[Federal Register Volume 65, Number 88 (Friday, May 5, 2000)]
[Notices]
[Pages 26246-26250]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-11226]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 24430; 812-11194]


SEI Investments Management Corporation, et al.; Notice of 
Application

April 28, 2000.
AGENCY: Securities and Exchange Commission (``SEC'' or ``Commission'').

ACTION: Notice of application under: (a) Section 6(c) of the Investment 
Company Act of 1940 (the ``Act'') requesting an exemption from sections 
12(d)(3) and 17(e) of the Act and rule 17e-1 under the Act; (b) 
sections 6(c) and 17(b) of the Act requesting an exemption from section 
17(a) of the Act; and (c) section 10(f) of the Act requesting an 
exemption from section 10(f) of the Act.

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Summary of Application: Applicants request an order to permit certain 
registered open-end management investment companies advised by several 
investment advisers to engage in principal and brokerage transactions 
with a broker-dealer affiliated with one of the investment advisers and 
to purchase securities in certain underwritings. The transactions would 
be between the broker-dealer and a portion of the investment company's 
portfolio not advised by the adviser affiliated with that broker-
dealer. The order also would permit these investment companies not to 
aggregate certain purchases from an underwriting syndicate in which an 
affiliated person of one of the investment advisers is a

[[Page 26247]]

principal underwriter. Further, applicants request relief to permit a 
portion of an investment company's portfolio to purchase securities 
issued by a broker-dealer, which is an affiliated person of an 
investment adviser to another portion, subject to the limits in rule 
12d3-1 under the Act.

Applicants: SEI Institutional Investments Trust, SEI Institutional 
Managed Trust, SEI Institutional International Trust, and SEI Insurance 
Products Trust (collectively, the ``Trusts''), and SEI Investments 
Management Corporation (``SIMC'').

Filing Dates: The application was filed on June 24, 1998. Applicants 
have agreed to file an amendment, the substance of which is reflected 
in this notice, 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 May 22, 2000, 
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. 
20549-0609. Applicants, in c/o Todd B. Cipperman, Esq., SEI 
Investments, One Freedom Valley Drive, Oaks, PA 19456.

FOR FURTHER INFORMATION CONTACT: Elaine M. Boggs, Senior Counsel, at 
(202) 942-0572, or Christine Y. Greenlees, 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, 450 Fifth Street, N.W., Washington, 
D.C. 20549-0102 (telephone (202) 942-8090).

Applicants' Representations

    1. Each Trust is an open-end management investment company 
registered under the Act and consists of several portfolios 
(``Portfolios''). SIMC is an investment adviser registered under the 
Investment Advisers Act of 1940 (the ``Advisers Act'') and is a wholly-
owned subsidiary of SEI Investments Company. SIMC serves as investment 
adviser to the Portfolios. The assets of certain Portfolios (``Multi-
Managed Portfolios'') are allocated by SIMC among two or more 
subadvisers (``Subadvisers''). Each Subadviser had discretion to 
purchase and sell securities for a discrete portion of a Portfolio's 
assets in accordance with the Portfolio's objectives, policies, and 
restrictions. Each Subadviser is registered under the Advisers Act or 
is exempt from registration under the Advisers Act. Each Subadviser is 
compensated based on a percentage of the value of assets allocated to 
that Subadviser. SIMC may directly advise a discrete portion of a 
Portfolio.
    2. Applicants request relief to permit: (a) A portion of a Multi-
Managed Portfolio (``Unaffiliated Portion'') to engage in principal 
transactions with a broker-dealer that is, or is an affiliated person 
of, a Subadviser to another portion of the Multi-Managed Portfolio 
(``Affiliated Broker-Dealer'') and to purchase securities in an 
underwriting in which an Affiliated Broker-Dealer acts as principal 
underwriter; (b) an Affiliated Broker-Dealer to provide brokerage 
services to an Unaffiliated Portion without complying with the 
requirements of subsections (b) and (c) of rule 17e-1 under the Act; 
(c) a portion of a Multi-Managed Portfolio advised by a Subadviser 
affiliated with the Affiliated Broker-Dealer (``Affiliated 
Subadviser'') to purchase securities during the existence of an 
underwriting syndicate, a principal underwriter of which is an 
Affiliated Subadviser or an affiliated person of an Affiliated 
Subadviser, in accordance with the conditions of rule 10f-3 under the 
Act, except that paragraph (b)(7) of the rule would not require the 
aggregation of purchases of the portion of the Portfolio affiliated 
with the Affiliated Subadviser (``Affiliated Portion'') with purchases 
by an Unaffiliated Portion; and (d) an Unaffiliated Portion to purchase 
securities issued by an Affiliated Subadviser, or an affiliated person 
of an Affiliated Subadviser, that is involved in securities-related 
activities, subject to the limits in rule 12d3-1 under the Act. The 
requested relief would apply only if the Affiliated Broker-Dealer is 
not an affiliated person or an affiliated person of an affiliated 
person of SIMC, the Subadviser making the investment decision with 
respect to the Unaffiliated Portion (``Unaffiliated Subadviser''),\1\ 
or an officer, trustee, or employee of the Multi-Managed Portfolio 
engaging in the transaction.
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    \1\ The terms ``Unaffiliated Subadviser,'' ``Subadviser,'' and 
``Unaffiliated Portion'' include SIMC and the discrete portion of a 
Multi-Managed Portfolio directly advised by SIMC, respectively, 
provided that SIMC manages its portion of the Multi-Managed 
Portfolio independently of the portions managed by the other 
Subadvisers to the Multi-Managed Portfolio, and SIMC does not 
control or influence any other Subadviser's investment decisions for 
its portion of the Multi-Managed Portfolio. SIMC does not currently 
manage any Multi-Managed Portfolio.
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    3. Applicants request that the relief apply to any registered open-
end management investment company or portfolio thereof for which SIMC, 
or any entity controlling, controlled by, or under common control with 
SIMC, currently or in the future acts as investment adviser. Applicants 
state that SIMC will take steps designed to ensure that any other 
existing or future entity that relies on the order will comply with the 
terms and conditions of the application.

