[Federal Register Volume 65, Number 85 (Tuesday, May 2, 2000)]
[Notices]
[Pages 25525-25527]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-10856]



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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 24403; 812-11440]


SSgA Funds and State Street Bank and Trust Company; Notice of 
Application

April 25, 2000.
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 Application: Applicants request an order to permit 
certain registered open-end management investment companies to invest 
uninvested cash and cash collateral in affiliated money market funds 
and/or short-term bond funds.
    Applicants: SSgA Funds, on behalf of its series SSgA Money Market 
Fund, SSgA U.S. Government Money Market Fund, SSgA S&P 500 Index Fund, 
SSgA Small Cap Fund, SSgA Matrix Equity Fund, SSgA Active International 
Fund, SSgA International Pacific Index Fund, SSgA Bond Market Fund, 
SSgA Yield Plus Fund, SSgA U.S. Treasury Money Market Fund, SSgA U.S. 
Treasury Obligations Fund, SSgA Growth and Income Fund, SSgA 
Intermediate Fund, SSgA Emerging Markets Fund, SSgA Prime Money Market 
Fund, SSgA Tax Free Money Market Fund, SSgA Tuckerman Active REIT Fund, 
SSgA Life Solutions Income and Growth Fund, SSgA Life Solutions 
Balanced Fund, SSgA Life Solutions Growth Fund, SSgA Special Equity 
Fund, SSgA High Yield Bond Fund, SSgA International Growth 
Opportunities Fund, SSgA Aggressive Equity Fund, and SSgA IAM SHARES 
Fund (each a ``Fund'' and collectively, the ``Funds''), and State 
Street Bank and Trust Company (``State Street'').
    Filing Dates: The application was filed December 23, 1998. 
Applicants have agreed to file an amendment during the notice period, 
the substance of which is reflected in this notice.
    Hearing Nor Notification of Hearing: An order granting the 
application 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 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 who wish to be notified of a hearing may request 
notification by writing to the Commission's Secretary.

ADDRESSES: Secretary, Securities and Exchange Commission, 450 Fifth 
Street, NW, Washington, DC 20549-0609; Applicants, SSgA, Two 
International Place, 35th Floor, Boston MA 02110, State Street, 225 
Franklin Street, Boston, MA 02110.

FOR FURTHER INFORMATION CONTACT: Deepak T. Pai, Senior Counsel, at 
(202) 942-0574 or George J. Zornada, 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 
Commission's Public Reference Branch, 450 Fifth Street, NW, Washington, 
DC 20549-0102 (telephone (202) 942-8090).

Applicants' Representations

    1. SSgA Funds, organized as a Massachusetts business trust, is 
registered under the Act as an open-end management investment company. 
Each Fund is a series of SSgA Funds and has a separate investment 
objective and policies. State Street serves as the investment adviser 
for each of the Funds. State Street is a bank and is not required to 
register as an investment adviser under the Investment Advisers Act of 
1940. Applicants also request relief for all other registered 
management investment companies and series thereof now or hereafter 
existing for which State Street, or a person controlling, controlled 
by, or under common control with State Street (collectively, ``State 
Street''), acts as investment adviser (together with the Funds, the 
``Funds'').\1\
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    \1\ All investment companies that currently intend to rely on 
the requested relief have been named as applicants, and any existing 
or future registered management investment company or series thereof 
that relies on the requested relief in the future will do so only in 
accordance with the terms and conditions of the application.
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    2. Each Fund (``Participating Fund'') has, or may be expected to 
have, cash that has not been invested in portfolio securities 
(``Uninvested Cash'') held by its custodian bank. Such Uninvested Cash 
may result from a variety of sources, including dividends or interest 
received from portfolio securities, unsettled securities transactions, 
reserves held for investment strategy purposes, scheduled maturity of 
investments, liquidation of investment securities to meet anticipated 
redemptions and dividend payments, and new monies received from 
investors. Certain of the Participating Funds also may participate in a 
securities lending program under which a Participating Fund may lend 
its portfolio securities to registered broker-dealers or other 
institutional investors. The loans are 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'').
    3. Applicants request relief to permit Participating Funds to use 
Cash Balances to purchase shares of one or more of the funds that are 
money market funds or short-term bond funds (the ``Central Funds''), 
and the Central Funds to sell shares to and purchase shares from the 
Participating Funds (the ``Proposed Transactions''). Certain of the 
Central Funds are money market funds operating pursuant to rule 2a-7 
under the Act. The other Central Funds are or will be short-term bond 
funds that seek high current income consistent with the preservation of 
capital by investing in fixed-income securities and maintaining a 
dollar-weighted average maturity of three years or less (the ``Short-
Term Bond Funds.'') Applicants believe that the Participating Funds' 
investment in the Central Funds may reduce the risk of counterparty 
default on repurchase agreements and the market risk associated with 
direct purchases of short-term obligations, while providing high 
current money market rates of return, ready liquidity, and increased 
diversity of holdings.

