<PAGE>
STI CLASSIC FUNDS
TRUST SHARES
INVESTMENT GRADE BOND FUND
INVESTMENT GRADE TAX-EXEMPT BOND FUND
U.S. GOVERNMENT SECURITIES FUND
LIMITED-TERM FEDERAL MORTGAGE SECURITIES FUND
SHORT-TERM BOND FUND
SHORT-TERM U.S. TREASURY SECURITIES FUND
FLORIDA TAX-EXEMPT BOND FUND
GEORGIA TAX-EXEMPT BOND FUND
TENNESSEE TAX-EXEMPT BOND FUND
PRIME QUALITY MONEY MARKET FUND
U.S. GOVERNMENT SECURITIES MONEY MARKET FUND
TAX-EXEMPT MONEY MARKET FUND
INVESTMENT ADVISORS TO THE FUNDS:
TRUSCO CAPITAL MANAGEMENT, INC.
STI CAPITAL MANAGEMENT, N.A.
SUNTRUST BANK, CHATTANOOGA, N.A.
SUNTRUST BANK, ATLANTA
(THE "ADVISORS")
The STI Classic Funds (the "Trust") is a mutual fund that offers shares in a
number of separate investment portfolios (each a "Fund" and, collectively, the
"Funds"). This Prospectus sets forth concisely the information about the Trust
Shares of the above-referenced Funds. Investors are advised to read this
Prospectus and retain it for future reference.
A Statement of Additional Information relating to the Funds dated the same date
as this Prospectus has been filed with the Securities and Exchange Commission
and is available without charge through the Distributor, SEI Financial Services
Company, 680 East Swedesford Road, Wayne, Pennsylvania 19087-1658 or by calling
1-800-874-4770. The Statement of Additional Information is incorporated into
this Prospectus by reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
AN INVESTMENT IN A MONEY MARKET FUND IS NEITHER INSURED NOR GUARANTEED BY THE
U.S. GOVERNMENT. THERE CAN BE NO ASSURANCE THAT A MONEY MARKET FUND WILL BE ABLE
TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
- --------------------------------------------------------------------------------
THE TRUST'S SHARES ARE NOT SPONSORED, ENDORSED, OR GUARANTEED BY, AND DO NOT
CONSTITUTE OBLIGATIONS OR DEPOSITS OF, THE ADVISORS OR ANY OF THEIR AFFILIATES
OR CORRESPONDENTS INCLUDING SUNTRUST BANKS, INC., ARE NOT GUARANTEED OR INSURED
BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY
OTHER GOVERNMENTAL AGENCY, AND INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE
LOSS OF THE PRINCIPAL AMOUNT INVESTED.
OCTOBER 1, 1996
<PAGE>
2
(THIS PAGE INTENTIONALLY LEFT BLANK)
<PAGE>
3
Throughout this Prospectus, the Investment Grade Bond Fund, Investment Grade
Tax-Exempt Bond Fund, Short-Term U.S. Treasury Securities Fund, Short-Term Bond
Fund, U.S. Government Securities Fund and Limited-Term Federal Mortgage
Securities Fund, which invest primarily in bonds and other fixed income
instruments, may be referred to as the "Bond Funds," the Florida Tax-Exempt Bond
Fund, Georgia Tax-Exempt Bond Fund and Tennessee Tax-Exempt Bond Fund, which
invest primarily in tax-exempt bonds and other fixed income instruments, may be
referred to as the "State Tax-Exempt Bond Funds," and the Prime Quality Money
Market Fund, U.S. Government Securities Money Market Fund and Tax-Exempt Money
Market Fund may be referred to as the "Money Market Funds."
The Trust Shares are offered primarily to financial institutions and
intermediaries ("Shareholders"), including SunTrust Banks, Inc. and its
affiliates and correspondents, for the investment of funds for which they act in
a fiduciary, agency, investment advisory or custodial capacity. Individuals may
not purchase Trust Shares directly, although individuals may be able to purchase
Trust Shares through accounts maintained with financial institutions.
TABLE OF CONTENTS
<TABLE>
<S> <C>
Expense Summary........................................................... 4
Financial Highlights...................................................... 6
The Trust................................................................. 8
Funds and Investment Objectives........................................... 8
Investment Policies and Strategies........................................ 9
General Investment Policies and Strategies................................ 18
Investment Risks.......................................................... 18
Investment Limitations.................................................... 20
Performance Information................................................... 21
Purchase of Fund Shares................................................... 22
Redemption of Fund Shares................................................. 23
Dividends and Distributions............................................... 24
Tax Information........................................................... 25
STI Classic Funds Information............................................. 27
The Trust................................................................. 27
Board of Trustees......................................................... 27
Investment Advisors....................................................... 27
Portfolio Managers........................................................ 29
Banking Laws.............................................................. 30
Distribution.............................................................. 30
Administration............................................................ 31
Transfer Agent and Dividend Disbursing Agent.............................. 31
Custodian................................................................. 31
Legal Counsel............................................................. 31
Independent Public Accountants............................................ 31
Other Information......................................................... 31
Voting Rights............................................................. 31
Reporting................................................................. 32
Shareholder Inquiries..................................................... 32
Description of Permitted Investments...................................... 32
Appendix.................................................................. A-1
</TABLE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE TRUST'S STATEMENT OF
ADDITIONAL INFORMATION IN CONNECTION WITH THE OFFERING MADE BY THIS PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE TRUST OR SEI FINANCIAL SERVICES COMPANY
(THE "DISTRIBUTOR"). THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE
TRUST OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
<PAGE>
4
EXPENSE SUMMARY
TRUST SHARES
The purpose of the following table is to help you understand the various costs
and expenses that a shareholder will bear, directly or indirectly, in connection
with an investment in the Trust Shares of each Fund.
ANNUAL OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
LIMITED-TERM
INVESTMENT FEDERAL SHORT-TERM
INVESTMENT GRADE U.S. MORTGAGE SHORT-TERM U.S. TREASURY
GRADE BOND TAX-EXEMPT GOVERNMENT SECURITIES BOND SECURITIES
FUND BOND FUND SECURITIES FUND FUND FUND FUND
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Management Fees (after fee waivers &
reimbursements)(1)................. .63% .61% .16% .43% .46% .22%
Other Fund Expenses................. .12% .14% .59% .22% .19% .43%
- --------------------------------------------------------------------------------------------------------------------------------
Total Fund Operating Expenses (after
fee waivers &
reimbursements)(2)(3).............. .75% .75% .75% .65% .65% .65%
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Each Advisor is waiving, on a voluntary basis, a portion of its fee from
each Fund. The Advisor reserves the right to terminate its waiver at any
time in its sole discretion. Absent such waivers and reimbursements,
Advisory Fees for the Funds would be as follows: Investment Grade Bond Fund
-- .74%, Investment Grade Tax-Exempt Bond Fund -- .74%, U.S. Government
Securities Fund -- .74%, Limited-Term Federal Mortgage Securities Fund --
.65%, Short-Term Bond Fund -- .65% and Short-Term U.S. Treasury Securities
Fund -- .65%. See "Investment Advisors."
(2) Absent the voluntary waivers described above, Total Fund Operating Expenses
would be as follows: Investment Grade Bond Fund -- .86%, Investment Grade
Tax-Exempt Bond Fund -- .88%, U.S. Government Securities Fund -- 1.33%,
Limited-Term Federal Mortgage Securities Fund -- .87%, Short-Term Bond Fund
-- .84% and Short-Term U.S. Treasury Securities Fund -- 1.08%.
<PAGE>
5
ANNUAL OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
U.S. GOVERNMENT
FLORIDA GEORGIA TENNESSEE PRIME QUALITY SECURITIES TAX-EXEMPT
TAX-EXEMPT TAX-EXEMPT TAX-EXEMPT MONEY MARKET MONEY MARKET MONEY MARKET
BOND FUND BOND FUND BOND FUND FUND FUND FUND
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Management Fees (after fee waivers
& reimbursements)(1).............. .38% .37% .00% .50% .51% .47%
Other Fund Expenses (after fee
waivers & reimbursements)(2)(3)... .27% .28% .65% .08% .10% .13%
- --------------------------------------------------------------------------------------------------------------------------------
Total Fund Operating Expenses
(after fee waivers &
reimbursements)(4)(5)............. .65% .65% .65% .58% .61% .60%
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Each Advisor is waiving, on a voluntary basis, a portion of its fee from
each Fund. The Advisor reserves the right to terminate its waiver at any
time in its sole discretion. Absent such waivers and reimbursements,
Advisory Fees for the Funds would be as follows: Florida Tax-Exempt Bond
Fund -- .65%, Georgia Tax-Exempt Bond Fund -- .65%, Tennessee Tax-Exempt
Bond Fund -- .65%, Prime Quality Money Market Fund -- .65%, U.S. Government
Securities Money Market Fund -- .65% and Tax-Exempt Money Market Fund --
.55%. See "Investment Advisors."
(2) The Administrator is waiving, on a voluntary basis, a portion of its fee
from the Prime Quality Money Market and U.S. Government Securities Money
Market Funds. The Administrator reserves the right to terminate its waiver
at any time in its sole discretion. Absent such waivers, Other Fund Expenses
would be as follows: Prime Quality Money Market Fund -- .13% and U.S.
Government Securities Money Market Fund -- .13%. See "Administration."
(3) Absent waivers and reimbursements, Other Fund Expenses for the Tennesse
Tax-Exempt Bond Fund would be 1.03%.
(4) Absent the voluntary waivers described above, Total Fund Operating Expenses
would be as follows: Florida Tax-Exempt Bond Fund -- .92%, Georgia
Tax-Exempt Bond Fund -- .93%, Tennessee Tax-Exempt Bond Fund -- 1.68%, Prime
Quality Money Market Fund -- .78%, U.S. Government Securities Money Market
Fund -- .78% and Tax-Exempt Money Market Fund -- .68%.
(5) Total Fund Operating Expenses for the Tax-Exempt Money Market Fund have been
restated to reflect current fees.
<TABLE>
<CAPTION>
ONE THREE FIVE TEN
EXAMPLES YEAR YEARS YEARS YEARS
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
An investor would pay the following expenses on a $1,000
investment assuming: (1) 5% annual return and (2) redemption at
the end of each time period.
INVESTMENT GRADE BOND FUND....................................... $ 8 $ 24 $ 42 $ 93
INVESTMENT GRADE TAX-EXEMPT BOND FUND............................ $ 8 $ 24 $ 42 $ 93
U.S. GOVERNMENT SECURITIES FUND.................................. $ 8 $ 24 $ 42 $ 93
LIMITED-TERM FEDERAL MORTGAGE SECURITIES FUND.................... $ 7 $ 21 $ 36 $ 81
SHORT-TERM BOND FUND............................................. $ 7 $ 21 $ 36 $ 81
SHORT-TERM U.S. TREASURY SECURITIES FUND......................... $ 7 $ 21 $ 36 $ 81
FLORIDA TAX-EXEMPT BOND FUND..................................... $ 7 $ 21 $ 36 $ 81
GEORGIA TAX-EXEMPT BOND FUND..................................... $ 7 $ 21 $ 36 $ 81
TENNESSEE TAX-EXEMPT BOND FUND................................... $ 7 $ 21 $ 36 $ 81
PRIME QUALITY MONEY MARKET FUND.................................. $ 6 $ 19 $ 32 $ 73
U.S. GOVERNMENT SECURITIES MONEY MARKET FUND..................... $ 6 $ 20 $ 34 $ 76
TAX-EXEMPT MONEY MARKET FUND..................................... $ 6 $ 19 $ 33 $ 75
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
</TABLE>
THE EXAMPLE IS BASED UPON THE TOTAL OPERATING EXPENSES OF A FUND AND SHOULD NOT
BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY
BE GREATER OR LESS THAN THOSE SHOWN. A person that purchases shares through an
account with a financial institution may be charged separate fees by the
financial institution.
<PAGE>
6
FINANCIAL HIGHLIGHTS
The following information has been audited by Arthur Andersen LLP, the Trust's
independent public accountant, whose report thereon was unqualified. This
information should be read in conjunction with the Trust's financial statements
and notes thereto, which are included in the Trust's Statement of Additional
Information and which appear, along with the report of Arthur Andersen LLP, in
the Trust's 1996 Annual Report to Shareholders. Additional performance
information regarding each Fund is contained in the Trust's Annual Report to
Shareholders and is available without charge by calling 1-800-874-4770.
For a Trust Share Outstanding Throughout the Period
<TABLE>
<CAPTION>
NET ASSET NET NET REALIZED AND DISTRIBUTIONS NET ASSETS
VALUE INVESTMENT UNREALIZED GAINS FROM NET DISTRIBUTIONS NET ASSET END OF
BEGINNING INCOME (LOSSES) ON INVESTMENT FROM REALIZED VALUE END TOTAL PERIOD
OF PERIOD (LOSS) INVESTMENTS INCOME CAPITAL GAINS OF PERIOD RETURN (000)
--------- ---------- ----------------- -------------- -------------- ---------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
-----------------------------
INVESTMENT GRADE BOND FUND
-----------------------------
TRUST SHARES
1996................ $10.26 $ 0.60 $ (0.19) $ (0.60) -- $ 10.07 4.02% $ 599,514
1995................ 9.89 0.61 0.37 (0.61) -- 10.26 10.39% 543,308
1994................ 10.45 0.50 (0.36) (0.50) $ (0.20) 9.89 1.17% 460,538
1993 (1)............ 10.09 0.45 0.36 (0.45) -- 10.45 9.34%* 336,132
----------------------------------------
INVESTMENT GRADE TAX-EXEMPT BOND FUND
----------------------------------------
TRUST SHARES
1996................ $11.28 $ 0.45 $ 0.19 $ (0.45) $ (0.37) $ 11.10 5.82% $ 124,507
1995................ 10.68 0.46 0.60 (0.46) -- 11.28 10.21% 78,208
1994 (2)............ 11.37 0.22 (0.34) (0.22) (0.35) 10.68 (1.10%)+ 44,595
---------------------------------
U. S. GOVERNMENT SECURITIES FUND
---------------------------------
TRUST SHARES
1996................ $10.27 $ 0.62 $ (0.33) $ (0.62) $ (0.03) $ 9.91 2.77% $ 10,277
1995 (3)............ 9.98 0.53 0.29 (0.53) -- 10.27 8.64%+ 3,291
----------------------------------------------
LIMITED-TERM FEDERAL MORTGAGE SECURITIES FUND
----------------------------------------------
TRUST SHARES
1996................ $10.11 $ 0.62 $ (0.14) $ (0.60) -- $ 9.99 4.84% $ 73,370
1995 (4)............ 10.00 0.58 0.13 (0.60) -- 10.11 7.50%+ 41,823
----------------------
SHORT-TERM BOND FUND
----------------------
TRUST SHARES
1996................ $ 9.98 $ 0.54 $ (0.10) $ (0.54) $ (0.02) $ 9.86 4.45% $ 91,156
1995................ 9.79 0.53 0.19 (0.53) -- 9.98 7.60% 60,952
1994................ 10.01 0.42 (0.21) (0.42) (0.01) 9.79 2.02% 34,772
1993 (5)............ 10.00 0.08 0.01 (0.08) -- 10.01 4.45%* 25,334
----------------------------------------
SHORT-TERM U.S. TREASURY SECURITIES FUND
----------------------------------------
TRUST SHARES
1996................ $ 9.93 $ 0.55 $ (0.09) $ (0.55) -- $ 9.84 4.73% $ 10,149
1995................ 9.82 0.47 0.11 (0.47) -- 9.93 6.11% 9,599
1994................ 9.98 0.33 (0.11) (0.33) $ (0.05) 9.82 2.17% 12,723
1993 (6)............ 10.00 0.07 (0.02) (0.07) -- 9.98 2.22%* 30,336
<CAPTION>
RATIO OF NET
RATIO OF NET INVESTMENT INCOME
RATIO OF INVESTMENT RATIO OF EXPENSES TO (LOSS) TO AVERAGE NET
EXPENSES INCOME (LOSS) AVERAGE NET ASSETS ASSETS (EXCLUDING PORTFOLIO
TO AVERAGE TO AVERAGE NET (EXCLUDING WAIVERS WAIVERS AND TURNOVER
NET ASSETS ASSETS AND REIMBURSEMENTS) REIMBURSEMENTS) RATE
---------- -------------- --------------------- --------------------- ----------
<S> <C> <C> <C> <C> <C>
-----------------------------
INVESTMENT GRADE BOND FUND
-----------------------------
TRUST SHARES
1996................ 0.75% 5.81% 0.87% 5.69% 184.33%
1995................ 0.75% 6.22% 0.88% 6.09% 237.66%
1994................ 0.75% 4.77% 0.88% 4.64% 259.19%
1993 (1)............ 0.74%* 5.14%* 0.87%* 5.01%* 299.32%
----------------------------------------
INVESTMENT GRADE TAX-EXEMPT BOND FUND
----------------------------------------
TRUST SHARES
1996................ 0.75% 4.01% 0.89% 3.87% 513.90%
1995................ 0.75% 4.34% 0.91% 4.18% 591.91%
1994 (2)............ 0.75%* 3.46%* 0.95%* 3.26%* 432.46%
---------------------------------
U. S. GOVERNMENT SECURITIES FUND
---------------------------------
TRUST SHARES
1996................ 0.75% 6.05% 1.25% 5.55% 83.38%
1995 (3)............ 0.75%* 6.67%* 3.33%* 4.09%* 30.39%
----------------------------------------------
LIMITED-TERM FEDERAL MORTGAGE SECURITIES FUND
----------------------------------------------
TRUST SHARES
1996................ 0.65% 6.04% 0.84% 5.85% 83.01%
1995 (4)............ 0.65%* 6.43%* 0.93%* 6.15%* 67.63%
----------------------
SHORT-TERM BOND FUND
----------------------
TRUST SHARES
1996................ 0.65% 5.39% 0.81% 5.23% 162.62%
1995................ 0.65% 5.49% 0.85% 5.29% 200.49%
1994................ 0.65% 4.15% 0.85% 3.95% 74.85%
1993 (5)............ 0.64%* 3.88%* 1.11%* 3.41%* 63.89%
----------------------------------------
SHORT-TERM U.S. TREASURY SECURITIES FUND
----------------------------------------
TRUST SHARES
1996................ 0.65% 5.56% 1.00% 5.21% 94.00%
1995................ 0.65% 4.91% 1.08% 4.48% 87.98%
1994................ 0.65% 3.23% 0.81% 3.07% 116.57%
1993 (6)............ 0.63%* 3.34%* 1.04%* 2.93%* 36.44%
</TABLE>
<PAGE>
7
FINANCIAL HIGHLIGHTS CONTINUED
<TABLE>
<CAPTION>
NET ASSET NET NET REALIZED AND DISTRIBUTIONS NET ASSETS
VALUE INVESTMENT UNREALIZED GAINS FROM NET DISTRIBUTIONS NET ASSET END OF
BEGINNING INCOME (LOSSES) ON INVESTMENT FROM REALIZED VALUE END TOTAL PERIOD
OF PERIOD (LOSS) INVESTMENTS INCOME CAPITAL GAINS OF PERIOD RETURN (000)
--------- ---------- ----------------- -------------- -------------- ---------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
------------------------------
FLORIDA TAX-EXEMPT BOND FUND
------------------------------
TRUST SHARES
1996................ $10.18 $ 0.46 $ (0.07) $ (0.46) $ (0.05) $ 10.06 3.87% $ 30,790
1995................ 9.75 0.44 0.43 (0.44) -- 10.18 9.26% 10,118
1994 (7)............ 10.00 0.13 (0.25) (0.13) -- 9.75 (1.19%)+ 3,192
-------------------------------
GEORGIA TAX-EXEMPT BOND FUND
-------------------------------
TRUST SHARES
1996................ $ 9.63 $ 0.43 $ (0.05) $ (0.43) $ (0.02) $ 9.56 3.89% $ 22,950
1995................ 9.42 0.42 0.21 (0.42) -- 9.63 6.94% 13,187
1994 (8)............ 10.00 0.14 (0.58) (0.14) -- 9.42 (4.43%)+ 4,338
---------------------------------
TENNESSEE TAX-EXEMPT BOND FUND
---------------------------------
TRUST SHARES
1996................ $ 9.50 $ 0.43 $ (0.11) $ (0.42) -- $ 9.40 3.43% $ 1,823
1995................ 9.22 0.44 0.28 (0.44) -- 9.50 8.17% 1,664
1994 (9)............ 10.00 0.12 (0.77) (0.13) -- 9.22 (6.52%)+ 594
---------------------------------
PRIME QUALITY MONEY MARKET FUND
---------------------------------
TRUST SHARES
1996................ $ 1.00 $ 0.05 -- $ (0.05) -- $ 1.00 5.25% $ 1,050,800
1995................ 1.00 0.05 -- (0.05) -- 1.00 4.79% 799,189
1994................ 1.00 0.03 -- (0.03) -- 1.00 2.88% 583,399
1993 (10)........... 1.00 0.03 -- (0.03) -- 1.00 2.92%* 410,991
-----------------------------------------------
U.S. GOVERNMENT SECURITIES MONEY MARKET FUND
-----------------------------------------------
TRUST SHARES
1996................ $ 1.00 $ 0.05 -- $ (0.05) -- $ 1.00 5.14% $ 325,493
1995................ 1.00 0.05 -- (0.05) -- 1.00 4.67% 434,111
1994................ 1.00 0.03 -- (0.03) -- 1.00 2.77% 309,228
1993 (10)........... 1.00 0.03 -- (0.03) -- 1.00 2.79%* 453,567
-------------------------------
TAX-EXEMPT MONEY MARKET FUND
-------------------------------
TRUST SHARES
1996................ $ 1.00 $ 0.03 -- $ (0.03) -- $ 1.00 3.28% $ 273,613
1995................ 1.00 0.03 -- (0.03) -- 1.00 3.10% 215,413
1994................ 1.00 0.02 -- (0.02) -- 1.00 2.08% 143,982
1993 (10)........... 1.00 0.02 -- (0.02) -- 1.00 2.12%* 78,416
<CAPTION>
RATIO OF NET
RATIO OF NET INVESTMENT INCOME
RATIO OF INVESTMENT RATIO OF EXPENSES TO (LOSS) TO AVERAGE NET
EXPENSES INCOME (LOSS) AVERAGE NET ASSETS ASSETS (EXCLUDING PORTFOLIO
TO AVERAGE TO AVERAGE NET (EXCLUDING WAIVERS WAIVERS AND TURNOVER
NET ASSETS ASSETS AND REIMBURSEMENTS) REIMBURSEMENTS) RATE
---------- -------------- --------------------- --------------------- ----------
<S> <C> <C> <C> <C> <C>
------------------------------
FLORIDA TAX-EXEMPT BOND FUND
------------------------------
TRUST SHARES
1996................ 0.65% 4.49% 0.88% 4.26% 62.68%
1995................ 0.65% 4.63% 1.13% 4.15% 105.01%
1994 (7)............ 0.65%* 3.86%* 1.12%* 3.39%* 53.24%
-------------------------------
GEORGIA TAX-EXEMPT BOND FUND
-------------------------------
TRUST SHARES
1996................ 0.65% 4.36% 0.89% 4.12% 60.02%
1995................ 0.65% 4.56% 0.98% 4.23% 24.50%
1994 (8)............ 0.65%* 4.12%* 1.06%* 3.71%* 25.90%
---------------------------------
TENNESSEE TAX-EXEMPT BOND FUND
---------------------------------
TRUST SHARES
1996................ 0.65% 4.49% 1.68% 3.46% 41.00%
1995................ 0.65% 4.90% 2.65% 2.90% 27.73%
1994 (9)............ 0.65%* 4.24%* 1.43%* 3.46%* 13.05%
---------------------------------
PRIME QUALITY MONEY MARKET FUND
---------------------------------
TRUST SHARES
1996................ 0.58% 5.11% 0.78% 4.91% --
1995................ 0.58% 4.77% 0.79% 4.56% --
1994................ 0.58% 2.86% 0.79% 2.65% --
1993 (10)........... 0.58%* 2.85%* 0.78%* 2.65%* --
-----------------------------------------------
U.S. GOVERNMENT SECURITIES MONEY MARKET FUND
-----------------------------------------------
TRUST SHARES
1996................ 0.61% 5.02% 0.78% 4.85% --
1995................ 0.61% 4.64% 0.80% 4.45% --
1994................ 0.61% 2.69% 0.77% 2.53% --
1993 (10)........... 0.61%* 2.71%* 0.78%* 2.54%* --
-------------------------------
TAX-EXEMPT MONEY MARKET FUND
-------------------------------
TRUST SHARES
1996................ 0.50% 3.23% 0.68% 3.05% --
1995................ 0.45% 3.12% 0.70% 2.87% --
1994................ 0.42% 2.05% 0.71% 1.76% --
1993 (10)........... 0.41%* 2.07%* 0.70%* 1.78%* --
</TABLE>
* Annualized.
+ Cumulative since commencement of operations.
(1) The Investment Grade Bond Fund Trust Shares commenced operations on July
16, 1992.
(2) The Investment Grade Tax-Exempt Bond Fund Trust Shares commenced operations
on October 21, 1993.
(3) The U.S. Government Securities Fund Trust Shares commenced operations on
July 31, 1994.
(4) The Limited Term Federal Mortgage Securities Fund Trust Shares commenced
operations on June 7, 1994.
(5) The Short-Term Bond Fund Trust Shares commenced operations on March 15,
1993.
(6) The Short-Term U.S. Treasury Securities Fund Trust Shares commenced
operations on March 15, 1993.
(7) The Florida Tax-Exempt Bond Fund Trust Shares commenced operations on
January 25, 1994.
(8) The Georgia Tax-Exempt Bond Fund Trust Shares commenced operations on
January 18, 1994.
(9) The Tennessee Tax-Exempt Bond Fund Trust Shares commenced operations on
January 27, 1994.
(10) The Prime Quality Money Market Fund Trust Shares, the U.S. Government
Securities Money Market Fund Trust Shares, and the Tax-Exempt Money Market
Fund Trust Shares commenced operations on June 8, 1992.
<PAGE>
8
THE TRUST
STI CLASSIC FUNDS (the "Trust") is a diversified, open-end management investment
company that provides a convenient and economical means of investing in several
professionally managed portfolios of securities. The Trust currently offers
units of beneficial interest ("shares") in a number of separate Funds.
Shareholders may purchase shares in each non-money market Fund through three
separate classes (Trust Shares, Investor Shares and Flex Shares) and in each
Money Market Fund through two separate classes (Trust Shares and Investor
Shares) which provide for variations in distribution and service fees, transfer
agent fees, voting rights and dividends. Except for differences between classes,
each share of each Fund represents an undivided, proportionate interest in that
Fund. This Prospectus relates to the Trust Shares of the Funds described below.
FUNDS AND INVESTMENT OBJECTIVES
BOND FUNDS:
THE INVESTMENT GRADE BOND FUND seeks to provide as high a level of total return
through current income and capital appreciation as is consistent with the
preservation of capital primarily through investment in investment grade fixed
income securities.
THE INVESTMENT GRADE TAX-EXEMPT BOND FUND seeks to provide as high a level of
total return through federally tax-exempt current income and capital
appreciation as is consistent with the preservation of capital primarily through
investment in investment grade tax-exempt obligations.
THE U.S. GOVERNMENT SECURITIES FUND seeks to provide as high a level of current
income as is consistent with the preservation of capital by investing primarily
in obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
THE LIMITED-TERM FEDERAL MORTGAGE SECURITIES FUND seeks to provide as high a
level of current income as is consistent with the preservation of capital by
investing primarily in mortgage-related securities issued or guaranteed by U.S.
Government agencies and instrumentalities.
THE SHORT-TERM BOND FUND seeks to provide as high a level of current income,
relative to funds with like investment objectives, as is consistent with the
preservation of capital primarily through investment in short- to
intermediate-term investment grade fixed income securities.
THE SHORT-TERM U.S. TREASURY SECURITIES FUND seeks to provide as high a level of
current income, relative to funds with like investment objectives, as is
consistent with the preservation of capital through investment exclusively in
short-term U.S. Treasury securities.
STATE TAX-EXEMPT BOND FUNDS:
THE FLORIDA TAX-EXEMPT BOND FUND seeks to provide current income exempt from
regular federal income tax for Florida residents without undue investment risk.
THE GEORGIA TAX-EXEMPT BOND FUND seeks to provide current income exempt from
regular federal and state income tax for Georgia residents without undue
investment risk.
THE TENNESSEE TAX-EXEMPT BOND FUND seeks to provide current income exempt from
regular federal and state income tax for Tennessee residents without undue
investment risk.
<PAGE>
9
MONEY MARKET FUNDS:
THE PRIME QUALITY MONEY MARKET FUND seeks to provide as high a level of current
income as is consistent with preservation of capital and liquidity by investing
exclusively in high quality money market instruments.
THE U.S. GOVERNMENT SECURITIES MONEY MARKET FUND seeks to provide as high a
level of current income as is consistent with preservation of capital and
liquidity by investing exclusively in bills, notes and bonds issued by the U.S.
Treasury and separately traded interest and principal component parts of such
obligations that are transferable through the Federal Reserve Book-Entry System
("U.S. Treasury obligations"), securities of wholly-owned corporations of the
U.S. Government that are backed by the full faith and credit of the U.S.
Government and repurchase agreements with approved dealers collateralized by
U.S. Treasury obligations, and U.S. Government Subsidiary Corporation
securities.
THE TAX-EXEMPT MONEY MARKET FUND seeks to provide as high a level of current
interest income exempt from regular federal income tax as is consistent with
preservation of capital and liquidity. The Fund invests primarily in high
quality short-term municipal obligations.
Each Money Market Fund's ability to generate high current income will be limited
by the fact that it is only permitted to invest in high quality securities. It
is a fundamental policy of each Money Market Fund to use its best efforts to
maintain a constant net asset value of $1.00 per share. There can be no
assurance that a Money Market Fund will achieve its investment objective or that
the Money Market Funds will be able to maintain a net asset value of $1.00 per
share on a continuous basis. In addition, each Money Market Fund intends to
comply with federal regulations applicable to money market funds using the
amortized cost method for calculating net asset value which require each Fund to
invest only in U.S. dollar denominated obligations, to maintain an average
maturity on a dollar-weighted basis of 90 days or less and to acquire eligible
securities that present minimal credit risk and have a maturity of 397 days or
less. These requirements will also limit a Money Market Fund's ability to
generate high current income. For a further discussion of these rules, see
"Description of Permitted Investments."
There can be no assurance that a Fund will achieve its investment objective.
The investment objectives of the Investment Grade Bond Fund, U.S. Government
Securities Fund, Limited-Term Federal Mortgage Securities Fund, Short-Term Bond
Fund and Short-Term U.S. Treasury Securities Fund are non-fundamental and may be
changed without a shareholder vote.
INVESTMENT POLICIES AND STRATEGIES
INVESTMENT GRADE BOND FUND
The Investment Grade Bond Fund will invest only in those obligations deemed
investment grade obligations rated BBB or better by Standard & Poor's
Corporation ("S&P") or Baa or better by Moody's Investors Services, Inc.
("Moody's") or, if not rated by S&P or Moody's, of comparable quality at the
time of purchase as determined by the Fund's Advisor, including corporate debt
obligations; mortgage-backed securities, collateralized mortgage obligations
("CMOs") and asset-backed securities; obligations issued or guaranteed as to
principal and interest by the U.S. Government, its agencies or
instrumentalities; custodial receipts involving U.S. Treasury obligations;
securities of the government of Canada and its provincial and local governments;
securities issued or
<PAGE>
10
guaranteed by foreign governments, their political subdivisions, agencies or
instrumentalities; obligations of supranational entities and sponsored American
Depositary Receipts ("ADRs") that are traded on exchanges or listed on National
Association of Securities Dealers Automated Quotations ("NASDAQ"). Under normal
circumstances, at least 65% of the Fund's total assets will be invested in
corporate and government bonds and debentures. No more than 25% of the Fund's
assets will be invested in securities rated BBB by S&P or Baa by Moody's or, if
not rated by S&P or Moody's, of comparable quality at the time of purchase as
determined by the Fund's Advisor.
The Fund may purchase mortgage-backed securities issued or guaranteed as to the
payment of principal and interest by the U.S. Government, its agencies or
instrumentalities or, subject to a limit of 35% of the Fund's assets,
mortgage-backed securities issued by private issuers. These mortgage-backed
securities may be backed or collateralized by fixed, adjustable or floating rate
mortgages. The Fund may also invest in asset-backed securities which consist of
securities backed by company receivables, truck and auto loans, leases, credit
card receivables and home equity loans.
In order to reduce interest rate risk, and subject to a general limit of 25% of
the Fund's assets, the Fund may purchase floating or variable rate securities.
Some floating or variable rate securities will be subject to interest rate
"caps" or "floors." It may also buy securities on a when-issued basis, putable
securities, medium term notes, and zero coupon securities. The Fund may also
invest up to 10% of its assets in restricted securities. The Fund may also
engage in futures and options.
Under normal market conditions, it is anticipated that the Fund's average
weighted maturity will range from 4 to 10 years. In the case of mortgage related
securities and asset-backed securities, maturity will be determined based on the
expected average life of the security. The Fund may shorten its average weighted
maturity to as little as 90 days if deemed appropriate for temporary defensive
purposes. By so limiting the maturity of its investments, the Fund expects that
its net asset value will experience less price movement in response to changes
in interest rates than the net asset values of mutual funds investing in similar
credit quality securities with longer maturities.
The Fund's portfolio turnover rate was 184% for the fiscal year ended May 31,
1996. This rate of turnover, if continued, will likely result in higher
transaction costs and higher levels of realized capital gains than if the
turnover rate was lower.
INVESTMENT GRADE TAX-EXEMPT BOND FUND
The Investment Grade Tax-Exempt Bond Fund intends to be fully invested in
municipal securities the interest on which is exempt from regular federal income
taxes in the opinion of bond counsel to the issuer. The issuers of these
securities can be located in all fifty states, the District of Columbia, Puerto
Rico and other U.S. territories and possessions. It is a fundamental policy of
the Investment Grade Tax-Exempt Bond Fund to invest at least 80% of its total
assets in securities the income from which is exempt from regular federal income
tax and treated as a preference item for purposes of the alternative minimum
tax. At least 65% of the Fund's assets will be invested in municipal bonds and
debentures, and at least 75% of its total assets invested in municipal bonds
will be in securities rated A or better by S&P or Moody's. Municipal securities
must be rated BBB or better by S&P or Baa or better by Moody's in the case of
bonds; SP-1,
<PAGE>
11
SP-2 or MIG-1, MIG-2 in the case of notes; A-1, A-2, P-1, P-2 in the case of
tax-exempt commercial paper; and VMIG-1 or VMIG-2 in the case of variable rate
demand obligations. The Fund will only acquire unrated securities if, at the
time of purchase, the Fund's Advisor determines that such unrated obligations
are of comparable quality to rated obligations that may be acquired by the Fund.
The Fund may invest in commitments to purchase the above securities on a when-
issued or delayed delivery basis, floating or variable rate securities, and may
purchase municipal forwards, medium term notes, putable securities, and zero
coupon securities. The Fund's Advisor has discretion to invest up to 20% of the
Fund's total assets in taxable debt securities rated at least BBB or better by
S&P or Baa or better by Moody's or, if unrated, of comparable quality at the
time of purchase as determined by the Fund's Advisor, repurchase agreements, and
securities subject to the alternative minimum tax. The Fund may also invest up
to 10% of its assets in restricted securities that the Fund's Advisor determines
are liquid under guidelines adopted by the Trust's Board of Trustees and may
engage in futures and options transactions.
Under normal market conditions, it is anticipated that the Fund's average
weighted maturity will range from 4 to 10 years. The Fund may shorten its
average weighted maturity to as little as 90 days if deemed appropriate for
temporary defensive purposes. By so limiting the maturity of its investments,
the Fund's net asset value is expected to experience less price movement in
response to changes in interest rates than the net asset values of mutual funds
investing in similar credit quality securities with longer maturities.
The Fund's portfolio turnover rate was 514% for the fiscal year ended May 31,
1996. This rate of turnover, if continued, will likely result in higher
transaction costs and higher levels of realized capital gains than if the
turnover rate was lower.
U.S. GOVERNMENT SECURITIES FUND
Under normal market conditions, the Fund will invest at least 65% of its assets
in obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, including mortgage-backed securities issued or guaranteed by
U.S. Government agencies such as the Government National Mortgage Association
("GNMA"), the Federal National Mortgage Association ("FNMA") or the Federal Home
Loan Mortgage Corporation ("FHLMC"). Mortgage-backed securities consisting of
CMOs and real estate mortgage investment conduits ("REMICs") purchased by the
Fund will be issued or guaranteed as to payment of principal and interest by the
U.S. Government, its agencies or instrumentalities or, if issued by private
issuers, rated in one of the two highest rating categories by a nationally
recognized statistical rating organization (an "NRSRO").
The principal governmental issuers or guarantors of mortgage-backed securities
are GNMA, FNMA and FHLMC. Obligations of GNMA are backed by the full faith and
credit of the U.S. Government while obligations of FNMA and FHLMC are supported
by the respective agency only. The Fund may purchase mortgage-backed securities
that are backed or collateralized by fixed, adjustable or floating rate
mortgages.
Mortgage-backed securities that are not issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, including securities nominally
issued by a governmental entity (such as the Resolution Trust Corporation), are
not obligations of a governmental entity and thus may bear a risk of nonpayment.
The timely payment of principal
<PAGE>
12
and interest normally is supported, at least partially, by various forms of
insurance or guarantees. There can be no assurance, however, that such credit
enhancement will support full payment of the principal and interest on such
obligations. The average maturity of the Fund's investment portfolio will
typically range from 7 to 14 years.
With respect to the remaining 35% of its assets, the Fund may invest in
corporate or government bonds that carry a rating of Baa or better by Moody's or
BBB or better by S&P, or that are deemed by the Fund's Advisor to be of
comparable quality; commercial paper rated at the time of purchase within the
two highest ratings categories of an NRSRO; bankers' acceptances; certificates
of deposit and time deposits; and U.S. Treasury obligations, which include
custodial receipts and repurchase agreements involving securities that
constitute permissible investments for the Fund. The Fund intends to invest in
privately issued, mortgage-backed securities only if they are rated in one of
the two highest rating categories by an NRSRO.
The Fund may purchase securities on a forward commitment or when-issued basis,
which means that delivery and payment for such securities generally takes place
after the customary securities settlement period. The Fund may purchase floating
or variable rate securities, and may engage in dollar rolls.
LIMITED-TERM FEDERAL MORTGAGE SECURITIES FUND
Under normal market conditions, the Limited-Term Federal Mortgage Securities
Fund will invest at least 65% of its assets in mortgage-related securities
issued or guaranteed by U.S. Government agencies such as GNMA, FNMA or FHLMC.
Obligations of GNMA are backed by the full faith and credit of the U.S.
Government while obligations of FNMA and FHLMC are supported by the respective
agency only. The Fund may purchase mortgage-backed securities that are backed or
collateralized by fixed, adjustable or floating rate mortgages. The Fund's
holdings of mortgage-backed securities will typically have an average life of
from one to five years.
Mortgage-backed securities consisting of CMOs and REMICs purchased by the Fund
will be either issued or guaranteed as to payment of principal and interest by
the U.S. Government, its agencies or instrumentalities or, if issued by private
issuers, rated in one of the two highest rating categories by an NRSRO.
Mortgage-backed securities that are not issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, including securities nominally
issued by a governmental entity (such as the Resolution Trust Corporation), are
not obligations of the U.S. Government and thus bear a risk of nonpayment. The
timely payment of principal and interest normally is supported, at least
partially, by various forms of insurance or guarantees. There can be no
assurance, however, that such credit enhancement will support full payment of
the principal and interest on such obligations.
With respect to the remaining 35% of its assets, the Fund may invest in
corporate or government bonds that carry a rating of Baa or better by Moody's or
BBB or better by S&P, or that are deemed by the Fund's Advisor to be of
comparable quality; asset backed securities; commercial paper rated at the time
of purchase in the two highest ratings categories by an NRSRO; bankers'
acceptances; certificates of deposit and time deposits; U.S. Treasury
obligations and custodial receipts; and repurchase agreements involving
securities that constitute permissible investments for the Fund.
<PAGE>
13
The Fund may purchase securities on a forward commitment or when-issued basis,
which means that delivery and payment for such securities generally takes place
after the customary securities settlement period. The Fund may purchase floating
or variable rate securities and engage in dollar roll transactions. The Fund may
also purchase stripped mortgage-backed securities, but will limit such purchases
to 5% of its net assets.
SHORT-TERM BOND FUND
Under normal circumstances, the Short-Term Bond Fund will invest solely in
investment grade obligations rated BBB or better by S&P or Baa or better by
Moody's or, if not rated by S&P or Moody's, of comparable quality at the time of
purchase as determined by the Fund's Advisor consisting of debt obligations of
U.S. and foreign corporations; mortgage-backed securities; CMOs; asset-backed
securities; obligations (including mortgage-backed securities) issued or
guaranteed as to principal and interest by the U.S. Government, its agencies or
instrumentalities; and custodial receipts involving U.S. Treasury obligations;
(including Separately Traded Registered Interest and Principal Securities
("STRIPS") and Coupon Under Book Entry System ("CUBES")). Under normal
circumstances, at least 65% of the Fund's total assets will be invested in
corporate and government bonds and debentures. No more than 25% of the Fund's
assets will be invested in securities rated BBB by S&P or Baa by Moody's or, if
not rated by S&P or Moody's, of comparable quality at the time of purchase by
the Fund's Advisor.
The Fund may purchase, without limitation, mortgage-backed securities issued or
guaranteed as to the payment of principal and interest by the U.S. Government,
its agencies or instrumentalities and, subject to a limit of 25% of the Fund's
assets, mortgage-backed securities issued by private issuers. These
mortgage-backed securities may be backed or collateralized by fixed, adjustable
or floating rate mortgages. The Fund may also invest in asset-backed securities,
which consist of securities backed by company receivables, truck and auto loans;
leases; credit card receivables; and home equity loans. The Fund will purchase
mortgage-backed and asset-backed securities only if they are rated at least AA
by S&P or Aa by Moody's or, if unrated, determined to be of comparable quality
at the time of purchase by the Fund's Advisor.
The Fund may purchase securities on a when-issued basis and may acquire floating
or variable rate securities, medium term notes, putable securities, and zero
coupon securities. The Fund may also purchase securities issued by foreign
governments and supranational agencies. The Fund may also invest in municipal
securities when the Fund's Advisor feels it is consistent with the Fund's
investment objective. The Fund will not invest in municipal securities unless
the Fund's Advisor believes that the yield will be higher than the yield for
comparable taxable investments in which the Fund is permitted to invest. The
following quality criteria apply to the Fund's investments in municipal
securities. The Fund's investments in municipal notes will be limited to those
obligations (i) where both principal and interest are backed by the full faith
and credit of the United States, (ii) which are rated MIG-2 or V-MIG-2 or better
at the time of investment by Moody's, (iii) which are rated SP-2 or better at
the time of investment by S&P, or (iv) which, if not rated, are of equivalent
quality to MIG-2, V-MIG-2, or SP-2 or better in the Advisor's judgment. The
Fund's investment in municipal bonds will be limited to bonds rated BBB or
better by S&P or Baa or better by Moody's, or, if not rated by S&P or Moody's,
deemed by the
<PAGE>
14
Fund's Advisor to be of comparable quality. For the Fund's investments in other
types of tax-exempt municipal investments, such as participation interests in
municipal lease/ purchase agreements, the quality of the underlying credit or of
the bank providing a credit support arrangement must, in the Fund's Advisor's
opinion, be equivalent to the municipal note or bond ratings stated above. The
Fund is also authorized to invest up to 10% of its assets in restricted
securities, including Rule 144A securities, that the Fund's Advisor determines
are liquid under guidelines adopted by the Trust's Board of Trustees. The Fund
may also enter into bond futures contracts and
options on bond futures contracts and engage in securities lending.
The Fund intends to maintain a dollar-weighted average maturity of 3 years or
less, and the maximum remaining maturity for any security held by the Fund is 7
years. Under normal market conditions it is anticipated that the Fund's
dollar-weighted average maturity will range from 2 to 3 years. In the case of
mortgage related securities and asset-backed securities, maturity will be
determined based on the expected average life of the security. The Fund may
shorten its average weighted maturity to as little as 90 days if deemed
appropriate for temporary defensive purposes. By so limiting the maturity of its
investments, the Fund expects that its net asset value will experience less
price movement in response to changes in interest rates than the net asset
values of mutual funds investing in similar credit quality securities with
longer maturities.
The Fund's turnover rate was 163% for the fiscal year ended May 31, 1996. This
rate of turnover, if continued, will likely result in higher transaction costs
and higher levels of realized capital gains than if the turnover rate was lower.
SHORT-TERM U.S. TREASURY SECURITIES FUND
The Short-Term U.S. Treasury Securities Fund will invest exclusively in
obligations issued by the U.S. Treasury with maximum remaining maturities of 3
years or less. U.S. Treasury securities are considered to be among the safest,
as to timely principal and interest payments, investments available. The Fund
will not invest in repurchase agreements. The Fund may borrow money for
temporary or emergency purposes in an amount not exceeding one-third of its
total assets, but has no present intention to do so.
Under normal market conditions, it is anticipated that the Fund's average
maturity will range from one to two years. Furthermore, for temporary defensive
purposes during periods when the Fund's Advisor determines that market
conditions warrant, the Short-Term U.S. Treasury Securities Fund may reduce its
average weighted maturity to less than one year.
FLORIDA TAX-EXEMPT BOND FUND
The Florida Tax-Exempt Bond Fund intends to be fully invested in municipal
securities the interest on which is exempt from regular federal income taxes
based on opinions from bond counsel to the issuers. The issuers of these
securities can be located in Florida, the District of Columbia, Puerto Rico and
other U.S. territories and possessions. It is a fundamental policy of the Fund
to invest at least 80% of its total assets in securities the income from which
is exempt from regular federal income tax and not treated as a preference item
for purposes of the alternative minimum tax. At least 65% of the Fund's assets
will be invested in Florida municipal bonds and debentures, and at least 75% of
its total assets invested in municipal bonds will be in securities rated A or
better by S&P or Moody's. Municipal securities must be
<PAGE>
15
rated BBB or better by S&P or Baa or better by Moody's in the case of bonds;
SP-1, SP-2 or MIG-1, MIG-2 in the case of notes; A-1, A-2, or P-1, P-2 in the
case of tax-exempt commercial paper; and VMIG-1 or VMIG-2 in the case of
variable rate demand obligations. No more than 25% of the Fund's assets will be
invested in bonds rated BBB by S&P or Baa by Moody's. The Fund will only acquire
securities not rated by S&P or Moody's if, at the time of purchase, the Fund's
Advisor determines that such unrated obligations are of comparable quality to
rated obligations that may be acquired by the Fund.
The Fund may invest in commitments to purchase the above securities on a when-
issued or delayed delivery basis, floating or variable rate securities, and may
purchase municipal forwards, putable securities, medium term notes, and zero
coupon securities. The Fund's Advisor has discretion to invest up to 20% of the
Fund's total assets in taxable debt securities rated at least BBB or better by
S&P or Baa or better by Moody's or, if not rated by S&P or Moody's, of
comparable quality at the time of purchase as determined by the Fund's Advisor,
repurchase agreements, and securities subject to the alternative minimum tax.
The Fund may also invest in futures and options, but has no present intention to
do so for other than hedging purposes.
Under normal market conditions, it is anticipated that the Fund's average
weighted maturity will range from 6 to 25 years. The Fund may shorten its
average weighted maturity to as little as 90 days if deemed appropriate for
temporary defensive purposes.
GEORGIA TAX-EXEMPT BOND FUND
The Georgia Tax-Exempt Bond Fund intends to be fully invested in municipal
securities the interest on which is exempt from regular federal income taxes and
substantially exempt from State of Georgia income taxes based on opinions from
bond counsel to the issuers. The issuers of these securities can be located in
Georgia, the District of Columbia, Puerto Rico and other U.S. territories and
possessions. It is a fundamental policy of the Fund to invest at least 80% of
its total assets in securities the income from which is exempt from regular
federal income tax and not treated as a preference item for purposes of the
alternative minimum tax. At least 65% of the Fund's assets will be invested in
Georgia municipal bonds and debentures, and at least 75% of its total assets
invested in municipal bonds will be in securities rated A or better by S&P or
Moody's. Municipal securities must be rated BBB or better by S&P or Baa or
better by Moody's in the case of bonds; SP-1, SP-2 or MIG-1, MIG-2 in the case
of notes; A-1, A-2, or P-1, P-2 in the case of tax-exempt commercial paper; and
VMIG-1 or VMIG-2 in the case of variable rate demand obligations. No more than
25% of the Fund's assets will be invested in bonds rated BBB by S&P or Baa by
Moody's. The Fund will only acquire securities not rated by S&P or Moody's if,
at the time of purchase, the Fund's Advisor determines that such unrated
obligations are of comparable quality to rated obligations that may be acquired
by the Fund.
The Fund may invest in commitments to purchase the above securities on a when-
issued or delayed delivery basis, floating or variable rate securities, and may
purchase municipal forwards, putable securities, medium term notes, and zero
coupon securities. The Fund's Advisor has discretion to invest up to 20% of the
Fund's total assets in taxable debt securities rated at least BBB or better by
S&P or Baa or better by Moody's or, if not rated by S&P or Moody's, of
comparable quality at the time of purchase as determined by the Fund's Advisor,
repurchase agreements, and securities
<PAGE>
16
subject to the alternative minimum tax. The Fund may also invest in futures and
options, but has no present intention to do so for other than hedging purposes.
Under normal market conditions, it is anticipated that the Fund's average
weighted maturity will range from 6 to 25 years. The Fund may shorten its
average weighted maturity to as little as 90 days if deemed appropriate for
temporary defensive purposes.
TENNESSEE TAX-EXEMPT BOND FUND
The Tennessee Tax-Exempt Bond Fund intends to be fully invested in municipal
securities the interest on which is exempt from regular federal income taxes and
substantially exempt from State of Tennessee income taxes based on opinions from
bond counsel to the issuers. The issuers of these securities can be located in
Tennessee, the District of Columbia, Puerto Rico and other U.S. territories and
possessions. It is a fundamental policy of the Fund to invest at least 80% of
its total assets in securities the income from which is exempt from regular
federal income tax and not treated as a preference item for purposes of the
alternative minimum tax. At least 65% of the Fund's assets will be invested in
Tennessee municipal bonds and debentures, and at least 75% of its total assets
invested in municipal bonds will be in securities rated A or better by S&P or
Moody's. Municipal securities must be rated BBB or better by S&P or Baa or
better by Moody's in the case of bonds; SP-1, SP-2 or MIG-1, MIG-2 in the case
of notes; A-1, A-2, or P-1, P-2 in the case of tax-exempt commercial paper; and
VMIG-1 or VMIG-2 in the case of variable rate demand obligations. No more than
25% of the Fund's assets will be invested in bonds rated BBB by S&P or Baa by
Moody's. The Fund will only acquire securities not rated by S&P or Moody's if,
at the time of purchase, the Fund's Advisor determines that such unrated
obligations are of comparable quality to rated obligations that may be acquired
by the Fund. The Fund may invest in floating or variable rate securities,
commitments to purchase the above securities on a when-issued or delayed
delivery basis, and may purchase municipal forwards, putable securities, medium
term notes, and zero coupon securities. The Fund's Advisor has discretion to
invest up to 20% of the Fund's total assets in taxable debt securities rated at
least BBB or better by S&P or Baa or better by Moody's or, if not rated by S&P
or Moody's, of comparable quality at the time of purchase as determined by the
Fund's Advisor, repurchase agreements, and securities subject to the alternative
minimum tax. The Fund may also invest in futures and options, but has no present
intention to do so for other than hedging purposes.
Under normal market conditions, it is anticipated that the Fund's average
weighted maturity will range from 6 to 25 years. The Fund may shorten its
average weighted maturity to as little as 90 days if deemed appropriate for
temporary defensive purposes.
PRIME QUALITY MONEY MARKET FUND
The Prime Quality Money Market Fund will invest in money market instruments
denominated in U.S. dollars consisting of (i) U.S. Treasury obligations; (ii)
custodial receipts representing interests in component parts of U.S. Treasury
obligations; (iii) obligations issued or guaranteed as to principal and interest
by agencies and instrumentalities of the U.S. Government; (iv) commercial paper
issued by domestic and foreign issuers rated in the highest short-term rating
category by one or more NRSROs as described in the "Appendix" or, if not rated,
determined by the Fund's Advisor to be of
<PAGE>
17
comparable quality; (v) high quality obligations (including certificates of
deposit, time deposits, bankers' acceptances, Eurodollar and Yankee bank
obligations) of U.S. commercial banks (including foreign branches of such
banks), and U.S. and London branches of foreign banks or savings and loan and
thrift institutions that are members of the Federal Reserve System, the Federal
Deposit Insurance Corporation, or the Federal Savings and Loan Insurance
Corporation; (vi) high quality short-term corporate obligations issued by
companies with commercial paper meeting the ratings indicated in (iv), above,
or, if not rated, determined by the Fund's Advisor to be of comparable quality;
(vii) repurchase agreements involving such obligations; (viii) high quality
obligations of supranational entities satisfying the credit ratings described in
(iv), above, or, if not rated, determined by the Fund's Advisor to be of
comparable quality; and (ix) medium term notes. The Fund may not invest more
than 25% of its total assets in obligations issued by foreign branches of U.S.
banks and London branches of foreign banks. The Fund may purchase securities
subject to standby commitments. As a money market fund, the Fund is subject to
limitations on the percentage of its assets that may be invested in any one
issuer and on the percentage that may be invested in securities carrying the
second highest rating assigned by the requisite NRSROs.
U.S. GOVERNMENT SECURITIES MONEY MARKET FUND
The U.S. Government Securities Money Market Fund will invest exclusively in U.S.
Treasury obligations, U.S. Government Subsidiary Corporation securities (e.g.,
GNMA Securities) and repurchase agreements with dealers selected pursuant to
guidelines adopted by the Trust's Board of Trustees and collateralized by U.S.
Treasury securities and U.S. Government Subsidiary Corporation securities.
TAX-EXEMPT MONEY MARKET FUND
The Tax-Exempt Money Market Fund intends to be fully invested in securities the
interest on which is exempt from regular federal income taxes in the opinion of
bond counsel to the issuer. It is a fundamental policy of the Tax-Exempt Money
Market Fund to invest at least 80% of its total assets in securities the income
from which is exempt from regular federal income taxes and not treated as a
preference item for purposes of the alternative minimum tax. The Fund may invest
in high quality, U.S. dollar denominated municipal securities of issuers located
in all fifty states, the District of Columbia, Puerto Rico and other U.S.
territories rated in one of the two highest short-term rating categories by S&P
or Moody's or, if not rated, determined by the Fund's Advisor to be of
comparable quality. The Fund will primarily purchase municipal bonds with a
remaining maturity of 397 days or less, and will also acquire municipal notes
and tax-exempt commercial paper with similar maturities. The Fund may agree to
purchase short-term securities on a when-issued basis and may invest in
securities subject to standby commitments. Securities purchased on a when-issued
basis are subject to settlement within 45 days of the purchase date.
The Fund's Advisor has discretion to invest up to 20% of the Fund's assets in
U.S. dollar denominated obligations consisting of taxable money market
instruments, obligations issued or guaranteed by the U.S. Government or its
agencies and instrumentalities, repurchase agreements and securities subject to
the alternative minimum tax.
<PAGE>
18
GENERAL INVESTMENT POLICIES AND STRATEGIES
For temporary defensive purposes, during periods when its Advisor determines
that market conditions warrant, each Fund, except the U.S. Government Securities
Money Market Fund and Short-Term U.S. Treasury Securities Fund, may hold a
portion of its assets in cash and invest up to 100% of its assets in money
market instruments consisting of: securities issued or guaranteed as to
principal and interest by the U.S. Government, its agencies or
instrumentalities; custodial receipts involving U.S. Treasury obligations;
repurchase agreements; certificates of deposit; bankers' acceptances; time
deposits issued by banks or savings and loan associations; and commercial paper
rated in the highest rating category. A Fund may not be pursuing its investment
objective when it is engaged in temporary defensive investing.
The municipal bonds that the Investment Grade Tax-Exempt Bond Fund and State
Tax-Exempt Bond Funds may purchase include general obligation bonds, revenue or
special obligation bonds, and private activity and industrial development bonds.
General obligation bonds are backed by the taxing power of the issuing
municipality while revenue or special obligation bonds are backed by a specific
project or facility. The State Tax-Exempt Bond Funds may also purchase
certificates of participation which represent an interest in an underlying
obligation or commitment such as an obligation issued in connection with a
leasing arrangement. The payment of principal and interest on private activity
and industrial development bonds generally is dependent solely on the ability of
the facility's user to meet its obligation and the pledge, if any, of real or
personal property as security for such payment.
The Advisor to a State Tax-Exempt Bond Fund or the Investment Grade Tax-Exempt
Bond Fund may buy or sell portfolio securities with the intention of generating
capital gains. Such gains will increase the Fund's total return and will be
taxable upon distribution to Shareholders. See "Tax Information."
In the event that a security owned by a Fund is downgraded below the stated
rating categories, its Advisor will review and take appropriate action with
regard to the security.
A Fund's purchase of shares of other investment companies is limited by the
Investment Company Act of 1940 (the "1940 Act") and will ordinarily result in an
additional layer of charges and expenses.
Each of the Funds may engage in securities lending and will limit such practice
to 33 1/3% of its total assets. No Fund may purchase additional securities while
its outstanding borrowings exceed 5% of its assets.
It is a non-fundamental policy of each Fund to invest no more than 15% of its
net assets in illiquid securities (10% of the total assets of each Money Market
Fund). An illiquid security is a security which cannot be disposed of in the
usual course of business within seven days at a price approximating its carrying
value.
For additional information regarding permitted investments, see "Description of
Permitted Investments" in this Prospectus and in the Statement of Additional
Information.
INVESTMENT RISKS
FIXED INCOME SECURITIES
The market value of a Fund's fixed income investments will change in response to
interest rate changes and other factors. During periods of falling interest
rates, the values of outstanding fixed income securities generally
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19
rise. Conversely, during periods of rising interest rates, the values of such
securities generally decline. Securities with longer maturities are subject to
greater fluctuations in value than securities with shorter maturities. Changes
by an NRSRO to the rating of any fixed income security and in the ability of an
issuer to make payments of interest and principal also affect the value of these
investments. Changes in the value of a Fund's securities will not affect cash
income derived from these securities but will affect the Fund's net asset value.
Fixed income securities rated BBB by S&P or Baa by Moody's (the lowest rating of
investment grade bonds) are deemed by these rating services to have speculative
characteristics.
Guarantees of a Fund's securities by the U.S. Government, its agencies or
instrumentalities guarantee only the payment of principal and interest on the
guaranteed securities, and do not guarantee the securities' yield or value or
the yield or value of a Fund's shares.
There is a risk that the current interest rate on floating and variable rate
instruments may not accurately reflect existing market interest rates.
FOREIGN SECURITIES
Investing in the securities of foreign companies involves special risks and
considerations not typically associated with investing in U.S. companies. These
risks and considerations include differences in accounting, auditing and
financial reporting standards, generally higher commission rates on foreign
portfolio transactions, the possibility of expropriation or confiscatory
taxation, adverse changes in investment or exchange control regulations,
political instability which could affect U.S. investment in foreign countries
and potential restrictions of the flow of international capital and currencies.
Foreign companies may also be subject to less government regulation than U.S.
companies. Moreover, the dividends payable on the foreign securities may be
subject to foreign withholding taxes, thus reducing the net amount of income
available for distribution to a Fund's Shareholders. Further, foreign securities
often trade with less frequency and volume than domestic securities and,
therefore, may exhibit greater price volatility. Changes in foreign exchange
rates will affect, favorably or unfavorably, the value of those securities which
are denominated or quoted in currencies other than the U.S. dollar.
MORTGAGE-BACKED SECURITIES
Mortgage-backed securities are subject to the risk of prepayment of the
underlying mortgages. During periods of declining interest rates, prepayment of
mortgages underlying these securities can be expected to accelerate. When the
mortgage-backed securities held by a Fund are prepaid, the Fund generally will
reinvest the proceeds in securities with a yield that reflects prevailing
interest rates, which may be lower than the prepaid security.
MUNICIPAL SECURITIES
Since each State Tax-Exempt Bond Fund invests in municipal securities issued by
governmental entities of its specific state, the performance of each State
Tax-Exempt Bond Fund may be especially affected by factors pertaining to such
state's economy and other factors specifically affecting the ability of issuers
in that state to meet their obligations. As a result, the value of each State
Tax-Exempt Bond Fund's shares may fluctuate more widely than the value of shares
of a portfolio investing in securities relating to a number of different states.
The ability of state, county, or local
<PAGE>
20
governments to meet their obligations will depend primarily on the availability
of tax and other revenues to those governments and on their fiscal conditions
generally. Municipal securities may be affected from time to time by economic,
political, geographic and demographic conditions. In addition, constitutional
amendments, legislative measures, executive orders, administrative regulations
and voter initiatives may limit a government's power to raise revenues or
increase taxes and thus could adversely affect an issuer's ability to meet
financial obligations.
ZERO COUPON OBLIGATIONS
Zero coupon obligations are sold at original issue discount and do not make
periodic payments. Zero coupon obligations may be subject to greater
fluctuations in value due to interest rate changes than interest bearing
obligations. A Fund will be required to include the imputed interest in zero
coupon obligations in its current income. Because each Fund distributes all of
its net investment income to Shareholders, a Fund may have to sell portfolio
securities to distribute the income attributable to these obligations and
securities at a time when its Advisor would not have chosen to sell such
obligations or securities and which may result in a taxable gain or loss.
INVESTMENT LIMITATIONS
The following investment limitations constitute fundamental policies of each
Fund. Fundamental policies cannot be changed with respect to a Fund without the
consent of the holders of a majority of the Fund's outstanding shares. The term
"majority of the outstanding shares" means the vote of (i) 67% or more of a
Fund's shares present at a meeting, if more than 50% of the outstanding shares
of the Fund are present or represented by proxy, or (ii) more than 50% of a
Fund's outstanding shares, whichever is less.
Each Fund may not:
1. Purchase securities of any issuer (except securities issued or
guaranteed by the United States, its agencies or instrumentalities and
repurchase agreements involving such securities) if as a result more than 5% of
the total assets of a Fund would be invested in the securities of such issuer;
provided, however, that a Fund may invest up to 25% of its total assets without
regard to this restriction as permitted by applicable law.
2. Purchase any securities which would cause more than 25% of the total
assets of a Fund to be invested in the securities of one or more issuers
conducting their principal business activities in the same industry, provided
that this limitation does not apply to investments in obligations issued or
guaranteed by the U.S. Government or its agencies and instrumentalities,
repurchase agreements involving such securities or tax-exempt securities issued
by governments or political subdivisions of governments and, with respect to
only the Money Market Funds, obligations issued by domestic branches of U.S.
banks or U.S. branches of foreign banks subject to the same regulations as U.S.
banks. For purposes of this limitation, (i) utility companies will be divided
according to their services, for example, gas, gas transmission, electric and
telephone will each be considered a separate industry; (ii) financial service
companies will be classified according to the end users of their services, for
example, automobile finance, bank finance and diversified finance will each be
considered a separate industry; and (iii) supranational entities will be
considered to be a separate industry.
It is a non-fundamental policy of the Tax-Exempt Money Market Fund and
Investment
<PAGE>
21
Grade Tax-Exempt Bond Fund that they will not invest more than 25% of their
respective net assets in securities of one or more issuers conducting their
principal activities in the same state. In addition, the Tax-Exempt Money Market
Fund, Investment Grade Tax-Exempt Bond Fund and State Tax-Exempt Bond Funds will
not invest more than 25% of their respective total assets in securities the
interest on which is derived from revenues of similar type projects.
The foregoing percentages will apply at the time of the purchase of a security.
Additional investment limitations are set forth in the Statement of Additional
Information.
PERFORMANCE INFORMATION
MONEY MARKET FUNDS
From time to time each Money Market Fund may advertise its "current yield" and
"effective compound yield." Both yield figures are based on historical earnings
and are not intended to indicate future performance. The "current yield" of each
Fund refers to the income generated by an investment in a Fund over a seven-day
period (which period will be stated in the advertisement). This income is then
"annualized." That is, the amount of income generated by the investment during
that week is assumed to be generated each week over a 52-week period and is
shown as a percentage of the investment. The "effective yield" is calculated
similarly but, when annualized, the income earned by an investment in a Fund is
assumed to be reinvested. The "effective yield" will be slightly higher than the
"current yield" because of the compounding effect of this assumed reinvestment.
The Tax-Exempt Money Market Fund may also advertise a "tax-equivalent yield,"
which is calculated by determining the rate of return that would have been
achieved on a fully taxable investment to produce the after tax equivalent of
the Fund's yield, assuming certain tax brackets for a Shareholder.
BOND AND STATE TAX-EXEMPT BOND FUNDS
From time to time, the Bond and State Tax-Exempt Bond Funds may advertise yield
and total return. These figures will be based on historical earnings and are not
intended to indicate future performance. The yield of a Fund refers to the
annualized income generated by an investment in that Fund over a specified
30-day period. The yield is calculated by assuming that the income generated by
the investment during that period is generated over one year and is shown as a
percentage of the investment.
The Investment Grade Tax-Exempt and State Tax-Exempt Bond Funds may also
advertise a "tax-equivalent yield," which is calculated by determining the rate
of return that would have been achieved on a fully taxable investment to produce
the after tax equivalent of the Fund's yield, assuming certain tax brackets for
a Shareholder.
The total return of a Fund refers to the average compounded rate of return to a
hypothetical investment, including any sales charge imposed, for designated time
periods (including but not limited to, the period from which a Fund commenced
operations through the specified date), assuming that the entire investment is
redeemed at the end of each period and assuming the reinvestment of all dividend
and capital gains distributions.
The performance of the Shares of the Trust will normally be higher than for
Investor Shares and Flex Shares because Investor Shares and Flex Shares are
subject to distribution, service, and certain transfer agent fees not charged to
Trust Shares. Because of their differing distribution
<PAGE>
22
expense arrangements, the performance of Flex Shares in comparison to Investor
Shares will vary depending upon the investor's investment time horizon.
Each Fund may periodically compare its performance to other mutual funds tracked
by mutual fund rating services, to broad groups of comparable mutual funds or to
unmanaged indices which may assume reinvestment of dividends but generally do
not reflect deductions for administrative and management costs.
PURCHASE OF FUND SHARES
Trust Shares of the Trust are sold primarily to financial institutions or
intermediaries, including subsidiaries of SunTrust Banks, Inc. ("SunTrust"), for
the investment of funds for which they act in a fiduciary, agency, investment
advisory or custodial capacity. Individuals generally may not purchase Trust
Shares directly, although individuals may be able to purchase Trust Shares
through accounts maintained with financial institutions and potentially through
the Preferred Portfolio Account (an asset allocation account available through
SunTrust Securities, Inc.). Trust Shares are sold without a sales charge,
although financial institutions may charge their customer accounts for services
provided in connection with the purchase of shares. Financial institutions may
impose an earlier cut-off time for receipt of purchase orders directed through
them to allow for processing and transmittal of the reorders to the Trust's
transfer agent, Federated Services Company (the "Transfer Agent"), for
effectiveness the same day. Information concerning these services and any
charges will be provided to customers by the financial institutions. Trust
Shares will be held of record by the financial institutions, although customers
may have or be given the right to vote the shares depending upon the terms of
their relationship with the financial institution. Confirmations of share
purchases and redemptions will be sent to the financial institution as the
shareholder of record.
