[Federal Register Volume 59, Number 40 (Tuesday, March 1, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-4580]
[[Page Unknown]]
[Federal Register: March 1, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-20093; 812-8694]
Sierra Trust Funds, et al.; Notice of Application
February 23, 1994.
AGENCY: Securities and Exchange Commission (``SEC'')
ACTION: Notice of Application for Exemption under the Investment
Company Act of 1940 (the ``Act'').
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APPLICANTS: Sierra Trust Funds (the ``Trust''), currently consisting of
the following portfolios: Global Money Fund, U.S. Government Money
Fund, California Money Fund, U.S. Government fund, Corporate Income
Fund, California Municipal Fund, Florida Insured Municipal Fund,
National Municipal Fund, Growth and Income Fund, Emerging Growth Fund,
International Growth Fund, Short term Global Government Fund, Short
Term High Quality Bond Fund, and Growth Fund (collectively, the
``Funds''), Sierra Investment Advisors Corporation (the ``Advisor''),
and Sierra Investment Services Corporation (the ``Distributor'').
RELEVANT ACT SECTIONS: Order requested under section 6(c) of the Act
for an exemption from sections 2(a)(32), 2(a)(35), 18(f), 18(g), 18(i),
22(c) and 22(d) of the Act and rule 22c-1 thereunder.
SUMMARY OF APPLICATION: Applicants request an order that would permit
the Funds to issue multiple classes of shares representing interests in
the same portfolio of securities, and to impose, and under certain
circumstances waive, a contingent deferred sales charge (``CDSC'') on
the redemption of certain shares. The order would supersede a prior
order (the ``Prior Order'') and would permit the Funds to impose CDSC
schedules that may be different from the one described in the Prior
Order, and to waive the CDSC in certain additional circumstances.
FILING DATE: The application was filed on November 22, 1993 and amended
on January 7, 1994. Applicants have agreed to file an additional
amendment, the substance of which is incorporated herein, during the
notice period.
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 March 21, 1994,
and should be accompanied by proof of service on the 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 5th Street, Washington, DC 20549.
Applicants, 9301 Corbin Avenue, suite 333, Northridge, California
91328-1160.
FOR FURTHER INFORMATION CONTACT: Deepak T. Pai, Staff Attorney, (202)
272-3809 or Robert A. Robertson, Branch Chief, (202) 272-3030 (Office
of Investment Company Regulation).
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.
Applicants' Representations
1. The Funds are open-end management investment companies
registered under the Act. Each Fund has entered into an investment
advisory agreement with the Advisor pursuant to which the Advisor
provides investment advisory services to the Fund. Each Fund also has
entered into a distribution agreement with the Distributor pursuant to
which the Distributor acts as the principal underwriter for the Fund.
2. Each of the Funds, except the money market Funds, are offered to
investors at net asset value plus a front-end sales load, and all of
the Funds have adopted distribution plans pursuant to rule 12b-1 under
the Act. The rule 12b-1 plans currently provide for payments to the
Distributor at the annual rate of up to 0.25% of each Fund's net
assets. The money market Funds are offered to investors at net asset
value without the imposition of front-end sales loads.
3. Under the Prior Order, shares of certain Funds (the ``Non-Money
Funds'') may be subject to a CDSC upon redemption.\1\ Subsequent to the
granting of the Prior Order, the SEC's Division of Investment
Management provided no-action assurance to the Trust in the event the
Trust ceased the CDSC arrangement permitted by the Prior Order on
certain redemptions of shares acquired after a particular date and
imposed a front-end sales load on purchases after that date, and waived
the CDSC on certain redemptions of shares in addition to those
permitted under the Prior Order.\2\
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\1\GW Sierra Trust Funds, Investment Company Act Release Nos.
17013 (June 16, 1989) (notice) and 17061 (July 11, 1989) (order).
\2\GW Sierra Trust Funds, (pub. avail. Dec. 21, 1990).
