Investment Company Act of 1940 — Section 17(a)
ING Series Fund, Inc., et al

April 30, 2008

Your letter dated April 29, 2008 requests our assurance that we would not recommend enforcement action to the Securities and Exchange Commission ("Commission") under section 17(a) of the Investment Company Act of 1940 (the "1940 Act") against ING Series Fund, Inc. ("ING Series Fund"), ING Strategic Allocation Portfolios, Inc. ("ING Strategic"), ING Funds Trust ("ING Funds Trust"), ING Variable Portfolios, Inc. ("ING Variable"), and ING VP Intermediate Bond Portfolio ("ING VP Intermediate Bond", and together with ING Series Fund, ING Strategic, ING Funds Trust and ING Variable, the "ING Funds") if, under the circumstances described below and without obtaining an exemptive order from the Commission under section 17(b) of the 1940 Act, certain portfolio series of the ING Funds sell their portfolio securities and other assets to other portfolio series of the ING Funds in exchange for shares of those portfolio series.

BACKGROUND

You state the following: The ING Funds are open-end management investment companies registered with the Commission ("funds"), and are each advised by ING Investments, LLC (the "Adviser") and subadvised by ING Investment Management Co. (the "Subadviser").¹ Except for one portfolio series of ING Funds Trust (the ING Intermediate Bond Fund), all of the Participating Funds (as defined below) share common officers and common board of directors or trustees ("Board").² Three portfolio series of ING Series Fund and three portfolio series of ING Strategic are asset allocation funds (the "Asset Allocation Funds"). The Asset Allocation Funds are designed to provide investors with different risk-reward opportunities based on predetermined ranges of exposures to different categories of assets. Exposures within an asset category are managed by selecting securities for purchase and sale in accordance with a specific investment style (each style being referred to as a "mandate," and the assets of each Asset Allocation Fund managed in accordance with each mandate being referred to as a "sleeve").³

The Board of each of the Asset Allocation Funds, including all of the directors who are not "interested persons" as defined in section 2(a)(19) of the 1940 Act ("Independent Directors") of any Asset Allocation Fund, has determined that it would be in the interest of shareholders of each Asset Allocation Fund to restructure the management of the Asset Allocation Funds into a fund-of-funds ("FOF") structure in reliance on section 12(d)(1)(G) of the 1940 Act and rule 12d1-2 thereunder, so that each Asset Allocation Fund will invest directly in certain portfolio series of the ING Funds that are receiving in-kind transfers of securities from Asset Allocation Funds in exchange for their shares ("Transferee Funds", and together with the Asset Allocations Funds, the "Participating Funds").⁴

You represent that the mandate of each Transferee Fund that invests in equity securities (an "Equity Transferee Fund") is the same as the mandate of its corresponding sleeve in each Asset Allocation Fund that is invested in the same category of equity securities (each, an "Equity Sleeve"), and that each Equity Transferee Fund will be managed in the same manner as its corresponding Equity Sleeve. You further represent that the mandate of each Transferee Fund that invests in fixed income securities (a "Fixed Income Transferee Fund") is substantially the same as the mandate of its corresponding sleeve in each Asset Allocation Fund that is invested in fixed income securities (each, a "Fixed Income Sleeve"), and that each Fixed Income Transferee Fund will be managed in substantially the same manner as its corresponding Fixed Income Sleeve.⁵ You state that each of the Transferee Funds is managed by the Adviser and sub-advised by the Subadviser and the individuals currently responsible for managing a particular sleeve of each Asset Allocation Fund are also responsible for managing the assets of a Transferee Fund using the corresponding mandate. You represent that, with respect to each In-Kind Transfer by an Asset Allocation Fund to a Transferee Fund, the securities being transferred would otherwise be purchased in substantially the same quantities by the Transferee Fund if the Asset Allocation Fund were purchasing shares of the Transferee Fund with cash rather than securities.⁶

You represent that the proposed FOF structure will benefit shareholders by resulting in operational and investment efficiencies that, over time, may improve the long-term viability of the Asset Allocation Funds. You state that this structure will produce greater investment transparency, which can be expected to result in greater asset retention and growth and, over time, a reduction in the gross expense ratios of the Asset Allocation Funds. You represent that as part of the proposed FOF structure, the Board of each of the Asset Allocation Funds, including all Independent Directors, and the shareholders of each of the Asset Allocation Funds, have approved amendments to the existing investment advisory and subadvisory agreements with the Adviser and Subadviser, respectively, for the Asset Allocation Funds. You also represent that the Adviser agreed to waive fees or otherwise pay expenses of each Asset Allocation Fund for at least three years following the conversion to a FOF structure in such amounts necessary to ensure that the total expense ratio of each Asset Allocation Fund (including for these purposes such fund's allocable share of the expenses of the Transferee Funds) does not exceed the expense cap currently in place for such fund.

