[Federal Register Volume 65, Number 123 (Monday, June 26, 2000)]
[Notices]
[Pages 39452-39453]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-16025]



[[Page 39452]]

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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 24503; 812-11978]


Ark Funds, et al.; Notice of Application

June 19, 2000.
AGENCY: Securities and Exchange Commission (``Commission'').

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 the 
proposed reorganizations of four series (the ``Acquired Funds'') of The 
Govett Funds, Inc. (``Govett Funds'') with and into four series of ARK 
Funds (the ``Acquiring Funds,'' and together with the Acquired Funds, 
the ``Funds''). Because of certain affiliations, applicants may not 
rely on rule 17a-8 under the Act.

Applicants: ARK Funds, Govett Funds, Allied Investment Advisers, Inc. 
(``AIA''), and AIB Govett, Inc. (``AIB Govett'').

Filing Dates: The application was filed on February 14, 2000. 
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 July 10, 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.

ADDRESSES: Secretary, Commission, 450 Fifth Street, N.W., Washington, 
D.C. 20549-0609. Applicants, c/o Allfirst Trust Company, N.A., 25 S. 
Charles Street, Baltimore, Maryland 21201.

FOR FURTHER INFORMATION CONTACT: Emerson S. Davis, Sr., Senior Counsel, 
at (202) 942-0714, or Janet M. Grossnickle, 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 from 
the Commission's Public Reference Branch, 450 Fifth Street, N.W., 
Washington, D.C. 20549-0102 (telephone (202) 942-8090).

Applicants' Representations

    1. Ark Funds, a Massachusetts business trust, is registered under 
the Act as an open-end management investment company and currently 
offers twenty-four series (the ``Ark Portfolios''). Three of the ARK 
Portfolios, the ARK Income Portfolio, ARK Small-Cap Equity Portfolio 
(``Ark Small-Cap Portfolio''), and ARK International Equity Selection 
Portfolio (``ARK International Selection Portfolio''), are Acquiring 
Funds. ARK Funds is organizing two new ARK Portfolios, the ARK 
International Equity Portfolio and ARK Emerging Markets Equity 
Portfolio, which also will be Acquiring Funds. AIA, a Maryland 
corporation, is an investment adviser registered under the Investment 
Advisers Act of 1940 (``Advisers Act'') and serves as investment 
adviser to each Ark Portfolio. AIA is a wholly owned subsidiary of 
Allfirst Bank, which is a wholly-owned subsidiary of Allfirst Financial 
Inc. (``Allfirst Financial''), a bank holding company, which is a 
wholly-owned subsidiary of Allied Irish Banks, p.l.c. (``Allied 
Irish''). The Allfirst Financial Inc. Pension Plan (the ``Allfirst 
Plan''), which is a defined benefit plan maintained for the benefit of 
the employees of Allfirst Financial and its subsidiaries, is the 
beneficial owner of more than 5% of the outstanding voting securities 
of two Acquiring Funds. Moreover, Allfirst Trust Company, N.A. 
(``Allfirst Trust''), an indirect wholly-owned subsidiary of Allfirst 
Financial, owns, in a fiduciary capacity, more than 25% of the 
outstanding voting shares of each Acquiring Fund.
    2. Govett Funds, a Maryland corporation, is registered under the 
Act as an open-end management investment company and currently offers 
five series (each a ``Govett Fund''), four of which are Acquired Funds: 
the Govett Global Income Fund, Govett Smaller Companies Fund, Govett 
International Equity Fund, and Govett Emerging Markets Equity Fund. AIB 
Govett, a Maryland corporation, is an investment adviser registered 
under the Advisers Act and serves as investment adviser to each of the 
Govett Funds. AIB Govett Asset Management Limited (``AIB Govett 
London''), is an investment adviser registered under the Advisers Act 
and serves as sub-adviser to each of the Govett Funds. AIB Govett is a 
wholly-owned subsidiary of, and AIB Govett London is a majority-owned 
subsidiary of AIB Asset Management Holding Limited, which is an 
indirect majority-owned subsidiary of Allied Irish.
    3. On December 10, 1999 and January 5, 2000, the board of trustees 
of the Acquiring Funds and the board of directors of the Acquired Funds 
(together, the ``Boards''), respectively, including all the trustees 
and directors who are not ``interested persons,'' as defined in section 
2(a)(19) of the Act (``Independent Directors''), unanimously approved 
an agreement and plan of reorganization between the Funds (the 
``Reorganization Agreement''). Under the Reorganization Agreement, each 
Acquiring Fund will acquire all the assets and stated liabilities of 
the corresponding Acquired Fund in exchange for shares of the Acquiring 
Fund (the ``Reorganizations'').\1\ The shares of each Acquiring Fund 
exchanged will have an aggregate net asset value equal to the aggregate 
net asset value of the Acquired Fund's shares determined as of the 
close of business on the business day immediately preceding the day of 
the closing of each Reorganization (``Closing Date''). The value of the 
assets of the Funds will be determined according to the Funds' then-
current prospectuses and statements of additional information. As soon 
as reasonably practical after the Closing Date, each Acquired Fund will 
be liquidated by the distribution of the Acquiring Fund shares pro rata 
to the shareholders of the Acquired Fund.
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    \1\ Under the Reorganization Agreement, the Acquired Funds will 
merge into the Acquiring Funds as follows: Govett Global Income Fund 
will merge into ARK Income Portfolio, Govett Smaller Companies Fund 
into ARK Small-Cap Portfolio, Govett Emerging Market Equity Fund 
into ARK Emerging Markets Equity Portfolio and Govett International 
Equity Fund into ARK International Selection Portfolio. The Govett 
International Equity Fund merger into the ARK International 
Selection Portfolio is contingent upon proposed changes being 
approved by shareholders of the ARK International Selection 
Portfolio at a meeting on July 10, 2000. The proposals include 
increasing the investment advisory fees payable by the ARK 
International Selection Portfolio from 0.65% to 1.00% and revising 
its principal investment strategy so that it is substantially 
identical to that of the Govett International Equity Fund. In the 
event these proposals are not approved. Govett International Equity 
Fund would be reorganized into the ARK International Equity 
Portfolio, which has investment objectives, policies and 
restrictions substantially identical to those of the Govett 
International Equity Fund.
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    4. Applicants state that the investment objectives, policies and 
restrictions of each Acquired Fund are generally similar (and in the 
case of the Govett International Equity Fund and

