Federal Register / Vol. 62, No. 248 / Monday, December 29, 1997 / Notices 67669

Finding of No Significant Impact

On the basis of the environmental

assessment, the staff concludes that the

proposed action will not have a

significant effect on the quality of the

human environment. Accordingly, the

Commission will not prepare an

environmental impact statement for the

proposed exemption.

For further details with respect to the

proposed exemption, see licensee letters

dated July 17, August 5 and 8,

September 4, and December 9, 1997,

which are available at the Commission’s

Public Document Room, 2120 L Street,

NW., Washington, DC 20555 and at the

Local Public Document Room, North

Central Michigan College, 1515 Howard

Street, Petosky, MI 49770.

Dated at Rockville, Maryland, this 19th day

of December 1997.

For the Nuclear Regulatory Commission.

Seymour H. Weiss,

Director, Non-Power Reactors and

Decommissioning Project Directorate,

Division of Reactor Program Management,

Office of Nuclear Reactor Regulation.

[FR Doc. 97–33681 Filed 12–24–97; 8:45 am]

BILLING CODE 7590–01–P

SECURITIES AND EXCHANGE

COMMISSION

[Rel. No. IC–22948; File No. 812–10886]

The Sierra Variable Trust, et al.; Notice

of Application

December 19, 1997.

AGENCY: Securities and Exchange

Commission (‘‘SEC’’ or ‘‘Commission’’).

ACTION: Notice of application for an

order under Section 17(b) of the

Investment Company Act of 1940

(‘‘1940 Act’’), exempting Applicants

from the provisions of Section 17(a) of

the 1940 Act to the extent necessary to

permit the merger of two series of a

registered management investment

company and the combination of

corresponding sub-accounts of a

separate account investing therein.

SUMMARY OF APPLICATION: Applicants

seek an order exempting them from the

provisions of Section 17(a) of the 1940

Act to the extent necessary to permit the

merger of the Trust’s Short Term Global

Government Fund (the ‘‘Global

Government Fund’’) into the Trust’s

Short Term High Quality Bond Fund

(the ‘‘High Quality Bond Fund’’) (the

‘‘Merger’’) and the combination of

corresponding sub-accounts of the

Separate Account investing therein.

APPLICANTS: The Sierra Variable Trust

(‘‘Trust’’), American General Life

Insurance Company (‘‘Insurance

Company’’) and American General Life

Insurance Company Separate Account D

(‘‘Separate Account’’).

FILING DATES: The application was filed

on December 5, 1997.

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 Secretary of

the SEC and serving Applicants with a

copy of the request, in person or by

mail. Hearing requests should be

received by the SEC by 5:30 p.m. on

January 13, 1997, 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 of a

hearing by writing to the Secretary of

the SEC.

ADDRESSES: Secretary, SEC, 450 Fifth

Street, N.W., Washington, D.C. 20549.

Applicants, c/o J.B. Kittredge, Esq.,

Ropes & Gray, One International Place,

Boston, Massachusetts 02110.

FOR FURTHER INFORMATION CONTACT:

Michael Koffler, Attorney, or Mark

Amorosi, Branch Chief, Office of

Insurance Products (Division of

Investment Management), at (202) 942–

0670.

SUPPLEMENTARY INFORMATION: The

following is a summary of the

application. The complete application is

available for a fee from the Public

Reference Branch of the SEC, 450 Fifth

St., N.W., Washington, D.C. 20549 (tel.

(202) 942–8090).

Applicants’ Representations

1. The Trust, an open-end,

management investment company, is a

Massachusetts business trust. It is a

series investment company currently

comprised of fourteen separate

investment portfolios, two of which are

the High Quality Bond Fund and the

Global Government Fund. Five

portfolios are asset allocation portfolios

(the ‘‘Asset Allocation Portfolios’’)

investing in six to eight of the other

funds (the ‘‘Funds’’) (the Asset

Allocation Portfolios and the Funds are

hereafter referred to collectively as the

‘‘Portfolios’’). The Trust issues a

separate series of shares of beneficial

interest in connection with each

Portfolio and has registered these shares

under the Securities Act of 1933 (the

‘‘1933 Act’’) on Form N1–A (File No.

33–57732).

2. The Trust has sold shares of the

Portfolios to the Separate Account,

which is a separate account established

by the Insurance Company to receive

and invest net purchase payments paid

under variable annuity contracts issued

by the Insurance Company (the

‘‘Contracts’’). The Separate Account is

registered as a unit investment trust

under the 1940 Act (File No. 811–2441).

The Funds are investment options

available under one form of the Contract

(the ‘‘Primary Contracts’’). The Asset

Allocation Portfolios are investment

options currently available under a

second form of the Contract (the

‘‘Secondary Contracts’’). Owners of the

Contracts (‘‘Owners’’) may choose to

have their net purchase payments

allocated among investment divisions

(‘‘Divisions’’) of the Separate Account,

which Divisions correspond to the

fourteen series of the Trust.

