[Federal Register Volume 63, Number 42 (Wednesday, March 4, 1998)]
[Notices]
[Pages 10655-10657]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-5549]
=======================================================================
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 23047; 812-10924]
Ark Funds, et al.; Notice of Application
February 26, 1998.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of an application under section 17(b) of the Investment
Company Act of 1940 (the ``Act'') for an exemption from section 17(a)
of the Act.
-----------------------------------------------------------------------
Summary of the Application
Applicants request an order to permit ARK Funds to acquire all of
the assets and stated liabilities of all of the series of Marketvest
Funds and Marketvest Funds, Inc., and one series of ARK Funds.
Applicants
ARK Funds, Allied Investment Advisors, Inc. (``Allied''), First
National Bank of Maryland (``First National''), Marketvest Funds and
Marketvest Funds, Inc. (collectively, ``Marketvest Funds''), Dauphin
Deposit Bank and Trust Company (``Dauphin''), and First Maryland
Bancorp (``First Maryland'').
Filing Dates
The application was filed on December 24, 1997. Applicants have
agreed to file an amendment, the substance of which is included 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 the 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 March 19, 1998, and should be accompanied by
proof of service on the 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
SEC's Secretary.
ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C.
20549. Applicants: ARK Funds, One Freedom Valley Drive, Oaks, PA 19456;
Allied, 1000 East Pratt Street, Baltimore, MD 21202; First National and
First Maryland, 25 South Charles St., Baltimore, MD 21202; Marketvest
Funds, Inc. and Marketvest Funds, Federated Investors Tower,
Pittsburgh, PA 15222-3779; and Dauphin, 213 Market St., Harrisburg, PA
17101.
FOR FURTHER INFORMATION CONTACT: Annmarie J. Zell, Staff Attorney,
(202) 942-0532, or Christine Y. Greenlees, Branch Chief, (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 (telephone (202) 942-8090).
Applicants' Representations
1. ARK Funds, a Massachusetts business trust, is an open-end
management investment company registered under the Act. ARK Funds
currently consists of twenty-two portfolios, including the ARK Stock
Portfolio (the ``ARK Acquired Fund'') and the ARK Pennsylvania Tax-Free
Portfolio. ARK Funds is organizing four new portfolios: ARK Short-Term
Bond Portfolio, ARK U.S. Government Bond Portfolio, ARK Value Equity
Portfolio and ARK International Equity Selection Portfolio (together
with the ARK Pennsylvania Tax-Free Portfolio, the ``Acquiring Funds'').
2. Marketvest Funds, a Massachusetts business trust, and Marketvest
Funds, Inc., a Maryland corporation, are open-end management investment
companies registered under the Act. Marketvest Funds currently consists
of two series: Marketvest Pennsylvania Intermediate Municipal Bond Fund
and Marketvest International Equity Fund. Marketvest Funds, Inc.
currently consists of three series: Marketvest Short-Term Bond Fund,
Marketvest Intermediate U.S. Government Bond Fund and Marketvest Equity
Fund (together with Marketvest Pennsylvania Intermediate Municipal Bond
Fund and Marketvest International Equity Fund, the ``Marketvest
Acquired Funds.'') The Marketvest Acquired Funds and the ARK Acquired
Fund collectively are referred to as the ``Acquired Funds.''
3. Allied is registered under the Investment Advisers Act of 1940
(the ``Advisers Act'') and is the investment adviser for the Acquiring
Funds and the ARK Acquired Fund. Allied is a wholly-owned subsidiary of
First National. First National is a wholly-owned subsidiary of First
Maryland, a bank holding company. As of October 31, 1997, First
National or its affiliates, all of which are part of a common control
group (``First National Group''), held of record 100% of the
outstanding shares of the ARK Pennsylvania Tax-Free Portfolio and the
Ark Stock Portfolio, and held or shared voting power and/or investment
discretion with respect to more than 5% of these shares.
4. Dauphin is the investment adviser of the Marketvest Acquired
Funds. Dauphin is a ``bank,'' as defined in section 202(a)(2) of the
Advisers Act, and therefore is exempt from registration as an
investment adviser under section 202(a)(11)(A) of the Advisers Act.
Dauphin is a wholly-owned subsidiary of First Maryland. As of October
31, 1997, Dauphin or its affiliates, all of which are part of a common
control group (the ``Dauphin Group''), held of record more than 5% of
the Marketvest Acquired Funds, and held or shared voting power and/or
investment discretion with respect to more than 5% of these shares. In
[[Page 10656]]
addition, as of the same date, defined benefit plans of Dauphin or its
subsidiaries owned in excess of 5% of the Marketvest Acquired Funds.