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4. Applicants request an order on behalf of themselves and all
other registered investment companies for which the Advisor, the
Distributor or any entity controlling, controlled by, or under common
control with the Advisor or the Distributor acts as adviser or
distributor in the future. Applicants propose to establish a multiple
distribution arrangement (the ``Variable Pricing System''). Under the
Variable Pricing System, each of the Funds would have the opportunity
to provide investors with the option of purchasing different classes of
shares. The existing shares, ``Class A shares,'' would be subject to a
conventional front-end sales load and a lower rule 12b-1 distribution
fee. ``Class B shares'' would be subject to a CDSC and a higher rule
12b-1 distribution fee. The sales loads, distribution and service fees
under rule 12b-1 will be structured to comply with the provisions of
Article III, section 26, of the Rules of Fair Practice of the National
Association of Securities Dealers, Inc. (``NASD'').
5. Applicants may from time to time create one or more additional
classes of shares, the terms of which may differ from the Class A
shares and Class B shares, but only in the following respects: (i) The
amount of fees permitted by different rule 12b-1 plans, (ii) the
shareholder servicing expenses permitted by non-rule 12b-1 shareholder
services plans, (iii) voting rights with respect to a class's rule 12b-
1 plan, (iv) different designations, (v) the impact of any incremental
transfer agency fees directly attributable to a particular class of
shares, and (vi) different exchange privileges among Funds or
conversion features.
6. Initially, applicants will not offer a class of shares with a
feature providing for automatic conversion of such shares to shares of
the other class. The Funds may in the future, however, offer a class of
shares that automatically will convert after a period of time to shares
of another class. Any conversions will be done at net asset value, so
that the value of each shareholder's account immediately before
conversion will be the same as the value of the account immediately
after conversion.
7. Any exchange privilege offered by a Fund would provide that
shares of a class of that Fund would be exchanged only for shares of
the same class of another Fund that is part of the same ``group of
investment companies'' as defined in rule 11a-3 under the Act. In
addition, the right of any shareholder to exchange into a class subject
to a sales load will comply with rule 11a-3.
8. Under the Variable Pricing System, all expenses incurred by a
Fund will be allocated among the various classes of shares based on the
net assets of the Fund attributable to each such class, except that
each class's net asset value and expenses will reflect the expenses
associated with that class's rule 12b-1 plan (if any), including any
costs associated with obtaining shareholder approval of such plan, any
incremental shareholder servicing fees attributable to a particular
class, and any other incremental expenses subsequently identified that
should be properly allocated to a particular class which shall be
approved by the SEC pursuant to an amended order. As a result, the net
asset value per share of the classes will differ at times.
9. Applicants also request an exemption to permit the Funds to
impose CDSC schedules that may be different from the Prior Order and to
waive the CDSC for certain additional types of redemptions. The
requested exemption would supersede the Prior Order. An investor's
proceeds from a redemption of Class B shares made within a specified
period of purchase of such shares may be subject to a CDSC, which is
paid to the Distributor. The amount of any applicable CDSC will be
calculated by multiplying the applicable percentage charge by the
lesser of (a) the net asset value of the shares at the time of purchase
or (b) the net asset value of the shares at the time of redemption.
10. The CDSC will not be imposed on redemptions of shares purchased
more than a fixed number of years prior to the redemptions or on shares
derived from reinvestment of distributions. Furthermore, no CDSC will
be imposed on an amount that represents an increase in the value of the
shareholder's account resulting from capital appreciation. In
determining the applicability and rate of any CDSC, it will be assumed
that a redemption is made first of shares representing reinvestment of
dividends and capital gain distributions and then of other shares held
by the shareholder for the longest period of time. This will result in
the charge, if any, being imposed at the lowest possible rate.
