Securities and Exchange Commission (“Commission”).
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 a pension plan to transfer its assets to certain registered open-end management investment companies in exchange for shares of the companies.
ARK Funds, Allfirst Financial Inc. Pension Plan (“Allfirst Plan”), Allied Investment Advisers, Inc. (“AIA”), Allfirst Trust Company, N.A. (“Allfirst Trust”) and Allfirst Financial Inc.
The application was filed on July 1, 1999. Applicants have agreed to file an amendment to the application 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 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 February 24, 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.
Secretary, Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. Applicants, c/o Alan C. Porter, Esq., Piper Marbury Rudnick & Wolfe LLP, 1200 Nineteenth Street, NW, Washington, DC 20036-2412.Start Further Info
FOR FURTHER INFORMATION CONTACT:
Emerson S. Davis, Sr., Senior Counsel, at (202) 942-0714, or George J. Zornada, Branch Chief, at (202) 942-0564 (Division of Investment Management, Office of Investment Company Regulation).End Further Info End Preamble Start Supplemental Information
The following is a summary of the Start Printed Page 6424application. 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).
1. ARK Funds, a Massachusetts business trust, is registered under the Act as an open-end management investment company and offers twenty series (the “ARK Portfolios”). AIA is an investment adviser registered under the Investment Advisers Act of 1940 and serves as investment adviser to each ARK Portfolio. Allfirst Trust acts as custodian and sub-administrator for the ARK Portfolios. AIA and Allfirst Trust are wholly-owned subsidiaries of Allfirst Bank, which is a wholly-owned subsidiary of Allfirst Financial Inc., a bank holding company (Allfirst Financial Inc. and its direct and indirect subsidiaries, collectively “Allfirst”).
2. The Allfirst Plan is a defined benefit pension plan qualified under section 401 of the Internal Revenue Code of 1986, as amended. The Allfirst Plan is maintained for the benefit of employees of Allfirst and is exempt from the definition of “investment company” under section 3(c)(11) of the Act. Allfirst Trust is trustee of and AIA is investment adviser to the Allfirst Plan.
3. Currently, the Allfirst Plan has approximately 36.8% of its assets invested in the ARK Portfolios, with the remainder invested directly in individual securities. The Allfirst Plan holds more than 5% of the outstanding voting securities of four of the ARK Portfolios. Applicants propose to transfer in-kind of the assets of the Allfirst Plan, other than shares of the ARK Portfolios, to various ARK Portfolios for which the securities are appropriate investments, in exchange for Institutional Class shares of the respective ARK Portfolios having an aggregate net asset value equal to that of the securities transferred (the “Proposed Exchange”). Pursuant to procedures adopted by each ARK Portfolio's board of directors (“Board”), AIA has determined that the individual securities held by the Allfirst Plan are appropriate investments for the participating ARK Portfolios. The securities of the Allfirst Plan to be transferred will be valued in accordance with the provisions of rule 17a-7(b) under the Act. Institutional Class shares of the ARK Portfolios do not have a front-end or deferred sales charge, redemption fee, or distribution fee. Allfirst will pay any expenses incurred in connection with the Proposed Exchange. Applicants request relief to effect the Proposed Exchange.
Applicants' Legal Analysis
1. Section 17(a) of the Act, in relevant part, prohibits an affiliated persons 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 investment company. Section 2(a)(3) of the Act, in relevant part, defines an “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 directly or indirectly controlling, controlled by, or under common control with, the other person; and (c) if the other person is an investment company, any investment adviser of that company. Applicants state that, because the Allfirst Plan may be viewed as acting as principal in the Proposed Exchange and because the Allfirst Plan and the ARK Portfolios may be viewed as being under the common control of Allfirst, within the meaning of section 2(a)(3)(C) of the Act, the Proposed Exchange may be subject to the prohibitions of section 17(a) of the Act.
2. Rule 17a-7 under the Act exempts from the prohibitions of section 17(a) certain purchase and sale transactions if an affiliation exists solely by reason of having a common investment adviser, common directors, and/or common officers, provided, among other requirements, that the transaction involves a cash payment against prompt delivery of the securities. Applicants state that rule 17a-7 may not be available for the Proposed Exchange because the Allfirst Plan owns 5% or more of the outstanding voting shares of certain ARK Portfolios and Allfirst has an indirect pecuniary interest in the performance of the assets held by the Allfirst Plan. As a result, the affiliation between the Allfirst Plan and the ARK Portfolios is not solely by reason of having a common investment adviser, common directors, and/or common officers. In addition, applicants state that the Proposed Exchange is to be effected as an in-kind transfer, rather than in cash.
3. Rule 17a-8 under the Act exempts certain mergers, consolidations, and sales of assets of registered investment companies from the provisions of section 17(a) of the Act if an affiliation exists solely by reason of having a common investment adviser, common directors, and/or common officers, provided, among other requirements, that the board of directors of each investment company makes certain determinations. Applicants state that rule 17a-8 is not available for the Proposed Exchange because Allfirst is not transferring “substantially all” of its assets to the ARK Portfolios, because the Allfirst Plan is not a registered investment company and because the Allfirst Plan and the ARK Portfolios are affiliated other than solely by reason of having a common investment adviser, common director and/or common officers.
4. Section 17(b) of the Act provides that the Commission may exempt a proposed transaction from the provisions of section 17(a) if evidence establishes that: (a) 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; (b) the proposed transaction is consistent with the policy of each registered investment company concerned; and (c) the proposed transaction is consistent with the general purposes of the Act.
5. Applicants request an order under section 17(b) of the Act to permit the Proposed Exchange. Applicants submit that the Proposed Exchange satisfies the standards for relief under section 17(b) of the Act. Applicants state that the securities to be acquired from the Allfirst Plan are consistent with the investment objectives, policies and restrictions of the participating ARK Portfolios. Applicants also state that the Proposed Exchange will meet all of the conditions of rules 17a-8 (with respect to the ARK Funds) and that the Proposed Exchange will occur in accordance with procedures respectively adopted by the Board, pursuant to rule 17a-7(e), and that the provisions of rule 17a-7(b), (c), (d) and (f) will be satisfied. Applicants state that the Proposed Exchange will take place as an in-kind transfer from the Allfirst Plan to the ARK Portfolios, rather than on the basis of cash as required by rule 17a-7(a). The Proposed Exchange will not occur unless and until the Board (including a majority of the Independent Trustees) finds that participation by the ARK Portfolios in the Proposed Exchange is in the best interests of each ARK Portfolio and that the interests of existing shareholders of the ARK Portfolio will not be diluted as a result of the transaction.
Applicants agree that any order granting the requested relief will be subject to the following conditions:Start Printed Page 6425
1. The Proposed Exchange will comply with the terms of rule 17a-7(b) through (f).
2. The Proposed Exchange will not occur unless and until the Board (including a majority of the Independent Trustees) finds that participation by the ARK Portfolios in the Proposed Exchange is in the best interests of each ARK Portfolio and that the interests of existing shareholders of the ARK Portfolio will not be diluted as a result of the transaction. These findings, and the basis upon which they are made, will be recorded fully in the minute books of ARK Funds.
3. The Proposed Exchange will not occur unless and until AIA, as investment manager and fiduciary of the Allfirst Plan, has determined in accordance with its fiduciary duties that the Proposed Exchange is in the best interests of the Allfirst Plan.Start Signature
For the Commission, by the Division of Investment Management, under delegated authority.
Margaret H. McFarland,
[FR Doc. 00-2879 Filed 2-8-00; 8:45 am]
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