3. The Insurance Company, a stock

life insurance company, is leased to sell

life, accident and health insurance and

annuities in the District of Columbia

and 49 states. The Insurance Company

is the depositor and sponsor of the

Separate Account.

4. Sierra Investment Advisors

Corporation (‘‘SIAC’’), an indirect,

wholly owned subsidiary of Washington

Mutual, Inc. (‘‘WMI’’), is the investment

manager the High Quality Bond Fund

and the Global Government Fund.

Under an investment sub-advisory

agreement with SIAC, Scudder, Stevens

& Clark, Inc. (‘‘Scudder’’), an

unaffiliated corporation, manages the

High Quality Bond Fund and the Global

Government Fund. SIAC receives a fee

for its investment advisory services at

an annual percentage of the average

daily net assets of each Find,. Neither of

these two Funds pays Scudder directly

for its services, which are paid for by

SIAC. Sierra Fund Administration

Corporation (‘‘SFAC’’) serves as the

administrator for both Funds and

receives from each Fund an

administrative fee equal to 0.18% of

average daily net assets.

5. Applicants state that the Trustees of

the Trust, including a majority of those

trustees who are not interested persons

of the Trust, SIAC, WMI and their

affiliates or the Insurance Company,

have unanimously approved a Plan of

Reorganization (the ‘‘Plan’’) pursuant to

which the High Quality Bond Fund and

the Global Government Fund would be

merged. Applicants state that the

principal purposes of the Merger are (1)

to eliminate a Fund for which there is

limited demand in a way that provides

current shareholders of the Global

Government Fund with the opportunity

to pursue compatible investment goals,
67670 Federal Register / Vol. 62, No. 248 / Monday, December 29, 1997 / Notices

(2) to reduce management and

transaction costs, and (3) to improve

investment performance.

6. Applicants state that, pursuant to

the Plan, on the closing date (‘‘Closing

Date’’), the High Quality Bond Fund

would acquire all of the assets and

liabilities of the Global Government

Fund. The net asset value of the shares

of the High Quality Bond Fund issued

in exchange shall equal the net asset

value of the shares of the Global

Government Fund then outstanding.

Each Global Government Fund

shareholder (which term includes both

the Global Government Fund Division

as well as the Asset Allocation

Portfolios investing in the Global

Government Fund) will receive the

number of full and fractional shares of

the High Quality Bond Fund equal in

value at the date of the exchange to the

value of such shareholder’s shares of the

Global Government Fund. Thereafter,

the expenses borne by such

shareholders will be those applicable to

the High Quality Bond Fund. The shares

of the High Quality Bond Fund issued

pursuant to the Merger have been

registered under the 1933 Act on Form

N–14 (File No. 333–37637).

7. Applicants state that the Trust

intends to submit the proposed Merger

to shareholders for approval. Owners of

a Primary Contract may provide voting

instructions to the Insurance Company

for the number of full or fractional

shares of a Fund equal to the cash value

of the Primary Contract held in the

Division of the Separate Account

investing in the Global Government

Fund, divided by the net asset value per

share. Fund shares attributable to the

Secondary Contracts or to Primary

Contracts for which no voting

instructions are received will be voted

by the Insurance Company in the same

proportion as the instructions by

Owners of Primary Contracts. The

affirmative vote of a majority of the

outstanding shares of the Global

Government Fund will be required to

approve the transaction.

8. Applicants also state that,

contemporaneously with the Merger and

subject to shareholder approval,

Composite Research & Management

Corporation (‘‘Composite’’), another

indirect, wholly-owned subsidiary of

WMI, will become the investment

manager of the High Quality Bond

Fund, with Composite providing the

same services as are currently provided

by SIAC and Scudder for a fee equal to

the fee currently charged by SIAC.

Murphey Favre Shareholders Services,

Inc. (‘‘MFSS’’), an affiliate of Composite,

would provide at the same rate the same

administrative services that are

currently provided by SFAC.

9. Applicants state that if Composite

is approved as the investment manager

for the High Quality Bond Fund and the

Merger is effected, Composite and MFSS

have undertaken from the date of the

Merger and at least through December

31, 1998, to waive their fees and/or to

bear certain expenses to the extent

necessary to limit total operating

expenses of the High Quality Bond

Fund to the annual rate of 1.00% (which

equals the annualized rate of the High

Quality Bond Fund for the first six

months of 1997, taking into account the

waiver of certain advisory fees during

this time). Neither SIAC, SFAC,

Composite nor MFSS has indicated their

intentions with respect to the Global

Government Fund should the merger

not be approved. However, assuming

the SIAC/SFAC waivers remain in

effect, Applicants assert that the Merger

would lower the expenses for Global

Government Fund shareholders from

the annual rate of 1.26% (1.28% during

the last complete fiscal year) to the

annual rate of 0.92%, with a guarantee

through December 31, 1998, that the

expense ration could not exceed 1.00%.

