[Federal Register Volume 60, Number 229 (Wednesday, November 29, 1995)]
[Notices]
[Pages 61282-61284]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-29111]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 21539; 812-9688]
SEI Institutional Managed Trust, et al.; Notice of Application
November 22, 1995.
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: SEI Asset Allocation Trust (the ``Trust''); SEI
Institutional Managed Trust, SEI Liquid Asset Trust, SEI International
Trust (collectively, the ``Underlying Funds''); SEI Financial
Management Corporation (``SEI Management''); and SEI Financial Services
Company (``SEI Financial'').
RELEVANT ACT SECTIONS: Order requested under section 6(c) of the Act
from section 12(d)(1) of the Act, under sections 6(c) and 17(b) of the
Act from section 17(a) of the Act, and pursuant to section 17(d) of the
Act and rule 17d-1 thereunder.
SUMMARY OF APPLICATION: Applicants request an order that would permit
the Trust to operate as a ``fund of funds'' and to acquire up to 100%
of the voting shares of any acquired fund.
FILING DATES: The application was filed on July 25, 1995 and was
amended on September 27, 1995. Applicants have agreed to file an
amendment during the notice period, the substance of which is included
in this notice.
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 December 19,
1995, 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, N.W., Washington, D.C.
20549. Applicants, 680 Swedesford Road, Wayne, Pennsylvania 19087-1658.
FOR FURTHER INFORMATION CONTACT: Marianne H. Khawly, Staff Attorney, at
(202) 942-0562, or Robert A. Robertson, 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 organized as a Massachusetts business trust and is
registered as an open-end management investment company under the Act.
Currently, the Trust consists of eight portfolios (each a
``Portfolio''): Balanced Income Fund; Conservative Balanced Fund;
Moderate Balanced Fund; Aggressive Balanced Fund; U.S. Equity Fund;
International Equity Fund; Global Fixed Income Fund; and Global Equity
Fund. Portfolio shares will be primarily offered to long-term investors
such as: employee benefit plans qualified under the Internal Revenue
Code; non-qualified plans, including section 403(b) and section 457
plans under the Internal Revenue Code; and individual retirement
account participants. Portfolio shares may be subject to sales charges,
including front-end and deferred sales charges, redemption fees,
service fees, and rule 12b-1 fees under the Act.
2. The Underlying Funds are open-end management investment
companies registered under the Act. Each Underlying Fund has one or
more portfolios (each an ``Underlying Portfolio'') with different
investment objectives and policies. Underlying Portfolio shares may be
subject to sales charges, including front-end and deferred sales
charges, redemption fees, service fees, and rule 12b-1 fees under the
Act. Applicants request that any relief granted pursuant to this
application also apply to any open-end management investment company
that currently or in the future is part of the same SEI ``group of
investment companies,'' as defined in rule 11a-3 under the Act
(collectively, the ``SEI Funds'').\1\ Applicants also request that any
such relief apply to any other ``group of investment companies'' where
SEI is the distributor (collectively, the ``Non-SEI Funds'').\2\
\1\Rule 11a-3 under the Act defines the ``same 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.
\2\Although certain existing registered investment companies, or
portfolios thereof, that are SEI Funds or Non-SEI 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. SEI Management is registered as an investment adviser under the
Investment Advisers Act of 1940. SEI Management provides the SEI Funds
with overall management services and serves as investment adviser to
each Portfolio and investment adviser or distributor to each Underlying
Portfolio. SEI Financial is registered as a broker/dealer under the
Securities Exchange Act of 1934. SEI Financial serves as distributor
for the SEI Funds and Non-SEI Funds.
4. Applicants propose a fund of funds arrangement where each
Portfolio will invest in shares of Underlying Portfolios that are part
of the same group of investment companies. Each Portfolio initially
proposes to allocate its assets among one or more Underlying Portfolios
representing the following asset classes: Cash; fixed income; domestic
equity; and international equity. Within each asset class, each
Portfolio initially will allocate its assets among the Underlying
Portfolios in accordance with predetermined percentage ranges. In
addition, funds of funds of the Non-SEI Funds (``Non-SEI Funds of
Funds'') will invest in shares of underlying Non-SEI Funds
(``Underlying Non-SEI Funds'') that are part of the same group of
investment companies.