Shares may be purchased on days on which the New York Stock Exchange is open for
business (a "business day"). However, money market mutual fund shares cannot be
purchased or redeemed for same day settlement on days the Federal Reserve is
closed.
MONEY MARKET FUNDS
A purchase order for any of the Money Market Funds will be effective as of the
Business Day it is received by the Transfer Agent and eligible to receive
dividends declared the same day if the Transfer Agent receives the order before
11:00 a.m. Eastern time for the Tax-Exempt Money Market Fund or before 1:00 p.m.
Eastern time for the Prime Quality Money Market Fund and U.S. Government
Securities Money Market Fund and the Custodian receives federal funds before
4:00 p.m. Eastern time on such day. Otherwise, purchase orders for the Money
Market Funds will be effective the next Business Day provided the Custodian
receives readily available funds before 4:00 p.m. Eastern time on the next such
Business Day. The purchase price is the net asset value per share next computed
after the order is received and accepted by the Trust. The net asset value per
share of each Fund is determined by dividing the total value of its investments
and other assets, less any liabilities, by its total outstanding shares. The net
asset value per share is calculated as of the close of business of the New York
Stock Exchange (currently 4:00 p.m. Eastern time) each Business Day based on the
amortized cost method described
<PAGE>
23
in the Statement of Additional Information and is expected to remain constant at
$1.00 per share.
BOND AND STATE TAX-EXEMPT BOND FUNDS
A purchase order for any of the Bond and State Tax-Exempt Bond Funds will be
effective as of the Business Day it is received by the Transfer Agent if the
Transfer Agent receives the order before 4:00 p.m. Eastern time and payment is
received within one day. Purchases will be made in full and fractional shares of
the Trust calculated to three decimal places. The purchase price of Trust Shares
of a Fund is the net asset value next determined after a purchase order is
effective. The net asset value per share of a Fund is determined by dividing the
total market value of the Fund's investments and other assets, less any
liabilities, by the total outstanding shares of the Fund. Net asset value per
share is determined daily as of 4:00 p.m. Eastern time on any Business Day.
Pursuant to guidelines established by the Trustees, the Trust may use a pricing
service to provide market quotations or valuations for securities owned by each
Fund.
The Trust reserves the right to reject a purchase order when the Distributor
determines that it is not in the best interest of the Trust and/or
Shareholder(s).
The Trust maintains procedures, including identification methods and other
means, for ascertaining the identity of callers and authenticity of
instructions. If reasonable procedures are not employed, the Trust and/or the
Transfer Agent may be liable for any losses due to the unauthorized or
fraudulent telephone transactions. Neither the Transfer Agent nor the Trust will
be responsible for any loss, liability, cost or expense for acting upon
telephone or wire instructions reasonably believed to be genuine.
Shares of the Funds are offered only to residents of states in which the shares
are eligible for purchase. Investors in certain states may be required to
purchase shares through institutions registered as brokers/dealers in such
states.
Although the methodology and procedures for calculating the net asset value of
the Trust Shares are identical to those of the Investor Shares and Flex Shares,
the net asset value per share of the classes may differ because of the
distribution and certain transfer agent expenses charged to Investor Shares and
Flex Shares.
REDEMPTION OF FUND SHARES
An order to redeem Trust shares must be transmitted to the Transfer Agent by the
financial institution as the record owner. Financial institutions may establish
procedures for their customers to request redemption of Trust Shares held in
their account with the financial institution. Customers should contact their
financial institution for information concerning these procedures.
With respect to the Money Market Funds, redemption orders must be received by
the Transfer Agent on a Business Day before 1:00 p.m. Eastern time for the Prime
Quality and U.S. Government Securities Money Market Funds and before 11:00 a.m.
Eastern time for the Tax-Exempt Money Market Fund to be effective that day.
Redemption orders received after the times noted above will normally be executed
the following day. STI Classic Funds reserves the right to wire redemption
proceeds within five Business Days after receiving the redemption orders if, in
the judgment of the Advisor, an earlier payment could adversely impact a Fund.
<PAGE>
24
With respect to the Bond and State Tax-Exempt Bond Funds, redemption orders must
be received by the Transfer Agent before 4:00 p.m. Eastern time on any Business
Day to be effective that day. Redemption proceeds are normally remitted within
five Business Days following receipt of the order.
The Trust intends to pay cash for all shares redeemed, but under abnormal
conditions which make payment in cash unwise, payment may be made wholly or
partly in liquid portfolio securities with a market value equal to the
redemption price. In such circumstances, an investor may incur brokerage costs
in converting such securities to cash.
DIVIDENDS AND DISTRIBUTIONS
MONEY MARKET FUNDS
Dividends from net investment income (exclusive of capital gains) of each of the
Money Market Funds are declared on each Business Day to Shareholders at the
close of business on the day of declaration. Net income for dividend purposes
consists of (i) interest accrued and original issue discount earned on the
Fund's assets, (ii) plus the amortization of market discount (except in the case
of the Tax-Exempt Money Market Fund) and minus the amortization of market
premium on such assets, (iii) less accrued expenses directly attributable to the
Fund and the general expenses of the Trust prorated to the Fund on the basis of
its relative net assets. Trust Shares begin earning dividends on the Business
Day the purchase order is effective and continue earning dividends through and
including the Business Day before the redemption order is effective. Dividends
are paid within ten Business Days after the end of each month in the form of
additional Trust Shares of the same Fund unless the Shareholder has elected
prior to the date of distribution to receive payment in cash. Such election, or
any revocation thereof, must be made in writing at least 15 days prior to the
date of distribution to the Transfer Agent and will become effective with
respect to dividends paid after its receipt. Dividends are paid within ten
Business Days after a Shareholder's complete redemption of its Trust Shares in a
Fund.
BOND AND STATE TAX-EXEMPT BOND FUNDS
Dividends from net investment income (exclusive of capital gains) are declared
on each Business Day and paid monthly by each of the Bond and State Tax-Exempt
Bond Funds. Each Fund's net realized capital gains (including net short-term
capital gains) are distributed at least annually. Net income for dividend
purposes consists of (i) interest accrued and original issue discount earned on
the Fund's assets, (ii) plus the amortization of market discount (except in the
case of the Investment Grade Tax-Exempt Bond and State Tax-Exempt Bond Funds)
and minus the amortization of market premium on such assets, (iii) plus dividend
or distribution income on such assets, (iv) less accrued expenses directly
attributable to the Fund and the general expenses of the Trust prorated to the
Fund on the basis of its relative net assets. Investor Shares and Flex Shares
invested in the Bond and State Tax-Exempt Bond Funds are eligible to begin
earning dividends that are declared on the Business Day after the purchase order
is effective and continue to be eligible for dividends through and including the
day the redemption order is effective.
The net asset value of Trust Shares of the non-Money Market Funds will be
reduced by the amount of any dividend or distribution. Dividends and
distributions are paid in the form of additional Trust Shares of the same Fund
unless the customer has elected prior to the
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25
date of distribution to receive payment in cash. Such election, or any
revocation thereof, must be made in writing prior to the date of distribution to
the Transfer Agent and will become effective with respect to dividends paid
after its receipt. Dividends and distributions are paid within ten days of the
end of the time period to which the dividend relates. Dividends and
distributions payable to a Shareholder are paid in cash within ten Business Days
after a Shareholder's complete redemption of its Trust Shares in a Fund.
TAX INFORMATION
The following summary of federal income tax consequences is based on current tax
laws and regulations, which may be changed by legislative, judicial or
administrative action. No attempt has been made to present a detailed
explanation of the federal, state or local income tax treatment of each Fund or
its Shareholders. In particular, no attempt has been made herein to provide
information on the tax laws of Florida, Georgia or Tennessee. Accordingly,
Shareholders are urged to consult their tax advisors regarding specific
questions as to federal, state and local income taxes.
TAX STATUS OF EACH FUND
Each Fund is treated as a separate entity for federal tax purposes, and is not
combined with the Trust's other Funds. Each Fund intends to qualify for the
special tax treatment afforded regulated investment companies by the Internal
Revenue Code of 1986, as amended (the "Code"), so that it will be relieved of
federal income tax on that part of its net investment income and net capital
gains (the excess of long-term capital gains over net short-term capital loss)
which is distributed to Shareholders. Each Fund intends to make sufficient
distributions prior to the end of each calendar year to avoid liability for the
federal excise tax applicable to regulated investment companies.
TAX STATUS OF DISTRIBUTIONS:
MONEY MARKET FUNDS
The Prime Quality Money Market Fund and the U.S. Government Securities Money
Market Fund will each distribute all of their net investment income (including,
for this purpose, net short-term capital gains) to Shareholders. Dividends from
net investment income will be taxable to Shareholders as ordinary income whether
received in cash or in additional shares.
The Tax-Exempt Money Market Fund will distribute all of its net investment
income (including net short-term capital gains) to Shareholders. If, at the
close of each quarter of its taxable year, at least 50% of the value of the
Fund's assets consists of obligations the interest on which is excludable from
gross income, the Fund may pay exempt-interest dividends to its Shareholders.
Those dividends constitute the portion of the aggregate dividends as designated
by the Fund, equal to the excess of the excludable interest over certain amounts
disallowed as deductions. Exempt-interest dividends are excludable from a
Shareholder's gross income for regular federal income tax purposes, but may have
alternative minimum tax consequences. See the Statement of Additional
Information.
Current federal tax law limits the types and volume of bonds qualifying for the
federal income tax exemption of interest, which may have an effect on the
ability of the Tax-Exempt Money Market Fund to purchase sufficient amounts of
tax-exempt securities to satisfy the Code's requirements for the payment of
exempt-interest dividends.
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26
TAX STATUS OF DISTRIBUTIONS:
BOND AND STATE TAX-EXEMPT BOND FUNDS
Each Fund will distribute substantially all of its net investment income
(including, for this purpose, net short-term capital gains) to Shareholders.
Dividends from net investment income paid by the Funds will be taxable to
Shareholders as ordinary income whether received in cash or in additional
shares.
Each of the Investment Grade Tax-Exempt Bond and State Tax-Exempt Bond Funds
will distribute all of its net investment income (including net short-term
capital gains) to Shareholders. If, at the close of each quarter of its taxable
year, at least 50% of the value of each of the Fund's assets consist of
obligations the interest on which is excludable from gross income, the Fund may
pay exempt-interest dividends to its Shareholders. Those dividends constitute
the portion of the aggregate dividends as designated by the Fund, equal to the
excess of the excludable interest over certain amounts disallowed as deductions.
Exempt-interest dividends are excludable from a Shareholder's gross income for
regular federal income tax purposes, but may have alternative minimum tax
consequences. See the Statement of Additional Information.
Current federal tax law limits the types and volume of bonds qualifying for the
federal income tax exemption of interest, which may have an effect on the
ability of the Investment Grade Tax-Exempt Bond and State Tax-Exempt Bond Funds
to purchase sufficient amounts of tax-exempt securities to satisfy the Code's
requirements for the payment of exempt-interest dividends.
TAX STATUS OF DISTRIBUTIONS:
ALL FUNDS
Dividends from net investment income will qualify for the dividends received
deduction for corporate Shareholders only to the extent such distributions are
derived from dividends paid by domestic corporations. Dividends from net capital
gains (the excess of net long-term capital gains over net short-term capital
loss) will be treated as long-term capital gains, regardless of how long the
Shareholder has held shares and regardless of whether distributions are received
in cash or in additional shares. For certain individual Shareholders net
long-term capital gains may be taxed at a lower rate than ordinary income. Each
Fund will make annual reports to Shareholders of the federal income tax status
of all distributions. Dividends declared by a Fund in October, November or
December of any year and payable to Shareholders of record on a date in that
month will be deemed to have been paid by the Fund and received by the
Shareholders on December 31, of that year, if paid by the Fund any time during
the following January.
Income received on direct U.S. obligations is exempt from tax at the state level
when received directly by a Fund and may be exempt, depending on the state, when
received by a Shareholder from a Fund provided certain state specific conditions
are satisfied. Not all states permit such income dividends to be tax-exempt and
some require that a certain minimum percentage of an investment company's income
be derived from state tax-exempt interest. Each Fund will inform Shareholders
annually of the percentage of income and distributions derived from direct U.S.
obligations. Shareholders should consult their tax advisors to determine whether
any
<PAGE>
27
portion of the income dividends received from a Fund is considered tax exempt in
their particular states.
Income derived by a Fund from obligations of foreign issuers may be subject to
foreign withholding taxes. No Fund will be able to treat Shareholders as having
paid their proportionate share of such foreign taxes.
Interest on indebtedness incurred or continued by a Shareholder in order to
purchase shares of a "tax-exempt" Fund is not deductible. Furthermore, entities
or persons who are "substantial users" (or persons related to "substantial
users") of facilities financed by "private activity bonds" or certain industrial
development bonds should consult their tax advisors before purchasing shares.
For these purposes, the term "substantial user" is defined generally to include
a "non-exempt person" who regularly uses in trade or business a part of a
facility financed from the proceeds of such bonds. See the Statement of
Additional Information.
A sale, exchange or redemption of Fund shares is a taxable event to the
Shareholder.
STI CLASSIC FUNDS INFORMATION
THE TRUST
The Trust was organized as a Massachusetts business trust under a Declaration of
Trust dated January 15, 1992. The Declaration of Trust permits the Trust to
offer separate portfolios of shares and different classes of each Fund. All
consideration received by the Trust for shares of any Fund and all assets of
such Fund belong to that Fund and would be subject to liabilities related
thereto.
The Trust pays its expenses, including fees of its service providers, audit and
legal expenses, expenses of preparing prospectuses, proxy solicitation material
and reports to Share-
holders, costs of custodial services and registering the shares under federal
and state securities laws, pricing, insurance expenses, litigation and other
extraordinary expenses, brokerage costs, interest charges, taxes and
organization expenses.
BOARD OF TRUSTEES
The management and affairs of the Trust are supervised by the Trustees under the
laws governing business trusts in the Commonwealth of Massachusetts. The
Trustees have approved contracts under which, as described below, certain
companies provide essential management services to the Trust.
INVESTMENT ADVISORS
The Advisors are indirect wholly-owned subsidiaries of SunTrust Banks, Inc.
("SunTrust"), a southeastern regional bank holding company with assets of $66
billion as of December 31, 1995. SunTrust ranks among the twenty largest U.S.
banking companies. Its three principal subsidiaries-- SunTrust Banks of Florida,
Inc., SunTrust Banks of Georgia, Inc. and SunTrust Banks of Tennessee, Inc.--
provide a wide range of personal and corporate banking, trust, and investment
services through more than 600 locations in the three-state area. Total
discretionary assets under management with SunTrust Banks, Inc. equalled
approximately $47 billion as of December 31, 1995.
Trusco Capital Management, Inc. ("Trusco") serves as the Advisor to the Prime
Quality Money Market, U.S. Government Securities Money Market, Tax-Exempt Money
Market, Short-Term U.S. Treasury Securities, Short-Term Bond and U.S. Government
Securities Funds. As of June 30, 1996, Trusco had approximately
<PAGE>
28
$13.7 billion in assets under management. The principal business address of
Trusco is 50 Hurt Plaza, Suite 1400, Atlanta, Georgia 30303.
STI Capital Management, N.A. ("STI Capital") serves as the Advisor to the
Limited-Term Federal Mortgage Securities, Investment Grade Bond, Investment
Grade Tax-Exempt Bond and Florida Tax-Exempt Bond Funds. As of June 30, 1996,
STI Capital had discretionary management authority with respect to assets of
approximately $11 billion. The principal business address of STI Capital is P.O.
Box 3808, Orlando, Florida 32802.
SunTrust Bank, Chattanooga, N.A. ("SunTrust Bank, Chattanooga") (formerly
American National Bank & Trust Company) serves as the Advisor to the Tennessee
Tax-Exempt Bond Fund. SunTrust Bank, Chattanooga had approximately $1.7 billion
in assets under management as of December 31, 1995. The principal business
address of SunTrust Bank, Chattanooga is 736 Market Street, Chattanooga,
Tennessee 37402.
SunTrust Bank, Atlanta (formerly Trust Company Bank) serves as the Advisor to
the Georgia Tax-Exempt Bond Fund. As of December 31, 1995, SunTrust Bank,
Atlanta had approximately $12.5 billion in assets under management. The
principal address for SunTrust Bank, Atlanta is 25 Park Place, Atlanta, Georgia
30303.
The Trust and the above Advisors have entered into advisory agreements (the
"Advisory Agreements"). Under the Advisory Agreements, the Advisors make the
investment decisions for the assets of the Funds they advise and continuously
review, supervise and administer their Fund's respective investment programs.
The Advisors discharge their responsibilities subject to the supervision of, and
policies established by, the Trustees of the Trust. STI CLASSIC FUNDS ARE NOT
DEPOSITS, ARE NOT INSURED OR GUARANTEED BY THE FDIC OR ANY OTHER GOVERNMENT
AGENCY, AND ARE NOT ENDORSED OR GUARANTEED BY AND DO NOT CONSTITUTE OBLIGATIONS
OF SUNTRUST BANKS, INC. OR ANY OF ITS AFFILIATES. INVESTMENTS IN THE FUNDS
INVOLVE RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. RETURNS AND PRINCIPAL
VALUES WILL FLUCTUATE AND SHARES AT REDEMPTION MAY BE WORTH MORE OR LESS THAN
THEIR ORIGINAL COST. THERE IS NO GUARANTEE THAT ANY STI CLASSIC FUND WILL
ACHIEVE ITS INVESTMENT OBJECTIVE. With respect to all Funds, the Advisors may
execute brokerage or other agency transactions through affiliates of the
Advisors.
For the services provided and expenses incurred pursuant to the applicable
Advisory Agreement: Trusco is entitled to receive advisory fees computed daily
and paid monthly at the annual rate of .74%, .65%, .65%, .55%, .65% and .65% of
the average daily net assets of the U.S. Government Securities Fund, Prime
Quality Money Market Fund, U.S. Government Securities Money Market Fund,
Tax-Exempt Money Market Fund, Short-Term U.S. Treasury Securities Fund and
Short-Term Bond Fund, respectively; STI Capital is entitled to receive advisory
fees computed daily and paid monthly at the annual rate of .65%, .74%, .74% and
.65% of the average daily net assets of the Florida Tax-Exempt Bond Fund,
Investment Grade Bond Fund, Investment Grade Tax-Exempt Bond Fund and
Limited-Term Federal Mortgage Securities Fund, respectively; SunTrust Bank,
Chattanooga, N.A. is entitled to receive advisory fees computed daily and paid
monthly at the annual rates of .65% of the average daily net assets of the
Tennessee Tax-Exempt Bond Fund and SunTrust Bank, Atlanta is entitled to receive
advisory fees computed daily and paid monthly at the annual rate of .65% of the
average daily net assets of the Georgia Tax-Exempt Bond Fund.
<PAGE>
29
From time to time, an Advisor may waive (either voluntarily or pursuant to
applicable state limitations) advisory fees payable by a Fund. Currently, the
Advisors have agreed to voluntary reductions in their respective fees in amounts
necessary to maintain the total operating expenses at the amounts set forth in
the Expense Summary. Voluntary reductions of fees may be terminated at any time.
For the fiscal year ended May 31, 1996: Trusco received advisory fees computed
daily and paid monthly at the annual rate of .50%, .51%, .37%, .22%, .46%, and
.16% of the average daily net assets of the Prime Quality Money Market Fund,
U.S. Government Securities Money Market Fund, Tax-Exempt Money Market Fund,
Short-Term U.S. Treasury Securities Fund, Short-Term Bond Fund, and U.S.
Government Securities Fund, respectively; STI Capital received advisory fees
computed daily and paid monthly at the annual rate of .38%, .63%, .61%, and .43%
of the average daily net assets of the Florida Tax-Exempt Bond Fund, Investment
Grade Bond Fund, Investment Grade Tax-Exempt Bond Fund, and Limited-Term Federal
Mortgage Securities Fund, respectively; SunTrust Bank, Chattanooga received
advisory fees computed daily and paid monthly at the annual rate of .00% of the
average daily net assets of the Tennessee Tax-Exempt Bond Fund and SunTrust
Bank, Atlanta received advisory fees computed daily and paid monthly at the
annual rate of .37% of the average daily net assets of the Georgia Tax-Exempt
Bond Fund.
PORTFOLIO MANAGERS
Mr. Charles B. Leonard, CFA, First Vice President of Trusco, and Michael L.
Ford, an Associate of Trusco, have been responsible for the day-to-day
management of the U.S. Government Securities Fund since it commenced operations.
Mr. Leonard has been with Trusco since 1986 as the senior fixed income manager.
Mr. Ford has been with Trusco since April, 1994. Prior to joining Trusco, Mr.
Ford served as a senior securities analyst with Liberty Capital Advisors from
January, 1992 to April, 1994 and served as a securities analyst at Southern Farm
Bureau Life Insurance Company from 1990 to 1992.
Ms. Mary F. Cernilli, CFA, has been responsible for the day-to-day management of
the Tax-Exempt Money Market Fund since January, 1993. Prior to joining Trusco,
Ms. Cernilli served as a Treasury Manager with the Xerox Corporation from 1990
to 1993.
Mr. David Yealy has been responsible for the day-to-day management of the
Short-Term Bond and Short-Term U.S. Treasury Securities Funds since July, 1996
and the Prime Quality Money Market and U.S. Government Securities Funds since
they commenced operations. Mr. Yealy joined Trusco in 1991 and currently serves
as a Vice President.
Mr. L. Earl Denney CFA and Mr. Dave E. West CFA have been responsible for the
day-to-day management of the Limited-Term Federal Mortgage Securities Fund since
it commenced operations. Mr. Denney has served as Executive Vice President of
STI Capital since 1983. Mr. West has served as a fixed income portfolio manager
with STI Capital since 1989. Mr. Denney has also been responsible for the
day-to-day management of the Investment Grade Bond Fund since it commenced
operations.
Ms. Gay Cash has been responsible for the day-to-day management of the Georgia
Tax-Exempt Bond Fund since it commenced operations. Ms. Cash has served as a
Vice President of SunTrust Bank, Atlanta since January 1, 1987.
<PAGE>
30
Mr. Ronald Schwartz has been responsible for the day-to-day management of the
Florida Tax-Exempt Bond and Investment Grade Tax-Exempt Bond Funds since each
Fund commenced operations. Mr. Schwartz joined STI Capital in 1988 and currently
serves as a Senior Vice President. Mr. Schwartz, has also been responsible for
the day-to-day management of the Tennessee Tax-Exempt Bond Fund since July,
1995. Mr. Schwartz serves as Vice President and Trust Investment Officer of
SunTrust Bank, Chattanooga.
BANKING LAWS
Banking laws and regulations, including the Glass-Steagall Act as presently
interpreted by the Board of Governors of the Federal Reserve System, currently
(a) prohibit a bank holding company registered under the Federal Bank Holding
Company Act of 1956 or its affiliates from sponsoring, organizing, controlling,
or distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and generally prohibit banks
from underwriting securities, but (b) do not prohibit such a bank holding
company or affiliate or banks generally from acting as an investment advisor,
transfer agent, or custodian to such an investment company or from purchasing
shares of such a company as agent for and upon the order of a customer. The
Advisors believe that each may perform the services for STI Classic Funds
contemplated by their respective Advisory Agreements described in this
Prospectus without violation of applicable banking laws or regulations. However,
future changes in legal requirements relating to the permissible activities of
banks and their affiliates, as well as future interpretations of present
requirements, could prevent the Advisors from continuing to perform services for
STI Classic Funds. If the Advisors were prohibited from providing services to
STI Classic Funds, the Board of Trustees would consider selecting other
qualified firms. Any new investment advisory agreements would be subject to
Shareholder approval.
If current restrictions preventing a bank or its affiliates from legally
sponsoring, organizing, controlling, or distributing shares of an investment
company were relaxed, the Advisors, or their affiliates, would consider the
possibility of offering to perform additional services for STI Classic Funds. It
is not possible, of course, to predict whether or in what form such legislation
might be enacted or the terms upon which the Advisors, or such affiliates, might
offer to provide such services.
In addition, state securities laws on this issue may differ from the
interpretations of federal law expressed herein and banks and financial
institutions may be required to register as dealers pursuant to state law.
DISTRIBUTION
SEI Financial Services Company (the "Distributor"), a wholly-owned subsidiary of
SEI Corporation ("SEI"), and the Trust are parties to a distribution agreement
(the "Distribution Agreement"). No compensation is paid to the Distributor for
distribution services for the Trust Shares of each Fund. Trust Shares of the
Fund are offered primarily to institutional investors, including affiliates and
correspondents for the investment of funds in which they act in a fiduciary,
agency or custodial capacity. The Flex Shares of a Fund are subject to a
contingent deferred sales charge, pay a distribution services fee to the
Distributor and are also subject to a services fee for personal service and
maintenance of shareholder accounts. The contingent deferred sales charge option
of the Flex Shares provides investors with an alternative purchase arrangement
to Investor Shares. An investor may call 1-800-874-4770 to
<PAGE>
31
receive more information regarding Investor Shares or Flex Shares. It is
possible that a financial institution may offer different classes of shares to
its customers and thus receive different compensation with respect to different
classes of shares.
Each Fund may execute brokerage or other agency transactions through the
Distributor for which the Distributor receives compensation.
ADMINISTRATION
SEI Fund Resources (the "Administrator") serves as the Administrator of the
Trust. The Administrator provides the Trust with certain administrative
services, other than investment advisory services, including regulatory
reporting, all necessary office space, equipment, personnel and facilities.
The Administrator is entitled to a fee from each Fund, which is calculated daily
and paid monthly, at an annual rate as follows:
<TABLE>
<CAPTION>
AVERAGE AGGREGATE DAILY NET ASSETS FEE
- -------------------------------------------- ---------
<S> <C>
$1 - $1 billion 0.10%
over $1 billion to $5 billion 0.07%
over $5 billion to $8 billion 0.05%
over $8 billion to $10 billion 0.045%
over $10 billion 0.04%
</TABLE>
From time to time, the Administrator may waive (either voluntarily or pursuant
to applicable state limitations) all or a portion of the administration fee
payable with respect to the Trust.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, Federated Investors Tower, Pittsburgh, Pennsylvania
15222-3779, is the transfer agent for the shares of the Trust and dividend
disbursing agent for the Trust.
CUSTODIAN
SunTrust Bank, Atlanta, c/o STI Trust & Investment Operations, Inc., 303
Peachtree Street N.E., 14th Floor, Atlanta, Georgia 30308 serves as Custodian of
the assets of each Fund. The custodian holds cash, securities and other assets
of the Trust as required by the 1940 Act.
LEGAL COUNSEL
Morgan, Lewis & Bockius LLP, Philadelphia, Pennsylvania, serves as legal counsel
to the Trust.
INDEPENDENT PUBLIC ACCOUNTANTS
The independent public accountants to the Trust are Arthur Andersen LLP,
Philadelphia, Pennsylvania.
OTHER INFORMATION
VOTING RIGHTS
Each share held entitles the Shareholder of record to one vote. Each Fund or
class of a Fund will vote separately on matters relating solely to that Fund or
class. As a Massachusetts business trust, the Trust is not required to hold
annual meetings of Shareholders but approval will be sought for certain changes
in the operation of the Trust and for the election of Trustees under certain
circumstances. In addition, a Trustee may be removed by the remaining Trustees
or by Shareholders at a special meeting called upon written request of
Shareholders owning at least 10% of the outstanding shares of the Trust. In the
event that such a meeting is requested the Trust will provide appropriate
assistance and information to the Shareholders requesting the meeting.
<PAGE>
32
REPORTING
The Trust issues unaudited financial information audited financial statements
annually. The Trust furnishes proxy statements and other reports to Shareholders
of record.
SHAREHOLDER INQUIRIES
Shareholders may contact their financial institution's representative in order
to obtain information on account statements, procedures and other related
information.
DESCRIPTION OF PERMITTED INVESTMENTS
The following is a description of the permitted investments for the Funds.
Further discussion is contained in the Statement of Additional Information.
AMERICAN DEPOSITARY RECEIPTS ("ADRs") -- ADRs are securities, typically issued
by a U.S. financial institution (a "depositary"), that evidence ownership
interests in a security or a pool of securities issued by a foreign issuer and
deposited with the depositary. ADRs may be available through "sponsored" or
"unsponsored" facilities. A sponsored facility is established jointly by the
issuer of the security underlying the receipt and a depositary, whereas an
unsponsored facility may be established by a depositary without participation by
the issuer of the underlying security. Holders of unsponsored depositary
receipts generally bear all the costs of the unsponsored facility. The
depositary of an unsponsored facility frequently is under no obligation to
distribute shareholder communications received from the issuer of the deposited
security or to pass through, to the holders of the receipts, voting rights with
respect to the deposited securities.
ASSET-BACKED SECURITIES -- Asset-backed securities are securities secured by
non-mortgage assets such as company receivables, truck and auto loans, leases
and credit card receivables. Such securities are generally issued as
pass-through certificates, which represent undivided fractional ownership
interests in the underlying pools of assets. Such securities also may be debt
instruments, which are also known as collateralized obligations and are
generally issued as the debt of a special purpose entity, such as a trust,
organized solely for the purpose of owning such assets and issuing such debt.
Asset-backed securities are not issued or guaranteed by the U.S. Government, its
agencies or instrumentalities; however, the payment of principal and interest on
such obligations may be guaranteed up to certain amounts and for a certain
period by a letter of credit issued by a financial institution (such as a bank
or insurance company) unaffiliated with the issuers of such securities. The
purchase of asset-backed securities raises risk considerations peculiar to the
financing of the instruments underlying such securities. For example, there is a
risk that another party could acquire an interest in the obligations superior to
that of the holders of the asset-backed securities. There also is the
possibility that recoveries on repossessed collateral may not, in some cases, be
available to support payments on those securities. Asset-backed securities
entail prepayment risk, which may vary depending on the type of asset, but is
generally less than the prepayment risk associated with mortgage-backed
securities. In addition, credit card receivables are unsecured obligations of
the card holder.
The market for asset-backed securities is at a relatively early stage of
development. Accordingly, there may be a limited secondary market for such
securities.
<PAGE>
33
BANKERS' ACCEPTANCES -- Bankers' acceptances are bills of exchange or time
drafts drawn on and accepted by a commercial bank. Bankers' acceptances are used
by corporations to finance the shipment and storage of goods. Maturities are
generally six months or less.
CERTIFICATES OF DEPOSIT -- Certificates of deposit are interest bearing
instruments with a specific maturity. They are issued by banks and savings and
loan institutions in exchange for the deposit of funds and normally can be
traded in the secondary market prior to maturity. Certificates of deposit with
penalties for early withdrawal will be considered illiquid.
COMMERCIAL PAPER -- Commercial paper is a term used to describe unsecured
short-term promissory notes issued by banks, municipalities, corporations and
other entities. Maturities on these issues vary from a few to 270 days.
CORPORATE DEBT OBLIGATIONS -- Corporate debt obligations are debt instruments
issued by corporations with maturities exceeding 270 days. Such instruments may
include putable corporate bonds and zero coupon bonds.
CUSTODIAL RECEIPTS -- Custodial receipts are interests in separately traded
interest and principal component parts of U.S. Treasury obligations that are
issued by banks or brokerage firms and are created by depositing U.S. Treasury
obligations into a special account at a custodian bank. The custodian holds the
interest and principal payments for the benefit of the registered owners of the
certificates or receipts. The custodian arranges for the issuance of the
certificates or receipts evidencing ownership and maintains the register.
Receipts include Treasury Receipts ("TRs"), Treasury Investment Growth Receipts
("TIGRs"), and Certificates of Accrual on Treasury Securities ("CATS").
Receipts are sold as zero coupon securities which means that they are sold at a
substantial discount and redeemed at face value at their maturity date without
interim cash payments of interest or principal. This discount is accreted over
the life of the security, and such accretion will constitute the income earned
on the security for both accounting and tax purposes. Because of these features,
such securities may be subject to greater interest rate volatility than interest
paying investments. See "Zero Coupon Obligations."
DERIVATIVES -- Derivatives are securities whose value is derived from an
underlying contract, index or security, or any combination thereof. This
includes: futures, swap agreements, and some mortgage-back securities (CMOs,
REMICs and SMBs). See elsewhere in this "Description of Permitted Investments"
for discussions of these various instruments, and see "Investment Policies and
Strategies" for more information about any investment policies and limitations
applicable to their use.
DOLLAR ROLLS -- Dollar rolls are transactions in which securities are sold for
delivery in the current month and the seller simultaneously contracts to
repurchase substantially similar securities on a specified future date. Any
difference between the sale price and the purchase price is netted against the
interest income foregone on the securities sold to arrive at an implied
borrowing rate. Alternatively, the sale and purchase transactions can be
executed at the same price, with the Fund being paid a fee as consideration for
entering into the commitment to purchase. Dollar rolls may be renewed prior to
cash settlement and initially may involve only a firm commitment agreement by
the Fund to buy a security. If the
<PAGE>
34
broker-dealer to whom the Fund sells the security becomes insolvent, the Fund's
right to repurchase the security may be restricted. Other risks involved in
entering into dollar rolls include the risk that the value of the security may
change adversely over the term of the dollar roll and that the security the Fund
is required to repurchase may be worth less than the security that the Fund
originally held.
To avoid any leveraging concerns, the Fund will place U.S. Government or other
liquid, high grade assets in a segregated account in an amount sufficient to
cover its repurchase obligation.
EURODOLLAR AND YANKEE BANK OBLIGATIONS -- Eurodollar bank obligations are U.S.
dollar-denominated certificates of deposit or time deposits issued outside the
United States by foreign branches of U.S. banks or by foreign banks. Yankee bank
obligations are U.S. dollar denominated obligations issued in the United States
by foreign banks.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS -- Futures contracts provide
for the future sale by one party and purchase by another party of a specified
amount of a specific security at a specified future time and at a specified
price. An option on a futures contract gives the purchaser the right, in
exchange for a premium, to assume a position in a futures contract at a
specified exercise price during the term of the option. A Fund may use futures
contracts and related options for BONA FIDE hedging purposes, to offset changes
in the value of securities held or expected to be acquired, to minimize
fluctuations in foreign currencies, or to gain exposure to a particular market
or instrument. A Fund will minimize the risk that it will be unable to close out
a futures contract by only entering into futures contracts which are traded on
national futures exchanges.
Stock index futures are futures contracts for various stock indices that are
traded on registered securities exchanges. A stock index futures contract
obligates the seller to deliver (and the purchaser to take) an amount of cash
equal to a specific dollar amount times the difference between the value of a
specific stock index at the close of the last trading day of the contract and
the price at which the agreement is made.
There are risks associated with these activities, including the following: (1)
the success of a hedging strategy may depend on an ability to predict movements
in the prices of individual securities, fluctuations in markets and movements in
interest rates, (2) there may be an imperfect or no correlation between the
changes in market value of the securities held by the Fund and the prices of
futures and options on futures, (3) there may not be a liquid secondary market
for a futures contract or option, (4) trading restrictions or limitations may be
imposed by an exchange, and (5) government regulations may restrict trading in
futures contracts and futures options.
GUARANTEED INVESTMENT CONTRACTS ("GICs") -- GICs are contracts issued by U.S.
insurance companies. Pursuant to such contracts, the Fund makes cash
contributions to a deposit fund of the insurance company's general account. The
insurance company then credits to the Fund on a monthly basis guaranteed
interest at either a fixed, variable or floating rate. A GIC provides that this
guaranteed interest will not be less than a certain minimum rate. A GIC is a
general obligation of the issuing insurance company and not a separate account.
The purchase price paid for a GIC becomes part of the
<PAGE>
35
general assets of the issuer, and the contract is paid at maturity from the
general assets of the issuer.
Generally, GICs are not assignable or transferable without the permission of the
issuing insurance company. For this reason, an active secondary market in GICs
does not currently exist and GICs are considered to be illiquid investments.
ILLIQUID SECURITIES -- Illiquid securities are securities that cannot be
disposed of within seven business days at approximately the price at which they
are being carried on the Fund's books. An illiquid security includes a demand
instrument with a demand notice period exceeding seven days, where there is no
secondary market for such security, and repurchase agreements with durations (or
maturities) over seven days in length.
LOAN PARTICIPATIONS -- Loan participations are interests in loans to U.S.
corporations which are administered by the lending bank or agent for a syndicate
of lending banks, and sold by the lending bank or syndicate member
("intermediary bank"). In a loan participation, the borrower corporation will be
deemed to be the issuer of the participation interest except to the extent the
Fund derives its rights from the intermediary bank. Because the intermediary
bank does not guarantee a loan participation, a loan participation is subject to
the credit risks associated with the underlying corporate borrower. In the event
of bankruptcy or insolvency of the corporate borrower, a loan participation may
be subject to certain defenses that can be asserted by such borrower as a result
of improper conduct by the intermediary bank. In addition, in the event the
underlying corporate borrower fails to pay principal and interest when due, the
Fund may be subject to delays, expenses and risks that are greater than those
that would have been involved if the Fund had purchased a direct obligation of
such borrower. Under the terms of a Loan Participation, the Fund may be regarded
as a creditor of the intermediary bank (rather than of the underlying corporate
borrower), so that the Fund may also be subject to the risk that the
intermediary bank may become insolvent.
The secondary market for loan participations is limited and any such
participation purchased by the Fund may be regarded as illiquid.
MEDIUM TERM NOTES -- Medium term notes are periodically or continuously offered
corporate or agency debt that differs from traditionally underwritten corporate
bonds only in the process by which they are issued.
MORTGAGE-BACKED SECURITIES -- Mortgage-backed securities are instruments that
entitle the holder to a share of all interest and principal payments from
mortgages underlying the security. The mortgages backing these securities
include conventional thirty-year fixed rate mortgages, graduated payment
mortgages, and adjustable rate mortgages. During periods of declining interest
rates, prepayment of mortgages underlying mortgage-backed securities can be
expected to accelerate. Prepayment of mortgages which underlie securities
purchased at a premium often results in capital losses, while prepayment of
mortgages purchased at a discount often results in capital gains. Because of
these unpredictable prepayment characteristics, it is often not possible to
predict accurately the average life or realized yield of a particular issue.
GOVERNMENT PASS-THROUGH SECURITIES: These are securities that are issued or
guaranteed by a U.S. Government agency representing an interest in a pool of
mortgage loans. The primary issuers or guarantors of these mortgage-backed
securities are the
<PAGE>
36
Government National Mortgage Association ("GNMA"), the Federal National Mortgage
Association ("FNMA") and the Federal Home Loan Mortgage Corporaiton ("FHLMC").
FNMA and FHLMC obligations are not backed by the full faith and credit of the
U.S. Government as GNMA certificates are, but FNMA and FHLMC securities are
supported by the instrumentalities' right to borrow from the U.S. Treasury.
GNMA, FNMA and FHLMC each guarantees timely distributions of interest to
certificate holders. GNMA and FNMA also each guarantees timely distributions of
scheduled principal. FHLMC has in the past guaranteed only the ultimate
collection of principal of the underlying mortgage loan; however, FHLMC now
issues mortgage-backed securities (FHLMC Gold PCs) which also guarantee timely
payment of monthly principal reductions. Government and private guarantees do
not extend to the securities' value, which is likely to vary inversely with
fluctuations in interest rates.
PRIVATE PASS-THROUGH SECURITIES: These are mortgage-backed securities issued by
a non-governmental entity, such as a trust. These securities include
collateralized mortgage obligations ("CMOs") and real estate mortgage investment
conduits ("REMICs") that are rated in one of the top two rating categories.
While they are generally structured with one or more types of credit
enhancement, private pass-through securities typically lack a guarantee by an
entity having the credit status of a governmental agency or instrumentality.
COLLATERALIZED MORTGAGE OBLIGATIONS: CMOs are debt obligations or multiclass
pass-through certificates issued by agencies or instrumentalities of the U.S.
Government or by private originators or investors in mortgage loans. In a CMO,
series of bonds or certificates are usually issued in multiple classes.
Principal and interest paid on the underlying mortgage assets may be allocated
among the several classes of a series of a CMO in a variety of ways. Each class
of a CMO, often referred to as a "tranche," is issued with a specific fixed or
floating coupon rate and has a stated maturity or final distribution date.
Principal payments on the underlying mortgage assets may cause CMOs to be
retired substantially earlier then their stated maturities or final distribution
dates, resulting in a loss of all or part of any premium paid.
REMICS: A REMIC is a CMO that qualifies for special tax treatment under the
Internal Revenue Code and invests in certain mortgages principally secured by
interests in real property. Investors may purchase beneficial interests in
REMICs, which are known as "regular" interests, or "residual" interests.
Guaranteed REMIC pass-through certificates ("REMIC Certificates") issued by FNMA
or FHLMC represent beneficial ownership interests in a REMIC trust consisting
principally of mortgage loans or FNMA, FHLMC or GNMA-guaranteed mortgage
pass-through certificates. For FHLMC REMIC Certificates, FHLMC guarantees the
timely payment of interest, and also guarantees the payment of principal as
payments are required to be made on the underlying mortgage participation
certificates. FNMA REMIC Certificates are issued and guaranteed as to timely
distribution of principal and interest by FNMA.
STRIPPED MORTGAGE-BACKED SECURITIES ("SMBS"): SMBs are usually structured with
two classes that receive specified proportions of the monthly interest and
principal payments from a pool of mortgage securities. One class may receive all
of the interest payments and thus is termed an interest-only class ("IO"), while
the other class may receive all of the principal payments and thus is termed the
principal-only class ("PO"). The value of IOs tends to increase as rates rise
and decrease as rates fall; the opposite is true of POs. SMBs are
<PAGE>
37
extremely sensitive to changes in interest rates because of the impact thereon
of prepayment of principal on the underlying mortgage securities. The market for
SMBs is not as fully developed as other markets; SMBs therefore may be illiquid.
RISK FACTORS: Due to the possibility of prepayments of the underlying mortgage
instruments, mortgage-backed securities generally do not have a known maturity.
In the absence of a known maturity, market participants generally refer to an
estimated average life. An average life estimate is a function of an assumption
regarding anticipated prepayment patterns, based upon current interest rates,
current conditions in the relevant housing markets and other factors. The
assumption is necessarily subjective, and thus different market participants can
produce different average life estimates with regard to the same security. There
can be no assurance that estimated average life will be a security's actual
average life.
MUNICIPAL FORWARDS -- Municipal forwards are forward commitments for the
purchase of tax-exempt bonds with a specified coupon to be delivered by an
issuer at a future date, typically exceeding 45 days but normally less than one
year after the commitment date. Municipal forwards are normally used as a
refunding mechanism for bonds that may only be redeemed on a designated future
date. A Fund will enter into municipal forwards when the price and yield of the
underlying bonds are believed to be favorable when compared to current prices
and yields. As with forward commitments, municipal forwards are subject to
market fluctuations due to changes in market interest rates between the
commitment date and the settlement date. Municipal forwards may be considered to
be illiquid investments.
To avoid any leveraging concerns, a Fund will maintain liquid, high grade
securities in a segregated account at least equal to the purchase price of the
municipal forward.
MUNICIPAL LEASE OBLIGATIONS -- Municipal lease obligations are securities issued
by state and local governments and authorities to finance the acquisition of
equipment and facilities. They may take the form of a lease, an installment
purchase contract, a conditional sales contract, or a participation interest in
any of the above. Depending upon the market for such securities, municipal lease
obligations may be illiquid.
MUNICIPAL SECURITIES -- Municipal securities consist of (i) debt obligations
issued by or on behalf of public authorities to obtain funds to be used for
various public facilities, for refunding outstanding obligations, for general
operating expenses, and for lending such funds to other public institutions and
facilities, and (ii) certain private activity and industrial development bonds
issued by or on behalf of public authorities to obtain funds to provide for the
construction, equipment, repair or improvement of privately operated facilities.
General obligation bonds are backed by the taxing power of the issuing
municipality. Revenue bonds are backed by the revenues of a project or facility
(tolls from a bridge, for example). Certificates of participation represent an
interest in an underlying obligation or commitment, such as an obligation issued
in connection with a leasing arrangement. The payment of principal and interest
on private activity and industrial development bonds generally is dependent
solely on the ability of a facility's user to meet its financial obligations and
the pledge, if any, of real and personal property as security for such payment.
Municipal securities include both municipal notes and municipal bonds. Municipal
notes
<PAGE>
38
include general obligation notes, tax anticipation notes, revenue anticipation
notes, bond anticipation notes, certificates of indebtedness, demand notes and
construction loan notes and participation interests in municipal notes.
Municipal bonds include general obligation bonds, revenue or special obligation
bonds, private activity and industrial development bonds and participation
interests in municipal bonds.
OBLIGATIONS OF SUPRANATIONAL ENTITIES -- Supranational entities are entities
established through the joint participation of several governments, and include
the Asian Development Bank, Inter-American Development Bank, International Bank
for Reconstruction and Development (World Bank), African Development Bank,
European Economic Community, European Investment Bank and Nordic Investment
Bank.
REPURCHASE AGREEMENTS -- Repurchase agreements are agreements by which a Fund
obtains a security and simultaneously commits to return the security to the
seller at an agreed upon price on an agreed upon date within a number of days
from the date of purchase. The custodian will hold the security as collateral
for the repurchase agreement. A Fund bears a risk of loss in the event the other
party defaults on its obligations and the Fund is delayed or prevented from
exercising its right to dispose of the collateral or if the Fund realizes a loss
on the sale of the collateral. A Fund will enter into repurchase agreements only
with financial institutions deemed to present minimal risk of bankruptcy during
the term of the agreement based on established guidelines. Repurchase agreements
are considered loans under the Investment Company Act of 1940.
RESTRAINTS ON INVESTMENTS BY MONEY MARKET FUNDS -- Investments by a money market
fund are subject to limitations imposed under regulations adopted by the
Securities and Exchange Commission. Under these regulations, money market funds
may only acquire obligations that present minimal credit risk and that are
"eligible securities," which means they are (i) rated, at the time of
investment, by at least two nationally recognized security rating organizations
(one if it is the only organization rating such obligation) in the highest
rating category or, if unrated, determined to be of comparable quality (a "first
tier security"), or (ii) rated according to the foregoing criteria in the second
highest rating category or, if unrated, determined to be of comparable quality
("second tier security"). A security is not considered to be unrated if its
issuer has outstanding obligations of comparable priority and security that have
a short-term rating. In the case of taxable money market funds, investments in
second tier securities are subject to the further constraints in that (i) no
more than 5% of a Fund's assets may be invested in second tier securities and
(ii) any investment in securities of any one such issuer is limited to the
greater of 1% of the Fund's total assets or $1 million. A taxable money market
fund may also hold more than 5% of its assets in first tier securities of a
single issuer for three "business days" (that is, any day other than a Saturday,
Sunday or customary business holiday).
RESTRICTED SECURITIES -- Restricted securities are securities that may not be
sold freely to the public absent registration under the Securities Act of 1933
or an exemption from registration. Rule 144A securities are securities that have
not been registered under the Securities Act of 1933 but which may be traded
between certain institutional investors including investment companies. The
Trust's Board of Trustees is responsible for developing guidelines and
procedures for determining the
<PAGE>
39
liquidity of restricted securities, and for monitoring the Advisor's
implementation of the guidelines and procedures.
SECURITIES LENDING -- In order to generate additional income, a Fund may lend
securities which it owns pursuant to agreements requiring that the loan be
continuously secured by collateral consisting of cash, securities of the U.S.
Government or its agencies equal to at least 100% of the market value of the
securities lent. A Fund continues to receive interest on the securities lent
while simultaneously earning interest on the investment of cash collateral.
Collateral is marked to market daily. There may be risks of delay in recovery of
the securities or even loss of rights in the collateral should the borrower of
the securities fail financially or become insolvent.
SECURITIES OF FOREIGN ISSUERS -- There are certain risks connected with
investing in foreign securities. These include risks of adverse political and
economic developments (including possible governmental seizure or
nationalization of assets), the possible imposition of exchange controls or
other governmental restrictions, less uniformity in accounting and reporting
requirements, the possibility that there will be less information on such
securities and their issuers available to the public, the difficulty of
obtaining or enforcing court judgments abroad, restrictions on foreign
investments in other jurisdictions, difficulties in effecting repatriation of
capital invested abroad, and difficulties in transaction settlements and the
effect of delay on shareholder equity. Foreign securities may be subject to
foreign taxes, and may be less marketable than comparable U.S. securities. The
value of a Fund's investments denominated in foreign currencies will depend on
the relative strengths of those currencies and the U.S. dollar, and a Fund may
be affected favorably or unfavorably by changes in the exchange rates or
exchange control regulations between foreign currencies and the U.S. dollar.
Changes in foreign currency exchange rates also may affect the value of
dividends and interest earned, gains and losses realized on the sale of
securities and net investment income and gains, if any, to be distributed to
shareholders by a Fund.
STANDBY COMMITMENTS AND PUTS -- Securities subject to standby commitments or
puts permit the holder thereof to sell the securities at a fixed price prior to
maturity. Securities subject to a standby commitment or put may be sold at any
time at the current market price. However, unless the standby commitment or put
was an integral part of the security as originally issued, it may not be
marketable or assignable; therefore, the standby commitment or put would only
have value to the Fund owning the security to which it relates. In certain
cases, a premium may be paid for a standby commitment or put, which premium will
have the effect of reducing the yield otherwise payable on the underlying
security. The Fund will limit standby commitment or put transactions to
institutions believed to present minimal credit risk.
TIME DEPOSITS -- Time deposits are non-negotiable receipts issued by a bank in
exchange for the deposit of funds. Like a certificate of deposit, it earns a
specified rate of interest over a definite period of time; however, it cannot be
traded in the secondary market. Time deposits are considered to be illiquid
securities.
U.S. GOVERNMENT AGENCIES -- Obligations issued or guaranteed by agencies of the
U.S. Government, including, among others, the Federal Farm Credit Bank, the
Federal Housing Administration and the Small Business Administration, and
obligations issued or guaranteed by instrumentalities of the U.S. Government,
including, among others, FHLMC,
<PAGE>
40
the Federal Land Banks and the U.S. Postal Service. Some of these securities are
supported by the full faith and credit of the U.S. Treasury (e.g., GNMA
securities), others are supported by the right of the issuer to borrow from the
Treasury (e.g., Federal Farm Credit Bank securities), while still others are
supported only by the credit of the instrumentality (e.g., FNMA securities).
Guarantees of principal by agencies or instrumentalities of the U.S. Government
may be a guarantee of payment at the maturity of the obligation so that in the
event of a default prior to maturity there might not be a market and thus no
means of realizing on the obligation prior to maturity. Guarantees as to the
timely payment of principal and interest do not extend to the value or yield of
these securities nor to the value of the Fund's shares.
U.S. TREASURY OBLIGATIONS -- U.S. Treasury obligations consist of bills, notes
and bonds issued by the U.S. Treasury and separately traded interest and
principal component parts of such obligations that are transferable through the
Federal book-entry system known as Separately Traded Registered Interest and
Principal Securities ("STRIPS") and Coupon Under Book Entry Safekeeping
("CUBES").
VARIABLE AND FLOATING RATE INSTRUMENTS -- Certain obligations may carry variable
or floating rates of interest, and may involve a conditional or unconditional
demand feature. Such instruments bear interest at rates which are not fixed, but
which vary with changes in specified market rates or indices. The interest rates
on these securities may be reset daily, weekly, quarterly or some other reset
period, and may have a floor or ceiling on interest rate changes. There is a
risk that the current interest rate on such obligations may not accurately
reflect existing market interest rates. A demand instrument with a demand notice
exceeding seven days may be considered illiquid if there is no secondary market
for such security.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES -- When-issued or delayed delivery
basis transactions involve the purchase of an instrument with payment and
delivery taking place in the future. Delivery of and payment for these
securities may occur a month or more after the date of the purchase commitment.
The Fund will segregate liquid high grade debt securities or cash in an amount
at least equal to these commitments. The interest rate realized on these
securities is fixed as of the purchase date and no interest accrues to the Fund
before settlement. These securities are subject to market fluctuation due to
changes in market interest rates and it is possible that the market value at the
time of settlement could be higher or lower than the purchase price if the
general level of interest rates has changed. Although a Fund generally purchases
securities on a when-issued or forward commitment basis with the intention of
actually acquiring securities for its portfolio, a Fund may dispose of a
when-issued security or forward commitment prior to settlement if it deems
appropriate.
ZERO COUPON OBLIGATIONS -- Zero coupon obligations are debt securities that do
not bear any interest, but instead are issued at a deep discount from par. The
value of a zero coupon obligation increases over time to reflect the interest
accreted. Such obligations will not result in the payment of interest until
maturity, and will have greater price volatility than similar securities that
are issued at par and pay interest periodically.
<PAGE>
A-1
APPENDIX
I. BOND RATINGS
CORPORATE AND MUNICIPAL BONDS
The following are descriptions of Standard & Poor's Corporation ("S&P") and
Moody's Investors Service, Inc. ("Moody's") corporate and municipal bond
ratings.
Bonds rated AAA have the highest rating S&P assigns to a debt obligation. Such a
rating indicates an extremely strong capacity to pay principal and interest.
Bonds rated AA also qualify as high-quality debt obligations. Capacity to pay
principal and interest is very strong, and in the majority of instances they
differ from AAA issues only in small degree. Debt rated A has a strong capacity
to pay interest and repay principal although it is somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions than
debt in higher rated categories.
Bonds which are rated BBB are considered to be medium-grade obligations (i.e.,
they are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Bonds which are rated Aaa by Moody's are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large, or an exceptionally
stable, margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues. Bonds rated Aa by
Moody's are judged by Moody's to be of high quality by all standards. Together
with bonds rated Aaa, they comprise what are generally known as high-grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
Bonds which are rated A possess many favorable investment attributes and are to
be considered as upper-medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Debt rated Baa is regarded as having an adequate capacity to pay interest and
repay principal. Whereas it normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay interest and repay principal for debt in this
category than in higher rated categories.
MUNICIPAL NOTE RATINGS
Moody's highest rating for state and municipal and other short-term notes is
MIG-1 and VMIG-1. Short-term municipal securities rated MIG-1 or VMIG-1 are of
the best quality. They have strong protection from established cash flows of
funds for their servicing or from established and broad-based access to the
market for refinancing or both. Short-term municipal securities rated MIG-2 and
VMIG-2 are of high quality. Margins of protection are ample although not so
large as in the preceding group.
<PAGE>
A-2
An S&P note rating reflects the liquidity concerns and market access risks
unique to notes. Notes due in 3 years or less will likely receive a note rating.
Notes maturing beyond 3 years will most likely receive a long-term debt rating.
The following criteria will be used in making that assessment.
- Amortization schedule (the larger the final maturity relative to other
maturities the more likely it will be treated as a note).
- Source of Payment (the more dependent the issue is on the market for its
refinancing, the more likely it will be treated as a note)
Note rating symbols are as follows:
SP-1. Very strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics will be given a plus
(+) designation.
SP-2. Satisfactory capacity to pay principal and interest.
II. COMMERCIAL PAPER AND SHORT-TERM RATINGS
The following descriptions of commercial paper ratings have been published by
S&P, Moody's, Fitch Investors Service, Inc. ("Fitch"), Duff and Phelps ("Duff")
and IBCA Limited ("IBCA"), respectively.
Commercial paper rated A by S&P is regarded by S&P as having the greatest
capacity for timely payment. Issues rated A are further refined by use of the
numbers 1+ and 1. Issues rated A-1+ are those with an "overwhelming degree" of
credit protection. Those rated A-1 reflect a "very strong" degree of safety
regarding timely payment. Those rated A-2 reflect a safety regarding timely
payment but not as high as A-1.
Commercial paper issues rated Prime-1 and Prime-2 by Moody's are judged by
Moody's to have superior ability and strong ability for repayment, respectively.
The rating Fitch-1 (Highest Grade) is the highest commercial rating assigned by
Fitch. Paper rated Fitch-1 is regarded as having the strongest degree of
assurance for timely payment. The rating Fitch-2 (Very Good Grade) is the second
highest commercial paper rating assigned by Fitch which reflects an assurance of
timely payment only slightly less in degree than the strongest issues.
The rating Duff-1 is the highest commercial paper rating assigned by Duff. Paper
rated Duff-1 is regarded as having very high certainty of timely payment with
excellent liquidity factors which are supported by ample asset protection. Risk
factors are minor. Paper rated Duff-2 is regarded as having good certainty of
timely payment, good access to capital markets and sound liquidity factors and
company fundamentals. Risk factors are small.
The designation A1 by IBCA indicates that the obligation is supported by a very
strong capacity for timely repayment. Those obligations rated A1+ are supported
by the highest capacity for timely repayment. Obligations rated A2 are supported
by a strong capacity for timely repayment, although such capacity may be
susceptible to adverse changes in business, economic or financial conditions.
<PAGE>
(THIS PAGE INTENTIONALLY LEFT BLANK)
<PAGE>
<TABLE>
<S> <C> <C>
STI CLASSIC FUNDS ORGANIZATIONAL OVERVIEW
* INVESTMENT ADVISORS
Trusco Capital Management, Inc. 50 Hurt Plaza
Suite 1400
Atlanta, GA 30303
STI Capital Management, N.A. P.O. Box 3808
Orlando, FL 32802
SunTrust Bank, Chattanooga, N.A. 736 Market Street
Chattanooga, TN 37402
SunTrust Bank, Atlanta 25 Park Place
Atlanta, GA 30303
* DISTRIBUTOR
SEI Financial Services Company 680 E. Swedesford Road
Wayne, PA 19087
* ADMINISTRATOR
SEI Fund Resources 680 E. Swedesford Road
Wayne, PA 19087
* TRANSFER AGENT
Federated Services Company Federated Investors Tower
Pittsburgh, PA 15222-3779
* CUSTODIAN
SunTrust Bank, Atlanta c/o STI Trust & Investment
Operations, Inc.
303 Peachtree Street N.E.
14th Floor
Atlanta, GA 30308
* LEGAL COUNSEL
Morgan, Lewis & Bockius LLP 2000 One Logan Square
Philadelphia, PA 19103
* INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen, LLP 1601 Market Street
Philadelphia, PA 19103
</TABLE>
<PAGE>
100486 / 10-95
DISTRIBUTOR
SEI Financial Services
Company
-- - - - - - - - - -
<PAGE>
STI CLASSIC FUNDS
TRUST SHARES
CAPITAL GROWTH FUND
VALUE INCOME STOCK FUND
MID-CAP EQUITY FUND
BALANCED FUND
SUNBELT EQUITY FUND
INTERNATIONAL EQUITY INDEX FUND
INTERNATIONAL EQUITY FUND
INVESTMENT ADVISORS TO THE FUNDS:
STI CAPITAL MANAGEMENT, N.A.
TRUSCO CAPITAL MANAGEMENT, INC.
(THE "ADVISORS")
The STI Classic Funds (the "Trust") is a mutual fund that offers shares in a
number of separate investment portfolios (each a "Fund" and, collectively, the
"Funds"). This Prospectus sets forth concisely the information about the Trust
Shares of the above-referenced Funds. Investors are advised to read this
Prospectus and retain it for future reference.
A Statement of Additional Information relating to the Funds dated the same date
as this Prospectus has been filed with the Securities and Exchange Commission
and is available without charge through the Distributor, SEI Financial Services
Company, 680 East Swedesford Road, Wayne, Pennsylvania 19087-1658 or by calling
1-800-874-4770. The Statement of Additional Information is incorporated into
this Prospectus by reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
THE TRUST'S SHARES ARE NOT SPONSORED, ENDORSED, OR GUARANTEED BY, AND DO NOT
CONSTITUTE OBLIGATIONS OR DEPOSITS OF, THE ADVISORS OR ANY OF THEIR AFFILIATES
OR CORRESPONDENTS INCLUDING SUNTRUST BANKS, INC., ARE NOT GUARANTEED OR INSURED
BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY
OTHER GOVERNMENTAL AGENCY, AND INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE
LOSS OF THE PRINCIPAL AMOUNT INVESTED.
OCTOBER 1, 1996
<PAGE>
2
The Trust Shares are offered primarily to financial institutions and
intermediaries ("Shareholders"), including SunTrust Banks, Inc. and its
affiliates and correspondents, for the investment of funds for which they act in
a fiduciary, agency, investment advisory or custodial capacity. Individuals may
not purchase Trust Shares directly, although individuals may be able to purchase
Trust Shares through accounts maintained with financial institutions.
TABLE OF CONTENTS
<TABLE>
<S> <C>
Expense Summary........................................................... 3
Financial Highlights...................................................... 4
Performance Information for the Predecessor Collective Funds.............. 6
The Trust................................................................. 6
Funds and Investment Objectives........................................... 7
Investment Policies and Strategies........................................ 7
General Investment Policies and Strategies................................ 13
Investment Risks.......................................................... 14
Investment Limitations.................................................... 16
Performance Information................................................... 16
Purchase of Fund Shares................................................... 17
Redemption of Fund Shares................................................. 18
Dividends and Distributions............................................... 18
Tax Information........................................................... 19
STI Classic Funds Information............................................. 20
The Trust................................................................. 20
Board of Trustees......................................................... 20
Investment Advisors....................................................... 20
Portfolio Managers........................................................ 21
Banking Laws.............................................................. 22
Distribution.............................................................. 23
Administration............................................................ 23
Transfer Agent and Dividend Disbursing Agent.............................. 23
Custodian................................................................. 23
Legal Counsel............................................................. 23
Independent Public Accountants............................................ 23
Other Information......................................................... 24
Voting Rights............................................................. 24
Reporting................................................................. 24
Shareholder Inquiries..................................................... 24
Description of Permitted Investments...................................... 24
Appendix.................................................................. A-1
</TABLE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE TRUST'S STATEMENT OF
ADDITIONAL INFORMATION IN CONNECTION WITH THE OFFERING MADE BY THIS PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE TRUST OR SEI FINANCIAL SERVICES COMPANY
(THE "DISTRIBUTOR"). THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE
TRUST OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
<PAGE>
3
EXPENSE SUMMARY
TRUST SHARES
The purpose of the following table is to help you understand the various costs
and expenses that a shareholder will bear, directly or indirectly, in connection
with an investment in the Trust Shares of each Fund.
ANNUAL OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
CAPITAL MID-CAP SUNBELT INTERNATIONAL
GROWTH VALUE INCOME EQUITY BALANCED EQUITY EQUITY INDEX INTERNATIONAL
FUND STOCK FUND FUND FUND FUND FUND EQUITY FUND
<S> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
Management Fees (after
fee waivers &
reimbursements)(1).... 1.03% .80% 1.00% .79% 1.02% .76% 1.06%
Other Fund Expenses.... .12% .15% .15% .16% .13% .29% .40%
- ----------------------------------------------------------------------------------------------------------------------
Total Fund Operating
Expenses (after fee
waivers &
reimbursements)(2)(3)... 1.15% .95% 1.15% .95% 1.15% 1.05% 1.46%
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Each Advisor is waiving, on a voluntary basis, a portion of its fee from
each Fund. Each Advisor reserves the right to terminate its waiver at any
time in its sole discretion. Absent such waivers, Advisory Fees for the
Funds would be as follows: Capital Growth Fund -- 1.15%, Value Income Stock
Fund -- .80%, Mid-Cap Equity Fund -- 1.15%, Balanced Fund -- .95%, Sunbelt
Equity Fund -- 1.15%, International Equity Index Fund -- .90%, and
International Equity Fund -- 1.25%. See "Investment Advisors."
(2) Absent the voluntary waivers described above, Total Fund Operating Expenses
would be as follows: Capital Growth Fund -- 1.27%, Value Income Stock Fund
-- .95%, Mid-Cap Equity Fund -- 1.30%, Balanced Fund -- 1.11%, Sunbelt
Equity Fund -- 1.28%, International Equity Index Fund -- 1.19%, and
International Equity Fund -- 1.65%.
(3)Total Fund Operating Expenses for the Value Income Stock Fund have been
restated to reflect current fees.
<TABLE>
<CAPTION>
ONE THREE FIVE TEN
EXAMPLES YEAR YEARS YEARS YEARS
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------
An investor would pay the following expenses on a
$1,000 investment assuming: (1) a 5% annual
return and (2) redemption at the end of each
time period.
CAPITAL GROWTH FUND............................... $12 $ 37 $ 63 $140
VALUE INCOME STOCK FUND........................... $10 $ 30 $ 53 $117
MID-CAP EQUITY FUND............................... $12 $ 37 $ 63 $140
BALANCED FUND..................................... $10 $ 30 $ 53 $117
SUNBELT EQUITY FUND............................... $12 $ 37 $ 63 $140
INTERNATIONAL EQUITY INDEX FUND................... $11 $ 33 $ 58 $128
INTERNATIONAL EQUITY FUND......................... $15 $ 46 $ 80 $175
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
</TABLE>
THE EXAMPLES ARE BASED UPON THE TOTAL OPERATING EXPENSES OF THE FUNDS AND SHOULD
NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES
MAY BE GREATER OR LESS THAN THOSE SHOWN.
<PAGE>
4
FINANCIAL HIGHLIGHTS
The following information has been audited by Arthur Andersen LLP, independent
public accountants to the Trust, whose report thereon was unqualified. This
information should be read in conjunction with the Trust's financial statements
and notes thereto, which are included in the Trust's Statement of Additional
Information and which appear, along with the report of Arthur Andersen LLP, in
the Trust's 1996 Annual Report to Shareholders. Additional performance
information regarding each Fund is contained in the Trust's Annual Report to
Shareholders and is available without charge by calling 1-800-874-4770.
