Securities and Exchange Commission (“Commission”).
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 Start Printed Page 20171the 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”).
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.
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.Start Further Info
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).End Further Info End Preamble Start Supplemental 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).
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. 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.
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 Start Printed Page 20172with 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.Start Signature
For the Commission by the Division of Investment Management, under delegated authority.
Jonathan G. Katz,
1. The Acquiring Fund also offers Investor Shares, but these shares are not involved in the Reorganization.Back to Citation
[FR Doc. 01-9710 Filed 4-18-01; 8:45 am]
BILLING CODE 8010-01-M