Federal Register / Vol. 62, No. 35 / Friday, February 21, 1997 / Notices 8063

Subsidiary will pay all expenses of its

SPE.

CSW and Subsidiaries request

authorization to enter into negotiations

with underwriters to establish the

interest rate, right of redemption and

other terms and conditions applicable to

the Debentures and Preferred Securities,

subject to the receipt, or terms of an

order under the Act.

CSW and the Subsidiaries intend to

use the net proceeds of the Debentures

to retire or replace, through redemption,

repurchase or otherwise, outstanding

first mortgage bonds or preferred stock

(or any combination thereof), to pay

outstanding short-term borrowings and

for other general corporate purposes.

CSW intends to use the net proceeds of

the Debentures to loan or make equity

contributions to the Subsidiaries to be

evidenced by a Subsidiary’s issuance of

notes, preferred securities and/or

common stock to CSW. Such notes and

preferred securities would have

substantially the same terms as the

Debentures issued by CSW.

In connection with the issuance of

Debentures and Preferred Securities, the

applicants seek authorization to manage

interest rate risk, through the use of

interest rate management instruments,

including interest rate swaps, caps,

floors, collars and other similar

instruments. The applicants represent

that in no event would the aggregate

notional amount of the interest rate

swaps, at any one time, exceed the

respective Offering Limit for CSW and

the Subsidiaries, and that none of the

interest rate swaps would be

‘‘leveraged’’.

The applicants also request

authorization to deviate from the

preferred stock provisions of the

Statement of Policy Regarding Preferred

Stock Subject to the Public Utility

Holding Company Act of 1935, HCAR

No. 13106 (Feb. 16, 1956), as amended

in HCAR No. 16758 (June 22, 1970) to

the extent applicable with respect to the

Proposed Amendments.

For the Commission, by the Division of

Investment Management, pursuant to

delegated authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–4243 Filed 2–20–97; 8:45 am]

BILLING CODE 8010–10–M

[Rel. No. IC–22512; 812–10132]

Sierra Prime Income Fund, et al.;

Notice of Application

February 14, 1997.

AGENCY: Securities and Exchange

Commission (‘‘SEC’’).

ACTION: Notice of application for

exemption under the Investment

Company Act of 1940 (the ‘‘Act’’).

APPLICANTS: Sierra Prime Income Fund

(the ‘‘Trust’’), Sierra Investment

Advisors Corporation (the ‘‘Adviser’’),

and Sierra Investment Services

Corporation (the ‘‘Distributor’’).

RELEVANT ACT SECTIONS: Order requested

under section 6(c) of the Act for an

exemption from sections 18(c) and 18(i)

of the Act, and under section 17(d) of

the Act and rule 17d–1 thereunder

permitting certain joint transactions.

SUMMARY OF APPLICATION: Applicants

request an order that would permit

certain closed-end investment

companies to issue multiple classes of

shares in the same portfolio of securities

and impose distribution fees on one or

more classes of shares.

FILING DATES: The application was filed

on May 7, 1996 and amended on August

14, 1996, and on November 26, 1996.

Applicants have agreed to file an

amendment during the notice period,

the substance of which is incorporated

herein.

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 11, 1997 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 may request notification of a

hearing by writing to the SEC’s

Secretary.

ADDRESSES: Secretary, SEC, 450 5th

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

Applicants, 9301 Corbin Avenue, Suite

333, Northridge, California 91324.

FOR FURTHER INFORMATION CONTACT:

Sarah A. Buescher, Staff Attorney, at

(202) 942–0573, or Elizabeth G.

Osterman, Assistant Director, 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 a registered closed-end

management investment company

organized as a Massachusetts business

trust. The Trust has entered into an

investment advisory agreement with the

Adviser, a wholly-owned subsidiary of

Sierra Capital Management Corporation.

The Adviser has delegated the

management of the Trust’s investment

portfolio to Van Kampen American

Capital Management Inc. The Trust has

entered into a distribution agreement

with the Distribution pursuant to which

the Distributor acts as principal

underwriter or distributor for the Trust.

Applicants request that relief extend to

all future series of the Trust and all

other registered closed-end investment

companies with substantially the same

investment policies and manner of

operation as the Trust for which the

Adviser, the Distributor, or any entity

controlling, controlled by, or under

common control with the Adviser or

Distributor acts as adviser or distributor

now or in the future.