For a Trust Share Outstanding Throughout the Period
<TABLE>
<CAPTION>
NET REALIZED
AND
NET ASSET NET UNREALIZED DISTRIBUTIONS
VALUE INVESTMENT GAINS FROM NET DISTRIBUTIONS NET ASSET
BEGINNING INCOME (LOSSES) ON INVESTMENT FROM REALIZED VALUE END
OF PERIOD (LOSS) INVESTMENTS INCOME CAPITAL GAINS OF PERIOD
--------- ---------- ------------ ------------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
--------------------
CAPITAL GROWTH FUND
- -------------------
TRUST SHARES
1996......................... $ 12.18 $ 0.12 $ 3.32 $ (0.13) $ (0.59) $ 14.90
1995......................... 11.99 0.16 0.57 (0.14) (0.40) 12.18
1994......................... 11.95 0.16 0.31 (0.17) (0.26) 11.99
1993 (1)..................... 10.36 0.12 1.57 (0.10) -- 11.95
-------------------------
VALUE INCOME STOCK FUND
- ------------------------
TRUST SHARES
1996......................... $ 11.59 $ 0.35 $ 2.71 $ (0.34) $ (1.16) $ 13.15
1995......................... 10.54 0.32 1.56 (0.32) (0.51) 11.59
1994......................... 10.23 0.29 0.70 (0.32) (0.36) 10.54
1993 (2)..................... 10.00 0.11 0.16 (0.04) -- 10.23
---------------------
MID-CAP EQUITY FUND
- --------------------
TRUST SHARES
1996......................... $ 11.00 $ 0.08 $ 2.63 $ (0.08) $ (0.87) $ 12.76
1995......................... 9.85 0.08 1.15 (0.08) -- 11.00
1994 (3)..................... 10.00 0.02 (0.16) (0.01) -- 9.85
---------------
BALANCED FUND
- --------------
TRUST SHARES
1996......................... $ 10.26 $ 0.33 $ 1.41 $ (0.34) $ (0.11) $ 11.55
1995......................... 9.76 0.33 0.49 (0.32) -- 10.26
1994 (4)..................... 10.00 0.11 (0.29) (0.06) -- 9.76
--------------------
SUNBELT EQUITY FUND
- -------------------
TRUST SHARES
1996......................... $ 10.03 $ (0.04) $ 4.32 -- $ (0.20) $ 14.11
1995......................... 9.70 (0.01) 0.38 -- (0.04) 10.03
1994 (4)..................... 10.00 -- (0.30) -- -- 9.70
<CAPTION>
RATIO OF NET
RATIO OF INVESTMENT
RATIO OF NET EXPENSES TO INCOME (LOSS)
INVESTMENT AVERAGE NET TO AVERAGE NET
RATIO OF INCOME ASSETS ASSETS
NET ASSETS EXPENSES (LOSS) TO (EXCLUDING (EXCLUDING PORTFOLIO
TOTAL END OF PERIOD TO AVERAGE AVERAGE NET WAIVERS AND WAIVERS AND TURNOVER
RETURN (000) NET ASSETS ASSETS REIMBURSEMENTS) REIMBURSEMENTS) RATE
-------- ------------- ---------- ------------ --------------- --------------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
--------------------
CAPITAL GROWTH FUND
- -------------------
TRUST SHARES
1996......................... 28.97% $ 981,498 1.15% 0.90% 1.27% 0.78% 156.46%
1995......................... 6.63% 984,205 1.15% 1.38% 1.28% 1.25% 127.79%
1994......................... 3.87% 891,870 1.15% 1.25% 1.29% 1.11% 123.87%
1993 (1)..................... 17.90%* 507,692 1.15%* 1.43%* 1.28%* 1.30%* 95.02%
-------------------------
VALUE INCOME STOCK FUND
- ------------------------
TRUST SHARES
1996......................... 27.91% $ 1,244,399 0.92% 2.86% 0.92% 2.86% 133.99%
1995......................... 19.06% 991,977 0.95% 3.16% 0.95% 3.16% 125.71%
1994......................... 9.95% 573,082 0.88% 3.21% 0.97% 3.12% 149.28%
1993 (2)..................... 9.05%* 137,761 0.80%* 4.32%* 0.96%* 4.16%* 34.71%
---------------------
MID-CAP EQUITY FUND
- --------------------
TRUST SHARES
1996......................... 25.54% $ 253,905 1.15% 0.70% 1.29% 0.56% 115.62%
1995......................... 12.56% 125,562 1.15% 0.88% 1.32% 0.71% 65.63%
1994 (3)..................... (1.39%)+ 57,036 1.15%* 1.20%* 1.68%* 0.67%* 7.99%
---------------
BALANCED FUND
- --------------
TRUST SHARES
1996......................... 17.26% $ 111,638 0.95% 3.00% 1.09% 2.86% 154.63%
1995......................... 8.72% 89,051 0.95% 3.44% 1.11% 3.28% 156.61%
1994 (4)..................... (1.78%)+ 90,579 0.95%* 2.76%* 1.25%* 2.46%* 105.65%
--------------------
SUNBELT EQUITY FUND
- -------------------
TRUST SHARES
1996......................... 43.19% $ 412,430 1.15% (0.34%) 1.28% (0.47%) 106.27%
1995......................... 3.81% 258,908 1.15% (0.12%) 1.30% (0.27%) 80.03%
1994 (4)..................... (2.99%)+ 128,280 1.15%* (0.19%)* 1.58%* (0.62%)* 21.42%
</TABLE>
<PAGE>
5
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
NET REALIZED
NET ASSET AND DISTRIBUTIONS
VALUE NET UNREALIZED FROM NET DISTRIBUTIONS NET ASSET
BEGINNING INVESTMENT GAINS ON INVESTMENT FROM REALIZED VALUE END
OF PERIOD INCOME INVESTMENTS INCOME CAPITAL GAINS OF PERIOD
---------- ---------- ------------ ------------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
------------------------------
INTERNATIONAL EQUITY INDEX FUND
- -----------------------------
TRUST SHARES
1996......................... $ 10.24 $ 0.10 $ 0.84 $ (0.13) $ (0.09) $ 10.96
1995 (5)..................... 10.00 0.08 0.19 (0.02) (0.01) 10.24
-------------------------
INTERNATIONAL EQUITY FUND
- ------------------------
TRUST SHARES
1996 (6)..................... $ 10.00 $ 0.05 $ 1.35 -- -- $ 11.40
<CAPTION>
RATIO OF NET
RATIO OF INVESTMENT
EXPENSES TO INCOME TO
RATIO OF NET AVERAGE NET AVERAGE NET
RATIO OF INVESTMENT ASSETS ASSETS
NET ASSETS EXPENSES INCOME TO (EXCLUDING (EXCLUDING PORTFOLIO
TOTAL END OF PERIOD TO AVERAGE AVERAGE NET WAIVERS AND WAIVERS AND TURNOVER
RETURN (000) NET ASSETS ASSETS REIMBURSEMENTS) REIMBURSEMENTS) RATE
-------- ------------- ---------- ------------ --------------- --------------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
------------------------------
INTERNATIONAL EQUITY INDEX FUND
- -----------------------------
TRUST SHARES
1996......................... 9.29% $ 90,980 1.05% 0.84% 1.19% 0.70% 30.46%
1995 (5)..................... 2.69%+ 89,446 1.05%* 1.13%* 1.31%* 0.87%* 10.37%
-------------------------
INTERNATIONAL EQUITY FUND
- ------------------------
TRUST SHARES
1996 (6)..................... 14.00%+ $ 213,306 1.46%* 1.36%* 1.65%* 1.17%* 113.34%
</TABLE>
* Annualized.
+ Cumulative since commencement of operations.
(1) The Capital Growth Fund Trust Shares commenced operations on July 1, 1992.
(2) The Value Income Stock Fund Trust Shares commenced operations on February
12, 1993.
(3) The Mid-Cap Equity Fund (formerly the Aggressive Growth Fund) Trust Shares
commenced operations on February 2, 1994.
(4) The Sunbelt Equity Fund Trust Shares and the Balanced Fund Trust Shares
commenced operations on January 3, 1994.
(5) The International Equity Index Fund Trust Shares commenced operations on
June 6, 1994.
(6) The International Equity Fund Trust Shares commenced operations on December
1, 1995.
<PAGE>
6
PERFORMANCE INFORMATION FOR PREDECESSOR COLLECTIVE FUNDS
The International Equity, Value Income Stock Fund and Sunbelt Equity Fund are
each the successor to collective investment funds previously managed by STI
Capital Management, Inc. and Trusco Capital Management, Inc. A substantial
portion of the assets of those collective investment funds was transferred to
the Funds in connection with each Fund's commencement of operations. Set forth
below is certain performance data for the predecessor collective investment
funds, which is deemed relevant because the collective investment funds were
managed using virtually the same investment objectives, policies and
restrictions as those used by each respective Fund. The performance data,
however, is not necessarily indicative of the future performance of each Fund.
Further, the predecessor collective funds were not subject to certain investment
limitations imposed on mutual funds, which, if they had been imposed, may have
adversely affected a collective fund's performance.
The predecessor collective funds did not incur expenses that correspond to the
advisory, administrative, and other fees to which each Fund is subject.
Accordingly, the following performance information has been adjusted by applying
the total expense ratios for the corresponding Fund, as disclosed in the
Prospectus at the time the Fund commenced operations, which reduced the actual
performance of the collective fund.
The average annual total returns (adjusted to reflect current Fund expenses, net
of voluntary waivers and reimbursements) for the following periods:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
ONE FIVE TEN SINCE
YEAR YEARS YEARS INCEPTION
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
International Equity N/A N/A N/A 32.90%
Collective Fund (2/1/95-
11/30/95)
Value Income Stock 20.05% N/A N/A 16.29%
Collective Fund (ending (10/1/89-
12/31/92) 12/31/92)
Sunbelt Equity 22.87% 21.63 16.34 17.08%
Collective Fund (ending (12/1/80-
12/31/93) 12/31/93)
</TABLE>
The average annual total returns for the Funds from inception through May 31,
1996 and for the one- and three-year periods ended May 31, 1996 were as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
ONE THREE SINCE
YEAR YEARS INCEPTION
- -------------------------------------------------------------------
<S> <C> <C> <C>
International Equity Fund* N/A N/A 30.05%
Value Income Stock Fund** 27.91% 18.76% 17.89%
Sunbelt Equity Fund*** 43.19% N/A 16.44%
</TABLE>
*International Equity Fund commenced operations on December 1, 1995
**Value Income Stock Fund commenced operations on February 12, 1993.
***Sunbelt Equity Fund commenced operations on January 3, 1994.
THE TRUST
STI CLASSIC FUNDS (the "Trust") is a diversified, open-end management investment
company that provides a convenient and economical means of investing in several
professionally managed portfolios of securities. The Trust currently offers
units of beneficial interest ("shares") in a number of separate Funds.
Shareholders may purchase shares in each non-money market Fund through three
separate classes (Trust Shares, Investor Shares and Flex Shares) and in each
Money Market
<PAGE>
7
Fund through two separate classes (Trust Shares and Investor Shares), which
provide for variations in distribution and service fees, transfer agent fees,
voting rights and dividends. Except for differences between classes, each share
of each Fund represents an undivided, proportionate interest in that Fund. This
Prospectus relates to the Trust Shares of the Funds described below.
FUNDS AND INVESTMENT OBJECTIVES
THE CAPITAL GROWTH FUND seeks to provide capital appreciation by investing
primarily in a portfolio of common stocks, warrants and securities convertible
into common stock which, in its Advisor's opinion, are undervalued in the
marketplace at the time of purchase.
THE VALUE INCOME STOCK FUND seeks to provide current income with the secondary
goal of achieving capital appreciation by investing primarily in equity
securities.
THE MID-CAP EQUITY FUND (formerly known as Aggressive Growth Fund) seeks to
provide capital appreciation by investing primarily in a diversified portfolio
of common stocks, preferred stocks and securities convertible into common stock
of small to mid-sized companies with above-average growth of earnings. Current
income will not be an important criterion of investment selection and any such
income should be considered incidental.
THE BALANCED FUND seeks to provide capital appreciation and current income by
investing in common and preferred stocks, warrants, securities convertible into
common stock and investment grade fixed income securities.
THE SUNBELT EQUITY FUND seeks to provide capital appreciation by investing
substantially all, and under normal market conditions at least 65%, of its
assets in common stocks, preferred stocks, warrants and securities convertible
into common stock of U.S. companies headquartered and/or conducting a
substantial portion of their operations in the southern region of the United
States. Current income will not be an important criterion of investment
selection and any such income should be considered incidental.
THE INTERNATIONAL EQUITY INDEX FUND seeks to provide investment results that
correspond to the aggregate price and dividend performance of the securities
included in the Gross Domestic Product Weighted Morgan Stanley Capital
International Europe, Australasia and Far East Index (the "MSCI EAFE-GDP Index"
or "EAFE-GDP Index").1
THE INTERNATIONAL EQUITY FUND seeks to provide long term capital appreciation by
investing primarily in a diversified portfolio of equity securities of foreign
issuers.
There can be no assurance that a Fund will achieve its investment objective.
The investment objective of each Fund is nonfundamental and may be changed
without shareholder approval.
INVESTMENT POLICIES AND STRATEGIES
CAPITAL GROWTH FUND
The Capital Growth Fund invests primarily in a diversified portfolio of common
stocks, warrants, and securities convertible into common stocks which, in the
Fund's Advisor's opinion, are undervalued in the marketplace at
- ------------------------
1 "MSCI EAFE-GDP Index" is a registered service mark of Morgan Stanley Capital
International, which does not sponsor and is in no way affiliated with the
International Equity Index Fund.
<PAGE>
8
the time of purchase. In selecting securities for the Fund, its Advisor will
evaluate factors believed to affect capital appreciation such as the issuer's
background, industry position, historical returns on equity and experience and
qualifications of the management team. Dividend and interest income should be
considered incidental to the growth of capital. The Fund's Advisor will rotate
the Capital Growth Fund's holdings between various market sectors based on
economic analysis of the overall business cycle. Under normal conditions, at
least 65% of the total assets of the Capital Growth Fund will be invested in
common stocks.
All of the common stocks in which the Fund invests are traded on registered
exchanges or on the over-the-counter market in the United States. Assets of the
Capital Growth Fund not invested in the securities described above may be
invested in U.S. dollar denominated equity securities of foreign issuers
(including sponsored American Depositary Receipts ("ADRs") that are traded on
exchanges or listed on National Association of Securities Dealers Automated
Quotations ("NASDAQ")); securities issued by money market mutual funds;
pay-in-kind securities; and bonds. The bonds that the Capital Growth Fund may
purchase may be rated in any rating category or may be unrated, provided that no
more than 10% of the Fund's total assets will be invested in bonds rated below
BBB by Standard & Poor's Corporation ("S&P") or below Baa by Moody's Investors
Services, Inc. ("Moody's") or securities not rated by S&P or Moody's and of
comparable quality. See "Investment Risks -- High Yield, Lower Rated Bonds." In
addition, the Fund may invest up to 10% of its assets in restricted securities.
The Fund's turnover rate for the fiscal year ended May 31, 1996 was 156%. This
rate of turnover, if continued, will likely result in higher brokerage
commissions and higher levels of realized capital gains than if the turnover
rate was lower.
VALUE INCOME STOCK FUND
The Value Income Stock Fund seeks to provide current income by structuring its
investments in an attempt to maintain the Fund's yield at a level above the
average dividend yield of the securities comprising the S&P 500 Stock Index.
Achieving such a yield will be the Fund's primary consideration when purchasing
securities. A secondary consideration of the Fund will be capital appreciation.
The Fund will invest at least 80% of its total assets in equity securities.
Investments will consist primarily of common stocks, and, under normal market
conditions, at least 65% of the Fund's assets will be invested in common stocks
issued by corporations which have a history of paying regular dividends,
although there can be no assurance that such corporations will continue to pay
dividends. Other equity securities in which the Fund may invest are convertible
debt securities; preferred stocks and warrants which are convertible into or
exchangeable for common stocks; and U.S. dollar denominated equity securities of
foreign issuers (including sponsored ADRs that are traded on exchanges or listed
on NASDAQ). All of the common stocks in which the Fund invests are traded on
registered exchanges such as the New York or American Stock Exchange or on the
over-the-counter market in the United States (i.e., NASDAQ). The Fund may also
purchase debt securities (corporate debt obligations and U.S. Treasury
obligations) which may be rated in any rating category or may be unrated,
provided that no more than 10% of the Fund's total assets will be invested in
bonds rated below BBB by S&P or below
<PAGE>
9
Baa by Moody's or securities not rated by S&P or Moody's and of comparable
quality. The Fund may also invest in futures and options.
The Fund will invest primarily in stocks of companies operating in all aspects
of the U.S. and world economies that have a market capitalization of at least
$500 million, and that the Fund's Advisor believes possess fundamentally
favorable long-term characteristics. However, stocks of companies with smaller
market capitalizations and stocks that are out of favor in the financial
community and in which little opportunity for price appreciation is recognized
by the financial community may also be purchased if the Fund's Advisor believes
they are undervalued.
The Fund's turnover rate for the fiscal year ended May 31, 1996 was 134%. This
rate of turnover, if continued, will likely result in higher brokerage
commissions and higher levels of realized capital gains than if the turnover
rate was lower.
MID-CAP EQUITY FUND
The Mid-Cap Equity Fund invests primarily in a diversified portfolio of common
stocks, preferred stocks, and securities convertible into common stocks of small
to mid-size companies, (i.e., $50 million to $1 billion and $500 million to $5
billion, respectively, as measured by their market capitalization), with
above-average growth of earnings. Under normal conditions, at least 80% of the
total assets of the Fund will be invested in equity securities, and as a matter
of non-fundamental policy, the Fund will invest at least 65% of its assets in
mid-size companies. Current income will not be an important criterion of
investment selection and any such income should be considered incidental. In
selecting securities for the Fund, the Fund's Advisor will evaluate factors such
as the issuer's background, industry position, historical returns on equity and
experience and qualifications of the management team.
Most of the common stocks in which the Fund invests are traded on registered
exchanges or on the over-the-counter market in the United States. Assets of the
Fund not invested in the securities described above may be invested in U.S.
dollar denominated equity securities of foreign issuers (including sponsored
ADRs that are traded on exchanges or listed on NASDAQ); securities issued by
mutual funds; repurchase agreements; and bonds. The bonds that the Fund may
purchase, including any variable or floating rate instruments, must be rated B
or better by S&P or Moody's, provided that this requirement shall not apply to
the Fund's purchase of bonds issued by the government of Canada or by various
supranational entities, and provided further that no more than 10% of the Fund's
total assets will be invested in bonds rated below BBB by S&P or below Baa by
Moody's or securities not rated by S&P or Moody's and of comparable quality. The
Fund may invest up to 10% of its assets in restricted securities.
The Fund's turnover rate for the fiscal year ended May 31, 1996 was 116%. This
rate of turnover, if continued, will likely result in higher brokerage
commissions and higher levels of realized capital gains than if the turnover
rate was lower.
SUNBELT EQUITY FUND
The Sunbelt Equity Fund seeks to provide capital appreciation by investing
substantially all, and under normal market conditions at least 65%, of its
assets in common stocks; preferred stocks; warrants; and securities convertible
into common stock of U.S. companies headquartered and/or conducting a
substantial portion of their operations in (i.e., maintaining at
<PAGE>
10
least 50% of their assets in or deriving at least 50% of their revenues and/or
sales from) the southern region of the United States. Current income will not be
an important criterion of investment selection and any such income should be
considered incidental. The Fund's Advisor will seek to identify and purchase
securities of companies that it believes to be undervalued and that possess a
strong balance sheet, a strong earnings record and adequate market liquidity.
Most of the common stocks in which the Fund invests are traded on registered
exchanges such as the New York or American Stock Exchange or on NASDAQ. The Fund
will invest no more than 10% of its assets in convertible securities rated lower
than BBB. (See "Investment Risks -- High Yield, Lower Rated Bonds.") The Fund
may invest up to 10% of its total assets in restricted securities. The Fund may
also purchase futures and options for hedging purposes. Obligations relating to
futures contracts will be limited to not more than 20% of the Fund's total
assets.
The Fund will invest primarily in stocks of U.S. companies headquartered and/or
operating in the following U.S. states: Texas, Arkansas, Alabama, Mississippi,
Tennessee, Kentucky, Florida, Virginia, Georgia, North Carolina, South Carolina
and Louisiana. To the extent that the Fund's investments are not as
geographically dispersed across the U.S. as other funds with comparable
objectives, the impact of economic forces on and the relative economic
conditions of these states will be greater on Shareholders.
The Fund's turnover rate for the fiscal year ended May 31, 1996 was 106%. This
rate of turnover, if continued, will likely result in higher brokerage
commissions and higher levels of realized capital gains than if the turnover
rate was lower.
BALANCED FUND
The Balanced Fund seeks to provide capital appreciation and current income
through investments in a diversified portfolio of common and preferred stocks,
warrants, securities convertible into common stocks, and investment grade fixed
income securities. Under normal conditions, no more than 70% of the total assets
of the Fund will be invested in common stocks and other equity securities, and
no more than 60% of the Fund's total assets will be invested in bonds and other
fixed income securities. The Fund will maintain at least 25% of its total assets
in senior fixed income securities.
In selecting equity securities for the Fund, the Fund's Advisor will evaluate
factors believed to affect capital appreciation such as the issuer's background,
industry position, historical returns on equity and experience and
qualifications of the management team. The Fund's Advisor will rotate the Fund's
holdings between various market sectors based on economic analysis of the
overall business cycle.
All of the common stocks in which the Fund invests are traded on registered
exchanges or on NASDAQ. Assets of the Fund not invested in the securities
described above may be invested in U.S. dollar denominated equity securities of
foreign issuers (including sponsored ADRs that are traded on exchanges or listed
on NASDAQ), securities issued by investment companies, and bonds.
The Fund will invest in investment grade fixed income securities rated BBB or
better by S&P or Baa or better by Moody's or, if not rated by S&P or Moody's, of
comparable quality at the time of purchase as determined by the Fund's Advisor,
including corporate debt obligations; mortgage-backed securities, collateralized
mortgage obligations and asset-backed securities; obligations issued or
guaranteed as
<PAGE>
11
to principal and interest by the U.S. Government, its agencies or
instrumentalities; custodial receipts involving U.S. Treasury obligations;
securities of the government of Canada and its provincial and local governments;
securities issued or guaranteed by foreign governments, their political
subdivisions, agencies or instrumentalities; and obligations of supranational
entities. No more than 25% of the Fund's assets will be invested in securities
rated BBB by S&P or Baa by Moody's or, if not rated by S&P or Moody's, of
comparable quality at the time of purchase as determined by the Fund's Advisor.
The Fund may purchase mortgage-backed securities issued or guaranteed as to the
payment of principal and interest by the U.S. Government, its agencies or
instrumentalities or, subject to a limit of 25% of the Fund's assets,
mortgage-backed securities issued by private issuers. These mortgage-backed
securities may be backed or collateralized by fixed, adjustable or floating rate
mortgages. The Fund may also invest in asset backed securities which consist of
securities backed by company receivables, truck and auto loans, leases, credit
card receivables and home equity loans.
In order to reduce interest rate risk, the Fund may purchase floating or
variable rate securities. It may also buy securities on a when-issued basis,
putable securities, pay-in-kind securities and zero coupon securities. The Fund
may also invest futures and options. Some floating or variable rate securities
will be subject to interest rate "caps" or "floors."
The Balanced Fund's turnover rate for the fiscal year ended May 31, 1996 was
148% for the equity portion of its portfolio and 164% for the fixed income
portion of its portfolio. These rates of turnover, if continued, will likely
result in higher transaction costs and brokerage commissions and higher levels
of realized capital gains than if the turnover rate was lower.
INTERNATIONAL EQUITY INDEX FUND
The Fund will invest substantially all and, under normal market conditions, at
least 65% of its assets in common and preferred stocks; warrants; options; and
securities convertible into common stock of companies headquartered or based in
the approximately twenty foreign countries included in the EAFE-GDP Index. The
Fund will invest only in the 1088 or so companies included in the EAFE-GDP
Index. Because it is impractical to invest in every company included in the
Index, the Fund will select a representative sample of securities in each
country using a statistically-based optimization process. Morgan Stanley & Co.
Incorporated maintains the optimization computer programs which will be utilized
to select companies within each country.
The Fund will be constructed to have aggregate investment characteristics
similar to those of the EAFE-GDP Index. The Fund will invest in a statistically
selected sample of the securities included in the EAFE-GDP Index, although not
all countries nor all companies within a country will be represented in the
Fund's portfolio of securities at any time. The Fund expects to invest in
approximately 300 stocks so that the results fall within a targeted tracking
error range. From time to time, adjustments may be made in the Fund's portfolio
because of changes in the composition of the EAFE-GDP Index. No attempt will be
made to manage the portfolio using traditional economic, financial and market
analyses.
The Fund expects that there will be a close correlation between the Fund's
performance and that of the EAFE-GDP Index. A 1.00 correlation would indicate
perfect correlation,
<PAGE>
12
which would be achieved when the net asset value of the Fund, including the
value of its dividend and capital gains distributions, increases or decreases in
exact proportion to changes in the EAFE-GDP Index. The correlation between the
Fund and the EAFE-GDP Index is expected to be over 0.95 on an annual basis. The
Fund's ability to track the EAFE-GDP Index, however, may be affected by, among
other things, transaction costs, changes in either the composition of the
EAFE-GDP Index or number of shares outstanding for the component companies of
the EAFE-GDP Index, and the timing and amount of purchases and redemptions.
Securities of foreign issuers purchased by the Fund may be purchased in foreign
markets, on United States registered exchanges, the over-the-counter market or
in the form of sponsored or unsponsored ADRs traded on registered exchanges or
NASDAQ, or sponsored or unsponsored European Depositary Receipts ("EDRs").
The Fund may enter into forward foreign currency contracts as a hedge against
possible variations in foreign exchange rates. A forward foreign currency
contract is a commitment to purchase or sell a specified currency, at a
specified future date, at a specified price. The Fund may enter into forward
foreign currency contracts to hedge a specific security transaction or to hedge
a portfolio position. These contracts may be bought or sold to protect the Fund,
to some degree, against a possible loss resulting from an adverse change in the
relationship between foreign currencies and the U.S. dollar.
The Fund expects to be fully invested in the investments described above, but
may invest up to 35% of its total assets in U.S. and non-U.S. denominated money
market instruments; repurchase agreements; futures contracts, including stock
index futures contracts; and options on futures contracts. Obligations relating
to futures contracts will be limited to 20% of the Fund's total assets. The Fund
is also permitted to acquire floating and variable rate securities; purchase
securities on a when-issued basis; and purchase illiquid securities.
INTERNATIONAL EQUITY FUND
The Fund, under normal market conditions will invest at least 65% of its assets
in equity securities of foreign issuers consisting of: common and preferred
stocks, warrants, options and securities convertible into common stock.
Securities of foreign issuers purchased by the Fund may be purchased in foreign
markets, on United States registered exchanges, the over-the-counter market or
in the form of sponsored or unsponsored ADRs traded on registered exchanges or
NASDAQ, or sponsored or unsponsored EDRs.
The Fund may enter into forward foreign currency contracts as a hedge against
possible variations in foreign exchange rates. A forward foreign currency
contract is a commitment to purchase or sell a specified currency, at a
specified future date, at a specified price. The Fund may enter into forward
foreign currency contracts to hedge a specific security transaction or to hedge
a portfolio position. The Fund also may purchase and write put and call options
on foreign currencies (traded on U.S. and foreign exchanges or over-the-counter
markets) to manage the portfolios exposure to changes in dollar exchange rates.
The Fund expects to be fully invested in the investments described above, but
may invest up to 35% of its total assets in bonds and debentures issued by
non-U.S. or U.S. companies, securities issued or guaranteed by
<PAGE>
13
foreign or U.S. governments and foreign and U.S. commercial paper. The Fund may
invest in futures contracts, including stock index futures contracts, and
options on futures contracts. The bonds that the Fund may purchase may be rated
in any rating category or may be unrated provided that no more than 10% of the
Fund's total assets will be rated below BBB by S&P or below Baa by Moody's, Inc.
or securities not rated by S&P or Moody's and of comparable quality (see
"Investment Risks -- High Yield, Lower Rated Bonds"). When investing in bonds,
the Fund may seek capital gains by taking advantage of price appreciation caused
by interest rate and credit quality changes. The Fund may also purchase shares
of closed-end investment companies that invest in the securities of issuers in a
single country or region. The Fund is also permitted to acquire floating and
variable rate securities, purchase securities on a when-issued basis and
purchase illiquid securities.
The Fund will invest in the foreign issues of at least three different countries
outside the United States. A foreign issue is one the issuer of which (1) is
organized under the laws of a specific country, (2) for which the principal
securities trading market is in a specific country or (3) derives a significant
proportion (at least 50 percent) of its revenues or profits from goods produced
or sold, investments made, or services performed in a specific country or which
have at least 50 percent of its assets situated in that country. The Fund will
invest primarily in developed countries (for example Japan, Canada and the
United Kingdom). In addition, the Fund may invest in securities of issuers whose
principal activities are in countries with emerging markets. The Fund defines an
emerging market country as any country the economy and market of which the World
Bank or the United Nations considers to be emerging or developing.
The Fund's turnover rate for the fiscal year ended May 31, 1996 was 113%. This
rate of turnover, if continued, will likely result in higher brokerage
commissions and higher levels of realized capital gains than if the turnover
rate was lower.
GENERAL INVESTMENT POLICIES AND STRATEGIES
For temporary defensive purposes, during periods when its Advisor determines
that market conditions warrant, each Fund may hold a portion of its assets in
cash and invest up to 100% of its assets in money market instruments consisting
of: securities issued or guaranteed as to principal and interest by the U.S.
Government, its agencies or instrumentalities; custodial receipts involving U.S.
Treasury obligations; repurchase agreements; certificates of deposit; bankers'
acceptances; time deposits issued by banks or savings and loan associations; and
commercial paper rated in the highest rating category. A Fund may not be
pursuing its investment objective when it is engaged in temporary defensive
investing.
Each Fund, except the International Equity Index Fund, may purchase restricted
securities, including Rule 144A securities, that its respective Advisor
determines are liquid pursuant to guidelines established by the Trust's Board of
Trustees.
In the event that a security owned by a Fund is downgraded below the stated
rating categories, its Advisor will review and take appropriate action with
regard to the security.
Each Fund may borrow money for temporary or emergency purposes in an amount not
to exceed one-third of the value of its total assets. A Fund may not purchase
additional securities while its outstanding borrowings exceed 5% of its assets.
<PAGE>
14
Each Fund may purchase securities issued by money market mutual funds. A Fund's
purchase of shares of other investment companies is limited by the Investment
Company Act of 1940 (the "1940 Act") and will ordinarily result in an additional
layer of charges and expenses.
Each of the Funds may engage in securities lending and will limit such practice
to 33 1/3% of its total assets.
It is a non-fundamental policy of each Fund to invest no more than 15% of its
net assets in illiquid securities. An illiquid security is a security which
cannot be disposed of in the usual course of business within seven days at a
price approximating its carrying value.
For additional information regarding permitted investments, see "Description of
Permitted Investments" in this Prospectus and in the Statement of Additional
Information.
INVESTMENT RISKS
EQUITY SECURITIES
Investments in equity securities are generally subject to market risks that may
cause their prices to fluctuate over time. The values of convertible equity
securities are also affected by prevailing interest rates, the credit quality of
the issuer and any call provision. Fluctuations in the value of equity
securities in which a Fund invests will cause the net asset value of the Fund to
fluctuate.
FIXED INCOME SECURITIES
The market value of a Fund's fixed income investments will change in response to
interest rate changes and other factors. During periods of falling interest
rates, the values of outstanding fixed income securities generally rise.
Conversely, during periods of rising interest rates, the values of such
securities generally decline. Securities with longer maturities are subject to
greater fluctuations in value than securities with shorter maturities. Changes
by a nationally recognized statistical rating organization ("NRSRO") to the
rating of any fixed income security and in the ability of an issuer to make
payments of interest and principal also affect the value of these investments.
Changes in the value of a Fund's securities will not affect cash income derived
from these securities but will affect the Fund's net asset value.
There is a risk that the current interest rate on floating and variable rate
instruments may not accurately reflect existing market interest rates.
Fixed income securities rated BBB by S&P or Baa by Moody's (the lowest ratings
of investment grade bonds) are deemed by these rating services to have
speculative characteristics.
FOREIGN SECURITIES AND FOREIGN CURRENCY CONTRACTS
Investing in the securities of foreign companies and the utilization of forward
foreign currency contracts involve special risks and considerations not
typically associated with investing in U.S. companies. These risks and
considerations include differences in accounting, auditing and financial
reporting standards, generally higher commission rates on foreign portfolio
transactions, the possibility of expropriation or confiscatory taxation, adverse
changes in investment or exchange control regulations, political instability
which could affect U.S. investment in foreign countries and potential
restrictions of the flow of international capital and currencies. Foreign
companies may also be subject to less government regulation than U.S. companies.
Moreover, the dividends payable on the foreign
<PAGE>
15
securities may be subject to foreign withholding taxes, thus reducing the net
amount of income available for distribution to a Fund's Shareholders. Further,
foreign securities often trade with less frequency and volume than domestic
securities and, therefore, may exhibit greater price volatility. Changes in
foreign exchange rates will affect, favorably or unfavorably, the value of those
securities which are denominated or quoted in currencies other than the U.S.
dollar.
By entering into forward foreign currency contracts, the International Equity
Index Fund and International Equity Fund will seek to protect the value of its
respective investment securities against a decline in the value of a currency.
However, these forward foreign currency contracts will not eliminate
fluctuations in the underlying prices of the securities. Rather, they simply
establish a rate of exchange which one can obtain at some future point in time.
Although such contracts tend to minimize the risk of loss due to a decline in
the value of the hedged currency, they tend to limit any potential gain which
might result should the value of such currency increase.
HIGH YIELD, LOWER RATED BONDS
A Fund's investments in high yield, lower rated bonds ("junk bonds") involve
greater risk of default or price declines than investments in investment grade
securities (E.G., securities rated BBB or higher by S&P or Baa or higher by
Moody's) due to changes in the issuer's creditworthiness. The market for high
risk, high yield securities may be thinner and less active, causing market price
volatility and limited liquidity in the secondary market. This may limit the
ability of a Fund to sell such securities at their fair market value either to
meet redemption requests or in response to changes in the economy or the
financial markets. Market prices for high risk, high yield securities may also
be affected by investors' perception of the issuer's credit quality and the
outlook for economic growth. Thus, prices for high risk, high yield securities
may move independently of interest rates and the overall bond market. In
addition, the market for high risk, high yield securities may be adversely
affected by legislative and regulatory developments.
MORTGAGE-BACKED SECURITIES
Mortgage-backed securities are subject to the risk of prepayment of the
underlying mortgages. During periods of declining interest rates, prepayment of
mortgages underlying these securities can be expected to accelerate. When the
mortgage-backed securities held by the Balanced Fund are prepaid, the Balanced
Fund generally will reinvest the proceeds in securities with a yield that
reflects prevailing interest rates, which may be lower than the prepaid
security.
ZERO COUPON OBLIGATIONS
Zero coupon obligations are sold at original issue discount and do not make
periodic payments. Zero coupon obligations may be subject to great fluctuations
in value due to interest rate changes.
A Fund will be required to include the imputed interest in zero coupon
obligations in its current income. Because each Fund distributes all of its net
investment income to investors, a Fund may have to sell portfolio securities to
distribute the income attributable to these obligations and securities at a time
when its Advisor would not have chosen to sell such obligations or securities.
<PAGE>
16
INVESTMENT LIMITATIONS
The following investment limitations constitute fundamental policies of each
Fund. Fundamental policies cannot be changed with respect to a Fund without the
consent of the holders of a majority of the Fund's outstanding shares. The term
"majority of the outstanding shares" means the vote of (i) 67% or more of a
Fund's shares present at a meeting, if more than 50% of the outstanding shares
of the Fund are present or represented by proxy, or (ii) more than 50% of a
Fund's outstanding shares, whichever is less.
Each Fund may not:
1. Purchase securities of any issuer (except securities issued or guaranteed by
the United States, its agencies or instrumentalities and repurchase agreements
involving such securities) if as a result more than 5% of the total assets of a
Fund would be invested in the securities of such issuer; provided, however, that
a Fund may invest up to 25% of its total assets without regard to this
restriction as permitted by applicable law.
2. Purchase any securities which would cause more than 25% of the total assets
of a Fund to be invested in the securities of one or more issuers conducting
their principal business activities in the same industry, provided that this
limitation does not apply to investments in obligations issued or guaranteed by
the U.S. Government or its agencies and instrumentalities, repurchase agreements
involving such securities or tax-exempt securities issued by governments or
political subdivisions of governments. For purposes of this limitation, (i)
utility companies will be divided according to their services, for example, gas,
gas transmission, electric and telephone will each be considered a separate
industry; (ii) financial service companies will be classified according to the
end users of their services, for example, automobile finance, bank finance and
diversified finance will each be considered a separate industry; and (iii)
supranational entities will be considered to be a separate industry.
The foregoing percentages will apply at the time of the purchase of a security.
Additional investment limitations are set forth in the Statement of Additional
Information.
PERFORMANCE INFORMATION
From time to time, the Funds may advertise performance (total return and yield).
These figures will be historical and are not intended to indicate future
performance. The yield of a Fund refers to the annualized income generated by an
investment in that Fund over a specified 30-day period. The yield is calculated
by assuming that the income generated by the investment during that period is
generated over one year and is shown as a percentage of the investment.
The total return of a Fund refers to the average compounded rate of return on a
hypothetical investment, including any sales charge imposed, for designated time
periods (including but not limited to, the period from which a Fund commenced
operations through the specified date), assuming that the entire investment is
redeemed at the end of each period and assuming the reinvestment of all dividend
and capital gains distributions.
The performance of the Trust Shares of the Trust will normally be higher than
for Investor Shares and Flex Shares because Investor Shares and Flex Shares are
subject to distribution, service and certain transfer agent fees not charged to
Trust Shares. The performance of Flex Shares in comparison to Investor Shares
will vary depending upon the investment time horizon.
<PAGE>
17
Each Fund may periodically compare its performance to other mutual funds tracked
by mutual fund rating services, to broad groups of comparable mutual funds or to
unmanaged indices which may assume reinvestment of dividends but generally do
not reflect deductions for administrative and management costs.
PURCHASE OF FUND SHARES
Trust Shares of the Trust are sold primarily to financial institutions or
intermediaries, including subsidiaries of SunTrust Banks, Inc. ("SunTrust"), for
the investment of funds for which they act in a fiduciary, agency, investment
advisory or custodial capacity. Individuals generally may not purchase Trust
Shares directly, although individuals may be able to purchase Trust Shares
through accounts maintained with financial institutions and potentially through
the Preferred Portfolio Account (an asset allocation account available through
SunTrust Securities, Inc.) Trust Shares are sold without a sales charge,
although financial institutions may charge their customer accounts for services
provided in connection with the purchase of shares. Financial institutions may
impose an earlier cut-off time for receipt of purchase orders directed through
them to allow for processing and transmittal of these orders to the Trust's
transfer agent, Federated Services Company (the "Transfer Agent"), for
effectiveness the same day. Information concerning these services and any
charges will be provided to customers by the financial institutions. Trust
Shares will be held of record by the financial institutions, although customers
may have or be given the right to vote the shares depending upon the terms of
their relationship with the financial institution. Confirmations of share
purchases and redemptions will be sent to the financial institution as the
shareholder of record.
Shares may be purchased on days on which the New York Stock Exchange is open for
business (a "Business Day").
A purchase order for any of the Funds will be effective as of the Business Day
received by the Transfer Agent if the Transfer Agent receives the order before
4:00 p.m. Eastern time and payment is received within one day. Purchases will be
made in full and fractional shares of the Trust calculated to three decimal
places. The purchase price of shares of a Fund is the net asset value next
determined after a purchase order is effective plus any applicable sales charge
(the "offering price"). The net asset value per share of a Fund is determined by
dividing the total market value of the Fund's investments and other assets, less
any liabilities, by the total outstanding shares of the Fund. Net asset value
per share is determined daily as of the close of business of the New York Stock
Exchange (currently 4:00 p.m. Eastern time) on any Business Day. Pursuant to
guidelines established by the Trustees, the Trust may use a pricing service to
provide market quotations or valuations for securities owned by each Fund.
The Trust reserves the right to reject a purchase order when the Distributor
determines that it is not in the best interest of the Trust and/or
Shareholder(s).
The Trust maintains procedures, including identification methods and other
means, for ascertaining the identity of callers and authenticity of
instructions. If reasonable procedures are not employed, the Trust and/or the
Transfer Agent may be liable for any losses due to unauthorized or fraudulent
telephone transactions. Neither the Transfer Agent nor the Trust will be
responsible for any loss, liability, cost or expense for acting upon telephone
or wire instructions reasonably believed to be genuine.
<PAGE>
18
Shares of the Funds are offered only to residents of states in which the shares
are eligible for purchase. Investors in certain states may be required to
purchase shares through institutions registered as broker-dealers in such
states.
Although the methodology and procedures for calculating the net asset value for
Trust Shares are identical to those of Investor Shares and Flex Shares, the net
asset value per share of the classes of the Funds may differ because of the
distribution, service, and certain transfer agent expenses charged to Investor
Shares and Flex Shares.
REDEMPTION OF FUND SHARES
An order to redeem Trust shares must be transmitted to the Transfer Agent by the
financial institution as the record owner. Financial institutions may establish
procedures for their customers to request redemption of Trust Shares held in
their account with the financial institution. Customers should contact their
financial institution for information concerning these procedures.
Redemption orders must be received by the Transfer Agent before 4:00 p.m.
Eastern time on any Business Day to be effective that day. Redemption proceeds
are normally remitted in federal funds wired to the record owner of the shares
within one Business Day, but in no event more than seven days following the
effective date of the order. No charge for wiring redemption payments is imposed
by the Trust. Redemption orders are effected at the net asset value per share
next determined after an order is effective.
The Trust intends to pay cash for all shares redeemed, but under abnormal
conditions which make payment in cash unwise, payment may be made wholly or
partly in liquid portfolio securities with a market value equal to the
redemption price. In such circumstances, an investor may incur brokerage costs
in converting such securities to cash.
DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (exclusive of capital gains) are declared
and paid quarterly by each of the Funds, except that dividends are declared and
paid annually by the International Equity Index Fund and International Equity
Fund. Each Fund's net realized capital gains (including net short-term capital
gains) are distributed at least annually. Net income for dividend purposes
consists of (i) interest accrued and original issue discount earned on a Fund's
assets, (ii) plus the amortization of market discount and minus the amortization
of market premium on such assets, (iii) plus dividend or distribution income on
such assets, (iv) less accrued expenses directly attributable to the Fund and
the general expenses of the Trust prorated to the Fund on the basis of its
relative net assets. Shareholders of record on the record date will be entitled
to receive dividends.
The net asset value of Trust Shares of the Funds will be reduced by the amount
of any dividend or distribution. Dividends and distributions are paid in the
form of additional Trust Shares of the same Fund unless the customer has elected
prior to the date of distribution to receive payment in cash. Such election, or
any revocation thereof, must be made in writing prior to the date of
distribution to the Transfer Agent and will become effective with respect to
dividends paid after its receipt. Dividends and distributions are paid within
ten days of the end of the time period to which the dividend relates. Dividends
and distributions payable to a Shareholder are paid in cash
<PAGE>
19
within ten Business Days after a Shareholder's complete redemption of its Trust
Shares in a Fund.
TAX INFORMATION
The following summary of federal income tax consequences is based on current tax
laws and regulations, which may be changed by legislative, judicial or
administrative action. No attempt has been made to present a detailed
explanation of the federal, state or local income tax treatment of each Fund or
its Shareholders. Shareholders are urged to consult their tax advisors regarding
specific questions as to federal, state and local income taxes.
TAX STATUS OF EACH FUND:
Each Fund is treated as a separate entity for federal tax purposes, and is not
combined with the Trust's other Funds. Each Fund intends to qualify for the
special tax treatment afforded regulated investment companies by the Internal
Revenue Code of 1986, as amended (the "Code"), so that it will be relieved of
federal income tax on that part of its net investment income and net capital
gains (the excess of long-term capital gains over net short-term capital loss)
which is distributed to Shareholders. Each Fund intends to make sufficient
distributions prior to the end of each calendar year to avoid liability for the
federal excise tax applicable to regulated investment companies.
TAX STATUS OF DISTRIBUTIONS:
Each Fund will distribute substantially all of its net investment income
(including, for this purpose, net short-term capital gains) to Shareholders.
Dividends from net investment income paid by the Funds will be taxable to
Shareholders as ordinary income whether received in cash or in additional
shares. Dividends from net investment income will qualify for the dividends
received deduction for corporate Shareholders only to the extent such
distributions are derived from dividends paid by domestic corporations. Any net
capital gains will be distributed annually and will be taxed to Shareholders as
long-term capital gains, regardless of how long the Shareholder has held shares
and regardless of whether distributions are received in cash or in additional
shares. For certain individual Shareholders, net long-term capital gains may be
taxed at a lower rate than ordinary income. The Funds will make annual reports
to Shareholders of the federal income tax status of all distributions. Dividends
declared by a Fund in October, November or December of any year and payable to
Shareholders of record on a date in that month will be deemed to have been paid
by the Fund and received by the Shareholder on December 31 of that year, if paid
by the Fund at any time during the following January.
Income derived by a Fund from obligations of foreign issuers may be subject to
foreign withholding taxes. The International Equity Index and International
Equity Funds expect to elect to treat Shareholders as having paid their
proportionate share of such foreign taxes. The other Funds will not be able to
make this election.
Income received on direct U.S. obligations is exempt from tax at the state level
when received directly by a Fund and may be exempt, depending on the state, when
received by the Shareholder as income dividends from a Fund, provided certain
state-specific conditions are satisfied. Not all states permit such income
dividends to be tax exempt and some require that a certain minimum percentage of
an investment company's income be derived from state tax-exempt interest. The
Funds will inform
<PAGE>
20
Shareholders annually of the percentage of income and distributions derived from
direct U.S. obligations. Shareholders should consult their tax advisors to
determine whether any portion of the income dividends received from a Fund is
considered tax-exempt in their particular state.
A sale, exchange or redemption of Fund shares is a taxable event to the
Shareholder.
STI CLASSIC FUNDS INFORMATION
THE TRUST
The Trust was organized as a Massachusetts business trust under a Declaration of
Trust dated January 15, 1992. The Declaration of Trust permits the Trust to
offer separate portfolios of shares and different classes of each Fund. All
consideration received by the Trust for shares of any Fund and all assets of
such Fund belong to that Fund and would be subject to liabilities related
thereto.
The Trust pays its expenses, including fees of its service providers, audit and
legal expenses, expenses of preparing prospectuses, proxy solicitation material
and reports to Shareholders, costs of custodial services and registering the
shares under federal and state securities laws, pricing, insurance expenses,
litigation and other extraordinary expenses, brokerage costs, interest charges,
taxes and organization expenses.
BOARD OF TRUSTEES
The management and affairs of the Trust are supervised by the Trustees under the
laws governing business trusts in the Commonwealth of Massachusetts. The
Trustees have approved contracts under which, as described below, certain
companies provide essential management services to the Trust.
INVESTMENT ADVISORS
The Advisors are indirect wholly-owned subsidiaries of SunTrust Banks, Inc.
("SunTrust"), a southeastern regional bank holding company with assets of $66
billion as of December 31, 1995. SunTrust ranks among the twenty largest U.S.
banking companies. Its three principal subsidiaries -- SunTrust Banks of
Florida, Inc. SunTrust Banks of Georgia, Inc. and SunTrust Banks of Tennessee,
Inc. -- provide a wide range of personal and corporate banking, trust, and
investment services through more than 600 locations in the three-state area.
Total discretionary assets under management with SunTrust Banks, Inc. equalled
approximately $47 billion as of December 31, 1995.
STI Capital Management, N.A. ("STI Capital") serves as the Advisor to the
Capital Growth, Value Income Stock, Mid-Cap Equity, Balanced and International
Equity Funds and joint advisor to the International Equity Index Fund. As of
June 30, 1996, STI Capital had discretionary management authority with respect
to assets of approximately $11 billion. The principal business address of STI
Capital is P.O. Box 3808, Orlando, Florida 32802.
Trusco Capital Management, Inc. ("Trusco") serves as the Advisor to the Sunbelt
Equity Fund and as joint advisor to the International Equity Index Fund. As of
June 30, 1996, Trusco had approximately $13.7 billion in assets under
management. The principal business address of Trusco is 50 Hurt Plaza, Suite
1400, Atlanta, Georgia 30303.
The Trust and the above Investment Advisors have entered into advisory
agreements (the "Advisory Agreements"). Under the Advisory Agreements, the
Advisors make the investment decisions for the assets of the Funds they advise
and continuously review, supervise and administer their Fund's respective
investment programs. The Advisors discharge their
<PAGE>
21
responsibilities subject to the supervision of, and policies established by, the
Trustees of the Trust. STI CLASSIC FUNDS ARE NOT DEPOSITS, ARE NOT INSURED OR
GUARANTEED BY THE FDIC OR ANY OTHER GOVERNMENT AGENCY, AND ARE NOT ENDORSED OR
GUARANTEED BY AND DO NOT CONSTITUTE OBLIGATIONS OF SUNTRUST BANKS, INC. OR ANY
OF ITS AFFILIATES. INVESTMENTS IN THE FUNDS INVOLVE RISK, INCLUDING THE POSSIBLE
LOSS OF PRINCIPAL. RETURNS AND PRINCIPAL VALUES WILL FLUCTUATE AND SHARES AT
REDEMPTION MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THERE IS NO
GUARANTEE THAT ANY STI CLASSIC FUND WILL ACHIEVE ITS INVESTMENT OBJECTIVE. With
respect to all Funds, the Advisors may execute brokerage or other agency
transactions through affiliates of the Advisors.
For the services provided and expenses incurred pursuant to the applicable
Advisory Agreements, STI Capital is entitled to receive advisory fees computed
daily and paid monthly at the annual rate of 1.15%, 0.95%, 1.15%, 0.80%, and
1.25% of the average daily net assets of the Capital Growth, Balanced, Mid-Cap
Equity, Value Income Stock and International Equity Funds, respectively. Trusco
is entitled to receive an advisory fee computed daily and paid monthly at the
annual rate of 1.15% of the average daily net assets of the Sunbelt Equity Fund.
Trusco and STI Capital jointly are entitled to receive an advisory fee computed
daily and paid monthly at the annual rate of 0.90% of the average daily net
assets of the International Equity Index Fund.
Although the advisory fee for each Fund is higher than advisory fees paid by
other mutual funds, the Trust believes that each such fee is comparable to the
advisory fee paid by many other mutual funds with similar investment objectives
and policies. From time to time, an Advisor may waive (either voluntarily or
pursuant to applicable state limitations) advisory fees payable by a Fund.
Currently, the Advisors have agreed to voluntary reductions in their respective
fees in amounts necessary to maintain the total operating expenses at the
amounts set forth in the Expense Summary. Voluntary reductions of fees may be
terminated at any time.
For the fiscal year ended May 31, 1996, STI Capital received advisory fees
computed daily and paid monthly at the annual rate of 1.03%, 0.80%, 1.00%, 0.79%
and 1.06% of the average daily net assets of the Capital Growth, Value Income
Stock, Mid-Cap Equity, Balanced and International Equity Funds, respectively.
Trusco received an advisory fee computed daily and paid monthly at the annual
rate of 1.02% of the average daily net assets of Sunbelt Equity Fund. Trusco and
STI Capital jointly received an advisory fee computed daily and paid monthly at
the annual rate of 0.76% of the average daily net assets of the International
Equity Index Fund.
PORTFOLIO MANAGERS
Mr. Anthony Gray has been responsible for the day-to-day management of the
Capital Growth Fund since it commenced operations. Mr. Gray has served as Chief
Executive Officer and Chief Investment Officer of STI Capital since 1979. Mr.
Gray has also been responsible for the day-to-day management of the equity
portion of the Balanced Fund since it commenced operations.
Mr. Mills Riddick, CFA, has been responsible for the day-to-day management of
the Value Income Stock Fund since April, 1995. Mr. Riddick has been a value
portfolio manager at STI Capital since 1989.
Mr. Elliott A. Perny has been responsible for the day-to-day management of the
Mid-Cap Equity Fund since October 1, 1996. Mr. Perny has served as Senior
Executive Vice President of
<PAGE>
22
STI Capital since September, 1992 and has served as a portfolio manager with STI
Capital since 1991.
Mr. L. Earl Denney CFA has been responsible for the day-to-day management of the
fixed income portion of the Balanced Fund since it commenced operations. Mr.
Denney has served as Executive Vice President of STI Capital since 1983.
Mr. Dan Jaworski has been responsible for the day-to-day management of the
International Equity Fund since it commenced operations. Mr. Jaworski joined STI
Capital in 1995. Prior to joining STI Capital, he managed international
portfolios at Lazard Freres Asset Management from 1993 through 1994 and the
Principal Financial Group from 1988 through 1993.
Mr. James Foster has been responsible for the day-to-day management of the
Sunbelt Equity Fund it commenced operations. Mr. Foster has served as a Vice
President of Trusco since 1989.
Mr. Stanley J. Cherny and Mr. Robert J. Rhodes, CFA, have been responsible fo
the day-to-day operations of the International Equity Index Fund since it
commenced operations. Mr. Cherny has been with Trusco since 1994. Prior to
joining Trusco, Mr. Cherny served as a portfolio manager with Payden & Rygel
from 1988 to 1994. Mr. Rhodes has served as a portfolio manager and Director of
Research with Trusco since June, 1985.
BANKING LAWS
Banking laws and regulations, including the Glass-Steagall Act as presently
interpreted by the Board of Governors of the Federal Reserve System, currently
(a) prohibit a bank holding company registered under the Federal Bank Holding
Company Act of 1956 or its affiliates from sponsoring, organizing, controlling,
or distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and generally prohibit banks
from underwriting securities, but (b) do not prohibit such a bank holding
company or affiliate or banks generally from acting as an investment advisor,
transfer agent, or custodian to such an investment company or from purchasing
shares of such a company as agent for and upon the order of a customer. The
Advisors believe that each may perform the services for STI Classic Funds
contemplated by their respective Advisory Agreements described in this
Prospectus without violation of applicable banking laws or regulations. However,
future changes in legal requirements relating to the permissible activities of
banks and their affiliates, as well as future interpretations of present
requirements, could prevent the Advisors from continuing to perform services for
STI Classic Funds. If the Advisors were prohibited from providing services to
STI Classic Funds, the Board of Trustees would consider selecting other
qualified firms. Any new investment advisory agreements would be subject to
Shareholder approval.
If current restrictions preventing a bank or its affiliates from legally
sponsoring, organizing, controlling, or distributing shares of an investment
company were relaxed, the Advisors, or their affiliates, would consider the
possibility of offering to perform additional services for STI Classic Funds. It
is not possible, of course, to predict whether or in what form such legislation
might be enacted or the terms upon which the Advisors, or such affiliates, might
offer to provide such services.
In addition, state securities laws on this issue may differ from the
interpretations of federal law expressed herein and banks and financial
institutions may be required to register as dealers pursuant to state law.
<PAGE>
23
DISTRIBUTION
SEI Financial Services Company (the "Distributor"), a wholly-owned subsidiary of
SEI Corporation ("SEI"), and the Trust are parties to a distribution agreement
(the "Distribution Agreement"). No compensation is paid to the Distributor for
distribution services for the Trust Shares of each Fund. Trust Shares of the
Fund are offered primarily to institutional investors, including affiliates and
correspondents for the investment of funds in which they act in a fiduciary,
agency or custodial capacity. An investor may call 1-800-874-4770 to receive
more information regarding Investor Shares or Flex Shares. It is possible that a
financial institution may offer different classes of shares to its customers and
thus receive different compensation with respect to different classes of shares.
Each Fund may execute brokerage or other agency transactions through the
Distributor for which the Distributor receives compensation.
ADMINISTRATION
SEI Fund Resources (the "Administrator") serves as the Administrator of the
Trust. The Administrator provides the Trust with certain administrative
services, other than investment advisory services, including regulatory
reporting, all necessary office space, equipment, personnel and facilities.
The Administrator is entitled to a fee from the Trust, which is calculated daily
and paid monthly, at an annual rate as follows:
<TABLE>
<CAPTION>
AVERAGE AGGREGATE DAILY NET ASSETS FEE
- ------------------------------------------ -----------
<S> <C>
$1 - $1 billion 0.10 %
over $1 billion to $5 billion 0.07 %
over $5 billion to $8 billion 0.05 %
over $8 billion to $10 billion 0.045%
over $10 billion 0.04 %
</TABLE>
From time to time, the Administrator may waive (either voluntarily or pursuant
to applicable state limitations) all or a portion of the administration fee
payable by the Trust.
TRANSFER AGENT AND DIVIDEND
DISBURSING AGENT
Federated Services Company, Federated Investors Tower, Pittsburgh, Pennsylvania
15222-3779 is the Transfer Agent for the shares of the Trust and dividend
disbursing agent for the Trust.
CUSTODIAN
SunTrust Bank, Atlanta, c/o STI Trust & Investment Operations, Inc., 303
Peacetree Street N.E., 14th Floor, Atlanta, Georgia 30308, serves as custodian
of the assets of each Fund with the exception of the International Equity Index
and International Equity Funds. Union Bank of California, 475 Sansome Street,
Suite 1200, San Francisco, California 94111, serves as Custodian for the
International Equity Index Fund. The Bank of New York, One Wall Street, New
York, New York 10286, serves as custodian for the International Equity Fund.
Each custodian holds cash, securities and other assets of the Trust as required
by the 1940 Act.
LEGAL COUNSEL
Morgan, Lewis & Bockius LLP, Philadelphia, Pennsylvania, serves as legal counsel
to the Trust.
INDEPENDENT PUBLIC ACCOUNTANTS
The independent public accountants to the Trust are Arthur Andersen LLP,
Philadelphia, Pennsylvania.
<PAGE>
24
OTHER INFORMATION
VOTING RIGHTS
Each share held entitles the Shareholder of record to one vote. Each Fund or
class of a Fund will vote separately on matters relating solely to that Fund or
class. As a Massachusetts business trust, the Trust is not required to hold
annual meetings of Shareholders but approval will be sought for certain changes
in the operation of the Trust and for the election of Trustees under certain
circumstances. In addition, a Trustee may be removed by the remaining Trustees
or by Shareholders at a special meeting called upon written request of
Shareholders owning at least 10% of the outstanding shares of the Trust. In the
event that such a meeting is requested the Trust will provide appropriate
assistance and information to the Shareholders requesting the meeting.
REPORTING
The Trust issues unaudited financial information and audited financial
statements annually. The Trust furnishes proxy statements and other reports to
Shareholders of record.
SHAREHOLDER INQUIRIES
Shareholders may contact their financial institution's representative in order
to obtain information on account statements, procedures and other related
information.
DESCRIPTION OF PERMITTED INVESTMENTS
The following is a description of the permitted investments for the Funds.
Further discussion is contained in the Statement of Additional Information.
AMERICAN DEPOSITARY RECEIPTS ("ADRs") -- ADRs are securities, typically issued
by a U.S. financial institution (a "depositary"), that evidence ownership
interests in a security or a pool of securities issued by a foreign issuer and
deposited with the depositary. ADRs may be available through "sponsored" or
"unsponsored" facilities. A sponsored facility is established jointly by the
issuer of the security underlying the receipt and a depositary, whereas an
unsponsored facility may be established by a depositary without participation by
the issuer of the underlying security. Holders of unsponsored depositary
receipts generally bear all the costs of the unsponsored facility. The
depositary of an unsponsored facility frequently is under no obligation to
distribute shareholder communications received from the issuer of the deposited
security or to pass through, to the holders of the receipts, voting rights with
respect to the deposited securities.
ASSET-BACKED SECURITIES -- Asset-backed securities are securities secured by
non-mortgage assets such as company receivables, truck and auto loans, leases
and credit card receivables. Such securities are generally issued as
pass-through certificates, which represent undivided fractional ownership
interests in the underlying pools of assets. Such securities also may be debt
instruments, which are also known as collateralized obligations and are
generally issued as the debt of a special purpose entity, such as a trust,
organized solely for the purpose of owning such assets and issuing such debt.
Asset-backed securities are not issued or guaranteed by the U.S. Government, its
agencies or instrumentalities; however, the payment of principal and interest on
such obligations may be guaranteed up to certain amounts and for a certain
period by a letter of credit issued by a financial institution (such as
<PAGE>
25
a bank or insurance company) unaffiliated with the issuers of such securities.
The purchase of asset-backed securities raises risk considerations peculiar to
the financing of the instruments underlying such securities. For example, there
is a risk that another party could acquire an interest in the obligations
superior to that of the holders of the asset-backed securities. There also is
the possibility that recoveries on repossessed collateral may not, in some
cases, be available to support payments on those securities. Asset-backed
securities entail prepayment risk, which may vary depending on the type of
asset, but is generally less than the prepayment risk associated with
mortgage-backed securities. In addition, credit card receivables are unsecured
obligations of the card holder.
The market for asset-backed securities is at a relatively early stage of
development. Accordingly, there may be a limited secondary market for such
securities.
BANKERS' ACCEPTANCES -- Bankers' acceptances are bills of exchange or time
drafts drawn on and accepted by a commercial bank. Bankers' acceptances are used
by corporations to finance the shipment and storage of goods. Maturities are
generally six months or less.
CERTIFICATES OF DEPOSIT-- Certificates of deposit are interest bearing
instruments with a specific maturity. They are issued by banks and savings and
loan institutions in exchange for the deposit of funds and normally can be
traded in the secondary market prior to maturity. Certificates of deposit with
penalties for early withdrawal will be considered illiquid.
COMMERCIAL PAPER -- Commercial paper is a term used to describe unsecured
short-term promissory notes issued by banks, municipalities, corporations and
other entities. Maturities on these issues vary from a few to 270 days.
CONVERTIBLE SECURITIES -- Convertible securities are corporate securities that
are exchangeable for a set number of another security at a prestated price.
Convertible securities typically have characteristics similar to both fixed
income and equity securities. Because of the conversion feature, the market
value of a convertible security tends to move with the market value of the
underlying stock. The value of a convertible security is also affected by
prevailing interest rates, the credit quality of the issuer, and any call
provisions.
CORPORATE DEBT OBLIGATIONS -- Debt instruments issued by corporations with
maturities exceeding 270 days. Such instruments may include putable corporate
bonds and zero coupon bonds.
CUSTODIAL RECEIPTS -- Interests in separately traded interest and principal
component parts of U. S. Treasury obligations that are issued by banks or
brokerage firms and are created by depositing U. S. Treasury obligations into a
special account at custodian bank. The custodian holds the interest and
principal payments for the benefit of the registered owners of the certificates
or receipts. The custodian arranges for the issuance of the certificates or
receipts evidencing ownership and maintains the register. Receipts include
"Treasury Receipts" ("TRs"), "Treasury Investment Growth Receipts" ("TIGRs"),
and "Certificates of Accrual on Treasury Securities" ("CATS"). TRs, TIGRs and
CATS are sold as zero coupon securities. See "Zero Coupon Obligations."
DERIVATIVES -- Derivatives are securities whose value is derived from an
underlying contract, index or security, or any combination thereof. This
includes: futures, swap agreements, and some mortgage-back securities (CMOs,
REMICs and SMBs). See elsewhere in this "Description of Permitted
<PAGE>
26
Investments" for discussions of these various instruments, and see "Investment
Policies and Strategies" for more information about any investment policies and
limitations applicable to their use.
EUROPEAN DEPOSITARY RECEIPTS ("EDRs") -- EDRs are securities, typically issued
by a non-U.S. financial institution, that evidence ownership interests in a
security or a pool of securities issued by either a U.S. or foreign issuer. EDRs
may be available for investment through "sponsored" or "unsponsored" facilities.
See "ADRs."
FORWARD FOREIGN CURRENCY CONTRACTS -- A forward foreign currency contract
involves an obligation to purchase or sell a specific currency amount at a
future date, agreed upon by the parties, at a price set at the time of the
contract. A Fund may also enter into a contract to sell, for a fixed amount of
U.S. dollars or other appropriate currency, the amount of foreign currency
approximating the value of some or all of the Fund's securities denominated in
such foreign currency.
At the maturity of a forward contract, the Fund may either sell a portfolio
security and make delivery of the foreign currency, or it may retain the
security and terminate its contractual obligation to deliver the foreign
currency by purchasing an "offsetting" contract with the same currency trader,
obligating it to purchase, on the same maturity date, the same amount of the
foreign currency. The Fund may realize a gain or loss from currency
transactions.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS -- Futures contracts provide
for the future sale by one party and purchase by another party of a specified
amount of a specific security at a specified future time and at a specified
price. An option on a futures contract gives the purchaser the right, in
exchange for a premium, to assume a position in a futures contract at a
specified exercise price during the term of the option. A Fund may use futures
contracts and related options for bona fide hedging purposes, to offset changes
in the value of securities held or expected to be acquired, to minimize
fluctuations in foreign currencies, or to gain exposure to a particular market
or instrument. A Fund will minimize the risk that it will be unable to close out
a futures contract by only entering into futures contracts which are traded on
national futures exchanges.
Stock index futures are futures contracts for various stock indices that are
traded on registered securities exchanges. A stock index futures contract
obligates the seller to deliver (and the purchaser to take) an amount of cash
equal to a specific dollar amount times the difference between the value of a
specific stock index at the close of the last trading day of the contract and
the price at which the agreement is made.
There are risks associated with these activities, including the following: (1)
the success of a hedging strategy may depend on an ability to predict movements
in the prices of individual securities, fluctuations in markets and movements in
interest rates, (2) there may be an imperfect or no correlation between the
changes in market value of the securities held by the Fund and the prices of
futures and options on futures, (3) there may not be a liquid secondary market
for a futures contract or option, (4) trading restrictions or limitations may be
imposed by an exchange, and (5) government regulations may restrict trading in
futures contracts and futures options.
ILLIQUID SECURITIES -- Illiquid securities are securities that cannot be
disposed of within seven business days at approximately the price at which they
are being carried on the Fund's books. An illiquid security includes a demand
instrument with a demand notice period
<PAGE>
27
exceeding seven days, where there is no secondary market for such security, and
repurchase agreements with durations (or maturities) over seven days in length.
MEDIUM TERM NOTES -- Medium term notes are periodically or continuously offered
corporate or agency debt that differs from traditionally underwritten corporate
bonds only in the process by which they are issued.
MORTGAGE-BACKED SECURITIES -- Mortgage-backed securities are instruments that
entitle the holder to a share of all interest and principal payments from
mortgages underlying the security. The mortgages backing these securities
include conventional thirty-year fixed rate mortgages, graduated payment
mortgages, and adjustable rate mortgages. During periods of declining interest
rates, prepayment of mortgages underlying mortgage-backed securities can be
expected to accelerate. Prepayment of mortgages which underlie securities
purchased at a premium often results in capital losses, while prepayment of
mortgages purchased at a discount often results in capital gains. Because of
these unpredictable prepayment characteristics, it is often not possible to
predict accurately the average life or realized yield of a particular issue.
GOVERNMENT PASS-THROUGH SECURITIES: These are securities that are issued or
guaranteed by a U.S. Government agency representing an interest in a pool of
mortgage loans. The primary issuers or guarantors of these mortgage-backed
securities are the Government National Mortgage Association ("GNMA"), the
Federal National Mortgage Association ("FNMA") and the Federal Home Loan
Mortgage Corporation ("FHLMC"). FNMA and FHLMC obligations are not backed by the
full faith and credit of the U.S. Government as GNMA certificates are, but FNMA
and FHLMC securities are supported by the instrumentalities' right to borrow
from the U.S. Treasury. GNMA, FNMA and FHLMC each guarantees timely
distributions of interest to certificate holders. GNMA and FNMA also each
guarantees timely distributions of scheduled principal. FHLMC has in the past
guaranteed only the ultimate collection of principal of the underlying mortgage
loan; however, FHLMC now issues mortgage-backed securities (FHLMC Gold PCs)
which also guarantee timely payment of monthly principal reductions. Government
and private guarantees do not extend to the securities' value, which is likely
to vary inversely with fluctuations in interest rates.
PRIVATE PASS-THROUGH SECURITIES: These are mortgage-backed securities issued by
a non-governmental entity, such as a trust. These securities include
collateralized mortgage obligations ("CMOs") and real estate mortgage investment
conduits ("REMICs") that are rated in one of the top two rating categories.
While they are generally structured with one or more types of credit
enhancement, private pass-through securities typically lack a guarantee by an
entity having the credit status of a governmental agency or instrumentality.
COLLATERALIZED MORTGAGE OBLIGATIONS: CMOs are debt obligations or multiclass
pass-through certificates issued by agencies or instrumentalities of the U.S.
Government or by private originators or investors in mortgage loans. In a CMO,
series of bonds or certificates are usually issued in multiple classes.
Principal and interest paid on the underlying mortgage assets may be allocated
among the several classes of a series of a CMO in a variety of ways. Each class
of a CMO, often referred to as a "tranche," is issued with a specific fixed or
floating coupon rate and has a stated maturity or final distribution date.
Principal payments on the underlying mortgage assets may cause CMOs to be
retired substantially
<PAGE>
28
earlier then their stated maturities or final distribution dates, resulting in a
loss of all or part of any premium paid.
REMICS: A REMIC is a CMO that qualifies for special tax treatment under the
Internal Revenue Code and invests in certain mortgages principally secured by
interests in real property. Investors may purchase beneficial interests in
REMICs, which are known as "regular" interests, or "residual" interests.