Applicants' Legal Analysis

A. Principal Transactions Between an Unaffiliated Portion and an 
Affiliated Broker-Dealer

    1. Section 17(a) of the Act generally prohibits sales or purchases 
of securities between a registered investment company and any 
affiliated person of the company or an affiliated person of such 
affiliated person (``second-tier affiliate''). Section 2(a)(3) of the 
Act defines an ``affiliated person'' of another person to include: (a) 
Any person that directly or indirectly owns, controls, or holds with 
power to vote 5% or more of the outstanding voting securities of the 
other person; (b) any person 5% or more of whose outstanding voting 
securities are directly or indirectly owned, controlled by, or held 
with power to vote by the other person; (c) any person directly or 
indirectly controlling, controlled by, or under common control with the 
other person; and (d) if the other person is an investment company, any 
investment adviser of that company. Applicants assert that an 
Affiliated Subadviser would be an affiliated person of a Multi-Managed 
Portfolio, and an Affiliated Broker-Dealer would be either an 
Affiliated Subadviser or an affiliated person of the Affiliated 
Subadviser, and, thus, a second-tier affiliate of a Multi-Managed 
Portfolio, including the Unaffiliated Portion. Accordingly, applicants 
state that any transactions to be effected by an Unaffiliated 
Subadviser on behalf of an Unaffiliated Portion of a Multi-Managed 
Portfolio with an Affiliated Broker-Dealer would be subject to the 
prohibitions of section 17(a).
    2. Applicants seek relief under sections 6(c) and 17(b) to exempt

[[Page 26248]]

