[Federal Register Volume 64, Number 174 (Thursday, September 9, 1999)]
[Notices]
[Pages 49032-49034]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-23388]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 23987-812-11324]
The Galaxy Fund, et al.; Notice of Application
September 1, 1999.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of application for an order under section 17(d) of the
Investment Company Act of 1940 (the ``Act'') and rule 17d-1 under the
Act.
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Summary of Applicant: Applicants request an order to permit certain
registered management investment companies and private accounts to
deposit their uninvested cash and cash collateral from securities
lending transactions in joint accounts that invest in short-term
investments.
Applicants: The Galaxy Fund (``Galaxy''), The Galaxy VIP Fund
(``Galaxy VIP''), Galaxy Fund II (``Galaxy II'') (collectively the
``Trusts''), Fleet Investment Advisors, Inc. (``Fleet'') and Columbia
Management Co. (``Columbia'').
Filing Dates: The application was filed on September 24, 1998, and
amended on August 10, 1999. Applicants have agreed to file an amendment
to the application, 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
September 27, 1999, 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 SEC's Secretary.
ADDRESSES: Secretary, SEC, 450 Fifth Street, NW, Washington, DC 20549-
0609. Applicants: Trusts, 4400 Computer Drive, Westboro, Massachusetts
01581-5108; Fleet, 75 State Street, Boston, Massachusetts 02109-1810;
Columbia, 1300 SW Sixth Avenue, P.O. Box 1350, Portland, Oregon 97207-
1350.
FOR FURTHER INFORMATION CONTACT: Bruce R. MacNeil, Staff Attorney, at
(202) 942-0634, or Michael W. Mundt, 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 at the
SEC's Public Reference Branch, 450 Fifth Street, NW, Washington, DC
20549-0102 (tel. No. 202-942-8090).
Applicants' Representations
1. The Trusts are open-end management investment companies
registered under the Act. Each Trust is comprised of multiple series
(each a ``Fund,'' collectively the ``Funds''). The assets of the Funds
are held by The Chase Manhattan Bank as custodian (the ``Custodian''),
which is not affiliated with Fleet or Columbia.
2. Fleet, an investment adviser registered under the Investment
Advisers Act of 1940 (``Advisers Act'') and an indirect wholly-owned
subsidiary of Fleet Financial Group, Inc. (``FFG''), serves as
investment adviser for each of the Funds of Galaxy and Galaxy II and
certain Funds of Galaxy VIP. Fleet also serves as investment adviser or
sub-adviser to individual, corporate, charitable and retirement
accounts (``Private Accounts'').\1\ Columbia, an investment adviser
registered under the Advisers Act and an indirect wholly-owned
subsidiary of FFG, serves as investment adviser for certain Funds of
Galaxy VIP. Fleet and Columbia are collectively referred to as the
``Advisers.''
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\1\ For purposes of the application, the term ``Fleet''
includes, in addition to Fleet Investment Advisers, Inc., any other
person controlling, controlled by, or under common control with
Fleet Investment Advisers, Inc. that acts in the future as an
investment adviser to a registered management investment company or
a Private Account.
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3. Applicants request that any relief granted also apply to (i) all
future series of the Trusts and each series of any other existing or
future registered management investment company that is in the future
advised or sub-advised by Fleet (``Future Funds,'' together with the
Funds, the ``Portfolios'') \2\ and (ii) Private Accounts.\3\
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\2\ The requested relief would apply to Future Funds that are
sub-advised by Fleet to the extent that Fleet manages the Cash
Balances (as defined below) of the Future Fund.
\3\ All existing registered management investment companies that
intend to rely on the requested order are named as applicants. Any
Future Fund or Private Account that relies on the requested order
will do so only in accordance with the terms and conditions
contained in the application.
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4. At the end of each trading day, the Portfolios and the Private
Accounts (``Participants'') may have uninvested
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cash comprised of cash attributable to shareholder or investment
activity (``Uninvested Cash''). Currently, the Advisers must purchase
short-term investments separately on behalf of each Portfolio as
authorized by a Portfolio's investment policies and restrictions.