2. The Trust’s investment objective is

to provide as high a level of income as

is consistent with the preservation of

capital primarily through investment in

senior collateralized corporate loans

(‘‘Senior Loans’’) in the form of

participation interests in Senior Loans

made by banks or other financial

institutions. The Trust and funds with

similar investment policies and

manners of operation are commonly

known as ‘‘prime rate’’ funds. While the

Trust’s investment policies require it to

be organized as a closed-end investment

company, the Trust has characteristics

largely associated with an open-end

investment company. Similar to openend funds, shares of the Trust are not

listed on an exchange and are not traded

over-the-counter on the National

Association of Securities Dealers, Inc.’s

(‘‘NASD’s’’) Automated Quotation

National Market System. Also similar to

open-end funds, the Trust engages in a

continuous offering of its shares, and

updates its registration statement

annually. The Trust currently offers one

class of shares to investors with a frontend sales load, as described below.

3. Because the Trust does not

currently anticipate that a secondary

market will develop for its shares, the

Trust considers the shares to be illiquid.

Therefore, consistent with section

23(c)(2) of the Act, the Trust intends to

consider making tender offers each

quarter to purchase its shares from

shareholders at the then current net

asset value (‘‘NAV’’) per share. Section

23(c)(2) provides that a registered

closed-end investment company may
8064 Federal Register / Vol. 62, No. 35 / Friday, February 21, 1997 / Notices

1Each tender offer will be made in accordance

with section 13(e) of the Securities Exchange Act

of 1934 (the ‘‘Exchange Act’’) and rule 13e–4

thereunder. Applicants received an exemption from

rule 10b–6 under the Exchange Act from the SEC’s

Division of Market Regulation to permit the Trust

to make tender offers for its shares while

simultaneously engaging in a continuous offering of

its shares. Applicants also received an exemption

from rule 13e–4(f)(8)(ii) under the Exchange Act to

permit the Trust to allow shareholders to exchange

shares of the Trust for either cash or the cashequivalent amount of the same class of shares of

certain open-end investment companies advised by

the Adviser. See Sierra Prime Income Fund (pub.

avail. June 5, 1996).

2The SAM Program is an asset allocation program

that provides two levels of professional

management and diversification to clients. The

Distributor determines an asset allocation strategy

and investment policy for each SAM Program

strategy.

purchase securities of which it is the

issuer pursuant to tenders, after

reasonable opportunity to submit

tenders given to all holders of securities

of the class to be purchased.1

4. Applicants propose to continue to

operate as a ‘‘prime rate’’ fund, with the

addition of a multiclass pricing system

(the ‘‘System’’). On April 24, 1996, the

board of trustees of the Trust approved

the establishment of the System, subject

to the receipt of the order requested in

the application. Under the System, the

Trust could provide investors with the

option of purchasing shares: (a) Subject

to a conventional front-end sales load

and, under certain circumstances, an

Early Withdrawal Charge (‘‘EWC’’)

(‘‘Class A Shares’’); (b) subject to an

EWC, an asset-based distribution fee

(‘‘Distribution Fee’’), and a service fee

(‘‘Service Fee’’) (‘‘Class B Shares’’); and

(c) subject to an EWC, a Distribution

Fee, and a Service Fee offered in

connection with the Sierra Asset

Management Program (‘‘SAM Program’’)

(‘‘Class S Shares’’). All fees charged by

applicants under the System will

comply with Rule 2830 of the NASD

Conduct Rules, although such rule does

not technically apply to the Trust. If

applicants receive the relief requested,

sales loads, Distribution Fees, EWCs,

and exchange procedures for the Trust

will be structurally similar to those in

open-end investment companies. In

addition, the only differences between

the Trust’s current and future operations

would be the offering of multiple classes

of shares, and the imposition of

Distribution Fees and Service Fees, as

described below.

5. Currently, Class A Shares of the

Trust are offered to investors at NAV

plus a front-end sales load (‘‘Class A

Sales Load’’). The Class A Sales Load is

graduated from 4.5% of the offering

price per share for purchases of less

than $50,000 to 0% for purchases of

$1,000,000 or more. Applicants will

waive the Class A Sales Load for certain

purchases described in the application.

The Trust may impose an EWC on

certain Class A Shares redeemed within

one or two years of purchase. The Class

A Shares subject to an EWC include

those purchased at NAV without a sales

charge, acquired through certain

exchanges of shares, and purchased

through certain employee benefit plans.

The EWC for Class A Shares is waived

for certain repurchases or tenders

outlined in the application. The EWC

for Class A Shares is calculated based

on the lower of the shares’ cost or

current NAV. In determining whether

the EWC is payable, the Trust will first

redeem shares not subject to an EWC.

Class A Shares are not subject to a

Distribution Fee.

