[Federal Register Volume 64, Number 81 (Wednesday, April 28, 1999)]
[Notices]
[Pages 22886-22888]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-10646]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 23809; 812-11488]
STI Classic Funds, et al.; Notice of Application
April 23, 1999.
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
certain series of STI Classic Funds to acquire all of the assets and
liabilities of certain series of CrestFunds, Inc. and The Arbor Fund
(the ``Reorganization''). Because of certain affiliations, applicants
may not rely on rule 17a-8 under the Act.
APPLICANTS: STI Classic Funds (``STI''), CrestFunds, Inc.
(``CrestFunds''), the Arbor Fund (``Arbor'') and SunTrust Banks, Inc.
(``Adviser'').
FILING DATES: The application was filed on February 1, 1999. 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 May 13, 1999, 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.
[[Page 22887]]
20549-0609. Applicants, c/o W. John McGuire, Esq., Morgan Lewis &
Bockius LLP, 1800 M Street, N.W., Washington, DC 20036-5869.
FOR FURTHER INFORMATION CONTACT: John K. Forst, Attorney-Advisor, at
(202) 942-0569 (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. STI, a Massachusetts business trust, is registered under the Act
as an open-end management investment company comprised of 34 series, 17
of which (the ``Acquiring Funds'') will participate in the
Reorganization. CrestFunds, a Maryland corporation, is registered under
the Act as an open-end management investment company and is currently
comprised of 15 series, all of which will participate in the
Reorganization. Arbor is a Massachusetts business trust registered
under the Act as an open-end management investment company and is
currently comprised of 13 series, 2 of which will participate in the
Reorganization (participating series of the CrestFunds and Arbor are
referred to as the ``Selling Funds'').
2. The adviser is a Georgia corporation and a bank holding company.
STI Capital Management, N.A. (``STI Capital''), Trusco Capital
Management, Inc. (``Trusco''), and SunTrust Bank, Atlanta (``SunTrust
Bank''), each an indirect wholly-owned subsidiary of the Adviser, are
investment advisers to the STI Funds. Trusco is registered under the
Investment Adivsers Act of 1940 (the ``Advisers Act''). STI Capital and
SunTrust Bank are banks and are not required to register under the
Advisers Act. Crestar Asset Management Company (``CAMCO'') is an
indirect, wholly-owned subsidiary of the Adviser and is registered
under the Advisers Act. CAMCO is the investment adviser to the
CrestFunds and the Arbor Selling Funds. On the Closing Date, as defined
below, the Adviser, through its bank subsidiaries, as fiduciary for its
customers, may own of record more than 5% (in some cases 25% or more)
of the Acquiring and Selling Funds.
3. On February 17, 19, and 22, 1999, the boards of trustees/
directors of STI, CrestFunds, and Arbor Funds, respectively, (together,
the ``Boards''), including all of the trustees/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 (``Plan''). Under the Plan, on one of the dates of
the exchange (each a ``Closing Date'' and collectively, the ``Closing
Dates''), which are currently anticipated to be May 17 and 24, 1999,
each Acquiring Fund will acquire all of the assets and liabilities of
the respective Selling Fund in exchange for shares of the Acquiring
Fund that have an aggregate net asset value (``NAV'') equal to the
aggregate NAV of the Selling Fund as of the close of business on the
business day preceding the Closing Date.\1\ As soon as practical after
the applicable Closing Date, each Selling Fund will liquidate and
distribute pro rata the shares of the corresponding Acquiring Fund to
the shareholders of the Selling Fund. The value of the assets of the
Funds will be determined in the manner set forth in the Funds' then-
current prospectuses and statements of additional information.
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\1\ Selling Funds and the corresponding Acquiring Funds are: 1.
CrestFund Capital Appreciation Fund and STI Capital Appreciation
Fund, 2. CrestFund Special Equity Fund and STI Small Cap Growth
Stock Fund, 3. CrestFund Intermediate Bond Fund and STI Investment
Grade Bond Fund, 4. CrestFund Cash Reserve Fund and STI Prime
Quality Money Market Fund, 5. CrestFund Government Bond Fund and STI
U.S. Government Securities Fund, 6. CrestFund Limited Term Bond Fund
and STI Short-Term Bond Fund, 7. CrestFund U.S. Treasury Money Fund
and STI U.S. Treasury Money Market Fund, 8. CrestFund Tax Free Money
Fund and STI Tax-Free Money Market Fund, 9. CrestFund Value Fund and
STI Growth and Income Fund, 10. CrestFund Virginia Municipal Bond
Fund and STI Virginia Municipal Bond Fund, 11. CrestFund Virginia
Intermediate Municipal Bond Fund and STI Virginia Intermediate
Municipal Bond Fund, 12. CrestFund Maryland Municipal Bond Fund and
STI Maryland Municipal Bond Fund, 13. CrestFund Maximum Growth
Portfolio and STI Life Vision Maximum Growth Portfolio, 14.
CrestFund and Income Portfolio and STI Life Vision Growth and Income
Portfolio, 15. CrestFund Balanced Portfolio and STI Life Vision
Balanced Portfolio, 16. Arbor Prime Obligations Fund and STI Classic
Institutional Cash Management Money Market Fund, and 17. Arbor U.S.
Government Securities Money Fund and STI Classic Institutional U.S.
Government Securities Money Market Fund.