Applicants assert that these separate purchases result in certain
inefficiencies, limitations on the returns that some or all of the
Participants could otherwise achieve, and higher costs.
5. Several of the Portfolios are authorized to engage in securities
lending transactions for which the Custodian or another person that may
or may not be affiliated with the Advisers or the Portfolios may serve
as lending agent (``Securities Lending Agent'').\4\ In connection with
these transactions, the Portfolios could receive cash collateral
(``Cash Collateral,'' and together with Uninvested Cash, ``Cash
Balances'').
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\4\ Applicants state that prior to the appointment of any
affiliated person of the Advisers or Portfolios as Securities
Lending Agent, applicants will seek appropriate exemptive relief
from the SEC.
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6. Applicants propose to deposit Cash Balances into one or more
joint accounts (``Joint Accounts'') established at the Custodian. The
daily balance in the Joint Accounts will be invested in one or more of
the following: (i) repurchase agreements ``collateralized fully'' as
defined in rule 2a-7 under the Act; \5\ (ii) interest bearing or
discounted commercial paper, including United States dollar denominated
commercial paper of foreign issuers; and (iii) any other short-term
money market instruments that constitute ``eligible securities'' (as
defined in rule 2a-7 under the Act) (collectively, ``Short-Term
Investments'').
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\5\ The Portfolios will enter into ``hold-in-custody''
repurchase agreements (i.e., repurchase agreements where the
counterparty or one of its affiliated persons may have possession
of, or control over, the collateral subject to the agreement) only
where cash is received late in the business day and otherwise would
be unavailable for investment.
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7. Any repurchase agreements entered into through a Joint Account
will comply with Investment Company Act Release No. 13005 (February 2,
1983) and any other existing and future staff positions taken by the
SEC and the staff by rule, release, letter or otherwise relating to
repurchase agreement transactions. In the event that the SEC or the
staff sets forth guidelines with respect to other Short-Term
Investments, all such investments made through the Joint Accounts will
comply with these guidelines. All purchases through the Joint Accounts
will comply with all present and future SEC and staff positions
relating to the investment of Cash Collateral in connection with
securities lending activities.
8. Participants will invest through a Joint Account only to the
extent that, regardless of the Joint Accounts, they would desire to
invest in Short-Term Investments that are consistent with their
respective investment objectives, policies and restrictions. A
Participant's decision to use a Joint Account will be based on the same
factors as its decision to make any other Short-Term Investment.
9. The Advisers will be responsible for investing Cash Balances
(unless the authority to invest Cash Collateral in instruments pre-
approved by the Adviser rests with the Securities Lending Agent) held
in the Joint Accounts, establishing accounting and control procedures,
operating the Joint Accounts, and ensuring fair treatment of
Participants. The Advisers will not participate monetarily in the Joint
Accounts.
Applicants' Legal Analysis
1. Section 17(d) of the Act and rule 17d-1 under the Act prohibit
an affiliated person of a registered investment company, or an
affiliated person of such a person, acting as principal, from
participating in any joint enterprise or arrangement in which that
investment company is a participant, unless the SEC has issued an order
authorizing the arrangement. In passing on these applications, the SEC
considers whether the participation of the registered investment
company in the proposed joint arrangement 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.
2. Section 2(a)(3)(C) of the Act defines an ``affiliated person''
of another person to include any person directly or indirectly
controlling, controlled by, or under common control with, the other
person. Applicants state that the Participants may be considered
``affiliated persons'' because they may be deemed to be under the
common control of the Advisers. Applicants state that the Participants,
by participating in the Joint Accounts, and the Advisers, by managing
the Joint Accounts, could be deemed to be ``joint participants'' in a
transaction within the meaning of section 17(d). In addition,
applicants state that each Joint Account could be deemed to be a
``joint enterprise or other joint arrangement'' within the meaning of
rule 17d-1.
