[Federal Register Volume 65, Number 206 (Tuesday, October 24, 2000)]
[Notices]
[Pages 63645-63647]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-27216]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 24692; 812-11376]


The Galaxy Fund, et al.; Notice of Application

October 17, 2000.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of an application under sections 6(c), 10(f), and 17(b) 
of the Investment Company Act of 1940 (``Act'') for an exemption from 
sections 10(f) and 17(a)(1) of the Act.

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SUMMARY OF THE APPLICATION: The requested order would amend an existing 
order that permits an open-end management investment company to 
purchase certain securities: (i) from an affiliated underwriter, if 
such securities are solely underwritten by that underwriter or are 
unavailable from other members of an underwriting syndicate, and (ii) 
through group orders placed with an underwriting syndicate that 
includes the affiliated underwriter.
    Applicants: The Galaxy Fund (``Trust''); Fleet Investment Advisors, 
Inc. (``Adviser''); and Fleet Securities, Inc. (``Fleet Securities'').

FILING DATES: The application was filed on October 28, 1998, and was 
amended on April 22, 1999, and February 18, 2000.
    Hearing or 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 November 9, 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 by writing to the 
Commission's Secretary.

ADDRESSES: Secretary, Securities and Exchange Commission, 450 Fifth 
Street, NW., Washington, DC 20549-0609. Applicants: Trust, c/o Drinker 
Biddle & Reath LLP, Attn: Mary Jo Reilly, Esq. or Terry Riley, Esq., 
1345 Chestnut Street, Philadelphia, PA 19107; Adviser, 75 State Street, 
Boston, MA 02109; Fleet Securities, 14 Wall Street, 27th Floor, New 
York, NY 10005.

FOR FURTHER INFORMATION CONTACT: Bruce R. MacNeil, Senior Counsel, at 
(202) 942-0634, 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 from 
the Commission's Public Reference Branch, 450 Fifth Street, NW., 
Washington, DC 20549-0102 (telephone (202) 942-8090).

Applicants' Representations

    1. The Trust is an open-end management investment company 
registered under the Act. The Trust offers several investment 
portfolios, including the Rhode Island Municipal Bond Fund 
(``Portfolio''). The Adviser, which is registered under the Investment 
Advisers Act of 1940, serves as investment adviser to the Portfolio. 
The Adviser is an indirect wholly-owned subsidiary of FleetBoston 
Corporation (``FleetBoston'').
    2. The Portfolio's investment objective is to seek as high a level 
of current interest income exempt from federal income tax and, to the 
extent possible, from Rhode Island personal income tax, as is 
consistent with relative stability of principal. To achieve this 
objective, at least 65% of the Portfolio's assets are invested in: (i) 
debt securities of the State of Rhode Island, its political 
subdivisions, authorities, agencies, instrumentalities and 
corporations, the interest on which is exempt from federal and Rhode 
Island personal income taxes (``Rhode Island Tax-Exempt Securities''); 
and (ii) debt securities of certain other governmental issuers such as 
Puerto Rico, the interest on which is exempt from federal and Rhode 
Island personal income taxes.
    3. Fleet Securities, a wholly-owned subsidiary of FleetBoston, is 
one of the top three underwriters of most types of Rhode Island Tax-
Exempt Securities based on both dollar volume and number of new issues. 
In 1994, applicants received an exemptive order under sections 6(c), 
10(f), and 17(b) of the Act that permits the Portfolio to purchase 
Rhode Island Tax-Exempt Securities: (i) from Fleet Securities, where 
Fleet Securities is the sole underwriter or such securities are 
unavailable from other members of an underwriting syndicate, and (ii) 
through group orders placed with an underwriting syndicate of which 
Fleet Securities is a member (``Existing Order'').\1\ Under the 
Existing Order, the Portfolio and all other entities for which 
investment decisions are made by the Adviser, Fleet Securities, 
FleetBoston, and/or affiliated persons of the Adviser, Fleet 
Securities, and FleetBoston (collectively, ``Related Purchasers''), may 
not, in the aggregate, purchase more than the greater of 4% or 
$500,000, but in no event more than 10%, of any class of an issue of 
Rhode Island Tax-Exempt Securities (``Existing Limit''). Applicants 
seek to amend the Existing Order to increase the Existing Limit 
consistent with rule 10f-3 under the Act currently in effect.
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    \1\ The Galaxy Fund, Investment Company Act Rel. Nos. 20660 
(Oct. 26, 1994) (notice) and 20726 (Nov. 22, 1994) (order). A group 
order is an order that is allocated to all members of an 
underwriting syndicate in proportion to their relative 
participations.
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Applicants' Legal Analysis:

