[Federal Register Volume 61, Number 68 (Monday, April 8, 1996)]
[Notices]
[Pages 15530-15533]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-8550]



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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-21863; 812-9502]


SEI Institutional Managed Trust, et al.; Notice of Application

April 1, 1996.
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: SEI Institutional Managed Trust, SEI International Trust, 
SEI Tax Exempt Trust, SEI Daily Income Trust, SEI Liquid Asset Trust, 
SEI Index Funds, Insurance Investment Products Trust, and each open-end 
management investment company advised by, or in the future advised by, 
SEI Financial Management Corporation (``SEI Management'') 
(collectively, the ``Funds''), SEI Management, and SEI Financial 
Services Company (``SEI Financial'').

Relevant Act Sections: Exemption requested under section 6(c) of the 
Act from the provisions of section 159(a) and rule 18f-2, and from 
certain disclosure requirements set forth in item 22 of Schedule 14A 
under the Securities Exchange Act of 1934 (the ``Exchange Act''); items 
2, 5(b)(iii), and 16(a)(iii) of Form N-1A; item 3 of Form N-14; item 48 
of Form N-SAR; and sections 6-07(2) (a), (b), and (c) of Regulation S-
X.

Summary of Application: Applicants seek a conditional order permitting 
SEI Management, as investment adviser to

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the Funds, to enter into sub-advisory contracts without receiving prior 
shareholder approval, and permitting the Funds to disclose only 
aggregate sub-advisory fees for each fund in their prospectuses and 
other reports.

Filing Dates: The application was filed on February 28, 1995, and 
amended and restated on September 21, 1995 and February 23, 1996. 
Applicants have agreed to file an 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 April 26, 1996, 
and should be accompanied by proof of service on the applicant, 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 concerned. Persons who wish to be 
notified of a hearing may request notification by writing to the SEC's 
Secretary.

ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C. 
20549. Applicants, 680 East Swedesford Road, Wayne, PA 19087-1658.

FOR FURTHER INFORMATION CONTACT: David M. Goldenberg, Senior Counsel, 
at (202) 942-4525, or Alison E. Baur, Branch Chief, at (202) 942-0646 
(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 at the 
SEC's Public Reference Branch.