3. Applicants submit that the proposed Joint Accounts meet the
criteria of rule 17d-1 for issuance of an order. Applicants assert that
no Portfolio would be in a less favorable position than any other
Participant as a result of participating in the Joint Accounts. Each
Participant's liability on any Short-Term Investment will be limited to
its interest in the Short-Term Investment. Applicants also assert that
the proposed operation of the Joint Accounts will not result in any
conflicts of interest among any of the Participants or Advisers.
4. Applicants state that the operation of the Joint Accounts could
result in certain benefits to the Participants. The Participants may
earn a higher rate of return on investments through the Joint Accounts
relative to the returns they could earn individually. Under most market
conditions, applicants assert, it is possible to negotiate a rate of
return on larger investments that is higher than the rate available on
smaller investments. In addition, applicants state that the enhanced
purchasing power available through a Joint Account may increase the
number of dealers willing to enter into Short-Term Investments with the
Participants and may reduce the possibility that a Participant's Cash
Balances would remain uninvested. Finally, the Joint Accounts may
result in certain administrative efficiencies and lessen the potential
for error by reducing the number of trade tickets and cash wires that
counterparties, the Custodian and the Advisers must process.
Applicants' Conditions
Applicants agree that the order granting the requested relief will
be subject to the following conditions:
1. The Joint Accounts will not be distinguishable from any other
accounts maintained by Participants at the Custodian except that Cash
Balances from Participants will be deposited in the Joint Accounts on a
commingled basis. The Joint Accounts will not have a separate existence
and will not have indicia of a separate legal entity. The sole function
of the Joint Accounts will be to provide a convenient way of
aggregating individual transactions which would otherwise require daily
management by the Advisers of Cash Balances.
2. Cash Balances in the Joint Accounts will be invested in Short-
Term Investments as directed by the Advisers (or, in the case of Cash
Collateral, by a Securities Lending Agent, if the authority to invest
Cash Collateral in instruments pre-approved by the Adviser rests with
the Securities Lending Agent). Short-Term Investments that are
repurchase agreements would have a remaining maturity of seven (7) days
or less and other Short-Term Investments would
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have a remaining maturity of 90 days or less, calculated in accordance
with rule 2a-7 under the Act. Cash Collateral in a Joint Account would
be invested in Short-Term Investments that have a remaining maturity of
397 days or less, calculated in accordance with rule 2a-7 under the
Act.
3. All assets held in the Joint Accounts will be valued on an
amortized cost basis to the extent permitted by applicable SEC
releases, rules or orders.
4. Each Participant that is a registered investment company valuing
its net assets in reliance on rule 2a-7 under the Act will use the
average maturity of the instruments in the Joint Account in which such
Participant has an interest (determined on a dollar-weighted basis) for
the purpose of computing its average portfolio maturity with respect to
its portion of the assets held in a Joint Account on that day.
5. In order to ensure that there will be no opportunity for any
Participant to use any part of a balance of a Joint Account credited to
another Participant, no Participant will be allowed to create a
negative balance in any Joint Account for any reason, although each
Participant will be permitted to draw down its entire balance at any
time, provided that the Advisers determine that such draw-down would
have no significant adverse impact on any other Participant in that
Joint Account. Each Participant's decision to invest in a Joint Account
would be solely at its option, and no Participant will be obligated to
invest in a Joint Account or to maintain any minimum balance in a Joint
Account. In addition, each Participant will retain the sole rights of
ownership to any of its assets invested in the Joint Accounts,
including interest payable on such assets invested in the Joint
Accounts.
6. The Advisers will administer the investment of Cash Balances in,
and the operation of, the Joint Accounts as part of their general
duties under their advisory agreements with the Trusts and will not
collect any additional or separate fees for advising any Joint Account.
7. The administration of the Joint Accounts will be within the
fidelity bond coverage required by section 17(g) of the Act and rule
17g-1 thereunder.