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4. Applicants state that the investment objectives, restrictions,
and limitations of each Acquiring Fund are substantially similar or
identical to those of each corresponding Selling Fund. STI offers
shares in four classes: Trust Shares, Investor Shares, Flex Shares, and
Institutional Shares. Trust Shares are not subject to a front end sales
load, contingent deferred sales charge (``CDSC''), or asset-based
distribution fee (``12b-1 Fee''). Certain Investor Shares are subject
to a front end load and/or a 12b-1 Fee but none are subject to a CDSC.
Flex shares are subject to a CDSC and a 12b-1 Fee but no front end
load. Institutional Shares are not subject to a front end load, CDSC,
or 12b-1 Fee. CrestFunds offers shares in three classes: Trust Class
Shares, Investor Class A Shares (``A Shares''), and Investor Class B
Shares (``B Shares''). Certain Trust Class Shares are subject to a 12b-
1 Fee and none are subject to a front end load or CDSC. Certain A
Shares are subject to a front end load; all A shares are subject to a
12b-1 Fee; and no A Shares are subject to a CDSC. B Shares are subject
to CDSC and 12b-1 Fees, but are not subject to a front end load. The
participating series of Arbor offer a single class that is not subject
to a 12b-1 Fee, a front end load, or a CDSC. Holders of Trust Class
Shares will receive Trust Shares; holders of A Shares will receive
Investor Shares (except for holders of A Shares of the Special Equity
Fund who will receive Trust Shares of the corresponding STI Fund);
holders of B Shares will receive Flex Shares (Except for holders of B
Shares of the Cash Reserve Fund who will receive Investor Shares of the
corresponding STI Fund); and holders of Arbor shares will receive
Institutional Shares. No front end load or CDSC will be imposed in
connection with the Reorganization.
5. Reorganization expenses will be borne by the CrestFunds and the
STI, as determined by their respective Boards. The Arbor Board
determined that the payment of reorganization expenses by Arbor would
not be appropriate. The Adviser and its affiliates will pay
Reorganization expenses that the respective Boards did not authorize
Selling Funds or Acquiring Funds to pay.
6. The Boards, including all of the Independent Trustees,
determined that the Reorganization is in the best interests of the
shareholders of each Selling Fund and its respective Acquiring Fund,
and that the interests of the existing shareholders of each Selling
Fund and its respective Acquiring Fund would not be diluted by the
Reorganization. In assessing the Reorganization, the Boards considered
various factors including: (a) the terms and conditions of the
Reorganization; (b) compatibility of the Funds' objectives and
policies; (c) performance of the corresponding Acquiring Funds; (d)
experience and resources of the advisers for the corresponding
Acquiring Funds; (e) expense ratios of the combined Funds; (f)
potential economies of scale to be gained from the Reorganization; (g)
advantages of increased investment opportunities for the Selling Funds'
shareholders; (h) tax-
[[Page 22888]]
free nature of the Reorganization; (i) service features available to
shareholders of the respective Acquiring Funds and Selling Funds; and
(j) the assumption by the Acquiring Funds of the identified liabilities
of the Selling Funds. The Board of each Selling Fund that is a series
of CrestFunds also considered that the Fund will be required to pay its
pro-rata portion of the Reorganization expenses.
7. The Reorganization is subject to a number of conditions
precedent, including that: (a) the Reorganization is approved by the
Boards and each of the Selling Funds' shareholders in the manner
required by applicable law; (b) the Acquiring and Selling Funds receive
opinions of counsel that the Reorganization will not result in federal
income taxes for each Fund or its shareholders; and (c) applicants
receive from the Commission an exemption from section 17(a) of the Act
for the Reorganization. The plan may be terminated and the
Reorganization abandoned by mutual consent of the Boards or by either
party in case of a breach of the Plan. Applicants agree not to make any
material changes to the Plan without prior Commission approval.
8. Definitive proxy solicitation materials have been filed with the
Commission and were mailed to shareholders of the Selling Funds on
April 7, 1999. A special meeting of shareholders is scheduled for May
7, 1999.
Applicant's Legal Analysis
1. Section 17(a) 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 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 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, 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 set
forth in the rule are satisfied.
3. Applicants believe that they may not rely on rule 17a-8 in
connection with the Reorganization 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 at the
Closing Date, the Adviser, through its bank subsidiaries, as fiduciary
for its customers, may own of record more than 5% (in some cases 25% or
more) of the Acquiring and Selling Funds.
4. Section 17(b) of the Act provides that the Commission 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 request an order under section 17(a) of the Act
exempting them from section 17(a) to the extent necessary to complete
the Reorganization. Applicants submit that the Reorganization satisfies
the standards of section 17(a) of the Act. Applicants believe that the
terms of the Reorganization are fair and reasonable and do not involve
overreaching. Applicants state that the Reorganization will be based on
the relative NAVs of the corresponding Acquiring and Selling Funds'
shares. Applicants also state that the investment objectives, policies
and restrictions of the corresponding Selling and Acquiring Funds are
identical or substantially similar. In addition, applicants state that
the Boards, including all of the Independent Trustees, have made the
requisite determinations that the participation of the corresponding
Acquiring and Selling Funds in the Reorganization is in the best
interests of each Fund and that such participation will not dilute the
interests of shareholders of the Funds.
For the Commission, by the Division of Investment Management,
under delegated authority.
Jonathan G. Katz,
Secretary.
[FR Doc. 99-10646 Filed 4-27-99; 8:45 am]
BILLING CODE 8010-01-M