Applicants' Legal Analysis

    1. Section 12(d)(1)(A) of the Act provides 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, represented more than 10% of the 
acquiring company's total assets. Section 12(d)(1)(B) of the Act 
provides that no registered open-end investment company sell its 
securities to another investment company if the sale will cause the 
acquiring company to own

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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 provides that the Commission may 
exempt any person or transaction from any provision of section 12(d)(1) 
if, and to the extent that, the exemption is consistent with the public 
interest and the protection of investors. Applicants request an 
exemption from the provisions of sections 12(d)(1)(A) and (B) to the 
extent necessary to permit each Participating Fund to invest Cash 
Balances in the Central Funds.
    3. Applicants state that the proposed arrangement would not result 
in the abuses that sections 12(d)(1)(A) and (B) were intended to 
prevent. Applicants state that because each Central Fund will maintain 
a highly liquid portfolio, a Participating Fund will not be in a 
position to gain undue influence over a Central Fund. Applicants 
represent that the proposed arrangement will not result in an 
inappropriate layering of fees because shares of the Central Funds sold 
to the Participating Funds will not be subject to a sales load, 
redemption fee, distribution fee under a plan adopted in accordance 
with rule 12b-1 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 any such distribution fee or service 
fee, State Street will waive its advisory fee for each Participating 
Fund in an amount that offsets the amount of such distribution and/or 
service fees incurred by the Participating Fund. In connection with 
approving any advisory contract for a Participating Fund, the 
Participating Fund's 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 (``Disinterested Trustees'') will 
consider to what extent, if any, the advisory fees charged to the 
Participating Fund by the Adviser should be reduced to account for 
reduced services provided to the Participating Fund by the Adviser as a 
result of the investment of Uninvested Cash in the Central Funds. 
Applicants represent that no Central 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, 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 the investment adviser, any person that owns 5% or more of the 
outstanding voting securities of that company, and any person directly 
or indirectly controlling, controlled by, or under common control with 
the investment company. Applicants state that the Participating Funds 
and Central Funds may share a common investment adviser and a common 
Board. Therefore, each Participating Fund and each Central Fund may be 
an affiliated person of every other Fund. In addition, applicants state 
that a Participating Fund may become an affiliated person of a Central 
Fund by owning more than 5% of the outstanding voting securities of a 
Central Fund. Accordingly, applicants seek an exemption from the 
provisions of section 17(a) to permit the sale of shares of the Central 
Funds to the Participating Funds and the redemption of such shares by 
the Central Funds.
    5. Section 17(b) of the Act authorizes the Commission to exempt a 
proposed transaction from section 17(a) of the Act if the terms of the 
proposed transaction, including the consideration to be paid or 
received, are fair and reasonable and do not involve overreaching on 
the part of any person concerned, the proposed transaction is 
consistent with the policies of each registered investment company 
involved, and with the general purposes of the Act. Section 6(c) of the 
Act provides, in part, that the Commission may exempt any person, 
security or transaction, or any class or classes of person, securities 
or transactions, from any provision of the Act if, and to the extent 
that such exemption is necessary or appropriate in the public interest 
and is consistent with the protection of investors and the purposes 
fairly intended by the policy and provisions of the Act.
    6. Applicants submit that the request for relief satisfies the 
standards of sections 17(b) and 6(c) of the Act. Applicants state that 
the terms of the Proposed Transactions are fair and reasonable, and do 
not involve overreaching because the consideration paid and received on 
the sale and redemption of shares of a Central Fund will be based on 
the Central Fund's net asset value per share. In addition, under the 
Proposed Transactions, the Participating Funds will retain their 
ability to invest their Cash Balances directly in money market 
instruments and other short-term obligations, as permitted by each 
Participating Fund's investment objectives and policies. Applicants 
state that each of the Central Funds reserves the right to discontinue 
selling shares to any of the Participating Funds if its Board 
determines that such sales would adversely affect its portfolio 
management and operations. Applicants note that the investment of 
assets of the Participating Funds in shares of the Central Funds will 
be affected in accordance with each Participating Fund's investment 
restrictions and will be consistent with each Participating Fund's 
policies as set forth in its registration statement.
    7. Section 17(d) of the Act and rule 17d-1 under the Act prohibits 
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 the Participating Funds and 
the Central Funds, by participating in the Proposed Transactions, and 
State Street, by managing the Proposed Transactions, 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 transactions, the Commission is to 
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 Participating Funds in shares of the Central Funds would be 
indistinguishable from any other shareholder account maintained by the 
Central Fund and that the transactions will be consistent with the Act.