    1. Section 10(f) of the Act, in relevant part, prohibits a 
registered investment company from purchasing securities from an 
underwriting syndicate in which an affiliated person of the company's 
investment adviser acts as a principal underwriter. Under section 
2(a)(3) of the Act, Fleet Securities is an affiliated person of the 
Adviser because

[[Page 63646]]

both entities are under the control of FleetBoston.
    2. Section 10(f) further provides that the Commission, by rule or 
order, may exempt any transaction or class of transactions from section 
10(f) to the extent that the exemption is consistent with the 
protection of investors. Rule 10f-3 under the Act permits a registered 
investment company to make purchases otherwise prohibited by section 
10(f) under certain conditions, including that the company may not 
purchase the securities being offered directly or indirectly from its 
affiliated underwriter and that purchases of municipal securities may 
not be designated as group sales or otherwise allocated to the account 
of the affiliated underwriter. Among other conditions, rule 10f-3 
limits to 25% the amount of an underwriting that may be purchased by an 
investment company, together with all other investment companies 
advised by the same investment adviser.
    3. Section 17(a)(1) of the Act, in relevant part, prohibits an 
affiliated person of a registered investment company, or an affiliated 
person of such person, acting as principal, from selling securities to 
the investment company. Under section 17(b) of the Act, the Commission 
will exempt a transaction from the provisions of 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 that the proposed transaction is consistent with the 
policy of the registered investment company and the general purposes of 
the Act. Section 6(c) of the Act, in relevant part, permits the 
Commission to exempt any transaction or class of transactions from any 
provision of the Act if, and to the extent that, 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.
    4. Applicants request relief under section 10(f) from section 10(f) 
and under sections 6(c) and 17(b) from section 17(a)(1) to permit the 
Portfolio to purchase Rhode Island Tax-Exempt Securities pursuant to 
the terms of the Existing Order provided that the Portfolio, together 
with the other Related Purchasers, purchase no more than 25% of the 
principal amount of an offering of such securities. Applicants state 
that Fleet Securities has a dominant presence in the market for Rhode 
Island Tax-Exempt Securities. Applicants also assert that Rhode Island 
has a relatively short supply of newly-issued bonds and historically 
has had a limited secondary market for Rhode Island Tax-Exempt 
Securities. The Adviser has concluded that, absent the requested 
amended order, it may be unable to obtain sufficient Rhode Island Tax-
Exempt Securities to meet the Portfolio's requirements on days when the 
supply is relatively low in the secondary market. In addition, even on 
a day when the amount available in the secondary market is relatively 
high, the Adviser has concluded that it may not be able reliably to 
meet the Portfolio's requirements from that market because the issues 
available may be unsuitable for purchase due to their credit quality or 
other characteristics. Applicants assert that these secondary market 
characteristics increase the Portfolio's need to acquire a greater 
percentage of Rhode Island Tax-Exempt Securities in underwritten 
offerings instead of the secondary market.
    5. Applicants state that increasing the Existing Limit to 25% would 
benefit the shareholders of the Portfolio by providing the Portfolio 
with adequate access to the new issue market for Rhode Island Tax-
Exempt Securities. Applicants assert that the new limit would provide 
adequate investor protection because a significant portion of an 
offering in which Fleet Securities participates would be purchased by 
investors other than the Portfolio and other Related Purchasers. 
Applicants further state that the requested order meets the standards 
for relief set forth in sections 6(c), 10(f), and 17(b) of the Act.