Guaranteed REMIC pass-through certificates ("REMIC Certificates") issued by FNMA
or FHLMC represent beneficial ownership interests in a REMIC trust consisting
principally of mortgage loans or FNMA, FHLMC or GNMA-guaranteed mortgage
pass-through certificates. For FHLMC REMIC Certificates, FHLMC guarantees the
timely payment of interest, and also guarantees the payment of principal as
payments are required to be made on the underlying mortgage participation
certificates. FNMA REMIC Certificates are issued and guaranteed as to timely
distribution of principal and interest by FNMA.
STRIPPED MORTGAGE-BACKED SECURITIES ("SMBS"): SMBs are usually structured with
two classes that receive specified proportions of the monthly interest and
principal payments from a pool of mortgage securities. One class may receive all
of the interest payments and is thus termed an interest-only class ("IO"), while
the other class may receive all of the principal payments and is thus termed the
principal-only class ("PO"). The value of IOs tends to increase as rates rise
and decrease as rates fall; the opposite is true of POs. SMBs are extremely
sensitive to changes in interest rates because of the impact thereon of
prepayment of principal on the underlying mortgage securities. The market for
SMBs is not as fully developed as other markets; SMBs therefore may be illiquid.
OBLIGATIONS OF SUPRANATIONAL ENTITIES -- Supranational entities are entities
established through the joint participation of several governments, and include
the Asian Development Bank, the Inter-American Development Bank, International
Bank for Reconstruction and Development (World Bank), African Development Bank,
European Economic Community, European Investment Bank and the Nordic Investment
Bank.
OPTIONS ON CURRENCIES -- The International Equity Index Fund may purchase and
write put and call options on foreign currencies (traded on U.S. and foreign
exchanges or over-the-counter markets) to manage the portfolio's exposure to
changes in dollar exchange rates. Call options on foreign currency written by
the Fund will be "covered," which means that the Fund will own an equal amount
of the underlying foreign currency. With respect to put options on foreign
currency written by the Fund, the Fund will establish a segregated account with
its custodian bank consisting of cash, U.S. Government securities or other high
grade liquid debt securities in an amount equal to the amount the Fund would be
required to pay upon exercise of the put.
PAY-IN-KIND SECURITIES -- Pay-in-kind securities are bonds or preferred stock
that pay interest or dividends in the form of additional bonds or preferred
stock.
REPURCHASE AGREEMENTS -- Repurchase agreements are agreements by which a Fund
obtains a security and simultaneously commits to return the security to the
seller at an agreed upon price on an agreed upon date within a number of days
from the date of purchase. The custodian will hold the security as collateral
for the repurchase agreement. A Fund bears a risk of loss in the event the other
party defaults on its obligations and the Fund is delayed or prevented from
exercising its right to dispose of
<PAGE>
29
the collateral or if the Fund realizes a loss on the sale of the collateral. A
Fund will enter into repurchase agreements only with financial institutions
deemed to present minimal risk of bankruptcy during the term of the agreement
based on established guidelines. Repurchase agreements are considered loans
under the Investment Company Act of 1940.
RESTRICTED SECURITIES -- Restricted securities are securities that may not be
sold freely to the public absent registration under the Securities Act of 1933
or an exemption from registration. Rule 144A securities are securities that have
not been registered under the Securities Act of 1933, but which may be traded
between certain institutional investors, including investment companies. The
Trust's Board of Trustees is responsible for developing guidelines and
procedures for determining the liquidity of restricted securities and monitoring
the Advisors' implementation of the guidelines and procedures.
SECURITIES LENDING -- In order to generate additional income, a Fund may lend
securities which it owns pursuant to agreements requiring that the loan be
continuously secured by collateral consisting of cash, securities of the U.S.
Government or its agencies equal to at least 100% of the market value of the
securities lent. A Fund continues to receive interest on the securities lent
while simultaneously earning interest on the investment of cash collateral.
Collateral is marked to market daily. There may be risks of delay in recovery of
the securities or even loss of rights in the collateral should the borrower of
the securities fail financially or become insolvent.
STANDBY COMMITMENTS AND PUTS -- Standby commitments and puts are securities
subject to standby commitments or puts permit the holder thereof to sell the
securities at a fixed price prior to maturity. Securities subject to a standby
commitment or put may be sold at any time at the current market price. However,
unless the standby commitment or put was an integral part of the security as
originally issued, it may not be marketable or assignable; therefore, the
standby commitment or put would only have value to the Fund owning the security
to which it relates. In certain cases, a premium may be paid for a standby
commitment or put, which premium will have the effect of reducing the yield
otherwise payable on the underlying security. The Fund will limit standby
commitment or put transactions to institutions believed to present minimal
credit risk.
SWAPS, CAPS, FLOORS and COLLARS -- Interest rate swaps, mortgage swaps, currency
swaps and other types of swap agreements such as caps, floors and collars are
designed to permit the purchaser to preserve a return or spread on a particular
investment or portion of its portfolio, and to protect against any increase in
the price of securities the Fund anticipates purchasing at a later date. In a
typical interest rate swap, one party agrees to make regular payments equal to a
floating interest rate times a "notional principal amount," in return for
payments equal to a fixed rate times the same amount, for a specific period of
time. If a swap agreement provides for payment in different currencies, the
parties might agree to exchange the notional principal amount as well. Swaps may
also depend on other prices or rates, such as the value of an index or mortgage
prepayment rates.
In a typical cap or floor agreement, one party agrees to make payments only
under specified circumstances, usually in return for payment of a fee by the
other party. For example, the buyer of an interest rate cap obtains the right to
receive payments to the extent that a specific interest rate exceeds an
agreed-upon level, while the seller of an interest rate floor is obligated to
make payments to the extent that
<PAGE>
30
a specified interest rate falls below an agreed-upon level. An interest rate
collar combines elements of buying a cap and selling a floor.
Swap agreements are sophisticated hedging instruments that typically involve a
small investment of cash relative to the magnitude of risk assumed. As a result,
swaps can be highly volatile and have a considerable impact on the Fund's
performance. Swap agreements are subject to risks related to the counterparty's
ability to perform, and may decline in value if the counterparty's
creditworthiness deteriorates. The Fund may also suffer losses if it is unable
to terminate outstanding swap agreements or reduce its exposure through
offsetting transactions. Any obligation the Fund may have under these types of
arrangements will be covered by setting aside liquid high grade securities in a
segregated account. The Fund will enter into swaps only with counterparties
believed to be creditworthy.
TIME DEPOSITS -- Time deposits are non-negotiable receipts issued by a bank in
exchange for the deposit of funds. Like a certificate of deposit, it earns a
specified rate of interest over a definite period of time; however, it cannot be
traded in the secondary market. Time deposits are considered to be illiquid
securities.
U.S. GOVERNMENT AGENCIES -- Obligations issued or guaranteed by agencies of the
U.S. Government, including, among others, the Federal Farm Credit Bank, the
Federal Housing Administration and the Small Business Administration, and
obligations issued or guaranteed by instrumentalities of the U.S. Government,
including, among others, FHLMC, the Federal Land Banks and the U.S. Postal
Service. Some of these securities are supported by the full faith and credit of
the U.S. Treasury (e.g., GNMA securities), others are supported by the right of
the issuer to borrow from the Treasury (e.g., Federal Farm Credit Bank
securities), while still others are supported only by the credit of the
instrumentality (e.g., FNMA securities). Guarantees of principal by agencies or
instrumentalities of the U.S. Government may be a guarantee of payment at the
maturity of the obligation so that in the event of a default prior to maturity
there might not be a market and thus no means of realizing on the obligation
prior to maturity. Guarantees as to the timely payment of principal and interest
do not extend to the value or yield of these securities nor to the value of the
Fund's shares.
U.S. TREASURY OBLIGATIONS -- U.S. Treasury obligations consist of bills, notes
and bonds issued by the U.S. Treasury and separately traded interest and
principal component parts of such obligations that are transferable through the
Federal book-entry system known as Separately Traded Registered Interest and
Principal Securities ("STRIPS").
VARIABLE AND FLOATING RATE INSTRUMENTS -- Certain obligations may carry variable
or floating rates of interest, and may involve a conditional or unconditional
demand feature. Such instruments bear interest at rates which are not fixed, but
which vary with changes in specified market rates or indices. The interest rates
on these securities may be reset daily, weekly, quarterly or some other reset
period, and may have a floor or ceiling on interest rate changes. There is a
risk that the current interest rate on such obligations may not accurately
reflect existing market interest rates. A demand instrument with a demand notice
exceeding seven days may be considered illiquid if there is no secondary market
for such security.
WARRANTS -- Instruments giving holders the right, but not the obligation, to buy
shares of a company at a given price during a specified period.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES -- When-issued or delayed delivery
<PAGE>
31
basis transactions involve the purchase of an instrument with payment and
delivery taking place in the future. Delivery of and payment for these
securities may occur a month or more after the date of the purchase commitment.
The Fund will segregate liquid high grade debt securities or cash in an amount
at least equal to these commitments. The interest rate realized on these
securities is fixed as of the purchase date and no interest accrues to the Fund
before settlement. These securities are subject to market fluctuation due to
changes in market interest rates and it is possible that the market value at the
time of settlement could be higher or lower than the purchase price if the
general level of interest rates has changed. Although a Fund generally purchases
securities on a when-issued or forward commitment basis with the intention of
actually acquiring securities for its portfolio, a Fund may dispose of a
when-issued security or forward commitment prior to settlement if it deems
appropriate.
ZERO COUPON OBLIGATIONS -- Zero coupon obligations are debt securities that do
not bear any interest, but instead are issued at a deep discount from par. The
value of a zero coupon obligation increases over time to reflect the interest
accreted. Such obligations will not result in the payment of interest until
maturity, and will have greater price volatility than similar securities that
are issued at par and pay interest periodically.
<PAGE>
A-1
APPENDIX
I. BOND RATINGS
CORPORATE BONDS
The following are descriptions of Standard & Poor's Corporation ("S&P's") and
Moody's Investors Service, Inc. ("Moody's") corporate bond ratings.
Bonds rated AAA have the highest rating S&P assigns to a debt obligation. Such a
rating indicates an extremely strong capacity to pay principal and interest.
Bonds rated AA also qualify as high-quality debt obligations. Capacity to pay
principal and interest is very strong, and in the majority of instances they
differ from AAA issues only in small degree. Debt rated A has a strong capacity
to pay interest and repay principal although it is somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions than
debt in higher rated categories.
Bonds which are rated BBB are considered to be medium-grade obligations (i.e.,
they are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Debt rated BB, B, CCC, CC or C is regarded as having predominately speculative
characteristics with respect to capacity to pay interest and repay principal. BB
indicates the least degree of speculation and C the highest degree of
speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposure to adverse conditions.
Bonds which are rated Aaa by Moody's are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large, or an exceptionally
stable, margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues. Bonds rated Aa by
Moody's are judged by Moody's to be of high quality by all standards. They are
rated lower than the best bonds because margins of protection may not be as
large as in Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than in Aaa securities. Together with
bonds rated Aaa, they comprise what are generally known as high-grade bonds.
Bonds which are rated A possess many favorable investment attributes and are to
be considered as upper-medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Debt rated Baa is regarded as having an adequate capacity to pay interest and
repay principal. Whereas it normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay interest and repay principal for debt in this
category than in higher rated categories.
Bonds which are rated Ba are judged to have speculative elements; their future
cannot be considered as well-assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times
<PAGE>
A-2
over the future. Uncertainty of position characterizes bonds in this class.
Bonds which are rated B generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small. Bonds
which are rated Caa are of poor standing. Such issues may be in default or there
may be present elements of danger with respect to principal and interest. Bonds
which are rated Ca represent obligations which are speculative in a high degree.
Such issues are often in default or have other marked shortcomings. Bonds which
are rated C are the lowest rated class of bonds and issues so rated can be
regarded as having extremely poor prospects of ever attaining any real
investment standing.
II. COMMERCIAL PAPER AND SHORT-TERM RATINGS
The following descriptions of commercial paper ratings have been published by
S&P, Moody's, Fitch Investors Service, Inc. ("Fitch"), Duff and Phelps ("Duff")
and IBCA Limited ("IBCA"), respectively.
Commercial paper rated A by S&P is regarded by S&P as having the greatest
capacity for timely payment. Issues rated A are further refined by use of the
numbers 1+ and 1. Issues rated A-1+ are those with an "overwhelming degree" of
credit protection. Those rated A-1 reflect a "very strong" degree of safety
regarding timely payment. Those rated A-2 reflect a safety regarding timely
payment but not as high as A-1.
Commercial paper issues rated Prime-1 and Prime-2 by Moody's are judged by
Moody's to have superior ability and strong ability for repayment, respectively.
The rating Fitch-1 (Highest Grade) is the highest commercial rating assigned by
Fitch. Paper rated Fitch-1 is regarded as having the strongest degree of
assurance for timely payment. The rating Fitch-2 (Very Good Grade) is the second
highest commercial paper rating assigned by Fitch which reflects an assurance of
timely payment only slightly less in degree than the strongest issues.
The rating Duff-1 is the highest commercial paper rating assigned by Duff. Paper
rated Duff-1 is regarded as having very high certainty of timely payment with
excellent liquidity factors which are supported by ample asset protection. Risk
factors are minor. Paper rated Duff-2 is regarded as having good certainty of
timely payment, good access to capital markets and sound liquidity factors and
company fundamentals. Risk factors are small.
The designation A1 by IBCA indicates that the obligation is supported by a very
strong capacity for timely repayment. Those obligations rated A1+ are supported
by the highest capacity for timely repayment. Obligations rated A2 are supported
by a strong capacity for timely repayment, although such capacity may be
susceptible to adverse changes in business, economic or financial conditions.
<PAGE>
(THIS PAGE INTENTIONALLY LEFT BLANK)
<PAGE>
<TABLE>
<S> <C> <C>
STI CLASSIC FUNDS ORGANIZATIONAL OVERVIEW
* INVESTMENT ADVISORS
Trusco Capital Management, Inc. 50 Hurt Plaza
Suite 1400
Atlanta, GA 30303
STI Capital Management, N.A. P.O. Box 3808
Orlando, FL 32802
* DISTRIBUTOR
SEI Financial Services Company 680 E. Swedesford Road
Wayne, PA 19087
* ADMINISTRATOR
SEI Fund Resources 680 E. Swedesford Road
Wayne, PA 19087
* TRANSFER AGENT
Federated Services Company Federated Investors Tower
Pittsburgh, PA 15222-3779
* CUSTODIANS
SunTrust Bank, Atlanta c/o STI Trust & Investment
Operations, Inc.
303 Peachtree Street N.E.
14th Floor
Atlanta, GA 30308
Union Bank of California 475 Sansome Street
(International Equity Index Fund Suite 1200
only) San Francisco, CA 94111
The Bank of New York One Wall Street
(International Equity Fund only) New York, NY 10286
* LEGAL COUNSEL
Morgan, Lewis & Bockius LLP 2000 One Logan Square
Philadelphia, PA 19103
* INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen, LLP 1601 Market Street
Philadelphia, PA 19103
</TABLE>
<PAGE>
100093/10-95
DISTRIBUTOR
SEI Financial Services
Company
-- - - - - - - - - - - - - - -
PROSPECTUS
TRUST SHARES
CAPITAL GROWTH FUND
VALUE INCOME STOCK FUND
MID-CAP EQUITY FUND
BALANCED FUND
SUNBELT EQUITY FUND
INTERNATIONAL EQUITY
INDEX FUND
INTERNATIONAL EQUITY
FUND
INVESTMENT ADVISORS
STI CAPITAL MANAGEMENT, N.A.
TRUSCO CAPITAL MANAGEMENT, INC.
OCTOBER 1, 1996
[LOGO]
<PAGE>
STI CLASSIC FUNDS
INVESTOR SHARES
CAPITAL GROWTH FUND
VALUE INCOME STOCK FUND
MID-CAP EQUITY FUND
BALANCED FUND
SUNBELT EQUITY FUND
INTERNATIONAL EQUITY INDEX FUND
INTERNATIONAL EQUITY FUND
INVESTMENT ADVISORS TO THE FUNDS:
STI CAPITAL MANAGEMENT, N.A.
TRUSCO CAPITAL MANAGEMENT, INC.
(THE "ADVISORS")
The STI Classic Funds (the "Trust") is a mutual fund that offers shares in a
number of separate investment portfolios (each a "Fund" and, collectively, the
"Funds"). This Prospectus sets forth concisely the information about the
Investor Shares of the above-referenced Funds. Investors are advised to read
this Prospectus and retain it for future reference.
A Statement of Additional Information relating to the Funds dated the same date
as this Prospectus has been filed with the Securities and Exchange Commission
and is available without charge through the Distributor, SEI Financial Services
Company, 680 East Swedesford Road, Wayne, Pennsylvania 19087-1658 or by calling
1-800-874-4770. The Statement of Additional Information is incorporated into
this Prospectus by reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
THE TRUST'S SHARES ARE NOT SPONSORED, ENDORSED, OR GUARANTEED BY, AND DO NOT
CONSTITUTE OBLIGATIONS OR DEPOSITS OF, THE ADVISORS OR ANY OF THEIR AFFILIATES
OR CORRESPONDENTS INCLUDING SUNTRUST BANKS, INC., ARE NOT GUARANTEED OR INSURED
BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY
OTHER GOVERNMENTAL AGENCY, AND INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE
LOSS OF THE PRINCIPAL AMOUNT INVESTED.
OCTOBER 1, 1996
<PAGE>
2
TABLE OF CONTENTS
<TABLE>
<S> <C>
Expense Summary........................................................... 3
Financial Highlights...................................................... 5
Performance Information for Predecessor Collective Funds.................. 7
The Trust................................................................. 7
Funds and Investment Objectives........................................... 8
Investment Policies and Strategies........................................ 8
General Investment Policies and Strategies................................ 14
Investment Risks.......................................................... 15
Investment Limitations.................................................... 17
Performance Information................................................... 17
Fundlink.................................................................. 18
Purchase of Fund Shares................................................... 18
Redemption of Fund Shares................................................. 21
Exchanges................................................................. 22
Dividends and Distributions............................................... 22
Tax Information........................................................... 23
STI Classic Funds Information............................................. 24
The Trust................................................................. 24
Board of Trustees......................................................... 24
Investment Advisors....................................................... 24
Portfolio Managers........................................................ 26
Banking Laws.............................................................. 26
Distribution.............................................................. 27
Administration............................................................ 28
Transfer Agent and Dividend Disbursing Agent.............................. 28
Custodian................................................................. 28
Legal Counsel............................................................. 28
Independent Public Accountants............................................ 28
Other Information......................................................... 28
Voting Rights............................................................. 28
Reporting................................................................. 29
Shareholder Inquiries..................................................... 29
Description of Permitted Investments...................................... 29
Appendix.................................................................. A-1
</TABLE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS OR IN THE TRUST'S STATEMENT OF
ADDITIONAL INFORMATION IN CONNECTION WITH THE OFFERING MADE BY THIS PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE TRUST OR SEI FINANCIAL SERVICES COMPANY
(THE "DISTRIBUTOR"). THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE
TRUST OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
<PAGE>
3
EXPENSE SUMMARY
INVESTOR SHARES
The purpose of the following table is to help you understand the various costs
and expenses that a shareholder will bear, directly or indirectly, in connection
with an investment in the Investor Shares.
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
- -------------------------------------------------------
ALL FUNDS
- -------------------------------------------------------
<S> <C>
Maximum Sales Charge Imposed on
Purchases (as a percentage of offering
price)................................. 3.75%
Maximum Sales Charge Imposed on
Reinvested Dividends................... None
Maximum Deferred Sales Charge........... None
Redemption Fees(1)...................... None
Exchange Fee............................ None
- -------------------------------------------------------
- -------------------------------------------------------
</TABLE>
(1) There is a $7.00 wire charge for redemptions for all funds processed from
retail accounts which require wires to particular banks.
ANNUAL OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
CAPITAL MID-CAP SUNBELT INTERNATIONAL INTERNATIONAL
GROWTH VALUE INCOME EQUITY BALANCED EQUITY EQUITY INDEX EQUITY
FUND STOCK FUND FUND FUND FUND FUND FUND
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Management Fees (after fee waivers
& reimbursements)(1).............. 1.03% .80% 1.00% .79% 1.02% .76% 1.06%
12b-1 Service & Distribution Fees
(after fee waivers &
reimbursements)(2)................ .52% .28% .40% .25% .40% .01% .00%
Other Fund Expenses (after fee
waivers & reimbursements)(3)...... .25% .22% .20% .21% .18% .68% .75%
- --------------------------------------------------------------------------------------------------------------------------------
Total Fund Operating Expenses
(after fee waivers &
reimbursements)(4)................ 1.80% 1.30% 1.60% 1.25% 1.60% 1.45% 1.81%
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Each Advisor is waiving, on a voluntary basis, a portion of its fee from
each Fund. Each Advisor reserves the right to terminate its waiver at any
time in its sole discretion. Absent such waivers and reimbursements,
Advisory Fees for the Funds would be as follows: Capital Growth Fund --
1.15%, Value Income Stock Fund -- .80%, Mid-Cap Equity Fund -- 1.15%,
Balanced Fund -- .95%, Sunbelt Equity Fund -- 1.15%, International Equity
Index Fund -- .90%, and International Equity Fund -- 1.25%. See "Investment
Advisors."
(2) The Distributor is reimbursing, on a voluntary basis, a portion of its
expenses from each Fund. The Distributor reserves the right to terminate its
reimbursement at any time in its sole discretion. Absent such
reimbursements, 12b-1 Service & Distribution Fees would be as follows:
Capital Growth Fund -- .68%, Value Income Stock Fund -- .33%, Mid-Cap Equity
Fund -- .43%, Balanced Fund -- .28%, Sunbelt Equity Fund -- .43%,
International Equity Index Fund -- .38%, and International Equity Fund --
.33%. See "Distribution."
(3) Absent waivers and reimbursements, Other Fund Expenses would be as follows:
Capital Growth Fund -- .25%, Value Income Stock Fund -- .24%, Mid-Cap Equity
Fund -- .38%, Balanced Fund -- .66%, Sunbelt Equity Fund -- .35%,
International Equity Index Fund -- .78% and International Equity Fund --
1.56%.
(4) Absent the voluntary waivers described above, Total Fund Operating Expense
would be as follows: Capital Growth Fund -- 2.08%, Value Income Stock Fund
-- 1.37%, Mid-Cap Equity Fund -- 1.96%, Balanced Fund -- 1.89%, Sunbelt
Equity Fund -- 1.93%, International Equity Index Fund -- 2.06%, and
International Equity Fund -- 3.14%.
<PAGE>
4
<TABLE>
<CAPTION>
ONE THREE FIVE TEN
EXAMPLES YEAR YEARS YEARS YEARS
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
An investor would pay the following expenses on a $1,000 investment
assuming: (1) a 5% annual return and (2) redemption at the end of each
time period.
CAPITAL GROWTH FUND........................................................ $ 55 $ 92 $ 131 $ 241
VALUE INCOME STOCK FUND.................................................... $ 50 $ 77 $ 106 $ 188
MID-CAP EQUITY FUND........................................................ $ 53 $ 86 $ 121 $ 220
BALANCED FUND.............................................................. $ 50 $ 76 $ 104 $ 183
SUNBELT EQUITY FUND........................................................ $ 53 $ 86 $ 121 $ 220
INTERNATIONAL EQUITY INDEX FUND............................................ $ 52 $ 82 $ 114 $ 205
INTERNATIONAL EQUITY FUND.................................................. $ 55 $ 92 $ 132 $ 242
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
</TABLE>
The examples are based upon the total operating expenses of a Fund and should
not be considered a representation of past or future expenses. Actual expenses
may be greater or less than those shown. A person that purchases shares through
an account with a financial institution may be charged separate fees by the
financial institution. The rules of the Securities and Exchange Commission
require that the maximum sales charge be reflected in the above table. However,
certain investors may qualify for reduced sales charges. See "Purchase of Fund
Shares." Long-term Shareholders may eventually pay more than the economic
equivalent of the maximum front-end sales charges otherwise permitted by the
National Association of Securities Dealers, Inc.'s Rules of Fair Practice.
<PAGE>
5
FINANCIAL HIGHLIGHTS
The following information has been audited by Arthur Andersen LLP, independent
public accountants to the Trust, whose report thereon was unqualified. This
information should be read in conjunction with the Trust's financial statements
and notes thereto, which are included in the Trust's Statement of Additional
Information and which appear, along with the report of Arthur Andersen LLP, in
the Trust's 1996 Annual Report to Shareholders. Additional performance
information regarding each Fund is contained in the Trust's Annual Report to
Shareholders and is available without charge by calling 1-800-874-4770.
For an Investor Share Outstanding Throughout the Period
<TABLE>
<CAPTION>
NET ASSET DISTRIBUTIONS
VALUE NET NET REALIZED AND FROM NET DISTRIBUTIONS NET ASSET
BEGINNING INVESTMENT UNREALIZED GAINS INVESTMENT FROM REALIZED VALUE END TOTAL
OF PERIOD INCOME ON INVESTMENTS INCOME CAPITAL GAINS OF PERIOD RETURN
--------- ---------- ----------------- ------------- ------------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
--------------------
CAPITAL GROWTH FUND
--------------------
INVESTOR SHARES
1996.............. $12.17 $ 0.03 $ 3.32 $ (0.04) $ (0.59) $ 14.89 28.18%
1995.............. 11.98 0.09 0.57 (0.07) (0.40) 12.17 5.93%
1994.............. 11.93 0.09 0.31 (0.09) (0.26) 11.98 3.26%
1993 (1).......... 10.00 0.06 1.93 (0.06) -- 11.93 20.49%*
-------------------------
VALUE INCOME STOCK FUND
-------------------------
INVESTOR SHARES
1996.............. $11.58 $ 0.30 $ 2.71 $ (0.30) $ (1.16) $ 13.13 27.39%
1995.............. 10.52 0.28 1.56 (0.27) (0.51) 11.58 18.71%
1994.............. 10.23 0.26 0.67 (0.27) (0.37) 10.52 9.27%
1993 (2).......... 9.73 0.09 0.44 (0.03) -- 10.23 19.42%*
---------------------
MID-CAP EQUITY FUND
---------------------
INVESTOR SHARES
1996.............. $10.99 $ 0.03 $ 2.62 $ (0.03) $ (0.87) $ 12.74 24.93%
1995.............. 9.84 0.03 1.15 (0.03) -- 10.99 11.96%
1994 (3).......... 10.00 0.01 (0.17) -- -- 9.84 (1.60%)+
---------------
BALANCED FUND
---------------
INVESTOR SHARES
1996.............. $10.30 $ 0.30 $ 1.41 $ (0.30) $ (0.11) $ 11.60 16.88%
1995.............. 9.79 0.28 0.51 (0.28) -- 10.30 8.29%
1994 (4).......... 10.00 0.03 (0.24) -- -- 9.79 (2.10%)+
--------------------
SUNBELT EQUITY FUND
--------------------
INVESTOR SHARES
1996.............. $ 9.96 $ (0.11) $ 4.30 -- $ (0.20) $ 13.95 42.58%
1995.............. 9.69 (0.05) 0.36 -- (0.04) 9.96 3.20%
1994 (4).......... 10.00 (0.02) (0.29) -- -- 9.69 (3.10%)+
<CAPTION>
RATIO OF NET
INVESTMENT INCOME
RATIO OF EXPENSES (LOSS) TO AVERAGE
NET ASSETS RATIO OF RATIO OF NET TO AVERAGE NET NET ASSETS
END OF EXPENSES INVESTMENT INCOME ASSETS (EXCLUDING (EXCLUDING PORTFOLIO
PERIOD TO AVERAGE TO AVERAGE NET WAIVERS AND WAIVERS AND TURNOVER
(000) NET ASSETS ASSETS REIMBURSEMENTS) REIMBURSEMENTS) RATE
----------- ---------- ----------------- ----------------- ----------------- ----------
<S> <C> <C> <C> <C> <C> <C>
--------------------
CAPITAL GROWTH FUND
--------------------
INVESTOR SHARES
1996.............. $191,078 1.80% 0.24% 2.08% (0.04%) 156.46%
1995.............. 160,875 1.80% 0.73% 2.10% 0.43% 127.79%
1994.............. 170,795 1.80% 0.64% 2.11% 0.33% 123.87%
1993 (1).......... 131,858 1.80%* 0.81%* 2.06%* 0.55%* 95.02%
-------------------------
VALUE INCOME STOCK FUND
-------------------------
INVESTOR SHARES
1996.............. $130,597 1.30% 2.47% 1.37% 2.40% 133.99%
1995.............. 92,256 1.30% 2.80% 1.41% 2.69% 125.71%
1994.............. 60,589 1.25% 2.80% 1.44% 2.61% 149.28%
1993 (2).......... 24,779 1.15%* 4.51%* 1.63%* 4.04%* 34.71%
---------------------
MID-CAP EQUITY FUND
---------------------
INVESTOR SHARES
1996.............. $ 17,971 1.60% 0.25% 1.96% (0.11%) 115.62%
1995.............. 7,345 1.60% 0.43% 2.27% (0.24%) 65.63%
1994 (3).......... 3,004 1.60%* 0.74%* 4.60%* (2.26%)* 7.99%
---------------
BALANCED FUND
---------------
INVESTOR SHARES
1996.............. $ 4,896 1.25% 2.70% 1.89% 2.06% 154.63%
1995.............. 3,765 1.25% 3.17% 1.80% 2.62% 156.61%
1994 (4).......... 2,311 1.25%* 2.46%* 4.91%* (1.20%)* 105.65%
--------------------
SUNBELT EQUITY FUND
--------------------
INVESTOR SHARES
1996.............. $ 29,002 1.60% (0.79%) 1.93% (1.12%) 106.27%
1995.............. 22,180 1.60% (0.57%) 1.98% (0.95%) 80.03%
1994 (4).......... 16,077 1.60%* (0.63%)* 2.04%* (1.07%)* 21.42%
</TABLE>
<PAGE>
6
FINANCIAL HIGHLIGHTS CONTINUED
<TABLE>
<CAPTION>
NET ASSET DISTRIBUTIONS
VALUE NET NET REALIZED AND FROM NET DISTRIBUTIONS NET ASSET
BEGINNING INVESTMENT UNREALIZED GAINS INVESTMENT FROM REALIZED VALUE END TOTAL
OF PERIOD INCOME ON INVESTMENTS INCOME CAPITAL GAINS OF PERIOD RETURN
--------- ---------- ----------------- ------------- ------------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
------------------------------
INTERNATIONAL EQUITY INDEX FUND
------------------------------
INVESTOR SHARES
1996.............. $10.20 $ 0.05 $ 0.85 $ (0.13) $ (0.09) $ 10.88 8.90%
1995 (5).......... 10.00 0.05 0.17 (0.01) (0.01) 10.20 2.18%+
-------------------------
INTERNATIONAL EQUITY FUND
-------------------------
INVESTOR SHARES
1996 (6).......... $10.44 $ 0.04 $ 0.90 -- -- $ 11.38 9.00%+
<CAPTION>
RATIO OF NET
INVESTMENT INCOME
RATIO OF EXPENSES (LOSS) TO AVERAGE
NET ASSETS RATIO OF RATIO OF NET TO AVERAGE NET NET ASSETS
END OF EXPENSES INVESTMENT INCOME ASSETS (EXCLUDING (EXCLUDING PORTFOLIO
PERIOD TO AVERAGE TO AVERAGE NET WAIVERS AND WAIVERS AND TURNOVER
(000) NET ASSETS ASSETS REIMBURSEMENTS) REIMBURSEMENTS) RATE
----------- ---------- ----------------- ----------------- ----------------- ----------
<S> <C> <C> <C> <C> <C> <C>
------------------------------
INTERNATIONAL EQUITY INDEX FUND
------------------------------
INVESTOR SHARES
1996.............. $ 5,597 1.45% 0.48% 2.06% (0.13%) 30.46%
1995 (5).......... 3,960 1.45%* 0.67%* 2.44%* (0.32%)* 10.37%
-------------------------
INTERNATIONAL EQUITY FUND
-------------------------
INVESTOR SHARES
1996 (6).......... $ 3,448 1.81%* 1.73%* 3.14%* 0.40%* 113.34%
</TABLE>
* Annualized.
+ Cumulative since commencement of operations.
(1) The Capital Growth Fund Investor Shares Investor Shares commenced
operations on June 9, 1992.
(2) The Value Income Stock Fund Investor Shares commenced operation on February
17, 1993.
(3) The Mid-Cap Equity Fund (formerly, Aggressive Growth Fund) Investor Shares
commenced operations on February 1, 1994.
(4) The Sunbelt Equity Fund Investor Shares and the Balanced Fund Investor
Shares commenced operations on January 4, 1994.
(5) The International Equity Index Fund Investor Shares commenced operations on
June 6, 1994.
(6) The International Equity Fund commenced operations on January 2, 1996.
<PAGE>
7
PERFORMANCE INFORMATION FOR PREDECESSOR COLLECTIVE FUNDS
The International Equity, Value Income Stock Fund and Sunbelt Equity Fund are
each the successor to collective investment funds previously managed by STI
Capital Management, Inc. and Trusco Capital Management, Inc. A substantial
portion of the assets of those collective investments funds was transferred to
the Funds in connection with each Fund's commencement of operations. Set forth
below is certain performance data for the predecessor collective investment
funds, which is deemed relevant because the collective investment funds were
managed using virtually the same investment objectives, policies and
restrictions as those used by each respective Fund. The performance data,
however, is not necessarily indicative of the future performance of each Fund.
Further, the predecessor collective funds were not subject to certain investment
limitations imposed on mutual funds which, if they had been imposed, may have
adversely affected a collective fund's performance.
The predecessor collective funds did not incur expenses that correspond to the
advisory, administrative, and other fees to which each Fund is subject.
Accordingly, the following performance information has been adjusted by applying
the total expense ratios for the corresponding Fund, as disclosed in the
Prospectus at the time the Fund commenced operations, which reduced the actual
performance of the collective fund.
The average annual total returns (adjusted to reflect current Fund expenses, net
of voluntary waivers and reimbursements) for the following periods:
<TABLE>
<CAPTION>
- ------------------------------------------------------------
ONE FIVE TEN SINCE
YEAR YEARS YEARS INCEPTION
- ------------------------------------------------------------
<S> <C> <C> <C> <C>
International N/A N/A N/A 27.50%
Equity (2/1/95-
Collective Fund 11/30/95)
Value Income 15.14% N/A N/A 14.93%
Stock (ending (10/1/89-
Collective Fund 12/31/92) 12/31/92)
Sunbelt Equity 17.72% 20.71% 15.89% 16.74%
Collective (ending (12/1/80-
Fund 12/31/93 12/31/93)
</TABLE>
The average annual total returns for the Funds from inception through May 31,
1996 and for the one- and three-year periods ended May 31, 1996 were as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------
ONE THREE SINCE
YEAR YEARS INCEPTION
- --------------------------------------------------------
<S> <C> <C> <C>
International Equity
Fund* N/A N/A 12.31%
Value Income Stock
Fund** 22.62% 16.73% 17.08%
Sunbelt Equity
Fund*** 37.21% N/A 14.06%
</TABLE>
*International Equity Fund commenced operations on January 2, 1996.
**Value Income Stock Fund commenced operations on February 17, 1993.
***Sunbelt Equity Fund commenced operations on January 4, 1994.
THE TRUST
STI CLASSIC FUNDS (the "Trust") is a diversified, open-end management investment
company that provides a convenient and economical means of investing in several
professionally managed portfolios of securities. The Trust currently offers
units of beneficial interest ("shares") in a number of separate Funds.
Shareholders may purchase shares in each non-money market Fund through three
separate classes (Trust Shares, Investor Shares
<PAGE>
8
and Flex Shares) and in each Money Market Fund through two separate classes
(Trust Shares and Investor Shares), which provide for variations in distribution
and service fees, transfer agent fees, voting rights and dividends. Except for
differences between classes, each share of each Fund represents an undivided,
proportionate interest in that Fund. This Prospectus relates to the Investor
Shares of the Funds described below.
FUNDS AND INVESTMENT OBJECTIVES
THE CAPITAL GROWTH FUND seeks to provide capital appreciation by investing
primarily in a portfolio of common stocks, warrants and securities convertible
into common stock which in its Advisor's opinion are undervalued in the
marketplace at the time of purchase.
THE VALUE INCOME STOCK FUND seeks to provide current income with the secondary
goal of achieving capital appreciation by investing primarily in equity
securities.
THE MID-CAP EQUITY FUND (formerly known as the Aggressive Growth Fund) seeks to
provide capital appreciation by investing primarily in a diversified portfolio
of common stocks, preferred stocks and securities convertible into common stock
of small to mid-sized companies with above-average growth of earnings. Current
income will not be an important criterion of investment selection and any such
income should be considered incidental.
THE BALANCED FUND seeks to provide capital appreciation and current income by
investing in common and preferred stocks, warrants, securities convertible into
common stock and investment grade fixed income securities.
THE SUNBELT EQUITY FUND seeks to provide capital appreciation by investing
substantially all, and under normal market conditions at least 65%, of its
assets in common stocks, preferred stocks, warrants and securities convertible
into common stock of U.S. companies headquartered and/or conducting a
substantial portion of their operations in the southern region of the United
States. Current income will not be an important criterion of investment
selection and any such income should be considered incidental.
THE INTERNATIONAL EQUITY INDEX FUND seeks to provide investment results that
correspond to the aggregate price and dividend performance of the securities
included in the Gross Domestic Product Weighted Morgan Stanley Capital
International Europe, Australasia and Far East Index (the "MSCI EAFE-GDP Index"
or "EAFE-GDP Index").1
THE INTERNATIONAL EQUITY FUND seeks to provide long-term capital appreciation by
investing primarily in a diversified portfolio of equity securities of foreign
issuers.
There can be no assurance that a Fund will achieve its investment objective.
The investment objective of each Fund is nonfundamental and may be changed
without shareholder approval.
INVESTMENT POLICIES AND STRATEGIES
CAPITAL GROWTH FUND
The Capital Growth Fund invests primarily in a diversified portfolio of common
stocks,
- ------------------------
1 "MSCI EAFE-GDP Index" is a registered service mark of Morgan Stanley Capital
International which does not sponsor and is in no way affiliated with the
International Equity Index Fund.
<PAGE>
9
warrants, and securities convertible into common stocks which, in the Fund's
Advisor's opinion, are undervalued in the marketplace at the time of purchase.
In selecting securities for the Fund, its Advisor will evaluate factors believed
to affect capital appreciation such as the issuer's background, industry
position, historical returns on equity and experience and qualifications of the
management team. Dividend and interest income should be considered incidental to
the growth of capital. The Fund's Advisor will rotate the Capital Growth Fund's
holdings between various market sectors based on economic analysis of the
overall business cycle. Under normal conditions, at least 65% of the total
assets of the Capital Growth Fund will be invested in common stocks.
All of the common stocks in which the Fund invests are traded on registered
exchanges or on the over-the-counter market in the United States. Assets of the
Capital Growth Fund not invested in the securities described above may be
invested in U.S. dollar denominated equity securities of foreign issuers
(including sponsored American Depositary Receipts ("ADRs") that are traded on
exchanges or listed on National Association of Securities Dealers Automated
Quotations ("NASDAQ"), securities issued by money market mutual funds;
pay-in-kind securities; and bonds. The bonds that the Capital Growth Fund may
purchase may be rated in any rating category or may be unrated, provided that no
more than 10% of the Fund's total assets will be invested in bonds rated below
BBB by Standard & Poor's Corporation ("S&P") or below Baa by Moody's Investors
Service, Inc. ("Moody's") or securities not rated by S&P or Moody's and of
comparable quality (see "Investment Risks -- High Yield, Lower Rated Bonds"). In
addition, the Fund may invest up to 10% of its assets in restricted securities.
The Fund's turnover rate for the fiscal year ended May 31, 1996 was 156%. This
rate of turnover, if continued, will likely result in higher brokerage
commissions and higher levels of realized capital gains than if the turnover
rate was lower.
VALUE INCOME STOCK FUND
The Value Income Stock Fund seeks to provide current income by structuring its
investments in an attempt to maintain the Fund's yield at a level above the
average dividend yield of the securities comprising the S&P 500 Stock Index.
Achieving such a yield will be the Fund's primary consideration when purchasing
securities. A secondary consideration of the Fund will be capital appreciation.
The Fund will invest at least 80% of its total assets in equity securities.
Investments will consist primarily of common stocks, and, under normal market
conditions, at least 65% of the Fund's assets will be invested in common stocks
issued by corporations which have a history of paying regular dividends,
although there can be no assurance that such corporations will continue to pay
dividends. Other equity securities in which the Fund may invest are convertible
debt securities; preferred stocks and warrants which are convertible into or
exchangeable for common stocks; and U.S. dollar denominated equity securities of
foreign issuers (including sponsored ADRs that are traded on exchanges or listed
on NASDAQ). All of the common stocks in which the Fund invests are traded on
registered exchanges such as the New York or American Stock Exchange or on the
over-the-counter market in the United States (i.e., NASDAQ). The Fund may also
purchase debt securities (corporate debt obligations and U.S. Treasury
obligations) which may be rated in any rating category or may be unrated,
provided that no more than
<PAGE>
10
10% of the Fund's total assets will be invested in bonds rated below BBB by S&P
or below Baa by Moody's or securities not rated by S&P or Moody's and of
comparable quality. The Fund may also invest in futures and options.
The Fund will invest primarily in stocks of companies operating in all aspects
of the U.S. and world economies that have a market capitalization of at least
$500 million, and that the Fund's Advisor believes possess fundamentally
favorable long-term characteristics. However, stocks of companies with smaller
market capitalizations and stocks that are out of favor in the financial
community and in which little opportunity for price appreciation is recognized
by the financial community may also be purchased if the Fund's Advisor believes
they are undervalued.
The Fund's turnover rate for the fiscal year ended May 31, 1996 was 134%. This
rate of turnover, if continued, will likely result in higher brokerage
commissions and higher levels of realized capital gains than if the turnover
rate was lower.
MID-CAP EQUITY FUND
The Mid-Cap Equity Fund invests primarily in a diversified portfolio of common
stocks, preferred stocks, and securities convertible into common stocks of small
to mid-size companies, (i.e., $50 million to $1 billion and $500 million to $5
billion, respectively, as measured by their market capitalization), with
above-average growth of earnings. Under normal conditions, at least 80% of the
total assets of the Fund will be invested in equity securities and as a matter
of non-fundamental policy, the Fund will invest at least 65% of its assets in
mid-size companies. Current income will not be an important criterion of
investment selection and any such income should be considered incidental. In
selecting securities for the Fund, the Fund's Advisor will evaluate factors such
as the issuer's background, industry position, historical returns on equity and
experience and qualifications of the management team.
Most of the common stocks in which the Fund invests are traded on registered
exchanges or on the over-the-counter market in the United States. Assets of the
Fund not invested in the securities described above may be invested in U.S.
dollar denominated equity securities of foreign issuers (including sponsored
ADRs that are traded on exchanges or listed on NASDAQ); securities issued by
mutual funds; repurchase agreements; and bonds. The bonds that the Fund may
purchase, including any variable or floating rate instruments, must be rated B
or better by S&P or Moody's, provided that this requirement shall not apply to
the Fund's purchase of bonds issued by the government of Canada or by various
supranational entities, and provided further that no more than 10% of the Fund's
total assets will be invested in bonds rated below BBB by S&P or below Baa by
Moody's or securities not rated by S&P or Moody's that are of comparable
quality. The Fund may invest up to 10% of its assets in restricted securities.
The Fund's turnover rate for the fiscal year ended May 31, 1996 was 116%. This
rate of turnover, if continued, will likely result in higher brokerage
commissions and higher levels of realized capital gains than if the turnover
rate was lower.
SUNBELT EQUITY FUND
The Sunbelt Equity Fund seeks to provide capital appreciation by investing
substantially all, and under normal market conditions at least 65%, of its
assets in common stocks; preferred stocks; warrants; and securities convertible
into common stock of U.S. companies
<PAGE>
11
headquartered and/or conducting a substantial portion of their operations in
(i.e., maintaining at least 50% of their assets in or deriving at least 50% of
their revenues and/or sales from) the southern region of the United States.
Current income will not be an important criterion of investment selection and
any such income should be considered incidental. The Fund's Advisor will seek to
identify and purchase securities of companies that it believes to be undervalued
and that possess a strong balance sheet, a strong earnings record and adequate
market liquidity.
Most of the common stocks in which the Fund invests are traded on registered
exchanges such as the New York or American Stock Exchange or on NASDAQ. The Fund
will invest no more than 10% of its assets in convertible securities rated lower
than BBB. (See "Investment Risks -- High Yield, Lower Rated Bonds.") The Fund
may invest up to 10% of its total assets in restricted securities. The Fund may
also purchase futures and options for hedging purposes. Obligations relating to
futures contracts will be limited to not more than 20% of the Fund's total
assets.
The Fund will invest primarily in stocks of U.S. companies headquartered and/or
operating in the following U.S. states: Texas, Arkansas, Alabama, Mississippi,
Tennessee, Kentucky, Florida, Virginia, Georgia, North Carolina, South Carolina
and Louisiana. To the extent that the Fund's investments are not as
geographically dispersed across the U.S. as other funds with comparable
objectives, the impact of economic forces on and the relative economic
conditions of these states will be greater on shareholders.
The Fund's turnover rate for the fiscal year ended May 31, 1996 was 106%. This
rate of turnover, if continued, will likely result in higher brokerage
commissions and higher levels of realized capital gains than if the turnover
rate was lower.
BALANCED FUND
The Balanced Fund seeks to provide capital appreciation and current income
through investments in a diversified portfolio of common and preferred stocks,
warrants, securities convertible into common stocks, and investment grade fixed
income securities. Under normal conditions, no more than 70% of the total assets
of the Fund will be invested in common stocks and other equity securities, and
no more than 60% of the Fund's total assets will be invested in bonds and other
fixed income securities. The Fund will maintain at least 25% of its total assets
in senior fixed income securities.
In selecting equity securities for the Fund, the Fund's Advisor will evaluate
factors believed to affect capital appreciation such as the issuer's background,
industry position, historical returns on equity and experience and
qualifications of the management team. The Fund's Advisor will rotate the Fund's
holdings between various market sectors based on economic analysis of the
overall business cycle.
All of the common stocks in which the Fund invests are traded on registered
exchanges or on NASDAQ. Assets of the Fund not invested in the securities
described above may be invested in U.S. dollar denominated equity securities of
foreign issuers (including sponsored ADRs that are traded on exchanges or listed
on NASDAQ), securities issued by investment companies, and bonds.
The Fund will invest in investment grade fixed income securities rated BBB or
better by S&P or Baa or better by Moody's or, if not rated by S&P or Moody's, of
comparable quality at the
<PAGE>
12
time of purchase as determined by the Fund's Advisor, including corporate debt
obligations; mortgage-backed securities, collateralized mortgage obligations and
asset-backed securities; obligations issued or guaranteed as to principal and
interest by the U.S. Government, its agencies or instrumentalities; custodial
receipts involving U.S. Treasury obligations; securities of the government of
Canada and its provincial and local governments; securities issued or guaranteed
by foreign governments, their political subdivisions, agencies or
instrumentalities; and obligations of supranational entities. No more than 25%
of the Fund's assets will be invested in securities rated BBB by S&P or Baa by
Moody's or, if not rated by S&P or Moody's, of comparable quality at the time of
purchase as determined by the Fund's Advisor.
The Fund may purchase mortgage-backed securities issued or guaranteed as to the
payment of principal and interest by the U.S. Government, its agencies or
instrumentalities or, subject to a limit of 25% of the Fund's assets,
mortgage-backed securities issued by private issuers. These mortgage-backed
securities may be backed or collateralized by fixed, adjustable or floating rate
mortgages. The Fund may also invest in asset backed securities which consist of
securities backed by company receivables, truck and auto loans, leases, credit
card receivables and home equity loans.
In order to reduce interest rate risk, the Fund may purchase floating or
variable rate securities. It may also buy securities on a when-issued basis,
putable securities, pay-in-kind securities and zero coupon securities. The Fund
may also invest futures and options. Some floating or variable rate securities
will be subject to interest rate "caps" or "floors."
The Balanced Fund's turnover rate for the fiscal year ended May 31, 1996 was
148% for the equity portion of its portfolio and 164% for the fixed income
portion of its portfolio. These rates of turnover if continued will likely
result in higher transaction costs and brokerage commissions and higher levels
of realized capital gains than if the turnover rate was lower.
INTERNATIONAL EQUITY INDEX FUND
The Fund will invest substantially all and, under normal market conditions, at
least 65% of its assets in common and preferred stocks; warrants; options; and
securities convertible into common stock of companies headquartered or based in
the approximately twenty foreign countries included in the EAFE-GDP Index. The
Fund will invest only in the 1088 or so companies included in the EAFE-GDP
Index. Because it is impractical to invest in every company included in the
Index, the Fund will select a representative sample of securities in each
country using a statistically-based optimization process. Morgan Stanley & Co.
Incorporated maintains the optimization computer programs which will be utilized
to select companies within each country.
The Fund will be constructed to have aggregate investment characteristics
similar to those of the EAFE-GDP Index. The Fund will invest in a statistically
selected sample of the securities included in the EAFE-GDP Index, although not
all countries nor all companies within a country will be represented in the
Fund's portfolio of securities at any time. The Fund expects to invest in
approximately 300 stocks so that the results fall within a targeted tracking
error range. From time to time, adjustments may be made in the Fund's portfolio
because of changes in the composition of the EAFE-GDP Index. No attempt will be
made to manage the portfolio using traditional economic, financial and market
analyses.
<PAGE>
13
The Fund expects that there will be a close correlation between the Fund's
performance and that of the EAFE-GDP Index. A 1.00 correlation would indicate
perfect correlation, which would be achieved when the net asset value of the
Fund, including the value of its dividend and capital gains distributions,
increases or decreases in exact proportion to changes in the EAFE-GDP Index. The
correlation between the Fund and the EAFE-GDP Index is expected to be over 0.95
on an annual basis. The Fund's ability to track the EAFE-GDP Index, however, may
be affected by, among other things, transaction costs, changes in either the
composition of the EAFE-GDP Index or number of shares outstanding for the
component companies of the EAFE-GDP Index, and the timing and amount of
purchases and redemptions.
Securities of foreign issuers purchased by the Fund may be purchased in foreign
markets, on United States registered exchanges, the over-the-counter market or
in the form of sponsored or unsponsored ADRs traded on registered exchanges or
NASDAQ, or sponsored or unsponsored European Depositary Receipts ("EDRs").
The Fund may enter into forward foreign currency contracts as a hedge against
possible variations in foreign exchange rates. A forward foreign currency
contract is a commitment to purchase or sell a specified currency, at a
specified future date, at a specified price. The Fund may enter into forward
foreign currency contracts to hedge a specific security transaction or to hedge
a portfolio position. These contracts may be bought or sold to protect the Fund,
to some degree, against a possible loss resulting from an adverse change in the
relationship between foreign currencies and the U.S. dollar.
The Fund expects to be fully invested in the investments described above, but
may invest up to 35% of its total assets in U.S. and non-U.S. denominated money
market instruments; repurchase agreements; futures contracts, including stock
index futures contracts; and options on futures contracts. Obligations relating
to futures contracts will be limited to 20% of the Fund's total assets. The Fund
is also permitted to acquire floating and variable rate securities; purchase
securities on a when-issued basis; and purchase illiquid securities.
INTERNATIONAL EQUITY FUND
The Fund under normal market conditions will invest at least 65% of its assets
in equity securities of foreign issuers consisting of: common and preferred
stocks, warrants, options and securities convertible into common stock.
Securities of foreign issuers purchased by the Fund may be purchased in foreign
markets, on United States registered exchanges, the over-the-counter market or
in the form of sponsored or unsponsored American Depositary Receipts ("ADRs")
traded on registered exchanges or NASDAQ, or sponsored or unsponsored European
Depositary Receipts ("EDRs").
The Fund may enter into forward foreign currency contracts as a hedge against
possible variations in foreign exchange rates. A forward foreign currency
contract is a commitment to purchase or sell a specified currency, at a
specified future date, at a specified price. The Fund may enter into forward
foreign currency contracts to hedge a specific security transaction or to hedge
a portfolio position. The Fund also may purchase and write put and call options
on foreign currencies (traded on U.S. and foreign exchanges or over-the-counter
markets) to manage the portfolio's exposure to changes in dollar exchange rates.
<PAGE>
14
The Fund expects to be fully invested in the investments described above, but
may invest up to 35% of its total assets in bonds and debentures issued by
non-U.S. or U.S. companies, securities issued or guaranteed by foreign or U.S.
governments and foreign and U.S. commercial paper. The Fund may invest in
futures contracts, including stock index futures contracts, and options on
futures contracts. The bonds that the Fund may purchase may be rated in any
rating category or may be unrated provided that no more than 10% of the Fund's
total assets will be rated below BBB by S&P or below Baa by Moody's or
securities not rated by S&P or Moody's that are of comparable quality (see
"Investment Risks -- High Yield, Lower Rated Bonds"). When investing in bonds,
the Fund may seek capital gains by taking advantage of price appreciation caused
by interest rate and credit quality changes. The Fund may also purchase shares
of closed-end investment companies that invest in the securities of issuers in a
single country or region. The Fund is also permitted to acquire floating and
variable rate securities, purchase securities on a when-issued basis and
purchase illiquid securities.
The Fund will invest in the foreign issues of at least three different countries
outside the United States. A foreign issue is one the issuer of which (1) is
organized under the laws of a specific country, (2) for which the principal
securities trading market is in a specific country or (3) derives a significant
proportion (at least 50 percent) of its revenues or profits from goods produced
or sold, investments made, or services performed in a specific country or which
have at least 50 percent of its assets situated in that country. The Fund will
invest primarily in developed countries (for example Japan, Canada and the
United Kingdom). In addition, the Fund may invest in securities of issuers whose
principal activities are in countries with emerging markets. The Fund defines an
emerging market country as any country the economy and market of which the World
Bank or the United Nations considers to be emerging or developing.
The Fund's turnover rate for the fiscal year ended May 31, 1996 was 113%. This
rate of turnover, if continued, will likely result in higher brokerage
commissions and higher levels of realized capital gains than if the turnover
rate was lower.
GENERAL INVESTMENT POLICIES AND STRATEGIES
For temporary defensive purposes, during periods when its Advisor determines
that market conditions warrant, each Fund may hold a portion of its assets in
cash and invest up to 100% of its assets in money market instruments consisting
of: securities issued or guaranteed as to principal and interest by the U.S.
Government, its agencies or instrumentalities; custodial receipts involving U.S.
Treasury obligations; repurchase agreements; certificates of deposit; bankers'
acceptances; time deposits issued by banks or savings and loan associations; and
commercial paper rated in the highest rating category. A Fund may not be
pursuing its investment objective when it is engaged in temporary defensive
investing.
Each Fund, except the International Equity Index Fund, may purchase restricted
securities, including Rule 144A securities, that its respective Advisor
determines are liquid pursuant to guidelines established by the Trust's Board of
Trustees.
In the event that a security owned by a Fund is downgraded below the stated
rating categories, its Advisor will review and take appropriate action with
regard to the security.
<PAGE>
15
Each Fund may borrow money for temporary or emergency purposes in an amount not
to exceed one-third of the value of its total assets. A Fund may not purchase
additional securities while its outstanding borrowings exceed 5% of its assets.
Each Fund may purchase securities issued by money market mutual funds. A Fund's
purchase of shares of other investment companies is limited by the Investment
Company Act of 1940 (the "1940 Act") and will ordinarily result in an additional
layer of charges and expenses.
Each of the Funds may engage in securities lending and will limit such practice
to 33 1/3% of its total assets.
It is a non-fundamental policy of each Fund to invest no more than 15% of its
net assets in illiquid securities. An illiquid security is a security which
cannot be disposed of in the usual course of business within seven days at a
price approximating its carrying value.
For additional information regarding permitted investments, see "Description of
Permitted Investments" in this Prospectus and in the Statement of Additional
Information.
INVESTMENT RISKS
EQUITY SECURITIES
Investments in equity securities are generally subject to market risks that may
cause their prices to fluctuate over time. The values of convertible equity
securities are also affected by prevailing interest rates, the credit quality of
the issuer and any call provision. Fluctuations in the value of equity
securities in which a Fund invests will cause the net asset value of the Fund to
fluctuate.
FIXED INCOME SECURITIES
The market value of a Fund's fixed income investments will change in response to
interest rate changes and other factors. During periods of falling interest
rates, the values of outstanding fixed income securities generally rise.
Conversely, during periods of rising interest rates, the values of such
securities generally decline. Securities with longer maturities are subject to
greater fluctuations in value than securities with shorter maturities. Changes
by a nationally recognized statistical rating organization ("NRSRO") to the
rating of any fixed income security and in the ability of an issuer to make
payments of interest and principal also affect the value of these investments.
Changes in the value of a Fund's securities will not affect cash income derived
from these securities but will affect the Fund's net asset value.
There is a risk that the current interest rate on floating and variable rate
instruments may not accurately reflect existing market interest rates.
Fixed income securities rated BBB by S&P or Baa by Moody's (the lowest rating of
investment grade bonds) are deemed by these rating services to have speculative
characteristics.
FOREIGN SECURITIES AND FOREIGN CURRENCY CONTRACTS
Investing in the securities of foreign companies and the utilization of forward
foreign currency contracts involve special risks and considerations not
typically associated with investing in U.S. companies. These risks and
considerations include differences in accounting, auditing and financial
reporting standards, generally higher commission rates on foreign portfolio
transactions, the possibility of expropriation or confiscatory taxation,
<PAGE>
16
adverse changes in investment or exchange control regulations, political
instability which could affect U.S. investment in foreign countries and
potential restrictions of the flow of international capital and currencies.
Foreign companies may also be subject to less government regulation than U.S.
companies. Moreover, the dividends payable on the foreign securities may be
subject to foreign withholding taxes, thus reducing the net amount of income
available for distribution to a Fund's Shareholders. Further, foreign securities
often trade with less frequency and volume than domestic securities and,
therefore, may exhibit greater price volatility. Changes in foreign exchange
rates will affect, favorably or unfavorably, the value of those securities which
are denominated or quoted in currencies other than the U.S. dollar.
By entering into forward foreign currency contracts, the International Equity
Index Fund and International Equity Fund will seek to protect the value of its
respective investment securities against a decline in the value of a currency.
However, these forward foreign currency contracts will not eliminate
fluctuations in the underlying prices of the securities. Rather, they simply
establish a rate of exchange which one can obtain at some future point in time.
Although such contracts tend to minimize the risk of loss due to a decline in
the value of the hedged currency, they tend to limit any potential gain which
might result should the value of such currency increase.
HIGH YIELD, LOWER RATED BONDS
A Fund's investments in high yield, lower rated bonds ("junk bonds") involve
greater risk of default or price declines than investments in investment grade
securities (E.G., securities rated BBB or higher by S&P or Baa or higher by
Moody's) due to changes in the issuer's creditworthiness. The market for high
risk, high yield securities may be thinner and less active, causing market price
volatility and limited liquidity in the secondary market. This may limit the
ability of a Fund to sell such securities at their fair market value either to
meet redemption requests or in response to changes in the economy or the
financial markets. Market prices for high risk, high yield securities may also
be affected by investors' perception of the issuer's credit quality and the
outlook for economic growth. Thus, prices for high risk, high yield securities
may move independently of interest rates and the overall bond market. In
addition, the market for high risk, high yield securities may be adversely
affected by legislative and regulatory developments.
MORTGAGE-BACKED SECURITIES
Mortgage-backed securities are subject to the risk of prepayment of the
underlying mortgages. During periods of declining interest rates, prepayment of
mortgages underlying these securities can be expected to accelerate. When the
mortgage-backed securities held by the Balanced Fund are prepaid, the Balanced
Fund generally will reinvest the proceeds in securities with a yield that
reflects prevailing interest rates, which may be lower than the prepaid
security.
ZERO COUPON OBLIGATIONS
Zero coupon obligations are sold at original issue discount and do not make
periodic payments. Zero coupon obligations may be subject to greater fluctuation
in value due to interest rate changes than interest bearing obligations. A Fund
will be required to include the imputed interest in zero coupon obligations in
its current income. Because each Fund distributes all of its net investment
income to Shareholders, a Fund may have to sell portfolio
<PAGE>
17
securities to distribute the income attributable to these obligations and
securities at a time when its Advisor would not have chosen to sell such
obligations or securities and which may result in a taxable gain or loss.
INVESTMENT LIMITATIONS
The following investment limitations constitute fundamental policies of each
Fund. Fundamental policies cannot be changed with respect to a Fund without the
consent of the holders of a majority of the Fund's outstanding shares. The term
"majority of the outstanding shares" means the vote of (i) 67% or more of a
Fund's shares present at a meeting, if more than 50% of the outstanding shares
of the Fund are present or represented by proxy, or (ii) more than 50% of a
Fund's outstanding shares, whichever is less.
Each Fund may not:
1. Purchase securities of any issuer (except securities issued or
guaranteed by the United States, its agencies or instrumentalities and
repurchase agreements involving such securities) if as a result more than 5% of
the total assets of a Fund would be invested in the securities of such issuer;
provided, however, that a Fund may invest up to 25% of its total assets without
regard to this restriction as permitted by applicable law.
2. Purchase any securities which would cause more than 25% of the total
assets of a Fund to be invested in the securities of one or more issuers
conducting their principal business activities in the same industry, provided
that this limitation does not apply to investments in obligations issued or
guaranteed by the U.S. Government or its agencies and instrumentalities,
repurchase agreements involving such securities or tax-exempt securities issued
by governments or political subdivisions of governments. For purposes of this
limitation, (i) utility companies will be divided according to their services,
for example, gas, gas transmission, electric and telephone will each be
considered a separate industry; (ii) financial service companies will be
classified according to the end users of their services, for example, automobile
finance, bank finance and diversified finance will each be considered a separate
industry; and (iii) supranational entities will be considered to be a separate
industry.
The foregoing percentages will apply at the time of the purchase of a security.
Additional investment limitations are set forth in the Statement of Additional
Information.
PERFORMANCE INFORMATION
From time to time, the Funds may advertise performance (total return and yield).
These figures will be historical and are not intended to indicate future
performance. The yield of a Fund refers to the annualized income generated by an
investment in that Fund over a specified 30-day period. The yield is calculated
by assuming that the income generated by the investment during that period is
generated over one year and is shown as a percentage of the investment.
The total return of a Fund refers to the average compounded rate of return on a
hypothetical investment, including any sales charge imposed, for designated time
periods (including but not limited to, the period from which a Fund commenced
operations through the specified date), assuming that the entire investment is
redeemed at the end of each period and assuming the reinvestment of all dividend
and capital gains distributions.
The performance of the Trust's Investor Shares and Flex Shares will normally be
lower than for Trust Shares because Investor Shares and Flex Shares are subject
to distribution, service and
<PAGE>
18
certain transfer agent fees not charged to Trust Shares. Because of their
differing distribution expense arrangements, the performance of Flex Shares in
comparison to Investor Shares will vary depending upon the investor's investment
time horizon.
Each Fund may periodically compare its performance to other mutual funds tracked
by mutual fund rating services, to broad groups of comparable mutual funds or to
unmanaged indices which may assume reinvestment of dividends but generally do
not reflect deductions for administrative and management costs.
FUNDLINK
All purchases and redemptions of Investor Shares may be completed via FUNDLINK,
a telephone activated service that allows Shareholders to transfer money between
the STI Classic Funds and a Shareholder's SunTrust bank account(s). To initiate
a FUNDLINK transaction, Shareholders are provided a toll-free telephone number
(1-800-428-6970) to call the Trust's transfer agent. To utilize this service, a
Shareholder must contact an Investment Consultant of a SunTrust Banks, Inc.
affiliate bank and complete the appropriate application and authorization
agreements.
PURCHASE OF FUND SHARES
Investor Shares are sold on a continuous basis and may be purchased by
contacting the Trust's transfer agent, Federated Services Company (the "Transfer
Agent"), either by mail, by telephone or by wire. Investor Shares may also be
purchased through Investment Consultants of SunTrust Securities, Inc. which
serves as Shareholder Servicing Agents to the Trust. Furthermore, Investor
Shares may be purchased through certain correspondent banks of SunTrust Banks,
Inc. or other financial institutions who have executed dealer sales agreements.
Shares may be purchased on days on which the New York Stock Exchange is open for
business (a "Business Day").
A purchase order for any of the Funds will be effective as of the Business Day
it is received by the Transfer Agent if the Transfer Agent receives the order
before 4:00 p.m. Eastern time. Purchases will be made in full and fractional
shares of the Trust calculated to three decimal places. All purchases made by
check should be in U.S. dollars and made payable to "STI Classic Funds (Fund
Name)." Third party checks, credit cards, credit card checks and cash will not
be accepted. When purchases are made by check, redemptions will not be allowed
until the investment being redeemed has been in the account for 15 Business
Days. Purchases by mail are considered received after payment by check is
converted into federal funds. The purchase price of shares of a Fund is the net
asset value next determined after a purchase order is effective plus any
applicable sales charge (the "offering price"). The net asset value per share of
a Fund is determined by dividing the total market value of the Fund's
investments and other assets, less any liabilities, by the total outstanding
shares of the Fund. Net asset value per share is determined daily as of close of
business of the New York Stock Exchange (currently 4:00 p.m. Eastern time) on
any Business Day. Pursuant to guidelines established by the Trustees, the Trust
may use a pricing service to provide market quotations or valuations for
securities owned by each Fund.
Minimum initial and subsequent purchase amounts, respectively, for each Fund are
$2,000 and $1,000 ($100 via statement coupon). Purchases made pursuant to the
<PAGE>
19
Systematic Investment Plan (described below) are subject to lower minimum
initial and subsequent purchase amounts. Employees and their immediate family
members (spouses and children under age 21) of SunTrust Banks, Inc. and its
affiliates may establish accounts with a minimum initial purchase amount of
$1,000. The minimum initial purchase amount for retirement plans is $2,000.
These minimums may be waived at the Distributor's discretion.
Financial institutions may impose an earlier cut-off time for receipt of
purchase orders directed through them to allow for processing and transmittal of
these orders to the Transfer Agent for effectiveness the same day.
The Trust reserves the right to reject a purchase order when the Distributor
determines that it is not in the best interest of the Trust and/or
Shareholder(s).
The Trust maintains procedures, including identification methods and other
means, for ascertaining the identity of callers and authenticity of
instructions. If reasonable procedures are not employed, the Trust and/or the
Transfer Agent may be liable for any losses due to unauthorized or fraudulent
telephone transactions. Neither the Transfer Agent nor the Trust will be
responsible for any loss, liability, cost or expense for acting upon telephone
or wire instructions reasonably believed to be genuine.
Shares of the Funds are offered only to residents of states in which the shares
are eligible for purchase. Investors in certain states may be required to
purchase shares through institutions registered as broker/dealers in such
states.
Although the methodology and procedures for calculating the net asset value of
Investor Shares are identical to those for Trust Shares and Flex Shares, the net
asset value per share of the classes may differ because of the distribution and
certain transfer agent expenses charged to Investor Shares and Flex Shares.
SYSTEMATIC INVESTMENT PLAN
Shares of each Fund may be purchased systematically through deductions from
checking or savings accounts maintained through SunTrust Banks, Inc. affiliate
banks. Investors may purchase shares on a fixed schedule (semi-monthly or
monthly) with amounts from $100 up to $100,000. The Systematic Investment Plan
is subject to account minimum initial purchase and subsequent amounts of $500
and $50 and minimum maintained balance requirements. The purchases will be
effective on the Business Day that the Transfer Agent receives the transmission.
