[Federal Register Volume 67, Number 135 (Monday, July 15, 2002)]
[Notices]
[Pages 46550-46552]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-17611]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-25650; 812-12789]


Banknorth Funds, et al.; Notice of Application

July 8, 2002.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of application for an order 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 Application: Applicants request an order to permit a 
certain series of a registered open-end management investment company 
to acquire all of the assets and liabilities of certain other series of 
the same registered open-end management investment company. Because of 
certain affiliations, applicants may not rely on rule 17a-8 under the 
Act.
    Applicants: Banknorth Funds, Banknorth, N.A., and Banknorth 
Investment Advisors (``BIA'').
    Filing Dates: The application was filed on February 27, 2002 and 
amended on July 1, 2002.
    Hearing or Notification of Hearing: An order granting the requested 
relief 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 August 2, 2002 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.

ADDRESSES: Secretary, Securities and Exchange Commission, 450 Fifth 
Street, NW, Washington, DC 20549-0609. Applicants, c/o Banknorth 
Investment Management Group, 111 Main Street, Burlington, VT 05402-
0409.

FOR FURTHER INFORMATION CONTACT: Julia Kim Gilmer, Senior Counsel, at 
(202)

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942-0528, or Todd F. Kuehl, 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 
Commission's Public Reference Branch, 450 Fifth Street, NW, Washington, 
DC 20549-0102 (tel. 202-942-8090).

Applicants' Representations

    1. Banknorth Funds is a Delaware business trust registered under 
the Act as an open-end management investment company and currently 
consists of six series. Two of the series, the Banknorth Large Cap 
Growth Fund and the Banknorth Value Fund are the ``Acquired Funds,'' 
and a third series, the Banknorth Large Cap Core Fund, is the 
``Acquiring Fund'' (each series a ``Fund'' and collectively, the 
``Funds'').
    2. BIA, a division of Banknorth Investment Management Group, which 
is a division of Banknorth N.A., is registered under the Investment 
Advisers Act of 1940 (``Advisers Act'') and serves as the investment 
adviser to each of the Funds. As of May 20, 2002, Banknorth N.A., in a 
fiduciary capacity, owned more than 5% (and more than 25%) of the 
outstanding voting securities of each of the Funds.
    3. On November 15, 2001, the Funds' board of trustees (``Board''), 
including all of the trustees who are not ``interested persons'' of the 
Funds as defined in section 2(a)(19) of the Act (``Disinterested 
Trustees''), unanimously approved the proposed reorganizations and 
agreements and plans of reorganization of the respective Funds 
(``Reorganization Agreements''). Under the Reorganization Agreements, 
the Acquiring Fund will acquire all of the assets, subject to the 
liabilities, of each of the Acquired Funds in exchange for shares of 
the Acquiring Fund (the ``Reorganizations''). Shareholders of each 
Acquired Fund will receive Acquiring Fund shares having an aggregate 
net asset value equal to the aggregate net asset value of each Acquired 
Fund determined as of the close of the New York Stock Exchange 
(normally 4:00 p.m. Eastern time) on the day of closing of each 
Reorganization. The net asset value of the Acquiring Fund's shares and 
the Acquired Funds' net asset values will be determined according to 
each Fund's then-current prospectus and statement of additional 
information. As soon as reasonably practical after the closing of each 
Reorganization, the Acquired Funds will distribute the shares of the 
Acquiring Fund pro rata to their shareholders in complete liquidation 
and dissolution of the Acquired Funds.
    4. Applicants state that the Board has determined that the 
investment objectives of each Acquired Fund and the Acquiring Fund are 
identical. In seeking its objective, the Acquiring Fund employs a 
blended style of investing, using both growth-based and value-based 
strategies. One of the Acquired Funds seeks to achieve its investment 
objective by investing primarily in the growth-oriented stocks of 
large-capitalization companies, and the other Acquired Fund invests 
primarily in value-oriented stocks of large-capitalization companies. 
Applicants state that the rights and obligations of the Acquired Funds' 
shareholders are identical to those of the Acquiring Fund's 
shareholders. Shares of the Acquiring Fund and the Acquired Funds are 
subject to a maximum front-end sales charge of 5.50%, a rule 12b-1 fee 
of 0.25% and shareholder service fees of 0.25%. No sales charge or 
exchange fee will be imposed in connection with the Reorganizations. 
Banknorth N.A. will bear the costs of each Reorganization.
    5. The Board, including all of the Disinterested Trustees, 
unanimously determined that each Reorganization was in the best 
interest of each Fund and its shareholders, and that the interests of 
each Fund's existing shareholders will not be diluted as a result of 
the Reorganizations. In approving the Reorganizations, the Board 
considered various factors, including, among other things: (a) The 
terms and conditions of the Reorganizations, including any changes in 
services to be provided to shareholders of each Fund; (b) the 
respective expense ratios of the Funds; (c) the investment objectives, 
management policies and investment restrictions of the Funds; (d) the 
potential economies of scale that are likely to result from the larger 
asset base of the combined Funds; (e) the anticipated tax-free nature 
of the Reorganizations; (f) the fact that the costs of each 
Reorganization will be borne by Banknorth, N.A.; and (g) the relative 
performance of each Fund.
    6. The Reorganizations are subject to a number of conditions 
precedent, including that: (a) The shareholders of each Acquired Fund 
shall have approved their respective Reorganization; (b) applicants 
will have received from the Commission an exemption from section 17(a) 
of the Act for the Reorganizations; (c) a registration statement on 
Form N-14 under the Act and the Securities Act of 1933 relating to the 
Acquiring Fund will have become effective; (d) the receipt of an 
opinion of counsel that the Reorganizations will be tax-free for the 
Funds and their shareholders; and (e) each Acquired Fund shall have 
declared and paid dividend(s) which shall have the effect of 
distributing to its shareholders all net investment company taxable 
income for all taxable periods, if any, and all of its net realized 
capital gains. The Reorganization Agreements may be terminated by the 
Board or may be abandoned at any time prior to the closing date of the 
Reorganizations. Applicants agree not to make any material changes to 
the Reorganization Agreements without prior Commission approval.
    7. The registration statement on Form N-14 for the Reorganization 
of each Acquired Fund containing a combined prospectus/proxy statement 
was filed with the Commission on June 4, 2002. It is expected that the 
combined prospectus/proxy statement will be mailed to shareholders of 
each Acquired Fund in July 2002. Shareholder meetings for the Acquired 
Funds' shareholders to consider the Reorganizations have been scheduled 
for August 9, 2002.