Applicant's Representations

    1. Each Fund is a registered, no-load, open-end management 
investment company registered with the Commission under the Act. Each 
Fund has one or more investment portfolios (``Portfolios'') with 
different investment objectives and policies. Additional Portfolios may 
be added in the future.
    2. Each Portfolio is authorized to issue multiple classes of shares 
that are subject to different expenses. As a result, each Portfolio may 
issue a class of shares that is subject to a front-end or contingent 
deferred sales load, or to a redemption fee or other charge for 
redeeming Portfolio shares. In addition, each Portfolio may pay fees in 
accordance with rule 12b-1 under the Act. Each Portfolio's shares are 
offered and sold to retail and institutional shareholders.
    3. SEI Financial is a registered broker-dealer. SEI Financial 
serves as the distributor for the Funds and a number of other 
registered investment companies.
    4. SEI Management is a registered investment adviser and a 
registered transfer agent. SEI Management serves as administrator, 
transfer agent, dividend disbursing agent and shareholder servicing 
agent for the Funds. SEI Management evaluates the performance of each 
Fund's investment adviser and provides the Fund's Board of Trustees 
(the ``Board'') with analyses and reports concerning the Fund's 
performance. SEI Management also serves as investment adviser to 
certain Portfolios of SEI Institutional Managed Trust (``SIMT'') and 
SEI International Trust (``SIT''). Other Portfolios of SIMT and SIT, 
and Portfolios of other existing and future Funds, may engage SEI 
Management as their investment adviser in the future.
    5. Under the ``manager of managers'' approach developed by SEI 
Management and its affiliates, SEI Management, as investment adviser to 
a Portfolio, will recommend and, if the Board approves the 
recommendation, monitor for the Portfolio one or more sub-advisers 
(``Managers'') that use a range of investment styles. Each Manager will 
be responsible for continuously reviewing, supervising, and 
administering the portion of the Portfolio's assets under its 
management.
    6. Under the manager of managers approach, SEI Management, pursuant 
to its investment advisory agreement with each Portfolio (``Advisory 
Agreement''), will provide each Portfolio with proprietary investment 
adviser selection, monitoring, and asset allocation services. SEI 
Management also will enter into separate agreements with one or more 
Managers (``Management Agreements'') to exercise discretion over the 
assets of a Portfolio, or a portion of the assets of a Portfolio. The 
Trustees of each Fund, including persons each of whom is not an 
``interested person'' of the Fund as defined in section 2(a)(19) of the 
Act (``Independent Trustees''), will approve each Management Agreement 
in the manner required by the Act and the rules thereunder.
    7. Under each Advisory Agreement, SEI Management will perform due 
diligence on prospective Managers; communicate performance targets and 
evaluations to Managers; supervise compliance with the Portfolio's 
investment objectives and policies; and recommend to the Board whether 
Management Agreements should be renewed, modified or terminated. SEI 
Management, as it deems appropriate, also will recommend to the Board 
the addition of new Managers.
    8. In return for providing its proprietary investment adviser 
selection, monitoring and asset allocation services, SEI Management may 
receive a fee from the Portfolio based on the size of the Portfolio's 
assets. SEI Management then will pay the Managers out of this fee. In 
the future, certain Portfolios may compensate the Managers directly, 
rather than through SEI Management. Regardless of the manner in which 
Managers are paid, their fees will be disclosed as part of the 
Aggregate Fee Disclosure described below.
    9. Applicants request an exemption from section 15(a) and rule 18f-
2 to permit the Funds to enter into Management Agreements with 
Managers, other than Managers that are affiliated persons (as defined 
in section 2(a)(3) of the Act) of the Funds or SEI Management or SEI 
Financial, other than by reason of serving as a Manager to one or more 
of the Funds, (``Affiliated Managers''), without such agreements being 
approved by the shareholders of the applicable Portfolios. In lieu of 
the shareholder voting requirement, applicants will provide 
shareholders with an information statement that includes all the 
information concerning a new Manager or Management Agreement that would 
be included in a proxy statement.
    10. Applicants also request an exemption from the various 
provisions that may require applicants to disclose the fees paid by SEI 
Management to individual Managers. Applicants propose to disclose (both 
as a dollar amount and as a percentage of a Portfolio's net assets) in 
the Funds' registration statements and other public documents only the 
aggregate amount of fees paid by SEI Management to all of the Managers 
of a Portfolio (``Aggregate Fee Disclosure''). Aggregate Fee Disclosure 
with respect to a Portfolio means: (a) The total advisory fee that SEI 
Management charges the Portfolio; (b) the aggregate fees that SEI 
Management pays to all Managers managing the assets of the Portfolio; 
and (c) the net advisory fee retained by SEI Management for its 
services provided to the Portfolio after SEI Management pay search of 
the Portfolio's Managers. If a Fund employs an Affiliated Manager, the 
Fund will provide separate disclosure of any fees paid to such 
Affiliated Manager.

