[Hunton & Williams Letterhead]
March 29, 1999
CrestFunds, Inc.
32 South Street
Baltimore, MD 21202
STI Classic Funds
2 Oliver Street
Boston, MA 02109
REORGANIZATION OF CRESTFUNDS, INC.
AND STI CLASSIC FUNDS
CERTAIN FEDERAL INCOME TAX MATTERS
Ladies and Gentlemen:
We have acted as counsel to CrestFunds, Inc., a Maryland corporation
("CrestFunds"), in connection with the proposed acquisitions of the assets of
each of CrestFunds' fifteen investment series (the "Selling Funds") by
fifteen corresponding investment series (the "Acquiring Funds") of STI
Classic Funds, a Massachusetts business trust ("STI"). For six of the fifteen
acquisitions, the Acquiring Fund will be an existing STI fund (a "C
Reorganization"). For nine of the fifteen acquisitions, the Acquiring Fund
will be a newly-formed STI fund (an "F Reorganization"). This letter
refers to the C Reorganizations and F Reorganizations collectively as the
"Reorganizations" and individually as a "Reorganization." You have requested
our opinion concerning certain federal income tax consequences of the
Reorganizations.
With respect to each Reorganization; (1) the Selling Fund will transfer
all of its assets to the corresponding Acquiring Fund in exchange for Trust
Shares, Investor Shares and/or Flex Shares of beneficial interest of the
corresponding Acquiring Fund (the "Acquiring Fund Shares"); (2) each Acquiring
Fund will assume the liabilities, if any, of
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the corresponding Selling Fund; (3) each Selling Fund will distribute the
Acquiring Fund Shares (including fractional shares, if any) to its
shareholders; and (4) each Selling Fund will terminate its existence. No
shareholders of any Selling Fund are entitled to dissenters' rights with
respect to a Reorganization.
The Reorganization will be accomplished pursuant to an Agreement and
Plan of Reorganization (the "Agreement"). In giving this opinion, we have
examined a draft of the Agreement and such other documents as we have
considered necessary. We assume that the final, executed versions of the
Agreement and other relevant documents currently in draft form will be
substantially the same as the drafts we have reviewed, except for any changes
that we approve. In addition, we assume the following facts:
1. Each Selling Fund is a separate investment series of CrestFunds that
qualifies, and will continue to qualify up to the effective time of its
Reorganization, as a regulated investment company ("RIC") under Subchapter M
of the Internal Revenue Code of 1986, as amended (the "Code"), and as a
separate corporation under section 851(g) of the Code. This means, among
other things, that for each C Reorganization, the Selling Fund will satisfy
the distribution requirements of section 852(a)(1) of the Code for its
taxable year ending on the effective date of its Reorganization.
2. Each Acquiring Fund is a separate investment series of STI that
qualifies, and will continue to qualify after its Reorganization, as a RIC
under Subchapter M of the Code and as a separate corporation under section
851(g) of the Code.
3. For each Reorganization, the fair market value of the Acquiring Fund
Shares received by a Selling Fund shareholder will be approximately equal to
the fair market value of the Selling Fund shares surrendered in exchange.
4. For each Reorganization, the Acquiring Fund will acquire at least 90%
of the fair market value of the net assets and at least 70% of the fair
market value of the gross assets held by the corresponding Selling Fund
immediately before the Reorganization. For this purpose, assets of the
Selling Fund held immediately before the Reorganization are deemed to include
(a) amounts paid or payable for expenses incurred by the Selling Fund in
connection with the Reorganization and (b) all redemptions and distributions
made by the Selling Fund in connection with the Reorganization (except for
redemptions pursuant to a demand of a shareholder in the ordinary course of
the Selling Fund's
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business as an open-end investment company pursuant to section 22(e) of
the Investment Company Act of 1940 (the "1940 Act") and regular, normal
dividends).
5. For each F Reorganization, immediately following the F
Reorganization, the Acquiring Fund will possess the same assets and
liabilities, if any, except for assets used to pay expenses incurred in
connection with the transaction, as those possessed by the Selling Fund
immediately before the F Reorganization. Assets used to pay expenses and all
redemptions and distributions (except for regular, normal redemptions and
dividends) made by the Selling Fund in connection with the F Reorganization
will, in the aggregate, constitute less than one percent of the net assets of
the Selling Fund.