10. Applicants assert that the High

Quality Bond Fund and the Global

Government Fund have substantially

similar investment objectives: the High

Quality Bond Fund’s objective is to

provide ‘‘as high a level of current

income as is consistent with prudent

investment management and stability of

principal.’’ The Global Government

Fund’s objective is ‘‘to provide high

current income consistent with

protection of principal.’’ Applicants

state that the Global Government Fund

generally has a substantially higher

percentage of its assets in securities of

foreign issuers, has greater flexibility to

invest in lower-rated securities, and is

non-diversified within the meaning of

the 1940 Act. The High Quality Bond

Fund is diversified and may invest only

in investment grade securities.

Applicants maintain, however, that

there is a substantial overlap in the

securities eligible for purchase by both

Funds and each seeks to maintain a

targeted average weighted maturity of

less than 3 years.

11. Applicants state that the Trustees

have determined that the interests of

Owners of Contract indirectly invested

in the Global Government Fund and the

High Quality Bond Fund will not be

diluted as a result of the proposed

transactions and that the Merger is in

the best interests of each affected Fund

and the shareholders thereof.

Applicants represent that the Merger is

expected to result in economies of the

scale and cost savings which will be

reflected in improved performance

prospects. Certain expenses of the

affected Funds that are incurred by each

Fund, such as fees for independent

auditors and custodial fees, will be

reduced on a percentage basis as the

Funds are combined. The larger fund

also will allow the adviser the

opportunity to better able to choose new

investments, reinvest funds from

maturing investments and manage cash

flows.

12. Applicants represent that apart

from the fact that the future cash value

of Contracts indirectly invested in the

Global Government Fund will reflect the

investment performance and expenses

of the High Quality Bond Fund, the

Merger will have no economic impact

on Contract values, fees or charges

under the Contracts. Applicants also

represent that the Merger will have no

effect on the rights or interests of

Owners, other than reducing from 9 to

8 the number of investment options

available to Owners of Primary Contract

and reducing by 1 the number of asset

classes available to the Asset Allocation

Portfolios. Applicants state that the

proposed transaction will not have

adverse tax consequences for the

Owners.

Applicants’ Legal Analysis

1. Applicants request that the

Commission issue an order pursuant to

Section 17(b) of the 1940 Act exempting

the Merger from the provisions of

Section 17(a) of the 1940 Act, to the

extent necessary to permit the High

Quality Bond Fund to acquire

substantially all of the assets of the

Global Government Fund in exchange

for shares of the High Quality Bond

Fund.

2. Section 17(a)(1) of the 1940 Act, in

relevant part, prohibits any affiliated

person of a registered investment

company, or any affiliated person of

such a person, acting as principal, from

knowingly selling any security or other

property to the registered investment

company. Section 17(a)(2) of the 1940

Act, generally, prohibits the persons

described above, acting as principal,

from knowingly purchasing any security

of other property from the registered

investment company.

3. Section 2(a)(3) of the 1940 Act

defines the term ‘‘affiliated person,’’ in

relevant part, as (a) any person directly

or indirectly owning, controlling, or

holding with power to vote, 5 per

centum of more of the outstanding

voting securities of such other person;

(b) any person 5 per centum of more of

whose outstanding voting securities are

directly or indirectly owned, controlled
Federal Register / Vol. 62, No. 248 / Monday, December 29, 1997 / Notices 67671

or held with power to vote, by such

person; and (c) any person directly or

indirectly controlling, controlled by, or

under common control with, such other

persons.

4. Applicants state that because the

Insurance Company, through the

Separate Account, technically owns

100% of the outstanding shares of each

Fund, it is arguably an affiliate of each

Portfolio. In this case, each Fund may be

an affiliated person of an affiliated

person (i.e., the Insurance Company)

and transactions between the Funds

may be subject to the prohibition of

Section 17(a) of the 1940 Act.

Applicants also state that an affiliation

between the Funds also may arise if

they are deemed to be under common

control. Since the Funds are part of the

same investment company, they each

have common directors and officers as

well as a common investment adviser. If

the Funds are considered to be under

common control, they could be

affiliated persons of one another.

5. Section 17(b) of the 1940 Act

provides that the Commission may,

upon application, grant an order

exempting any transaction from the

prohibitions of Section 17(a) if the

evidence establishes that (a) the terms of

the proposed transaction, including the

consideration to be paid or received, are

reasonable and fair and do not involve

overreaching on the part of any person

concerned; (b) the proposed transaction

is consistent with the policy of each

registered investment company

concerned, as recited in the registration

statement and reports filed under the

Act; and (c) the proposed transaction is

consistent with the general purposes of

the 1940 Act.

