[Federal Register Volume 66, Number 76 (Thursday, April 19, 2001)]
[Notices]
[Pages 20170-20172]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-9710]


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

SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 24938; 812-12448]


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

April 13, 2001.
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 APPLICATION: Applicants request an order to permit a series 
of a registered open-end management investment company to acquire all 
of

[[Page 20171]]

the assets and certain stated liabilities of another series of the same 
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 February 21, 2001, and 
amended on April 11, 2001.
    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 8, 2001, 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, NW., Washington, DC 
20549-0609; Applicants, c/o W. John McGuire, Esq., Morgan, Lewis & 
Bockius LLP, 1800 M Street, NW., Washington, DC 20036-5869.

FOR FURTHER INFORMATION CONTACT: Lidian Pereira, Senior Counsel, at 
(202) 942-0524 or Mary Kay Frech, Branch Chief, at (202) 952-0564 
(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 at the 
Commission's Public Reference Branch, 450 Fifth Street, NW., 
Washington, DC 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. STI Funds offers 
36 series, including the Capital Appreciation Fund (the ``Acquiring 
Fund'') and Core Equity Fund (the ``Acquired Fund'') (the Acquiring 
Fund and the Acquired Fund together, the ``Funds'').
    2. SunTrust, a Georgia corporation, is a bank holding company and 
parent of Trusco Capital Management Inc. (``Trusco''). Trusco is 
registered under the Investment Advisers Act of 1940 (the ``Advisers 
Act'') and serves as the investment adviser to the 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 February 20, 2001, 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 Acquiring 
Fund and the Acquired Fund (the ``Plan''). Under the Plan, on the date 
of exchange (``Closing Date''), which is currently anticipated to be on 
or about May 21, 2001, the Acquiring Fund will acquire all the assets 
and certain stated liabilities of the Acquired Fund in exchange for 
shares of the Acquiring Fund (the ``Reorganization''). The shares of 
the 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 
before the Closing Date. The net asset values of the Funds will be 
determined in the manner set forth in each of the Funds' current 
prospectuses and statements of additional information. As soon as is 
reasonably practicable after the Closing Date, the Acquired Fund will 
distribute pro rata the shares of the Acquiring Fund to its 
shareholders and terminate.
    4. Applicants state that the investment objectives, policies and 
restrictions of the Acquired Fund are substantially similar to that of 
the Acquiring Fund. Both the Acquired Fund and the Acquiring Fund offer 
Trust Shares and Flex Shares.\1\ Trust Shares are not subject to a 
front-end sales load, a contingent deferred sales charge (``CDSC'') or 
a rule 12b-1 distribution fee. Flex Shares are not subject to a front-
end sales load, but are subject to a CDSC and a rule 12b-1 distribution 
fee. Shareholders of Trust or Flex Shares of the Acquired Fund will 
receive corresponding shares of the Acquiring Fund. The one year 
holding period used to determine whether a CDSC will apply to a holder 
of Flex Shares of the Acquiring Fund who becomes a shareholder as a 
result of the Reorganization will include any period of time that the 
shareholder held shares of the Acquired Fund. No sales charge will be 
imposed in connection with the Reorganization. Any expenses incurred in 
connection with the Reorganization will be borne by Trusco.
---------------------------------------------------------------------------

    \1\ The Acquiring Fund also offers Investor Shares, but these 
shares are not involved in the Reorganization.
---------------------------------------------------------------------------

    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 existing shareholders of each Fund 
will not be diluted as a result of the Reorganization. In assessing the 
Reorganization, the Board considered a number of factors, including: 
(a) The terms and conditions of the Reorganization; (b) the tax-free 
nature of the Reorganization; (c) the compatibility of the investment 
objectives, policies and limitations of the Acquired Fund and the 
Acquiring Fund; (d) the expense ratios of the Acquired Fund and the 
Acquiring Fund; and (e) the potential economies of scale to be gained 
from the Reorganization.
    6. The consummation of the Reorganization is subject to a number of 
conditions precedent, including: (a) The approval of the Reorganization 
by the shareholders of the Acquired Fund; (b) STI Funds' receipt of an 
opinion of counsel that the Reorganization will be tax-free for STI 
Funds and its shareholders; and (c) the applicants' receipt from the 
Commission of 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 the 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 are scheduled to be mailed to shareholders on or about April 19, 
2001. A special meeting of shareholders of the Acquired Fund is 
scheduled for May 18, 2001.

Applicants' Legal Analysis

    1. Section 17(a) of the Act 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 or 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

[[Page 20172]]

with the other person, and (d) if the other person is an investment 
company, any investment adviser of that company. Applicants state that 
the Funds may be deemed affiliated persons and, thus, the 
Reorganization may be prohibited by section 17(a).
    2. Rule 17a-8 under the Act exempts from he prohibitions of section 
17(a) of the Act 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. Applicants believe that rule 18a-8 may 
not be available in connection with the Reorganization because the 
Funds may be deemed to be affiliated for reasons other than those set 
forth in the rule. 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; therefore, SunTrust may be deemed to be 
an affiliated person of the Funds, resulting in the Acquired Fund being 
an affiliated person of an affiliated person of the Acquiring Fund. 
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 the 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) of the Act to the extent necessary to 
complete the Reorganization. Applicants submit that the Reorganization 
satisfies the standards of section 17(b) of the Act. Applicants state 
that the terms of the proposed Reorganization are fair and reasonable 
and do not involve overreaching. Applicants state that the investment 
objectives and policies of the Acquired Fund are substantially similar 
to those of the 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.
Jonathan G. Katz,
Secretary.
[FR Doc. 01-9710 Filed 4-18-01; 8:45 am]
BILLING CODE 8010-01-M