6. For each C Reorganization, the Acquiring Fund will continue the
historic investment business of the Selling Fund (with substantially the same
investment objectives as those of the Selling Fund) or use a majority of the
Selling Fund's historic business assets in an investment business. For this
purpose, the Selling Fund's historic business assets include any assets
disposed of by the Selling Fund pursuant to the Agreement.
7. For each F Reorganization, the Acquiring Fund will continue the
historic investment business of the Selling Fund (with substantially the same
investment objectives as those of the Selling Fund).
8. For each Reorganization, there is no plan or intention by the
Acquiring Fund to sell or otherwise dispose of, or to cause the sale or
disposition of, any of the assets of the Selling Fund acquired in the
Reorganization, except for (a) dispositions made in the ordinary course of
business and/or (b) in the case of a C Reorganization only, the sale of a
minority of the Selling Fund's assets (including any assets disposed of by
the Selling Fund pursuant to the Agreement) if necessary to comply with the
Acquiring Fund's investment objectives or to comply with its investment
limitations.
9. For each Reorganization, there is no intercorporate indebtedness
between the Acquiring Fund and the Selling Fund.
10. For each Reorganization, none of the Selling Fund's shares has been
or will be redeemed directly or indirectly (including, without limitation,
through a partnership) by the Selling Fund in anticipation of the
Reorganization (except for redemptions
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pursuant to a demand of a shareholder in the ordinary course of the Selling
Fund's business as an open-end investment company pursuant to section 22(e)
of the 1940 Act), and the Selling Fund has not made and will not make any
extraordinary distribution with respect to its shares in anticipation of the
Reorganization (except for any distribution necessary for the Selling Fund to
comply with the distribution requirements of section 852(a)(1) of the Code).
11. For each Reorganization, the Acquiring Fund has no plan or intention
to reacquire directly or indirectly (including, without limitation, through a
partnership) or to make any extraordinary distribution with respect to any
Acquiring Fund Shares issued in the Reorganization (except for redemptions
pursuant to a demand of a shareholder in the ordinary course of the Acquiring
Fund's business as an open-end investment company pursuant to section 22(c)
of the 1940 Act).
12. For each Reorganization, the Acquiring Fund (a) has not transferred
and will not transfer cash or other property to the Selling Fund in
anticipation of the Reorganization and (b) has not made and will not make any
loan to the Selling Fund in anticipation of the Reorganization.
13. For each Reorganization, the Acquiring Fund, the Selling Fund, and
the Selling Fund's shareholders have paid or will pay their respective
expenses, if any, incurred in connection with the Reorganization, except that
the Acquiring Fund might pay expenses of the Selling Fund solely and directly
related to such Reorganization.
14. For each Reorganization, the liabilities, if any, of the Selling
Fund to be assumed by the Acquiring Fund and the liabilities to which the
assets of the Selling Fund are subject, if any, were incurred by the Selling
Fund in the ordinary course of business, except for liabilities for expenses
of the Selling Fund solely and directly related to the Reorganization.
15. For each Reorganization, on the effective date of the
Reorganization, each of the fair market value and the adjusted federal income
tax basis of the Selling Fund's assets transferred to the Acquiring Fund
will exceed the sum of the Selling Fund's liabilities, if any, assumed by the
Acquiring Fund, plus (without duplication) the amount of liabilities, if any,
to which the transferred assets are subject.
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16. For each Reorganization, the Selling Fund either (a) does not hold
any asset acquired from another corporation in a transaction in which gain or
loss was not recognized for federal income tax purposes by the transferor
corporation or (b) if it does hold an asset so acquired, it does not hold any
asset the disposition of which could be subject to tax under section 1374 of
the Code or subject to a consent under section 341(f) of the Code.
17. For each Reorganization, no Selling Fund shares acquired in
connection with the performance of services are subject to a substantial risk
of forfeiture within the meaning of section 83(a) of the Code.
