[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]


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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.

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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

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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.
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    \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.
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    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

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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