The Asset Allocation Funds propose to effect such a restructuring by having each Asset Allocation Fund deliver the assets, excluding cash, of a particular sleeve in kind (the "in-kind consideration") to acquire shares of its corresponding Transferee Funds (the "In-Kind Transfers").⁷ You represent that the In-Kind Transfers will eliminate the duplication of brokerage costs and potential market disruption that would otherwise result from an Asset Allocation Fund disposing of securities in the open market to generate cash for purchase of shares of a Transferee Fund, and the Transferee Fund subsequently purchasing the same or substantially similar securities with such cash.

The Participating Funds propose to engage in an In-Kind Transfer in accordance with the following representations ("Proposed Representations"):

1. An In-Kind Transfer will not dilute the interests of the shareholders of either Participating Fund;
2. The in-kind consideration accepted by a Transferee Fund will consist of assets that are appropriate, in type and amount, for investment by the Transferee Fund in light of its investment objectives and policies, and current holdings;⁸
3. Each sleeve of each Asset Allocation Fund will transfer all of its portfolio securities in consideration for the purchase of shares of one corresponding Transferee Fund;⁹
4. An Asset Allocation Fund and its corresponding Transferee Fund have the same policies and procedures for determining their net asset values¹⁰, and will follow those policies and procedures in determining the amount of shares of a Transferee Fund to sell to an Asset Allocation Fund. The Asset Allocation Fund and its corresponding Transferee Fund will ascribe the same value to the in-kind consideration;
5. The transfer of the in-kind consideration from an Asset Allocation Fund to a Transferee Fund will be effected simultaneously with the transfer of the shares of such Transferee Fund to such Asset Allocation Fund;
6. The Participating Funds will effect the In-Kind Transfers pursuant to procedures adopted by the Board of each Participating Fund, including a majority of the Independent Directors of such Participating Fund, that are reasonably designed to provide that the In-Kind Transfers are effected in a manner consistent with (1) through (5) above;
7. Within the 30 days following the 30-day period immediately after completion of the In-Kind Transfers, the Board of each Participating Fund, including a majority of Independent Directors, on behalf of each Participating Fund, will determine that all of the In-Kind Transfers involving such Participating Fund:
   1. were effected in accordance with the In-Kind Transfer procedures;
   2. did not favor an Asset Allocation Fund to the detriment of any other shareholder of the corresponding Transferee Fund or favor the Transferee Fund to the detriment of the Asset Allocation Fund; and
   3. were in the best interests of such Participating Fund;
8. The Participating Funds will maintain and preserve for a period of not less than six years from the end of the fiscal year in which the purchase occurred, the first two years in an easily accessible place, a copy of the In-Kind Transfer procedures, as well as other records for the In-Kind Transfers setting forth the identity of the Participating Funds involved, a description of the composition of the relevant Participating Funds' investment portfolios (including each asset's value) immediately prior to the In-Kind Transfers, a description of each security delivered in connection with the In-Kind Transfers, the terms of the In-Kind Transfers, the information or materials upon which the asset valuations were made, and a description of the composition of each Participating Fund's investment portfolio (including each asset's value) 30 days after the In-Kind Transfers; and
9. The Adviser will, consistent with its fiduciary duties, disclose to the Independent Directors of each Participating Fund the existence of, and all of the material facts relating to, any conflicts of interest between the Adviser and the Participating Fund(s) in an In-Kind Transfer, to allow the Independent Directors to make a fully informed determination as to whether to approve the In-Kind Transfers.¹¹

You note that the In-Kind Transfers and the Proposed Representations are similar to the in-kind purchase transactions described in Old Mutual Advisor Funds (SEC Staff No-Action Letter (Nov. 16, 2007)) (the "Old Mutual Letter"). The Old Mutual Letter provided no-action assurances under section 17(a) of the 1940 Act in connection with in-kind purchase transactions between certain funds and their affiliated funds. You assert that the In-Kind Transfers are consistent with the purpose of section 17(a), and are fair and beneficial to the Participating Funds and their shareholders. Further, you contend that neither the Adviser nor the Subadviser has a material pecuniary incentive to select securities to be transferred in kind that would favor one Participating Fund to the detriment of any other Participating Fund. You, therefore, seek relief under section 17(a), so that the Participating Funds may engage in the In-Kind Transfers.