Applicants' Legal Analysis

    1. Section 17(a) of the Act prohibits any affiliated person of a 
registered investment company, or any affiliated person of that person, 
acting as principal, from selling to or purchasing from the registered 
investment company any security or other property. Section 2(a)(3) of 
the Act 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 5% or more of whose outstanding voting 
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.
    2. Rule 17a-8 under the Act exempts certain mergers, 
consolidations, and sales of substantially all of the assets of 
registered investment companies that are affiliated persons, or 
affiliated persons of an affiliated person (``Second-Tier 
Affiliates''), solely by reason of having a common investment adviser, 
common directors, and/or common officers, provided, that certain 
conditions are satisfied. Applicants believe that rule 17a-8 may not be 
available to exempt the Reorganizations

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because the Funds may be deemed to be affiliated persons by reasons 
other than having a common investment adviser, common directors, and/or 
common officers. Applicants state that Banknorth N.A., an affiliated 
person of BIA, owns as a fiduciary and has the power to vote more than 
5% (and more than 25%) of the outstanding voting securities of each of 
the Funds. Therefore, the Acquiring Fund may be deemed a Second-Tier 
Affiliate of each Acquired Fund.
    3. Section 17(b) of the Act provides, in relevant part, that the 
Commission may exempt a transaction from the provisions of section 
17(a) if evidence establishes that the terms of the proposed 
transaction, including the consideration to be paid or received, are 
reasonable and fair and do not involve overreaching on the part of any 
person concerned, and the proposed transaction is consistent with the 
policy of each registered investment company concerned and the general 
purposes of the Act.
    4. Applicants request an order under section 17(b) of the Act 
exempting them from section 17(a) to the extent necessary to consummate 
each Reorganization. Applicants submit that the Reorganizations satisfy 
the conditions of section 17(b) of the Act. Applicants also state that 
the Board, including all of the Disinterested Trustees, has found the 
participation of the Funds in the Reorganizations to be in the best 
interests of each Fund and its shareholders and that such participation 
will not dilute the interests of existing shareholders of each Fund. 
Applicants also state that the Reorganizations will be effected on the 
basis of relative net asset value.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-17611 Filed 7-12-02; 8:45 am]
BILLING CODE 8010-01-P