[Federal Register Volume 66, Number 144 (Thursday, July 26, 2001)]
[Notices]
[Pages 39064-39066]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-18607]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-25069; 812-12522]


The Pillar Funds, et al.; Notice of Application

July 20, 2001.
AGENCY: Securities and Exchange Commission (``SEC'' or ``Commission'')

ACTION: Notice of an application for an order under section 17(b) of 
the Investment Company Act of 1940 (``Act'') for an exemption from 
section 17(a) of the Act.

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SUMMARY: Applicants request an order to permit certain series of The 
Galaxy Fund (``Galaxy'') and Galaxy Fund II (``Galaxy II'') to acquire 
substantially all of the assets and liabilities of certain series of 
The Pillar Funds (``Pillar'') (the ``Reorganization''). Because of 
certain affiliations, applicants may not rely on rule 17a-8 under the 
Act.
    Applicants: Galaxy, Galaxy II, Pillar and Fleet Investment Advisors 
Inc. (``Fleet'').
    Filing Dates: The application was filed on May 18, 2001. Applicants 
have agreed to file an amendment during the notice period, the 
substance of which is reflected in this notice.
    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 August 
14, 2001, 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. Galaxy and Galaxy II, 4400 Computer Drive, Westborough, MA 01581-
5108. Pillar, 101 Federal Street, Boston, MA 02110, Fleet, 100 Federal 
Street, Boston, MA 02110.

FOR FURTHER INFORMATION CONTACT: Stacy L. Fuller, Staff Attorney, at 
202-942-0553, or Mary Kay Frech, 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 (telephone 202-942-8090).

Applicants' Representations

    1. Pillar, a Massachusetts business trust, is registered under the 
Act as an open-end management investment company and is comprised of 17 
series, 16 of which will participate in the Reorganization (the 
``Acquired Funds'').\1\
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    \1\ The Acquired Funds are (1) Pillar U.S. Treasury Securities 
Money Market Fund, (2) Pillar U.S. Treasury Securities Plus Money 
Market Fund, (3) Pillar Prime Obligation Money Market Fund, (4) 
Pillar Institutional Select Money Market Fund, (5) Pillar Tax-Exempt 
Money Market Fund, (6) Pillar Intermediate-Term Government 
Securities Fund, (7) Pillar Fixed Income Fund, (8) Pillar New Jersey 
Municipal Securities Fund, (9) Pillar Balanced Fund, (10) Pillar 
Equity Income Fund, (11) Pillar Mid Cap Fund and (12) Pillar 
International Equity Fund, (13) Pillar Pennsylvania Municipal 
Securities Fund, (14) Pillar Equity Value Fund, (15) Pillar Equity 
Growth Fund and (16) Pillar Equity Index Fund. The one remaining 
series Pillar High Yield Bond Fund will Liquidate and dissolve in 
early August 2001.
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    2. Galaxy, a Massachusetts business trust, is registered under the 
Act as an open-end management investment company. Galaxy currently 
offers 37 series, 12 of which will participate in the Reorganization 
(the ``Operating Galaxy Funds'').\2\ Galaxy is also organizing three 
new shell series, each of which will participate in the reorganization 
(the ``Shell Acquiring Funds'' and together with the Operating Galaxy 
Funds, the ``Galaxy Funds'').\3\
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    \2\ The Operating Galaxy Funds are (1) Galaxy U.S. Treasury 
Money Market Fund, (2) Galaxy Institutional Treasury Money Market 
Fund, (3) Galaxy Money Market Fund, (4) Galaxy Institutional Money 
Market Fund, (5) Galaxy Tax-Exempt Money Market Fund, (6) Galaxy 
Intermediate Government Income Fund, (7) Galaxy High Quality Bond 
Fund, (8) Galaxy New Jersey Municipal bond Fund, (9) Galaxy Asset 
Allocation Fund, (10) Galaxy Equity Income Fund, (11) Galaxy Growth 
Fund II and (12) Galaxy International Equity Fund.
    \3\ The Shell Acquiring Funds are (1) Galaxy Pennsylvania 
Municipal Bond Fund, (2) Galaxy Large Cap Value Fund and (3) Galaxy 
Large Cap Growth Fund. The registration statement for the shares of 
the Shell Acquiring Funds was filed with the Commission on May 18, 
2001, and it is anticipated that it will be declared effective on or 
about August 1, 2001.
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    3. Galaxy II, a Massachusetts business trust, is registered under 
the Act as an open-end management investment company. Galaxy II 
currently offers five series, one of which, the Galaxy II Large Company 
Index Fund, will participate in the Reorganization (together with the 
Operating Galaxy Funds, the ``Operating Acquiring Funds''). The 
Operating Acquiring Funds and the Shell Acquiring funds are referred to 
collectively as the ``Acquiring Funds.'' Each of the Acquiring funds 
and each of the Acquired Funds are referred to individually as a 
``fund'' and collectively as the ``funds.'' applicants state that the 
investment objectives, policies and restrictions of each Acquired Fund 
are substantially similar to those of the corresponding Acquiring Fund.
    4. Fleet, a subsidiary of FleetBoston Financial Corporation 
(``FleetBoston''), is registered as an investment adviser under the 
Investment Advisers act of 1940 (the ``Advisers Act''). Fleet serves as 
investment adviser to the Operating Acquiring Funds and the Acquired