LEGAL ANALYSIS

Section 17(a)(1) of the 1940 Act, in relevant part, prohibits any affiliate, acting as principal, from knowingly selling any security or other property to a fund.¹² Section 17(a)(2) of the 1940 Act, in relevant part, prohibits any affiliate, acting as principal, from knowingly purchasing from such fund, any security or other property. Section 17(a) of the 1940 Act was designed to prohibit self-dealing and other forms of overreaching of a fund by its affiliates. The section addresses self-dealing by prohibiting a purchase or sale transaction involving a fund when an affiliate of the fund is a party to the transaction and has "both the ability and the pecuniary incentive to influence the actions of the investment company."¹³

As we discussed in the Old Mutual Letter, there are three separate transactions that may be prohibited by section 17(a) of the 1940 Act when a fund uses consideration in kind to purchase shares issued by an affiliated fund because the protections of section 17 extend to each fund involved. Specifically, the proposed in-kind purchases may be prohibited under section 17 because:¹⁴

1. the sale of Transferee Fund shares to each Asset Allocation Fund may be viewed as a sale of securities by an affiliate (the Transferee Fund) to a fund (the Asset Allocation Fund) under section 17(a)(1) of the 1940 Act;
2. the purchase of the in-kind consideration by a Transferee Fund from the Asset Allocation Fund may be viewed as a purchase of securities by an affiliate (the Transferee Fund) from a fund (the Asset Allocation Fund) under section 17(a)(2) of the 1940 Act; and
3. the sale of the in-kind consideration by the Asset Allocation Fund to the Transferee Fund may be viewed as a sale of securities by an affiliate (the Asset Allocation Fund) to a fund (the Transferee Fund) under section 17(a)(1) of the 1940 Act.¹⁵

Transactions (1) and (2) raise the concerns that a Transferee Fund may overreach an Asset Allocation Fund by: (i) selecting particular securities to be transferred to the Transferee Fund as in-kind consideration that would be more beneficial for the Asset Allocation Fund to retain (i.e., cherry picking); and/or (ii) causing the Asset Allocation Fund to accept an amount of the Transferee Fund's shares that is of lesser value than the in-kind consideration.¹⁶ Similarly, transaction (3) raises the concerns that an Asset Allocation Fund may overreach a Transferee Fund by: (i) causing the Transferee Fund to accept unwanted portfolio securities as in-kind consideration; and/or (ii) causing the Transferee Fund to issue its shares in exchange for in-kind consideration that is of lesser value than the shares.

You contend that the concerns underlying sections 17(a)(1) and (2) would be addressed by conducting the In-Kind Transfers consistent with the Proposed Representations. You represent that the Proposed Representations are similar to those in the Old Mutual Letter.¹⁷

You contend that the Proposed Representations would address the concerns underlying sections 17(a)(1) and (2) with respect to transactions (1) and (2). You contend that no Transferee Fund (or its affiliate) would overreach an Asset Allocation Fund by selecting desirable securities to be transferred as in-kind consideration because, pursuant to the Proposed Representations, each sleeve of each Asset Allocation Fund will transfer all of its portfolio securities to its corresponding Transferee Fund. You further contend that neither the Adviser nor the Subadviser has a material pecuniary incentive to select securities to be transferred to favor a Transferee Fund to the detriment of its corresponding Asset Allocation Fund. In addition, you contend that the Board of the Asset Allocation Funds, pursuant to the Proposed Representations, shall review the transactions following completion of the In-Kind Transfers to ensure that, among other things, the In-Kind Transfers were in the best interests of each Asset Allocation Fund. You also contend that no Transferee Fund (or its affiliate) would overreach an Asset Allocation Fund by causing it to accept an amount of the Transferee Fund's shares that is of lesser value than the in-kind consideration because, as required by the Proposed Representations, the procedures adopted by the Boards for effecting the In-Kind Transfers focus on the proper and consistent valuation of the in-kind consideration and require a determination by each Board that the In-Kind Transfers did not favor the Transferee Fund to the detriment of an Asset Allocation Fund.

