[Federal Register Volume 64, Number 223 (Friday, November 19, 1999)]
[Notices]
[Pages 63357-63358]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-30273]


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

SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 24132; 812-11772]


STI Classic Funds and SunTrust Banks, Inc.; Notice of Application

November 15, 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.

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

SUMMARY OF THE APPLICATION: Applicants request an order to permit two 
series of a registered open-end management investment company to 
acquire all of the assets, subject to certain liabilities, of two other 
series of the investment company. Because of certain affiliations, 
applicants may not rely on rule 17a-8 under the Act.

APPLICANTS: STI Classic Funds (``STI Funds'') and SunTrust Banks, Inc. 
(``SunTrust'').

FILING DATES: The application was filed on September 13, 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 December 8, 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. 20549-0609. Applicants, c/o W. John McGuire, Esq., Morgan, Lewis & 
Bockius LLP, 1800 M Street, N.W., Washington, D.C. 20036-5869.

FOR FURTHER INFORMATION CONTACT: Emerson S. Davis, Sr., Senior Counsel, 
at (202) 942-0714, or George J. Zornada, 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. STI Funds, a Massachusetts business trust, is registered under 
the Act as an open-end management investment company and offers thirty-
six series, including the SmallCap Growth Stock Fund (``Small Cap 
Fund'') and the International Equity Fund (``International Fund'') 
(together, the ``Acquiring Funds'') and the Sun Belt Equity Fund 
(``Equity Fund'') and the Emerging Markets Equity Fund (``Emerging 
Markets Fund'') (together, the ``Acquired Funds,'' and together with 
the Acquiring Funds, the ``Funds'').
    2. SunTrust, a Georgia corporation, is a bank holding company and 
the parent of Trusco Capital Management, Inc. (``Trusco'') and STI 
Capital Management, N.A. (``STI Capital''), both wholly-owned 
subsidiaries. Trusco is registered under the Investment Advisers Act of 
1940 (the ``Advisers Act'') and is the investment adviser to the Small 
Cap and Equity Funds. STI Capital, a bank, is exempt from registration 
under the Advisers Act and is the investment adviser to the 
International and Emerging Markets Funds. Currently, bank subsidiaries 
of SunTrust own in the aggregate, in a fiduciary capacity, 25% or more 
of the outstanding voting securities of each Fund.
    3. On May 18, 1999 and August 17, 1999, the board of trustees of 
STI Funds (the ``Board''), including all of the trustees who are not 
``interested persons,'' as defined in section 2(a)(19) of the Act 
(``Independent Trustees''), approved a plan of reorganization between 
the Small Cap Fund and Equity Fund and between the International Fund 
and Emerging Markets Fund, respectively (the ``Plan''). Under the Plan, 
on the date of the exchange (the ``Closing Date''), which is currently 
anticipated to be December 13, 1999, each Acquiring Fund will acquire 
all of the assets and certain stated liabilities of

[[Page 63358]]

the corresponding Acquired Fund in exchange for shares of the Acquiring 
Fund having 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 Closing Date. As 
soon as reasonably practical after the Closing Date, each Acquired Fund 
will liquidate and distribute pro rata the shares of the Acquiring Fund 
to the shareholders of the Acquired Fund (``Reorganization''). The net 
asset value of the assets received will be determined in the manner set 
forth in each Fund's current prospectus and statement of additional 
information.
    4. Applicants state that the investment objectives, policies and 
restrictions of each Acquired Fund are substantially similar to those 
of its corresponding Acquiring Fund. Each Fund offers Trust Shares 
which are not subject to any sales charge or rule 12b-1 distribution 
fee. Both the Equity and Small Cap Funds offer (a) Investor Shares, 
which are subject to a front-end sales load and rule 12b-1 distribution 
fee and (b) Flex Shares, which are subject to a contingent deferred 
sales charge (``CDSC'') and rule 12b-1 distribution fee.\1\ 
Shareholders of Trust, Investor and/or Flex Shares of each Acquired 
Fund will receive corresponding shares of each Acquiring Fund. The 
holding period used to determine whether a CDSC will apply to a holder 
of Flex Shares of the Small Cap Fund who becomes a shareholder as a 
result of the Reorganization will include any period of time that the 
shareholder held shares of the Equity Fund. No sales charges will be 
imposed in connection with the Reorganization. Any expenses incurred in 
connection with the Reorganization will be borne by SunTrust.
---------------------------------------------------------------------------

    \1\ The Equity Fund and Small Cap Fund Investor Shares have the 
same front-end sales load. Investor Shares of the Equity Fund have a 
distribution fee of .43% and Investor Shares of the Small Cap Funds 
have a distribution fee of .50%. Flex Shares have the same maximum 
distribution fees.
---------------------------------------------------------------------------

    5. The Board, including all of the Independent Trustees, determined 
that the Reorganization is in the best interests of the shareholders of 
each Fund, and that the interests of the existing shareholders of each 
Fund would not be diluted as a result of the Reorganization. In 
assessing the Reorganization, the Board considered various factors, 
including: (a) the compatibility of the investment objectives, policies 
and limitations of the Acquired and corresponding Acquiring Funds; (b) 
the expense ratios of the Acquired and Acquiring Funds (c) the terms 
and conditions of the Reorganization; (d) the tax-free nature of the 
Reorganization; and (e) the potential economics of scale to be gained 
from the Reorganization.
    6. The Reorganization is subject to a number of conditions 
precedent, including that: (a) the shareholders of each Acquired Fund 
will have approved the Plan; (b) STI Funds will have received an 
opinion of counsel that the Reorganization will be tax-free for the 
Funds; and (c) applicants will 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 at any time prior to the 
Closing Date by the Board or any authorized officer of STI Funds if it 
is determined that circumstances have changed to make the 
Reorganization inadvisable. Applicants agree not to make any material 
changes to the Plan without prior Commission approval.
    7. Definitive proxy materials have been filed with the Commission 
and were mailed to shareholders of the Acquired Funds on or about 
November 10, 1999. A special meeting of shareholders of the Acquired 
Funds is scheduled for December 10, 1999.

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 set forth in the rule are satisfied. 
Applicants believe that rule 17a-8 may not be available 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 
subsidiary banks of SunTrust own in the aggregate, as a fiduciary, 25% 
or more of the outstanding voting securities of each Fund and that 
SunTrust therefore may be deemed to be an affiliated person of the 
Funds, resulting in the Acquired Funds being affiliated persons of an 
affiliated person of the Acquiring Funds. Applicants also state that 
the Funds, by virtue of the above ownership, may be deemed to be under 
common control and therefore affiliated persons of each other.
    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 Reorganization. Applicants submit that the Reorganization satisfies 
the standards of section 17(b) of the Act. Applicants believe that the 
terms of the Reorganization are reasonable and fair and do not involve 
overreaching. Applicants state that the investment objectives and 
policies of each Acquired Fund are substantially similar to those of 
its corresponding Acquiring Fund. Applicants also state that the Board, 
including all of the Independent Trustees, has made the requisite 
determinations that the participation of the Acquired and Acquiring 
Funds in the Reorganization 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 
Reorganization 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. 99-30273 Filed 11-18-99; 8:45 am]
BILLING CODE 8010-01-M