[[Page 39065]]

Funds, and will serve as investment adviser to the Shell Acquiring 
Funds Following the Reorganization.
    5. Currently, Fleet and certain of its affiliates that are under 
common control with FleetBoston (collectively, the ``Fleet Boston 
Group'') hold of record, in their names or in the names of their 
nominees more than 5% (and in some cases more than 25%) of the 
outstanding voting securities of certain of the Acquired Funds and 
certain of the Operating Acquiring Funds. All of these securities are 
held for the benefit of others in a trust, agency, custodial, or other 
fiduciary or representative capacity, except that certain companies in 
the Fleet Boston Group may, at times, own economic interests in certain 
of the Funds that are money market funds for their own account. Some of 
these securities are held for the benefit of employee benefit plans for 
employees of FleetBoston and its affiliates.
    6. On April 2, 2001, the board of trustees of Galaxy II (the 
``Galaxy II Board''), including the trustees who are not ``interested 
persons'' within the meaning of section 2(a)(19) of the Act 
(``Disinterested Trustees''), unanimously approved a plan of 
Reorganization for the Pillar Equity Index fund and the Galaxy II Large 
Company Index Fund. On March 1, 2001, the board of trustees of Galaxy 
(the ``Galaxy Board''), including the Disinterested Trustees, 
unanimously approved a plan of Reorganization for the remainder of the 
Acquired funds and the Galaxy Funds. The board of trustees of the 
Acquired Funds (The ``Acquired Funds' Board''), including the 
Disinterested Trustees, unanimously approved plans of Reorganization 
for the Pillar Equity Index Fund and the Galaxy II Large Company Index 
fund on April 6, 2001, and for the remainder of the Acquired Funds and 
the Galaxy Funds on March 9, 2001. Pursuant to the plans of 
Reorganization (each a ``Plan of Reorganization'' and together, the 
``Plans of Reorganization''), substantially all of the assets and 
liabilities of each of the Acquired Funds will be transferred to the 
corresponding Acquired Fund in exchange for shares of designated 
classes of the corresponding Acquired Fund.\4\ Each Acquired Fund will 
distribute the Acquired Fund shares received in the Reorganization to 
its shareholders.
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    \4\ Each of the Acquired Funds is listed in footnote 1, supra, 
and its corresponding Acquired Funds is listed with the same number 
in footnote 2, supra. The four other Acquired Funds and their 
corresponding Acquired Funds are as follows: (1) Pillar Pennsylvania 
Municipal securities Fund and Galaxy Pennsylvania Municipal Bond 
Fund, (2) Pillar Equity Value Fund and Galaxy Large Cap Value Fund, 
(3) Pillar Equity growth Fund and Galaxy Large Cap Growth Fund and 
(4) Pillar Equity Index Fund and Galaxy II Large Company Index Fund.
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    7. The number of Acquiring Funds shares to be issued to 
shareholders of an Acquired Fund will be determined by dividing the 
aggregate net assets of the Acquired Fund by the net asset value per 
corresponding class of shares of the corresponding Acquired Fund, each 
computed as of the close of business immediately prior to the effective 
time of the Reorganization (the ``Effective Time''). The assets of each 
Acquired Fund and each Acquiring Fund will be valued in accordance with 
their respective valuation procedures as set forth in their respective 
then-current prospectuses and statements of additional information. 
Acquiring Fund shares will be distributed pro rata to the shareholders 
of record of the corresponding class of the Acquired Fund, determined 
as of the Effective Time. This distribution will be accomplished by an 
instruction, signed by an appropriate officer of each Acquired Fund, to 
transfer the Acquiring Fund shares, which are credited to the Acquired 
Fund's account on the books of the Acquiring Fund, to open accounts on 