18. For each Reorganization, the Acquiring Fund does not own, has not
owned during the last five years, and will not own before the
Reorganization, directly or indirectly, any of the Selling Fund shares.
19. For each Reorganization, none of the compensation received by any
shareholder-employee of the Selling Fund will be separate compensation for,
or allocable to, any Selling Fund shares; none of the Acquiring Fund Shares
received by any shareholder-employee of the Selling Fund will be separate
consideration for, or allocable to, any employment agreement; and the
compensation paid to any shareholder-employee of the Selling Fund will be for
services actually rendered and will be commensurate with amounts paid to
third parties bargaining at arm's length for similar services.
20. For each F Reorganization, immediately following the F
Reorganization, the Selling Fund shareholders will own all of the outstanding
Acquiring Fund Shares and will own such shares solely by reason of their
ownership of shares of the Selling Fund immediately before the F
Reorganization.
21. For each F Reorganization, the Acquiring Fund will not have any
assets before the Reorganization, except such assets as may be required to
satisfy minimum capitalization requirements.
22. For each F Reorganization, the Acquiring Fund has no plan or
intention to issue additional Acquiring Fund Shares following the F
Reorganization, except in the ordinary course of its business as an open-end
investment company.
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23. For each F Reorganization, as the time of the F Reorganization, the
Selling Fund will not have outstanding any warrants, options, convertible
securities, or any other type of right pursuant to which any person could
acquire shares in the Selling Fund.
Based on the foregoing, and assuming that (1) the preceding factual
assumptions will be accurate at the effective time of each Reorganization
and (2) the Reorganizations, including the termination of each Selling Fund's
existence, will be consummated in accordance with the Agreement, we are of
the opinion that (under existing law) for federal income tax purposes:
1. Each Reorganization will qualify as a reorganization within the
meaning of section 368(a) of the Code.
2. For each Reorganization, the Selling Fund and the Acquiring Fund each
will be a "party to a reorganization" within the meaning of section 368(b) of
the Code.
3. For each Reorganization, the Selling Fund will recognize no gain or
loss on the transfer of its assets to the Acquiring Fund in exchange solely
for Acquiring Fund Shares and the assumption of its liabilities or on the
distribution of such Acquiring Fund Shares to its shareholders.
4. For each Reorganization, the Acquiring Fund will recognize no gain or
loss on its receipt of the assets of the Selling Fund in exchange solely for
Acquiring Fund Shares and the assumption of the Selling Fund's liabilities.
5. For each Reorganization, the Acquiring Fund's basis in the assets
received from the Selling Fund will be the same as the Selling Fund's basis
in such assets immediately before the Reorganization.
6. For each Reorganization, the Acquiring Fund's holding period for the
assets received will include the period during which the Selling Fund held
such assets.
7. For each Reorganization, a Selling Fund shareholder will recognize no
gain or loss on the exchange of Selling Fund shares for Acquiring Fund Shares
in the Reorganization.
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8. For each Reorganization, the aggregate basis of the Acquiring Fund
Shares received by a Selling Fund's shareholder in the Reorganization will be
the same as the aggregate basis of the Selling Fund shares exchanged therefor.
9. For each Reorganization, the holding period for the Acquiring Fund
Shares received by a Selling Fund shareholder in the Reorganization will
include the holding period for the Selling Fund shares exchanged therefor, if
such Selling Fund shares are held as a capital asset on the effective date of
the Reorganization.
Except as set forth above, we express no opinion regarding any tax
consequences of the Reorganizations. This opinion is solely for your benefit
and may not be relied on by any other person. This opinion may not be
distributed, quoted in whole or in part or otherwise reproduced in any
document, or filed with any governmental agency without our prior written
consent.
We consent to the use of this opinion as an exhibit to the Registration
Statement under the Securities Act of 1933 filed with the Securities and
Exchange Commission by STI in connection with the Reorganizations. In giving
this consent, we do not admit that we are within the category of persons
whose consent is required by section 7 of the Securities Act of 1933 or the
rules and regulations promulgated thereunder.
Very truly yours,
/s/ Hunton & Williams