Applicants' Conditions

    Applicants agree that the order of the Commission granting the 
requested relief shall be subject to the following conditions:
    1. The shares of the Central Funds sold to and redeemed from the 
Participating Funds will not be subject to a sales load, redemption 
fee, distribution fee under a 12b-1 plan, or service fee (as defined in 
rule 2830(b)(9) of the Conduct Rules of the NASD), or if such shares 
are subject to any such distribution fee or service fee, State Street 
will waive its advisory fee for each Participating Fund in an amount 
that offsets the amount of such distribution and/or service fees 
incurred by the Participating Fund.
    2. If State Street collects a fee from any Central Fund for acting 
as its investment adviser with respect to

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assets invested by a Participating Fund, before the next meeting of the 
Board of that Participating Fund is held for the purpose of voting on 
the Participating Fund's advisory contract pursuant to section 15 of 
the Act, State Street will provide the Board with specific information 
regarding the approximate cost to State Street for, or portion of the 
advisory fee under the existing advisory contract attributable to, 
managing the assets of the Participating Fund that can be expected to 
be invested in such Central Funds. Before approving the Participating 
Fund's advisory contract pursuant to section 15, the Board, including a 
majority of the Disinterested Trustees shall consider to what extent, 
if any, the advisory fees charged to the Participating Fund by State 
Street should be reduced to account for reduced services provided to 
the Participating Fund by State Street as a result of Uninvested Cash 
being invested in the Central Funds. The minute books of the 
Participating Fund will record fully the Board's consideration in 
approving the advisory contract, including the considerations relating 
to fees referred to above.
    3. Each of the Participating Funds will invest Uninvested Cash in, 
and hold shares of, the Central Funds only to the extent that the 
Participating Fund's aggregate investment in the Central Funds does not 
exceed 25% of the Participating Fund's total assets. For purposes of 
this limitation, each Participating Fund or series thereof will be 
treated as a separate investment company.
    4. Investment in shares of the Central Funds will be in accordance 
with each Participating Fund's respective investment restrictions, if 
any, and will be consistent with each Participating Fund's policies as 
set forth in its prospectus(es) and statement(s) of additional 
information. Participating Funds that are money market funds will not 
acquire shares of any Central Fund that does not comply with the 
requirements of rule 2a-7 under the Act.
    5. Each Participating Fund, each Central Fund, and any future Fund 
that may rely on the order shall be advised by State Street.
    6. No Central Fund shall acquire securities of any other investment 
company in excess of the limits contained in section 12(d)(1)(A) of the 
Act.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-10856 Filed 5-1-00; 8:45 am]
BILLING CODE 8010-01-M