[Federal Register Volume 68, Number 81 (Monday, April 28, 2003)]
[Notices]
[Pages 22423-22425]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-10379]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 26008; 812-12782]


SEI Index Funds, et al.; Notice of Application

April 22, 2003.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of an application for an order under section 12(d)(1)(J) 
of the Investment Company Act of 1940 (the ``Act'') for an exemption 
from sections 12(d)(1)(A) and (B) of the Act, under sections 6(c) and 
17(b) of the Act for an exemption from section 17(a) of the Act, and 
under section 17(d) of the Act and rule 17d-1 under the Act to permit 
certain joint transactions.

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Summary of the Application: The requested order would permit certain 
registered open-end management investment companies to invest 
uninvested cash and cash collateral in affiliated money market funds in 
excess of the limits in sections 12(d)(1)(A) and (B) of the Act.

Applicants: SEI Index Funds, SEI Tax Exempt Trust, SEI Liquid Asset 
Trust, SEI Daily Income Trust, SEI Institutional Managed Trust, SEI 
Institutional International Trust, SEI Institutional Investments Trust, 
SEI Insurance Products Trust and SEI Asset Allocation Trust 
(collectively, the ``Trusts''), on behalf of their portfolios 
(collectively, the ``Funds''), and SEI Investments Management 
Corporation (``SIMC'').

Filing Dates: The application was filed on February 15, 2002, and 
amended on April 15, 2003.

Hearing or Notification of Hearing: An order granting the requested 
relief will be issued unless the Commission orders a hearing. 
Interested persons may request a hearing by writing to the Commission's 
Secretary and serving applicants with a copy of the request, personally 
or by mail. Hearing requests should be received by the Commission by 
5:30 p.m. on May 16, 2003, 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 by writing to the Commission's Secretary.

ADDRESSES: Secretary, Commission, 450 Fifth Street, NW., Washington, 
DC, 20549-0609. Applicants, c/o Leslie Cruz, Esq., Morgan, Lewis & 
Bockius LLP, 1111 Pennsylvania Avenue, NW., Washington, DC 20004.

FOR FURTHER INFORMATION CONTACT: Emerson S. Davis, Sr., Senior Counsel, 
at (202) 942-0714, or Nadya B. Roytblat, 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 at the 
Commission's Public Reference Branch, 450 Fifth Street, NW., 
Washington, DC 20549-0102 (tel. 202-942-8090).

Applicants' Representations

    1. Each Trust is a Massachusetts business trust registered under 
the Act as an open-end management investment company and currently 
consists of multiple Funds. Certain Funds hold themselves out to the 
public as money market funds and comply with the requirements of rule 
2a-7 under the Act (together with any future money market Funds, the 
``Money Market Funds'').\1\

[[Page 22424]]

The remaining Funds are non-money market funds (``Investing Funds'').
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    \1\ Applicants request that the relief also apply to any future 
Fund and any other registered open-end management investment company 
or series thereof (i) advised by SIMC or any successor or any person 
controlling, controlled by or under common control with SIMC 
(together, the ``Advisers'') or for which SEI Investment 
Distribution Co. (``SIDCo.'') or any successor or any person 
controlling, controlled by or under common control with SIDCo, 
serves as principal underwriter or for which SEI Investments Fund 
Management (``SEI Management'') or any successor or any person 
controlling, controlled by or under common control with SEI 
Management serves as the administrator, and (ii) which is part of 
the ``same group of investment companies,'' as the term is defined 
in section 12(d)(1)(G)(ii) of the Act, as the Trusts (collectively, 
the ``Future Funds''). The term Fund includes all Future Funds. 
Successor means any entity that results from a reorganization into 
another jurisdiction or change in type of business organization. All 
existing Funds that currently intend to rely on the requested relief 
are named as applicants. Any other existing and Future Funds that 
may rely on the relief in the future will do so only in accordance 
with the terms and conditions of the application.
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    2. SIMC, a wholly-owned subsidiary of SEI Investment Company 
(``SEI''), is registered as an investment adviser under the Investment 
Advisers Act of 1940 (``Advisers Act'') and serves as investment 
adviser to each Investing Fund except for the Bond Index Fund, a series 
of the SEI Index Funds; and the Corporate Daily Income Fund, Treasury 
Securities Daily Income Fund, Short Duration Government Fund, 
Intermediate Duration Government Fund and GNMA Fund, each a series of 
the SEI Daily Income Trust (collectively the ``Bond Funds''). Mellon 
Bond Associates, LLP (``Mellon'') serves as investment adviser to the 
Bond Index Fund, Wellington Management Company, LLP (``Wellington'') 
serves as investment adviser to the Bond Funds and Weiss, Peck & Greer, 
L.L.C. (``Weiss'') serves as the investment adviser to the California 
Tax Exempt Fund, Tax Free Fund, Institutional Tax Free Fund, 
Pennsylvania Tax Free Fund and Ohio Tax-Free Money Market Fund. Mellon, 
Wellington and Weiss are each registered as investment advisers under 
the Advisers Act. SIMC serves as investment adviser to the remaining 
Money Market Funds. The Funds of the Trusts are all in the same group 
of investment companies as defined in section 12(d)(1)(G)(ii) of the 
Act.
    3. Applicants state that each of the Investing Funds has, or may be 
expected to have, uninvested cash (``Uninvested Cash''). Uninvested 
Cash may result from a variety of sources, including dividends or 
interest received on portfolio securities, unsettled securities 
transactions, strategic reserves, matured investments, proceeds from 
liquidation of investment securities, or new monies received from 
investors. Certain Investing Funds also may participate in a securities 
lending program under which a Fund may lend its portfolio securities to 
registered broker-dealers or other institutional investors 
(``Securities Lending Program''). The loans will be continuously 
secured by collateral equal at all times to at least the market value 
of the securities loaned. Collateral for these loans may include cash 
(``Cash Collateral,'' and together with Uninvested Cash, ``Cash 
Balances'').
    4. Applicants request an order to permit each Investing Fund to 
invest its Cash Balances in shares of one or more Money Market Funds, 
and the Money Market Funds to sell their shares to, and redeem their 
shares from, the Investing Funds and the Advisers to effect the 
proposed transactions. Investment of Cash Balances in shares of the 
Money Market Funds will be made consistent with each Investing Fund's 
investment objectives, restrictions and policies as set forth in its 
prospectus and statement of additional information. Applicants believe 
that the proposed transactions may reduce transaction costs, create 
more liquidity, increase returns, and further diversify holdings.