principal transactions prohibited by section 17(a) because an 
Affiliated Broker-Dealer is deemed to be an affiliated person or a 
second-tier affiliate of an Unaffiliated Portion solely because an 
Affiliated Subadviser is the Subadviser to another portion of the same 
Multi-Managed Portfolio. The requested relief would not be available if 
the Affiliated Broker-Dealer (except by virtue of serving as a 
Subadviser) is an affiliated person or a second-tier affiliate of SIMC, 
the Unaffiliated Subadviser making the investment decision, or any 
officer, trustee, or employee of the Multi-Managed Portfolio.
    3. Section 17(b) of the Act authorizes the SEC to grant an order 
permitting a transaction other wise prohibited by section 17(a) if it 
finds that the terms of the proposed transaction are fair and 
reasonable and do not involve overreaching on the part of any person 
concerned, and the proposed transaction is consistent with the policy 
of each registered investment company and the general purposes of the 
Act. Section 6(c) of the Act permits the SEC to exempt any person or 
transaction 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 
policies and provisions of the Act. For the reasons stated below, 
applicants submit that the terms of the proposed transactions meet the 
standards of sections 6(c) and 17(b).
    4. Applicant contend that section 17(a) is intended to prevent 
persons who have the power to influence an investment company from 
using that influence to their own pecuniary advantage. Applicants 
assert that when a person acting on behalf of an investment company has 
no direct or indirect pecuniary interest in a party to a principal 
transaction, the abuses that section 17(a) is designed to prevent are 
not present. Applicants state that if an Unaffiliated Subadviser 
purchases securities on behalf of an Unaffiliated Portion in a 
principal transaction with an Affiliated Broker-Dealer, any benefit 
that might inure to the Affiliated Broker-Dealer would not be shared by 
the Unaffiliated Subadviser. In addition, applicants state that 
Subadvisers are paid on the basis of a percentage of the value of the 
assets allocated to their management. The execution of a transaction to 
the disadvantage of the Unaffiliated Portion would disadvantage the 
Unaffiliated Subadviser to the extent that it diminishes the value of 
the Unaffiliated Portion. Applicants further submit that SIMC's power 
to dismiss Subadvisers or to change the portion of a Portfolio 
allocated to each Subadviser reinforces a Subadviser's incentive to 
maximize the investment performance of its own portion of the Multi-
Managed Portfolio.
    5. Applicants state that each Subadviser's contract assigns it 
responsibility to manage a discrete portion of the Multi-Managed 
Portfolio. The contracts neither require nor authorize collaboration 
between or among Subadvisers. Each Subadviser is responsible for making 
independent investment and brokerage allocation decisions based on its 
own research and credit evaluations. Applicants state that SIMC does 
not dictate or influence brokerage allocation decisions for the Multi-
Managed Portfolios, except where SIMC actually advises an Unaffiliated 
Portion of a Multi-Managed Portfolio. Applicants submit that, in 
managing a discrete portion of a Portfolio, each Subadviser acts for 
all practical purposes as though it is managing a separate investment 
company.
    6. Applicants state that the proposed transactions will be 
consistent with the policies of each Multi-Managed Portfolio, since 
each Unaffiliated Subadviser is required to manage the Unaffiliated 
Portion of the Multi-Managed Portfolio in accordance with the 
investment objectives and related investment policies of the Multi-
Managed Portfolio as described in its registration statement. 
Applicants also assert that permitting the transactions will be 
consistent with the general purposes of the Act and in the public 
interest because the ability to engage in the transactions will 
increase the likelihood of a Multi-Managed Portfolio achieving best 
price and execution on its principal transactions, while giving rise to 
none of the abuses that section 17(a) was designed to prevent.

B. Payment of Brokerage Compensation by an Unaffiliated Portion to an 
Affiliated Broker-Dealer

    1. Section 17(e)(2) of the Act prohibits an affiliated person or a 
second-tier affiliate of a registered investment company from receiving 
compensation for acting as broker in connection with the sale of 
securities to or by the investment company if the compensation exceeds 
the limits prescribed by the section, unless otherwise permitted by 
rule 17e-1 under the Act. Rule 17e-1 sets forth the conditions under 
which an affiliated person or a second-tier affiliate of an investment 
company may receive a commission which would not exceed the ``usual and 
customary broker's commission'' for purposes of section 17(e)(2). Rule 
17e-1(b) requires the investment company's board of directors, 
including a majority of the directors who are not ``interested 
persons,'' as defined in section 2(a)(19) of the Act, to adopt 
procedures regarding brokerage compensation paid pursuant to the rule 
and to determine at least quarterly that all transactions effected in 
reliance on the rule complied with the procedures. Rule 17e-1(c) 
specifies the records that must be maintained by each investment 
company with respect to any transaction effected pursuant to rule 17e-
1.
    2. Applicants state that, for the reasons discussed above, 
Affiliated Broker-Dealers are second-tier affiliates of the 
Unaffiliated Portions. Applicants request relief under section 6(c) of 
the Act from section 17(e) of the Act and rule 17e-1 under the Act to 
the extent necessary to permit the Unaffiliated Portions of each Multi-
Managed Portfolio to pay brokerage compensation to an Affiliated 
Broker-Dealer, when the Affiliated Broker-Dealer acts as broker in the 
ordinary course of business, without complying with the requirements of 
rule 17e-1(b) and (c) under the Act. The requested exemption would 
apply only where an Affiliated Broker-Dealer is deemed to be an 
affiliated person or a second-tier affiliate of an Unaffiliated Portion 
solely because an Affiliated Subadviser is the Subadviser to another 
portion of the same Multi-Managed Portfolio. The relief would not apply 
if the Affiliated Broker-Dealer is an affiliated person or a second-
tier affiliate of SIMC, the Unaffiliated Subadviser to the Unaffiliated 
Portion of the Multi-Managed Portfolio, or any officer, trustee, or 
employee of the Multi-Managed Portfolio.
    3. Applicants state the proposed brokerage transactions involve no 
conflicts of interest or possibility of self-dealing and will meet the 
standards of section 6(c). Applicants assert that the interests of an 
Unaffiliated Subadviser are directly aligned with the interests of the 
Unaffiliated Portion it advises, and an Unaffiliated Subadviser will 
enter into brokerage transactions with Affiliated Broker-Dealers only 
if the fees charged are reasonable and fair. Applicants also note that 
the Unaffiliated Subadvisers have a fiduciary duty to obtain best price 
and execution for the Unaffiliated Portion.