6. Applicants propose to offer Class B

Shares of the Trust at NAV without the

imposition of a sales load at the time of

purchase. Applicants would impose a

Distribution Fee on Class B Shares of up

to .75% of the value of Class B’s average

daily net assets. The Distribution Fee,

similar to a fee charged under a rule

12b–1 plan for open-end investment

companies, would compensate the

Distributor for its services and expenses

in distributing Class B Shares, including

payments made to broker-dealers and

certain financial institutions as

commissions. Class B Shares also may

be subject to a Service Fee (as defined

in NASD Conduct Rule 2830) of up to

.25% of Class B’s average daily net

assets. The Service Fee would

compensate certain broker-dealers,

financial institutions, and others that

provide personal services or maintain

shareholder accounts.

7. An investor’s proceeds from a

redemption of Class B Shares made

within a certain period after the

purchase of the shares may be subject to

an EWC that is paid to the Distributor.

The amount of the EWC would be

calculated by multiplying the applicable

percentage charge by the lesser of: (a)

The NAV of the shares at the time of

purchase; or (b) the NAV of the shares

at the time of redemption. Applicants

currently expect that the EWC would be

graduated from 4% to 0% over five

years.

8. Class S Shares would be sold in

connection with the SAM Program.2

Class S Shares have the same

characteristics as Class B Shares except

for the SAM requirement and a

modification to the EWC. The EWC for

Class S Shares graduates from 5% to 0%

over seven years. Shares purchased

through the reinvestment of dividends

and other distributions paid in Class S

Shares will be Class S Shares, but will

not be subject to an EWC. A

shareholder’s termination of

participation in the SAM Program will

not affect the shareholder’s continued

ability to hold Class S Shares, but the

shareholder would be precluded from

purchasing additional Class S Shares.

9. All expenses incurred by the Trust

will be allocated to each class of shares

based upon the net assets of the Trust

attributable to each class. Distribution

Fees, Service Fees, and other

incremental expenses that may be

attributable to a particular class of

shares will be charged directly to the net

assets of the particular class.

Incremental expenses include transfer

agent fees, printing and postage

expenses, state and federal registration

fees, and other incremental expenses

that should be allocated to a particular

class of shares. Because of the higher

fees or expenses paid by the holders of

certain classes, the net income

attributable to and the dividends

payable on shares of one class may

differ from the net income attributable

to and the dividends payable on shares

of other classes in the Trust. As a result,

the NAV per share of the classes will

differ at times. Expenses of the Trust

allocated to a particular class of shares

will be borne on a pro rata basis by each

outstanding share of that class.

10. The Trust may create additional

classes of shares or series that may differ

from Class A, Class B, or Class S Shares

in the following respects: (a) The

amount of Distribution Fees; (b) voting

rights with respect to each class’

expenses; (c) the designation of each

class; (d) the impact of any class

expenses directly attributable to a

particular class of shares; (e) the

dividends and NAV resulting from

differences in fees under a plan of

distribution or class expenses; (f) the

EWC structure; (g) the sales load

structure; and (h) exchange privileges or

conversion features.

Currently, Class A Shares of the Trust

may be exchanged during a tender offer

period for Class A shares of equal value

of any portfolio of any open-end

investment company advised by Sierra

Advisors (‘‘Sierra Funds’’). In addition,

Class A shares of Sierra Funds may be

exchanged for Class A Shares of the

Trust. Under the proposal, the Trust

will permit shareholders at the time of

a tender offer to exchange Trust shares

for the same class of shares of the Sierra

Funds (except for The Sierra Variable

Trust) equal in value to the tendered

Trust shares in lieu of cash. All

exchanges of Trust shares will comply

with rule 13e–4 under the Exchange
Federal Register / Vol. 62, No. 35 / Friday, February 21, 1997 / Notices 8065

3See, supra, note 1.

Act.3 In addition, shareholders of any

portfolio of Sierra Funds could

exchange their shares for shares of the

Trust of equal value in lieu of cash. The

exchanges of shares from the Sierra

Funds into shares of the Trust will

comply with rule 11a–3 under the Act,

except to the extent that the Trust

operates as a closed-end fund. Although

applicants currently do not intend to do

so, the Trust may in the future offer a

class of shares that will convert into

shares of another class of the Trust.

Except to the extent that the Trust

operates as a closed-end fund, it would

comply with rule 18f–3 under the Act

with respect to such conversions.

Applicant’s Legal Analysis

1. Applicants request an exemption

under section 6(c) of the Act from

sections 18(c) and 18(i) of the Act to the

extent that the proposed issuance and

sale of multiple classes of shares might

be deemed to result in the issuance of

a ‘‘senior security’’ within the meaning

of section 18(g) of the Act and thus be

prohibited by section 18(c), and violate

the equal voting provisions of section

18(i) of the Act.