SALES CHARGE INFORMATION
The following schedule applies to the purchase of Investor Shares of a Fund:
<TABLE>
<CAPTION>
AMOUNT OF
SALES CHARGE SALES CHARGE SALES CHARGE
AS A AS A REALLOWED TO
PERCENTAGE PERCENTAGE OF DEALERS AS A
OF OFFERING NET AMOUNT % OF OFFERING
PRICE INVESTED PRICE*
------------------ ------------------- -----------------
<S> <C> <C> <C>
Less than $100,000...................... 3.75% 3.90% 3.375%
$100,000 but less than $250,000......... 3.25% 3.36% 2.925%
$250,000 but less than $1,000,000....... 2.50% 2.56% 2.250%
$1,000,000 and higher................... 1.50% 1.52% 1.350%
</TABLE>
* The entire sales charge will be reallowed to dealers affiliated with the
Advisers and their affiliates. Dealers who receive more than 90% of the sales
charge may be considered underwriters for purposes of the Securities Act of
1933.
<PAGE>
20
Employees and their immediate family members (spouses and children under age 21)
of SunTrust Banks, Inc. and its affiliates, as well as persons investing
distributions from qualified employee benefit retirement plans or rollovers from
Individual Retirement Accounts ("IRAs") previously established with a SunTrust
Banks, Inc. affiliate bank trust department, will be exempt from sales charges
in purchasing Investor Shares.
When accounts for which a subsidiary bank of SunTrust Banks, Inc. has acted in a
fiduciary, administrative, custodial or investment advisory capacity are closed
and Investor Shares purchased, the Investor Shares that are purchased in an
amount equal to or lesser than the value of the account distribution will be
exempt from sales charges. Any subsequent purchases will be subject to the
applicable sales charge.
Purchases of STI Classic Funds Investor Shares and/or Trust Shares through a
SunTrust Securities, Inc. asset allocation account will be exempt from sales
charges.
RIGHTS OF ACCUMULATION
In calculating the sales charge rates applicable to current purchases of a
Fund's Investor Shares by a "single purchaser," the Trust will cumulate current
purchases at the offering price with the current market value of previously
purchased Investor Shares of any Trust's non-Money Market Funds ("Eligible
Funds") which are sold subject to a sales charge.
The term "single purchaser" refers to (i) an individual, (ii) an individual and
spouse purchasing shares of an Eligible Fund for their own account or for trust
or custodial accounts for their minor children, or (iii) a fiduciary purchasing
for any one trust, estate or fiduciary account, including employee benefit plans
created under Sections 401 or 457 of the Internal Revenue Code of 1986, as
amended, including related plans of the same employer. Furthermore, under this
provision, purchases by a "single purchaser" shall include purchases by an
individual for his/her own account in combination with (i) purchases of that
individual and spouse for their joint account or for trust and custodial
accounts for their minor children and (ii) purchases of that individual's spouse
for his/her own account. To be entitled to a reduced sales charge based upon
shares already owned, the investor must ask the Distributor for such reduction
at the time of purchase and provide the account number(s) of the investor, the
investor and spouse, and their children (under age 21), and give the ages of
such children. The Funds may amend or terminate this right of accumulation at
any time as to subsequent purchases.
LETTER OF INTENT
By submitting a Letter of Intent to the Transfer Agent, a "single purchaser" may
purchase shares of an Eligible Fund during a 13-month period at the reduced
sales charge rates applicable to the aggregate amount of the intended purchases
stated in the Letter. The Letter may apply to purchases made up to 90 days
before the date of the Letter. The purchase price for these prior trades will
not be adjusted.
A written Letter of Intent provided to the Transfer Agent, is not legally
binding on the signer or a Fund, and provides for the holding in escrow by the
transfer agent of 3.75% of the total amount intended to be purchased until such
purchase is completed within the 13-month period. A Letter of Intent may be
dated to include shares purchased up to 90 days prior to the date the Letter is
signed. The 13-month period begins on the date of the earliest purchase. If the
intended
<PAGE>
21
investment is not completed, the Transfer Agent will surrender an appropriate
number of the escrowed shares for redemption in order to realize the difference
between the sales charge on the shares purchased at the reduced rate and the
sales charge otherwise applicable to the total shares purchased.
COMBINED PURCHASE/QUANTITY DISCOUNT PRIVILEGE
The Trust will combine purchases of Investor Shares of Eligible Funds made on
the same day by the investor, his/her spouse, and his/her children under age 21
when calculating the sales charge. This combination may also apply to purchases
made pursuant to a Letter of Intent. Purchases made by such persons over a
13-month period could thus qualify the entire purchase for a reduced sales
charge.
SPECIAL DIVIDEND SERVICES
Dividend distributions made by a Fund can be automatically reinvested in any one
Fund of the Trust without a sales charge, subject to account minimum initial
purchase amounts and minimum maintained balance requirements.
REPURCHASE OF FUND SHARES
Investor Shares of a Fund may be purchased at their net asset value if Investor
Shares sold subject to a sales charge were redeemed from a Fund within the past
60 days. The amount which may be reinvested is limited to an amount up to but
not exceeding the redemption proceeds. In order to exercise this privilege, a
written order for the purchases must be received by the Transfer Agent within 60
days after the redemption. It is the responsibility of the investor to notify
the Transfer Agent that the investor is repurchasing Investor Shares at the time
of the transaction.
REDEMPTION OF FUND SHARES
Shareholders may redeem their Investor Shares without charge on any day that net
asset value is calculated. Investor Shares may ordinarily be redeemed by mail or
telephone request to the Transfer Agent.
However, all or part of a shareholder's holdings of Investor Shares may be
redeemed in accordance with instructions and limitations pertaining to his or
her account. Redemption orders must be received by the Transfer Agent before
4:00 p.m. Eastern time on any Business Day to be effective that day. Redemption
proceeds are remitted within five Business Days following receipt of the order.
Requests for redemptions from the Funds may be placed in writing or by telephone
directly to an Investment Consultant of a SunTrust Banks, Inc. affiliate bank,
through SunTrust Securities, Inc., and through certain correspondent banks of
SunTrust Banks, Inc. (or via FUNDLINK to the Transfer Agent). Redemptions placed
via telephone or FUNDLINK (1-800-428-6970) can only be placed for a minimum of
$1,000.
Redemption proceeds can be wired, distributed by check or transferred to a
Shareholder's account via FUNDLINK. There will be a $7.00 wire charge for
redemptions processed from accounts which require wires to particular banks.
When Investor Shares are purchased by check or through Automated Clearing House
("ACH") the proceeds from the redemption of those Shares are not available, and
the Shares may not be exchanged, until the Trust or its agents are reasonably
certain that the purchase check has cleared, which could take up to 15 Business
Days.
A Shareholder may be required to redeem Investor Shares if the balance in a
Shareholder's Fund account drops below $2,000 as a result of redemptions and the
<PAGE>
22
Shareholder does not increase its balance to at least $2,000 on 60 days' written
notice. The minimum account balance for employees of SunTrust Banks, Inc. and
its affiliates is $1,000. The Trust intends to pay cash for all shares redeemed,
but under abnormal conditions which make payment in cash unwise, payment may be
made wholly or partly in liquid portfolio securities with a market value equal
to the redemption price. In such cases, an investor may incur brokerage costs in
converting such securities to cash.
Redemptions of $25,000 or greater must be in writing and a signature guarantee
must accompany the written request.
SYSTEMATIC WITHDRAWAL PLAN
A systematic withdrawal plan can be established for any Fund account with a
$10,000 minimum balance. Under the plan, redemptions can be automatically
processed (monthly, quarterly, semi-annually or annually) by check or through an
electronic transfer to a Shareholder's SunTrust Banks, Inc. affiliate bank
account with a minimum redemption amount of $50.
EXCHANGES
Some or all of the Investor Shares of the Funds for which payment has been
received (i.e., an established account) may be exchanged for Investor Shares of
other Funds within the Trust. Shares being exchanged for the first time from a
Money Market Fund into a Fund with a sales charge will be subject to the sales
charge of that Fund. Likewise, Shares being exchanged for the first time into a
Fund with a higher sales charge will be subject to an incremental sales charge.
Exchanges made from a Fund with a higher sales charge to a Fund with a lower
sales charge or a Money Market Fund are made without a sales charge.
Four exchanges may be made per calendar year. More than four exchanges in a year
may be considered an abuse of the exchange privilege. The Trust reserves the
right to charge a $10.00 fee for each exchange. A Shareholder with more than
four exchanges per year will be notified prior to the imposition of any such
fee. Exchanges may be requested through an Investment Consultant of a SunTrust
Banks, Inc. affiliate bank, SunTrust Securities, Inc. and certain correspondent
banks of SunTrust Banks, Inc., either by telephone or in writing, (or via
FUNDLINK through the Transfer Agent). The minimum exchange amount is $1,000
subject to account minimum initial purchase amounts and minimum maintained
balance requirements. This exchange offer is subject to change or termination by
the Trust upon 60 days' notice.
DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (exclusive of capital gains) are declared
and paid quarterly by each of the Funds except that dividends are declared and
paid annually by the International Equity Index Fund and International Equity
Fund. Each Fund's net realized capital gains (including net short-term capital
gains) are distributed at least annually. Net income for dividend purposes
consists of (i) interest accrued and original issue discount earned on a Fund's
assets, (ii) plus the amortization of market discount and minus the amortization
of market premium on such assets, (iii) plus dividend or distribution income on
such assets, (iv) less accrued expenses directly attributable to the Fund and
the general expenses of the Trust prorated to the Fund on
<PAGE>
23
the basis of its relative net assets. Shareholders of record on the record date
will be entitled to receive dividends.
The net asset value of Investor Shares of the Funds will be reduced by the
amount of any dividend or distribution. Dividends and distributions are paid in
the form of additional Investor Shares of the same Fund unless the customer has
elected prior to the date of distribution to receive payment in cash. Such
election, or any revocation thereof, must be made in writing prior to the date
of distribution to the Transfer Agent and will become effective with respect to
dividends paid after its receipt. Dividends and distributions are paid within
ten days of the end of the time period to which the dividend relates. Dividends
and distributions payable to a Shareholder are paid in cash within ten Business
Days after a Shareholder's complete redemption of its Investor Shares in a Fund.
TAX INFORMATION
The following summary of federal income tax consequences is based on current tax
laws and regulations, which may be changed by legislative, judicial or
administrative action. No attempt has been made to present a detailed
explanation of the federal, state or local income tax treatment of each Fund or
its Shareholders. Shareholders are urged to consult their tax advisors regarding
specific questions as to federal, state and local income taxes.
TAX STATUS OF EACH FUND:
Each Fund is treated as a separate entity for federal tax purposes, and is not
combined with the Trust's other Funds. Each Fund intends to qualify for the
special tax treatment afforded regulated investment companies by the Internal
Revenue Code of 1986, as amended, (the "Code") so that it will be relieved of
federal income tax on that part of its net investment income and net capital
gains (the excess of long-term capital gains over net short-term capital loss)
which is distributed to Shareholders. Each Fund intends to make sufficient
distributions prior to the end of each calendar year to avoid liability for the
federal excise tax applicable to regulated investment companies.
TAX STATUS OF DISTRIBUTIONS:
Each Fund will distribute substantially all of its net investment income
(including, for this purpose, net short-term capital gains) to Shareholders.
Dividends from net investment income paid by the Funds will be taxable to
Shareholders as ordinary income whether received in cash or in additional
shares. Dividends from net investment income will qualify for the dividends
received deduction for corporate Shareholders only to the extent such
distributions are derived from dividends paid by domestic corporations. Any net
capital gains will be distributed annually and will be taxed to Shareholders as
long-term capital gains, regardless of how long the Shareholder has held shares
and regardless of whether distributions are received in cash or in additional
shares. For certain individual Shareholders, net long-term capital gains may be
taxed at a lower rate than ordinary income. The Funds will make annual reports
to Shareholders of the federal income tax status of all distributions. Dividends
declared by a Fund in October, November or December of any year and payable to
Shareholders of record on a date in that month will be deemed to have been paid
by the Fund and received by the Shareholder on December 31 of that year, if paid
by the Fund at any time during the following January.
<PAGE>
24
Income derived by a Fund from obligations of foreign issuers may be subject to
foreign withholding taxes. The International Equity Index and International
Equity Funds expect to elect to treat Shareholders as having paid their
proportionate share of such foreign taxes. The other Funds will not be able to
make this election.
Income received on direct U.S. obligations is exempt from tax at the state level
when received directly by a Fund and may be exempt, depending on the state, when
received by the Shareholder as income dividends from a fund, provided certain
state-specific conditions are satisfied. Not all states permit such income
dividends to be tax exempt and some require that a certain minimum percentage of
an investment company's income be derived from state tax-exempt interest. The
Funds will inform Shareholders annually of the percentage of income and
distributions derived from direct U.S. obligations. Shareholders should consult
their tax advisors to determine whether any portion of the income dividends
received from a Fund is considered tax-exempt in their particular state.
A sale, exchange or redemption of Fund shares is a taxable event to the
Shareholder.
STI CLASSIC FUNDS INFORMATION
THE TRUST
The Trust was organized as a Massachusetts business trust under a Declaration of
Trust dated January 15, 1992. The Declaration of Trust permits the Trust to
offer separate portfolios of shares and different classes of each Fund. All
consideration received by the Trust for shares of any Fund and all assets of
such Fund belong to that Fund and would be subject to liabilities related
thereto.
The Trust pays its expenses, including fees of its service providers, audit and
legal expenses, expenses of preparing prospectuses, proxy solicitation material
and reports to Shareholders, costs of custodial services and registering the
shares under federal and state securities laws, pricing, insurance expenses,
litigation and other extraordinary expenses, brokerage costs, interest charges,
taxes and organization expenses.
BOARD OF TRUSTEES
The management and affairs of the Trust are supervised by the Trustees under the
laws governing business trusts in the Commonwealth of Massachusetts. The
Trustees have approved contracts under which, as described below, certain
companies provide essential management services to the Trust.
INVESTMENT ADVISORS
The Advisors are indirect wholly-owned subsidiaries of SunTrust Banks, Inc.
("SunTrust"), a southeastern regional bank holding company with assets of $66
billion as of December 31, 1995. SunTrust ranks among the twenty largest U.S.
banking companies. Its three principal subsidiaries--SunTrust Banks of Florida,
Inc., SunTrust Banks of Georgia, Inc. and SunTrust Banks of Tennessee, Inc.--
provide a wide range of personal and corporate banking, trust, and investment
services through more than 600 locations in the three-state area. Total
discretionary assets under management with SunTrust Banks, Inc. equalled
approximately $47 billion as of December 31, 1995.
STI Capital Management, N.A. ("STI Capital") serves as the Advisor to the
Capital Growth, Value Income, Mid-Cap Equity, Balanced and International Equity
Funds and joint advisor to
<PAGE>
25
the International Equity Index Fund. As of June 30, 1996, STI Capital had
discretionary management authority with respect to assets of approximately $11
billion. The principal business address of STI Capital is P.O. Box 3808,
Orlando, Florida 32802.
Trusco Capital Management, Inc. ("Trusco") serves as the Advisor to the Sunbelt
Equity Fund and as joint advisor to the International Equity Index Fund. As of
June 30, 1996, Trusco had approximately $13.7 billion in assets under
management. The principal business address of Trusco is 50 Hurt Plaza, Suite
1400, Atlanta, Georgia 30303.
The Trust and the above Advisors have entered into advisory agreements (the
"Advisory Agreements"). Under the Advisory Agreements, the Advisors make the
investment decisions for the assets of the Funds they advise and continuously
review, supervise and administer their Fund's respective investment program. The
Advisors discharge their responsibilities subject to the supervision of, and
policies established by, the Trustees of the Trust. STI CLASSIC FUNDS ARE NOT
DEPOSITS, ARE NOT INSURED OR GUARANTEED BY THE FDIC OR ANY OTHER GOVERNMENT
AGENCY, AND ARE NOT ENDORSED OR GUARANTEED BY AND DO NOT CONSTITUTE OBLIGATIONS
OF SUNTRUST BANKS, INC. OR ANY OF ITS AFFILIATES. INVESTMENTS IN THE FUNDS
INVOLVE RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. RETURNS AND PRINCIPAL
VALUES WILL FLUCTUATE AND SHARES AT REDEMPTION MAY BE WORTH MORE OR LESS THAN
THEIR ORIGINAL COST. THERE IS NO GUARANTEE THAT ANY STI CLASSIC FUND WILL
ACHIEVE ITS INVESTMENT OBJECTIVE. With respect to all Funds, the Advisors may
execute brokerage or other agency transactions through affiliates of the
Advisors.
For the services provided and expenses incurred pursuant to the Advisory
Agreements, STI Capital is entitled to receive advisory fees computed daily and
paid monthly at the annual rate of 1.15%, 0.95%, 1.15%, 0.80% and 1.25% of the
average daily net assets of the Capital Growth, Balanced, Mid-Cap Equity, Value
Income Stock and International Equity Funds, respectively. Trusco is entitled to
receive an advisory fee computed daily and paid monthly at the annual rate of
1.15% of the average daily net assets of the Sunbelt Equity Fund. Trusco and STI
Capital jointly are entitled to receive an advisory fee computed daily and paid
monthly at the annual rate of 0.90% of the average daily net assets of the
International Equity Index Fund.
Although the advisory fee for each Fund is higher than advisory fees paid by
other mutual funds, the Trust believes that the fee is comparable to the
advisory fee paid by many other mutual funds with similar investment objectives
and policies. From time to time, an Advisor may waive (either voluntarily or
pursuant to applicable state limitations) advisory fees payable by a Fund.
Currently, the Advisors and the Distributor have agreed to voluntary reductions
in their respective fees as well as reductions in service and distribution fees
in amounts necessary to maintain the total operating expenses at the amounts set
forth in the Expense Summary. Voluntary reductions of fees may be terminated at
any time.
For the fiscal year ended May 31, 1996, STI Capital received advisory fees
computed daily and paid monthly at the annual rate of 1.03%, 0.80%, 1.00%, 0.79%
and 1.06% of the average daily net assets of the Capital Growth, Value Income
Stock, Mid-Cap Equity, Balanced and International Equity Funds, respectively.
Trusco received an advisory fee computed daily and paid monthly at the annual
rate of 1.02% of the average daily net assets of Sunbelt Equity Fund. Trusco and
STI Capital jointly received an advisory fee computed daily and paid monthly
<PAGE>
26
at the annual rate of 0.76% of the average daily net assets of the International
Equity Index Fund.
PORTFOLIO MANAGERS
Mr. Anthony Gray has been responsible for the day-to-day management of the
Capital Growth Fund since it commenced operations. Mr. Gray has served as Chief
Executive Officer and Chief Investment Officer of STI Capital since 1979. Mr.
Gray has also been responsible for the day-to-day management of the equity
portion of the Balanced Fund since it commenced operations.
Mr. Mills Riddick, CFA, has been responsible for the day-to-day management of
the Value Income Stock Fund since April, 1995. Mr. Riddick has been a value
portfolio manager at STI Capital Management since 1989.
Mr. Elliott A. Perny has been responsible for the day-to-day management of the
Mid-Cap Equity Fund since October 1, 1996. Mr. Perny has served as Senior
Executive Vice President of STI Capital since September, 1992 and has served as
a portfolio manager with STI Capital since 1991.
Mr. L. Earl Denney, CFA, has been responsible for the day-to-day management of
the fixed income portion of the Balanced Fund since it commenced operations. Mr.
Denney has served as Executive Vice President of STI Capital since 1983.
Mr. Dan Jaworski has been responsible for the day-to-day management of the
International Equity Fund since it commenced operations. Mr. Jaworski joined STI
Capital in 1995. Prior to joining STI Capital he managed international
portfolios at Lazard Freres Asset Management from 1993 through 1994 and the
Principal Financial Group from 1988 through 1993.
Mr. James Foster has been responsible for the day-to-day management of the
Sunbelt Equity Fund since it commenced operations. Mr. Foster has served as a
Vice President of Trusco since 1989.
BANKING LAWS
Banking laws and regulations, including the Glass-Steagall Act as presently
interpreted by the Board of Governors of the Federal Reserve System, currently
(a) prohibit a bank holding company registered under the Federal Bank Holding
Company Act of 1956 or its affiliates from sponsoring, organizing, controlling,
or distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and generally prohibit banks
from underwriting securities, but (b) do not prohibit such a bank holding
company or affiliate or banks generally from acting as an investment advisor,
transfer agent, or custodian to such an investment company or from purchasing
shares of such a company as agent for and upon the order of a customer. The
Advisors believe that each may perform the services for STI Classic Funds
contemplated by their respective Advisory Agreements described in this
Prospectus without violation of applicable banking laws or regulations. However,
future changes in legal requirements relating to the permissible activities of
banks and their affiliates, as well as future interpretations of present
requirements, could prevent the Advisors from continuing to perform services for
STI Classic Funds. If the Advisors were prohibited from providing services to
STI Classic Funds, the Board of Trustees would consider selecting other
qualified firms. Any new investment advisory agreements would be subject to
Shareholder approval.
If current restrictions preventing a bank or its affiliates from legally
sponsoring, organizing,
<PAGE>
27
controlling, or distributing shares of an investment company were relaxed, the
Advisors, or their affiliates, would consider the possibility of offering to
perform additional services for STI Classic Funds. It is not possible, of
course, to predict whether or in what form such legislation might be enacted or
the terms upon which the Advisors, or such affiliates, might offer to provide
such services.
In addition, state securities laws on this issue may differ from the
interpretations of federal law expressed herein and banks and financial
institutions may be required to register as dealers pursuant to state law.
DISTRIBUTION
SEI Financial Services Company (the "Distributor"), a wholly-owned subsidiary of
SEI Corporation ("SEI"), and the Trust, are parties to a distribution agreement
(the "Distribution Agreement") dated May 29, 1992. The Investor Shares of each
Fund have a distribution plan ("Investor Plan"). The Distribution Agreement and
the Investor Plan provide that the Investor Shares of the Funds may pay a
distribution services fee to the Distributor of up to .68% of the daily net
assets of the Capital Growth Fund, .33% of the average daily net assets of the
Value Income Stock Fund, .43% of the average daily net assets of the Mid-Cap
Equity and Sunbelt Equity Funds, .28% of the average daily net assets of the
Balanced Fund and .38% of the average daily net assets of the International
Equity Index Fund and .33% of the average daily net assets of the International
Equity Fund. The Distributor will waive all or a portion of the distribution fee
in order to limit the net expenses of the Investor Shares to the amounts set
forth under "Expense Summary." The Distributor may apply this fee toward: (a)
compensation for its services in connection with distribution assistance or
provision of shareholder services; or (b) payments to financial institutions and
intermediaries such as banks (including SunTrust Banks, Inc.'s affiliate banks),
savings and loan associations, insurance companies, and investment counselors,
broker-dealers, and the Distributor's affiliates and subsidiaries as
compensation for services, reimbursement of expenses incurred in connection with
distribution assistance, or provision of Shareholder services. The Investor Plan
is characterized as a compensation plan since the distribution fee will be paid
to the Distributor without regard to the distribution or shareholder service
expenses incurred by the Distributor or the amount of payments made to financial
institutions and intermediaries. SunTrust Banks, Inc.'s affiliate banks and
certain correspondent banks may serve as shareholder servicing agents to the
Trust. A prospective investor may visit any one of the Investment Services
offices of the SunTrust Banks, Inc.'s affiliate banks, as listed on the last
pages of the Prospectus, SunTrust Securities, Inc. or certain correspondent
banks of SunTrust Banks, Inc. to receive copies of the Prospectuses for the
Investor Shares of the Trust and application forms. Trust Shares of each Fund
are offered without a sales charge or a distribution fee primarily to
institutional investors, including affiliates and correspondents for the
investment of funds in which they act in a fiduciary, agency, investment
advisory or custodial capacity. The Flex Shares of a Fund are subject to a
contingent deferred sales charge, pay a distribution services fee to the
Distributor and are also subject to a services fee for personal service and
maintenance of shareholder accounts. The contingent deferred sales charge option
of the Flex Shares provides investors with an alterntive purchase arrangement to
Investor Shares. An investor may call 1-800-874-4770 to receive more information
regarding Trust or Flex Shares. It is possible
<PAGE>
28
that a financial institution may offer different classes of shares to its
customers and thus receive different compensation with respect to different
classes of shares.
Each Fund may execute brokerage or other agency transactions through the
Distributor, for which the Distributor receives compensation.
With respect to each of the Funds, the Distributor may, from time to time and at
its own expense, provide promotional incentives, in the form of cash or other
compensation, to certain financial institutions whose representatives have sold
or are expected to sell significant amounts of these Funds.
ADMINISTRATION
SEI Fund Resources (the "Administrator") serves as the Administrator of the
Trust. The Administrator provides the Trust with certain administrative
services, other than investment advisory services, including regulatory
reporting, all necessary office space, equipment, personnel and facilities.
The Administrator is entitled to a fee from each Fund, which is calculated daily
and paid monthly, at an annual rate as follows:
<TABLE>
<CAPTION>
AVERAGE AGGREGATE NET ASSETS FEE
- ------------------------------------------ ---------
<S> <C>
$1 - $1 billion 0.10%
over $1 billion to $5 billion 0.07%
over $5 billion to $8 billion 0.05%
over $8 billion to $10 billion 0.045%
over $10 billion 0.04%
</TABLE>
From time to time, the Administrator may waive (either voluntarily or pursuant
to applicable state limitations) all or a portion of the administration fee
payable with respect to the Trust.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, Federated Investors Tower, Pittsburgh, Pennsylvania
15222-3779, is the transfer agent for the shares of the Trust and dividend
disbursing agent for the Trust.
CUSTODIAN
SunTrust Bank, Atlanta, c/o STI Trust & Investment Operations, Inc., 303
Peachtree Street N.E., 14th Floor, Atlanta, Georgia 30308 serves as custodian of
the assets of each Fund with the exception of the International Equity Index and
the International Equity Funds. Union Bank of California, 475 Sansome Street,
Suite 1200, San Francisco, California 94111, serves as custodian for the
International Equity Index Fund. The Bank of New York, One Wall Street, New
York, New York 10286, serves as custodian for the International Equity Fund. The
custodians hold cash, securities and other assets of the Trust as required by
the 1940 Act.
LEGAL COUNSEL
Morgan, Lewis & Bockius LLP, Philadelphia, Pennsylvania, serves as legal counsel
to the Trust.
INDEPENDENT PUBLIC ACCOUNTANTS
The independent public accountants to the Trust are Arthur Andersen LLP,
Philadelphia, Pennsylvania.
OTHER INFORMATION
VOTING RIGHTS
Each share held entitles the Shareholder of record to one vote. Each Fund or
class of a Fund will vote separately on matters relating solely to that Fund or
class. As a
<PAGE>
29
Massachusetts business trust, the Trust is not required to hold annual meetings
of Shareholders but approval will be sought for certain changes in the operation
of the Trust and for the election of Trustees under certain circumstances. In
addition, a Trustee may be removed by the remaining Trustees or by Shareholders
at a special meeting called upon written request of Shareholders owning at least
10% of the outstanding shares of the Trust. In the event that such a meeting is
requested the Trust will provide appropriate assistance and information to the
Shareholders requesting the meeting.
REPORTING
The Trust issues unaudited financial information and audited financial
statements annually. The Trust furnishes proxy statements and other reports to
Shareholders of record.
SHAREHOLDER INQUIRIES
Shareholders may contact the Transfer Agent in order to obtain information on
account statements, procedures and other related information by calling
1-800-874-4770.
DESCRIPTION OF PERMITTED INVESTMENTS
The following is a description of the permitted investments for the Funds.
Further discussion is contained in the Statement of Additional Information.
AMERICAN DEPOSITARY RECEIPTS ("ADRs") -- ADRs are securities, typically issued
by a U.S. financial institution (a "depositary"), that evidence ownership
interests in a security or a pool of securities issued by a foreign issuer and
deposited with the depositary. ADRs may be available through "sponsored" or
"unsponsored" facilities. A sponsored facility is established jointly by the
issuer of the security underlying the receipt and a depositary, whereas an
unsponsored facility may be established by a depositary without participation by
the issuer of the underlying security. Holders of unsponsored depositary
receipts generally bear all the costs of the unsponsored facility. The
depositary of an unsponsored facility frequently is under no obligation to
distribute shareholder communications received from the issuer of the deposited
security or to pass through, to the holders of the receipts, voting rights with
respect to the deposited securities.
ASSET-BACKED SECURITIES -- Asset-backed securities are securities secured by
non-mortgage assets such as company receivables, truck and auto loans, leases
and credit card receivables. Such securities are generally issued as
pass-through certificates, which represent undivided fractional ownership
interests in the underlying pools of assets. Such securities also may be debt
instruments, which are also known as collateralized obligations and are
generally issued as the debt of a special purpose entity, such as a trust,
organized solely for the purpose of owning such assets and issuing such debt.
Asset-backed securities are not issued or guaranteed by the U.S. Government, its
agencies or instrumentalities; however, the payment of principal and interest on
such obligations may be guaranteed up to certain amounts and for a certain
period by a letter of credit issued by a financial institution (such as a bank
or insurance company) unaffiliated with the issuers of such securities. The
purchase of asset-backed securities raises risk considerations peculiar to the
financing of the instruments underlying such securities. For example, there is a
risk that another party could acquire an interest in the obligations superior to
that of the holders of the asset-backed securities. There also is the
possibility that
<PAGE>
30
recoveries on repossessed collateral may not, in some cases, be available to
support payments on those securities. Asset-backed securities entail prepayment
risk, which may vary depending on the type of asset, but is generally less than
the prepayment risk associated with mortgage-backed securities. In addition,
credit card receivables are unsecured obligations of the card holder.
The market for asset-backed securities is at a relatively early stage of
development. Accordingly, there may be a limited secondary market for such
securities.
BANKERS' ACCEPTANCES -- Bankers' acceptances are bills of exchange or time
drafts drawn on and accepted by a commercial bank. Bankers' acceptances are used
by corporations to finance the shipment and storage of goods. Maturities are
generally six months or less.
CERTIFICATES OF DEPOSIT -- Certificates of deposit are interest bearing
instruments with a specific maturity. They are issued by banks and savings and
loan institutions in exchange for the deposit of funds and normally can be
traded in the secondary market prior to maturity. Certificates of deposit with
penalties for early withdrawal will be considered illiquid.
COMMERCIAL PAPER -- Commercial paper is a term used to describe unsecured
short-term promissory notes issued by banks, municipalities, corporations and
other entities. Maturities on these issues vary from a few to 270 days.
CONVERTIBLE SECURITIES -- Convertible securities are corporate securities that
are exchangeable for a set number of another security at a prestated price.
Convertible securities typically have characteristics similar to both fixed
income and equity securities. Because of the conversion feature, the market
value of a convertible security tends to move with the market value of the
underlying stock. The value of a convertible security is also affected by
prevailing interest rates, the credit quality of the issuer, and any call
provisions.
CORPORATE DEBT OBLIGATIONS -- Corporate debt obligations are debt instruments
issued by corporations with maturities exceeding 270 days. Such instruments may
include putable corporate bonds and zero coupon bonds.
CUSTODIAL RECEIPTS -- Custodial receipts are interests in separately traded
interest and principal component parts of U. S. Treasury obligations that are
issued by banks or brokerage firms and are created by depositing U. S. Treasury
obligations into a special account at custodian bank. The custodian holds the
interest and principal payments for the benefit of the registered owners of the
certificates or receipts. The custodian arranges for the issuance of the
certificates or receipts evidencing ownership and maintains the register.
Receipts include "Treasury Receipts" ("TRs"), "Treasury Investment Growth
Receipts" ("TIGRs"), and "Certificates of Accrual on Treasury Securities"
("CATS"). TRs, TIGRs and CATS are sold as zero coupon securities. See "Zero
Coupon Obligations."
DERIVATIVES -- Derivatives are securities whose value is derived from an
underlying contract, index or security, or any combination thereof. This
includes: futures, swap agreements, and some mortgage-back securities (CMOs,
REMICs and SMBs). See elsewhere in this "Description of Permitted Investments"
for discussions of these various instruments, and see "Investment Policies and
Strategies" for more information about any investment policies and limitations
applicable to their use.
EUROPEAN DEPOSITARY RECEIPTS ("EDRs") -- EDRs are securities, typically
<PAGE>
31
issued by a non-U.S. financial institution, that evidence ownership interests in
a security or a pool of securities issued by either a U.S. or foreign issuer.
EDRs may be available for investment through "sponsored" or "unsponsored"
facilities. See "ADRs."
FORWARD FOREIGN CURRENCY CONTRACTS -- A forward foreign currency contract
involves an obligation to purchase or sell a specific currency amount at a
future date, agreed upon by the parties, at a price set at the time of the
contract. A Fund may also enter into a contract to sell, for a fixed amount of
U.S. dollars or other appropriate currency, the amount of foreign currency
approximating the value of some or all of the Fund's securities denominated in
such foreign currency.
At the maturity of a forward contract, the Fund may either sell a portfolio
security and make delivery of the foreign currency, or it may retain the
security and terminate its contractual obligation to deliver the foreign
currency by purchasing an "offsetting" contract with the same currency trader,
obligating it to purchase, on the same maturity date, the same amount of the
foreign currency. The Fund may realize a gain or loss from currency
transactions.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS -- Futures contracts provide
for the future sale by one party and purchase by another party of a specified
amount of a specific security at a specified future time and at a specified
price. An option on a futures contract gives the purchaser the right, in
exchange for a premium, to assume a position in a futures contract at a
specified exercise price during the term of the option. A Fund may use futures
contracts and related options for bona fide hedging purposes, to offset changes
in the value of securities held or expected to be acquired, to minimize
fluctuations in foreign currencies, or to gain exposure to a particular market
or instrument. A Fund will minimize the risk that it will be unable to close out
a futures contract by only entering into futures contracts which are traded on
national futures exchanges.
Stock index futures are futures contracts for various stock indices that are
traded on registered securities exchanges. A stock index futures contract
obligates the seller to deliver (and the purchaser to take) an amount of cash
equal to a specific dollar amount times the difference between the value of a
specific stock index at the close of the last trading day of the contract and
the price at which the agreement is made.
There are risks associated with these activities, including the following: (1)
the success of a hedging strategy may depend on an ability to predict movements
in the prices of individual securities, fluctuations in markets and movements in
interest rates, (2) there may be an imperfect or no correlation between the
changes in market value of the securities held by the Fund and the prices of
futures and options on futures, (3) there may not be a liquid secondary market
for a futures contract or option, (4) trading restrictions or limitations may be
imposed by an exchange, and (5) government regulations may restrict trading in
futures contracts and futures options.
ILLIQUID SECURITIES -- Illiquid securities are securities that cannot be
disposed of within seven business days at approximately the price at which they
are being carried on the Fund's books. An illiquid security includes a demand
instrument with a demand notice period exceeding seven days, where there is no
secondary market for such security, and repurchase agreements with durations (or
maturities) over seven days in length.
MEDIUM TERM NOTES -- Medium term notes are periodically or continuously offered
<PAGE>
32
corporate or agency debt that differs from traditionally underwritten corporate
bonds only in the process by which they are issued.
MORTGAGE-BACKED SECURITIES -- Mortgage-backed securities are instruments that
entitle the holder to a share of all interest and principal payments from
mortgages underlying the security. The mortgages backing these securities
include conventional thirty-year fixed rate mortgages, graduated payment
mortgages, and adjustable rate mortgages. During periods of declining interest
rates, prepayment of mortgages underlying mortgage-backed securities can be
expected to accelerate. Prepayment of mortgages which underlie securities
purchased at a premium often results in capital losses, while prepayment of
mortgages purchased at a discount often results in capital gains. Because of
these unpredictable prepayment characteristics, it is often not possible to
predict accurately the average life or realized yield of a particular issue.
GOVERNMENT PASS-THROUGH SECURITIES: These are securities that are issued or
guaranteed by a U.S. Government agency representing an interest in a pool of
mortgage loans. The primary issuers or guarantors of these mortgage-backed
securities are the Government National Mortgage Association ("GNMA"), the
Federal National Mortgage Association ("FNMA") and the Federal Home Loan
Mortgage Corporation ("FHLMC"). FNMA and FHLMC obligations are not backed by the
full faith and credit of the U.S. Government as GNMA certificates are, but FNMA
and FHLMC securities are supported by the instrumentalities' right to borrow
from the U.S. Treasury. GNMA, FNMA and FHLMC each guarantees timely
distributions of interest to certificate holders. GNMA and FNMA also each
guarantees timely distributions of scheduled principal. FHLMC has in the past
guaranteed only the ultimate collection of principal of the underlying mortgage
loan; however, FHLMC now issues mortgage-backed securities (FHLMC Gold PCs)
which also guarantee timely payment of monthly principal reductions. Government
and private guarantees do not extend to the securities' value, which is likely
to vary inversely with fluctuations in interest rates.
PRIVATE PASS-THROUGH SECURITIES: These are mortgage-backed securities issued by
a non-governmental entity, such as a trust. These securities include
collateralized mortgage obligations ("CMOs") and real estate mortgage investment
conduits ("REMICs") that are rated in one of the top two rating categories.
While they are generally structured with one or more types of credit
enhancement, private pass-through securities typically lack a guarantee by an
entity having the credit status of a governmental agency or instrumentality.
COLLATERALIZED MORTGAGE OBLIGATIONS: CMOs are debt obligations or multiclass
pass-through certificates issued by agencies or instrumentalities of the U.S.
Government or by private originators or investors in mortgage loans. In a CMO,
series of bonds or certificates are usually issued in multiple classes.
Principal and interest paid on the underlying mortgage assets may be allocated
among the several classes of a series of a CMO in a variety of ways. Each class
of a CMO, often referred to as a "tranche," is issued with a specific fixed or
floating coupon rate and has a stated maturity or final distribution date.
Principal payments on the underlying mortgage assets may cause CMOs to be
retired substantially earlier then their stated maturities or final distribution
dates, resulting in a loss of all or part of any premium paid.
REMICS: A REMIC is a CMO that qualifies for special tax treatment under the
Internal Revenue Code and invests in certain mortgages principally secured by
interests in
<PAGE>
33
real property. Investors may purchase beneficial interests in REMICs, which are
known as "regular" interests, or "residual" interests. Guaranteed REMIC
pass-through certificates ("REMIC Certificates") issued by FNMA or FHLMC
represent beneficial ownership interests in a REMIC trust consisting principally
of mortgage loans or FNMA, FHLMC or GNMA-guaranteed mortgage pass-through
certificates. For FHLMC REMIC Certificates, FHLMC guarantees the timely payment
of interest, and also guarantees the payment of principal as payments are
required to be made on the underlying mortgage participation certificates. FNMA
REMIC Certificates are issued and guaranteed as to timely distribution of
principal and interest by FNMA.
STRIPPED MORTGAGE-BACKED SECURITIES ("SMBS"): SMBs are usually structured with
two classes that receive specified proportions of the monthly interest and
principal payments from a pool of mortgage securities. One class may receive all
of the interest payments and is thus termed an interest-only class ("IO"), while
the other class may receive all of the principal payments and is thus termed the
principal-only class ("PO"). The value of IOs tends to increase as rates rise
and decrease as rates fall; the opposite is true of POs. SMBs are extremely
sensitive to changes in interest rates because of the impact thereon of
prepayment of principal on the underlying mortgage securities. The market for
SMBs is not as fully developed as other markets; SMBs therefore may be illiquid.
OBLIGATIONS OF SUPRANATIONAL ENTITIES -- Supranational entities are entities
established through the joint participation of several governments, and include
the Asian Development Bank, the Inter-American Development Bank, International
Bank for Reconstruction and Development (World Bank), African Development Bank,
European Economic Community, European Investment Bank and the Nordic Investment
Bank.
OPTIONS ON CURRENCIES -- The International Equity Index Fund may purchase and
write put and call options on foreign currencies (traded on U.S. and foreign
exchanges or over-the-counter markets) to manage the portfolio's exposure to
changes in dollar exchange rates. Call options on foreign currency written by
the Fund will be "covered," which means that the Fund will own an equal amount
of the underlying foreign currency. With respect to put options on foreign
currency written by the Fund, the Fund will establish a segregated account with
its custodian bank consisting of cash, U.S. Government securities or other high
grade liquid debt securities in an amount equal to the amount the Fund would be
required to pay upon exercise of the put.
PAY-IN-KIND SECURITIES -- Pay-in-kind securities are bonds or preferred stock
that pay interest or dividends in the form of additional bonds or preferred
stock.
REPURCHASE AGREEMENTS -- Repurchase agreements are agreements by which a Fund
obtains a security and simultaneously commits to return the security to the
seller at an agreed upon price on an agreed upon date within a number of days
from the date of purchase. The custodian will hold the security as collateral
for the repurchase agreement. A Fund bears a risk of loss in the event the other
party defaults on its obligations and the Fund is delayed or prevented from
exercising its right to dispose of the collateral or if the Fund realizes a loss
on the sale of the collateral. A Fund will enter into repurchase agreements only
with financial institutions deemed to present minimal risk of bankruptcy during
the term of the agreement based on established guidelines. Repurchase agreements
are considered loans under the Investment Company Act of 1940.
<PAGE>
34
RESTRICTED SECURITIES -- Restricted securities are securities that may not be
sold freely to the public absent registration under the Securities Act of 1933
or an exemption from registration. Rule 144A securities are securities that have
not been registered under the Securities Act of 1933, but which may be traded
between certain institutional investors, including investment companies. The
Trust's Board of Trustees is responsible for developing guidelines and
procedures for determining the liquidity of restricted securities and monitoring
the Advisors' implementation of the guidelines and procedures.
SECURITIES LENDING -- In order to generate additional income, a Fund may lend
securities which it owns pursuant to agreements requiring that the loan be
continuously secured by collateral consisting of cash, securities of the U.S.
Government or its agencies equal to at least 100% of the market value of the
securities lent. A Fund continues to receive interest on the securities lent
while simultaneously earning interest on the investment of cash collateral.
Collateral is marked to market daily. There may be risks of delay in recovery of
the securities or even loss of rights in the collateral should the borrower of
the securities fail financially or become insolvent.
STANDBY COMMITMENTS AND PUTS -- Securities subject to standby commitments or
puts permit the holder thereof to sell the securities at a fixed price prior to
maturity. Securities subject to a standby commitment or put may be sold at any
time at the current market price. However, unless the standby commitment or put
was an integral part of the security as originally issued, it may not be
marketable or assignable; therefore, the standby commitment or put would only
have value to the Fund owning the security to which it relates. In certain
cases, a premium may be paid for a standby commitment or put, which premium will
have the effect of reducing the yield otherwise payable on the underlying
security. The Fund will limit standby commitment or put transactions to
institutions believed to present minimal credit risk.
SWAPS, CAPS, FLOORS and COLLARS -- Interest rate swaps, mortgage swaps, currency
swaps and other types of swap agreements such as caps, floors and collars are
designed to permit the purchaser to preserve a return or spread on a particular
investment or portion of its portfolio, and to protect against any increase in
the price of securities the Fund anticipates purchasing at a later date. In a
typical interest rate swap, one party agrees to make regular payments equal to a
floating interest rate times a "notional principal amount," in return for
payments equal to a fixed rate times the same amount, for a specific period of
time. If a swap agreement provides for payment in different currencies, the
parties might agree to exchange the notional principal amount as well. Swaps may
also depend on other prices or rates, such as the value of an index or mortgage
prepayment rates.
In a typical cap or floor agreement, one party agrees to make payments only
under specified circumstances, usually in return for payment of a fee by the
other party. For example, the buyer of an interest rate cap obtains the right to
receive payments to the extent that a specific interest rate exceeds an
agreed-upon level, while the seller of an interest rate floor is obligated to
make payments to the extent that a specified interest rate falls below an
agreed-upon level. An interest rate collar combines elements of buying a cap and
selling a floor.
Swap agreements are sophisticated hedging instruments that typically involve a
small investment of cash relative to the magnitude of risk assumed. As a result,
swaps can be highly volatile and have a considerable impact on the Fund's
performance. Swap agreements are
<PAGE>
35
subject to risks related to the counterparty's ability to perform, and may
decline in value if the counterparty's creditworthiness deteriorates. The Fund
may also suffer losses if it is unable to terminate outstanding swap agreements
or reduce its exposure through offsetting transactions. Any obligation the Fund
may have under these types of arrangements will be covered by setting aside
liquid high grade securities in a segregated account. The Fund will enter into
swaps only with counterparties believed to be creditworthy.
TIME DEPOSITS -- Time deposits are non-negotiable receipts issued by a bank in
exchange for the deposit of funds. Like a certificate of deposit, it earns a
specified rate of interest over a definite period of time; however, it cannot be
traded in the secondary market. Time deposits are considered to be illiquid
securities.
U.S. GOVERNMENT AGENCIES -- Obligations issued or guaranteed by agencies of the
U.S. Government, including, among others, the Federal Farm Credit Bank, the
Federal Housing Administration and the Small Business Administration, and
obligations issued or guaranteed by instrumentalities of the U.S. Government,
including, among others, FHLMC, the Federal Land Banks and the U.S. Postal
Service. Some of these securities are supported by the full faith and credit of
the U.S. Treasury (e.g., GNMA securities), others are supported by the right of
the issuer to borrow from the Treasury (e.g., Federal Farm Credit Bank
securities), while still others are supported only by the credit of the
instrumentality (e.g., FNMA securities). Guarantees of principal by agencies or
instrumentalities of the U.S. Government may be a guarantee of payment at the
maturity of the obligation so that in the event of a default prior to maturity
there might not be a market and thus no means of realizing on the obligation
prior to maturity. Guarantees as to the timely payment of principal and interest
do not extend to the value or yield of these securities nor to the value of the
Fund's shares.
U.S. TREASURY OBLIGATIONS -- U.S. Treasury obligations consist of bills, notes
and bonds issued by the U.S. Treasury and separately traded interest and
principal component parts of such obligations that are transferable through the
Federal book-entry system known as Separately Traded Registered Interest and
Principal Securities ("STRIPS").
VARIABLE AND FLOATING RATE INSTRUMENTS -- Certain obligations may carry variable
or floating rates of interest, and may involve a conditional or unconditional
demand feature. Such instruments bear interest at rates which are not fixed, but
which vary with changes in specified market rates or indices. The interest rates
on these securities may be reset daily, weekly, quarterly or some other reset
period, and may have a floor or ceiling on interest rate changes. There is a
risk that the current interest rate on such obligations may not accurately
reflect existing market interest rates. A demand instrument with a demand notice
exceeding seven days may be considered illiquid if there is no secondary market
for such security.
WARRANTS -- Warrants are instruments giving holders the right, but not the
obligation, to buy shares of a company at a given price during a specified
period.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES -- When-issued or delayed delivery
basis transactions involve the purchase of an instrument with payment and
delivery taking place in the future. Delivery of and payment for these
securities may occur a month or more after the date of the purchase commitment.
The Fund will segregate liquid high grade debt securities or cash in an amount
at least equal to these commitments.
<PAGE>
36
The interest rate realized on these securities is fixed as of the purchase date
and no interest accrues to the Fund before settlement. These securities are
subject to market fluctuation due to changes in market interest rates and it is
possible that the market value at the time of settlement could be higher or
lower than the purchase price if the general level of interest rates has
changed. Although a Fund generally purchases securities on a when-issued or
forward commitment basis with the intention of actually acquiring securities for
its portfolio, a Fund may dispose of a when-issued security or forward
commitment prior to settlement if it deems appropriate.
ZERO COUPON OBLIGATIONS -- Zero coupon obligations are debt securities that do
not bear any interest, but instead are issued at a deep discount from par. The
value of a zero coupon obligation increases over time to reflect the interest
accreted. Such obligations will not result in the payment of interest until
maturity, and will have greater price volatility than similar securities that
are issued at par and pay interest periodically.
<PAGE>
A-1
APPENDIX
I. BOND RATINGS
CORPORATE BONDS
The following are descriptions of Standard & Poor's Corporation ("S&P") and
Moody's Investors Service, Inc. ("Moody's") corporate bond ratings.
Bonds rated AAA have the highest rating S&P assigns to a debt obligation. Such a
rating indicates an extremely strong capacity to pay principal and interest.
Bonds rated AA also qualify as high-quality debt obligations. Capacity to pay
principal and interest is very strong, and in the majority of instances they
differ from AAA issues only in small degree. Debt rated A has a strong capacity
to pay interest and repay principal although it is somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions than
debt in higher rated categories.
Bonds which are rated BBB are considered to be medium-grade obligations (i.e.,
they are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Debt rated BB, B, CCC, CC or C is regarded as having predominately speculative
characteristics with respect to capacity to pay interest and repay principal. BB
indicates the least degree of speculation and C the highest degree of
speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposure to adverse conditions.
Bonds which are rated Aaa by Moody's are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large, or an exceptionally
stable, margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues. Bonds rated Aa by
Moody's are judged by Moody's to be of high quality by all standards. They are
rated lower than the best bonds because margins of protection may not be as
large as in Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than in Aaa securities. Together with
bonds rated Aaa, they comprise what are generally known as high-grade bonds.
Bonds which are rated A possess many favorable investment attributes and are to
be considered as upper-medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Debt rated Baa is regarded as having an adequate capacity to pay interest and
repay principal. Whereas it normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay interest and repay principal for debt in this
category than in higher rated categories.
Bonds which are rated Ba are judged to have speculative elements; their future
cannot be considered as well-assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times
<PAGE>
A-2
over the future. Uncertainty of position characterizes bonds in this class.
Bonds which are rated B generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small. Bonds
which are rated Caa are of poor standing. Such issues may be in default or there
may be present elements of danger with respect to principal and interest. Bonds
which are rated Ca represent obligations which are speculative in a high degree.
Such issues are often in default or have other marked shortcomings. Bonds which
are rated C are the lowest rated class of bonds and issues so rated can be
regarded as having extremely poor prospects of ever attaining any real
investment standing.
II. COMMERCIAL PAPER AND SHORT-TERM RATINGS
The following descriptions of commercial paper ratings have been published by
S&P, Moody's, Fitch Investors Service, Inc. ("Fitch"), Duff and Phelps ("Duff")
and IBCA Limited ("IBCA"), respectively.
Commercial paper rated A by S&P is regarded by S&P as having the greatest
capacity for timely payment. Issues rated A are further refined by use of the
numbers 1+ and 1. Issues rated A-1+ are those with an "overwhelming degree" of
credit protection. Those rated A-1 reflect a "very strong" degree of safety
regarding timely payment. Those rated A-2 reflect a safety regarding timely
payment but not as high as A-1.
Commercial paper issues rated Prime-1 and Prime-2 by Moody's are judged by
Moody's to have superior ability and strong ability for repayment, respectively.
The rating Fitch-1 (Highest Grade) is the highest commercial rating assigned by
Fitch. Paper rated Fitch-1 is regarded as having the strongest degree of
assurance for timely payment. The rating Fitch-2 (Very Good Grade) is the second
highest commercial paper rating assigned by Fitch which reflects an assurance of
timely payment only slightly less in degree than the strongest issues.
The rating Duff-1 is the highest commercial paper rating assigned by Duff. Paper
rated Duff-1 is regarded as having very high certainty of timely payment with
excellent liquidity factors which are supported by ample asset protection. Risk
factors are minor. Paper rated Duff-2 is regarded as having good certainty of
timely payment, good access to capital markets and sound liquidity factors and
company fundamentals. Risk factors are small.
The designation A1 by IBCA indicates that the obligation is supported by a very
strong capacity for timely repayment. Those obligations rated A1+ are supported
by the highest capacity for timely repayment. Obligations rated A2 are supported
by a strong capacity for timely repayment, although such capacity may be
susceptible to adverse changes in business, economic or financial conditions.
<PAGE>
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<PAGE>
(THIS PAGE INTENTIONALLY LEFT BLANK)
<PAGE>
TRUST AND INVESTMENT SERVICES OFFICES OF SUNTRUST BANKS, INC. AFFILIATE BANKS:
FLORIDA: (STATEWIDE TOLL FREE) 1-800-526-1177
SUNTRUST SECURITIES, INC. -- FLORIDA
200 S. Orange Avenue
Tower 10
Orlando, FL 32801
(407) 237-4380
1-800-432-4760, ext. 4380
501 E. Las Olas Boulevard
Ft. Lauderdale, FL 33301
(954) 765-7422
Boca Raton Office
800 S. Federal Highway
Boca Raton, FL 33435
(561) 243-6707
Coral Ridge Office
2626 E. Oakland Park Blvd.
Ft. Lauderdale, FL 33306
(954) 765-2155
Delray Beach Office
302 E. Atlantic Avenue
Delray Beach, FL 33483
(561) 243-6750
5200 W. Atlantic Ave.
Delray Beach, FL 33484
(561) 243-6743
Hollywood Office
2001 Hollywood Blvd.
Hollywood, FL 33021
(954) 765-7062
Palm Beach Office
303 Royal Poinciana Plaza
Palm Beach, FL 33480
(561) 835-2855
PGA Office
4500 PGA Blvd.
Palm Beach Gardens, FL 33410
(561) 835-2802
8200 W. Broward Blvd.
Plantation, FL 33324
(954) 765-7661
777 Brickell Avenue
Miami, FL 33131
(305) 579-7450
401 E. Jackson Street
Tampa, FL 33602
(813) 224-2517
700 Virginia Avenue
Ft. Pierce, FL 34982
(407) 467-6459
Osceola Office
111 E. Osceola Street
Stuart, FL 34994
(407) 223-6012
Belnova Office
120 S. Ridgewood Avenue
Daytona Beach, FL 32114
(904) 258-2390
Bill France Office
4900 Clyde Morris Blvd.
Port Orange, FL 32119
(904) 258-2654
Deland Office
302 E. New York Avenue
Deland, FL 32724
(904) 822-5891
200 W. Forsyth Street
Jacksonville, FL 32202
(904) 632-2534
1612 E. Cape Coral Parkway
Cape Coral, FL 33904
(941) 540-6128
Pelican Bay Office
801 Laurel Oak Drive
Naples, FL 33963
(941) 598-0515
South Gate Office
3400 S. Tamiami Trail
Sarasota, FL 34230
(941) 316-4027
<PAGE>
Port Charlotte Office
18501 Murdock Circle
Port Charlotte, FL 33949
(941) 625-9286
5899 Whitfield Avenue
Sarasota, FL 34243
(941) 359-7415
North Beneva Office
3577 Fruitville Road
Sarasota, FL 34237
(941) 316-4003
South Beneva Office
8181 S. Tamiami Trail
Sarasota, FL 34231
(941) 927-7903
Venice Office
200 Nokomis Avenue South
Venice, FL 34285
(941) 486-4417
210 Security Square
Winter Haven, FL 33880
(941) 297-6855
One East Jefferson Street
Brooksville, FL 34601
(352) 754-5798
Crystal River Office
1502 SE Highway 19
Crystal River, FL 34428
(352) 795-8214
5435 Gall Blvd.
Zephyrhills, FL 33541
(813) 780-4154
6335 U.S. Highway 19
New Port Richey, FL 34652
(813) 861-4375
Seven Hills Office
1170 Mariner Blvd.
Spring Hill, FL 34609
(352) 754-5779
203 E. Silver Springs Blvd.
Ocala, FL 34470
(352) 368-6477
3522 Thomasville Road
Tallahassee, FL 32308
(904) 298-5064
511 W. 23rd Street
Panama City, FL 32405
(904) 872-6086
11 Hoffman Drive
Gulf Breeze, FL 32561
(904) 435-1264
GEORGIA:
SUNTRUST SECURITIES, INC. -- GEORGIA
55 Park Place
First Floor
Atlanta, GA 30303
(404) 588-8108
1-800-600-6350
101 N. Lumpkin Street
Athens, GA 30601
(706) 354-5346
Gainesville Branch
427 Oak Street
Gainesville, GA 30501
(770) 503-8674
100 East Second Avenue
Rome, GA 30161
(706) 236-4325
2815 Wrightsboro Road
Augusta, GA 30909
(706) 821-2015
606 Cherry Street
Macon, GA 31201
(912) 755-5175
1246 First Avenue
Columbus, GA 31901
(706) 649-3631
33 Bull Street, Suite 208
Savannah, GA 31401
(912) 944-1165
410 W. Broad Avenue
Albany, GA 31701
(912) 430-5468
<PAGE>
Coffee County Branch
201 S. Peterson Avenue
Douglas, GA 31533
(912) 383-5242
510 Gloucester Street
Brunswick, GA 31520
(912) 262-5322
Sea Island Road Branch
701 Sea Island Road
St. Simons Island, GA 31522
(912) 638-3620
(912) 262-2227
TENNESSEE:
SUNTRUST SECURITIES, INC. -- TENNESSEE
424 Church Street
4th Floor
Nashville, TN 37219
(615) 748-4477
1-800-932-2652
736 Market Street
Chattanooga, TN 37402
(423) 757-3005
TN WATS 1-800-572-7306, Ext. 3005
Bordering States WATS
1-800-874-1083, Ext. 3005 Out of State WATS
1-800-251-6266, Ext. 3005
9950 Kingston Pike
Knoxville, TN 37997
(423) 544-2181
1-800-456-1177
207 Mockingbird Lane
Johnson City, TN 37604
(423) 461-1005
25 Public Square
Lawrenceburg, TN 38464
(615) 762-3511
ALABAMA:
SUNTRUST SECURITIES, INC. -- ALABAMA
201 South Court Street
Florence, AL 35630
(205) 767-8537
<PAGE>
<TABLE>
<S> <C> <C>
STI CLASSIC FUNDS ORGANIZATIONAL OVERVIEW
* INVESTMENT ADVISORS
Trusco Capital Management, Inc. 50 Hurt Plaza
Suite 1400
Atlanta, GA 30303
STI Capital Management, N.A. P.O. Box 3808
Orlando, FL 32802
* DISTRIBUTOR
SEI Financial Services Company 680 E. Swedesford Road
Wayne, PA 19087
* ADMINISTRATOR
SEI Fund Resources 680 E. Swedesford Road
Wayne, PA 19087
* TRANSFER AGENT
Federated Services Company Federated Investors Tower
Pittsburgh, PA 15222-3779
* CUSTODIAN
SunTrust Bank, Atlanta c/o STI Trust & Investment
Operations, Inc.
303 Peachtree Street N.E.
14th Floor
Atlanta, GA 30308
Union Bank of California 475 Sansome Street
(International Equity Index Fund Suite 1200
only) San Francisco, CA 94111
The Bank of New York One Wall Street
(International Equity Fund only) New York, New York 10286
* LEGAL COUNSEL
Morgan, Lewis & Bockius LLP 2000 One Logan Square
Philadelphia, PA 19103
* INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen, LLP 1601 Market Street
Philadelphia, PA 19103
</TABLE>
<PAGE>
100092/10-95
DISTRIBUTOR
SEI Financial Services
Company
-- - - - - - - - - - - - - - - -
PROSPECTUS
INVESTOR SHARES
CAPITAL GROWTH FUND
VALUE INCOME STOCK FUND
AGGRESSIVE GROWTH FUND
BALANCED FUND
SUNBELT EQUITY FUND
INTERNATIONAL EQUITY
INDEX FUND
INVESTMENT ADVISORS
STI CAPITAL MANAGEMENT, N.A.
TRUSCO CAPITAL MANAGEMENT, INC.
OCTOBER 1, 1996
[LOGO]
<PAGE>
STI CLASSIC FUNDS
INVESTOR SHARES
INVESTMENT GRADE BOND FUND
INVESTMENT GRADE TAX-EXEMPT BOND FUND
U.S. GOVERNMENT SECURITIES FUND
LIMITED-TERM FEDERAL MORTGAGE SECURITIES FUND
SHORT-TERM BOND FUND
SHORT-TERM U.S. TREASURY SECURITIES FUND
FLORIDA TAX-EXEMPT BOND FUND
GEORGIA TAX-EXEMPT BOND FUND
TENNESSEE TAX-EXEMPT BOND FUND
PRIME QUALITY MONEY MARKET FUND
U.S. GOVERNMENT SECURITIES MONEY MARKET FUND
TAX-EXEMPT MONEY MARKET FUND
INVESTMENT ADVISORS TO THE FUNDS:
TRUSCO CAPITAL MANAGEMENT, INC.
STI CAPITAL MANAGEMENT, N.A.
SUNTRUST BANK, CHATTANOOGA, N.A.
SUNTRUST BANK, ATLANTA
(THE "ADVISORS")
The STI Classic Funds (the "Trust") is a mutual fund that offers shares in a
number of separate investment portfolios (each a "Fund" and, collectively, the
"Funds"). This Prospectus sets forth concisely the information about the
Investor Shares of the above-referenced Funds. Investors are advised to read
this Prospectus and retain it for future reference.
A Statement of Additional Information relating to the Funds dated the same date
as this Prospectus has been filed with the Securities and Exchange Commission
and is available without charge through the Distributor, SEI Financial Services
Company, 680 East Swedesford Road, Wayne, Pennsylvania 19087-1658 or by calling
1-800-874-4770. The Statement of Additional Information is incorporated into
this Prospectus by reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
AN INVESTMENT IN A MONEY MARKET FUND IS NEITHER INSURED NOR GUARANTEED BY THE
U.S. GOVERNMENT. THERE CAN BE NO ASSURANCE THAT A MONEY MARKET FUND WILL BE ABLE
TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
- --------------------------------------------------------------------------------
THE TRUST'S SHARES ARE NOT SPONSORED, ENDORSED, OR GUARANTEED BY, AND DO NOT
CONSTITUTE OBLIGATIONS OR DEPOSITS OF, THE ADVISORS OR ANY OF THEIR AFFILIATES
OR CORRESPONDENTS INCLUDING SUNTRUST BANKS, INC., ARE NOT GUARANTEED OR INSURED
BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY
OTHER GOVERNMENTAL AGENCY, AND INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE
LOSS OF THE PRINCIPAL AMOUNT INVESTED.
OCTOBER 1, 1996
<PAGE>
2
Throughout this Prospectus, the Investment Grade Bond Fund, Investment Grade
Tax-Exempt Bond Fund, Short-Term U.S. Treasury Securities Fund, Short-Term Bond
Fund, U.S. Government Securities Fund and Limited-Term Federal Mortgage
Securities Fund, which invest primarily in bonds and other fixed income
instruments, may be referred to as the "Bond Funds," the Florida Tax-Exempt Bond
Fund, Georgia Tax-Exempt Bond Fund and Tennessee Tax-Exempt Bond Fund, which
invest primarily in tax-exempt bonds and other fixed income instruments, may be
referred to as the "State Tax-Exempt Bond Funds," and the Prime Quality Money
Market Fund, U.S. Government Securities Money Market Fund and Tax-Exempt Money
Market Fund may be referred to as the "Money Market Funds."
TABLE OF CONTENTS
<TABLE>
<S> <C>
Expense Summary........................................................... 3
Financial Highlights...................................................... 6
The Trust................................................................. 8
Funds and Investment Objectives........................................... 8
Investment Policies and Strategies........................................ 9
General Investment Policies and Strategies................................ 18
Investment Risks.......................................................... 18
Investment Limitations.................................................... 20
Performance Information................................................... 21
Fundlink.................................................................. 22
Purchase of Fund Shares................................................... 22
Redemption of Fund Shares................................................. 26
Exchanges................................................................. 27
Dividends and Distributions............................................... 28
Tax Information........................................................... 29
STI Classic Funds Information............................................. 31
The Trust................................................................. 31
Board of Trustees......................................................... 31
Investment Advisors....................................................... 31
Portfolio Managers........................................................ 33
Banking Laws.............................................................. 33
Distribution.............................................................. 34
Administration............................................................ 35
Transfer Agent and Dividend Disbursing Agent.............................. 35
Custodian................................................................. 36
Legal Counsel............................................................. 36
Independent Public Accountants............................................ 36
Other Information......................................................... 36
Voting Rights............................................................. 36
Reporting................................................................. 36
Shareholder Inquiries..................................................... 36
Description of Permitted Investments...................................... 36
Appendix.................................................................. A-1
</TABLE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE TRUST'S STATEMENT OF
ADDITIONAL INFORMATION IN CONNECTION WITH THE OFFERING MADE BY THIS PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE TRUST OR SEI FINANCIAL SERVICES COMPANY
(THE "DISTRIBUTOR"). THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE
TRUST OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
<PAGE>
3
EXPENSE SUMMARY
INVESTOR SHARES
The purpose of the following tables is to help you understand the various costs
and expenses that a shareholder will bear, directly or indirectly, in connection
with an investment in the Investor Shares of each Fund.
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
- ------------------------------------------------------------------------------------------------------------------------
INVESTMENT GRADE BOND,
INVESTMENT GRADE LIMITED-TERM SHORT-TERM
TAX-EXEMPT BOND FEDERAL U.S. TREASURY
AND U.S. GOVERNMENT MORTGAGE SHORT-TERM SECURITIES
SECURITIES FUNDS SECURITIES FUND BOND FUND FUND
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maximum Sales Charge Imposed on Purchases (as a
percentage of offering price).................. 3.75% 2.50% 2.00% 1.00%
Maximum Sales Charge Imposed on Reinvested
Dividends...................................... None None None None
Maximum Deferred Sales Charge................... None None None None
Redemption Fees(1).............................. None None None None
Exchange Fee.................................... None None None None
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) There is a $7.00 wire charge for redemptions for all funds processed from
retail accounts which require wires to particular banks.
ANNUAL OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
LIMITED-TERM
INVESTMENT FEDERAL SHORT-TERM
INVESTMENT GRADE TAX- MORTGAGE U.S. TREASURY
GRADE BOND EXEMPT BOND U.S. GOVERNMENT SECURITIES SHORT-TERM SECURITIES
FUND FUND SECURITIES FUND FUND BOND FUND FUND
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Management Fees (after fee
waivers &
reimbursements)(1).......... .63% .61% .16% .43% .46% .22%
12b-1 Service & Distribution
Fees (after fee waivers &
reimbursements)(2).......... .22% .28% .35% .20% .20% .15%
Other Fund Expenses (after fee
waivers &
reimbursements)(3).......... .30% .26% .64% .27% .19% .43%
- -------------------------------------------------------------------------------------------------------------------------
Total Fund Operating Expenses
(after fee waivers &
reimbursements)(4).......... 1.15% 1.15% 1.15% .90% .85% .80%
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Each Advisor is waiving, on a voluntary basis, a portion of its fee from
each Fund. The Advisor reserves the right to terminate its waiver at any
time in its sole discretion. Absent such waivers and reimbursements,
Advisory Fees for the Funds would be as follows: Investment Grade Bond Fund
-- .74%, Investment Grade Tax-Exempt Bond Fund -- .74%, U.S. Government
Securities Fund -- .74%, Limited-Term Federal Mortgage Securities Fund --
.65%, Short-Term Bond Fund -- .65% and Short-Term U.S. Treasury Securities
Fund -- .65%. See "Investment Advisors."
(2) The Distributor is reimbursing, on a voluntary basis, a portion of its
expenses from each Fund. The Distributor reserves the right to terminate its
reimbursement at any time in its sole discretion. Absent such
reimbursements, 12b-1 Service & Distribution Fees for the Funds would be as
follows: Investment Grade Bond Fund -- .43%, Investment Grade Tax-Exempt
Bond Fund -- .43%, U.S. Government Securities Fund -- .38%, Limited-Term
Federal Mortgage Securities Fund -- .23%, Short-Term Bond Fund -- .23% and
Short-Term U.S. Treasury Securities Fund -- .18%. See "Distribution."
(3) Absent waivers and reimbursements, Other Fund Expenses would be as follows:
Investment Grade Bond Fund -- .30%, Investment Grade Tax-Exempt Bond Fund --
.26%, U.S. Government Securities Fund -- 1.38%, Limited-Term Federal
Mortgage Securities Fund -- 1.37%, Short-Term Bond Fund -- .84% and
Short-Term U.S. Treasury Securities -- .49%.