C. Purchases of Certain Securities by an Unaffiliated Portion

    1. Section 10(f) of the Act, in relevant part, prohibits a 
registered investment company from knowingly purchasing or otherwise 
acquiring, during the existence of any underwriting or selling

[[Page 26249]]

syndicate, any security (except a security of which the company is the 
issuer) a principal underwriter of which is an officer, director, 
member of an advisory board, investment adviser, or employee of the 
company, or an affiliated person of any of the foregoing. Section 10(f) 
also provides that the SEC may exempt by order any transaction or 
classes of transactions from any of the provisions of section 10(f), if 
and to the extent that such exemption is consistent with the protection 
of investors. Rule 10f-3 under the Act exempts certain transactions 
from the prohibitions of section 10(f) if specified conditions are met. 
Paragraph (b)(7) of rule 10f-3 limits the amount of securities of any 
class of an issue to be purchased by the investment company, or by two 
or more investment companies having the same investment adviser, to 25% 
of the principal amount of the offering of the class of securities.
    2. Applicants state that each Subadviser to a Multi-Managed 
Portfolio is considered to be an investment adviser to the entire 
Multi-Managed Portfolio. Therefore, all purchases of securities by an 
Unaffiliated Portion from an underwriting syndicate a principal 
underwriter of which is an Affiliated Broker-Dealer would be subject to 
section 10(f).
    3. Applicants request relief under section 10(f) from that section 
to permit an Unaffiliated Portion to purchase securities during the 
existence of an underwriting or selling syndicate, a principal 
underwriter of which is an Affiliated Broker-Dealer. Applicants request 
relief from section 10(f) only to the extent those provisions apply 
solely because an Affiliated Subadviser is an investment adviser to the 
Multi-Managed Portfolio. The requested relief would not be available if 
the Affiliated Broker-Dealer is an affiliated person or a second-tier 
affiliate of SIMC, the Unaffiliated Subadviser making the investment 
decision with respect to the Unaffiliated Portion, or any officer, 
trustee, or employee of the Multi-Managed Portfolio. Applicants also 
seek relief from section 10(f) to permit an Affiliated Portion to 
purchase securities during the existence of an underwriting syndicate, 
a principal underwriter of which is an Affiliated Broker-Dealer, 
provided that the purchase will be in accordance with the conditions of 
rule 10f-3, except that paragraph (b)(7) of the rule will not require 
the aggregation of purchases by the Affiliated Portion with purchases 
by an Unaffiliated Portion.
    4. Applicants state that section 10(f) was adopted in response to 
concerns about the ``dumping'' of otherwise unmarketable securities on 
investment companies, either by forcing the investment company to 
purchase unmarketable securities from its underwriting affiliate, or by 
forcing or encouraging the investment company to purchase the 
securities from another member of the syndicate. Applicants submit that 
these abuses are not present in the context of the Multi-Managed 
Portfolios because an Unaffiliated Subadviser's decision to purchase 
securities from an underwriting syndicate, a principal underwriter of 
which is an Affiliated Broker-Dealer, involves no potential for 
``dumping.'' In addition, applicants assert that aggregating purchases 
would serve no purpose because there is no collaboration among the 
Subadvisers and any common purchases by an Affiliated Subadviser and an 
Unaffiliated Subadviser would be coincidence.