Applicants' Legal Analysis
1. 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.
2. 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
Portfolios to acquire shares of the Underlying Portfolios beyond the
section 12(d)(1) limits. Applicants also request an order permitting
the Non-SEI Funds of Funds to acquire shares of the Underlying Non-SEI
Funds beyond the section 12(d)(1) limits.
3. 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) a lack
of appropriate diversification; (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.
4. First, the proposed arrangement will not raise the fee layering
concerns contemplated by section 12(d)(1) of the Act. The proposed
arrangement will not involve the layering of advisory fees since SEI
Management will not initially charge an advisory fee for serving as
investment adviser to the Portfolios. Before approving any advisory
contract under section 15(a) of the Act, the board of trustees of the
Trust or the board of trustees or directors of the Non-SEI Fund of
Funds, including a majority of the trustees or directors 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 Fund or Underlying Non-SEI Fund
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 Portfolio or Non-SEI Fund of Funds will not exceed
the limits set forth in Article III, section 26 of the Rules of Fair
Practice of the National Association of Securities Dealers, Inc.
(``NASD'') when aggregated with any sales charges or service fees that
the Portfolio or Non-SEI Fund of Funds pays relating to Underlying
Portfolio or Underlying Non-SEI Fund 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,
the proposed arrangement will not involve the unnecessary duplication
of administrative and other fees. Applicants expect that these expenses
will be reduced at both levels under the proposed arrangement.
5. Second, the proposed arrangement will not raise improper
diversification concerns. Each Portfolio and Non-SEI Fund of Funds will
pursue a different investment strategy by investing in Underlying
Portfolios and Underlying Non-SEI Funds that also pursue distinct
investment strategies. Third, the proposed arrangement will be
structured to minimize undue influence concerns. The Portfolios only
will acquire shares of Underlying portfolios that are SEI Funds.
Because SEI Management is investment adviser to the Underlying
Portfolios as well as to the Trust, a redemption from one Underlying
Portfolio will simply lead to the investment of the proceeds in another
Underlying Portfolio. Applicants believe that the same will be true in
the case of the Non-SEI Funds of Funds since they will invest in
Underlying Non-SEI Funds that are part of the same ``group of
investment companies.''
6. Fourth, the proposed arrangement will be structured to minimize
large scale redemption concerns. The Portfolios and Non-SEI Funds of
Funds will be designed for persons investing for retirement and other
long term investment purposes. This will reduce the possibility of the
Portfolios and Non-SEI Funds of Funds from being used as short-term
investment vehicles and further protect the Portfolios and the Non-SEI
Funds of Funds and their respective Underlying Portfolios and the
Underlying Non-SEI Funds from unexpected large redemptions. Fifth, the
proposed arrangement will not be unnecessarily complex. No Underlying
Portfolio or Underlying Non-SEI Fund will acquire securities of any
other investment company in excess of the limits contained in section
12(d)(1)(A) of the Act.
7. Section 17(a) makes it unlawful for an affiliated person of a
registered investment company to sell securities to, or purchase
securities from, the company. The Trust and the Underlying SEI Funds
may be considered affiliated persons because they share common officers
and/or directors/trustees. Similar arguments may be made in the case of
the Non-SEI Funds of Funds and the Underlying Non-SEI Funds. An
Underlying SEI Fund's issuance of its shares to the Trust may be
considered a sale prohibited by section 17(a). In addition, the sale by
the Underlying Non-SEI Funds of their shares to the Non-SEI Funds of
Funds could be deemed principal transactions subject to section 17(a)
of the Act.
8. Section 17(b) provides that the SEC shall exempt a proposed
transaction from section 17(a) if evidence
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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. Applicants request
an exemption under sections 6(c) and 17(b) to allow the above
transactions.