(4) Absent the voluntary waivers described above, Total Fund Operating Expenses
would be as follows: Investment Grade Bond Fund -- 1.47%, Investment Grade
Tax-Exempt Bond Fund -- 1.43%, U.S. Government Securities Fund -- 2.50%,
Limited-Term Federal Mortgage Securities Fund -- 2.25%, Short-Term Bond Fund
-- 1.72% and Short-Term U.S. Treasury Securities Fund -- 1.32%.
<PAGE>
4
EXPENSE SUMMARY
INVESTOR SHARES
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
- -------------------------------------------------------------------------------
STATE TAX-EXEMPT
BOND FUNDS
- -------------------------------------------------------------------------------
<S> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage
of offering price)......................................... 3.75%
Maximum Sales Charge Imposed on Reinvested Dividends........ None
Maximum Deferred Sales Charge............................... None
Redemption Fees(1).......................................... None
Exchange Fee................................................ None
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
(1) There is a $7.00 wire charge for redemptions for all funds processed from
retail accounts which require wires to particular banks.
ANNUAL OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
PRIME U.S. GOVERNMENT
FLORIDA GEORGIA TENNESSEE QUALITY SECURITIES TAX-EXEMPT
TAX-EXEMPT TAX-EXEMPT TAX-EXEMPT MONEY MARKET MONEY MARKET MONEY MARKET
BOND FUND BOND FUND BOND FUND FUND FUND FUND
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Management Fees (after fee
waivers &
reimbursements)(1).......... .38% .37% .00% .50% .51% .47%
12b-1 Service & Distribution
Fees (after fee waivers &
reimbursements)(2).......... .15% .15% .10% .14% .08% .09%
Other Expenses (after fee
waivers &
reimbursements)(3).......... .32% .33% .75% .11% .16% .16%
- ---------------------------------------------------------------------------------------------------------------------------
Total Fund Operating Expenses
(after fee waivers &
reimbursements)(4)(5)....... .85% .85% .85% .75% .75% .72%
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Each Advisor is waiving, on a voluntary basis, a portion of its fee from
each Fund. The Advisor reserves the right to terminate its waiver at any
time in its sole discretion. Absent such waivers and reimbursements,
Advisory Fees for the Funds would be as follows: Florida Tax-Exempt Bond
Fund -- .65%, Georgia Tax-Exempt Bond Fund -- .65%, Tennessee Tax-Exempt
Bond Fund -- .65%, Prime Quality Money Market Fund -- .65%, U.S. Government
Securities Money Market Fund -- .65%, and Tax-Exempt Money Market Fund --
.55%. See "Investment Advisors."
(2) The Distributor is reimbursing, on a voluntary basis, a portion of its
expenses from each Fund. The Distributor reserves the right to terminate its
reimbursement at any time in its sole discretion. Absent such
reimbursements, 12b-1 Service & Distribution Fees for the Funds would be as
follows: Florida Tax-Exempt Bond Fund -- .18%, Georgia Tax-Exempt Bond Fund
-- .18%, Tennessee Tax-Exempt Bond Fund -- .18%, Prime Quality Money Market
Fund -- .20%, U.S. Government Securities Money Market Fund -- .17% and
Tax-Exempt Money Market Fund -- .15%. See "Distribution."
(3) Absent waivers and reimbursements, Other Expenses would be as follows:
Florida Tax-Exempt Bond Fund -- .53%, Georgia Tax-Exempt Bond Fund -- .58%,
Tennessee Tax-Exempt Bond Fund -- 1.25%, Prime Quality Money Market Fund --
.15%, U.S. Government Securities Money Market Fund -- .17% and Tax-Exempt
Money Market Fund -- .16%.
(4) Absent the voluntary waivers described above, Total Fund Operating Expenses
would be as follows: Florida Tax-Exempt Bond Fund -- 1.36%, Georgia
Tax-Exempt Bond Fund -- 1.41%, Tennessee Tax-Exempt Bond Fund -- 2.08%,
Prime Quality Money Market Fund -- 1.00%, U.S. Government Securities Money
Market Fund -- .99% and Tax-Exempt Money Market Fund -- .86%.
(5) Total Fund Operating Expenses for the Tax-Exempt Money Market Fund have been
restated to reflect current fees.
<PAGE>
5
<TABLE>
<CAPTION>
ONE THREE FIVE TEN
EXAMPLES YEAR YEARS YEARS YEARS
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
An investor would pay the following expenses on a $1,000
investment assuming: (1) 5% annual return and (2) redemption at
the end of each time period.
INVESTMENT GRADE BOND FUND....................................... $ 49 $ 73 $ 98 $ 172
INVESTMENT GRADE TAX-EXEMPT BOND FUND............................ $ 49 $ 73 $ 98 $ 172
U.S. GOVERNMENT SECURITIES FUND.................................. $ 49 $ 73 $ 98 $ 172
LIMITED-TERM FEDERAL MORTGAGE SECURITIES FUND.................... $ 34 $ 53 $ 74 $ 133
SHORT-TERM BOND FUND............................................. $ 29 $ 47 $ 66 $ 123
SHORT-TERM U.S. TREASURY SECURITIES FUND......................... $ 18 $ 35 $ 54 $ 108
FLORIDA TAX-EXEMPT BOND FUND..................................... $ 46 $ 64 $ 83 $ 138
GEORGIA TAX-EXEMPT BOND FUND..................................... $ 46 $ 64 $ 83 $ 138
TENNESSEE TAX-EXEMPT BOND FUND................................... $ 46 $ 64 $ 83 $ 138
PRIME QUALITY MONEY MARKET FUND.................................. $ 8 $ 24 $ 42 $ 93
U.S. GOVERNMENT SECURITIES MONEY MARKET FUND..................... $ 8 $ 24 $ 42 $ 93
TAX-EXEMPT MONEY MARKET FUND..................................... $ 7 $ 23 $ 40 $ 89
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
</TABLE>
THE EXAMPLE IS BASED UPON THE TOTAL OPERATING EXPENSES OF A FUND AND SHOULD NOT
BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY
BE GREATER OR LESS THAN THOSE SHOWN. A person that purchases shares through an
account with a financial institution may be charged separate fees by the
financial institution. The rules of the Securities and Exchange Commission
require that the maximum sales charge be reflected in the above table. However,
certain investors may qualify for reduced sales charges. See "Purchase of Fund
Shares." Long-term Shareholders may eventually pay more than the economic
equivalent of the maximum front-end sales charges otherwise permitted by the
National Association of Securities Dealers, Inc.'s Rules of Fair Practice.
<PAGE>
6
FINANCIAL HIGHLIGHTS
The following information has been audited by Arthur Andersen LLP, independent
public accountants to the Trust, whose report thereon was unqualified. This
information should be read in conjunction with the Trust's financial statements
and notes thereto, which are included in the Trust's Statement of Additional
Information and which appear, along with the report of Arthur Andersen LLP, in
the Trust's 1996 Annual Report to Shareholders. Additional performance
information regarding each Fund is contained in the Trust's Annual Report to
Shareholders and is available without charge by calling 1-800-874-4770.
For an Investor Share Outstanding Throughout the Period
<TABLE>
<CAPTION>
NET ASSET NET REALIZED AND DISTRIBUTIONS
VALUE NET UNREALIZED GAINS FROM NET DISTRIBUTIONS NET ASSET
BEGINNING INVESTMENT (LOSSES) ON INVESTMENT FROM REALIZED VALUE END TOTAL
OF PERIOD INCOME INVESTMENTS INCOME CAPITAL GAINS OF PERIOD RETURN
--------- ---------- ----------------- ------------- ------------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
------------------------------
INVESTMENT GRADE BOND FUND
------------------------------
INVESTOR SHARES
1996.............. $10.26 $ 0.56 $ (0.20) $ (0.56) -- $ 10.06 3.50%
1995.............. 9.89 0.57 0.38 (0.58) -- 10.26 10.04%
1994.............. 10.44 0.46 (0.35) (0.46) $ (0.20) 9.89 0.86%
1993 (1).......... 10.00 0.44 0.44 (0.44) -- 10.44 9.21%*
-------------------------------------------
INVESTMENT GRADE TAX-EXEMPT BOND FUND
-------------------------------------------
INVESTOR SHARES
1996.............. $11.30 $ 0.41 $ 0.19 $ (0.41) $ (0.37) $ 11.12 5.40%
1995.............. 10.69 0.42 0.61 (0.42) -- 11.30 9.91%
1994.............. 10.79 0.33 0.25 (0.33) (0.35) 10.69 5.37%
1993 (2).......... 10.00 0.35 0.82 (0.35) (0.03) 10.79 11.88%*
----------------------------------
U.S. GOVERNMENT SECURITIES FUND
----------------------------------
INVESTOR SHARES
1996.............. $10.26 $ 0.59 $ (0.33) $ (0.59) $ (0.03) $ 9.90 2.47%
1995 (3).......... 10.00 0.56 0.26 (0.56) -- 10.26 8.61+
-------------------------------------------------
LIMITED-TERM FEDERAL MORTGAGE SECURITIES FUND
-------------------------------------------------
INVESTOR SHARES
1996.............. $10.11 $ 0.60 $ (0.14) $ (0.60) -- $ 9.97 4.59%
1995 (4).......... 9.98 0.58 0.13 (0.58) -- 10.11 7.45%+
-----------------------
SHORT-TERM BOND FUND
-----------------------
INVESTOR SHARES
1996.............. $10.01 $ 0.52 $ (0.10) $ (0.53) $ (0.02) $ 9.88 4.23%
1995.............. 9.81 0.51 0.19 (0.50) -- 10.01 7.44%
1994.............. 10.03 0.40 (0.21) (0.40) (0.01) 9.81 1.81%
1993 (5).......... 10.06 0.06 (0.03) (0.06) -- 10.03 1.65%*
------------------------------------------
SHORT-TERM U.S. TREASURY SECURITIES FUND
------------------------------------------
INVESTOR SHARES
1996.............. $ 9.94 $ 0.54 $ (0.10) $ (0.54) -- $ 9.84 4.52%
1995.............. 9.83 0.46 0.11 (0.46) -- 9.94 6.03%
1994.............. 9.99 0.32 (0.12) (0.31) $ (0.05) 9.83 2.01%
1993 (6).......... 10.01 0.06 (0.02) (0.06) -- 9.99 1.84%*
<CAPTION>
RATIO OF NET
RATIO OF INVESTMENT INCOME
NET RATIO OF EXPENSES (LOSS) TO AVERAGE
NET ASSETS RATIO OF INVESTMENT TO AVERAGE NET NET ASSETS
END OF EXPENSES INCOME TO ASSETS (EXCLUDING (EXCLUDING PORTFOLIO
PERIOD TO AVERAGE AVERAGE NET WAIVERS AND WAIVERS AND TURNOVER
(000) NET ASSETS ASSETS REIMBURSEMENTS) REIMBURSEMENTS) RATE
----------- ---------- ----------- ----------------- ----------------- ----------
<S> <C> <C> <C> <C> <C> <C>
------------------------------
INVESTMENT GRADE BOND FUND
------------------------------
INVESTOR SHARES
1996.............. $ 36,155 1.15% 5.40% 1.44% 5.11% 184.33%
1995.............. 33,772 1.15% 5.79% 1.49% 5.45% 237.66%
1994.............. 35,775 1.14% 4.39% 1.41% 4.12% 259.19%
1993 (1).......... 24,375 1.14%* 4.75%* 1.46%* 4.43%* 299.32%
-------------------------------------------
INVESTMENT GRADE TAX-EXEMPT BOND FUND
-------------------------------------------
INVESTOR SHARES
1996.............. $ 37,427 1.15% 3.61% 1.42% 3.34% 513.90%
1995.............. 41,693 1.15% 3.88% 1.43% 3.60% 591.91%
1994.............. 46,182 1.14% 2.96% 1.51% 2.59% 432.46%
1993 (2).......... 15,844 1.12%* 3.61%* 1.83%* 2.90%* 344.87%
----------------------------------
U.S. GOVERNMENT SECURITIES FUND
----------------------------------
INVESTOR SHARES
1996.............. $ 2,396 1.15% 5.68% 2.50% 4.33% 83.38%
1995 (3).......... 589 1.15%* 6.08%* 6.84%* 0.39%* 30.39%
-------------------------------------------------
LIMITED-TERM FEDERAL MORTGAGE SECURITIES FUND
-------------------------------------------------
INVESTOR SHARES
1996.............. $ 2,512 0.90% 5.75% 2.25% 4.40% 83.01%
1995 (4).......... 623 0.90%* 6.27%* 7.74%* (0.57%)* 67.63%
-----------------------
SHORT-TERM BOND FUND
-----------------------
INVESTOR SHARES
1996.............. $ 2,700 0.85% 5.20% 1.72% 4.33% 162.62%
1995.............. 2,609 0.85% 5.24% 1.56% 4.53% 200.49%
1994.............. 2,381 0.85% 3.94% 2.52% 2.27% 74.85%
1993 (5).......... 716 0.85%* 3.85%* 7.22%* (2.52%)* 63.89%
------------------------------------------
SHORT-TERM U.S. TREASURY SECURITIES FUND
------------------------------------------
INVESTOR SHARES
1996.............. $ 4,192 0.80% 5.43% 1.32% 4.91% 94.00%
1995.............. 7,144 0.80% 4.74% 1.33% 4.21% 87.98%
1994.............. 4,841 0.78% 3.11% 1.41% 2.48% 116.57%
1993 (6).......... 2,423 0.80%* 3.16%* 3.42%* 0.54%* 36.44%
</TABLE>
<PAGE>
7
FINANCIAL HIGHLIGHTS CONTINUED
<TABLE>
<CAPTION>
NET ASSET NET REALIZED AND DISTRIBUTIONS
VALUE NET UNREALIZED GAINS FROM NET DISTRIBUTIONS NET ASSET
BEGINNING INVESTMENT (LOSSES) ON INVESTMENT FROM REALIZED VALUE END TOTAL
OF PERIOD INCOME INVESTMENTS INCOME CAPITAL GAINS OF PERIOD RETURN
--------- ---------- ----------------- ------------- ------------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
--------------------------------
FLORIDA TAX-EXEMPT BOND FUND
--------------------------------
INVESTOR SHARES
1996.............. $10.18 $ 0.44 $ (0.06) $ (0.44) $ (0.05) $ 10.07 3.76%
1995.............. 9.75 0.42 0.43 (0.42) -- 10.18 9.04%
1994 (7).......... 10.00 0.13 (0.25) (0.13) -- 9.75 (1.22%)+
---------------------------------
GEORGIA TAX-EXEMPT BOND FUND
---------------------------------
INVESTOR SHARES
1996.............. $ 9.65 $ 0.41 $ (0.05) $ (0.41) $ (0.02) $ 9.58 3.69%
1995.............. 9.44 0.40 0.21 (0.40) -- 9.65 6.70%
1994 (8).......... 10.00 0.13 (0.56) (0.13) -- 9.44 (4.29%)+
-----------------------------------
TENNESSEE TAX-EXEMPT BOND FUND
-----------------------------------
INVESTOR SHARES
1996.............. $ 9.53 $ 0.41 $ (0.10) $ (0.42) -- $ 9.42 3.28%
1995.............. 9.23 0.44 0.29 (0.43) -- 9.53 8.24%
1994 (8).......... 10.00 0.13 (0.77) (0.13) -- 9.23 (6.39%)+
-----------------------------------
PRIME QUALITY MONEY MARKET FUND
-----------------------------------
INVESTOR SHARES
1996.............. $ 1.00 $ 0.05 -- $ (0.05) -- $ 1.00 5.08%
1995.............. 1.00 0.05 -- (0.05) -- 1.00 4.62%
1994.............. 1.00 0.03 -- (0.03) -- 1.00 2.71%
1993 (9).......... 1.00 0.03 -- (0.03) -- 1.00 2.75%*
--------------------------------------------------
U.S. GOVERNMENT SECURITIES MONEY MARKET FUND
--------------------------------------------------
INVESTOR SHARES
1996.............. $ 1.00 $ 0.05 -- $ (0.05) -- $ 1.00 4.99%
1995.............. 1.00 0.04 -- (0.04) -- 1.00 4.51%
1994.............. 1.00 0.03 -- (0.03) -- 1.00 2.63%
1993 (9).......... 1.00 0.03 -- (0.03) -- 1.00 2.65%*
---------------------------------
TAX-EXEMPT MONEY MARKET FUND
---------------------------------
INVESTOR SHARES
1996.............. $ 1.00 $ 0.03 -- $ (0.03) -- $ 1.00 3.16%
1995.............. 1.00 0.03 -- (0.03) -- 1.00 3.00%
1994.............. 1.00 0.02 -- (0.02) -- 1.00 1.96%
1993 (9).......... 1.00 0.02 -- (0.02) -- 1.00 2.00%*
<CAPTION>
RATIO OF NET
RATIO OF INVESTMENT INCOME
NET RATIO OF EXPENSES (LOSS) TO AVERAGE
NET ASSETS RATIO OF INVESTMENT TO AVERAGE NET NET ASSETS
END OF EXPENSES INCOME TO ASSETS (EXCLUDING (EXCLUDING PORTFOLIO
PERIOD TO AVERAGE AVERAGE NET WAIVERS AND WAIVERS AND TURNOVER
(000) NET ASSETS ASSETS REIMBURSEMENTS) REIMBURSEMENTS) RATE
----------- ---------- ----------- ----------------- ----------------- ----------
<S> <C> <C> <C> <C> <C> <C>
--------------------------------
FLORIDA TAX-EXEMPT BOND FUND
--------------------------------
INVESTOR SHARES
1996.............. $ 4,025 0.85% 4.28% 1.36% 3.77% 62.68%
1995.............. 3,320 0.85% 4.36% 1.50% 3.71% 105.01%
1994 (7).......... 2,280 0.85%* 3.67%* 3.20%* 1.32%* 53.24%
---------------------------------
GEORGIA TAX-EXEMPT BOND FUND
---------------------------------
INVESTOR SHARES
1996.............. $ 3,418 0.85% 4.17% 1.41% 3.61% 60.02%
1995.............. 3,268 0.85% 4.31% 1.43% 3.73% 24.50%
1994 (8).......... 3,300 0.85%* 3.93%* 2.36%* 2.42%* 25.90%
-----------------------------------
TENNESSEE TAX-EXEMPT BOND FUND
-----------------------------------
INVESTOR SHARES
1996.............. $ 1,523 0.85% 4.29% 2.08% 3.06% 41.00%
1995.............. 1,170 0.85% 4.70%* 2.10% 3.45% 27.73%
1994 (8).......... 1,127 0.85%* 3.74%* 6.60%* (2.01%)* 13.05%
-----------------------------------
PRIME QUALITY MONEY MARKET FUND
-----------------------------------
INVESTOR SHARES
1996.............. $215,696 0.75% 4.94% 1.00% 4.69% --
1995.............. 157,616 0.75% 4.55% 1.01% 4.29% --
1994.............. 129,415 0.75% 2.67% 0.99% 2.43% --
1993 (9).......... 61,578 0.75%* 2.68%* 1.02%* 2.41%* --
--------------------------------------------------
U.S. GOVERNMENT SECURITIES MONEY MARKET FUND
--------------------------------------------------
INVESTOR SHARES
1996.............. $ 58,608 0.75% 4.88% 0.99% 4.64% --
1995.............. 46,639 0.75% 4.51% 1.02% 4.24% --
1994.............. 32,395 0.75% 2.54% 0.97% 2.32% --
1993 (9).......... 16,688 0.75%* 2.57%* 1.11%* 2.21%* --
---------------------------------
TAX-EXEMPT MONEY MARKET FUND
---------------------------------
INVESTOR SHARES
1996.............. $ 95,223 0.62% 3.10% 0.85% 2.87% --
1995.............. 87,647 0.55% 3.00% 0.87% 2.68% --
1994.............. 61,675 0.54% 1.93% 0.88% 1.59% --
1993 (9).......... 35,209 0.53%* 1.95%* 0.95%* 1.53%* --
</TABLE>
* Annualized.
+ Cumulative since commencement of operations.
(1) The Investment Grade Bond Fund Investor Shares commenced operations on June
11, 1992.
(2) The Investment Grade Tax-Exempt Bond Fund Investor Shares commenced
operations on June 9, 1992.
(3) The U.S. Government Securities Fund Investor Shares commenced operations on
June 9, 1994.
(4) The Limited-Term Federal Mortgage Securities Fund Investor Shares commenced
operations on July 17, 1994.
(5) The Short-Term Bond Fund Investor Shares commenced operations on March 22,
1993.
(6) The Short-Term U.S. Treasury Securities Fund Investor Shares commenced
operations on March 18, 1993.
(7) The Florida Tax-Exempt Bond Fund Investor Shares commenced operations on
January 18, 1994.
(8) The Georgia Tax-Exempt Bond Fund Investor Shares and the Tennessee
Tax-Exempt Bond Fund Investor Shares commenced operations on January 19,
1994.
(9) The Prime Quality Money Market Fund Trust Shares and Investor Shares, U.S.
Government Securities Money Market Fund Trust Shares and Investor Shares,
and Tax-Exempt Money Market Fund Trust Shares and Investor Shares commenced
opertions on June 8, 1992.
<PAGE>
8
THE TRUST
STI CLASSIC FUNDS (the "Trust") is a diversified, open-end management investment
company that provides a convenient and economical means of investing in several
professionally managed portfolios of securities. The Trust currently offers
units of beneficial interest ("shares") in a number of separate Funds.
Shareholders may purchase shares in each non-money Market Fund through three
separate classes (Trust Shares, Investor Shares and Flex Shares), and in each
Money Market Fund through two separate classes (Trust Shares and Investor
Shares), which provide for variations in distribution and service fees, transfer
agent fees, voting rights and dividends. Except for differences between classes,
each share of each Fund represents an undivided, proportionate interest in that
Fund. This Prospectus relates to the Investor Shares of the Funds described
below.
FUNDS AND INVESTMENT OBJECTIVES
BOND FUNDS:
THE INVESTMENT GRADE BOND FUND seeks to provide as high a level of total return
through current income and capital appreciation as is consistent with the
preservation of capital primarily through investment in investment grade fixed
income securities.
THE INVESTMENT GRADE TAX-EXEMPT BOND FUND seeks to provide as high a level of
total return through federally tax-exempt current income and capital
appreciation as is consistent with the preservation of capital primarily through
investment in investment grade tax-exempt obligations.
THE U.S. GOVERNMENT SECURITIES FUND seeks to provide as high a level of current
income as is consistent with the preservation of capital by investing primarily
in obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
THE LIMITED-TERM FEDERAL MORTGAGE SECURITIES FUND seeks to provide as high a
level of current income as is consistent with the preservation of capital by
investing primarily in mortgage-related securities issued or guaranteed by U.S.
Government agencies and instrumentalities.
THE SHORT-TERM BOND FUND seeks to provide as high a level of current income,
relative to funds with like investment objectives, as is consistent with the
preservation of capital primarily through investment in short- to
intermediate-term investment grade fixed income securities.
THE SHORT-TERM U.S. TREASURY SECURITIES FUND seeks to provide as high a level of
current income, relative to funds with like investment objectives, as is
consistent with the preservation of capital through investment exclusively in
short-term U.S. Treasury securities.
STATE TAX-EXEMPT BOND FUNDS:
THE FLORIDA TAX-EXEMPT BOND FUND seeks to provide current income exempt from
regular federal income tax for Florida residents without undue investment risk.
THE GEORGIA TAX-EXEMPT BOND FUND seeks to provide current income exempt from
regular federal and state income tax for Georgia residents without undue
investment risk.
THE TENNESSEE TAX-EXEMPT BOND FUND seeks to provide current income exempt from
regular federal and state income tax for Tennessee residents without undue
investment risk.
<PAGE>
9
MONEY MARKET FUNDS:
THE PRIME QUALITY MONEY MARKET FUND seeks to provide as high a level of current
income as is consistent with preservation of capital and liquidity by investing
exclusively in high quality money market instruments.
THE U.S. GOVERNMENT SECURITIES MONEY MARKET FUND seeks to provide as high a
level of current income as is consistent with preservation of capital and
liquidity by investing exclusively in bills, notes and bonds issued by the U.S.
Treasury and separately traded interest and principal component parts of such
obligations that are transferable through the Federal Reserve Book-Entry System
("U.S. Treasury obligations"), securities of wholly-owned corporations of the
U.S. Government that are backed by the full faith and credit of the U.S.
Government ("U.S. Government Subsidiary Corporations") and repurchase agreements
with approved dealers collateralized by U.S. Treasury obligations, and U.S.
Government Subsidiary Corporation securities.
THE TAX-EXEMPT MONEY MARKET FUND seeks to provide as high a level of current
interest income exempt from regular federal income tax as is consistent with
preservation of capital and liquidity. The Fund invests primarily in high
quality short-term municipal obligations.
Each Money Market Fund's ability to generate high current income will be limited
by the fact that it is only permitted to invest in high quality securities. It
is a fundamental policy of each Money Market Fund to use its best efforts to
maintain a constant net asset value of $1.00 per share. There can be no
assurance that a Money Market Fund will achieve its investment objective or will
be able to maintain a net asset value of $1.00 per share on a continuous basis.
In addition, each Money Market Fund intends to comply with federal regulations
applicable to money market funds using the amortized cost method for calculating
net asset value which require each Fund to invest only in U.S. dollar
denominated obligations, to maintain an average maturity on a dollar-weighted
basis of 90 days or less and to acquire eligible securities that present minimal
credit risk and have a maturity of 397 days or less. These requirements will
also limit a Money Market Fund's ability to generate high current income. For a
further discussion of these rules, see "Description of Permitted Investments."
There can be no assurance that a Fund will achieve its investment objective.
The investment objectives of the Investment Grade Bond Fund, U.S. Government
Securities Fund, Limited-Term Federal Mortgage Securities Fund, Short-Term Bond
Fund and Short-Term U.S. Treasury Securities Fund are nonfundamental and may be
changed without a shareholder vote.
INVESTMENT POLICIES AND STRATEGIES
INVESTMENT GRADE BOND FUND
The Investment Grade Bond Fund will invest only in those obligations deemed
investment grade obligations rated BBB or better by Standard & Poor's
Corporation ("S&P") or Baa or better by Moody's Investors Service, Inc.
("Moody's") or, if not rated by S&P or Moody's, of comparable quality at the
time of purchase as determined by the Fund's Advisor, including corporate debt
obligations; mortgage-backed securities, collateralized mortgage obligations
("CMOs") and asset-backed securities; obligations issued or guaranteed as to
principal and interest by the U.S. Government, its agencies or
instrumentalities; custodial receipts involving U.S. Treasury obligations;
securities of the government of Canada and its provincial and local governments;
securities issued or
<PAGE>
10
guaranteed by foreign governments, their political subdivisions, agencies or
instrumentalities; obligations of supranational entities and sponsored American
Depositary Receipts ("ADRs") that are traded on exchanges or listed on National
Association of Securities Dealers Automated Quotations ("NASDAQ"). Under normal
circumstances, at least 65% of the Fund's total assets will be invested in
corporate and government bonds and debentures. No more than 25% of the Fund's
assets will be invested in securities rated BBB by S&P or Baa by Moody's or, if
not rated by S&P or Moody's, of comparable quality at the time of purchase as
determined by the Advisor.
The Fund may purchase mortgage-backed securities issued or guaranteed as to the
payment of principal and interest by the U.S. Government, its agencies or
instrumentalities or, subject to a limit of 35% of the Fund's assets,
mortgage-backed securities issued by private issuers. These mortgage-backed
securities may be backed or collateralized by fixed, adjustable or floating rate
mortgages. The Fund may also invest in asset-backed securities which consist of
securities backed by company receivables, truck and auto loans, leases, credit
card receivables and home equity loans.
In order to reduce interest rate risk, and subject to a general limit of 25% of
the Fund's assets, the Fund may purchase floating or variable rate securities.
Some floating or variable rate securities will be subject to interest rate
"caps" or "floors." It may also buy securities on a when-issued basis, medium
term notes, putable securities and zero coupon securities. The Fund may also
invest up to 10% of its assets in restricted securities. The Fund may also
engage in futures and options transactions.
Under normal market conditions, it is anticipated that the Fund's average
weighted maturity will range from 4 to 10 years. In the case of mortgage related
securities and asset-backed securities, maturity will be determined based on the
expected average life of the security. The Fund may shorten its average weighted
maturity to as little as 90 days if deemed appropriate for temporary defensive
purposes. By so limiting the maturity of its investments, the Fund expects that
its net asset value will experience less price movement in response to changes
in interest rates than the net asset values of mutual funds investing in similar
credit quality securities with longer maturities.
The Fund's portfolio turnover rate was 184% for the fiscal year ended May 31,
1996. This rate of turnover, if continued, will likely result in higher
transaction costs and higher levels of realized capital gains than if the
turnover rate was lower.
INVESTMENT GRADE TAX-EXEMPT BOND FUND
The Investment Grade Tax-Exempt Bond Fund intends to be fully invested in
municipal securities the interest on which is exempt from regular federal income
taxes in the opinion of bond counsel to the issuer. The issuers of these
securities can be located in all fifty states, the District of Columbia, Puerto
Rico and other U.S. territories and possessions. It is a fundamental policy of
the Investment Grade Tax-Exempt Bond Fund to invest at least 80% of its total
assets in securities the income from which is exempt from regular federal income
tax and not treated as a preference item for purposes of the alternative minimum
tax. At least 65% of the Fund's assets will be invested in municipal bonds and
debentures, and at least 75% of its total assets invested in municipal bonds
will be in securities rated A or better by S&P or Moody's. Municipal securities
must be rated BBB or better by S&P or Baa or better by Moody's in the case of
bonds; SP-1,
<PAGE>
11
SP-2 or MIG-1, MIG-2 in the case of notes; A-1, A-2, P-1, P-2 in the case of
tax-exempt commercial paper; and SP-1, SP-2, VMIG-1 or VMIG-2 in the case of
variable rate demand obligations. The Fund will only acquire securities not
rated by S&P or Moody's if, at the time of purchase, the Fund's Advisor
determines that such unrated obligations are of comparable quality to rated
obligations that may be acquired by the Fund.
The Fund may invest in commitments to purchase the above securities on a when-
issued or delayed delivery basis, floating or variable rate securities and may
purchase municipal forwards, medium term notes, putable securities and zero
coupon securities. The Fund's Advisor has discretion to invest up to 20% of the
Fund's total assets in taxable debt securities rated at least BBB or better by
S&P or Baa or better by Moody's or, if not rated by S&P or Moody's, of
comparable quality at the time of purchase as determined by the Fund's Advisor,
repurchase agreements, and securities subject to the alternative minimum tax.
The Fund may also invest up to 10% of its assets in restricted securities that
the Fund's Advisor determines are liquid under guidelines adopted by the Trust's
Board of Trustees and may engage in futures and options transactions.
Under normal market conditions, it is anticipated that the Fund's average
weighted maturity will range from 4 to 10 years. The Fund may shorten its
average weighted maturity to as little as 90 days if deemed appropriate for
temporary defensive purposes. By so limiting the maturity of its investments,
the Fund's net asset value is expected to experience less price movement in
response to changes in interest rates than the net asset values of mutual funds
investing in similar credit quality securities with longer maturities.
The Fund's portfolio turnover rate was 514% for the fiscal year ended May 31,
1996. This rate of turnover, if continued, will likely result in higher
transaction costs and higher levels of realized capital gains than if the
turnover rate was lower.
U.S. GOVERNMENT SECURITIES FUND
Under normal market conditions, the Fund will invest at least 65% of its assets
in obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, including mortgage-backed securities issued or guaranteed by
U.S. Government agencies such as the Government National Mortgage Association
("GNMA"), the Federal National Mortgage Association ("FNMA") or the Federal Home
Loan Mortgage Corporation ("FHLMC"). Mortgage-backed securities consisting of
CMOs and real estate mortgage investment conduits ("REMICs") purchased by the
Fund will be issued or guaranteed as to payment of principal and interest by the
U.S. Government, its agencies or instrumentalities or, if issued by private
issuers, rated in one of the two highest rating categories by a nationally
recognized statistical rating organization (an "NRSRO").
The principal governmental issuers or guarantors of mortgage-backed securities
are GNMA, FNMA and FHLMC. Obligations of GNMA are backed by the full faith and
credit of the U.S. Government while obligations of FNMA and FHLMC are supported
by the respective agency only. The Fund may purchase mortgage-backed securities
that are backed or collateralized by fixed, adjustable or floating rate
mortgages.
Mortgage-backed securities that are not issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, including securities nominally
issued by a governmental entity (such as the Resolution Trust Corporation), are
not obligations of a
<PAGE>
12
governmental entity and thus may bear a risk of nonpayment. The timely payment
of principal and interest normally is supported, at least partially, by various
forms of insurance or guarantees. There can be no assurance, however, that such
credit enhancement will support full payment of the principal and interest on
such obligations. The average maturity of the Fund's investment portfolio will
typically range from 7 to 14 years.
With respect to the remaining 35% of its assets, the Fund may invest in
corporate or government bonds that carry a rating of Baa or better by Moody's or
BBB or better by S&P or better, or that are deemed by the Fund's Advisor to be
of comparable quality; commercial paper rated at the time of purchase within the
two highest ratings categories of an NRSRO; bankers' acceptances; certificates
of deposit and time deposits; and U.S. Treasury obligations, which include
custodial receipts and repurchase agreements involving securities that
constitute permissible investments for the Fund. The Fund intends to invest in
privately issued, mortgage-backed securities only if they are rated in one of
the two highest rating categories by an NRSRO.
The Fund may purchase securities on a forward commitment or when-issued basis,
which means that delivery and payment for such securities generally takes place
after the customary securities settlement period. The Fund may purchase floating
or variable rate securities, and may engage in dollar roll transactions.
LIMITED-TERM FEDERAL MORTGAGE SECURITIES FUND
Under normal market conditions, the Limited-Term Federal Mortgage Securities
Fund will invest at least 65% of its assets in mortgage-related securities
issued or guaranteed by U.S. Government agencies such as GNMA, FNMA or FHLMC.
Obligations of GNMA are backed by the full faith and credit of the U.S.
Government while obligations of FNMA and FHLMC are supported by the respective
agency only. The Fund may purchase mortgage-backed securities that are backed or
collateralized by fixed, adjustable or floating rate mortgages. The Fund's
holdings of mortgage-backed securities will typically have an average life of
from one to five years.
Mortgage-backed securities consisting of CMOs and REMICs purchased by the Fund
will be either issued or guaranteed as to payment of principal and interest by
the U.S. Government, its agencies or instrumentalities or, if issued by private
issuers, rated in one of the two highest rating categories by an NRSRO.
Mortgage-backed securities that are not issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, including securities nominally
issued by a governmental entity (such as the Resolution Trust Corporation), are
not obligations of the U.S. Government and thus bear a risk of nonpayment. The
timely payment of principal and interest normally is supported, at least
partially, by various forms of insurance or guarantees. There can be no
assurance, however, that such credit enhancement will support full payment of
the principal and interest on such obligations.
With respect to the remaining 35% of its assets, the Fund may invest in
corporate or government bonds that carry a rating of Baa or better by Moody's or
BBB or better by S&P, or that are deemed by the Fund's Advisor to be of
comparable quality; asset backed securities; commercial paper rated at the time
of purchase in one of the two highest ratings categories by an NRSRO; bankers'
acceptances; certificates of deposit and time deposits; U.S. Treasury
<PAGE>
13
obligations and custodial receipts; and repurchase agreements involving
securities that constitute permissible investments for the Fund.
The Fund may purchase securities on a forward commitment or when-issued basis,
which means that delivery and payment for such securities generally takes place
after the customary securities settlement period. The Fund may purchase floating
or variable rate securities, and may engage in dollar roll transactions. The
Fund may also purchase stripped mortgage-backed securities, but will limit such
purchases to 5% of its net assets.
SHORT-TERM BOND FUND
Under normal circumstances, the Short-Term Bond Fund will invest solely in
investment grade obligations rated BBB or better by S&P or Baa or better by
Moody's or, if not rated by S&P or Moody's, of comparable quality at the time of
purchase as determined by the Fund's Advisor consisting of debt obligations of
U.S. and foreign corporations, mortgage-backed securities; CMOs; asset-backed
securities; obligations (including mortgage-backed securities) issued or
guaranteed as to principal and interest by the U.S. Government, its agencies or
instrumentalities; and custodial receipts involving U.S. Treasury obligations
(including Separately Traded Registered Interest and Principal Securities
("STRIPS") and Coupon Under Book Entry System ("CUBES")). Under normal
circumstances, at least 65% of the Fund's total assets will be invested in
corporate and government bonds and debentures. No more than 25% of the Fund's
assets will be invested in securities rated BBB by S&P or Baa by Moody's or, if
not rated by S&P or Moody's, of comparable quality at the time of purchase by
the Fund's Advisor.
The Fund may purchase, without limitation, mortgage-backed securities issued or
guaranteed as to the payment of principal and interest by the U.S. Government,
its agencies or instrumentalities and, subject to a limit of 25% of the Fund's
assets, mortgage-backed securities issued by private issuers. These
mortgage-backed securities may be backed or collateralized by fixed, adjustable
or floating rate mortgages. The Fund may also invest in asset-backed securities,
which consist of securities backed by company receivables; truck and auto loans;
leases; credit card receivables; and home equity loans. The Fund will purchase
mortgage-backed and asset-backed securities only if they are rated at least AA
by S&P or Aa by Moody's or, if not rated by S&P or Moody's, determined to be of
comparable quality at the time of purchase by the Fund's Advisor.
The Fund may purchase securities on a when-issued basis and may acquire floating
or variable rate securities, medium term notes, putable securities, and zero
coupon securities. The Fund may also purchase securities issued by foreign
governments and supranational agencies. The Fund may also invest in municipal
securities when the Fund's Advisor feels it is consistent with the Fund's
investment objective. The Fund will not invest in municipal securities unless
the Fund's Advisor believes that the yield will be higher than the yield for
comparable taxable investments in which the Fund is permitted to invest. The
following quality criteria apply to the Fund's investments in municipal
securities. The Fund's investments in municipal notes will be limited to those
obligations (i) where both principal and interest are backed by the full faith
and credit of the United States, (ii) which are rated MIG-2 or V-MIG-2 or better
at the time of investment by Moody's, (iii) which are rated SP-2 or better at
the time of investment by S&P, or (iv) which, if not rated by S&P or Moody's,
are of equivalent quality to MIG-2, V-MIG-2, or SP-2 or better in
<PAGE>
14
the Advisor's judgment. The Fund's investment in municipal bonds will be limited
to bonds rated BBB or better by S&P or Baa or better by Moody's, or, if not
rated by S&P or Moody's, deemed by the Fund's Advisor to be of comparable
quality. For the Fund's investments in other types of tax-exempt municipal
investments, such as participation interests in municipal lease/purchase
agreements, the quality of the underlying credit or of the bank providing a
credit support arrangement must, in the Fund's Advisor's opinion, be equivalent
to the municipal note or bond ratings stated above. The Fund is also authorized
to invest up to 10% of its assets in restricted securities, including Rule 144A
securities, that the Fund's Advisor determines are liquid under guidelines
adopted by the Trust's Board of Trustees. The Fund may also enter into bond
futures contracts and options on bond futures contracts and engage in securities
lending.
The Fund intends to maintain a dollar-weighted average maturity of 3 years or
less, and the maximum remaining maturity for any security held by the Fund is 7
years. Under normal market conditions it is anticipated that the Fund's
dollar-weighted average maturity will range from 2 to 3 years. In the case of
mortgage related securities and asset-backed securities, maturity will be
determined based on the expected average life of the security. The Fund may
shorten its average weighted maturity to as little as 90 days if deemed
appropriate for temporary defensive purposes. By so limiting the maturity of its
investments, the Fund expects that its net asset value will experience less
price movement in response to changes in interest rates than the net asset
values of mutual funds investing in similar credit quality securities with
longer maturities.
The Fund's turnover rate was 163% for the fiscal year ended May 31, 1996. This
rate of turnover, if continued, will likely result in higher transaction costs
and higher levels of realized capital gains than if the turnover rate was lower.
SHORT-TERM U.S. TREASURY SECURITIES FUND
The Short-Term U.S. Treasury Securities Fund will invest exclusively in
obligations issued by the U.S. Treasury with maximum remaining maturities of 3
years or less. U.S. Treasury securities are considered to be among the safest,
as to timely principal and interest payments, investments available. The Fund
will not invest in repurchase agreements. The Fund may borrow money for
temporary or emergency purposes in an amount not exceeding one-third of its
total assets, but has no present intention to do so.
Under normal market conditions, it is anticipated that the Fund's average
maturity will range from one to two years. Furthermore, for temporary defensive
purposes during periods when the Fund's Advisor determines that market
conditions warrant, the Short-Term U.S. Treasury Securities Fund may reduce its
average weighted maturity to less than one year.
FLORIDA TAX-EXEMPT BOND FUND
The Florida Tax-Exempt Bond Fund intends to be fully invested in municipal
securities the interest on which is exempt from regular federal income tax based
on opinions from bond counsel to the issuers. The issuers of these securities
can be located in Florida, the District of Columbia, Puerto Rico and other U.S.
territories and possessions. It is a fundamental policy of the Fund to invest at
least 80% of its total assets in securities the income from which is exempt from
regular federal income tax and not treated as a preference item for purposes of
the alternative minimum tax. At least 65% of the Fund's assets will be invested
in Florida
<PAGE>
15
municipal bonds and debentures, and at least 75% of its total assets invested in
municipal bonds will be in securities rated A or better by S&P or Moody's.
Municipal securities must be rated BBB or better by S&P or Baa or better by
Moody's in the case of bonds; SP-1, SP-2 or MIG-1, MIG-2 in the case of notes;
A-1, A-2, or P-1, P-2 in the case of tax-exempt commercial paper; and SP-1,
SP-2, VMIG-1 or VMIG-2 in the case of variable rate demand obligations. No more
than 25% of the Fund's assets will be invested in bonds rated BBB by S&P or Baa
by Moody's. The Fund will only acquire securities not rated by S&P or Moody's
if, at the time of purchase, the Fund's Advisor determines that such unrated
obligations are of comparable quality to rated obligations that may be acquired
by the Fund.
The Fund may invest in commitments to purchase the above securities on a when-
issued or delayed delivery basis, floating or variable rate securities, and may
purchase municipal forwards, putable securities, medium term notes, and zero
coupon securities. The Fund's Advisor has discretion to invest up to 20% of the
Fund's total assets in taxable debt securities rated at least BBB or better by
S&P or Baa or better by Moody's or, if not rated by S&P or Moody's, of
comparable quality at the time of purchase as determined by the Fund's Advisor,
repurchase agreements, and securities subject to the alternative minimum tax.
The Fund may also invest in futures and options, but has no present intention to
do so for other than hedging purposes.
Under normal market conditions, it is anticipated that the Fund's average
weighted maturity will range from 6 to 25 years. The Fund may shorten its
average weighted maturity to as little as 90 days if deemed appropriate for
temporary defensive purposes.
GEORGIA TAX-EXEMPT BOND FUND
The Georgia Tax-Exempt Bond Fund intends to be fully invested in municipal
securities the interest on which is exempt from regular federal income taxes and
substantially exempt from State of Georgia income taxes based on opinions from
bond counsel to the issuers. The issuers of these securities can be located in
Georgia, the District of Columbia, Puerto Rico and other U.S. territories and
possessions. It is a fundamental policy of the Fund to invest at least 80% of
its total assets in securities the income from which is exempt from regular
federal income tax and not treated as a preference item for purposes of
alternative minimum tax. At least 65% of the Fund's assets will be invested in
Georgia municipal bonds and debentures, and at least 75% of its total assets
invested in municipal bonds will be in securities rated A or better by S&P or
Moody's. Municipal securities must be rated BBB or better by S&P or Baa or
better by Moody's in the case of bonds; SP-1, SP-2 or MIG-1, MIG-2 in the case
of notes; A-1, A-2, or P-1, P-2 in the case of tax-exempt commercial paper; and
VMIG-1 or VMIG-2 in the case of variable rate demand obligations. No more than
25% of the Fund's assets will be invested in bonds rated BBB by S&P or Baa by
Moody's. The Fund will only acquire securities not rated by S&P or Moody's if,
at the time of purchase, the Fund's Advisor determines that such unrated
obligations are of comparable quality to rated obligations that may be acquired
by the Fund.
The Fund may commit to purchase the above securities on a when-issued or delayed
delivery basis, invest in floating or variable rate securities, and may purchase
municipal forwards, putable securities, medium term notes and zero coupon
securities. The Fund's Advisor has discretion to invest up to 20% of the Fund's
total assets in taxable debt securities rated at least BBB or better by S&P
<PAGE>
16
or Baa or better by Moody's or, if not rated by S&P or Moody's, of comparable
quality at the time of purchase as determined by the Fund's Advisor, repurchase
agreements, and securities subject to the alternative minimum tax. The Fund may
also invest in futures and options, but has no present intention to do so for
other than hedging purposes.
Under normal market conditions, it is anticipated that the Fund's average
weighted maturity will range from 6 to 25 years. The Fund may shorten its
average weighted maturity to as little as 90 days if deemed appropriate for
temporary defensive purposes.
TENNESSEE TAX-EXEMPT BOND FUND
The Tennessee Tax-Exempt Bond Fund intends to be fully invested in municipal
securities the interest on which is exempt from regular federal income taxes and
substantially exempt from State of Tennessee income taxes based on opinions from
bond counsel to the issuers. The issuers of these securities can be located in
Tennessee, the District of Columbia, Puerto Rico and other U.S. territories and
possessions. It is a fundamental policy of the Fund to invest at least 80% of
its total assets in securities the income from which is exempt from regular
federal income tax and not treated as a preference item for purposes of the
alternative minimum tax. At least 65% of the Fund's assets will be invested in
Tennessee municipal bonds and debentures, and at least 75% of its total assets
invested in municipal bonds will be in securities rated A or better by S&P or
Moody's. Municipal securities must be rated BBB or better by S&P or Baa or
better by Moody's in the case of bonds; SP-1, SP-2 or MIG-1, MIG-2 in the case
of notes; A-1, A-2, or P-1, P-2 in the case of tax-exempt commercial paper; and
VMIG-1 or VMIG-2 in the case of variable rate demand obligations. No more than
25% of the Fund's assets will be invested in bonds rated BBB by S&P or Baa by
Moody's. The Fund will only acquire securities not rated by S&P or Moody's if,
at the time of purchase, the Fund's Advisor determines that such unrated
obligations are of comparable quality to rated obligations that may be acquired
by the Fund. The Fund may invest in floating or variable rate securities,
commitments to purchase the above securities on a when-issued or delayed
delivery basis, and may purchase municipal forwards, putable securities, medium
term notes and zero coupon securities. The Fund's Advisor has discretion to
invest up to 20% of the Fund's total assets in taxable debt securities rated at
least BBB or better by S&P or Baa or better by Moody's or, if not rated by S&P
or Moody's, of comparable quality at the time of purchase as determined by the
Fund's Advisor, repurchase agreements, and securities subject to the alternative
minimum tax. The Fund may also invest in futures and options, but has no present
intention to do so for other than hedging purposes.
Under normal market conditions, it is anticipated that the Fund's average
weighted maturity will range from 6 to 25 years. The Fund may shorten its
average weighted maturity to as little as 90 days if deemed appropriate for
temporary defensive purposes.
PRIME QUALITY MONEY MARKET FUND
The Prime Quality Money Market Fund will invest in money market instruments
denominated in U.S. dollars consisting of (i) U.S. Treasury obligations; (ii)
custodial receipts representing interests in component parts of U.S. Treasury
obligations; (iii) obligations issued or guaranteed as to principal and interest
by agencies and instrumentalities of the U.S. Government; (iv) commercial paper
issued by domestic and
<PAGE>
17
foreign issuers rated in the highest short-term rating category by one or more
NRSROs as described in the "Appendix" or, if not rated, determined by the Fund's
Advisor to be of comparable quality; (v) high quality obligations (including
certificates of deposit, time deposits, bankers' acceptances, Eurodollar and
Yankee bank obligations) of U.S. commercial banks (including foreign branches of
such banks), and U.S. and London branches of foreign banks or savings and loan
and thrift institutions that are members of the Federal Reserve System, the
Federal Deposit Insurance Corporation, or the Federal Savings and Loan Insurance
Corporation; (vi) high quality short-term corporate obligations issued by
companies with commercial paper meeting the ratings indicated in (iv), above,
or, if not rated, determined by the Fund's Advisor to be of comparable quality;
(vii) repurchase agreements involving such obligations; (viii) high quality
obligations of supranational entities satisfying the credit ratings described in
(iv), above, or, if not rated, determined by the Fund's Advisor to be of
comparable quality; and (ix) medium term notes. The Fund may not invest more
than 25% of its total assets in obligations issued by foreign branches of U.S.
banks and London branches of foreign banks. The Fund may purchase securities
subject to standby commitments. As a money market fund, the Fund is subject to
limitations on the percentage of its assets that may be invested in any one
issuer and on the percentage that may be invested in securities carrying the
second highest rating assigned by the requisite NRSROs.
U.S. GOVERNMENT SECURITIES MONEY MARKET FUND
The U.S. Government Securities Money Market Fund will invest exclusively in U.S.
Treasury obligations, U.S. Government Subsidiary Corporation securities (e.g.,
GNMA securities) and repurchase agreements with dealers selected pursuant to
guidelines adopted by the Trust's Board of Trustees and collateralized by U.S.
Treasury securities and U.S. Government Subsidiary Corporation securities.
TAX-EXEMPT MONEY MARKET FUND
The Tax-Exempt Money Market Fund intends to be fully invested in securities the
interest on which is exempt from regular federal income taxes in the opinion of
bond counsel to the issuer. It is a fundamental policy of the Tax-Exempt Money
Market Fund to invest at least 80% of its total assets in securities the income
from which is exempt from regular federal income taxes and not treated as a
preference item for purposes of the alternative minimum tax. The Fund may invest
in high quality U.S. dollar denominated municipal securities of issuers located
in all fifty states, the District of Columbia, Puerto Rico and other U.S.
territories rated in one of the two highest short-term rating categories by S&P
or Moody's or, if not rated, determined by the Fund's Advisor to be of
comparable quality. The Fund will primarily purchase municipal bonds with a
remaining maturity of 397 days or less, and will also acquire municipal notes
and tax-exempt commercial paper with similar maturities. The Fund may agree to
purchase short-term securities on a when-issued basis and may invest in
securities subject to standby commitments. Securities purchased on a when-issued
basis are subject to settlement within 45 days of the purchase date.
The Fund's Advisor has discretion to invest up to 20% of the Fund's assets in
U.S. dollar denominated obligations consisting of taxable money market
instruments, obligations issued or guaranteed by the U.S. Government, its
agencies and instrumentalities, repurchase
<PAGE>
18
agreements and securities subject to the alternative minimum tax.
GENERAL INVESTMENT POLICIES AND STRATEGIES
For temporary defensive purposes, during periods when its Advisor determines
that market conditions warrant, each Fund, except the U.S. Government Securities
Money Market Fund and Short-Term U.S. Treasury Securities Fund, may hold a
portion of its assets in cash and invest up to 100% of its assets in money
market instruments consisting of: securities issued or guaranteed as to
principal and interest by the U.S. Government, its agencies or
instrumentalities, custodial receipts involving U.S. Treasury obligations,
repurchase agreements, certificates of deposit, bankers' acceptances, time
deposits issued by banks or savings and loan associations, and commercial paper
rated in the highest rating category. A Fund may not be pursuing its investment
objective when it is engaged in temporary defensive investing.
The municipal bonds that the Investment Grade Tax-Exempt Bond Fund and State
Tax-Exempt Bond Funds may purchase include general obligation bonds, revenue or
special obligation bonds, and private activity and industrial development bonds.
General obligation bonds are backed by the taxing power of the issuing
municipality while revenue or special obligation bonds are backed by a specific
project or facility. The State Tax-Exempt Bond Funds may also purchase
certificates of participation which represent an interest in an underlying
obligation or commitment such as an obligation issued in connection with a
leasing arrangement. The payment of principal and interest on private activity
and industrial development bonds generally is dependent solely on the ability of
the facility's user to meet its obligation and the pledge, if any, of real or
personal property as security for such payment.
The Advisor to a State Tax-Exempt Bond Fund or the Investment Grade Tax-Exempt
Bond Fund may buy or sell portfolio securities with the intention of generating
capital gains. Such gains will increase the Fund's total return and will be
taxable upon distribution to Shareholders. See "Tax Information."
In the event that a security owned by a Fund is downgraded below the stated
rating categories, its Advisor will review and take appropriate action with
regard to the security.
A Fund's purchase of shares of other investment companies is limited by the
Investment Company Act of 1940 (the "1940 Act") and will ordinarily result in an
additional layer of charges and expenses.
Each of the Funds may engage in securities lending and will limit such practice
to 33 1/3% of its total assets. No Fund may purchase additional securities while
its outstanding borrowings exceed 5% of its assets.
It is a non-fundamental policy of each Fund to invest no more than 15% of its
net assets in illiquid securities (10% of the net assets of each Money Market
Fund). An illiquid security is a security which cannot be disposed of in the
usual course of business within seven days at a price approximating its carrying
value.
For additional information regarding permitted investments, see "Description of
Permitted Investments" in this Prospectus and in the Statement of Additional
Information.
INVESTMENT RISKS
FIXED INCOME SECURITIES
The market value of a Fund's fixed income investments will change in response to
interest
<PAGE>
19
rate changes and other factors. During periods of falling interest rates, the
values of outstanding fixed income securities generally rise. Conversely, during
periods of rising interest rates, the values of such securities generally
decline. Securities with longer maturities are subject to greater fluctuations
in value than securities with shorter maturities. Changes by an NRSRO to the
rating of any fixed income security and in the ability of an issuer to make
payments of interest and principal also affect the value of these investments.
Changes in the value of a Fund's securities will not affect cash income derived
from these securities but will affect the Fund's net asset value.
Fixed income securities rated BBB by S&P or Baa by Moody's (the lowest rating of
investment grade bonds) are deemed by these rating services to have speculative
characteristics.
Guarantees of a Fund's securities by the U.S. Government, its agencies or
instrumentalities guarantee only the payment of principal and interest on the
guaranteed securities, and do not guarantee the securities' yield or value or
the yield or value of a Fund's shares.
There is a risk that the current interest rate on floating and variable rate
instruments may not accurately reflect existing market interest rates.
FOREIGN SECURITIES
Investing in the securities of foreign companies involves special risks and
considerations not typically associated with investing in U.S. companies. These
risks and considerations include differences in accounting, auditing and
financial reporting standards, generally higher commission rates on foreign
portfolio transactions, the possibility of expropriation or confiscatory
taxation, adverse changes in investment or exchange control regulations,
political instability which could affect U.S. investment in foreign countries
and potential restrictions of the flow of international capital and currencies.
Foreign companies may also be subject to less government regulation than U.S.
companies. Moreover, the dividends payable on the foreign securities may be
subject to foreign withholding taxes, thus reducing the net amount of income
available for distribution to a Fund's Shareholders. Further, foreign securities
often trade with less frequency and volume than domestic securities and,
therefore, may exhibit greater price volatility. Changes in foreign exchange
rates will affect, favorably or unfavorably, the value of those securities which
are denominated or quoted in currencies other than the U.S. dollar.
MORTGAGE-BACKED SECURITIES
Mortgage-backed securities are subject to the risk of prepayment of the
underlying mortgages. During periods of declining interest rates, prepayment of
mortgages underlying these securities can be expected to accelerate. When the
mortgage-backed securities held by a Fund are prepaid, the Fund generally will
reinvest the proceeds in securities with a yield that reflects prevailing
interest rates, which may be lower than the prepaid security.
MUNICIPAL SECURITIES
Since each State Tax-Exempt Bond Fund invests in municipal securities issued by
governmental entities of its specific states the performance of each State
Tax-Exempt Bond Fund may be especially affected by factors pertaining to such
state's economy and other factors specifically affecting the ability of issuers
in that state to meet their obligations. As a result, the value of each State
Tax-Exempt Bond Fund's shares may fluctuate more widely
<PAGE>
20
than the value of shares of a portfolio investing in securities relating to a
number of different states. The ability of state, county, or local governments
to meet their obligations will depend primarily on the availability of tax and
other revenues to those governments and on their fiscal conditions generally.
Municipal securities may be affected from time to time by economic, political,
geographic and demographic conditions. In addition, constitutional amendments,
legislative measures, executive orders, administrative regulations and voter
initiatives may limit a government's power to raise revenues or increase taxes
and thus could adversely affect an issuer's ability to meet financial
obligations.
ZERO COUPON OBLIGATIONS
Zero coupon obligations are sold at original issue discount and do not make
periodic payments. Zero coupon obligations may be subject to greater
fluctuations in value due to interest rate changes than interest bearing
obligations. A Fund will be required to include the imputed interest in zero
coupon obligations in its current income. Because each Fund distributes all of
its net investment income to Shareholders, a Fund may have to sell portfolio
securities to distribute the income attributable to these obligations and
securities at a time when its Advisor would not have chosen to sell such
obligations or securities and which may result in a taxable gain or loss.
INVESTMENT LIMITATIONS
The following investment limitations constitute fundamental policies of each
Fund. Fundamental policies cannot be changed with respect to a Fund without the
consent of the holders of a majority of the Fund's outstanding shares. The term
"majority of the outstanding shares" means the vote of (i) 67% or more of a
Fund's shares present at a meeting, if more than 50% of the outstanding shares
of the Fund are present or represented by proxy, or (ii) more than 50% of a
Fund's outstanding shares, whichever is less.
Each Fund may not:
1. Purchase securities of any issuer (except securities issued or
guaranteed by the United States, its agencies or instrumentalities and
repurchase agreements involving such securities) if as a result more than 5% of
the total assets of a Fund would be invested in the securities of such issuer;
provided, however, that a Fund may invest up to 25% of its total assets without
regard to this restriction as permitted by applicable law.
2. Purchase any securities which would cause more than 25% of the total
assets of a Fund to be invested in the securities of one or more issuers
conducting their principal business activities in the same industry, provided
that this limitation does not apply to investments in obligations issued or
guaranteed by the U.S. Government or its agencies and instrumentalities,
repurchase agreements involving such securities or tax-exempt securities issued
by governments or political subdivisions of governments and, with respect to
only the Money Market Funds, obligations issued by domestic branches of U.S.
banks or U.S. branches of foreign banks subject to the same regulations as U.S.
banks. For purposes of this limitation, (i) utility companies will be divided
according to their services, for example, gas, gas transmission, electric and
telephone will each be considered a separate industry; (ii) financial service
companies will be classified according to the end users of their services, for
example, automobile finance, bank finance and diversified finance will each be
considered a separate industry; and (iii) supranational entities will be
considered to be a separate industry.
It is a non-fundamental policy of the Tax-Exempt Money Market Fund and
Investment Grade Tax-Exempt Bond Fund that they will not invest more than 25% of
their respective net assets in securities of one or more issuers conducting
their principal activities in the same state. In addition, the Tax-Exempt Money
Market
<PAGE>
21
Fund, Investment Grade Tax-Exempt Bond Fund and State Tax-Exempt Bond Funds will
not invest more than 25% of their respective total assets in securities the
interest on which is derived from revenues of similar type projects.
The foregoing percentages will apply at the time of the purchase of a security.
Additional investment limitations are set forth in the Statement of Additional
Information.
PERFORMANCE INFORMATION
MONEY MARKET FUNDS
From time to time each Money Market Fund may advertise its "current yield" and
"effective compound yield." Both yield figures are based on historical earnings
and are not intended to indicate future performance. The "current yield" of each
Fund refers to the income generated by an investment in a Fund over a seven-day
period (which period will be stated in the advertisement). This income is then
"annualized." That is, the amount of income generated by the investment during
that week is assumed to be generated each week over a 52-week period and is
shown as a percentage of the investment. The "effective yield" is calculated
similarly but, when annualized, the income earned by an investment in a Fund is
assumed to be reinvested. The "effective yield" will be slightly higher than the
"current yield" because of the compounding effect of this assumed reinvestment.
The Tax-Exempt Money Market Fund may also advertise a "tax-equivalent yield,"
which is calculated by determining the rate of return that would have been
achieved on a fully taxable investment to produce the after tax equivalent of
the Fund's yield, assuming certain tax brackets for a Shareholder.
BOND AND STATE TAX-EXEMPT BOND FUNDS
From time to time, the Bond and State Tax-Exempt Bond Funds may advertise
performance (yield and total return). These figures will be based on historical
earnings and are not intended to indicate future performance. The yield of a
Fund refers to the annualized income generated by an investment in that Fund
over a specified 30-day period. The yield is calculated by assuming that the
income generated by the investment during that period is generated over one year
and is shown as a percentage of the investment.
The Investment Grade Tax-Exempt and State Tax-Exempt Bond Funds may also
advertise a "tax-equivalent yield," which is calculated by determining the rate
of return that would have been achieved on a fully taxable investment to produce
the after tax equivalent of the Fund's yield, assuming certain tax brackets for
a Shareholder.
The total return of a Fund refers to the average compounded rate of return to a
hypothetical investment, including any sales charge imposed, for designated time
periods (including but not limited to, the period from which a Fund commenced
operations through the specified date), assuming that the entire investment is
redeemed at the end of each period and assuming the reinvestment of all dividend
and capital gains distributions.
The performance of Investor Shares and Flex Shares of the Trust will normally be
lower than for Trust Shares of the Trust because Investor Shares and Flex Shares
are subject to distribution, service and certain transfer agent fees not charged
to Trust Shares. Because of their differing distribution expense arrangements,
the performance of Flex Shares in comparison to Investor Shares will vary
depending upon the investor's investment time horizon.
Each Fund may periodically compare its performance to other mutual funds tracked
by mutual fund rating services, to broad groups of comparable mutual funds or to
unmanaged indices which may assume reinvestment of dividends but generally do
not reflect deductions for administrative and management costs.
<PAGE>
22
FUNDLINK
All purchases and redemptions of Investor Shares may be completed via FUNDLINK,
a telephone activated service that allows Shareholders to transfer money between
the STI Classic Funds and a Shareholder's SunTrust bank account(s). To initiate
a FUNDLINK transaction, Shareholders are provided a toll-free telephone number
(1-800-428-6970) to call the Trust's transfer agent. To utilize this service, a
Shareholder must contact an Investment Consultant of a SunTrust Banks, Inc.
affiliate bank and complete the appropriate application and authorization
agreements.
PURCHASE OF FUND SHARES
Investor Shares are sold on a continuous basis and may be purchased by
contacting the Trust's transfer agent, Federated Services Company (the "Transfer
Agent"), either by mail, by telephone or by wire. Investor Shares may also be
purchased through Investment Consultants of SunTrust Securities, Inc., which
serves as Shareholder Servicing Agents to the Trust. Furthermore, Investor
Shares may be purchased through certain correspondent banks of SunTrust Banks,
Inc. or other financial institutions who have executed dealer sales agreements.
All purchases made by check should be in U.S. dollars and made payable to the
"STI Classic Funds (Fund Name)." Third party checks, credit cards, credit card
checks and cash will not be accepted. When purchases are made by check,
redemptions will not be allowed until the investment being redeemed has been in
the account for 15 Business Days.
Shares may be purchased on days on which the New York Stock Exchange is open for
business (a "Business Day"). However, money market mutual fund shares cannot be
purchased or redeemed for same day settlement on days the Federal Reserve is
closed.
MONEY MARKET FUNDS
A purchase order for any of the Money Market Funds will be effective as of the
Business Day it is received by the Transfer Agent and eligible to receive
dividends declared the same day if the Transfer Agent receives the order before
11:00 a.m. Eastern time for the Tax-Exempt Money Market Fund or before 1:00 p.m.
Eastern time for the Prime Quality Money Market Fund and U.S. Government
Securities Money Market Fund and the Custodian receives federal funds before
4:00 p.m. Eastern time on such day. Otherwise, purchase orders for the Money
Market Funds will be effective the next Business Day provided the Custodian
receives readily available funds before 4:00 p.m. Eastern time on the next such
Business Day. The purchase price is the net asset value per share next computed
after the order is received and accepted by the Trust. The net asset value per
share of each Fund is determined by dividing the total value of its investments
and other assets, less any liabilities, by its total outstanding shares. The net
asset value per share is calculated as of close of business of the New York
Stock Exchange (currently 4:00 p.m. Eastern time) each Business Day based on the
amortized cost method described in the Statement of Additional Information and
is expected to remain constant at $1.00 per share.
Minimum initial and subsequent purchase amounts for all Investor Shares of Money
Market Funds are $5,000 and $1,000, respectively. Purchases made pursuant to the
Systematic Investment Plan (described below) are subject to lower minimum
initial and subsequent purchase amounts. Subsequent purchases via statement
coupon are permitted in amounts of $100 or more. These minimums may be waived at
the Distributor's discretion.
BOND AND STATE TAX-EXEMPT BOND FUNDS
A purchase order for any of the Bond or State Tax-Exempt Bond Funds will be
effective as of the Business Day it is received by the Transfer Agent if the
Transfer Agent receives the order
<PAGE>
23
before 4:00 p.m. Eastern time. Purchases will be made in full and fractional
shares of a Fund calculated to three decimal places. Purchases by mail are
considered received after payment by check is converted into federal funds. The
purchase price of Investor Shares of a Fund is the net asset value next
determined after a purchase order is effective plus any applicable sales charge
(the "offering price"). The net asset value per share of a Fund is determined by
dividing the total market value of the Fund's investments and other assets, less
any liabilities, by the total outstanding shares of the Fund. Net asset value
per share is determined daily as of 4:00 p.m. Eastern time on any Business Day.
Pursuant to guidelines established by the Trustees, the Trust may use a pricing
service to provide market quotations or valuations for securities owned by each
Fund.
Minimum initial and subsequent purchase amounts, respectively, for each Bond and
State Tax-Exempt Bond Fund are $2,000 and $1,000 ($100 via statement coupon).
Employees and their immediate family members (spouses and children under age 21)
of SunTrust Banks, Inc. and its affiliates may establish accounts with a minimum
initial purchase amount of $1,000. The minimum initial purchase amount for
retirement plans is $2,000. These minimums may be waived at the Distributor's
discretion.
Financial institutions may impose an earlier cut-off time for receipt of
purchase orders directed through them to allow for processing and transmittal of
these orders to the Transfer Agent for effectiveness the same day.
The Trust reserves the right to reject a purchase order when the Distributor
determines that it is not in the best interest of the Trust and/or
Shareholder(s).
The Trust maintains procedures, including identification methods and other
means, for ascertaining the identity of callers and authenticity of
instructions. If reasonable procedures are not employed, the Trust and/or the
Transfer Agent may be liable for any losses due to unauthorized or fraudulent
telephone transactions. Neither the Transfer Agent nor the Trust will be
responsible for any loss, liability, cost or expense for acting upon telephone
or wire instructions reasonably believed to be genuine.
Shares of the Funds are offered only to residents of states in which the shares
are eligible for purchase. Investors in certain states may be required to
purchase shares through institutions registered as brokers/dealers in such
states.
Although the methodology and procedures for calculating the net asset value of
Investor Shares are identical to those for Trust Shares and Flex Shares, the net
asset value per share of the classes may differ because of the distribution and
certain transfer agent expenses charged to Investor Shares and Flex Shares.
SYSTEMATIC INVESTMENT PLAN
Shares of each Fund may be purchased systematically through deductions from
checking or savings accounts maintained through SunTrust Banks, Inc. affiliate
banks. Investors may purchase shares on a fixed schedule (semi-monthly or
monthly) with amounts from $100 up to $100,000. The Systematic Investment Plan
is subject to account minimum initial purchase and subsequent purchase amounts
of $500 and $50 and minimum balance requirements. The purchases will be
effective on the Business Day that the Transfer Agent receives the transmission.