11. The Funds may waive or reduce the CDSC on (a) automatic cash
withdrawals if the amount withdrawn per month is equal to or less than
5% of the value of the shareholder's shares in a Fund at the time the
withdrawal plan commences; (b) redemptions of shares in connection with
post-retirement distributions and withdrawals from IRAs, Keogh Plans or
custodial accounts pursuant to section 403(b)(7) of the Code,
redemptions that result from tax-free returns of excess contributions
pursuant to section 408(d) (4) or (5) of the Code, or redemptions made
within one year following the death or disability of a shareholder; (c)
redemptions by (i) employees or retired employees of the parent
corporation of the Distributor or any of its affiliates and members of
their immediate families and IRAs, Keogh plans and employee benefit
plans for such employees or retired employees; (ii) directors,
trustees, officers or advisory board members, or persons retired from
such positions, of any investment company for which Sierra Advisors or
an affiliate serves as investment advisor; (iii) registered
representatives or full-time employees of dealers that sell Fund
shares; (iv) employees of any of the Funds' sub-advisors; and (v)
retirement plans created pursuant to section 457 of the Internal
Revenue Code of 1986, as amended; (d) redemptions by institutional
investors that invest at least $1 million in one or more of the Funds
in the aggregate; and (e) redemptions by shareholders who have suffered
financial loss as a result of a hardship resulting from living in an
area that has experienced a recent natural disaster, such as a flood,
fire, hurricane, tornado or earthquake. The term ``hardship'' shall be
defined as an immediate and heavy financial need occurring in the
personal affairs of a shareholder as determined by Fund management. If
the Funds waive or reduce the CDSC, such waiver or reduction will be
uniformly applied to all offerees in the class specified.
Applicants' Legal Analysis
1. Applicants request an exemption under section 6(c) of the Act
from sections 18(f)(1), 18(g), and 18(i) to the extent that the
Variable Pricing System may result in a senior security, as defined by
section 18(g), the issuance and sale of which would be prohibited by
section 18(f)(1), and to the extent that the allocation of voting
rights may violate section 18(i). Applicants believe that the Variable
Pricing System does not raise any of the concerns that section 18 was
designed to ameliorate. The proposal does not involve borrowings and
does not affect the Funds' existing assets or reserves. In addition,
the proposed arrangement will not increase the speculative character of
the shares of the Funds. Applicants further believe that the proposed
allocation of expenses and voting rights relating to the rule 12b-1
plans is equitable and will not discriminate against any group of
shareholders.
2. Applicants also request an exemption under section 6(c) from
sections 2(a)(32), 2(a)(35), 22(c) and 22(d) of the Act and rule 22c-1
thereunder. Applicants believe that the CDSC permits shareholders to
have the advantage of greater investment dollars working for them from
the time of their purchase than if a sales load were imposed at the
time of purchase.
Applicants' Conditions
Applicants agree that the order of the SEC granting the requested
relief shall be subject to the following conditions:
1. Each class of shares will represent interests in the same
portfolio of investments of a Fund, and be identical in all respects,
except as set forth below. The only differences among the classes of
shares of the Fund will relate solely to: (i) The amount of fees
permitted by different rule 12b-1 plans, (ii) the shareholder servicing
expenses permitted by non-rule 12b-1 shareholder services plans, (iii)
voting rights with respect to a class's rule 12b-1 plan, (iv) different
designations, (v) the impact of any incremental transfer agency fees
directly attributable to a particular class of shares, (vi) different
exchange privileges among Funds or conversion features.
2. The trustees of each of the Funds, including a majority of the
independent trustees, will approve the Variable Pricing System. The
minutes of the meetings of the trustees of each of the Funds regarding
the deliberations of the trustees with respect to the approvals
necessary to implement the Variable Pricing System will reflect in
detail the reasons for the trustees' determinations that the proposed
Variable Pricing System is in the best interests of both the Funds and
their respective shareholders.
3. On an ongoing basis, the trustees of the Funds, pursuant to
their fiduciary responsibilities under the Act and otherwise, will
monitor each Fund for the existence of any material conflicts among the
interests of the various classes of shares. The trustees, including a
majority of the independent trustees, shall take such action as is
reasonably necessary to eliminate any such conflicts that may develop.