Similarly, you contend that the Proposed Representations would address the concerns underlying section 17(a)(1) with respect to transaction (3). You contend that no Asset Allocation Fund (or its affiliate) would overreach a Transferee Fund by causing the Transferee Fund to accept unwanted portfolio securities as in-kind consideration because, pursuant to the Proposed Representations, the in-kind consideration would be consistent with each Transferee Fund's investment objectives, policies, and current holdings. In particular, you contend that the ability of an Asset Allocation Fund (or its affiliate) to overreach a Transferee Fund in this manner is limited because each sleeve of each Asset Allocation Fund will transfer all of its portfolio securities to its corresponding Transferee Fund which has a mandate that is the same or substantially the same as the mandate of the sleeve, and is managed in the same or substantially the same manner as the sleeve. You represent that, with respect to each In-Kind Transfer by an Asset Allocation Fund to a Transferee Fund, the securities being transferred would otherwise be purchased in substantially the same quantities by the Transferee Fund if the Asset Allocation Fund were purchasing shares of the Transferee Fund with cash rather than securities. You also represent that neither the Adviser nor the Subadviser has a material pecuniary incentive to select securities to be transferred to favor an Asset Allocation Fund to the detriment of its corresponding Transferee Fund. You further represent that the Adviser and the Subadviser of each Transferee Fund shall certify to the Boards on the day of the In-Kind Transfers that the in-kind consideration is appropriate, in type and amount, for investment by the Transferee Fund in light of its investment objectives and policies, and current holdings, and that the Board of the Transferee Funds shall review the transactions following completion of the In-Kind Transfers to ensure that, among other things, the in-kind purchases were in the best interests of each Transferee Fund. Finally, you contend that no Asset Allocation Fund (or its affiliate) would overreach a Transferee Fund by causing the Transferee Fund to issue its shares in exchange for in-kind consideration that is of lesser value because, as required by the Proposed Representations, the procedures adopted by the Boards for effecting the In-Kind Transfers focus on the proper and consistent valuation of the in-kind consideration and require a determination by each Board that the In-Kind Transfers did not favor an Asset Allocation Fund to the detriment of any other shareholder of the corresponding Transferee Fund.

Based on the facts and representations set forth in your letter, we would not recommend enforcement action to the Commission under section 17(a) of the 1940 Act against the ING Funds if, under the circumstances described in this letter and without obtaining an exemptive order from the Commission under section 17(b) of the 1940 Act, the Asset Allocation Funds sell their in-kind consideration to the Transferee Funds in exchange for shares of the Transferee Funds.¹⁸ This letter expresses our position on enforcement action only, and does not express any legal conclusion on the issues presented. Because our position is based on the facts and representations in your letter, you should note that any different facts and representations may require a different conclusion.

Endnotes

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¹ The ING Funds share a common principal underwriter and other service providers.

² ING Intermediate Bond Fund shares common officers with the other Participating Funds, but operates under a different Board.

³ You represent that the sleeves of each Asset Allocation Fund do not have investment objectives and policies but are instead governed by the mandates.

⁴ The Transferee Funds consist of three other series of ING Series Fund, one series of ING Funds Trust, three series of ING Variable and the sole series of ING VP Intermediate Bond.

⁵ Each of the Fixed Income Transferee Funds was classified by Morningstar, Inc. ("Morningstar") in the category for taxable "intermediate-term bond" funds (the "Intermediate Bond Category") in the Morningstar Category Classifications for portfolios available for sale in the United States. Morningstar determined that each Fixed Income Sleeve would also be classified by Morningstar in the Intermediate Bond Category.

⁶ This representation assumes that the same securities in substantially the same quantities would be available for purchase at such time by the Fixed Income Transferee Funds at substantially the same prices used to value such securities in connection with the In-Kind Transfer.

⁷ The in-kind consideration for each sleeve would consist of the portfolio securities held within the sleeve along with the non-security assets (e.g., dividend and interest receivables, and amounts receivable for securities sold). Each asset that is not a security will have a definite value.