Applicants' Conditions

    Applicants agree that the amended order will be subject to the 
following conditions:
    1. Transactions effected pursuant to the amended order will be 
effected in accordance with all of the provisions of rule 10f-3 as 
amended, other than paragraph (b)(8) thereof. Related Purchasers will 
not, in the aggregate, purchase more than 25% of any class of an issue 
of Rhode Island Tax-Exempt Securities purchased pursuant to the amended 
order. If the aggregate number of securities the Related Purchasers 
wish to acquire exceeds this limit, the securities acquired will be 
allocated to each Related Purchaser in the proportion that the number 
of securities that such Related Purchaser wishes to acquire bears to 
the total number of securities that all Related Purchasers wish to 
acquire.
    2. Transactions may be effected only in Rhode Island Tax-Exempt 
Securities that, at the time of purchase, have one of the following 
investment grade ratings from at least one nationally recognized rating 
agency: (i) one of the two highest investment grade ratings in the case 
of securities with remaining maturities of one year or less, and (ii) 
one of the three highest investment grade ratings in the case of 
securities with remaining maturities greater than one year.
    3. Transactions effected pursuant to the amended order will be 
limited so that no such transactions will be effected if, as a result, 
the value of Rhode Island Tax-Exempt Securities held by the Portfolio 
and acquired pursuant to the amended order would exceed 50% of the 
total net assets of the Portfolio.
    4. Transactions will be effected pursuant to the amended order only 
when the Rhode Island Tax-Exempt Securities to be acquired are 
otherwise unavailable for purchase. If Fleet Securities is the sole 
underwriter of the securities, this condition is automatically 
fulfilled because there is not other potential seller. When Fleet 
Securities is a member of an underwriting syndicate, the Adviser will 
observe the following procedures to determine when the securities are 
unavailable from other members of the syndicate. Initially, the Adviser 
will determine the aggregate number of securities that the Related 
Purchasers wish to acquire. Next, the Adviser will attempt to purchase 
as much of this number as possible from members of the syndicate other 
than Fleet Securities. After acquiring as many securities as possible 
from such other members, the Adviser will attempt to purchase from 
Fleet Securities the number of securities that the Related Purchasers 
wish to acquire and have been unable to obtain from such other members. 
The securities acquired from such other members will be allocated first 
to the Portfolio to the extent of the number of securities it wishes to 
acquire, or the number of securities it is entitled to acquire based 
upon the relative needs of the Related Purchasers and the total number 
of securities purchased from such other members and from Fleet 
Securities, whichever is less.
    5. When the Portfolio purchases Rhode Island Tax-Exempt Securities 
from a syndicate manager of an underwriting syndicate of which Fleet 
Securities is a member, the Portfolio will not: (i) Submit designated 
order to a syndicate manager which are allocated to Fleet Securities, 
(ii) submit group orders to a syndicate manager that designate Fleet 
Securities to receive any portion of the commission, or (iii) otherwise 
allocate orders to Fleet Securities.
    6. FleetBoston will not have any involvement with respect to 
proposed

[[Page 63647]]

transactions between the Portfolio and Fleet Securities and will not 
attempt to influence or control in any way the Adviser's placement of 
orders with Fleet Securities.
    7. The exemption will be valid only so long as the Adviser and 
Fleet Securities operate as separate entities and independent profit 
centers within the holding company framework of FleetBoston, with their 
own separate officers and employees, separate capitalizations, and 
separate books and records.
    8. The legal departments of Fleet Securities and the Adviser will 
prepare amended guidelines for personnel of Fleet Securities and the 
Adviser to make certain that transactions conducted pursuant to the 
amended order comply with the conditions set forth in the application 
and that the parties maintain arm's length relationships. The legal 
departments will periodically monitor the activities of Fleet 
Securities and the Adviser to make certain that such guidelines and the 
conditions set forth in the application are adhered to.
    9. The board of trustees of the Trust, including a majority of the 
trustees who are not interested persons under section 2(a)(19) of the 
Act and have no direct or indirect financial interest in the 
transaction, will review, no less frequently than quarterly, each 
transaction conducted pursuant to the amended order since the last 
review and will determine that the terms of such transaction were 
reasonable and fair to the shareholders of the Portfolio and did not 
involve overreaching of the Portfolio or its shareholders on the part 
of any person concerned. In considering whether the price paid for the 
security was reasonable and fair, the price of the security will be 
analyzed with respect to comparable transactions involving similar 
securities being purchased or sold during a comparable period of time.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-27216 Filed 10-23-00; 8:45 am]
BILLING CODE 8010-01-M