The Advisor and the Distributor will be responsible for reporting any
potential or existing conflicts to the trustees. If a conflict arises,
the Advisor and the Distributor at their own costs will remedy such
conflict up to and including establishing a new registered management
investment company.
4. The initial determination of the class expenses that will be
allocated to a particular class and any subsequent changes thereto will
be reviewed and approved by a vote of the board of trustees of the
Funds including a majority of the trustees who are not interested
persons of the Funds. Any person authorized to direct the allocation
and disposition of moneys paid or payable by the Funds to meet class
expenses shall provide to the board of trustees, and the trustees shall
review, at least quarterly, a written report of the amounts so expended
and the purposes for which such expenditures were made.
5. Any shareholder services plan will be adopted and operated in
accordance with the procedures set forth in rule 12b-1 (b) through (f)
as if the expenditure made thereunder were subject to rule 12b-1,
except that shareholders need not enjoy the voting rights specified in
rule 12b-1.
6. The trustees of the Funds will receive quarterly and annual
statements concerning distribution and shareholder servicing
expenditures complying with paragraph (b)(3)(ii) of rule 12b-1, as it
may be amended from time to time. In the statements, only expenditures
properly attributable to the sale or servicing of a particular class of
shares will be used to justify any distribution or servicing fee
charged to that class. Expenditures not related to the sale or
servicing of a particular class will not be presented to the trustees
to justify any fee attributable to the class. The statements, including
the allocations upon which they are based, will be subject to the
review and approval of the independent trustees in the exercise of
their fiduciary duties.
7. Dividends paid by a Fund with respect to each class of its
shares, to the extent any dividends are paid, will be calculated in the
same manner, at the same time, on the same day and will be in the same
amount, except that distribution and shareholder servicing payments
relating to each respective class of shares will be borne exclusively
by that class.
8. The methodology and procedures for calculating the net asset
value and dividends and distributions of the various classes and the
proper allocation of expenses among the various classes have been
reviewed by an expert (the ``Independent Examiner'') who has rendered a
report to the applicants, which has been provided to the staff of the
SEC, that such methodology and procedures are adequate to ensure that
such calculations and allocations will be made in an appropriate
manner. On an ongoing basis, the Independent Examiner, or an
appropriate substitute Independent Examiner, will monitor the manner in
which the calculations and allocations are being made and, based upon
such review, will render at least annually a report to the Funds that
the calculations and allocations are being made properly. The reports
of the Independent Examiner shall be filed as part of the periodic
reports filed with the SEC pursuant to sections 30(a) and 30(b)(1) of
the Act. The work papers of the Independent Examiner with respect to
such reports, following request by the Funds (which the Funds agree to
provide), will be available for inspection by the SEC staff upon the
written request to the Funds for such work papers by a senior member of
the Division of Investment Management, limited to the Director, an
Associate Director, the Chief Accountant, the Chief Financial Analyst,
an Assistant Director and any Regional Administrators or Associate and
Assistant Administrators. The initial report of the Independent
Examiner is a ``report on policies and procedures placed in operation''
and the ongoing reports will be ``reports on policies and procedures
placed in operation and tests of operating effectiveness'' as defined
and described in SAS No. 70 of the American Institute of Certified
Public Accountants (the ``AICPA''), as it may be amended from time to
time, or in similar auditing standards as may be adopted by the AICPA
from time to time.
9. The applicants have adequate facilities in place to ensure
implementation of the methodology and procedures for calculating the
net asset value and dividends and distributions of the various classes
of shares and the proper allocation of expenses among the various
classes of shares and this representation will be concurred with by the
Independent Examiner in the initial report referred to in condition (8)
above and will be concurred with by the Independent Examiner, or an
appropriate substitute Independent Examiner, on an ongoing basis at
least annually in the ongoing reports referred to in condition (8)
above. Applicants will take immediate corrective measures if this
representation is not concurred in by the Independent Examiner, or
appropriate substitute Independent Examiner.