8. The boards of trustees or directors (``Boards'') of each Trust
will adopt procedures pursuant to which the Joint Accounts will
operate, which will be reasonably designed to provide that the
requirements of this application will be met. The Boards will make and
approve such changes as they deem necessary to ensure that such
procedures are followed. In addition, the Boards will determine, no
less frequently than annually, that the Joint Accounts have been
operated in accordance with the adopted procedures and will only permit
a Portfolio to continue to participate in the Joint Accounts if the
Board determines that there is a reasonable likelihood that the
Portfolio and its shareholders will benefit from the Portfolio's
continued participation.
9. Any Short-Term Investment made through the Joint Accounts will
satisfy the investment policies and guidelines of all Participants
participating in that Short-Term Investment.
10. The Advisers, each Participant, and the Custodian will maintain
records documenting, for any given day, each Participant's aggregate
investment in a Joint Account and each Participant's pro rata share of
each Short-Term Investment made through such Joint Account. The records
maintained for each Participant shall be maintained in conformity with
Section 31 of the Act and the rules and regulations thereunder. A
Private Account and any investment adviser not registered under the
Advisers Act that advises a Private Account will make available to the
SEC, upon request, such books and records with respect to the Private
Account's participation in the Joint Accounts.
11. Short-Term Investments held in a Joint Account generally will
not be sold prior to maturity, except if: (i) the Advisers believe the
investment no longer presents minimal credit risks; (ii) the investment
no longer satisfies the investment criteria of all Participants in the
investment because of a downgrading or otherwise; or (iii) in the case
of a repurchase agreement, the counterparty defaults. The Advisers may,
however, sell any Short-Term Investment (or any fractional portion
thereof) on behalf of some or all of the Participants prior to the
maturity of the investment if the cost of such transactions will be
borne solely by the selling Participants and the transaction will not
adversely affect other Participants participating in that Joint
Account. In no case would an early termination by less than all
Participants be permitted if it would reduce the principal amount or
yield received by other Participants in the Joint Account or otherwise
adversely affect the other Participants. Each Participant participating
in a Joint Account will be deemed to have consented to such sale and
partition of the investments in the Joint Account.
12. Short-Term Investments held through a Joint Account with a
remaining maturity of more than seven days, calculated pursuant to rule
2a-7 under the Act, will be considered illiquid and, for any
Participant that is an open-end management investment company
registered under the Act, subject to the restrictions that the
Portfolio may not invest more than 10%, in the case of a money market
fund, or 15%, in the case of a non-money market fund (or such other
percentage as set forth by the SEC from time to time) of its net assets
in illiquid securities, and any similar restriction set forth in the
Portfolio's investment restrictions and policies, if the Advisers
cannot sell the instrument, or the Portfolio's fractional interest in
such instrument, pursuant to the preceding condition.
13. Every Participant in the Joint Accounts will not necessarily
have its Cash Balances invested in every Short-Term Investment.
However, to the extent that a Participant's Cash Balances are applied
to a particular Short-Term Investment, the Participant will participate
in and own its proportionate share of such Short-Term Investment, and
any income earned or accrued thereon, based upon the percentage of such
investment purchased with Cash Balances contributed by the Participant.
14. The Joint Accounts will be established as one or more separate
cash accounts on behalf of the Participants at the Custodian. Each
Participant may deposit daily all or a portion of its Cash Balances
into the Joint Accounts. Each Participant whose regular custodian is a
custodian other than the Custodian and that wishes to participate in a
Joint Account, would appoint the Custodian as a sub-custodian for the
limited purposes of: (i) receiving and disbursing Cash Balances; (ii)
holding any Short-Term Investments; and (iii) holding any collateral
received from a transaction effected through a Joint Account. All
Portfolios that so appoint the Custodian will have taken all necessary
actions to authorize such bank as its legal custodian, including all
actions required under the Act.
For the SEC, by the Division of Investment management, pursuant
to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-23388 Filed 9-8-99; 8:45 am]
BILLING CODE 8010-01-M