96-14497. Sierra Asset Management Trust, et al.; Notice of Application  

  • [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
    
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    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
    
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    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
    
    

Document Information

Published:
06/10/1996
Department:
Securities and Exchange Commission
Entry Type:
Notice
Action:
Notice of Application for an Order under the Investment Company Act of 1940 (the ``Act'').
Document Number:
96-14497
Dates:
The application was filed on April 24, 1996 and amended on May 30, 1996.
Pages:
29435-29438 (4 pages)
Docket Numbers:
Investment Company Act Release No. 22001, 812-10096
PDF File:
96-14497.pdf