9. 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 shares of Underlying Portfolios and Underlying
Non-SEI Funds will be based on the net asset value of the Underlying
Portfolios and Underlying Non-SEI Funds, respectively, subject to
applicable sales charges. The Trust and Non-SEI Funds of Funds'
purchase and sale of shares of the Underlying Portfolios and Underlying
Non-SEI Funds is consistent with the Trust and Non-SEI Funds of Funds'
policy, as set forth in their registration statements. Applicants also
believe that the proposed transactions are consistent with the general
purposes of the Act.
10. Section 17(d) prohibits an affiliated person of a registered
investment company, or an affiliated person of such person, acting as
principal, from effecting any transaction in which such investment
company is a joint, or joint and several, participant with such person
in contravention of SEC rules and regulations. Rule 17d-1 provides that
an affiliated person of a registered investment company or an
affiliated person of such person, acting as principal, shall not
participate in, or effect any transaction in connection with, any joint
enterprise or other joint arrangement in which the registered
investment company is a participant unless the SEC has issued an order
approving the arrangement. Applicants assert that the proposed
arrangement is intended to provide substantial benefits for both the
Portfolios and the Non-SEI Funds of Funds and their respective
Underlying Portfolios and Underlying Non-SEI Funds, including increased
diversification, more efficient portfolios management, a larger asset
base, and reduced expenses. Therefore, for the reasons discussed above,
applicants believe that the proposed arrangement is consistent with the
provisions, policies, and purposes of the Act. Furthermore, the
Portfolios and Non-SEI Funds of Funds and their respective Underlying
Portfolios and Underlying Non-SEI Funds will not participate in the
proposed arrangement on a basis that is different from or less
advantageous than the participants that are not investment companies.
Applicants' Conditions
Applicants agree that the order granting the requested relief shall
be subject to the following conditions:
1. Each Portfolio and each Underlying Portfolio will be part of the
``same group of investment companies,'' as defined in rule 11a-3 under
the Act. In addition, each Non-SEI Fund of Funds and each Underlying
Non-SEI Fund will be part of the same ``group of investment
companies.''
2. No Underlying Portfolio or Underlying Non-SEI Fund 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 and a majority of the
trustees or directors of each Non-SEI Fund of Funds, 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
Portfolio or Non-SEI Fund of Funds, when aggregated with any sales
charges or service fees paid by the Portfolio or Non-SEI Fund of Funds
relating to the securities of the respective Underlying Portfolio or
Underlying Non-SEI Fund, 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 and the board of trustees or
directors of the Non-SEI Fund of Funds, including a majority of the
trustees or directors 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 Fund or
Underlying Non-SEI Fund advisory contract. The finding, and the basis
upon which the finding was made, will be recorded fully in the minute
books of the Trust or Non-SEI Fund of Funds.
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
Portfolio and Non-SEI Fund of Funds and each respective Underlying
Portfolio and Underlying Non-SEI Fund of Funds; monthly purchases and
redemptions (other than by exchange) for each Portfolio and Non-SEI
Fund of Funds and each respective Underlying Portfolio and Underlying
Non-SEI Fund; monthly exchanges into and out of each Portfolio and Non-
SEI Fund of Funds and each respective Underlying Portfolio and
Underlying Non-SEI Fund; month-end allocations of each Portfolio's
assets among the Underlying Portfolios and of the assets of each Non-
SEI Fund of Funds among its Underlying Non-SEI Funds; annual expense
ratios for each Portfolio and each Non-SEI Fund of Funds and each
respective Underlying Portfolio and Underlying Non-SEI Fund; and a
description of any vote taken by the shareholders of any Underlying
Portfolio and any Underlying Non-SEI Fund, including a statement of the
percentage of votes cast for and against the proposal by the Portfolio
and the Non-SEI Fund of Funds and by the other shareholders of the
Underlying Portfolio and Underlying Non-SEI Fund. Such information will
be provided as soon as reasonably practicable following each fiscal
year-end of the Trust and each Non-SEI Fund of Funds (unless the Chief
Financial 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.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-29111 Filed 11-28-95; 8:45 am]
BILLING CODE 8010-01-M