<PAGE>
24
SALES CHARGE INFORMATION
The following schedules apply to the purchase of Investor Shares of a Fund:
<TABLE>
<CAPTION>
AMOUNT OF
SALES CHARGE
REALLOWED TO
SALES CHARGE SALES CHARGE DEALERS
AS A AS A AS A
PERCENTAGE OF PERCENTAGE OF PERCENTAGE OF
OFFERING NET AMOUNT OFFERING
PRICE INVESTED PRICE*
------------- ------------- -------------
<S> <C> <C> <C>
U.S. GOVERNMENT SECURITIES,
INVESTMENT GRADE TAX-EXEMPT BOND,
INVESTMENT GRADE BOND, and STATE TAX-EXEMPT BOND FUNDS
Less than $100,000........................................ 3.75% 3.90% 3.375%
$100,000 but less than $250,000........................... 3.25% 3.36% 2.925%
$250,000 but less than $1,000,000......................... 2.50% 2.56% 2.250%
$1,000,000 and higher..................................... 1.00% 1.01% 0.900%
LIMITED-TERM FEDERAL MORTGAGE SECURITIES FUND
Less than $100,000........................................ 2.50% 2.56% 2.250%
$100,000 but less than $250,000........................... 1.75% 1.78% 1.575%
$250,000 but less than $1,000,000......................... 1.25% 1.27% 1.125%
$1,000,000 and higher..................................... None None None
SHORT-TERM BOND FUND
Less than $100,000........................................ 2.00% 2.04% 1.800%
$100,000 but less than $250,000........................... 1.50% 1.52% 1.350%
$250,000 but less than $1,000,000......................... 1.00% 1.01% 0.900%
$1,000,000 and higher..................................... None None None
SHORT-TERM U.S. TREASURY SECURITIES FUND
Less than $100,000........................................ 1.00% 1.01% 0.900%
$100,000 but less than $250,000........................... 0.75% 0.76% 0.675%
$250,000 but less than $500,000........................... 0.50% 0.50% 0.450%
$500,000 and higher....................................... None None None
</TABLE>
*The entire sales charge will be reallowed to dealers affiliated with the
Advisers and their affiliates. Dealers who receive more than 90% of the sales
charge may be considered underwriters for purposes of the Securities Act of
1933.
<PAGE>
25
Employees and their immediate family members (spouses and children under age 21)
of SunTrust Banks, Inc. and its affiliates, as well as persons investing
distributions from qualified employee benefit retirement plans or rollovers from
Individual Retirement Accounts ("IRAs") previously established with a SunTrust
Banks, Inc. affiliate bank trust department, will be exempt from sales charges
in purchasing Investor Shares.
When accounts for which a subsidiary bank of SunTrust Banks, Inc. has acted in a
fiduciary, administrative, custodial or investment advisory capacity are closed
and Investor Shares purchased, the Investor Shares that are purchased in an
amount equal to or lesser than the value of the account distribution will be
exempt from sales charges. Any subsequent purchases will be subject to the
applicable sales charge.
Purchases of STI Classic Fund Investor Shares and/or Trust Shares through a
SunTrust Securities, Inc. asset allocation account will be exempt from sales
charges.
Dealers will be reallowed the entire sales charge imposed on purchases of
Investor Shares and may, therefore, be deemed "underwriters" for purposes of the
Securities Act of 1933.
RIGHTS OF ACCUMULATION
In calculating the sales charge rates applicable to current purchases of a
Fund's Investor Shares by a "single purchaser," the Trust will cumulate current
purchases at the offering price with the current market value of previously
purchased Investor Shares of any Trust's non-Money Market Funds ("Eligible
Funds") which are sold subject to a sales charge.
The term "single purchaser" refers to (i) an individual, (ii) an individual and
spouse purchasing shares of an Eligible Fund for their own account or for trust
or custodial accounts for their minor children, or (iii) a fiduciary purchasing
for any one trust, estate or fiduciary account, including employee benefit plans
created under Sections 401 or 457 of the Internal Revenue Code of 1986, as
amended, including related plans of the same employer. Furthermore, under this
provision, purchases by a "single purchaser" shall include purchases by an
individual for his/her own account in combination with (i) purchases of that
individual and spouse for their joint account or for trust and custodial
accounts for their minor children and (ii) purchases of that individual's spouse
for his/ her own account. To be entitled to a reduced sales charge based upon
shares already owned, the investor must ask the Distributor for such reduction
at the time of purchase and provide the account number(s) of the investor, the
investor and spouse, and their children (under age 21), and give the ages of
such children. The Funds may amend or terminate this right of accumulation at
any time as to subsequent purchases.
LETTER OF INTENT
By submitting a Letter of Intent to the Transfer Agent, a "single purchaser" may
purchase shares of an Eligible Fund during a 13-month period at the reduced
sales charge rates applicable to the aggregate amount of the intended purchases
stated in the Letter. The Letter may apply to purchases made up to 90 days
before the date of the Letter. The purchase price for these prior trades will
not be adjusted.
A written Letter of Intent provided to the Transfer Agent, is not legally
binding on the signer or a Fund, and provides for the holding in escrow by the
Transfer Agent of 3.75% of the total amount intended to be purchased until such
purchase is completed within the
<PAGE>
26
13-month period. A Letter of Intent may be dated to include shares purchased up
to 90 days prior to the date the Letter is signed. The 13-month period begins on
the date of the earliest purchase. If the intended investment is not completed,
the Transfer Agent will surrender an appropriate number of the escrowed shares
for redemption in order to realize the difference between the sales charge on
the shares purchased at the reduced rate and the sales charge otherwise
applicable to the total shares purchased.
COMBINED PURCHASE/QUANTITY DISCOUNT PRIVILEGE
The Trust will combine purchases of Investor Shares of Eligible Funds made on
the same day by the investor, his/her spouse, and his/her children under age 21
when calculating the sales charge. This combination may also apply to purchases
made pursuant to a Letter of Intent. Purchases made by such persons over a 13
month period could thus qualify the entire purchase for a reduced sales charge.
SPECIAL DIVIDEND SERVICES
Dividend distributions made by a Fund can be automatically reinvested in any one
Fund without a sales charge, subject to account minimum initial purchase amounts
and minimum maintained balance requirements.
REPURCHASE OF FUND SHARES
Investor Shares of a Fund may be purchased at their net asset value if Investor
Shares, sold subject to a sales charge, were redeemed from a Fund within the
past 60 days. The amount which may be reinvested is limited to an amount up to
but not exceeding the redemption proceeds. In order to exercise this privilege,
a written order for the purchases must be received by the Transfer Agent within
60 days after the redemption. It is the responsibility of the investor to notify
the Transfer Agent that the investor is repurchasing Investor Shares at the time
of the transaction.
REDEMPTION OF FUND SHARES
Shareholders may redeem their Investor Shares without charge on any day that net
asset value is calculated. Investor Shares may ordinarily be redeemed by mail or
telephone request to the Transfer Agent.
With respect to the Money Market Funds, redemption orders must be received by
the Transfer Agent on a Business Day before 1:00 p.m. Eastern time for the Prime
Quality and U.S. Government Securities Money Market Funds and before 11:00 a.m.
Eastern time for the Tax-Exempt Money Market Fund to be effective that day.
Redemption orders received after the times noted above will normally be executed
the following day. The Trust reserves the right to wire redemption proceeds
within five Business Days after receiving the redemption orders if, in the
judgment of the Advisor, an earlier payment could adversely impact a Fund.
With respect to the Bond and State Tax-Exempt Bond Funds, redemption orders must
be received by the Transfer Agent before 4:00 p.m. Eastern time on any Business
Day to be effective that day. Redemption proceeds are normally remitted within
five Business Days following receipt of the order.
Requests for redemptions from the Funds may be placed in writing or by telephone
directly to an Investment Consultant of a SunTrust Banks, Inc. affiliate bank,
through SunTrust Securities, Inc. and through certain correspondent banks of
SunTrust Banks, Inc. (or via FUNDLINK to the Transfer Agent). Redemptions placed
via
<PAGE>
27
telephone or FUNDLINK (1-800-428-6970) can only be placed for a minimum of
$1,000.
Redemption proceeds can be wired, distributed by check, or transferred to a
Shareholder's account via FUNDLINK. There will be a $7.00 wire charge for
redemptions processed from accounts which require wires to particular banks.
When Investor Shares are purchased by check or through ACH Automated Clearing
House ("ACH") the proceeds from the redemption of those Shares are not
available, and the Shares may not be exchanged, until the Trust or its agents
are reasonably certain that the purchase check has cleared, which could take up
to 15 Business Days.
A Shareholder may be required to redeem Investor Shares if the balance in a
Shareholder's Fund account drops below $2,000 for the Bond and State Tax-Exempt
Bond Funds ($5,000 for the Money Market Funds) as a result of redemptions, and,
the Shareholder does not increase its balance to at least $2,000 for the Bond
and State Tax-Exempt Bond Funds ($5,000 for the Money Market Funds) on 60 days'
written notice. The minimum account balance for employees of SunTrust is $1,000
for the Bond and State Tax-Exempt Bond Funds. The Trust intends to pay cash for
all shares redeemed, but under abnormal conditions which make payment in cash
unwise, payment may be made wholly or partly in liquid portfolio securities with
a market value equal to the redemption price. In such cases, an investor may
incur brokerage costs in converting such securities to cash.
Redemptions of $25,000 or greater for Bond and State Tax-Exempt Bond Funds must
be in writing and a signature guarantee must accompany the written request.
SYSTEMATIC WITHDRAWAL PLAN
A systematic withdrawal plan can be established for any Fund account with a
$10,000 minimum balance. Under the plan, redemptions can be automatically
processed (monthly, quarterly, semi-annually or annually) by check or through an
electronic transfer to a Shareholder's SunTrust Banks, Inc. affiliate bank
account with a minimum redemption amount of $50.
EXCHANGES
Some or all of the Investor Shares of the Funds for which payment has been
received (i.e., an established account) may be exchanged for Investor Shares of
other Funds within the Trust. Shares being exchanged for the first time from a
Money Market Fund into a Fund with a sales charge will be subject to the sales
charge of that Fund. Likewise, Shares being exchanged for the first time into a
Fund with a higher sales charge will be subject to an incremental sales charge.
Exchanges made from a Fund with a higher sales charge to a Fund with a lower
sales charge or a Money Market Fund are made without a sales charge.
Four exchanges may be made per calendar year. More than four exchanges in a year
may be considered an abuse of the exchange privilege. The Trust reserves the
right to charge a $10.00 fee for each exchange. A Shareholder with more than
four exchanges per year will be notified prior to the imposition of any such
fee. Exchanges may be requested through an Investment Consultant of a SunTrust
Banks, Inc. affiliate bank, SunTrust Securities, Inc. and certain correspondent
banks of SunTrust Banks, Inc. either by telephone or in writing (or via FUNDLINK
through the Transfer Agent). The minimum exchange amount is $1,000 subject to
account minimum initial purchase amounts
<PAGE>
28
and minimum maintained balance requirements. This exchange offer is subject to
change or termination by the Trust at any time upon 60 days' notice.
DIVIDENDS AND DISTRIBUTIONS
MONEY MARKET FUNDS
Dividends from net investment income (exclusive of capital gains) of each of the
Money Market Funds are declared on each Business Day to Shareholders at the
close of business on the day of declaration. Net income for dividend purposes
consists of (i) interest accrued and original issue discount earned on the
Fund's assets, (ii) plus the amortization of market discount (except in the case
of the Tax-Exempt Money Market Fund) and minus the amortization of market
premium on such assets, (iii) less accrued expenses directly attributable to the
Fund and the general expenses of the Trust prorated to the Fund on the basis of
its relative net assets. Investor Shares begin earning dividends on the Business
Day the purchase order is effective and continue earning dividends through and
including the Business Day before the redemption order is effective. Dividends
are paid within ten Business Days after the end of each month in the form of
additional Investor Shares of the same Fund unless the Shareholder has elected
prior to the date of distribution to receive payment in cash. Such election, or
any revocation thereof, must be made in writing at least 15 days prior to the
date of distribution to the Transfer Agent and will become effective with
respect to dividends paid after its receipt. Dividends are paid within ten
Business Days after a Shareholder's complete redemption of his Investor Shares
in a Fund.
BOND AND STATE TAX-EXEMPT BOND FUNDS
Dividends from net investment income (exclusive of capital gains) are declared
on each Business Day and paid monthly by each of the Bond and State Tax-Exempt
Bond Funds. Each Fund's net realized capital gains (including net short-term
capital gains) are distributed at least annually. Net income for dividend
purposes consists of (i) interest accrued and original issue discount earned on
the Fund's assets, (ii) plus the amortization of market discount (except in the
case of the Investment Grade Tax-Exempt Bond and State Tax-Exempt Bond Funds)
and minus the amortization of market premium on such assets, (iii) plus dividend
or distribution income on such assets, (iv) less accrued expenses directly
attributable to the Fund and the general expenses of the Trust prorated to the
Fund on the basis of its relative net assets. Investor Shares invested in the
Bond and State Tax-Exempt Bond Funds are eligible to begin earning dividends
that are declared on the Business Day after the purchase order is effective and
continue to be eligible for dividends through and including the day the
redemption order is effective.
The net asset value of Investor Shares of the non-Money Market Funds will be
reduced by the amount of any dividend or distribution. Dividends and
distributions are paid in the form of additional Investor Shares of the same
Fund unless the customer has elected prior to the date of distribution to
receive payment in cash. Such election, or any revocation thereof, must be made
in writing prior to the date of distribution to the Transfer Agent and will
become effective with respect to dividends paid after its receipt. Dividends and
distributions are paid within ten days of the end of the time period to which
the dividend relates. Dividends and distributions payable to a Shareholder are
paid in cash within ten Business Days after a
<PAGE>
29
Shareholder's complete redemption of its Investor Shares in a Fund.
TAX INFORMATION
The following summary of federal income tax consequences is based on current tax
laws and regulations, which may be changed by legislative, judicial or
administrative action. No attempt has been made to present a detailed
explanation of the federal, state or local income tax treatment of each Fund or
its Shareholders. In particular, no attempt has been made herein to provide
information on the tax laws of Florida, Georgia or Tennessee. Accordingly,
Shareholders are urged to consult their tax advisors regarding specific
questions as to federal, state and local income taxes.
TAX STATUS OF EACH FUND
Each Fund is treated as a separate entity for federal tax purposes, and is not
combined with the Trust's other Funds. Each Fund intends to qualify for the
special tax treatment afforded regulated investment companies by the Internal
Revenue Code of 1986, as amended, (the "Code") so that it will be relieved of
federal income tax on that part of its net investment income and net capital
gains (the excess of long-term capital gains over net short-term capital loss)
which is distributed to Shareholders. Each Fund intends to make sufficient
distributions prior to the end of each calendar year to avoid liability for the
federal excise tax applicable to regulated investment companies.
TAX STATUS OF DISTRIBUTIONS: MONEY MARKET FUNDS
The Prime Quality Money Market Fund and the U.S. Government Securities Money
Market Fund will each distribute all of their net investment income (including,
for this purpose, net short-term capital gains) to Shareholders. Dividends from
net investment income will be taxable to Shareholders as ordinary income whether
received in cash or in additional shares.
The Tax-Exempt Money Market Fund will distribute all of its net investment
income (including net short-term capital gains) to Shareholders. If, at the
close of each quarter of its taxable year, at least 50% of the value of the
Fund's assets consists of obligations the interest on which is excludable from
gross income, the Fund may pay exempt-interest dividends to its Shareholders.
Those dividends constitute the portion of the aggregate dividends as designated
by the Fund, equal to the excess of the excludable interest over certain amounts
disallowed as deductions. Exempt-interest dividends are excludable from a
Shareholder's gross income for regular federal income tax purposes, but may have
alternative minimum tax consequences. See the Statement of Additional
Information.
Current federal tax law limits the types and volume of bonds qualifying for the
federal income tax exemption of interest, which may have an effect on the
ability of the Tax-Exempt Money Market Fund to purchase sufficient amounts of
tax-exempt securities to satisfy the Code's requirements for the payment of
exempt-interest dividends.
TAX STATUS OF DISTRIBUTIONS: BOND AND STATE TAX-EXEMPT BOND FUNDS
Each Fund will distribute substantially all of its net investment income
(including, for this purpose, net short-term capital gains) to Shareholders.
Dividends from net investment income paid by the Funds will be taxable to
Shareholders as ordinary income whether received in cash or in additional
shares.
<PAGE>
30
Each of the Investment Grade Tax-Exempt Bond and State Tax-Exempt Bond Funds
will distribute all of its net investment income (including net short-term
capital gains) to Shareholders. If, at the close of each quarter of its taxable
year, at least 50% of the value of a Fund's assets consist of obligations the
interest on which is excludable from gross income, the Fund may pay
"exempt-interest dividends" to its Shareholders. Those dividends constitute the
portion of the aggregate dividends as designated by the Fund, equal to the
excess of the excludable interest over certain amounts disallowed as deductions.
Exempt-interest dividends are excludable from a Shareholder's gross income for
regular federal income tax purposes, but may have alternative minimum tax
consequences. See the Statement of Additional Information.
Current federal tax law limits the types and volume of bonds qualifying for the
federal income tax exemption of interest, which may have an effect on the
ability of the Investment Grade Tax-Exempt Bond and State Tax-Exempt Bond Funds
to purchase sufficient amounts of tax-exempt securities to satisfy the Code's
requirements for the payment of exempt-interest dividends.
TAX STATUS OF DISTRIBUTIONS: ALL FUNDS
Dividends from net investment income will qualify for the dividends received
deduction for corporate Shareholders only to the extent such distributions are
derived from dividends paid by domestic corporations. Dividends from net capital
gains (the excess of net long-term capital gains over net short-term capital
loss) will be treated as long-term capital gains, regardless of how long the
Shareholder has held shares and regardless of whether distributions are received
in cash or in additional shares. For certain individual Shareholders, net
long-term capital gains may be taxed at a lower rate than ordinary income. Each
Fund will make annual reports to Shareholders of the federal income tax status
of all distributions. Dividends declared by a Fund in October, November or
December of any year and payable to Shareholders of record on a date in that
month will be deemed to have been paid by the Fund and received by the
Shareholders on December 31, of that year, if paid by the Fund any time during
the following January.
Income received on direct U.S. obligations is exempt from tax at the state level
when received directly by a Fund and may be exempt, depending on the state, when
received by a Shareholder from a Fund provided certain state-specific conditions
are satisfied. Not all states permit such income dividends to be tax-exempt and
some require that a certain minimum percentage of an investment company's income
be derived from state tax-exempt interest. Each Fund will inform Shareholders
annually of the percentage of income and distributions derived from direct U.S.
obligations. Shareholders should consult their tax advisors to determine whether
any portion of the income dividends received from a Fund is considered tax
exempt in their particular states.
Income derived by a Fund from obligations of foreign issuers may be subject to
foreign withholding taxes. No Fund will be able to elect to treat Shareholders
as having paid their proportionate share of such foreign taxes.
Interest on indebtedness incurred or continued by a Shareholder in order to
purchase shares of a "tax-exempt" Fund is not deductible. Furthermore, entities
or persons who are "substantial users" (or persons related to "substantial
users") of facilities financed by "private activity bonds" or certain industrial
development bonds should consult their tax advisors before purchasing shares.
For these purposes,
<PAGE>
31
the term "substantial user" is defined generally to include a "non-exempt
person" who regularly uses in trade or business a part of a facility financed
from the proceeds of such bonds. See the Statement of Additional Information.
A sale, exchange or redemption of Fund shares is a taxable event to the
Shareholder.
STI CLASSIC FUNDS INFORMATION
THE TRUST
The Trust was organized as a Massachusetts business trust under a Declaration of
Trust dated January 15, 1992. The Declaration of Trust permits the Trust to
offer separate portfolios of shares and different classes of each Fund. All
consideration received by the Trust for shares of any Fund and all assets of
such Fund belong to that Fund and would be subject to liabilities related
thereto.
The Trust pays its expenses, including fees of its service providers, audit and
legal expenses, expenses of preparing prospectuses, proxy solicitation material
and reports to Shareholders, costs of custodial services and registering the
shares under federal and state securities laws, pricing, insurance expenses,
litigation and other extraordinary expenses, brokerage costs, interest charges,
taxes and organization expenses.
BOARD OF TRUSTEES
The management and affairs of the Trust are supervised by the Trustees under the
laws governing business trusts in the Commonwealth of Massachusetts. The
Trustees have approved contracts under which, as described below, certain
companies provide essential management services to the Trust.
INVESTMENT ADVISORS
The Advisors are indirect wholly-owned subsidiaries of SunTrust Banks, Inc.
("SunTrust"), a southeastern regional bank holding company with assets of $66
billion as of December 31, 1995. SunTrust ranks among the twenty largest U.S.
banking companies. Its three principal subsidiaries--SunTrust Banks of Florida,
Inc., SunTrust Banks of Georgia, Inc. and SunTrust Banks of Tennessee,
Inc.--provide a wide range of personal and corporate banking, trust, and
investment services through more than 600 locations in the three-state area.
Total discretionary assets under management with SunTrust Banks, Inc. equalled
approximately $47 billion as of December 31, 1995.
Trusco Capital Management, Inc. ("Trusco") serves as the Advisor to the Prime
Quality Money Market, U.S. Government Securities Money Market, Tax-Exempt Money
Market, Short-Term U.S. Treasury Securities, Short-Term Bond and U.S. Government
Securities Funds. As of June 30, 1996, Trusco had approximately $13.7 billion in
assets under management. The principal business address of Trusco is 50 Hurt
Plaza, Suite 1400, Atlanta, Georgia 30303.
STI Capital Management, N.A. ("STI Capital") serves as the Advisor to the
Limited-Term Federal Mortgage Securities, Investment Grade Bond, Investment
Grade Tax-Exempt Bond and Florida Tax-Exempt Bond Funds. As of June 30, 1996,
STI Capital had discretionary management authority with respect to assets of
approximately $11 billion. The principal business address of STI Capital is P.O.
Box 3808, Orlando, Florida 32802.
SunTrust Bank, Chattanooga, N.A. ("SunTrust Bank, Chattanooga") (formerly
American National Bank & Trust Company) serves as the Advisor to the Tennessee
Tax-Exempt Bond Fund. SunTrust Bank, Chattanooga, N.A. had
<PAGE>
32
approximately $1.7 billion in assets under management as of December 31, 1995.
The principal business address of SunTrust Bank, Chattanooga, N.A. is 736 Market
Street, Chattanooga, Tennessee 37402.
SunTrust Bank, Atlanta (formerly Trust Company Bank) serves as the Advisor to
the Georgia Tax-Exempt Bond Fund. As of December 31, 1995, SunTrust Bank,
Atlanta had approximately $12.5 billion in assets under management. The
principal address for SunTrust Bank, Atlanta is 25 Park Place, Atlanta, Georgia
30303.
The Trust and the above Advisors have entered into advisory agreements (the
"Advisory Agreements"). Under the Advisory Agreements, the Advisors make the
investment decisions for the assets of the Fund(s) they advise and continuously
review, supervise and administer their respective Fund's investment program. The
Advisors discharge their responsibilities subject to the supervision of, and
policies established by, the Trustees of the Trust. STI CLASSIC FUNDS ARE NOT
DEPOSITS, ARE NOT INSURED OR GUARANTEED BY THE FDIC OR ANY OTHER GOVERNMENT
AGENCY, AND ARE NOT ENDORSED OR GUARANTEED BY AND DO NOT CONSTITUTE OBLIGATIONS
OF SUNTRUST BANKS, INC. OR ANY OF ITS AFFILIATES. INVESTMENTS IN THE FUNDS
INVOLVE RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. RETURNS AND PRINCIPAL
VALUES WILL FLUCTUATE AND SHARES AT REDEMPTION MAY BE WORTH MORE OR LESS THAN
THEIR ORIGINAL COST. THERE IS NO GUARANTEE THAT ANY STI CLASSIC FUND WILL
ACHIEVE ITS INVESTMENT OBJECTIVE. With respect to all Funds, the Advisors may
execute brokerage or other agency transactions through affiliates of the
Advisors.
For the services provided and expenses incurred pursuant to the Advisory
Agreement: Trusco is entitled to receive advisory fees computed daily and paid
monthly at the annual rate of .74%, .65%, .65%, .55%, .65% and .65% of the
average daily net assets of the U.S. Government Securities Fund, Prime Quality
Money Market Fund, U.S. Government Securities Money Market Fund, Tax-Exempt
Money Market Fund, Short-Term U.S. Treasury Securities Fund and Short-Term Bond
Fund, respectively; STI Capital is entitled to receive advisory fees computed
daily and paid monthly at the annual rate of .65%, .74%, .74% and .65% of the
average daily net assets of the Florida Tax-Exempt Bond Fund, Investment Grade
Bond Fund, Investment Grade Tax-Exempt Bond Fund and Limited-Term Federal
Mortgage Securities Fund, respectively; SunTrust Bank, Chattanooga is entitled
to receive advisory fees computed daily and paid monthly at the annual rates of
.65% of the average daily net assets of the Tennessee Tax-Exempt Bond Fund; and
SunTrust Bank, Atlanta is entitled to receive advisory fees computed daily and
paid monthly at the annual rate of .65% of the average daily net assets of the
Georgia Tax-Exempt Bond Fund.
From time to time, an Advisor may waive (either voluntarily or pursuant to
applicable state limitations) advisory fees payable by a Fund. Currently, the
Advisors and the Distributor have agreed to voluntary reductions in their
respective fees as well as reductions in service and distribution fees in
amounts necessary to maintain the total operating expenses at the amounts set
forth in the Expense Summary. Voluntary reductions of fees may be terminated at
any time.
For the fiscal year ended May 31, 1996: Trusco received advisory fees computed
daily and paid monthly at the annual rate of .50%, .51%, .37%, .22%, .46% and
.16% of the average daily net assets of the Prime Quality Money Market Fund,
U.S. Government Securities Money Market Fund, Tax-Exempt Money Market Fund,
Short-Term U.S. Treasury Securities Fund, Short-Term Bond Fund and U.S.
Government
<PAGE>
33
Securities Fund, respectively; STI Capital received advisory fees computed daily
and paid monthly at the annual rate of .38%, .63%, .61%, and .43% of the average
daily net assets of the Florida Tax-Exempt Bond Fund, Investment Grade Bond
Fund, Investment Grade Tax-Exempt Bond Fund and Limited-Term Federal Mortgage
Securities Fund, respectively; SunTrust Bank, Chattanooga received advisory fees
computed daily and paid monthly at the annual rate of .00% of the average daily
net assets of the Tennessee Tax-Exempt Bond Fund and SunTrust Bank, Atlanta
received advisory fees computed daily and paid monthly at the annual rate of
.37% of the average daily net assets of the Georgia Tax-Exempt Bond Fund.
PORTFOLIO MANAGERS
Mr. Charles B. Leonard, CFA, First Vice President of Trusco, and Michael L.
Ford, an Associate of Trusco, have been responsible for the day-to-day
management of the U.S. Government Securities Fund since it commenced operations.
Mr. Leonard has been with Trusco since 1986 as the senior fixed income manager.
Mr. Ford has been with Trusco since April 1994. Prior to joining Trusco, Mr.
Ford served as a senior securities analyst with Liberty Capital Advisors from
January, 1992 to April, 1994 and has served as a securities analyst at Southern
Farm Bureau Life Insurance Company from 1990 to 1992.
Mr. David Yealy has been responsible for the day-to-day management of the
Short-Term Bond and Short-Term U.S. Treasury Securities Funds since July, 1996
and the Prime Quality Money Market and U.S. Government Securities Funds since
they commenced operations. Mr. Yealy joined Trusco in 1991 and currently serves
as a Vice President.
Ms. Mary F. Cernilli, CFA, has been responsible for the day-to-day management of
the Tax-Exempt Money Market Fund since January, 1993. Prior to joining Trusco,
Ms. Cernilli served as a Treasury Manager with Xerox Corporation from 1990 to
1993.
Mr. L. Earl Denney, CFA, and Mr. Dave E. West, CFA, have been responsible for
the day-to-day management of the Limited-Term Federal Mortgage Securities Fund
since it commenced operations. Mr. Denney has served as Executive Vice President
of STI Capital since 1983. Mr. West has served as a fixed income portfolio
manager with STI Capital since 1989. Mr. Denney has also been responsible for
the day-to-day management of the Investment Grade Bond Fund since it commenced
operations.
Ms. Gay Cash has been responsible for the day-to-day management of the Georgia
Tax-Exempt Bond Fund since it commenced operations. Ms. Cash has served as a
Vice President of SunTrust, Atlanta since January 1, 1987.
Mr. Ronald Schwartz, CFA, has been responsible for the day-to-day management of
the Florida Tax-Exempt Bond and Investment Grade Tax-Exempt Bond Funds since
each Fund commenced operations. Mr. Schwartz joined STI Capital in 1988 and
currently serves as a Senior Vice President. Mr. Schwartz, has also been
responsible for the day-to-day management of the Tennessee Tax-Exempt Bond Fund
since July, 1995. Mr. Schwartz serves as Vice President and Trust Investment
Officer of SunTrust Bank, Chattanooga.
BANKING LAWS
Banking laws and regulations, including the Glass-Steagall Act as presently
interpreted by the Board of Governors of the Federal Reserve System, currently
(a) prohibit a bank holding company registered under the Federal Bank Holding
Company Act of 1956 or its affiliates
<PAGE>
34
from sponsoring, organizing, controlling, or distributing the shares of a
registered, open-end investment company continuously engaged in the issuance of
its shares, and generally prohibit banks from underwriting securities, but (b)
do not prohibit such a bank holding company or affiliate or banks generally from
acting as an investment advisor, transfer agent, or custodian to such an
investment company or from purchasing shares of such a company as agent for and
upon the order of a customer. The Advisors believe that each may perform the
services for STI Classic Funds contemplated by their respective Advisory
Agreements described in this Prospectus without violation of applicable banking
laws or regulations. However, future changes in legal requirements relating to
the permissible activities of banks and their affiliates, as well as future
interpretations of present requirements, could prevent the Advisors from
continuing to perform services for STI Classic Funds. If the Advisors were
prohibited from providing services to STI Classic Funds, the Board of Trustees
would consider selecting other qualified firms. Any new investment advisory
agreements would be subject to Shareholder approval.
If current restrictions preventing a bank or its affiliates from legally
sponsoring, organizing, controlling, or distributing shares of an investment
company were relaxed, the Advisors, or their affiliates, would consider the
possibility of offering to perform additional services for STI Classic Funds. It
is not possible, of course, to predict whether or in what form such legislation
might be enacted or the terms upon which the Advisors, or such affiliates, might
offer to provide such services.
In addition, state securities laws on this issue may differ from the
interpretations of federal law expressed herein and banks and financial
institutions may be required to register as dealers pursuant to state law.
DISTRIBUTION
SEI Financial Services Company (the "Distributor"), a wholly-owned subsidiary of
SEI Corporation ("SEI"), and the Trust, are parties to a distribution agreement
(the "Distribution Agreement") dated May 29, 1992. The Investor Shares of each
Fund have a distribution plan dated May 29, 1992, as amended ("Investor Plan").
The Distribution Agreement and the Investor Plan provide that the Investor
Shares of the Funds may pay a distribution services fee to the Distributor of up
to .20% of the average daily net assets of the Prime Quality Money Market Fund,
.17% of the average daily net assets of the U.S. Government Securities Money
Market Fund, .15% of the average daily net assets of the Tax-Exempt Money Market
Fund, .18% of the average daily net assets of the Short-Term U.S. Treasury
Securities Fund, .23% of the average daily net assets of the Short-Term Bond
Fund, .43% of the average daily net assets of the Investment Grade Bond Fund,
.43% of the average daily net assets of the Investment Grade Tax-Exempt Bond
Fund, .18% of the average daily net assets of the Florida Tax-Exempt Bond Fund,
.18% of the average daily net assets of the Georgia Tax-Exempt Bond Fund, .18%
of the average daily net assets of the Tennessee Tax-Exempt Bond Fund, .38% of
the average daily net assets of the U.S. Government Securities Fund and .23% of
the average daily net assets of the Limited-Term Federal Mortgage Securities
Fund. The Distributor will waive all or a portion of the distribution fee in
order to limit the net expenses of the Investor Shares to the amounts set forth
under "Expense Summary." The Distributor may apply this fee toward: (a)
compensation for its services in connection with distribution assistance or
provision of shareholder services; or (b) payments to financial institutions and
intermediaries such as banks (including SunTrust Banks, Inc.'s affiliate
<PAGE>
35
banks), savings and loan associations, insurance companies, and investment
counselors, broker-dealers, and the Distributor's affiliates and subsidiaries as
compensation for services, reimbursement of expenses incurred in connection with
distribution assistance, or provision of Shareholder services. The Investor Plan
is characterized as a compensation plan since the distribution fee will be paid
to the Distributor without regard to the distribution or shareholder service
expenses incurred by the Distributor or the amount of payments made to financial
institutions and intermediaries. SunTrust Banks, Inc.'s affiliate banks and
certain correspondent banks may serve as shareholder servicing agents to the
Trust. A prospective investor may visit any one of the Investment Services
offices of the SunTrust Banks, Inc.'s affiliate banks, as listed on the last
pages of the Prospectus, SunTrust Securities, Inc. or certain correspondent
banks of SunTrust Banks, Inc. to receive copies of the Prospectuses for the
Investor Shares of the Trust and application forms. Trust Shares of each Fund
are offered without a sales charge or a distribution fee primarily to
institutional investors, including affiliates and correspondents for the
investment of funds in which they act in a fiduciary, agency, investment
advisory or custodial capacity. The Flex Shares of a Fund are subject to a
contingent deferred sales charge, pay a distribution services fee to the
Distributor and are also subject to a services fee for personal service and
maintenance of shareholder accounts. The contingent deferred sales charge option
of the Flex Shares provides investors with an alternative purchase arrangement
to Investor Shares. An investor may call 1-800-874-4770 to receive more
information regarding Trust Shares or Flex Shares. It is possible that a
financial institution may offer different classes of shares to its customers and
thus receive different compensation with respect to different classes of shares.
Each Fund may execute brokerage or other agency transactions through the
Distributor, for which the Distributor receives compensation.
With respect to each of the Funds, the Distributor may, from time to time and at
its own expense, provide promotional incentives, in the form of cash or other
compensation, to certain financial institutions whose representatives have sold
or are expected to sell significant amounts of these Funds.
ADMINISTRATION
SEI Fund Resources (the "Administrator") serves as Administrator of the Trust.
The Administrator provides the Trust with certain administrative services, other
than investment advisory services, including regulatory reporting, all necessary
office space, equipment, personnel and facilities.
The Administrator is entitled to a fee from each Fund, which is calculated daily
and paid monthly, at an annual rate as follows:
<TABLE>
<CAPTION>
AVERAGE AGGREGATE DAILY NET ASSETS FEE
- ------------------------------------------ ---------
<S> <C>
$1 - $1 billion 0.10%
over $1 billion to $5 billion 0.07%
over $5 billion to $8 billion 0.05%
over $8 billion to $10 billion 0.045%
over $10 billion 0.04%
</TABLE>
From time to time, the Administrator may waive (either voluntarily or pursuant
to applicable state limitations) all or a portion of the administration fee
payable with respect to the Trust.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, Federated Investors Tower, Pittsburgh, Pennsylvania
<PAGE>
36
15222-3779, is the transfer agent for the shares of the Trust and dividend
disbursing agent for the Trust.
CUSTODIAN
SunTrust Bank, Atlanta, c/o STI Trust and Investment Operations, Inc., 303
Peachtree Street N.E., 14th Floor, Atlanta, Georgia 30308, serves as custodian
of the assets of each Fund. The custodian holds cash, securities and other
assets of the Trust as required by the 1940 Act.
LEGAL COUNSEL
Morgan, Lewis & Bockius LLP, Philadelphia, Pennsylvania, serves as legal counsel
to the Trust.
INDEPENDENT PUBLIC ACCOUNTANTS
The independent public accountants to the Trust are Arthur Andersen LLP,
Philadelphia, Pennsylvania.
OTHER INFORMATION
VOTING RIGHTS
Each share held entitles the Shareholder of record to one vote. Each Fund or
class of a Fund will vote separately on matters relating solely to that Fund or
class. As a Massachusetts business trust, the Trust is not required to hold
annual meetings of Shareholders but approval will be sought for certain changes
in the operation of the Trust and for the election of Trustees under certain
circumstances. In addition, a Trustee may be removed by the remaining Trustees
or by Shareholders at a special meeting called upon written request of
Shareholders owning at least 10% of the outstanding shares of the Trust. In the
event that such a meeting is requested the Trust will provide appropriate
assistance and information to the Shareholders requesting the meeting.
REPORTING
The Trust issues unaudited financial information and audited financial
statements annually. The Trust furnishes proxy statements and other reports to
Shareholders of record.
SHAREHOLDER INQUIRIES
Shareholders may contact the Transfer Agent in order to obtain information on
account statements, procedures and other related information by calling
1-800-874-4770.
DESCRIPTION OF PERMITTED INVESTMENTS
The following is a description of the permitted investments for the Funds.
Further discussion is contained in the Statement of Additional Information.
AMERICAN DEPOSITARY RECEIPTS ("ADRs") -- ADRs are securities, typically issued
by a U.S. financial institution (a "depositary"), that evidence ownership
interests in a security or a pool of securities issued by a foreign issuer and
deposited with the depositary. ADRs may be available through "sponsored" or
"unsponsored" facilities. A sponsored facility is established jointly by the
issuer of the security underlying the receipt and a depositary, whereas an
unsponsored facility may be established by a depositary without participation by
the issuer of the underlying security. Holders of unsponsored depositary
receipts generally bear all the costs of the unsponsored facility. The
depositary of an unsponsored facility frequently is under no obligation to
distribute shareholder communications
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37
received from the issuer of the deposited security or to pass through, to the
holders of the receipts, voting rights with respect to the deposited securities.
ASSET-BACKED SECURITIES -- Asset-backed securities are securities secured by
non-mortgage assets such as company receivables, truck and auto loans, leases
and credit card receivables. Such securities are generally issued as
pass-through certificates, which represent undivided fractional ownership
interests in the underlying pools of assets. Such securities also may be debt
instruments, which are also known as collateralized obligations and are
generally issued as the debt of a special purpose entity, such as a trust,
organized solely for the purpose of owning such assets and issuing such debt.
Asset-backed securities are not issued or guaranteed by the U.S. Government, its
agencies or instrumentalities; however, the payment of principal and interest on
such obligations may be guaranteed up to certain amounts and for a certain
period by a letter of credit issued by a financial institution (such as a bank
or insurance company) unaffiliated with the issuers of such securities. The
purchase of asset-backed securities raises risk considerations peculiar to the
financing of the instruments underlying such securities. For example, there is a
risk that another party could acquire an interest in the obligations superior to
that of the holders of the asset-backed securities. There also is the
possibility that recoveries on repossessed collateral may not, in some cases, be
available to support payments on those securities. Asset-backed securities
entail prepayment risk, which may vary depending on the type of asset, but is
generally less than the prepayment risk associated with mortgage-backed
securities. In addition, credit card receivables are unsecured obligations of
the card holder.
The market for asset-backed securities is at a relatively early stage of
development. Accordingly, there may be a limited secondary market for such
securities.
BANKERS' ACCEPTANCES -- Bankers' acceptances are bills of exchange or time
drafts drawn on and accepted by a commercial bank. Bankers' acceptances are used
by corporations to finance the shipment and storage of goods. Maturities are
generally six months or less.
CERTIFICATES OF DEPOSIT -- Certificates of deposit are interest bearing
instruments with a specific maturity. They are issued by banks and savings and
loan institutions in exchange for the deposit of funds and normally can be
traded in the secondary market prior to maturity. Certificates of deposit with
penalties for early withdrawal will be considered illiquid.
COMMERCIAL PAPER -- Commercial paper is a term used to describe unsecured
short-term promissory notes issued by banks, municipalities, corporations and
other entities. Maturities on these issues vary from a few to 270 days.
CORPORATE DEBT OBLIGATIONS -- Corporate debt obligations are debt instruments
issued by corporations with maturities exceeding 270 days. Such instruments may
include putable corporate bonds and zero coupon bonds.
CUSTODIAL RECEIPTS -- Custodial receipts are interests in separately traded
interest and principal component parts of U.S. Treasury obligations that are
issued by banks or brokerage firms and are created by depositing U.S. Treasury
obligations into a special account at a custodian bank. The custodian holds the
interest and principal payments for the benefit of the registered owners of the
certificates or receipts. The custodian arranges for the issuance of the
certificates or receipts evidencing ownership and maintains the register.
Receipts
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38
include Treasury Receipts ("TRs"), Treasury Investment Growth Receipts
("TIGRs"), and Certificates of Accrual on Treasury Securities ("CATS").
Receipts are sold as zero coupon securities which means that they are sold at a
substantial discount and redeemed at face value at their maturity date without
interim cash payments of interest or principal. This discount is accreted over
the life of the security, and such accretion will constitute the income earned
on the security for both accounting and tax purposes. Because of these features,
such securities may be subject to greater interest rate volatility than interest
paying investments. See "Zero Coupon Obligations."
DERIVATIVES -- Derivatives are securities whose value is derived from an
underlying contract, index or security, or any combination thereof. This
includes: futures, swap agreements, and some mortgage-back securities (CMOs,
REMICs and SMBs). See elsewhere in this "Description of Permitted Investments"
for discussions of these various instruments, and see "Investment Policies and
Strategies" for more information about any investment policies and limitations
applicable to their use.
DOLLAR ROLLS -- Dollar rolls are transactions in which securities are sold for
delivery in the current month and the seller simultaneously contracts to
repurchase substantially similar securities on a specified future date. Any
difference between the sale price and the purchase price is netted against the
interest income foregone on the securities sold to arrive at an implied
borrowing rate. Alternatively, the sale and purchase transactions can be
executed at the same price, with the Fund being paid a fee as consideration for
entering into the commitment to purchase. Dollar rolls may be renewed prior to
cash settlement and initially may involve only a firm commitment agreement by
the Fund to buy a security. If the broker-dealer to whom the Fund sells the
security becomes insolvent, the Fund's right to repurchase the security may be
restricted. Other risks involved in entering into dollar rolls include the risk
that the value of the security may change adversely over the term of the dollar
roll and that the security the Fund is required to repurchase may be worth less
than the security that the Fund originally held.
To avoid any leveraging concerns, the Fund will place U.S. Government or other
liquid, high grade assets in a segregated account in an amount sufficient to
cover its repurchase obligation.
EURODOLLAR AND YANKEE BANK OBLIGATIONS -- Eurodollar bank obligations are U.S.
dollar-denominated certificates of deposit or time deposits issued outside the
United States by foreign branches of U.S. banks or by foreign banks. Yankee bank
obligations are U.S. dollar denominated obligations issued in the United States
by foreign banks.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS -- Futures contracts provide
for the future sale by one party and purchase by another party of a specified
amount of a specific security at a specified future time and at a specified
price. An option on a futures contract gives the purchaser the right, in
exchange for a premium, to assume a position in a futures contract at a
specified exercise price during the term of the option. A Fund may use futures
contracts and related options for bona fide hedging purposes, to offset changes
in the value of securities held or expected to be acquired, to minimize
fluctuations in foreign currencies, or to gain exposure to a particular market
or instrument. A Fund will minimize the risk that it will be unable to close out
a futures contract by only entering into
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39
futures contracts which are traded on national futures exchanges.
Stock index futures are futures contracts for various stock indices that are
traded on registered securities exchanges. A stock index futures contract
obligates the seller to deliver (and the purchaser to take) an amount of cash
equal to a specific dollar amount times the difference between the value of a
specific stock index at the close of the last trading day of the contract and
the price at which the agreement is made.
There are risks associated with these activities, including the following: (1)
the success of a hedging strategy may depend on an ability to predict movements
in the prices of individual securities, fluctuations in markets and movements in
interest rates, (2) there may be an imperfect or no correlation between the
changes in market value of the securities held by the Fund and the prices of
futures and options on futures, (3) there may not be a liquid secondary market
for a futures contract or option, (4) trading restrictions or limitations may be
imposed by an exchange, and (5) government regulations may restrict trading in
futures contracts and futures options.
GUARANTEED INVESTMENT CONTRACTS ("GICs") -- GICs are contracts issued by U.S.
insurance companies. Pursuant to such contracts, the Fund makes cash
contributions to a deposit fund of the insurance company's general account. The
insurance company then credits to the Fund on a monthly basis guaranteed
interest at either a fixed, variable or floating rate. A GIC provides that this
guaranteed interest will not be less than a certain minimum rate. A GIC is a
general obligation of the issuing insurance company and not a separate account.
The purchase price paid for a GIC becomes part of the general assets of the
issuer, and the contract is paid at maturity from the general assets of the
issuer.
Generally, GICs are not assignable or transferable without the permission of the
issuing insurance company. For this reason, an active secondary market in GICs
does not currently exist and GICs are considered to be illiquid investments.
ILLIQUID SECURITIES -- Illiquid securities are securities that cannot be
disposed of within seven business days at approximately the price at which they
are being carried on the Fund's books. An illiquid security includes a demand
instrument with a demand notice period exceeding seven days, where there is no
secondary market for such security, and repurchase agreements with durations (or
maturities) over seven days in length.
LOAN PARTICIPATIONS -- Loan participations are interests in loans to U.S.
corporations which are administered by the lending bank or agent for a syndicate
of lending banks, and sold by the lending bank or syndicate member
("intermediary bank"). In a loan participation, the borrower corporation will be
deemed to be the issuer of the participation interest except to the extent the
Fund derives its rights from the intermediary bank. Because the intermediary
bank does not guarantee a loan participation, a loan participation is subject to
the credit risks associated with the underlying corporate borrower. In the event
of bankruptcy or insolvency of the corporate borrower, a loan participation may
be subject to certain defenses that can be asserted by such borrower as a result
of improper conduct by the intermediary bank. In addition, in the event the
underlying corporate borrower fails to pay principal and interest when due, the
Fund may be subject to delays, expenses and risks that are greater than those
that would have been involved if the Fund had purchased a direct obligation of
such borrower.
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40
Under the terms of a Loan Participation, the Fund may be regarded as a creditor
of the intermediary bank (rather than of the underlying corporate borrower), so
that the Fund may also be subject to the risk that the intermediary bank may
become insolvent.
The secondary market for loan participations is limited and any such
participation purchased by the Fund may be regarded as illiquid.
MEDIUM TERM NOTES -- Medium term notes are periodically or continuously offered
corporate or agency debt that differs from traditionally underwritten corporate
bonds only in the process by which they are issued.
MORTGAGE-BACKED SECURITIES -- Mortgage-backed securities are instruments that
entitle the holder to a share of all interest and principal payments from
mortgages underlying the security. The mortgages backing these securities
include conventional thirty-year fixed rate mortgages, graduated payment
mortgages, and adjustable rate mortgages. During periods of declining interest
rates, prepayment of mortgages underlying mortgage-backed securities can be
expected to accelerate. Prepayment of mortgages which underlie securities
purchased at a premium often results in capital losses, while prepayment of
mortgages purchased at a discount often results in capital gains. Because of
these unpredictable prepayment characteristics, it is often not possible to
predict accurately the average life or realized yield of a particular issue.
GOVERNMENT PASS-THROUGH SECURITIES: These are securities that are issued or
guaranteed by a U.S. Government agency representing an interest in a pool of
mortgage loans. The primary issuers or guarantors of these mortgage-backed
securities are the Government National Mortgage Association ("GNMA"), the
Federal National Mortgage Association ("FNMA") and the Federal Home Loan
Mortgage Corporation ("FHLMC"). FNMA and FHLMC obligations are not backed by the
full faith and credit of the U.S. Government as GNMA certificates are, but FNMA
and FHLMC securities are supported by the instrumentalities' right to borrow
from the U.S. Treasury. GNMA, FNMA and FHLMC each guarantees timely
distributions of interest to certificate holders. GNMA and FNMA also each
guarantees timely distributions of scheduled principal. FHLMC has in the past
guaranteed only the ultimate collection of principal of the underlying mortgage
loan; however, FHLMC now issues mortgage-backed securities (FHLMC Gold PCs)
which also guarantee timely payment of monthly principal reductions. Government
and private guarantees do not extend to the securities' value, which is likely
to vary inversely with fluctuations in interest rates.
PRIVATE PASS-THROUGH SECURITIES: These are mortgage-backed securities issued by
a non-governmental entity, such as a trust. These securities include
collateralized mortgage obligations ("CMOs") and real estate mortgage investment
conduits ("REMICs") that are rated in one of the top two rating categories.
While they are generally structured with one or more types of credit
enhancement, private pass-through securities typically lack a guarantee by an
entity having the credit status of a governmental agency or instrumentality.
COLLATERALIZED MORTGAGE OBLIGATIONS: CMOs are debt obligations or multiclass
pass-through certificates issued by agencies or instrumentalities of the U.S.
Government or by private originators or investors in mortgage loans. In a CMO,
series of bonds or certificates are usually issued in multiple classes.
Principal and interest paid on the underlying mortgage assets may be allocated
among the several classes of a series of a CMO in a variety of ways. Each class
of a CMO, often referred to as a "tranche," is issued with a specific fixed or
floating coupon rate and has a stated maturity
<PAGE>
41
or final distribution date. Principal payments on the underlying mortgage assets
may cause CMOs to be retired substantially earlier then their stated maturities
or final distribution dates, resulting in a loss of all or part of any premium
paid.
REMICS: A REMIC is a CMO that qualifies for special tax treatment under the
Internal Revenue Code and invests in certain mortgages principally secured by
interests in real property. Investors may purchase beneficial interests in
REMICs, which are known as "regular" interests, or "residual" interests.
Guaranteed REMIC pass-through certificates ("REMIC Certificates") issued by FNMA
or FHLMC represent beneficial ownership interests in a REMIC trust consisting
principally of mortgage loans or FNMA, FHLMC or GNMA-guaranteed mortgage
pass-through certificates. For FHLMC REMIC Certificates, FHLMC guarantees the
timely payment of interest, and also guarantees the payment of principal as
payments are required to be made on the underlying mortgage participation
certificates. FNMA REMIC Certificates are issued and guaranteed as to timely
distribution of principal and interest by FNMA.
STRIPPED MORTGAGE-BACKED SECURITIES ("SMBS"): SMBs are usually structured with
two classes that receive specified proportions of the monthly interest and
principal payments from a pool of mortgage securities. One class may receive all
of the interest payments and is thus termed an interest-only class ("IO"), while
the other class may receive all of the principal payments and thus is termed the
principal-only class ("PO"). The value of IOs tends to increase as rates rise
and decrease as rates fall; the opposite is true of POs. SMBs are extremely
sensitive to changes in interest rates because of the impact thereon of
prepayment of principal on the underlying mortgage securities. The market for
SMBs is not as fully developed as other markets; SMBs therefore may be illiquid.
RISK FACTORS: Due to the possibility of prepayments of the underlying mortgage
instruments, mortgage-backed securities generally do not have a known maturity.
In the absence of a known maturity, market participants generally refer to an
estimated average life. An average life estimate is a function of an assumption
regarding anticipated prepayment patterns, based upon current interest rates,
current conditions in the relevant housing markets and other factors. The
assumption is necessarily subjective, and thus different market participants can
produce different average life estimates with regard to the same security. There
can be no assurance that estimated average life will be a security's actual
average life.
MUNICIPAL FORWARDS -- Municipal forwards are forward commitments for the
purchase of tax-exempt bonds with a specified coupon to be delivered by an
issuer at a future date, typically exceeding 45 days but normally less than one
year after the commitment date. Municipal forwards are normally used as a
refunding mechanism for bonds that may only be redeemed on a designated future
date. A Fund will enter into municipal forwards when the price and yield of the
underlying bonds are believed to be favorable when compared to current prices
and yields. As with forward commitments, municipal forwards are subject to
market fluctuations due to changes in market interest rates between the
commitment date and the settlement date. Municipal forwards may be considered to
be illiquid investments.
To avoid any leveraging concerns, a Fund will maintain liquid, high grade
securities in a segregated account at least equal to the purchase price of the
municipal forward.
MUNICIPAL LEASE OBLIGATIONS -- Municipal lease obligations are securities issued
by state
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42
and local governments and authorities to finance the acquisition of equipment
and facilities. They may take the form of a lease, an installment purchase
contract, a conditional sales contract, or a participation interest in any of
the above. Depending upon the market for such securities, municipal lease
obligations may be illiquid.
MUNICIPAL SECURITIES -- Municipal securities consist of (i) debt obligations
issued by or on behalf of public authorities to obtain funds to be used for
various public facilities, for refunding outstanding obligations, for general
operating expenses, and for lending such funds to other public institutions and
facilities, and (ii) certain private activity and industrial development bonds
issued by or on behalf of public authorities to obtain funds to provide for the
construction, equipment, repair or improvement of privately operated facilities.
General obligation bonds are backed by the taxing power of the issuing
municipality. Revenue bonds are backed by the revenues of a project or facility
(tolls from a bridge, for example). Certificates of participation represent an
interest in an underlying obligation or commitment, such as an obligation issued
in connection with a leasing arrangement. The payment of principal and interest
on private activity and industrial development bonds generally is dependent
solely on the ability of a facility's user to meet its financial obligations and
the pledge, if any, of real and personal property as security for such payment.
Municipal securities include both municipal notes and municipal bonds. Municipal
notes include general obligation notes, tax anticipation notes, revenue
anticipation notes, bond anticipation notes, certificates of indebtedness,
demand notes and construction loan notes and participation interests in
municipal notes. Municipal bonds include general obligation bonds, revenue or
special obligation bonds, private activity and industrial development bonds and
participation interests in municipal bonds.
OBLIGATIONS OF SUPRANATIONAL ENTITIES -- Supranational entities are entities
established through the joint participation of several governments, and include
the Asian Development Bank, the Inter-American Development Bank, International
Bank for Reconstruction and Development (World Bank), African Development Bank,
European Economic Community, European Investment Bank and the Nordic Investment
Bank.
REPURCHASE AGREEMENTS -- Repurchase agreements are agreements by which a Fund
obtains a security and simultaneously commits to return the security to the
seller at an agreed upon price on an agreed upon date within a number of days
from the date of purchase. The custodian will hold the security as collateral
for the repurchase agreement. A Fund bears a risk of loss in the event the other
party defaults on its obligations and the Fund is delayed or prevented from
exercising its right to dispose of the collateral or if the Fund realizes a loss
on the sale of the collateral. A Fund will enter into repurchase agreements only
with financial institutions deemed to present minimal risk of bankruptcy during
the term of the agreement based on established guidelines. Repurchase agreements
are considered loans under the Investment Company Act of 1940.
RESTRAINTS ON INVESTMENTS BY MONEY MARKET FUNDS -- Investments by a money market
fund are subject to limitations imposed under regulations adopted by the
Securities and Exchange Commission. Under these regulations, money market funds
may only acquire obligations that present minimal credit risk and that are
"eligible securities," which means they are (i) rated, at the time of
investment, by at least two nationally recognized security rating
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43
organizations (one if it is the only organization rating such obligation) in the
highest rating category or, if unrated, determined to be of comparable quality
(a "first tier security"), or (ii) rated according to the foregoing criteria in
the second highest rating category or, if unrated, determined to be of
comparable quality ("second tier security"). A security is not considered to be
unrated if its issuer has outstanding obligations of comparable priority and
security that have a short-term rating. In the case of taxable money market
funds, investments in second tier securities are subject to the further
constraints in that (i) no more than 5% of a Fund's assets may be invested in
second tier securities and (ii) any investment in securities of any one such
issuer is limited to the greater of 1% of the Fund's total assets or $1 million.
A taxable money market fund may also hold more than 5% of its assets in first
tier securities of a single issuer for three "business days" (that is, any day
other than a Saturday, Sunday or customary business holiday).
RESTRICTED SECURITIES -- Restricted securities are securities that may not be
sold freely to the public absent registration under the Securities Act of 1933
or an exemption from registration. Rule 144A securities are securities that have
not been registered under the Securities Act of 1933 but which may be traded
between certain institutional investors including investment companies. The
Trust's Board of Trustees is responsible for developing guidelines and
procedures for determining the liquidity of restricted securities, and for
monitoring the Advisor's implementation of the guidelines and procedures.
SECURITIES LENDING -- In order to generate additional income, a Fund may lend
securities which it owns pursuant to agreements requiring that the loan be
continuously secured by collateral consisting of cash, securities of the U.S.
Government or its agencies equal to at least 100% of the market value of the
securities lent. A Fund continues to receive interest on the securities lent
while simultaneously earning interest on the investment of cash collateral.
Collateral is marked to market daily. There may be risks of delay in recovery of
the securities or even loss of rights in the collateral should the borrower of
the securities fail financially or become insolvent.
SECURITIES OF FOREIGN ISSUERS -- There are certain risks connected with
investing in foreign securities. These include risks of adverse political and
economic developments (including possible governmental seizure or
nationalization of assets), the possible imposition of exchange controls or
other governmental restrictions, less uniformity in accounting and reporting
requirements, the possibility that there will be less information on such
securities and their issuers available to the public, the difficulty of
obtaining or enforcing court judgments abroad, restrictions on foreign
investments in other jurisdictions, difficulties in effecting repatriation of
capital invested abroad, and difficulties in transaction settlements and the
effect of delay on shareholder equity. Foreign securities may be subject to
foreign taxes, and may be less marketable than comparable U.S. securities. The
value of a Fund's investments denominated in foreign currencies will depend on
the relative strengths of those currencies and the U.S. dollar, and a Fund may
be affected favorably or unfavorably by changes in the exchange rates or
exchange control regulations between foreign currencies and the U.S. dollar.
Changes in foreign currency exchange rates also may affect the value of
dividends and interest earned, gains and losses realized on the sale of
securities and net investment income and gains, if any, to be distributed to
shareholders by a Fund.
STANDBY COMMITMENTS AND PUTS -- Securities subject to standby commitments or
puts
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44
permit the holder thereof to sell the securities at a fixed price prior to
maturity. Securities subject to a standby commitment or put may be sold at any
time at the current market price. However, unless the standby commitment or put
was an integral part of the security as originally issued, it may not be
marketable or assignable; therefore, the standby commitment or put would only
have value to the Fund owning the security to which it relates. In certain
cases, a premium may be paid for a standby commitment or put, which premium will
have the effect of reducing the yield otherwise payable on the underlying
security. The Fund will limit standby commitment or put transactions to
institutions believed to present minimal credit risk.
TIME DEPOSITS -- Time deposits are non-negotiable receipts issued by a bank in
exchange for the deposit of funds. Like a certificate of deposit, it earns a
specified rate of interest over a definite period of time; however, it cannot be
traded in the secondary market. Time deposits are considered to be illiquid
securities.
U.S. GOVERNMENT AGENCIES -- Obligations issued or guaranteed by agencies of the
U.S. Government, including, among others, the Federal Farm Credit Bank, the
Federal Housing Administration and the Small Business Administration, and
obligations issued or guaranteed by instrumentalities of the U.S. Government,
including, among others, FHLMC, the Federal Land Banks and the U.S. Postal
Service. Some of these securities are supported by the full faith and credit of
the U.S. Treasury (e.g., GNMA Securities), others are supported by the right of
the issuer to borrow from the Treasury (e.g., Federal Farm Credit Bank
Securities), while still others are supported only by the credit of the
instrumentality (e.g., FNMA Securities). Guarantees of principal by agencies or
instrumentalities of the U.S. Government may be a guarantee of payment at the
maturity of the obligation so that in the event of a default prior to maturity
there might not be a market and thus no means of realizing on the obligation
prior to maturity. Guarantees as to the timely payment of principal and interest
do not extend to the value or yield of these securities nor to the value of the
Fund's shares.
U.S. TREASURY OBLIGATIONS -- U.S. Treasury obligations consist of bills, notes
and bonds issued by the U.S. Treasury and separately traded interest and
principal component parts of such obligations that are transferable through the
Federal book-entry system known as Separately Traded Registered Interest and
Principal Securities ("STRIPS") and Coupon Under Book Entry Safekeeping
("CUBES").
VARIABLE AND FLOATING RATE INSTRUMENTS -- Certain obligations may carry variable
or floating rates of interest, and may involve a conditional or unconditional
demand feature. Such instruments bear interest at rates which are not fixed, but
which vary with changes in specified market rates or indices. The interest rates
on these securities may be reset daily, weekly, quarterly or some other reset
period, and may have a floor or ceiling on interest rate changes. There is a
risk that the current interest rate on such obligations may not accurately
reflect existing market interest rates. A demand instrument with a demand notice
exceeding seven days may be considered illiquid if there is no secondary market
for such security.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES -- When-issued or delayed delivery
basis transactions involve the purchase of an instrument with payment and
delivery taking place in the future. Delivery of and payment for these
securities may occur a month or more after the date of the purchase commitment.
The Fund will segregate liquid high grade debt securities or cash in an amount
at least equal
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45
to these commitments. The interest rate realized on these securities is fixed as
of the purchase date and no interest accrues to the Fund before settlement.
These securities are subject to market fluctuation due to changes in market
interest rates and it is possible that the market value at the time of
settlement could be higher or lower than the purchase price if the general level
of interest rates has changed. Although a Fund generally purchases securities on
a when-issued or forward commitment basis with the intention of actually
acquiring securities for its portfolio, a Fund may dispose of a when-issued
security or forward commitment prior to settlement if it deems appropriate.
ZERO COUPON OBLIGATIONS -- Zero coupon obligations are debt securities that do
not bear any interest, but instead are issued at a deep discount from par. The
value of a zero coupon obligation increases over time to reflect the interest
accreted. Such obligations will not result in the payment of interest until
maturity, and will have greater price volatility than similar securities that
are issued at par and pay interest periodically.
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A-1
APPENDIX
I. BOND RATINGS
CORPORATE AND MUNICIPAL BONDS
The following are descriptions of Standard & Poor's Corporation ("S&P") and
Moody's Investors Service, Inc. ("Moody's") corporate and municipal bond
ratings.
Bonds rated AAA have the highest rating S&P assigns to a debt obligation. Such a
rating indicates an extremely strong capacity to pay principal and interest.
Bonds rated AA also qualify as high-quality debt obligations. Capacity to pay
principal and interest is very strong, and in the majority of instances they
differ from AAA issues only in small degree. Debt rated A has a strong capacity
to pay interest and repay principal although it is somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions than
debt in higher rated categories.
Bonds which are rated BBB are considered to be medium-grade obligations (i.e.,
they are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Bonds which are rated Aaa by Moody's are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large, or an exceptionally
stable, margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues. Bonds rated Aa by
Moody's are judged by Moody's to be of high quality by all standards. Together
with bonds rated Aaa, they comprise what are generally known as high-grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
Bonds which are rated A possess many favorable investment attributes and are to
be considered as upper-medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Debt rated Baa is regarded as having an adequate capacity to pay interest and
repay principal. Whereas it normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay interest and repay principal for debt in this
category than in higher rated categories.
MUNICIPAL NOTE RATINGS
Moody's highest rating for state and municipal and other short-term notes is
MIG-1 and VMIG-1. Short-term municipal securities rated MIG-1 or VMIG-1 are of
the best quality. They have strong protection from established cash flows of
funds for their servicing or from established and broad-based access to the
market for refinancing or both. Short-term municipal securities rated MIG-2 and
VMIG-2 are of high quality. Margins of protection are ample although not so
large as in the preceding group.
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A-2
An S&P note rating reflects the liquidity concerns and market access risks
unique to notes. Notes due in 3 years or less will likely receive a note rating.
Notes maturing beyond 3 years will most likely receive a long-term debt rating.
The following criteria will be used in making that assessment.
- - Amortization schedule (the larger the final
maturity relative to other maturities the more likely it will be treated as a
note).
- - Source of Payment (the more dependent the
issue is on the market for its refinancing, the more likely it will be treated
as a note).
Note rating symbols are as follows:
SP-1. Very strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics will be given a plus
(+) designation.
SP-2. Satisfactory capacity to pay principal and interest.
II. COMMERCIAL PAPER AND SHORT-TERM RATINGS
The following descriptions of commercial paper ratings have been published by
S&P, Moody's, Fitch Investors Service, Inc. ("Fitch"), Duff and Phelps ("Duff")
and IBCA Limited ("IBCA"), respectively.
Commercial paper rated A by S&P is regarded by S&P as having the greatest
capacity for timely payment. Issues rated A are further refined by use of the
numbers 1+ and 1. Issues rated A-1+ are those with an "overwhelming degree" of
credit protection. Those rated A-1 reflect a "very strong" degree of safety
regarding timely payment. Those rated A-2 reflect a safety regarding timely
payment but not as high as A-1.
Commercial paper issues rated Prime-1 and Prime-2 by Moody's are judged by
Moody's to have superior ability and strong ability for repayment, respectively.
The rating Fitch-1 (Highest Grade) is the highest commercial rating assigned by
Fitch. Paper rated Fitch-1 is regarded as having the strongest degree of
assurance for timely payment. The rating Fitch-2 (Very Good Grade) is the second
highest commercial paper rating assigned by Fitch which reflects an assurance of
timely payment only slightly less in degree than the strongest issues.
The rating Duff-1 is the highest commercial paper rating assigned by Duff. Paper
rated Duff-1 is regarded as having very high certainty of timely payment with
excellent liquidity factors which are supported by ample asset protection. Risk
factors are minor. Paper rated Duff-2 is regarded as having good certainty of
timely payment, good access to capital markets and sound liquidit y factors and
company fundamentals. Risk factors are small.
The designation A1 by IBCA indicates that the obligation is supported by a very
strong capacity for timely repayment. Those obligations rated A1+ are supported
by the highest capacity for timely repayment. Obligations rated A2 are supported
by a strong capacity for timely repayment, although such capacity may be
susceptible to adverse changes in business, economic or financial conditions.
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<PAGE>
TRUST AND INVESTMENT SERVICES OFFICES OF SUNTRUST BANKS, INC.