the books of the Acquiring Fund, which accounts are established and 
maintained by the Acquiring Fund's transfer agent in the names of 
record of the Acquired Fund shareholders. The Acquiring Fund shares 
transferred represent the respective number of shares of the Acquiring 
Fund due Acquired Fund shareholders. Simultaneously, all issued and 
outstanding shares of the Acquired Funds will be canceled on the books 
of each Acquired Fund. Each of the Acquired Funds thereafter will be 
dissolved.
    8. The Reorganization is expected to occur on or about August 17, 
2001. Each Plan of Reorganization may be terminated by mutual consent 
of both parties any time prior to the Effective Time, or by one party 
if, prior to the Effective Time, certain conditions are not met and a 
majority of the party's board of trustees votes to terminate the Plan 
of Reorganization.
    9. The Reorganization will involve three classes of share offered 
by the Acquired Funds (Class A Shares), Class B Shares and Class I 
Shares,\5\ five classes of shares offered by Galaxy (Class I Shares, 
Class III Shares, Trust Shares, Retail A Shares and Retail B 
Shares),\6\ offered by Galaxy II. As a result of the Reorganization, 
holders of the Pillar Treasury Securities Plus Money Market Fund and 
the Pillar Institutional Select Money Market Fund will receive, 
respectively, Class III Shares and Class I Shares of the corresponding 
Acquiring Funds. Holders of Class A Shares and Class I Shares of the 
Pillar Pennsylvania Municipal Securities Fund will received Trust 
Shares of the Acquiring Fund. Holders of the Pillar Equity Index Fund 
will receive Shares of the Galaxy II Large Company Index Fund. With 
respect to the remainder of the Acquired Funds, holders of Class A 
Shares will receive Retail A Shares of the corresponding Acquiring 
Fund, holders of Class B Shares of the corresponding Acquiring Fund and 
holders of Class I Shares will receive Trust Shares of the 
corresponding Acquiring Fund. Applicants state that the rights and 
obligations of the shares of the Acquired Funds are substantially 
similar to those of the corresponding classes of shares of the 
Acquiring Funds to be issued in the Reorganization.
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    \5\ The Pillar Prime Obligation Money Market Fund offers a 
fourth class of shares, Class S shares, which will be liquidated 
prior to the Reorganization.
    \6\ Certain of the Galaxy Funds are authorized to issue other 
classes of shares (Prime A Shares, Prime B Shares, BKB Shares and 
Class II Shares) not involved in the Reorganization.
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    10. No sales charges will be imposed in connection with the 
Reorganization. For purposes of calculating any contingent deferred 
sales charge (``CDSC''), holders of Class A Shares or Class B Shares of 
an Acquired Fund will be deemed to have held the Retail A Shares or 
Retail B Shares of the Acquiring Fund received in the Reorganization 
since the date such shareholder initially purchased the shares of the 
Acquired Fund and will incur CDSCs based on the CDSC schedule of the 
Acquired Fund.
    11. The Acquired Funds' Board and the Galaxy Board and the Galaxy 
II Board (the Galaxy Board and the Galaxy II Board together, the 
``Acquiring Funds' Boards''), including all of the Disinterested 
Trustees of each board of trustees, found that participation in the 
Reorganization was in the best interest of, respectively, each of the 
Acquired Funds and each of the Acquiring Funds, and that the interests 
of existing shareholders in those Funds would not be diluted as a 
result of the Reorganization. In approving the Reorganization, the 
Acquired Funds' Board and the Acquiring Funds' Boards considered, among 
other things, the following: (a) The expected cost savings for certain 
of the Acquired Funds; (b) the increase in the number of portfolio 
options available to shareholders of the