5. On November 7, 1997, and November 11, 1997, respectively, the
boards of directors and trustees of Marketvest Funds (the ``Marketvest
Boards'') and the board of trustees of ARK Funds (the ``ARK Board''),
including the disinterested directors and trustees, unanimously
approved the proposed reorganization (the ``Reorganization'') described
in an agreement and plan of reorganization (the ``Reorganization
Agreement'').\1\ Pursuant to the Reorganization Agreement, each
Acquiring Fund will acquire all of the assets and stated liabilities of
the corresponding Acquired Fund in exchange for shares of the Acquiring
Fund based on the Funds' relative net asset values on the closing date
(the ``Closing Date''). Each Reorganization Agreement further provides
that the Acquiring Fund will issue and distribute pro rata to the
corresponding Acquired Fund's shareholders of record, determined as of
the close of business on the Closing Date, the Acquiring Fund shares
issued in exchange for the Acquiring Fund's assets. This distribution
will be accomplished by the issuance of the Acquiring Fund shares to
open accounts on the share records of the Acquiring Fund in the names
of the Acquired Fund shareholders representing the full and fractional
number of Acquiring Fund shares due each shareholder pursuant to the
Reorganization Agreement. All issued and outstanding shares of the
Acquiring Fund will simultaneously be canceled on the books of the
Acquired Fund. No additional shares representing interests in the
Acquired Fund will be issued, and the Acquired Fund subsequently will
be liquidated.
---------------------------------------------------------------------------
\1\ Acquired Funds and the corresponding Acquiring Funds are:
(i) Marketvest Short-Term Bond Fund and ARK Short-Term Bond
Fund,
(ii) Marketvest Intermediate U.S. Government Bond Fund and ARK
U.S. Government Bond Portfolio,
(iii) Marketvest Equity Fund and ARK Value Equity Portfolio,
(iv) Marketvest Pennsylvania Intermediate Municipal Bond Fund
and ARK Pennsylvania Tax-Free Portfolio,
(v) Marketvest International Equity Fund and ARK International
Equity Selection Portfolio, and
(vi) ARK Stock Portfolio and ARK Value Equity Portfolio.
---------------------------------------------------------------------------
6. The Marketvest Acquired Funds offer one class of shares, which
are subject to a front-end sales charge but are not subject to a
contingent deferred sales charge. The Marketvest Acquired Fund shares
also are subject to distribution and shareholder servicing fees, which
currently are being waived. The Acquiring Funds and the ARK Acquired
Fund offer two classes of shares, a Retail Class and an Institutional
Class. As of the date of the application, there were no Retail Class
shareholders of the ARK Acquired Fund. The Institutional Class shares
are subject to neither a sales charge (front-end or deferred) nor rule
12b-1 fees, but the ARK Board has authorized payment by the
Institutional Class of shareholder service fees of 0.06%. For the
purposes of the Reorganization, the Marketvest Acquired Funds will be
reorganized into the Institutional Class of the corresponding Acquiring
Funds, and the Institutional Class of the ARK Acquired Fund will be
reorganized into the Institutional Class of the Corresponding Acquiring
Fund. The Institutional Class shares and the Marketvest Acquired Fund
shares have similar rights and obligations as described in the
application. No sales load will be imposed with respect to the shares
of the Acquiring Funds to be issued in the Reorganization. Following
the consummation of the Reorganization, Acquired Fund shareholders will
be subject to the shareholder service fees applicable to the
Institutional Class shares.
7. The investment advisory fees for the Acquired Funds and
Acquiring Funds are payable annually. At the present time, Allied and
Dauphin are waiving a portion of their advisory fees. Allied intends to
continue to waive a portion of its advisory fees after the
Reorganization.
8. The investment objectives of each Acquired Fund and it
corresponding Acquiring Fund are similar. The investment restrictions
and limitations of each Acquired Fund and corresponding Acquiring Fund
are substantially similar, but in some cases involve differences in the
general investment strategies utilized by these funds.
9. The Marketvest Boards and the ARK Board (together, the
``Boards''), including in both cases the disinterested directors and
trustees, found that participation in the Reorganization is in the best
interest of each Fund, and that the interests of existing shareholders
of each Fund will not be diluted as a result of the Reorganization.
10. In approving the Reorganization, the Boards considered: (a) the
terms and conditions of the Reorganization Agreement, including that
(i) the exchange of Acquired Fund shares for Acquiring Fund shares will
take place on a net asset value basis, (ii) no sales charge will be
incurred by Acquired Fund shareholders in connection with their
acquisition of Acquiring Fund shares, and (iii) First Maryland will pay
any unamortized organizational expenses on the books of the Acquired
Fund; (b) the tax-free status of the Reorganization; (c) the advantages
which may be realized by the Acquired Funds and Acquiring Funds,
including economies of scale; (d) the agreement of First Maryland to
bear the costs associated with the Reorganization; and (e) the fact
that the advisory fee would be substantially similar for the Acquired
Fund shareholders becoming shareholders of the corresponding Acquiring
Funds. In addition, the Marketvest Boards reviewed a number of factors,
including the investment objectives, policies and restrictions of the
Acquiring Funds and their relative compatibility with those of the
corresponding Marketvest Acquired Funds, and the shareholder services
and other fees applicable to the Institutional Class of the Acquiring
Funds as compared to those applicable to the Marketvest Acquired Funds.