2. Section 18(c) provides, in relevant

part, that a closed-end investment

company may not issue or sell any

senior security that is stock if,

immediately thereafter, the company

has more than one class of senior

security that is a stock. An exception to

this prohibition is that any such class of

stock may be issued in one or more

series provided no series has a

preference or priority over any other

series upon the distribution of the

company’s assets or in respect of

payment of interest or dividends. The

creation of multiple classes of shares

may result in shares of a class having

priority over another class as to the

payment of dividends because

shareholders of different classes would

pay different Distribution Fees, Service

Fees, and other incremental expenses

that should be allocated to a particular

class of shares.

3. Section 18(i) provides that each

share of stock issued by a registered

management company shall be a voting

stock and have equal voting rights with

every other outstanding voting stock.

The System may violate section 18(i)

because each class would be entitled to

exclusive voting rights with respect to

matters solely related to such class.

4. Section 6(c) of the Act provides that

the SEC may exempt persons or

transactions from any provision of the

Act if the 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.

5. Applicants believe that the

proposed allocation of expenses and

voting rights in the manner described

above is equitable and would not

discriminate against any group of

shareholders. According to applicants,

the proposed arrangements would

permit the Trust to facilitate the

distribution of its securities and provide

investors with a broader choice of

shareholder services without the Trust

assuming excessive costs or unnecessary

investment risks.

6. Applicants represent that if the

Trust was required to organize separate

investment portfolios for each class of

shares, it could face liquidity and

diversification problems that could

prevent the Trust from producing a

favorable return. Under the proposal,

investors would be able to benefit,

according to applicants, by investing in

an established, sizable fund. In addition,

shareholders may be relieved of a

portion of the fixed costs of the Trust

because such costs, potentially, would

be spread over a greater number of

shares than they would be otherwise.

7. Applicants believe that their

proposal does not raise the concerns

that section 18 was designed to

ameliorate to any greater degree than

open-end investment companies’

multiple class systems. Under rule 18f–

3, open-end investment companies may

offer multiple classes of shares without

seeking individual exemptive orders

from the SEC. Applicants further believe

that their arrangement does not involve

borrowings and it would not adversely

affect the assets of the Trust.

8. Section 17(d) and rule 17d–1

prohibit an affiliated person of an

investment company, acting as

principal, from participating in or

effecting any transaction in connection

with any joint enterprise or joint

arrangement in which the investment

company participates. Applicants

request an order pursuant to section

17(d) and rule 17d–1 to permit the Trust

to impose Distribution Fees in a manner

similar to rule 12b–1 fees imposed by

open-end investment companies. While

rule 12b–1 does not apply to closed-end

investment companies, there is some

question as to whether section 17(d) and

rule 17d–1 apply to such fees.

9. In passing upon applications

submitted pursuant to section 17(d) and

rule 17d–1, the SEC considers whether

the participation of such registered or

controlled company in such joint

enterprise, joint arrangement, or profitsharing plan on the basis proposed is

consistent with the provisions, policies,

and purposes of the Act, and the extent

to which such participation is on a basis

different from or less advantageous than

that of other participants.

10. Applicants have agreed to comply

with rule 12b–1 as if the Trust is an

open-end investment company.

Applicants believe that any section

17(d) concerns in connection with the

Trust financing the distribution of its

shares should be resolved by this

undertaking. By complying with rule

12b–1, applicants believe that the Trust

would participate in substantially the

same way and under substantially the

same conditions as would be the case

with an open-end investment company

imposing distribution fees under rule

12b–1.

Applicants’ Condition

Applicants expressly consent, in

connection with this request for

exemptive relief, to be subject to

conditions applicable to open-end

investment companies as set forth in

rules 18f–3, 6c–10, and 12b–1 under the

Investment Company Act, as amended

from time to time, as if the rules applied

to them.

For the SEC, by the Division of Investment

Management, pursuant to delegated

authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–4244 Filed 2–20–97; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–38285; File Nos. SR–

AMEX–97–07, SR–BSE–96–11, SR–CHX–96–

34, SR–CSE–97–03, SR–NASD–97–09, SR–

NYSE–97–03, SR–PSE–97–05]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Changes by

the American Stock Exchange, Inc.,

Boston Stock Exchange, Inc., Chicago

Stock Exchange, Inc., Cincinnati Stock

Exchange, Inc., National Association of

Securities Dealers, Inc., New York

Stock Exchange, Inc., and Pacific

Stock Exchange, Inc., To Amend Each

Exchange’s Rules Concerning the PreOpening Application of the Intermarket

Trading System

February 13, 1997.

Pursuant to Section 19(b)(1) of the

Securities Exchange Act of 1934

(‘‘Act’’), 15 U.S.C. 78s(b)(1), notice is

hereby given that on December 10, 1996,

December 19, 1996, January 29, 1997,

January 31, 1997, February 10, 1997,

February 10, 1997, and February 11,

1997, respectively, the Boston Stock

Exchange Incorporated (‘‘BSE’’), the

Chicago Stock Exchange, Incorporated