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Applicants' Legal Analysis

    1. Section 15(a) of the Act makes it unlawful for any person to act 
as an investment adviser to a registered investment company except 
pursuant to a written contract that has been approved by a majority of 
the investment company's outstanding voting securities. Rule 18f-2 
provides that each series or class of stock in a series company 
affected by a matter must approve such matter if the Act requires 
shareholder approval.
    2. Applicants believe that relief from Section 15(a) and rule 18f-2 
should be granted because the Portfolios will be operated in a manner 
so different from that of conventional investment companies that the 
normal mechanism for approving advisory contracts would not be relevant 
to shareholders. Applicants contend that by investing in a Portfolio, 
shareholders, in effect, will hire SEI Management to manage the 
Portfolio's assets by using its proprietary investment adviser 
selection and monitoring process. Applicants argue that shareholders 
will expect that SEI Management, under the authority and supervision of 
the Board, will take responsibility for overseeing Managers and 
recommending their hiring, termination and replacement.
    3. Applicants contend that the requested relief also will benefit 
shareholders. Applicants argue that the requested relief will reduce 
expenses because a Portfolio will not have to prepare and solicit 
proxies each and every time a Management Agreement is entered into or 
modified. Applicants believe that in addition to lowering expenses, the 
requested relief will enable a Portfolio to operate more efficiently by 
authorizing SEI Management to hire, terminate and replace Managers more 
quickly, subject to Board approval. Applicants also contend that the 
requested relief will remove from shareholders the very responsibility 
that they are paying SEI Management to assume: the selection, 
termination and compensation of Managers.
    4. Section 15(a)(1) provides, in relevant part, that it is unlawful 
for any person to act as an investment adviser to a registered 
investment company except pursuant to a written contract which 
``precisely describes all compensation to be paid thereunder.''
    5. Form N-1A is the registration statement used by mutual funds to 
register under the Act and to register their securities under the 
Securities Act of 1933. Items 2, 5(b)(iii) and 16(a)(iii) of Form N-1A 
require the Funds to disclose in their prospectuses the investment 
adviser's compensation and the method of computing the advisory fee.
    6. Item 3 of Form N-14, the registration form for business 
combinations involving mutual funds, requires the inclusion of a 
``table showing the current fees for the registrant and the company 
being acquired and pro forma fees, if different, for the registrant 
after giving effect to the transaction using the format prescribed'' in 
item 2 of Form N-1A.
    7. Item 22(a)(3)(iv) of Schedule 14A under the Exchange Act 
requires a proxy statement for a shareholder meeting at which a new fee 
will be established or an existing fee increased to include a table of 
the current and pro forma fees using the format prescribed in item 2 of 
Form N-1A. Items 22(c)(1)(ii), 22(c)(1)(iii), 22(c)(8) and 22(c)(9), 
taken together, require that a proxy statement for a shareholder 
meeting at which an advisory contract is to be voted upon shall include 
the ``rate of compensation of the investment adviser,'' the ``aggregate 
amount of the investment adviser's fee,'' the ``terms of the contract 
to be acted upon,'' and, if a change in fees is proposed, the existing 
and proposed rate schedule for advisory fees paid to the advisers.
    8. Item 48 of Form N-SAR provides that the Funds must disclose the 
rate schedule for advisory fees paid to their adviser, including the 
Managers.
    9. Sections 6-07(2) (a), (b) and (c) of Regulation S-X require that 
the Funds' financial statements contain information concerning fees 
paid to the Managers.
    10. Applicants submit that it is consistent with the policy of the 
Act and the protection of investors to exempt applicants from the 
requirement to disclose the fees paid to individual Managers because 
SEI Management will operate the Portfolios in a manner so different 
from that of conventional investment companies that disclosure of fees 
that SEI Management pays the Managers would not serve any meaningful 
purpose. Additionally, applicants argue that the relief from this 
disclosure requirement is likely to reduce expenses to the extent that 
SEI Management is able to negotiate lower advisory fees with Managers 
as a result of not having to publicly disclose the fees paid to each 
Manager.
    11. Section 6(c) authorizes the Commission to exempt persons or 
transactions from the provisions of the Act to the extent that such 
exemptions are appropriate in the public interest and consistent with 
the protection of investors and the purposes fairly intended by the 
policies and provisions of the Act. Applicants assert that the section 
6(c) standards for exemption have been met.
Applicants' Conditions
    Applicants agree that the following conditions may be imposed in 
any order of the Commission granting the requested relief:
    1. Before a Portfolio may rely on the order requested by 
applicants, the operation of the Portfolio in the manner described in 
the application will be approved by a majority of each Portfolio's 
outstanding voting securities, as defined in the Act, or, in the case 
of a new Portfolio whose public shareholders purchase shares on the 
basis of a prospectus containing the disclosure contemplated by 
condition 2 below, by the sole shareholder before offering shares of 
the Portfolio to the public.
    2. The prospectus for each Portfolio will disclose the existence, 
substance, and effect of the order. In addition, each Portfolio will 
hold itself out to the public as employing the ``manager of managers'' 
approach described in the application. The prospectus and any sales 
materials or other shareholder communications relating to a Portfolio 
(collectively, ``Marketing Communications'') will prominently disclose 
that SEI Management has ultimate responsibility for the investment 
performance of the portfolio due to its responsibility to oversee 
Managers and recommend their hiring, termination, and replacement.
    3. Within 60 days of the hiring of any new Manager or the 
implementation of any proposed material change in a Management 
Agreement, SEI Management will furnish shareholders all information 
about the new Manager or Management Agreement that would be included in 
a proxy statement, except as modified by the order with respect to the 
disclosure of fees paid to the Managers. Such information will include 
disclosure of the Aggregate Fees and any change in such disclosure 
caused by the addition of a New Manager or any proposed material change 
in a Portfolio's Management Agreement. To meet this obligation, SEI 
Management will provide shareholders with an information statement 
meeting the requirements of Regulation 14C and Schedule 14C under the 
Exchange Act. The information statement also will meet the requirements 
of Item 22 of Schedule 14A under the Exchange Act, except as modified 
by the order with respect to the disclosure of fees paid to the 
Managers.
    4. SEI Management will not enter into a Management Agreement with 
any Affiliated Manager without such