[[Page 39066]]

Acquired Funds after the Reorganization; (c) the well-developed 
distribution network and shareholder servicing arrangements of the 
Acquiring Funds; (d) the capabilities, practices and resources of Fleet 
and other service providers to the Acquiring Funds; (e) the investment 
advisory and other fees projected to be paid by the Acquiring Funds and 
the projected expense ratios of the Acquiring Funds as compared with 
those of the Acquired Funds; (f) the investment objectives, policies 
and limitations of the Acquired Funds and their compatibility with 
those of the corresponding Acquiring Funds; (g) the terms and 
conditions of the Plan(s) of Reorganization; (h) the anticipated tax-
free status of the Reorganization; (i) the past performance of the 
Acquired Funds and the Acquiring Funds and the strength of the Galaxy 
brand; and (j) the larger asset base of Galaxy.
    12. Pillar will assume all expenses incurred by the Funds in 
connection with the reorganization, except that Fleet or one of its 
affiliates will bear the following expenses: (a) expenses allocated to 
the Pillar Institutional Select Money Market Fund, Pillar Balanced 
Fund, Pillar Equity Index Fund, Pillar Equity Value Fund, Pillar Equity 
Growth Fund and Pillar MidCap Fund; and (b) expenses allocated to the 
Pillar U.S. Treasury Securities Money Market Fund, Pillar U.S. Treasury 
Securities Plus Money Market Fund, Pillar Prime Obligation Money Market 
Fund and Pillar Tax-Exempt Money Market Fund, but only to the extent 
such expenses result in a decrease in per share net asset value of a 
Fund.
    13. The Reorganization is subject to a number of conditions 
precedent, as set forth in each Plan of Reorganization, including that: 
(a) A registration statement under the Securities Act of 1933 for the 
Acquiring Funds will have become effective; (b) the shareholders of the 
Acquired Funds will have approved the Plans of Reorganization; (c) each 
Acquired Fund that is not reorganizing into a Shell Acquiring Fund will 
have declared a dividend or dividends to distribute substantially all 
of its investment company taxable income and net capital gain to its 
shareholders; (d) applicants will have received exemptive relief from 
the Commission with respect to the issues in the application; and (e) 
the applicants will have received an opinion of counsel concerning the 
federal income tax aspects of the Reorganization. Applicants agree not 
to make any material changes to a Plan of Reorganization without prior 
Commission approval.
    14. The N-14 registration statement for Galaxy was filed with the 
Commission on April 2, 2001, and became effective on May 16, 2001. The 
N-14 registration statement for Galaxy II was filed with the Commission 
on April 11, 2001, and became effective on May 22, 2001. The 
prospectus/proxy statement contained in the N-14 registration 
statements of Galaxy and Galaxy II was mailed to shareholders of the 
corresponding Acquired Funds on or about May 17, 2001. A special 
meeting of the Acquired Fund shareholders was held on July 19, 2001 and 
the Plan of Reorganization was approved.

Applicants' Legal Analysis

    1. Section 17(a) of the Act generally prohibits an affiliated 
person of a registered investment company, or an affiliated person of 
such a person, acting as principal, from selling any security to, or 
purchasing any security from, the company. Section 2(a)(3) of the Act 
defines ``affiliated person'' of another person to include: (a) Any 
person directly or indirectly owning, controlling, or holding 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 securities 
are directly or indirectly owned, controlled, 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 state that the Acquiring 
Funds and the Acquired Funds may be deemed to be affiliated persons and 
thus the Reorganization may be prohibited by section 17(a) of the Act.
    2. Rule 17a-8 under the Act exempts from the prohibitions of 
section 17(a) mergers, consolidations, or purchases or sales of 
substantially all of the assets of registered investment companies that 
are affiliated persons, or affiliated persons of an affiliated person, 
solely by reason of having a common investment adviser, common 
directors and/or common officers, provided that certain conditions set 
forth in the rule are satisfied.
    3. Applicants may not be able to rely on rule 17a-8 in connection 
with the Reorganization because the Acquiring Funds and the Acquired 
Funds may be deemed to be affiliated for reasons other than those set 
forth in the rule. By virtue of the direct or indirect ownership by 
members of the Fleet Boston Group of more than 5% (and in some cases, 
more than 25%) of the outstanding voting securities of certain of the 
Acquired Funds and certain of the Operating Acquiring Funds, each 
Acquired Fund may be deemed an affiliated person of an affiliated 
person of the corresponding Acquiring Fund. In addition, where a Fleet 
Boston Group member's ownership exceeds 25%, the Acquired Funds and the 
Operating Acquiring Funds may be deemed to be under common control and 
thus affiliated persons under section 2(a)(3) of the Act.
    4. Section 17(b) of the Act provides that the Commission may exempt 
a transaction from the provisions of section 17(a) if the evidence 
establishes that the terms of the proposed transaction, including the 
consideration to be paid, are reasonable and fair and do not involve 
overreaching on the part of any person concerned, and that the proposed 
transaction is consistent with the policy of each registered investment 
company concerned and with the general purposes of the Act.
    5. Applicants request an order under section 17(b) of the Act 
exempting them from section 17(a) of the Act to the extent necessary to 
permit applicants to consummate the Reorganization. Applicants submit 
that the Reorganization satisfies the standards of section 17(b) of the 
Act. Applicants state that the Acquired Funds' Board and the Acquiring 
Funds' Boards, including all of the Disinterested Trustees, found that 
participation in the Reorganization is in the best interests of each of 
the Funds, and that the interests of the existing shareholders will not 
be diluted as a result of the Reorganization. Applicants also note that 
the exchange of the Acquired Funds' assets for shares of the Acquiring 
Funds will be based on the Funds' relative net asset values.

    For the Commission, by the Division of Investment Management, 
under delegated authority.


Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-18607 Filed 7-25-01; 8:45 am]
BILLING CODE 8010-01-M