Applicants' Legal Analysis

    1. Section 12(d)(1)(A) of the Act provides, in pertinent part, 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 other acquired investment companies, represent more 
than 10% of the acquiring company's total assets. Section 12(d)(1)(B) 
of the Act, in pertinent part, 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 12(d)(1)(J) of the Act authorizes the Commission to 
exempt any person, security, or transaction from any provision of 
section 12(d)(1) if, and to the extent that, such exemption is 
consistent with the public interest and the protection of investors. 
Applicants request relief under section 12(d)(1)(J) from the percentage 
limitations of sections 12(d)(1)(A) and (B) to permit the Investing 
Funds to invest Cash Balances in the Money Market Funds.
    3. Applicants state that the proposed arrangement would not raise 
the concerns that sections 12(d)(1)(A) and (B) were intended to 
address. Applicants state that because each Money Market Fund will 
maintain a highly liquid portfolio, an Investing Fund will not be in a 
position to gain undue influence over a Money Market Fund through 
threat of redemption. Applicants represent that the proposed 
arrangement will not result in an inappropriate layering of fees 
because shares of the Money Market Funds sold to, and redeemed from, 
the Investing Funds will not be subject to a sales load, redemption 
fee, distribution fee under a plan adopted in accordance with rule 12b-
1 under the Act, or service fee (as defined in rule 2830(b)(9) of the 
National Association of Securities Dealers' (``NASD'') Conduct Rules) 
or if such shares are subject to such fees, the Investing Fund's 
adviser will waive its advisory fee for the Investing Fund to offset 
the amount of the fees incurred by the Investing Fund. Applicants state 
that if a Money Market Fund offers more than one class of securities, 
each Investing Fund will invest Cash Balances only in the class with 
the lowest expense ratio at the time of investment. Before approving 
any advisory contract for an Investing Fund, its board of trustees (the 
``Board''), including a majority of the trustees who are not 
``interested persons,'' as defined in section 2(a)(19) of the Act 
(``Independent Trustees''), will consider to what extent, if any, the 
advisory fees charged to the Investing Fund should be reduced to 
account for reduced services provided to the Investing Fund by its 
investment adviser as a result of the investment of Uninvested Cash in 
a Money Market Fund. Applicants represent that no Money Market Fund 
will acquire securities of any other investment company in excess of 
the limitations contained in section 12(d)(1)(A) of the Act.
    4. Section 17(a) of the Act makes it unlawful for any affiliated 
person of a registered investment company, or an affiliated person of 
such person, acting as principal, to sell or purchase any security to 
or from the company. Section 2(a)(3) of the Act defines an ``affiliated 
person'' of an investment company to include, among others, any person 
directly or indirectly controlling, controlled by, or under common 
control with the other person and any person owning, controlling, or 
holding with power to vote, 5% or more of the other person. Applicants 
state that, because the Investing Funds and the Money Market Funds have 
a common investment adviser and Board, they may be deemed to be under 
common control with each other, and thus affiliated persons of each 
other. In addition, applicants state that if an Investing Fund acquires 
5% or more of a Money Market Fund's securities, the Investing Fund and 
the Money Market Fund would be deemed to be affiliated persons of each 
other. As a result, the sale of the shares of a Money Market Fund to 
the Investing Funds, and the redemption of such shares by the

[[Page 22425]]

