[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.

[[Page 61283]]

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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 

[[Page 61284]]
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