⁸ You represent that the Adviser and the Subadviser shall certify to the Board of each Participating Fund on the day of the In-Kind Transfers that each asset that constitutes the in-kind consideration accepted by a Transferee Fund is appropriate, in type and amount, for investment by the Transferee Fund in light of its investment objectives and policies, and current holdings. In conjunction with preparing and providing such certification, the Adviser and Subadviser shall consider, among other things, the appropriateness of a Transferee Fund acquiring the securities proposed to be transferred, rather than different investments. You also represent that, subsequent to the In-Kind Transfers, the Board of each Participating Fund shall request and evaluate, and the Adviser shall furnish, such information as may be reasonably necessary to evaluate whether the in-kind consideration accepted by a Transferee Fund consisted of securities that were appropriate, in type and amount, for investment by each Transferee Fund in light of its investment objectives and policies, and current holdings. Each Board will consult with the chief compliance officer to assist with this evaluation.

⁹ You represent that only sleeves that are managed with a mandate that corresponds to the mandate of a Transferee Fund will engage in any In-Kind Transfers.

¹⁰ See rules 22c-1 and 2a-4 under the 1940 Act.

¹¹ See Tannenbaum v. Zeller, 552 F.2d 402, 418 (2d Cir. 1977), cert. denied, 434 U.S. 934 (1977) (stating that the fund's investment adviser had a duty to disclose information to the unaffiliated directors of the fund "in every area where there was even a possible conflict of interest" between the interests of the adviser and the interests of the fund).

¹² Section 17(a) applies only to certain transactions involving funds that are registered with the Commission as investment companies under the 1940 Act.

¹³ See Investment Company Mergers, Investment Company Act Release No. 25259 (Nov. 15, 2001) (proposing amendments to rule 17a-8 under the 1940 Act), citing, among other things, Investment Trusts and Investment Companies: Hearings on S.3580 Before a Subcomm. of the Senate Comm. on Banking and Currency, 76th Cong. 3d Sess., at 256-59 (1940).

¹⁴ You state that the Asset Allocation Funds may be considered to be affiliates of the Transferee Funds under section 2(a)(3)(C) of the 1940 Act because they may be deemed to be under the common control of their investment adviser.

¹⁵ A fourth transaction may be excepted from the prohibitions of section 17(a), involving the purchase by an Asset Allocation Fund of Transferee Fund shares, which may be viewed as a purchase of securities by an affiliate (the Asset Allocation Fund) from a fund (the Transferee Fund) under section 17(a)(2) of the 1940 Act. Section 17(a)(2) excepts from its prohibitions purchases by an affiliate from a fund involving "securities of which the seller is the issuer." An Asset Allocation Fund, under such circumstances, would purchase from a Transferee Fund shares that were issued by the Transferee Fund.

¹⁶ See, e.g., Exemption of Certain Purchase or Sale Transactions between a Registered Investment Company and Certain Affiliated Persons, Investment Company Act Release No. 11136 (Apr. 21, 1980) (noting that there is a section 17(a) concern when an investment adviser transfers desirable securities from a fund to another fund managed by the adviser or when an affiliated transaction is effected at a price which is disadvantageous to the fund).

¹⁷ The Proposed Representations, while not identical to, are consistent with the conditions imposed by the Commission in exemptive relief for similar in-kind purchase transactions. See, e.g., GMO Core Trust, Investment Company Act Release Nos. 15979 (Sept. 15, 1987) (Notice) and 16048 (Oct. 14, 1987) (Order); GE Asset Management, Investment Company Act Release Nos. 24674 (Oct. 3, 2000) (Notice) and 24717 (Oct. 30, 2000) (Order); CIGNA Funds Group, Investment Company Act Release Nos. 24464 (May 23, 2000) (Notice) and 24500 (June 16, 2000) (Order); Colchester Street Trust, Investment Company Act Release Nos. 24337 (Mar. 13, 2000) (Notice) and 24385 (Apr. 10, 2000); UAM Funds, Inc., Investment Company Act Release Nos. 22895 (Nov. 18, 1997) (Notice) and 22943 (Dec. 16, 1997) (Order); The Park Avenue Portfolio, Investment Company Act Release Nos. 22561 (Mar. 13, 1997) (Notice) and 22607 (Apr. 8, 1997) (Order).

¹⁸ We note that the actual date on which the In-Kind Transfers occurred was April 4, 2008. This letter confirms the position of the staff that was provided orally to Philip H. Newman, Esq., of Goodwin Procter LLP, counsel to the ING Funds, on March 31, 2008.

Incoming Letter

The Incoming Letter is in Acrobat format.

http://www.sec.gov/divisions/investment/noaction/2008/ing043008-17a.htm