Investing Fund could be deemed to be prohibited under section 17(a).
    5. Section 17(b) of the Act authorizes the Commission to exempt a 
transaction from section 17(a) if 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, the proposed transaction is consistent with the 
policy of each investment company concerned, and the proposed 
transaction is consistent with the general purposes of the Act. Section 
6(c) of the Act permits the Commission to 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.
    6. Applicants submit that the proposed transactions satisfy the 
standards in sections 6(c) and 17(b) of the Act. Applicants note that 
shares of the Money Market Funds will be purchased and redeemed by the 
Investing Funds at their net asset value, the same consideration paid 
and received for these shares by any other shareholder. Applicants 
state that the Investing Funds will retain their ability to invest Cash 
Balances directly in money market instruments as authorized by their 
respective investment objectives and policies if they believe they can 
obtain a higher rate of return, or for any other reason. Applicants 
also state that each Money Market Fund may discontinue selling shares 
to any of the Investing Funds if the Money Market Fund determines that 
such sale would adversely affect the Money Market Fund's portfolio 
management and operations.
    7. Section 17(d) of the Act and rule 17d-1 under the Act 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 state that each Investing Fund, by 
purchasing shares of the Money Market Funds, the Advisers, by effecting 
the proposed transactions, and each Money Market Fund, by selling 
shares to and redeeming shares from, the Investing Funds, could be 
deemed to be participants in a joint enterprise or arrangement within 
the meaning of section 17(d) of the Act and rule 17d-1 under the Act.
    8. Rule 17d-1 permits the Commission to approve a proposed joint 
transaction covered by the terms of section 17(d) of the Act. In 
determining whether to approve a transaction, the Commission will 
consider whether the proposed transaction is consistent with the 
provisions, policies, and purposes of the Act, and the extent to which 
the participation is on a basis different from, or less advantageous 
than, that of other participants. Applicants submit that the investment 
by the Investing Funds in shares of a Money Market Fund would be on the 
same basis and would be indistinguishable from any other shareholder 
account maintained by the same share class of the Money Market Fund and 
that the transactions will be consistent with the Act.

Applicants' Conditions

    Applicants agree that any order granting the requested relief will 
be subject to the following conditions:
    1. Shares of the Money Market Funds sold to and redeemed by the 
Investing Funds will not be subject to a sales load, redemption fee, 
distribution fee under a plan adopted in accordance with rule 12b-1 
under the Act or service fee (as defined in rule 2830(b)(9) of the 
NASD's Conduct Rules). If such shares are subject to any such load or 
fees, the Investing Fund's investment adviser will waive its advisory 
fee for the Investing Fund in an amount that offsets the amount of such 
fees incurred by the Investing Fund.
    2. Before the next meeting of the Board of the Investing Fund is 
held for purposes of voting on an advisory contract under section 15 of 
the Act, the Board, including a majority of the Independent Trustees, 
taking in account all relevant factors, shall consider to what extent, 
if any, the advisory fees that the Investing Fund's adviser charges to 
the Investing Fund should be reduced to account for any reduction in 
services that the adviser provides to the Investing Fund as a result of 
the Uninvested Cash being invested in the Money Market Funds. In 
connection with this consideration, the Investing Fund's adviser will 
provide the Board with specific information regarding the approximate 
cost to the adviser of, or portion of the advisory fee under the 
existing advisory contract attributable to, managing the Uninvested 
Cash of the Investing Fund that can be expected to be invested in the 
Money Market Funds. The minute books of the Investing Fund will record 
fully the Board's considerations in approving the advisory contract, 
including the consideration relating to fees referred to above.
    3. Each of the Investing Funds will invest Uninvested Cash in, and 
hold shares of, the Money Market Funds only to the extent that such 
Investing Fund's aggregate investment of Uninvested Cash in the Money 
Market Funds does not exceed 25 percent of the Investing Fund's total 
assets. For purposes of this limitation, each Investing Fund will be 
treated as a separate investment company.
    4. Investment of Cash Balances by the Investing Fund in shares of 
the Money Market Funds will be in accordance with each Investing Fund's 
respective investment restrictions, if any, and will be consistent with 
each Investing Fund's policies as set forth in its prospectus and 
statement of additional information.
    5. No Money Market Fund whose shares are held by an Investing Fund 
shall acquire securities of any other investment company in excess of 
the limits contained in section 12(d)(1)(A) of the Act.
    6. Before a Fund may participate in a Securities Lending Program, a 
majority of the Board, including a majority of the Independent 
Trustees, will approve the Fund's participation in the Securities 
Lending Program. The Board also will evaluate the securities lending 
arrangement and its results no less frequently than annually and 
determine that any investment of Cash Collateral in the Money Market 
Funds is in the best interests of the shareholders of the Fund.
    7. Each Investing Fund and Money Market Fund that relies on the 
order will be part of the same group of investment companies, as that 
term is defined in section 12(d)(1)(G)(ii) of the Act, as the Trusts.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
J. Lynn Taylor,
Assistant Secretary.
[FR Doc. 03-10379 Filed 4-25-03; 8:45 am]
BILLING CODE 8010-01-P