[Federal Register Volume 65, Number 106 (Thursday, June 1, 2000)]
[Notices]
[Pages 35145-35147]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-13615]


=======================================================================
-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 24474; 812-12008]


Armada Funds, et al.; Notice of Application

May 24, 2000.
AGENCY: Securities and Exchange Commission (``SEC'' or ``Commission'').

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

-----------------------------------------------------------------------

SUMMARY OF THE APPLICATION: Applicants request an order to permit 
certain series of Armada Funds (``Armada'') to acquire all of the 
assets and liabilities of all of the series of The Parkstone Group of 
Funds (``Parkstone'') (the ``Reorganization''). Because of certain 
affiliations, applicants may not rely on rule 17a-8 under the Act.

APPLICANTS: Armada, Parkstone, and National City Investment Management 
Company (``NCIMC'').

FILING DATES: The application was filed on March 1, 2000, and amended 
on May 23, 2000.

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 June 15, 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 winter'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, NW, Washington, DC 20549-
0609. Armada, Parkstone, One Freedom Valley Drive, Oaks, Pennsylvania 
19456; NCIMC, 1900 East Ninth Street, Cleveland, Ohio 44114.

FOR FURTHER INFORMATION CONTACT: Bruce R. MacNeil, Staff Attorney, 
(202) 942-0634 (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, NW., Washington, 
DC 20549-0102 (telephone (202) 942-8090).

Applicants' Representations

    1. Parkstone, a Massachusetts business trust, is registered under 
the Act as an open-end management investment company and is comprised 
of 16 series (the ``Acquired Funds''). Armada, a Massachusetts business 
trust, is registered under the Act as an open-end management investment 
company. Armada is compared of 28 series, 16 of which will participate 
in the Reorganization. Eleven of these series are currently operating 
(the ``Operating Acquiring Funds'') and 5 are newly organized shell 
series (the ``Shell Acquiring Funds,'' and together with the Operating 
Acquiring Funds, the ``Acquiring Funds''). The Acquiring Funds and the 
Acquired Funds are collectively referred to as the Funds.'' Applicants 
state that the investment that the objectives, policies and 
restrictions of each Acquired Fund and its

[[Page 35146]]

corresponding Acquiring Fund are substantially similar.
    2. NCIMC is registered under the Investment Advisers Act of 1940 
and is the investment adviser for the Acquired Funds and Operating 
Acquiring Funds and will be the investment adviser for the Shell 
Acquiring Funds. NCIMC is a wholly-owned subsidiary of National City 
Corporation (``NCC'').
    3. National City Bank, a subsidiary of NCC, and certain of its 
affiliated companies (``National City Group''), hold of record, in 
their name and in the names of their nominees, more than 5% (and with 
respect to certain Funds more than 25%) of the outstanding voting 
securities of certain of the 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 of the 
companies of National City Group may, at times, own economic interests 
in certain money market Funds for their own account.
    4. On November 19, 1998, May 11, 1999, July 20-21, 1999 and 
November 17, 1999, the boards of trustees of Armada and Parkstone (the 
``Boards'') including a majority of the trustees who are not 
``interested persons,'' as defined in section 2(a)(19) of the Act 
(``Disinterested Trustees''), approved Plans of Reorganization (each a 
``Plan'' and collectively, the ``Plans'') between Armada and Parkstone. 
Pursuant to the Plans, each Acquiring Fund will acquire all of the 
assets and liabilities of the corresponding Acquired Fund in exchange 
for shares of the Acquiring Funds.\1\
---------------------------------------------------------------------------

    \1\ The Acquired Funds and their corresponding Acquiring Funds 
are: (1) Parkstone Prime Obligations Fund and Armada Money Market 
Fund; (2) Parkstone U.S. Government Obligations Fund and Armada 
Government Money Market Fund; (3) Parkstone Tax-Free Fund and Armada 
Tax Exempt Money Market Fund; (4) Parkstone Bond Fund and Armada 
Bond Fund; (5) Parkstone Limited Maturity Bond Fund and Armada 
Enhanced Income Fund; (6) Parkstone Intermediate Government 
Obligations Fund and Armada Intermediate Bond Fund; (7) Parkstone 
Income Fund and Armada Equity Income Fund; (8) Parkstone Small 
Capitalization Fund and Armada Small Cap Growth Fund; (9) Parkstone 
International Discovery Fund and Armada International Equity Fund; 
(10) Parkstone Balanced Allocation Fund and Armada Allocation Fund; 
(11) Parkstone National Tax Exempt Bond Fund and Armada National Tax 
Exempt Bond Fund; (12) Parkstone Large Capitalization Fund and 
Armada Large Cap Ultra Fund; (13) Parkstone U.S. Government Income 
Fund and Armada U.S. Government Income Fund; (14) Parkstone Mid 
Capitalization Fund and Armada Mid Cap Growth Fund; (15) Armada 
Michigan Municipal Bond Fund and Armada Michigan Municipal Bond 
Fund; and (16) Parkstone Treasury Fund and Armada Treasury Plus 
Money Market Fund.
---------------------------------------------------------------------------