10. The prospectuses of the Funds will contain a statement to the
effect that a salesperson and any other person entitled to receive any
compensation for selling or servicing Fund shares may receive different
compensation with respect to one particular class of shares over
another in the Fund.
11. The Distributor will adopt compliance standards as to when each
class of shares may appropriately be sold to particular investors.
Applicants will require all persons selling shares of the Funds to
agree to conform to such standards.
12. The conditions pursuant to which the exemptive order is granted
and the duties and responsibilities of the trustees of the Funds with
respect to the Variable Pricing System will be set forth in guidelines
which will be furnished to the trustees.
13. Each fund will disclose the respective expenses, performance
data, distribution arrangements, services, fees, sales loads, deferred
sales loads, and exchange privileges applicable to each case of shares
in every prospectus, regardless of whether all classes of shares are
offered through each prospectus. Each Fund will disclose the respective
expenses and performance data applicable to all classes of shares in
every shareholder report. The shareholder reports will contain, in the
statement of assets and liabilities and statement of operations,
information related to the Fund as a whole generally and not on a per
class basis. Each Fund's per share data, however, will be prepared on a
per class basis with respect to all classes of shares of such Fund. To
the extent any advertisement or sales literature describes the expenses
or performance data applicable to any class of shares, it will also
disclose the respective expenses and/or performance data applicable to
all classes of shares. The information provided by applicants for
publication in any newspaper or similar listing of each Fund's net
asset value and public offering price will present each class of shares
separately.
14. The applicants acknowledge that the grant of the exemptive
order requested by the application will not imply SEC approval,
authorization or acquiescence in any particular level of payments that
each Fund may make pursuant to its rule 12b-1 plan in reliance on the
exemptive order.
15. Any class of shares with a conversion feature (``Purchase
Class'') will convert into another class of shares (``Target Class'')
on the basis of the relative net asset values of the two classes,
without the imposition of any sales load, fee, or other charge. After
conversion, the converted shares will be subject to an asset-based
sales charge and/or service fee (as those terms are defined in Article
III, Section 26 of the NASD's Rules of Fair Practice), if any, that in
the aggregate are lower than the asset-based sales charge and service
fee to which they were subject prior to the conversion.
16. If a Fund implements any amendment to its rule 12b-1 plan (or,
if presented to shareholders, adopts or implements any amendment of a
non-rule 12b-1 shareholder services plan) that would increase
materially the amount that may be borne by the Target Class shares
under the plan, existing Purchase Class shares will stop converting
into Target Class unless the Purchase Class shareholders, voting
separately as a class, approve the proposal. The trustees shall take
such action as is necessary to ensure that existing Purchase Class
shares are exchanged or converted into a new class of shares (``New
Target Class''), identical in all material respects to Target Class as
it existed prior to implementation of the proposal, no later than the
date such shares previously were scheduled to convert into Target
Class. If deemed advisable by the trustees to implement the foregoing,
such action may include the exchange of all existing Purchase Class
shares for a new class (``New Purchase Class''), identical to existing
Purchase Class shares in all material respects except the New Purchase
Class will convert into New Target Class. New Target Class or New
Purchase Class may be formed without further exemptive relief.
Exchanges or conversions described in this condition shall be effected
in a manner that the trustees reasonably believe will not be subject to
federal taxation. In accordance with condition 3 any additional cost
associated with the creation, exchange, or conversion of New Target
Class or New Purchase Class shall be borne solely by the Adviser and
the Distributor. Purchase Class shares sold after the implementation of
the proposal may convert into Target Class shares subject to the higher
maximum payment, provided that the material features of the Target
Class plan and the relationship of such plan to the Purchase Class
shares are disclosed in an effective registration statement.
17. Applicants will comply with the provisions of proposed rule 6c-
10 under the Act (Investment Company Act Release No. 16619 (Nov. 2,
1988)), as such rule is currently proposed and as it may be reproposed,
adopted or amended.
For the SEC, by the Division of Investment Management, under
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-4580 Filed 2-28-94; 8:45 am]
BILLING CODE 8010-01-M