore, purchases by the SAM
Funds of Underlying Portfolio shares and the sale by the Underlying
Portfolios of their shares to the SAM Funds could be considered
transactions prohibited by section 17(a).
9. Section 17(b) of the Act provides that the SEC shall exempt a
proposed transaction from section 17(a) if evidence establishes that:
(a) the terms of the proposed transaction are reasonable and fair and
do not involve overreaching; (b) the proposed transaction is consistent
with the policies of the registered investment company involved; and
(c) the proposed transaction is consistent with the general provisions
of the Act.
10. Applicants believe that the proposed transactions meet the
standards of sections 6(c) and 17(b). The consideration paid for the
sale and redemption of Underlying Portfolio shares will be based on the
net asset value of the Underlying Portfolio, subject to applicable
sales charges. The investment of assets of the SAM Funds in Underlying
Portfolio shares and the issuance of Underlying Portfolio shares to the
SAM Funds will be effected in accordance with the investment
restrictions and policies of each SAM Fund as set forth in the
registration statement of each SAM Fund. Applicants also believe that
the proposed transactions are consistent with the general purposes of
the Act.
Applicants' Conditions
Applicants agree that the order granting the requested relief shall
be subject to the following conditions:
1. Each SAM Fund and each Underlying Portfolio will be part of the
same ``group of investment companies,'' as defined in rule 11a-3 under
the Act.
2. No Underlying Portfolio will acquire securities of any other
investment company in excess of the limits contained in section
12(d)(1)(A) of the Act.
3. A majority of the trustees of the Trust will not be ``interested
persons,'' as defined in section 2(a)(19) of the act.
4. Any sales charges or service fees charged to the shares of a SAM
Fund, when aggregated with any sales charges or service fees paid by
the SAM Fund relating to the securities of the Underlying Portfolios,
shall not exceed the limits set forth in Article III, section 26, of
the NASD's Rules of Fair Practice.
5. Before approving any advisory contract under section 15 of the
Act, the board of trustees of the Trust, including a majority of the
trustees who are not ``interested persons,'' as defined in section
2(a)(19), will find that advisory fees charged under the contract are
based on services provided that are in addition to, rather than
duplicative of, services provided under any Underlying Portfolio
advisory contract. The finding, and the basis upon which the finding
was made, will be recorded fully in the minute books of the Trust.
6. Applicants agree to provide the following information, in
electronic format, to the Chief Financial Analyst of the SEC's Division
of Investment Management: monthly average total assets of each SAM Fund
and each Underlying Portfolio; monthly purchases and redemptions (other
than by exchange) for each SAM Fund and each Underlying Portfolio;
monthly exchanges into and out of teach SAM Fund and each Underlying
Portfolio; month-end allocations of each SAM Fund's assets among the
Underlying Portfolios; annual expense ratios for each SAM Fund and each
Underlying Portfolio; and a description of any vote taken by the
shareholders of any Underlying Portfolio, including a statement of the
percentage of votes cast for and against the proposal by each SAM Fund
and by the other shareholders of the Underlying Portfolio. The
information will be provided as soon as reasonaby practicable following
the Trust's fiscal year-end (unless the Chief Financial
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Analyst shall notify applicants in writing that such information need
no longer be submitted).
For the Commission, by the Division of Investment Management,
under delegated authority.
Jonathan G. Katz,
Secretary.
[FR Doc. 96-14497 Filed 6-7-96; 8:45 am]
BILLING CODE 8010-01-M