    5. Armada has four classes of shares: Class A, Class B, Class C and 
Class I. Class C shares will not be involved in the Reorganization. 
Parkstone has three classes of shares: Investor A, Investor B, and 
Institutional. The number of Acquiring Fund shares to be issued to 
shareholders of the Acquired Fund will be determined by dividing the 
aggregate net assets of each Acquired Fund class by the net asset value 
per share of the corresponding Acquiring Fund class, each computed as 
of the close of business on the closing date (``Closing Date''). 
Shareholders of Investor A, Investor B, and Institutional shares of the 
Acquired Funds will receive Class A, Class B, and Class I shares, 
respectively, of the corresponding Acquiring Fund. The Plans provide 
that these Acquiring Fund shares will be distributed pro rata to the 
shareholders of record in the applicable Acquired Fund class, 
determined as of the close of business on the Closing Date, in complete 
liquidation of each Acquired Fund. Applicants anticipate that the 
Closing Date will be on or around June 16, 2000.
    6. Applicants state that the investment objectives, policies, and 
restrictions of each Acquiring Fund are substantially similar to those 
of its corresponding Acquired Fund. Class A and Investor A shares are 
subject to a front end sales charge and a rule 12b-1 distribution fee 
and certain shareholders may be subject to a deferred sales charge. 
Class B and Investor B shares are subject to a contingent deferred 
sales charge \2\ and a rule 12b-1 distribution fee. Class I and 
Institutional shares are subject to a rule 12b-1 distribution fee but 
not a sales charge. No sales charge will be imposed in connection with 
the Reorganization. For purposes of calculating the deferred sales 
charge, shareholders of Investor A and Investor B shares of the 
Acquired Funds will be deemed to have held Class A and Class B shares 
of the corresponding Acquiring Fund since the date the shareholders 
initially purchased the shares of the Acquired Fund.
---------------------------------------------------------------------------

    \2\ Class A and B shares of Armada Money Market Fund, Armada 
Government Money Market Fund, Armada Tax Exempt Money Market Fund, 
and Armada Treasury Plus Money Market Fund and Investor A and B 
shares of Parkstone Prime Obligations Fund, Parkstone U.S. 
Government Obligations Fund, Parkstone Tax-Free Fund, and Parkstone 
Treasury Fund are not subject to any sales charge.
---------------------------------------------------------------------------

    7. The Boards, including a majority of the Disinterested Trustees, 
found that participation in the Reorganization is in the best interest 
of each Fund and that the interests of existing shareholders of the 
Funds will not be diluted as a result of the Reorganization. In 
approving the Reorganization, the Boards considered, among other 
things: (a) The potential effect of the Reorganization; (b) the expense 
ratios of the Acquiring Funds and the Acquired Funds; (c) the 
compatibility of the investment objectives and investment strategies of 
the Acquiring Funds and Acquired Funds; (d) the terms and conditions of 
the Plans; and (e) the tax-free nature of the Reorganization. The 
Acquiring Funds' Board also considered that Armada and National City 
Bank will equally bear the expenses associated with the Reorganization, 
except that Armada will bear any registration fees payable under 
federal and state law.
    8. The Plans may be terminated by mutual written consent of the 
Acquiring Fund and Acquired Fund at any time prior to the Closing Date. 
In addition, either party may terminate a Plan in writing without 
liability to the terminating party if certain conditions are not 
satisfied prior to the Closing Date.
    9. Definitive proxy solicitation materials have been filed with the 
SEC and were mailed to the Acquired Fund's shareholders on or about 
March 31, 2000. A special meeting of the Acquired Funds' shareholders 
was held on May 10, 2000, and the Acquired Funds' shareholders approved 
the Plans.
    10. The consummation of the Reorganization is subject to the 
following conditions: (a) A registration statement under the Securities 
Act of 1933 for the Acquiring Funds will have become effective; (b) the 
Acquired Fund shareholders will have approved the Plans; (c) applicants 
will have received exemptive relief from the SEC with respect to the 
issues in the application; (d) the Funds will have received an opinion 
of counsel concerning the tax-free nature of the Reorganization; and 
(e) each Acquired Fund that is not reorganizing into a corresponding 
Shell Acquiring Fund will have declared a dividend to distribute 
substantially all of its investment company taxable income and net 
capital gain, if any, to its shareholders. Applicants agree not to make 
any material changes to the Plans that affect the application without 
prior SEC staff 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 
that 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 directly or indirectly owns, controls, or holds with power 
to vote 5% or more

[[Page 35147]]

of the outstanding voting securities of the 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 the other 
person; and (c) any person directly or indirectly controlling, 
controlled by, or under common control with the other person.
    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 state that the National City Group holds of record 
more than 5% (and in some cases more than 25%) of the outstanding 
voting securities of certain of the Funds. Because of this ownership, 
applicants state that the Funds may be deemed affiliated persons for 
reasons other than those set forth in rule 17a-8 and therefore unable 
to rely on the rule. Applicants request an order pursuant to section 
17(b) of the Act exempting them from section 17(a) to the extent 
necessary to consummate the Reorganization.
    4. Section 17(b) of the Act provides that the SEC 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 submit that the terms of the Reorganization satisfy 
the standards set forth in section 17(b). Applicants note that the 
Boards, including a majority of the Disinterested 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 Reorganization 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. 00-13615 Filed 5-31-00; 8:45 am]
BILLING CODE 8010-01-M