D. Purchases by Unaffiliated Subadvisers of Securities Issued by 
Securities Affiliates

    1. Section 12(d)(3) of the Act generally prohibits a registered 
investment company from acquiring any security issued by any person who 
is a broker, dealer, investment adviser, or engaged in the business of 
underwriting (collectively, ``securities-related activities''). 
Applicants state that, because certain of the Affiliated Subadvisers or 
their affiliated persons may be issuers that are engaged in securities-
related activities (``Securities Affiliates''), an Unaffiliated Portion 
would be prohibited by section 12(d)(3) from purchasing securities 
issued by Securities Affiliates of another Subadviser to the same 
Multi-Managed Portfolio.
    2. Rule 12d3-1 under the Act exempts from the prohibition of 
section 12(d)(3) purchases of securities of an issuer engaged in 
securities-related activities if certain conditions are met. One of 
these conditions, set forth in rule 12d3-1(c), prohibits the 
acquisition of a security issued by the investment company's investment 
adviser, promoter, or principal underwriter, or any affiliated person 
of the investment adviser, promoter, or principal underwriter.
    3. Applicants state that each Subadviser to a Multi-Managed 
Portfolio is considered to be an investment adviser to the entire 
Multi-Managed Portfolio. Thus, applicants state that a purchase by an 
Unaffiliated Portion of securities issued by Securities Affiliates of 
another Subadviser to the same Multi-Managed Portfolio would not meet 
rule 12d3-1(c) and that applicants are therefore unable to rely on the 
rule.
    4. Applicants request an exemption under section 6(c) from section 
12(d)(3) to permit an Unaffiliated Subadviers to acquire for an 
Unaffiliated Portion, securities issued by a Securities Affiliate 
subject to the limits in rule 12d3-1. The requested relief would apply 
only to securities issued by a Securities Affiliate that is an 
Affiliated Subadviser to another portion of the Multi-Managed 
Portfolio, or an affiliated person of an Affiliated Subadviser to 
another portion. The requested relief would not extend to securities 
issued by the Subadviser making the purchase, SIMC, or an affiliated 
person of any of these entities.
    5. Applicants state that their proposal does not raise the 
conflicts of interest that rule 12d3-1(c) was designed to address 
because of the nature of the affiliation between an Affiliated 
Subadviser and the Unaffiliated Portion. Applicants submit that each 
Subadviser acts independently of the other Subadvisers in making 
investment and brokerage allocation decisions for the assets allocated 
to its portion of the Multi-Managed Portfolio. Applicants assert that 
prohibiting the Unaffiliated Portions from purchasing securities issued 
by a Securities Affiliate may cause Unaffiliated Subadvisers to forego 
investment opportunities that would be in the best interests of the 
Multi-Managed Portfolios.

Applicants' Conditions

    Applicants agree that the requested order will be subject to the 
following conditions:
    1. Each Multi-Managed Portfolio will be advised by an Affiliated 
Sub-Adviser and at least one Unaffiliated Subadviser and will be 
operated consistent with the manner described in the application.
    2. No Affiliated Subadviser (except by virtue of serving as 
Subadviser to a discrete portion of a Multi-Managed Portfolio) or 
Affiliated Broker-Dealer will be an affiliated person or a second-tier 
affiliate of SIMC, any Unaffiliated Subadviser, or any officer, 
trustee, or employee of the Multi-Managed Portfolio engaging in the 
transaction.
    3. No Affiliated Subadviser will directly or indirectly consult 
with any Unaffiliated Subadviser concerning allocation of principal or 
brokerage transactions or concerning the purchase of the securities 
issued by its Securities Affiliates. Subadvisers may consult with SIMC 
in order to monitor compliance with the limits in rule 12d3-1.
    4. No Affiliated Subadviser will participate in any arrangement 
under which the amount of its subadvisory fees will be affected by the 
investment performance of any other Subadviser.

[[Page 26250]]

    5. With respect to purchases of securities by an Affiliated Portion 
during the existence of an underwriting or selling syndicate, a 
principal underwriter of which is an Affiliated Broker-Dealer, the 
conditions of rule 10f-3 will be satisfied except that paragraph (b)(7) 
will not require the aggregation of purchases by the Affiliated Portion 
with purchases by an Unaffiliated Portion.
    6. Each Multi-Managed Portfolio will comply with rule 12d3-1, 
except paragraph (c) of that rule solely with respect to purchases by 
an Unaffiliated Portion of securities issued by a Securities Affiliate 
that would be prohibited by rule 12d3-1(c) solely because the 
Securities Affiliate is an Affiliated Subadviser, or an affiliated 
person of an Affiliated Subadviser, to an Affiliated Portion of the 
Multi-Managed Portfolio.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Jonathan G. Katz,
Secretary.
[FR Doc. 00-11226 Filed 5-4-00; 8:45 am]
BILLING CODE 8010-01-M