The Boards also considered the potential benefits to First Maryland and
its affiliates which could result from the Reorganization and concluded
that, despite these potential benefits, various factors, including
those noted in (a) through (e) above, render the Reorganization fair
and in the best interests of the shareholders of the Acquired Funds and
the Acquiring Funds.
11. The expenses incurred in connection with the Reorganization,
which First Maryland will bear, are expected to include professional
fees and the cost of printing and mailing the prospectus/proxy
statements, soliciting proxies and holding the required shareholder
meetings.
12. Registration statements on Form N-14 were filed with the SEC
with respect to the Marketvest Acquired Funds and the ARK Acquired Fund
on February 13, 1998 and February 23, 1998, respectively. Applicants
sent a prospectus/proxy statement to shareholders of each Marketvest
Acquired Fund on February 20, 1998 for their approval at a meeting of
shareholders scheduled for March 19, 1998. Applicants expect to send a
prospectus/proxy statement to shareholders of the ARK Acquired Fund
approximately 30 days before the shareholders meeting, which is
currently schedule for April 23, 1998.
13. The Reorganization Agreement between Marketvest Funds and the
ARK Funds may be terminated by the mutual written consent of the
Marketvest Board and the ARK Board at any time prior to
[[Page 10657]]
the Closing Date or by either party at any time after June 30, 1998, if
the closing has not occurred prior to that date. The Reorganization
Agreement relating to the ARK Acquired Fund may be terminated and
abandoned by the ARK Board at any time prior to the Closing Date.
14. The consummation of the Reorganization will be subject to the
following conditions set forth in the Reorganization Agreement: (a) the
shareholders of each Acquired Fund will have approved the
Reorganization Agreement; (b) applicants will have received the
exemptive relief which is the subject of the application; (c) an
opinion of counsel with respect to the federal income tax aspects of
the Reorganization will have been received; and (d) each Acquired Fund
will have declared and paid a dividend or dividends on the shares of
the Acquired Fund which, together with all previous dividends, will
have the effect of distributing to the shareholders of the Acquired
Fund all of the Acquired Fund's investment company taxable income and
tax-exempt interest income for the final taxable period and all of its
net capital gains realized in the final taxable period. Applicants
agree not to make any material changes to the Reorganization Agreement
that affect the application without prior SEC approval.
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 an ``affiliated person'' of another person to include (a) any
person that owns 5% or more of the outstanding voting securities of
such other person, (b) any person 5% or more of whose outstanding
voting securities are directly or indirectly owned, controlled, or held
with power to vote by such other person, (c) any person directly or
indirectly controlling, controlled by or under common control with the
other person, and (d) if such other person is an investment company,
any investment adviser of that company.
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 solely by reason of having a common investment
adviser, common directors/trustees, and/or common officers, provided
that certain conditions set forth in the rule are satisfied.
3. Applicants believe that they may not rely on rule 17a-8 because
the Funds may be affiliated for reasons other than those set forth in
the rule. The ARK Acquired Fund and the ARK Value Equity Portfolio (the
Fund into which the ARK Acquired Fund is merging) have a common
investment adviser, Allied. Allied is a wholly-owned subsidiary of
First National. First National Group holds of record more than 5% of
the outstanding voting securities of the ARK Acquired Fund and the ARK
Pennsylvania Tax-Free Portfolio and holds or shares voting and/or
investment discretion with respect to more than 5% of such outstanding
voting securities. Because of this ownership, the ARK Acquired Fund and
the ARK Pennsylvania Tax-Free Portfolio might be deemed to be an
``affiliated person'' of First National under section 2(a)(3)(B) of the
Act. Therefore, the Reorganization of the ARK Acquired Fund and the ARK
Value Equity Portfolio may not meet the ``solely by reason of''
requirement of rule 17a-8.
4. The Dauphin Group holds of record more than 5% of the
outstanding voting securities of the Marketvest Acquired Funds and
holds or shares voting and/or investment discretion with respect to
more than 5% of their outstanding voting securities. First National and
Dauphin are under common ownership and control by First Maryland. By
virtue of this ownership, an Acquiring Fund may be deemed to be an
``affiliated person of an affiliated person'' of a Marketvest Acquired
Fund. Thus, the applicants are requesting an order pursuant to section
17(b) of the Act exempting them from section 17(a) to the extent
necessary to consummate the proposed Reorganization.
5. Section 17(b) of the Act provides that the SEC may exempt a
transaction from the provisions of section 17(a) if 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.
6. Applicants submit that the terms of the Reorganization satisfy
the standards set forth in section 17(b). Applicants note that the
Boards, including the disinterested directors and trustees, found that
participation in the Reorganization is in the best interests of each
Fund and that the interests of the existing shareholders of each Fund
will not be diluted as a result of the Reorganization. Applicants also
note that the exchange of the Acquired Funds' shares for the Acquiring
Funds' relative net asset values.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-5549 Filed 3-3-98; 8:45 am]
BILLING CODE 8010-01-M