[[Page 39453]]

Govett Emerging Markets Funds, substantially identical) to those of the 
corresponding Acquiring Fund. Each Fund offer Institutional Class 
Shares which are not subject to any sales charge or a distribution fee 
adopted under rule 12b-1 under the Act. The Acquired Fund's 
Institutional Class Shares are subject to redemption and exchange fees 
(as permitted by rule 11a-3 under the Act). The Acquired Funds offer 
Class A Retail Class Shares, which are not subject to a front-end sales 
load but are subject to rule 12b-1 distribution, redemption and 
exchange fees (as permitted by rule 11a-3 under the Act). The Acquiring 
Funds offer Retail Class A Shares, which are subject to a front-end 
sales load and rule 12b-1 distribution fee, but not a redemption or 
exchange fee. Shareholders of Institutional Class and Retail Shares of 
the Acquired Funds will receive Institutional and Retail Shares, 
respectively, of the corresponding Acquiring Fund. No sales charges 
will be imposed in connection with the Reorganizations. AIB Govett will 
bear the costs associated with the Reorganizations.
    5. The Boards, including all of the Independent Directors, 
determined that the participation of each Acquiring and Acquired Fund 
in a Reorganization was in the best interests of the shareholders of 
each Fund, and that the interests of the shareholders of each Fund 
would not be diluted as a result of the Reorganization. In assessing 
the Reorganizations, the Boards considered various factors, including: 
(a) The investment objectives, policies and limitations of each of the 
Acquired Funds and their compatibility with those of the corresponding 
Acquiring Funds; (b) the investment advisory and other fees paid by 
each of the Acquiring Funds and the historical and projected expenses 
of each of the Acquiring Funds; (c) the terms and conditions of the 
Reorganization Agreement; and (d) the anticipated tax consequences of 
the Reorganizations for the Funds and their shareholders. In addition, 
the board of directors of the Govett Funds considered: (a) The 
historical investment performance records of the Funds; (b) the 
capabilities, practices and resources of AIA and ARK Funds' other 
service providers; and (c) the shareholders services offered by ARK 
Funds.
    6. The Reorganizations are subject to a number of conditions 
precedent, including that: (a) The shareholders of each Acquired Fund 
will have approved the Reorganization; (b) the Funds will have received 
opinions of counsel that the Reorganizations will be tax-free for the 
Funds and their shareholders; and (c) applicants will have received 
from the Commission an exemption from section 17(a) of the Act for the 
Reorganizations. The Reorganization Agreement may be terminated and the 
Reorganizations abandoned at any time prior to the Closing Date by the 
Boards. Applicants agree not to make any material changes to the 
Reorganization Agreement without prior Commission approval.
    7. A registration statement on Form N-14 with respect to the 
Reorganizations, containing a proxy statement/prospectus, was filed 
with the Commission on May 18, 2000 and will be mailed to shareholders 
of the Acquired Funds during the week of June 19, 2000. A shareholders 
meeting of the Acquired Funds is scheduled for July 10, 2000.

Applicants' Legal Analysis

    1. Section 17(a) of the Act, in relevant part, 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 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 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, 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 because 
the Funds may be deemed to be affiliated by reasons other than having a 
common investment adviser, common directors, and/or common officers. 
Applicants state that because Allfirst Plan owns in the aggregate 5% of 
certain Acquiring Funds and Allfirst Financial has an indirect 
pecuniary interest in the performance of the assets held by the 
Allfirst Plan. Allfirst Financial may be deemed to be an affiliated 
person of these Acquiring Funds. In addition, applicants state that 
because Allfirst Trust owns in the aggregate, as a fiduciary, more than 
25% of the outstanding voting securities of the Acquiring Funds, it may 
be deemed to be an affiliated person of the Acquiring Funds. Because of 
the common ownership of Allfirst Financial and AIB Govett, each 
Acquiring Fund might be deemed to be an affiliated person of an 
affiliated person of the corresponding 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 that the proposed transaction is consistent with 
the policy of each registered investment company concerned and with 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 complete 
the Reorganizations. Applicants submit that the Reorganizations satisfy 
the standards of section 17(b) of the Act. Applicants state that the 
terms of the Reorganizations are reasonable and fair and do not involve 
overreaching. Applicants state that the investment objectives and 
policies of each Acquired Fund are generally similar (and in the case 
of the Govett International Equity Fund and Govett Emerging Markets 
Funds, substantially identical) to those of its corresponding Acquiring 
Fund. Applicants also state that the Boards, including all of the 
Independent Directors, have made the requisite determinations that the 
participation of the Acquired and Acquiring Funds in the 
Reorganizations is in the best interests of each Fund and that such 
participation will not dilute the interests of the existing 
shareholders of each Fund. In addition, applicants state that the 
Reorganizations will be 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. 00-16025 Filed 6-23-00; 8:45 am]
BILLING CODE 8010-01-M