[Federal Register: April 28, 2003 (Volume 68, Number 81)]
[Notices]
[Page 22423-22425]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr28ap03-112]
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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