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agreement, including the compensation to be paid thereunder, being 
approved by the shareholders of the applicable Portfolio.
    5. At all times, a majority of each Fund's Board will be 
Independent Trustees, and the nomination of new or additional 
Independent Trustees will be placed with the discretion of the then 
existing Independent Trustees.
    6. When a Manager change is proposed for a Portfolio with an 
Affiliated Manager, the Fund's Trustees, including a majority of the 
Independent Trustees, will make a separate finding, reflected in the 
applicable Fund's Board minutes, that such change is in the best 
interests of the Portfolio and its shareholders and does not involve a 
conflict of interest from which SEI Management, SEI Financial or the 
Affiliated Manager derives an inappropriate advantage.
    7. Independent counsel knowledgeable about the Act and the duties 
of Independent Trustees will be engaged to represent each Fund's 
Independent Trustees. The selection of independent counsel will be 
placed within the discretion of the Independent Trustees.
    8. SEI Management will provide each Fund's Board no less frequently 
than quarterly with information about SEI Management's profitability 
for each Portfolio relying on the requested relief. The information 
will reflect the impact on profitability of the hiring or termination 
of Managers during the quarter.
    9. Whenever a Manager to a particular Portfolio is hired or 
terminated, SEI Management will provide that Fund's Board with 
information showing the expected impact on SEI Management's 
profitability.
    10. SEI Management will provide general management and 
administrative services to the Funds and, subject to Board review and 
approval, will (i) set each Portfolio's overall investment strategies; 
(ii) recommend managers; (iii) allocate and, when appropriate, 
reallocate the Fund's assets among Managers; (iv) monitor and evaluate 
Manager performance; and (v) oversee Manager compliance with the 
Portfolio's investment objective, policies and restrictions.
    11. No Director, Trustee or Officer of the Funds, SEI Management or 
SEI Financial will own directly or indirectly (other than through a 
pooled investment vehicle over which such person does not have control) 
any interest in a Manager except for (i) ownership of interests in SEI 
Management or SEI Financial or any entity that controls, is controlled 
by or is under common control with SEI Management or SEI Financial; or 
(ii) ownership of less than 1% of the outstanding securities of any 
class of equity or debt of a publicly traded company that is either a 
Manager or an entity that controls, is controlled by or is under common 
control with a Manager.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-8550 Filed 4-5-96; 8:45 am]
BILLING CODE 8010-01-M