[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]
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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.
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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.
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\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.
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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