6. Applicants represent that the terms

of the proposed Merger as set forth in

the Plan, including the consideration to

be paid and received, are reasonable and

fair and do not involve overreaching on

the part of any person concerned.

Applicants also represent that the

proposed Merger is consistent with the

policies of the High quality Bond Fund

and the Global Government Fund as

recited in the Trust’s current registration

statement and reports filed under the

1940 Act, and with the general purposes

of the 1940 Act. Applicants state that

the Merger does not present any of the

conditions or abuses that the 1940 Act

was designed to mitigate or eliminate.

7. Applicants state that the Board of

Trustees of the Trust, including a

majority of the disinterested Trustees,

has reviewed and approved the terms of

the Merger as set forth in the Plan,

including the consideration to be paid

or received by all parties. Applicants

also state that they have independently

determined that the proposed Merger

will be in the best interests of the

shareholders of each affected Fund and

of the Owners indirectly invested in

each affected Fund and that the

consummation of the Merger will not

result in the dilution of the current

interests of any shareholder or Owner.

8. Applicants state that in

determining whether to recommend

approval of the Plan to shareholders and

Owners, the Board of Trustees of the

Trust, including a majority of

disinterested Trustees, inquired into a

number of matters and considered

various factors, as described in the

application. The Trustees noted, in

particular, the potential benefits to

shareholders and Owners, the

substantially similar investment

objectives of the affected Funds, the

terms and conditions of the Plan which

might affect the price of shares (or

Owner interests) to be exchanged, and

the direct or indirect costs to be

incurred by the affected Funds or

shareholders or Owners invested in

such Funds. The Board of Trustees also

considered the recent trend of declining

annuity contract purchase payments

and increased redemptions, as well as

expectations of future payments under

the variable annuity contracts which

permit allocation to the global

Government Fund. Applicants state that

the Board of Trustees believes action is

necessary to provide Owners certain

benefits and to avoid certain adverse

consequences to the Owners. Applicants

also state that, in addition to anticipated

lower expenses, a merger of the Global

Government Fund and the High Quality

Bond Fund should result in a larger

portfolio which can be managed more

effectively.

9. Applicants state that the proposed

Merger will not in any way affect the

price of outstanding shares of the High

Quality Fund, nor will it in any way

affect the Contract values or interests of

Owners indirectly invested therein.

Under the Plan, the transfer of assets of

the Global Government Fund to the

High Quality Bond Fund, and the

issuance of shares of the High Quality

Bond Fund in exchange therefor, will be

made on the basis of the relative net

asset values of the affected Funds on the

Closing Date.

10. Applicants represent that the

aggregate value of shares to be issued to

the Global Government Fund Division

under the Plan will exactly equal the

aggregate value of shares held by that

Division immediately prior to the

proposed Merger. The aggregate value of

all Owner’s outstanding units of interest

of the Global Government Fund

Division will not change on the Closing

Date as a result of the Merger and the

aggregate value of such units supporting

the cash value of each Owner indirectly

invested in that Division immediately

prior to the Merger will remain

unchanged immediately after the

Merger. The same is true for Divisions

owning Global Government Fund shares

through the Asset Allocation Portfolios.

Applicants state that Composite, WMI

or one of its affiliates will pay all of the

Trust’s direct and indirect expenses of

the Merger.

11. Rule 17a–8 under the 1940 Act

exempts from Section 17(a) mergers,

consolidations or purchases or sales of

substantially all of the assets involving

registered investment companies which

may be affiliated persons, or affiliated

persons of affiliated persons, solely by

reason of having a common investment

adviser, common directors and/or

common officers. Because of the

potential affiliations noted above, the

Funds may not be able to rely on rule

17a–8. Applicants state, however, that

the Trustees have evaluated the relevant

considerations and have determined

that the Plan will comply with the

conditions that rule 17a–8 requires.

Conclusion

Applicants submit that, for all of the

reasons summarized above, the terms of

the proposed Merger as set forth in the

Plan, including the consideration to be

paid and received, are reasonable and

fair to the Trust, to the affected Funds

and to shareholders and Owners

invested therein and do not involve

overreaching on the part of any person

concerned. Furthermore, the proposed

Merger will be consistent with the

policies of each of the affected Funds as

recited in the Trust’s registration

statement and reports filed under the

1940 Act and with the general purposes

of the 1940 Act.

For the Commission, by the Division of

Investment Management, under delegated

authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–33713 Filed 12–24–97; 8:45 am]

BILLING CODE 8010–01–M