AFFILIATE BANKS:
FLORIDA: (STATEWIDE TOLL FREE) 1-800-526-1177
SUNTRUST SECURITIES, INC. -- FLORIDA
200 S. Orange Avenue
Tower 10
Orlando, FL 32801
(407) 237-4380
1-800-432-4760, ext. 4380
501 E. Las Olas Boulevard
Ft. Lauderdale, FL 33301
(954) 765-7422
Boca Raton Office
800 S. Federal Highway
Boca Raton, FL 33435
(561) 243-6707
Coral Ridge Office
2626 E. Oakland Park Blvd.
Ft. Lauderdale, FL 33306
(954) 765-2155
Delray Beach Office
302 E. Atlantic Avenue
Delray Beach, FL 33483
(561) 243-6750
5200 W. Atlantic Ave.
Delray Beach, FL 33484
(561) 243-6743
Hollywood Office
2001 Hollywood Blvd.
Hollywood, FL 33021
(954) 765-7062
Palm Beach Office
303 Royal Poinciana Plaza
Palm Beach, FL 33480
(561) 835-2855
PGA Office
4500 PGA Blvd.
Palm Beach Gardens, FL 33410
(561) 835-2802
8200 W. Broward Blvd.
Plantation, FL 33324
(954) 765-7661
777 Brickell Avenue
Miami, FL 33131
(305) 579-7450
401 E. Jackson Street
Tampa, FL 33602
(813) 224-2517
700 Virginia Avenue
Ft. Pierce, FL 34982
(407) 467-6459
Osceola Office
111 East Osceola Street
Stuart, FL 34994
(407) 223-6012
Belnova Office
120 S. Ridgewood Avenue
Daytona Beach, FL 32114
(904) 258-2390
Bill France Office
4900 Clyde Morris Blvd.
Port Orange, FL 32119
(904) 258-2654
Deland Office
302 E. New York Avenue
Deland, FL 32724
(904) 822-5891
200 W. Forsyth Street
Jacksonville, FL 32202
(904) 632-2534
1612 E. Cape Coral Parkway
Cape Coral, FL 33904
(941) 540-6128
Pelican Bay Office
801 Laurel Oak Drive
Naples, FL 33963
(941) 598-0515
South Gate Office
3400 S. Tamiami Trail
Sarasota, FL 34230
(941) 316-4027
Port Charlotte Office
18501 Murdock Circle
Port Charlotte, FL 33949
(941) 625-9286
5899 Whitfield Avenue
Sarasota, FL 34243
(941) 359-7415
<PAGE>
North Beneva Office
3577 Fruitville Road
Sarasota, FL 34237
(941) 316-4003
South Beneva Office
8181 S. Tamiami Trail
Sarasota, FL 34231
(941) 927-7903
Venice Office
200 Nokomis Avenue South
Venice, FL 34285
(941) 486-4417
210 Security Square
Winter Haven, FL 33880
(941) 297-6855
One East Jefferson Street
Brooksville, FL 34601
(352) 754-5798
Crystal River Office
1502 SE Highway 19
Crystal River, FL 34428
(352) 795-8214
5435 Gall Blvd.
Zephyrhills, FL 33541
(813) 780-4154
6335 U.S. Highway 19
New Port Richey, FL 34652
(813) 861-4375
Seven Hills Office
1170 Mariner Blvd.
Spring Hill, FL 34609
(352) 754-5779
203 E. Silver Springs Blvd.
Ocala, FL 34470
(352) 368-6477
3522 Thomasville Road
Tallahassee, FL 32308
(904) 298-5064
511 W. 23rd Street
Panama City, FL 32405
(904) 872-6086
11 Hoffman Drive
Gulf Breeze, FL 32561
(904) 435-1264
GEORGIA:
SUNTRUST SECURITIES, INC. -- GEORGIA
55 Park Place
First Floor
Atlanta, GA 30303
(404) 588-8108
1-800-600-6350
101 N. Lumpkin Street
Athens, GA 30601
(706) 354-5346
427 Oak Street
Gainsville, GA 30501
(770) 503-8674
100 East Second Avenue
Rome, GA 30161
(706) 236-4325
2815 Wrightsboro Road
Augusta, GA 30909
(706) 821-2015
606 Cherry Street
Macon, GA 31201
(912) 755-5175
1246 First Avenue
Columbus, GA 31901
(706) 649-3631
33 Bull Street, Suite 208
Savannah, GA 31401
(912) 944-1165
410 W. Broad Avenue
Albany, GA 31701
(912) 430-5468
Coffee County Branch
201 S. Peterson Avenue
Douglas, GA 31533
(912) 383-5242
510 Gloucester Street
Brunswick, GA 31520
(912) 262-5322
701 Sea Island Road
St. Simons Island, GA 31522
(912) 638-3620
(912) 262-2227
<PAGE>
TENNESSEE:
SUNTRUST BANK, SECURITIES, INC. -- TENNESSEE
424 Church Street
4th Floor
Nashville, TN 37219
(615) 748-4477
1-800-932-2652
736 Market Street
Chattanooga, TN 37402
(423) 757-3005
TN WATS 1-800-572-7306, Ext. 3005
Bordering States WATS
1-800-874-1083, Ext. 3005
Out of State WATS
1-800-251-6266, Ext. 3005
9950 Kingston Pike
Knoxville, TN 37922
(423) 544-2181
1-800-456-1177
207 Mockingbird Lane
Johnson City, TN 37604
(423) 461-1005
25 Public Square
Lawrenceburg, TN 38464
(615) 762-3511
ALABAMA:
SUNTRUST SECURITIES, INC. -- ALABAMA
201 South Court Street
Florence, AL 35630
(205) 767-8537
<PAGE>
<TABLE>
<S> <C> <C>
STI CLASSIC FUNDS ORGANIZATIONAL OVERVIEW
* INVESTMENT ADVISORS
Trusco Capital Management, Inc. 50 Hurt Plaza
Suite 1400
Atlanta, GA 30303
STI Capital Management, N.A. P.O. Box 3808
Orlando, FL 32802
SunTrust Bank, Chattanooga, N.A. 736 Market Street
Chattanooga, TN 37402
SunTrust Bank, Atlanta 25 Park Place
Atlanta, GA 30303
* DISTRIBUTOR
SEI Financial Services Company 680 E. Swedesford Road
Wayne, PA 19087
* ADMINISTRATOR
SEI Fund Resources 680 E. Swedesford Road
Wayne, PA 19087
* TRANSFER AGENT
Federated Services Company Federated Investors Tower
Pittsburgh, PA 15222-3779
* CUSTODIAN
SunTrust Bank, Atlanta c/o STI Trust & Investment
Operations, Inc.
303 Peachtree Street N.E.
14th Floor
Atlanta, GA 30308
* LEGAL COUNSEL
Morgan, Lewis & Bockius LLP 2000 One Logan Square
Philadelphia, PA 19103
* INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP 1601 Market Street
Philadelphia, PA 19103
</TABLE>
<PAGE>
100487/10-95
DISTRIBUTOR
SEI Financial Services
Company
-- - - - - - - - - - - - - -
PROSPECTUS
INVESTOR SHARES
INVESTMENT GRADE BOND FUND
INVESTMENT GRADE TAX-EXEMPT
BOND FUND
U.S. GOVERNMENT
SECURITIES FUND
LIMITED-TERM FEDERAL MORTGAGE
SECURITIES FUND
SHORT-TERM BOND FUND
SHORT-TERM U.S. TREASURY
SECURITIES FUND
FLORIDA TAX-EXEMPT BOND FUND
GEORGIA TAX-EXEMPT
BOND FUND
TENNESSEE TAX-EXEMPT
BOND FUND
PRIME QUALITY MONEY
MARKET FUND
U.S. GOVERNMENT SECURITIES
MONEY MARKET FUND
TAX-EXEMPT MONEY
MARKET FUND
INVESTMENT ADVISORS
TRUSCO CAPITAL MANAGEMENT, INC.
STI CAPITAL MANAGEMENT, N.A.
SUNTRUST BANK, CHATTANOOGA, N.A.
SUNTRUST BANK, ATLANTA
OCTOBER 1, 1996
[LOGO]
<PAGE>
STI CLASSIC FUNDS
FLEX SHARES
INVESTMENT GRADE BOND FUND
INVESTMENT GRADE TAX-EXEMPT BOND FUND
U.S. GOVERNMENT SECURITIES FUND
LIMITED-TERM FEDERAL MORTGAGE SECURITIES FUND
SHORT-TERM BOND FUND
SHORT-TERM U.S. TREASURY SECURITIES FUND
FLORIDA TAX-EXEMPT BOND FUND
GEORGIA TAX-EXEMPT BOND FUND
TENNESSEE TAX-EXEMPT BOND FUND
CAPITAL GROWTH FUND
VALUE INCOME STOCK FUND
MID-CAP EQUITY FUND
BALANCED FUND
SUNBELT EQUITY FUND
INTERNATIONAL EQUITY INDEX FUND
INTERNATIONAL EQUITY FUND
INVESTMENT ADVISORS TO THE FUNDS:
TRUSCO CAPITAL MANAGEMENT, INC.
STI CAPITAL MANAGEMENT, N.A.
SUNTRUST BANK, CHATTANOOGA
SUNTRUST BANK, ATLANTA
(THE "ADVISORS")
The STI Classic Funds (the "Trust") is a mutual fund that offers shares in a
number of separate investment portfolios (each a "Fund" and, collectively, the
"Funds"). This Prospectus sets forth concisely the information about the Flex
Shares of the above-referenced Funds. Investors are advised to read this
Prospectus and retain it for future reference.
A Statement of Additional Information relating to the Funds dated the same date
as this Prospectus has been filed with the Securities and Exchange Commission
and is available without charge through the Distributor, SEI Financial Services
Company, 680 East Swedesford Road, Wayne, Pennsylvania 19087-1658 or by calling
1-800-874-4770. The Statement of Additional Information is incorporated into
this Prospectus by reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
THE TRUST'S SHARES ARE NOT SPONSORED, ENDORSED, OR GUARANTEED BY, AND DO NOT
CONSTITUTE OBLIGATIONS OR DEPOSITS OF, THE ADVISORS OR ANY OF THEIR AFFILIATES
OR CORRESPONDENTS INCLUDING SUNTRUST BANKS, INC., ARE NOT GUARANTEED OR INSURED
BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY
OTHER GOVERNMENTAL AGENCY, AND INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE
LOSS OF THE PRINCIPAL AMOUNT INVESTED.
OCTOBER 1, 1996
<PAGE>
2
Throughout this Prospectus, the Investment Grade Bond Fund, Investment Grade
Tax-Exempt Bond Fund, Short-Term U.S. Treasury Securities Fund, Short-Term Bond
Fund, U.S. Government Securities Fund and Limited-Term Federal Mortgage
Securities Fund, which invest primarily in bonds and other fixed income
instruments, may be referred to as the "Bond Funds," and the Florida Tax-Exempt
Bond Fund, Georgia Tax-Exempt Bond Fund and Tennessee Tax-Exempt Bond Fund,
which invest primarily in tax-exempt bonds and other fixed income instruments,
may be referred to as the "State Tax-Exempt Bond Funds" and the Capital Growth
Fund, Value Income Stock Fund, Mid-Cap Equity Fund, Sunbelt Equity Fund.
International Equity Index Fund and International Equity Fund, which invest
primarily in equity securities, may be referred to as the "Equity Funds."
TABLE OF CONTENTS
<TABLE>
<S> <C>
Expense Summary........................................................... 3
Financial Highlights...................................................... 7
Performance Information for Predecessor Collective Funds.................. 9
The Trust................................................................. 9
Funds and Investment Objectives........................................... 10
Investment Policies and Strategies........................................ 11
General Investment Policies and Strategies................................ 24
Investment Risks.......................................................... 25
Investment Limitations.................................................... 27
Performance Information................................................... 28
Fundlink.................................................................. 28
Purchase of Fund Shares................................................... 29
Redemption of Fund Shares................................................. 31
Exchanges................................................................. 32
Dividends and Distributions............................................... 32
Tax Information........................................................... 33
STI Classic Funds Information............................................. 35
The Trust................................................................. 35
Board of Trustees......................................................... 35
Investment Advisors....................................................... 35
Portfolio Managers........................................................ 37
Banking Laws.............................................................. 38
Distribution.............................................................. 39
Administration............................................................ 40
Transfer Agent and Dividend Disbursing Agent.............................. 40
Custodian................................................................. 40
Legal Counsel............................................................. 40
Independent Public Accountants............................................ 40
Other Information......................................................... 40
Voting Rights............................................................. 40
Reporting................................................................. 41
Shareholder Inquiries..................................................... 41
Description of Permitted Investments...................................... 41
Appendix.................................................................. A-1
</TABLE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE TRUST'S STATEMENT OF
ADDITIONAL INFORMATION IN CONNECTION WITH THE OFFERING MADE BY THIS PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE TRUST OR SEI FINANCIAL SERVICES COMPANY
(THE "DISTRIBUTOR"). THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE
TRUST OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
<PAGE>
3
EXPENSE SUMMARY
FLEX SHARES
Bond Funds
The purpose of the following tables is to help you understand the various costs
and expenses that a shareholder will bear, directly or indirectly, in connection
with an investment in the Flex Shares of each Fund.
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
- ------------------------------------------------------------------------------------
BOND FUNDS
- ------------------------------------------------------------------------------------
<S> <C>
Maximum Sales Charge Imposed
on Purchases (as a percentage of
offering price)...................................................... None
Maximum Sales Charge Imposed
on Reinvested Dividends.............................................. None
Maximum Contingent Deferred
Sales Charge......................................................... 2.00%
Redemption Fees(1).................................................... None
Exchange Fee.......................................................... None
- ------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------
</TABLE>
(1) There is a $7.00 wire charge for redemptions for all funds processed from
retail accounts which require wires to particular banks.
ANNUAL OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
LIMITED-TERM
INVESTMENT FEDERAL SHORT-TERM
INVESTMENT GRADE TAX- MORTGAGE SHORT-TERM U.S. TREASURY
GRADE BOND EXEMPT BOND U.S. GOVERNMENT SECURITIES BOND SECURITIES
FUND FUND SECURITIES FUND FUND FUND FUND
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Management Fees (after fee waivers
& reimbursements)(1)............. .63% .61% .16% .43% .46% .22%
12b-1 Distribution & Service Fees
(after fee waivers &
reimbursements)(2)............... .39% .56% .28% .02% .00% .03%
Other Fund Expenses (after fee
waivers & reimbursements)(3)..... .62% .46% 1.22% .80% .74% .80%
- --------------------------------------------------------------------------------------------------------------------------------
Total Fund Operating Expenses
(after fee waivers &
reimbursements)(4)............... 1.64% 1.63% 1.66% 1.25% 1.20% 1.05%
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Each Advisor is waiving, on a voluntary basis, a portion of its fee from
each Fund. Each Advisor reserves the right to terminate its waiver at any
time in its sole discretion. Absent such waivers and reimbursements,
Advisory Fees for the Funds would be as follows: Investment Grade Bond Fund
-- .74%, Investment Grade Tax-Exempt Bond Fund -- .74%, U.S. Government
Securities Fund -- .74%, Limited-Term Federal Mortgage Securities Fund --
.65%, Short-Term Bond Fund -- .65% and Short-Term U.S. Treasury Securities
Fund -- .65%. See "Investment Advisors."
(2) The Distributor is reimbursing, on a voluntary basis, a portion of its
expenses from each Fund. The Distributor reserves the right to terminate its
reimbursement at any time in its sole discretion. Absent such
reimbursements, 12b-1 Distribution & Service Fees would be as follows:
Investment Grade Bond Fund -- 1.00%, Investment Grade Tax-Exempt Bond Fund
-- 1.00%, U.S. Government Securities Fund -- 1.00%, Limited-Term Federal
Mortgage Securities Fund -- 1.00 %, Short-Term Bond Fund -- 1.00% and Short-
Term U.S. Treasury Securities Fund -- 1.00%. See "Distribution."
(3) Absent waivers and reimbursements, Other Fund Expenses would be as follows:
Investment Grade Bond Fund -- .75%, Investment Grade Tax-Exempt Bond Fund --
.51%, Limited-Term Federal Mortgage Securities Fund -- 1.94%, Short-Term
Bond Fund -- 2.41% and Short-Term U.S. Treasury Securities Fund -- 1.32%.
(4) Absent the voluntary waivers described above, Total Fund Operating Expenses
would be as follows: Investment Grade Bond Fund -- 2.49%, Investment Grade
Tax-Exempt Bond Fund -- 2.25%, U.S. Government Securities Fund -- 2.96%,
Limited-Term Federal Mortgage Securities Fund -- 3.59%, Short-Term Bond Fund
-- 4.06% and Short-Term U.S. Treasury Securities Fund -- 2.97%.
<PAGE>
4
EXPENSE SUMMARY
FLEX SHARES
State Tax-Exempt Bond Funds
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
- ----------------------------------------------------------------
STATE
TAX-EXEMPT
BOND FUNDS
- ----------------------------------------------------------------
<S> <C>
Maximum Sales Charge Imposed
on Purchases (as a percentage of
offering price).................................. None
Maximum Sales Charge Imposed
on Reinvested Dividends.......................... None
Maximum Contingent Deferred
Sales Charge..................................... 2.00%
Redemption Fees(1)................................ None
Exchange Fee...................................... None
- ----------------------------------------------------------------
- ----------------------------------------------------------------
</TABLE>
(1)There is a $7.00 wire charge for redemptions for all funds processed from
retail accounts which require wires to particular banks.
ANNUAL OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
FLORIDA GEORGIA TENNESSEE
TAX-EXEMPT TAX-EXEMPT TAX-EXEMPT
BOND FUND BOND FUND BOND FUND
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Management Fees (after fee waivers &
reimbursements)(1).............................. .38% .37% .00%
12b-1 Distribution & Service Fees (after fee
waivers & reimbursements)(2).................... .16% .30% .54%
Other Expenses (after fee waivers &
reimbursements)(3).............................. .81% .68% .81%
- -----------------------------------------------------------------------------------------------------
Total Fund Operating Expenses (after fee waivers &
reimbursements)(4)(5)........................... 1.35% 1.35% 1.35%
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
</TABLE>
(1) Each Advisor is waiving, on a voluntary basis, a portion of its fee from
each Fund. Each Advisor reserves the right to terminate its waiver at any
time in its sole discretion. Absent such waivers and reimbursements,
Advisory Fees for the Funds would be as follows: Florida Tax-Exempt Bond
Fund -- .65%, Georgia Tax-Exempt Bond Fund -- .65% and Tennessee Tax-Exempt
Bond Fund -- .65%. See "Investment Advisors."
(2) The Distributor is reimbursing, on a voluntary basis, a portion of its
expenses from each Fund. The Distributor reserves the right to terminate its
reimbursement at any time in its sole discretion. Absent such
reimbursements, 12b-1 Distribution & Service Fees would be as follows:
Florida Tax-Exempt Bond Fund -- 1.00%, Georgia Tax-Exempt Bond Fund -- 1.00%
and Tennessee Tax-Exempt Bond Fund -- 1.00%. See "Distribution."
(3) Absent waivers and reimbursements, Other Fund Expenses would be as follows:
Florida Tax-Exempt Bond Fund -- .89%, Georgia Tax-Exempt Bond Fund -- .70%
and Tennessee Tax-Exempt Bond Fund -- 1.09%.
(4) Absent the voluntary waivers described above, Total Fund Operating Expenses
would be as follows: Florida Tax-Exempt Bond Fund -- 2.54%, Georgia
Tax-Exempt Bond Fund -- 2.35% and Tennessee Tax-Exempt Bond Fund -- 2.74%.
(5) Total Fund Operating Expenses for the Tennessee Tax-Exempt Bond Fund have
been restated to reflect current fees.
<PAGE>
5
EXPENSE SUMMARY
FLEX SHARES
Equity and Balanced Funds
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
- -------------------------------------------------------------
EQUITY
AND
BALANCED
FUNDS
- -------------------------------------------------------------
<S> <C>
Maximum Sales Charge Imposed
on Purchases (as a percentage of
offering price).................................. None
Maximum Sales Charge Imposed
on Reinvested Dividends.......................... None
Maximum Contingent Deferred
Sales Charge..................................... 2.00%
Redemption Fees(1)................................ None
Exchange Fee...................................... None
- -------------------------------------------------------------
- -------------------------------------------------------------
</TABLE>
(1)There is a $7.00 wire charge for redemptions for all funds processed from
retail accounts which require wires to particular banks.
ANNUAL OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
VALUE
CAPITAL INCOME MID-CAP SUNBELT INTERNATIONAL INTERNATIONAL
GROWTH STOCK EQUITY BALANCED EQUITY EQUITY INDEX EQUITY
FUND FUND FUND FUND FUND FUND FUND
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Management Fees (after fee waivers &
reimbursements)(1).................... 1.03% .80% 1.00% .79% 1.02% .76% 1.06%
12b-1 Distribution & Service Fees (after
voluntary reductions &
reimbursements)(2).................... .76% .86% .46% .43% .16% .10% .00%
Other Fund Expenses (after fee waivers &
reimbursements)(3).................... .48% .34% .74% .79% 1.02% 1.24% 1.45%
- ------------------------------------------------------------------------------------------------------------------------------
Total Fund Operating Expenses (after fee
waivers & reimbursements)(4)(5)....... 2.27% 2.00% 2.20% 2.01% 2.20% 2.10% 2.51%
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Each Advisor is waiving, on a voluntary basis, a portion of its fee from
each Fund. Each Advisor reserves the right to terminate its waiver at any
time in its sole discretion. Absent such waivers and reimbursements,
Advisory Fees for the Funds would be as follows: Capital Growth Fund --
1.15%, Value Income Stock Fund -- .80%, Mid-Cap Equity Fund -- 1.15%,
Balanced Fund --.95%, Sunbelt Equity Fund -- 1.15%, International Equity
Index Fund -- .90% and International Equity Fund -- 1.25%. See "Investment
Advisors."
(2) The Distributor is reimbursing, on a voluntary basis, a portion of its
expenses from each Fund. The Distributor reserves the right to terminate its
reimbursement at any time in its sole discretion. Absent such
reimbursements, 12b-1 Distribution & Service Fees would be as follows:
Capital Growth Fund -- 1.00%, Value Income Stock Fund -- 1.00%, Mid-Cap
Equity Fund -- 1.00%, Balanced Fund -- 1.00%, Sunbelt Equity Fund -- 1.00%,
International Equity Index Fund -- 1.00% and International Equity Fund --
1.00%. See "Distribution."
(3) Absent waivers and reimbursements, Other Fund Expenses would be as follows:
Capital Growth Fund -- .53%, Value Income Stock Fund -- .35%, Mid-Cap Equity
Fund -- .89%, Balanced Fund -- 1.02%, Sunbelt Equity Fund -- 1.47%,
International Equity Index Fund -- 2.24% and International Equity Fund --
3.61%.
(4) Absent the voluntary waivers described above, Total Fund Operating Expenses
would be as follows: Capital Growth Fund -- 2.68%, Value Income Stock Fund
-- 2.15%, Mid-Cap Equity Fund -- 3.04%, Balanced Fund -- 2.97%, Sunbelt
Equity Fund -- 3.62%, International Equity Index Fund -- 4.14% and
International Equity Fund -- 5.86%.
(5) Total Operating Expenses for the Balanced Fund have been restated to reflect
current fees.
<PAGE>
6
<TABLE>
<CAPTION>
ONE THREE FIVE TEN
EXAMPLES YEAR YEARS YEARS YEARS
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
An investor would pay the following expenses on a $1,000 investment
assuming:
(1) 5% annual return and (2) redemption at the end of each time period.
INVESTMENT GRADE BOND FUND................................................. $ 37 $ 52 $ 89 $ 194
INVESTMENT GRADE TAX-EXEMPT BOND FUND...................................... $ 37 $ 51 $ 89 $ 193
U.S. GOVERNMENT SECURITIES FUND............................................ $ 37 $ 52 $ 90 $ 197
LIMITED-TERM FEDERAL MORTGAGE SECURITIES FUND.............................. $ 33 $ 40 $ 69 $ 151
SHORT-TERM BOND FUND....................................................... $ 32 $ 38 $ 66 $ 145
SHORT-TERM U.S. TREASURY SECURITIES FUND................................... $ 31 $ 34 $ 58 $ 128
FLORIDA TAX-EXEMPT BOND FUND............................................... $ 34 $ 43 $ 74 $ 162
GEORGIA TAX-EXEMPT BOND FUND............................................... $ 34 $ 43 $ 74 $ 162
TENNESSEE TAX-EXEMPT BOND FUND............................................. $ 34 $ 43 $ 74 $ 162
CAPITAL GROWTH FUND........................................................ $ 43 $ 71 $ 122 $ 261
VALUE INCOME STOCK FUND.................................................... $ 40 $ 63 $ 108 $ 233
MID-CAP EQUITY FUND........................................................ $ 42 $ 69 $ 118 $ 253
BALANCED FUND FUND......................................................... $ 40 $ 63 $ 108 $ 234
SUNBELT EQUITY FUND........................................................ $ 42 $ 69 $ 118 $ 253
INTERNATIONAL EQUITY INDEX FUND............................................ $ 41 $ 66 $ 113 $ 243
INTERNATIONAL EQUITY FUND.................................................. $ 45 $ 78 $ 134 $ 285
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
</TABLE>
THE EXAMPLE IS BASED UPON THE TOTAL OPERATING EXPENSES OF THE FUNDS AND SHOULD
NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES
MAY BE GREATER OR LESS THAN THOSE SHOWN. A person that purchases shares through
an account with a financial institution may be charged separate fees by the
financial institution. The rules of the Securities and Exchange Commission
require that the maximum sales charge be reflected in the above table. However,
certain investors may qualify for reduced sales charges. See "Purchase of Fund
Shares." Long-term Shareholders may eventually pay more than the economic
equivalent of the maximum front-end sales charges otherwise permitted by the
National Association of Securities Dealers, Inc.'s Rules of Fair Practice.
<PAGE>
7
FINANCIAL HIGHLIGHTS
The following information has been audited by Arthur Andersen LLP, independent
public accountants to the Trust, whose report thereon was unqualified. This
information should be read in conjunction with the Trust's financial statements
and notes thereto, which are included in the Trust's Statement of Additional
Information and which appear, along with the report of Arthur Andersen LLP, in
the Trust's 1996 Annual Report to Shareholders. Additional performance
information regarding each Fund is contained in the Trust's Annual Report to
Shareholders and is available without charge by calling 1-800-874-4770.
For a Flex Share Outstanding Throughout the Period
<TABLE>
<CAPTION>
NET ASSET NET DISTRIBUTIONS
VALUE INVESTMENT NET REALIZED AND FROM NET DISTRIBUTIONS NET ASSET
BEGINNING INCOME UNREALIZED GAINS INVESTMENT FROM REALIZED VALUE END TOTAL
OF PERIOD (LOSS) ON INVESTMENTS INCOME CAPITAL GAINS OF PERIOD RETURN
--------- ---------- ----------------- ------------- ------------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
------------------------------
INVESTMENT GRADE BOND FUND
------------------------------
FLEX SHARES
1996 (1)............... $10.33 $ 0.52 $ (0.26) $ (0.52) -- $ 10.07 2.50%*
-------------------------------------------
INVESTMENT GRADE TAX-EXEMPT BOND FUND
-------------------------------------------
FLEX SHARES
1996 (2)............... $11.30 $ 0.37 $ 0.18 $ (0.37) $ (0.37) $ 11.11 4.91%*
----------------------------------
U.S. GOVERNMENT SECURITIES FUND
----------------------------------
FLEX SHARES
1996 (1)............... $10.31 $ 0.52 $ (0.37) $ (0.52) $ (0.03) $ 9.91 1.42%*
-------------------------------------------------
LIMITED-TERM FEDERAL MORTGAGE SECURITIES FUND
-------------------------------------------------
FLEX SHARES
1996 (1)............... $10.14 $ 0.55 $ (0.15) $ (0.55) -- $ 9.99 4.10%*
-----------------------
SHORT-TERM BOND FUND
-----------------------
FLEX SHARES
1996 (3)............... $10.02 $ 0.47 $ (0.12) $ (0.47) $ (0.02) $ 9.88 3.73%*
------------------------------------------
SHORT-TERM U.S. TREASURY SECURITIES FUND
------------------------------------------
FLEX SHARES
1996 (4)............... $ 9.96 $ 0.48 $ (0.14) $ (0.48) -- $ 9.82 3.72%*
--------------------------------
FLORIDA TAX-EXEMPT BOND FUND
--------------------------------
FLEX SHARES
1996 (2)............... $10.19 $ 0.39 $ (0.06) $ (0.39) $ (0.05) $ 10.08 3.27%*
---------------------------------
GEORGIA TAX-EXEMPT BOND FUND
---------------------------------
FLEX SHARES
1996 (5)............... $ 9.72 $ 0.36 $ (0.14) $ (0.36) $ (0.02) $ 9.56 2.25%*
-----------------------------------
TENNESSEE TAX-EXEMPT BOND FUND
-----------------------------------
FLEX SHARES
1996 (6)............... $ 9.59 $ 0.37 $ (0.18) $ (0.37) -- $ 9.41 1.98%*
<CAPTION>
RATIO OF NET
INVESTMENT INCOME
RATIO OF EXPENSES (LOSS) TO AVERAGE
NET ASSETS RATIO OF RATIO OF NET TO AVERAGE NET NET ASSETS
END OF EXPENSES INVESTMENT INCOME ASSETS (EXCLUDING (EXCLUDING PORTFOLIO
PERIOD TO AVERAGE (LOSS) TO AVERAGE WAIVERS AND WAIVERS AND TURNOVER
(000) NET ASSETS NET ASSETS REIMBURSEMENTS) REIMBURSEMENTS) RATE
----------- ---------- ----------------- ----------------- ----------------- ----------
<S> <C> <C> <C> <C> <C> <C>
------------------------------
INVESTMENT GRADE BOND FUND
------------------------------
FLEX SHARES
1996 (1)............... $ 4,621 1.64%* 4.84%* 2.49%* 3.99%* 184.33%
-------------------------------------------
INVESTMENT GRADE TAX-EXEMPT BOND FUND
-------------------------------------------
FLEX SHARES
1996 (2)............... $ 5,536 1.63%* 3.12%* 2.25%* 2.50%* 513.90%
----------------------------------
U.S. GOVERNMENT SECURITIES FUND
----------------------------------
FLEX SHARES
1996 (1)............... $ 2,826 1.66%* 5.18%* 2.86%* 3.98%* 83.38%
-------------------------------------------------
LIMITED-TERM FEDERAL MORTGAGE SECURITIES FUND
-------------------------------------------------
FLEX SHARES
1996 (1)............... $ 1,349 1.25%* 5.38%* 3.59%* 3.04%* 83.01%
-----------------------
SHORT-TERM BOND FUND
-----------------------
FLEX SHARES
1996 (3)............... $ 966 1.20%* 4.77%* 4.06%* 1.91%* 162.62%
------------------------------------------
SHORT-TERM U.S. TREASURY SECURITIES FUND
------------------------------------------
FLEX SHARES
1996 (4)............... $ 2,423 1.05%* 5.03%* 2.97%* 3.11%* 94.00%
--------------------------------
FLORIDA TAX-EXEMPT BOND FUND
--------------------------------
FLEX SHARES
1996 (2)............... $ 2,692 1.35%* 3.79%* 2.54%* 2.60%* 62.68%
---------------------------------
GEORGIA TAX-EXEMPT BOND FUND
---------------------------------
FLEX SHARES
1996 (5)............... $ 4,207 1.35%* 3.66%* 2.35%* 2.66%* 60.02%
-----------------------------------
TENNESSEE TAX-EXEMPT BOND FUND
-----------------------------------
FLEX SHARES
1996 (6)............... $ 2,017 1.34%* 3.80%* 2.74%* 2.40%* 41.00%
</TABLE>
<PAGE>
8
FINANCIAL HIGHLIGHTS CONTINUED
<TABLE>
<CAPTION>
NET ASSET NET DISTRIBUTIONS
VALUE INVESTMENT NET REALIZED AND FROM NET DISTRIBUTIONS NET ASSET
BEGINNING INCOME UNREALIZED GAINS INVESTMENT FROM REALIZED VALUE END TOTAL
OF PERIOD (LOSS) ON INVESTMENTS INCOME CAPITAL GAINS OF PERIOD RETURN
--------- ---------- ----------------- ------------- ------------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
----------------------
CAPITAL GROWTH FUND
----------------------
FLEX SHARES
1996 (2)............... $12.20 $ 0.02 $ 3.26 $ (0.05) $ (0.59) $ 14.84 27.48%*
--------------------------
VALUE INCOME STOCK FUND
--------------------------
FLEX SHARES
1996 (2)............... $11.59 $ 0.26 $ 2.65 $ (0.26) $ (1.16) $ 13.08 26.52%*
----------------------
MID-CAP EQUITY FUND
----------------------
FLEX SHARES
1996 (6)............... $11.13 -- $ 2.45 $ (0.02) $ (0.87) $ 12.69 23.00%*
----------------
BALANCED FUND
----------------
FLEX SHARES
1996 (7)............... $10.36 $ 0.24 $ 1.29 $ (0.25) $ (0.11) $ 11.53 15.58%*
---------------------
SUNBELT EQUITY FUND
---------------------
FLEX SHARES
1996 (6)............... $10.20 $ (0.07) $ 4.04 -- $ (0.20) $ 13.97 39.86%*
--------------------------------
INTERNATIONAL EQUITY INDEX FUND
--------------------------------
FLEX SHARES
1996 (8)............... $10.24 -- $ 0.82 $ (0.10) $ (0.09) $ 10.87 8.32%+*
--------------------------
INTERNATIONAL EQUITY FUND
--------------------------
FLEX SHARES
1996 (9)............... $10.44 $ 0.02 $ 0.91 -- -- $ 11.37 8.91%+
<CAPTION>
RATIO OF NET
INVESTMENT INCOME
RATIO OF EXPENSES (LOSS) TO AVERAGE
NET ASSETS RATIO OF RATIO OF NET TO AVERAGE NET NET ASSETS
END OF EXPENSES INVESTMENT INCOME ASSETS (EXCLUDING (EXCLUDING PORTFOLIO
PERIOD TO AVERAGE (LOSS) TO AVERAGE WAIVERS AND WAIVERS AND TURNOVER
(000) NET ASSETS NET ASSETS REIMBURSEMENTS) REIMBURSEMENTS) RATE
----------- ---------- ----------------- ----------------- ----------------- ----------
<S> <C> <C> <C> <C> <C> <C>
----------------------
CAPITAL GROWTH FUND
----------------------
FLEX SHARES
1996 (2)............... $ 10,969 2.27%* (0.29%)* 2.68%* (0.70%)* 156.46%
--------------------------
VALUE INCOME STOCK FUND
--------------------------
FLEX SHARES
1996 (2)............... $ 26,298 2.00%* 1.72%* 2.15%* 1.57%* 133.99%
----------------------
MID-CAP EQUITY FUND
----------------------
FLEX SHARES
1996 (6)............... $ 5,029 2.20%* (0.37%)* 3.04%* (1.21%)* 115.62%
----------------
BALANCED FUND
----------------
FLEX SHARES
1996 (7)............... $ 3,131 2.00%* 1.85%* 2.97%* 0.88%* 154.63%
---------------------
SUNBELT EQUITY FUND
---------------------
FLEX SHARES
1996 (6)............... $ 2,705 2.20%* (1.43%)* 3.62%* (2.85%)* 106.27%
--------------------------------
INTERNATIONAL EQUITY INDEX FUND
--------------------------------
FLEX SHARES
1996 (8)............... $ 917 2.10%* (0.24%)* 4.14%* (2.28%)* 30.46%
--------------------------
INTERNATIONAL EQUITY FUND
--------------------------
FLEX SHARES
1996 (9)............... $ 953 2.51%* 1.08%* 5.86%* (2.27%)* 113.34%
</TABLE>
* Annualized.
+ Cumulative since commencement of operations.
(1) Commenced operations on June 7, 1995.
(2) Commenced operations on June 1, 1995.
(3) Commenced operations on June 20, 1995.
(4) Commenced operations on June 22, 1995.
(5) Commenced operations on June 6, 1995.
(6) Commenced operations on June 5, 1995.
(7) Commenced operations on June 14, 1995.
(8) Commenced operations on June 8, 1995.
(9) Commenced operations on January 2, 1996.
<PAGE>
9
PERFORMANCE INFORMATION FOR PREDECESSOR COLLECTIVE FUNDS
The International Equity, Value Income Stock Fund and Sunbelt Equity Fund are
each the successor to collective investment funds previously managed by STI
Capital Management, Inc. and Trusco Capital Management, Inc. A substantial
portion of the assets of those collective investment funds was transferred to
the Funds in connection with each Fund's commencement of operations. Set forth
below is certain performance data for the predecessor collective investment
funds, which is deemed relevant because the collective investment funds were
managed using virtually the same investment objectives, policies and
restrictions as those used by each respective Fund. The performance data,
however, is not necessarily indicative of the future performance of each Fund.
Further, the predecessor collective funds were not subject to certain investment
limitations imposed on mutual funds which, if they had been imposed, may have
adversely affected a collective fund's performance.
The predecessor collective funds did not incur expenses that correspond to the
advisory, administrative, and other fees to which each Fund is subject.
Accordingly, the following performance information has been adjusted by applying
the total expense ratios for the corresponding Fund, as disclosed in the
Prospectus at the time the Fund commenced operations, which reduced the actual
performance of the collective fund.
The average annual total returns (adjusted to reflect current Fund expenses, net
of voluntary waivers and reimbursements) for the following periods:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
ONE FIVE SINCE
YEAR YEARS TEN YEARS INCEPTION
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
International Equity N/A N/A N/A 28.97%
Collective Fund (2/1/95-
11/30/95)
Value Income Stock 16.40% N/A N/A 15.57%
Collective Fund (ending (10/1/89-
12/31/92) 12/31/92)
Sunbelt Equity 19.13% 21.14% 16.10% 16.90%
Collective Fund (ending (12/1/80-
12/31/93) 12/31/93)
</TABLE>
The average annual total returns for the Funds from inception through May 31,
1996 and for the one- and three-year periods ended May 31, 1996 were as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
ONE THREE SINCE
YEAR YEARS INCEPTION
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
International Equity Fund* N/A N/A 17.65%
Value Income Stock Fund** N/A N/A 24.52%
Sunbelt Equity Fund*** N/A N/A 37.90%
</TABLE>
*International Equity Fund commenced operations on January 2, 1996
**Value Income Stock Fund commenced operations on June 1, 1995.
***Sunbelt Equity Fund commenced operations on June 5, 1995.
THE TRUST
STI CLASSIC FUNDS (the "Trust") is a diversified, open-end management investment
company that provides a convenient and economical means of investing in several
professionally managed portfolios of securities. The Trust currently offers
units of beneficial interest ("shares") in a number of separate Funds.
Shareholders may purchase shares in each non-Money Market Fund through three
separate classes (Trust Shares, Investor Shares and Flex Shares) and in each
Money Market Fund through two separate classes (Trust Shares and Investor
Shares), which provide for
<PAGE>
10
variations in distribution and service fees, transfer agent fees, sales charges,
voting rights and dividends. Except for differences between classes, each share
of each Fund represents an undivided, proportionate interest in that Fund. This
Prospectus relates to the Flex Shares of the Funds described below.
FUNDS AND INVESTMENT OBJECTIVES
BOND FUNDS:
THE INVESTMENT GRADE BOND FUND seeks to provide as high a level of total return
through current income and capital appreciation as is consistent with the
preservation of capital primarily through investment in investment grade fixed
income securities.
THE INVESTMENT GRADE TAX-EXEMPT BOND FUND seeks to provide as high a level of
total return through federally tax-exempt current income and capital
appreciation as is consistent with the preservation of capital primarily through
investment in investment grade tax-exempt obligations.
THE U.S. GOVERNMENT SECURITIES FUND seeks to provide as high a level of current
income as is consistent with the preservation of capital by investing primarily
in obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
THE LIMITED-TERM FEDERAL MORTGAGE SECURITIES FUND seeks to provide as high a
level of current income as is consistent with the preservation of capital by
investing primarily in mortgage-related securities issued or guaranteed by U.S.
Government agencies and instrumentalities.
THE SHORT-TERM BOND FUND seeks to provide as high a level of current income,
relative to funds with like investment objectives, as is consistent with the
preservation of capital primarily through investment in short- to
intermediate-term investment grade fixed income securities.
THE SHORT-TERM U.S. TREASURY SECURITIES FUND seeks to provide as high a level of
current income, relative to funds with like investment objectives, as is
consistent with the preservation of capital through investment exclusively in
short-term U.S. Treasury securities.
STATE TAX-EXEMPT BOND FUNDS:
THE FLORIDA TAX-EXEMPT BOND FUND seeks to provide current income exempt from
regular federal income tax for Florida residents without undue investment risk.
THE GEORGIA TAX-EXEMPT BOND FUND seeks to provide current income exempt from
regular federal and state income tax for Georgia residents without undue
investment risk.
THE TENNESSEE TAX-EXEMPT BOND FUND seeks to provide current income exempt from
regular federal and state income tax for Tennessee residents without undue
investment risk.
EQUITY FUNDS:
THE CAPITAL GROWTH FUND seeks to provide capital appreciation by investing
primarily in a portfolio of common stocks, warrants and securities convertible
into common stock which in its Advisor's opinion are undervalued in the
marketplace at the time of purchase.
THE VALUE INCOME STOCK FUND seeks to provide current income with the secondary
goal of achieving capital appreciation by investing primarily in equity
securities.
<PAGE>
11
THE MID-CAP EQUITY FUND (formerly known as the Aggressive Growth Fund) seeks to
provide capital appreciation by investing primarily in a diversified portfolio
of common stocks, preferred stocks and securities convertible into common stock
of small to mid-sized companies with above-average growth of earnings. Current
income will not be an important criterion of investment selection and any such
income should be considered incidental.
THE BALANCED FUND seeks to provide capital appreciation and current income by
investing in common and preferred stocks, warrants, securities convertible into
common stock and investment grade fixed income securities.
THE SUNBELT EQUITY FUND seeks to provide capital appreciation by investing
substantially all, and under normal market conditions at least 65%, of its
assets in common stocks, preferred stocks, warrants and securities convertible
into common stock of U.S. companies headquartered and/or conducting a
substantial portion of their operations in the southern region of the United
States. Current income will not be an important criterion of investment
selection and any such income should be considered incidental.
THE INTERNATIONAL EQUITY INDEX FUND seeks to provide investment results that
correspond to the aggregate price and dividend performance of the securities
included in the Gross Domestic Product Weighted Morgan Stanley Capital
International Europe, Australasia and Far East Index (the "MSCI EAFE-GDP Index"
or "EAFE-GDP Index"). 1
THE INTERNATIONAL EQUITY FUND seeks to provide long-term capital appreciation by
investing primarily in a diversified portfolio of equity securities of foreign
issuers.
There can be no assurance that a Fund will achieve its investment objective.
The investment objectives of the Investment Grade Bond Fund, U.S. Government
Securities Fund, Limited-Term Federal Mortgage Securities Fund, Short-Term Bond
Fund, Short-Term U.S. Treasury Securities Fund, Capital Growth Fund, Value
Income Stock Fund, Mid-Cap Equity Fund, Balanced Fund, Sunbelt Equity Fund,
International Equity Index Fund and International Equity Fund are nonfundamental
and may be changed without a shareholder vote.
INVESTMENT POLICIES AND STRATEGIES
INVESTMENT GRADE BOND FUND
The Investment Grade Bond Fund will invest only in those fixed income
obligations deemed investment grade obligations, i.e., rated BBB or better by
Standard & Poor's Corporation ("S&P") or Baa or better by Moody's Investors
Services, Inc. ("Moody's") or, if not rated by S&P or Moody's, of comparable
quality at the time of purchase as determined by the Fund's Advisor, including
corporate debt obligations; mortgage-backed securities, collateralized mortgage
obligations ("CMOs") and asset-backed securities; obligations issued or
guaranteed as to principal and interest by the U.S. Government, its agencies or
instrumentalities; custodial receipts involving U.S. Treasury obligations;
securities of the government of Canada and its provincial and local governments;
securities issued or guaranteed by foreign governments, their political
subdivisions, agencies or
- ------------
1 "MSCI EAFE-GDP Index" is a registered service mark of Morgan Stanley Capital
International which does not sponsor and is in no way affiliated with the
International Equity Index Fund.
<PAGE>
12
instrumentalities; obligations of supranational entities and sponsored American
Depositary Receipts ("ADRs") that are traded on exchanges or listed on National
Association of Securities Dealers Automated Quotations ("NASDAQ"). Under normal
circumstances, at least 65% of the Fund's total assets will be invested in
corporate and government bonds and debentures. No more than 25% of the Fund's
assets will be invested in securities rated BBB by S&P or Baa by Moody's or, if
not rated by S&P or Moody's, of comparable quality at the time of purchase as
determined by the Advisor.
The Fund may purchase mortgage-backed securities issued or guaranteed as to the
payment of principal and interest by the U.S. Government, its agencies or
instrumentalities or, subject to a limit of 35% of the Fund's assets,
mortgage-backed securities issued by private issuers. These mortgage-backed
securities may be backed or collateralized by fixed, adjustable or floating rate
mortgages. The Fund may also invest in asset-backed securities which consist of
securities backed by company receivables, truck and auto loans, leases, credit
card receivables and home equity loans.
In order to reduce interest rate risk, and subject to a general limit of 25% of
the Fund's assets, the Fund may purchase floating or variable rate securities.
Some floating or variable rate securities will be subject to interest rate
"caps" or "floors." It may also buy securities on a when-issued basis, medium
term notes, putable securities and zero coupon securities. The Fund may also
invest up to 10% of its assets in restricted securities. The Fund may also
engage in futures and options transactions.
Under normal market conditions, it is anticipated that the Fund's average
weighted maturity will range from 4 to 10 years. In the case of mortgage related
securities and asset-backed securities, maturity will be determined based on the
expected average life of the security. The Fund may shorten its average weighted
maturity to as little as 90 days if deemed appropriate for temporary defensive
purposes. By so limiting the maturity of its investments, the Fund expects that
its net asset value will experience less price movement in response to changes
in interest rates than the net asset values of mutual funds investing in similar
credit quality securities with longer maturities.
The Fund's portfolio turnover rate was 184% for the fiscal year ended May 31,
1996. This rate of turnover will likely result in higher transaction costs and
higher levels of realized capital gains than if the turnover rate was lower.
INVESTMENT GRADE TAX-EXEMPT BOND FUND
The Investment Grade Tax-Exempt Bond Fund intends to be fully invested in
municipal securities the interest on which is exempt from regular federal income
taxes in the opinion of bond counsel to the issuer. The issuers of these
securities can be located in all fifty states, the District of Columbia, Puerto
Rico and other U.S. territories and possessions. It is a fundamental policy of
the Investment Grade Tax-Exempt Bond Fund to invest at least 80% of its total
assets in securities the income from which is exempt from regular federal income
tax and not treated as a preference item for purposes of the alternative minimum
tax. At least 65% of the Fund's assets will be invested in municipal bonds and
debentures, and at least 75% of its total assets invested in municipal bonds
will be in securities rated A or better by S&P or Moody's. Municipal securities
must be rated BBB or better by S&P or Baa or better by Moody's in the case of
bonds; SP-1, SP-2 or MIG-1, MIG-2 in the case of notes; A-1, A-2, P-1, P-2 in
the case of tax-exempt
<PAGE>
13
commercial paper; and SP-1, SP-2, VMIG-1 or VMIG-2 in the case of variable rate
demand obligations. The Fund will only acquire securities not rated by S&P or
Moody's if, at the time of purchase, the Fund's Advisor determines that such
unrated obligations are of comparable quality to rated obligations that may be
acquired by the Fund.
The Fund may invest in commitments to purchase the above securities on a when-
issued or delayed delivery basis, floating or variable rate securities and may
purchase municipal forwards, medium term notes, putable securities and zero
coupon securities. The Fund's Advisor has discretion to invest up to 20% of the
Fund's total assets in taxable debt securities rated at least BBB or better by
S&P or Baa or better by Moody's or, if not rated by S&P or Moody's, of
comparable quality at the time of purchase as determined by the Fund's Advisor,
repurchase agreements, and securities subject to the alternative minimum tax.
The Fund may also invest up to 10% of its assets in restricted securities that
the Fund's Advisor determines are liquid under guidelines adopted by the Trust's
Board of Trustees and may engage in futures and options transactions.
Under normal market conditions, it is anticipated that the Fund's average
weighted maturity will range from 4 to 10 years. The Fund may shorten its
average weighted maturity to as little as 90 days if deemed appropriate for
temporary defensive purposes. By so limiting the maturity of its investments,
the Fund's net asset value is expected to experience less price movement in
response to changes in interest rates than the net asset values of mutual funds
investing in similar credit quality securities with longer maturities.
The Fund's portfolio turnover rate was 514% for the fiscal year ended May 31,
1996. This rate of turnover, if continued, will likely result in higher
transaction costs and higher levels of realized capital gains than if the
turnover rate was lower.
U.S. GOVERNMENT SECURITIES FUND
Under normal market conditions, the Fund will invest at least 65% of its assets
in obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, including mortgage-backed securities issued or guaranteed by
U.S. Government agencies such as the Government National Mortgage Association
("GNMA"), the Federal National Mortgage Association ("FNMA") or the Federal Home
Loan Mortgage Corporation ("FHLMC"). Mortgage-backed securities consisting of
CMOs and real estate mortgage investment conduits ("REMICs") purchased by the
Fund will be issued or guaranteed as to payment of principal and interest by the
U.S. Government, its agencies or instrumentalities or, if issued by private
issuers, rated in one of the two highest rating categories by a nationally
recognized statistical rating organization (an "NRSRO").
The principal governmental issuers or guarantors of mortgage-backed securities
are GNMA, FNMA and FHLMC. Obligations of GNMA are backed by the full faith and
credit of the U.S. Government while obligations of FNMA and FHLMC are supported
by the respective agency only. The Fund may purchase mortgage-backed securities
that are backed or collateralized by fixed, adjustable or floating rate
mortgages.
Mortgage-backed securities that are not issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, including securities nominally
issued by a governmental entity (such as the Resolution Trust Corporation), are
not obligations of a governmental entity and thus may bear a risk of nonpayment.
The timely payment of principal
<PAGE>
14
and interest normally is supported, at least partially, by various forms of
insurance or guarantees. There can be no assurance, however, that such credit
enhancement will support full payment of the principal and interest on such
obligations. The average maturity of the Fund's investment portfolio will
typically range from 7 to 14 years.
With respect to the remaining 35% of its assets, the Fund may invest in
corporate or government bonds that carry a rating of Baa or better by Moody's or
BBB or better by S&P or better, or that are deemed by the Fund's Advisor to be
of comparable quality; commercial paper rated at the time of purchase within the
two highest ratings categories of an NRSRO; bankers' acceptances; certificates
of deposit and time deposits; and U.S. Treasury obligations, which include
custodial receipts and repurchase agreements involving securities that
constitute permissible investments for the Fund. The Fund intends to invest in
privately issued, mortgage-backed securities only if they are rated in one of
the two highest rating categories by an NRSRO.
The Fund may purchase securities on a forward commitment or when-issued basis,
which means that delivery and payment for such securities generally takes place
after the customary securities settlement period. The Fund may purchase floating
or variable rate securities, and may engage in dollar roll transactions.
LIMITED-TERM FEDERAL MORTGAGE SECURITIES FUND
Under normal market conditions, the Limited-Term Federal Mortgage Securities
Fund will invest at least 65% of its assets in mortgage-related securities
issued or guaranteed by U.S. Government agencies such as GNMA, FNMA or FHLMC.
Obligations of GNMA are backed by the full faith and credit of the U.S.
Government while obligations of FNMA and FHLMC are supported by the respective
agency only. The Fund may purchase mortgage-backed securities that are backed or
collateralized by fixed, adjustable or floating rate mortgages. The Fund's
holdings of mortgage-backed securities will typically have an average life of
from one to five years.
Mortgage-backed securities consisting of CMOs and REMICs purchased by the Fund
will be either issued or guaranteed as to payment of principal and interest by
the U.S. Government, its agencies or instrumentalities or, if issued by private
issuers, rated in one of the two highest rating categories by an NRSRO.
Mortgage-backed securities that are not issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, including securities nominally
issued by a governmental entity (such as the Resolution Trust Corporation), are
not obligations of the U.S. Government and thus bear a risk of nonpayment. The
timely payment of principal and interest normally is supported, at least
partially, by various forms of insurance or guarantees. There can be no
assurance, however, that such credit enhancement will support full payment of
the principal and interest on such obligations.
With respect to the remaining 35% of its assets, the Fund may invest in
corporate or government bonds that carry a rating of Baa or better by Moody's or
BBB or better by S&P, or that are deemed by the Fund's Advisor to be of
comparable quality; asset backed securities; commercial paper rated at the time
of purchase in one of the two highest ratings categories by an NRSRO; bankers'
acceptances; certificates of deposit and time deposits; U.S. Treasury
obligations and custodial receipts; and
<PAGE>
15
repurchase agreements involving securities that constitute permissible
investments for the Fund.
The Fund may purchase securities on a forward commitment or when-issued basis,
which means that delivery and payment for such securities generally takes place
after the customary securities settlement period. The Fund may purchase floating
or variable rate securities, and may engage in dollar roll transactions. The
Fund may also purchase stripped mortgage-backed securities, but will limit such
purchases to 5% of its net assets.
SHORT-TERM BOND FUND
Under normal circumstances, the Short-Term Bond Fund will invest solely in
investment grade obligations rated BBB or better by S&P or Baa or better by
Moody's or, if not rated by S&P or Moody's, of comparable quality at the time of
purchase as determined by the Fund's Advisor consisting of debt obligations of
U.S. and foreign corporations, mortgage-backed securities; CMOs; asset-backed
securities; obligations (including mortgage-backed securities) issued or
guaranteed as to principal and interest by the U.S. Government, its agencies or
instrumentalities; and custodial receipts involving U.S. Treasury obligations
(including Separately Traded Registered Interest and Principal Securities
("STRIPS") and Coupon Under Book Entry System ("CUBES")). Under normal
circumstances, at least 65% of the Fund's total assets will be invested in
corporate and government bonds and debentures. No more than 25% of the Fund's
assets will be invested in securities rated BBB by S&P or Baa by Moody's or, if
not rated by S&P or Moody's, of comparable quality at the time of purchase by
the Fund's Advisor.
The Fund may purchase, without limitation, mortgage-backed securities issued or
guaranteed as to the payment of principal and interest by the U.S. Government,
its agencies or instrumentalities and, subject to a limit of 25% of the Fund's
assets, mortgage-backed securities issued by private issuers. These
mortgage-backed securities may be backed or collateralized by fixed, adjustable
or floating rate mortgages. The Fund may also invest in asset-backed securities,
which consist of securities backed by company receivables, truck and auto loans;
leases; credit card receivables; and home equity loans. The Fund will purchase
mortgage-backed and asset-backed securities only if they are rated at least AA
by S&P or Aa by Moody's or, if not rated by S&P or Moody's, determined to be of
comparable quality at the time of purchase by the Fund's Advisor.
The Fund may purchase securities on a when-issued basis and may acquire floating
or variable rate securities, medium term notes, putable securities, and zero
coupon securities. The Fund may also purchase securities issued by foreign
governments and supranational agencies. The Fund may also invest in municipal
securities when the Fund's Advisor feels it is consistent with the Fund's
investment objective. The Fund will not invest in municipal securities unless
the Fund's Advisor believes that the yield will be higher than the yield for
comparable taxable investments in which the Fund is permitted to invest. The
following quality criteria apply to the Fund's investments in municipal
securities. The Fund's investments in municipal notes will be limited to those
obligations (i) where both principal and interest are backed by the full faith
and credit of the United States, (ii) which are rated MIG-2 or V-MIG-2 or better
at the time of investment by Moody's, (iii) which are rated SP-2 or better at
the time of investment by S&P, or (iv) which, if not rated by S&P or Moody's,
are of equivalent quality to MIG-2, V-MIG-2, or SP-2 or better in the Advisor's
judgment. The Fund's investment
<PAGE>
16
in municipal bonds will be limited to bonds rated BBB or better by S&P or Baa or
better by Moody's, or, if not rated by S&P or Moody's, deemed by the Fund's
Advisor to be of comparable quality. For the Fund's investments in other types
of tax-exempt municipal investments, such as participation interests in
municipal lease/purchase agreements, the quality of the underlying credit or of
the bank providing a credit support arrangement must, in the Fund's Advisor's
opinion, be equivalent to the municipal note or bond ratings stated above. The
Fund is also authorized to invest up to 10% of its assets in restricted
securities, including Rule 144A securities, that the Fund's Advisor determines
are liquid under guidelines adopted by the Trust's Board of Trustees. The Fund
may also enter into bond futures contracts and options on bond futures contracts
and engage in securities lending.
The Fund intends to maintain a dollar-weighted average maturity of 3 years or
less, and the maximum remaining maturity for any security held by the Fund is 7
years. Under normal market conditions it is anticipated that the Fund's
dollar-weighted average maturity will range from 2 to 3 years. In the case of
mortgage related securities and asset-backed securities, maturity will be
determined based on the expected average life of the security. The Fund may
shorten its average weighted maturity to as little as 90 days if deemed
appropriate for temporary defensive purposes. By so limiting the maturity of its
investments, the Fund expects that its net asset value will experience less
price movement in response to changes in interest rates than the net asset
values of mutual funds investing in similar credit quality securities with
longer maturities.
The Fund's turnover rate was 163% for the fiscal year ended May 31, 1996. This
rate of turnover, if continued, will likely result in higher transaction costs
and higher levels of realized capital gains than if the turnover rate was lower.
SHORT-TERM U.S. TREASURY SECURITIES FUND
The Short-Term U.S. Treasury Securities Fund will invest exclusively in
obligations issued by the U.S. Treasury with maximum remaining maturities of 3
years or less. U.S. Treasury securities are considered to be among the safest,
as to timely principal and interest payments, investments available. The Fund
will not invest in repurchase agreements. The Fund may borrow money for
temporary or emergency purposes in an amount not exceeding one-third of its
total assets, but has no present intention to do so.
Under normal market conditions, it is anticipated that the Fund's average
maturity will range from one to two years. Furthermore, for temporary defensive
purposes during periods when the Fund's Advisor determines that market
conditions warrant, the Short-Term U.S. Treasury Securities Fund may reduce its
average weighted maturity to less than one year.
FLORIDA TAX-EXEMPT BOND FUND
The Florida Tax-Exempt Bond Fund intends to be fully invested in municipal
securities the interest on which is exempt from regular federal income tax based
on opinions from bond counsel to the issuers. The issuers of these securities
can be located in Florida, the District of Columbia, Puerto Rico and other U.S.
territories and possessions. It is a fundamental policy of the Fund to invest at
least 80% of its total assets in securities the income from which is exempt from
regular federal income tax and not treated as a preference item for purposes of
the alternative minimum tax. At least 65% of the Fund's assets will be invested
in Florida
<PAGE>
17
municipal bonds and debentures, and at least 75% of its total assets invested in
municipal bonds will be in securities rated A or better by S&P or Moody's.
Municipal securities must be rated BBB or better by S&P or Baa or better by
Moody's in the case of bonds; SP-1, SP-2 or MIG-1, MIG-2 in the case of notes;
A-1, A-2, or P-1, P-2 in the case of tax-exempt commercial paper; and SP-1, SP-2
or VMIG-1, VMIG-2 in the case of variable rate demand obligations. No more than
25% of the Fund's assets will be invested in bonds rated BBB by S&P or Baa by
Moody's. The Fund will only acquire securities not rated by S&P or Moody's if,
at the time of purchase, the Fund's Advisor determines that such unrated
obligations are of comparable quality to rated obligations that may be acquired
by the Fund.
The Fund may invest in commitments to purchase the above securities on a when-
issued or delayed delivery basis, floating or variable rate securities, and may
purchase municipal forwards, putable securities, medium term notes, and zero
coupon securities. The Fund's Advisor has discretion to invest up to 20% of the
Fund's total assets in taxable debt securities rated at least BBB or better by
S&P or Baa or better by Moody's or, if not rated by S&P or Moody's, of
comparable quality at the time of purchase as determined by the Fund's Advisor,
repurchase agreements, and securities subject to the alternative minimum tax.
The Fund may also invest in futures and options, but has no present intention to
do so for other than hedging purposes.
Under normal market conditions, it is anticipated that the Fund's average
weighted maturity will range from 6 to 25 years. The Fund may shorten its
average weighted maturity to as little as 90 days if deemed appropriate for
temporary defensive purposes.
GEORGIA TAX-EXEMPT BOND FUND
The Georgia Tax-Exempt Bond Fund intends to be fully invested in municipal
securities the interest on which is exempt from regular federal income taxes and
substantially exempt from State of Georgia income taxes based on opinions from
bond counsel to the issuers. The issuers of these securities can be located in
Georgia, the District of Columbia, Puerto Rico and other U.S. territories and
possessions. It is a fundamental policy of the Fund to invest at least 80% of
its total assets in securities the income from which is exempt from regular
federal income tax and not treated as a preference item for purposes of
alternative minimum tax. At least 65% of the Fund's assets will be invested in
Georgia municipal bonds and debentures, and at least 75% of its total assets
invested in municipal bonds will be in securities rated A or better by S&P or
Moody's. Municipal securities must be rated BBB or better by S&P or Baa or
better by Moody's in the case of bonds; SP-1, SP-2 or MIG-1, MIG-2 in the case
of notes; A-1, A-2, or P-1, P-2 in the case of tax-exempt commercial paper; and
SP-1, SP-2 or VMIG-1, VMIG-2 in the case of variable rate demand obligations. No
more than 25% of the Fund's assets will be invested in bonds rated BBB by S&P or
Baa by Moody's. The Fund will only acquire securities not rated by S&P or
Moody's if, at the time of purchase, the Fund's Advisor determines that such
unrated obligations are of comparable quality to rated obligations that may be
acquired by the Fund.
The Fund may invest in commitments to purchase the above securities on a when-
issued or delayed delivery basis, floating or variable rate securities, and may
purchase municipal forwards, putable securities, medium term notes and zero
coupon securities. The Fund's Advisor has discretion to invest up to 20% of the
Fund's total assets in taxable debt
<PAGE>
18
securities rated at least BBB or better by S&P or Baa or better by Moody's or,
if not rated by S&P or Moody's, of comparable quality at the time of purchase as
determined by the Fund's Advisor, repurchase agreements, and securities subject
to the alternative minimum tax. The Fund may also invest in futures and options,
but has no present intention to do so for other than hedging purposes.
Under normal market conditions, it is anticipated that the Fund's average
weighted maturity will range from 6 to 25 years. The Fund may shorten its
average weighted maturity to as little as 90 days if deemed appropriate for
temporary defensive purposes.
TENNESSEE TAX-EXEMPT BOND FUND
The Tennessee Tax-Exempt Bond Fund intends to be fully invested in municipal
securities the interest on which is exempt from regular federal income taxes and
substantially exempt from State of Tennessee income taxes based on opinions from
bond counsel to the issuers. The issuers of these securities can be located in
Tennessee, the District of Columbia, Puerto Rico and other U.S. territories and
possessions. It is a fundamental policy of the Fund to invest at least 80% of
its total assets in securities the income from which is exempt from regular
federal income tax and not treated as a preference item for purposes of the
alternative minimum tax. At least 65% of the Fund's assets will be invested in
Tennessee municipal bonds and debentures, and at least 75% of its total assets
invested in municipal bonds will be in securities rated A or better by S&P or
Moody's. Municipal securities must be rated BBB or better by S&P or Baa or
better by Moody's in the case of bonds; SP-1, SP-2 or MIG-1, MIG-2 in the case
of notes; A-1, A-2, or P-1, P-2 in the case of tax-exempt commercial paper; and
SP-1, SP-2, VMIG-1 or VMIG-2 in the case of variable rate demand obligations. No
more than 25% of the Fund's assets will be invested in bonds rated BBB by S&P or
Baa by Moody's. The Fund will only acquire securities not rated by S&P or
Moody's if, at the time of purchase, the Fund's Advisor determines that such
unrated obligations are of comparable quality to rated obligations that may be
acquired by the Fund. The Fund may invest in floating or variable rate
securities, commitments to purchase the above securities on a when-issued or
delayed delivery basis, and may purchase municipal forwards, putable securities,
medium term notes and zero coupon securities. The Fund's Advisor has discretion
to invest up to 20% of the Fund's total assets in taxable debt securities rated
at least BBB or better by S&P or Baa or better by Moody's or, if not rated by
S&P or Moody's, of comparable quality at the time of purchase as determined by
the Fund's Advisor, repurchase agreements, and securities subject to the
alternative minimum tax. The Fund may also invest in futures and options, but
has no present intention to do so for other than hedging purposes.
Under normal market conditions, it is anticipated that the Fund's average
weighted maturity will range from 6 to 25 years. The Fund may shorten its
average weighted maturity to as little as 90 days if deemed appropriate for
temporary defensive purposes.
CAPITAL GROWTH FUND
The Capital Growth Fund invests primarily in a diversified portfolio of common
stocks, warrants, and securities convertible into common stocks which, in the
Fund's Advisor's opinion, are undervalued in the marketplace at the time of
purchase. In selecting securities for the Fund, its Advisor will evaluate
factors believed to affect capital appreciation such as
<PAGE>
19
the issuer's background, industry position, historical returns on equity and
experience and qualifications of the management team. Dividend and interest
income should be considered incidental to the growth of capital. The Fund's
Advisor will rotate the Capital Growth Fund's holdings between various market
sectors based on economic analysis of the overall business cycle. Under normal
conditions, at least 65% of the total assets of the Capital Growth Fund will be
invested in common stocks.
All of the common stocks in which the Fund invests are traded on registered
exchanges or on the over-the-counter market in the United States. Assets of the
Capital Growth Fund not invested in the securities described above may be
invested in U.S. dollar denominated equity securities of foreign issuers
(including sponsored ADRs that are traded on exchanges or listed on NASDAQ);
securities issued by money market mutual funds; pay-in-kind securities; and
bonds. The bonds that the Capital Growth Fund may purchase may be rated in any
rating category or may be unrated, provided that no more than 10% of the Fund's
total assets will be invested in bonds rated below BBB by S&P or below Baa by
Moody's or securities not rated by S&P or Moody's of comparable quality (see
"Investment Risks, High Yield, Lower Rated Bonds"). In addition, the Fund may
invest up to 10% of its assets in restricted securities.
The Fund's turnover rate for the fiscal year ended May 31, 1996 was 156%. This
rate of turnover, if continued, will likely result in higher brokerage
commissions and higher levels of realized capital gains than if the turnover
rate was lower.
VALUE INCOME STOCK FUND
The Value Income Stock Fund seeks to provide current income by structuring its
investments in an attempt to maintain the Fund's yield at a level above the
average dividend yield of the securities comprising the S&P 500 Stock Index.
Achieving such a yield will be the Fund's primary consideration when purchasing
securities. A secondary consideration of the Fund will be capital appreciation.
The Fund will invest at least 80% of its total assets in equity securities.
Investments will consist primarily of common stocks, and, under normal market
conditions, at least 65% of the Fund's assets will be invested in common stocks
issued by corporations which have a history of paying regular dividends,
although there can be no assurance that such corporations will continue to pay
dividends. Other equity securities in which the Fund may invest are convertible
debt securities, preferred stocks and warrants which are convertible into or
exchangeable for common stocks; and U.S. dollar denominated equity securities of
foreign issuers (including sponsored ADRs that are traded on exchanges or listed
on NASDAQ). All of the common stocks in which the Fund invests are traded on
registered exchanges such as the New York or American Stock Exchange or on the
over-the-counter market in the United States (i.e., NASDAQ). The Fund may also
purchase debt securities (corporate debt obligations and U.S. Treasury
obligations) which may be rated in any rating category or may be unrated,
provided that no more than 10% of the Fund's total assets will be invested in
bonds rated below BBB by S&P or below Baa by Moody's or securities not rated by
S&P or Moody's of comparable quality. The Fund may also invest in futures and
options.
The Fund will invest primarily in stocks of companies operating in all aspects
of the U.S.
<PAGE>
20
and world economies that have a market capitalization of at least $500 million,
and that the Fund's Advisor believes possess fundamentally favorable long-term
characteristics. However, stocks of companies with smaller market
capitalizations and stocks that are out of favor in the financial community and
in which little opportunity for price appreciation is recognized by the
financial community may also be purchased if the Fund's Advisor believes they
are undervalued.
The Fund's turnover rate for the fiscal year ended May 31, 1996 was 134%. This
rate of turnover, if continued, will likely result in higher brokerage
commissions and higher levels of realized capital gains than if the turnover
rate was lower.
MID-CAP EQUITY FUND
The Mid-Cap Equity Fund invests primarily in a diversified portfolio of common
stocks, preferred stocks, and securities convertible into common stocks of small
to mid-size companies, (i.e., $50 million to $1 billion and $500 million to $5
billion, respectively, as measured by their market capitalization), with
above-average growth of earnings. Under normal conditions, at least 80% of the
total assets of the Fund will be invested in equity securities, and as a matter
of non-fundamental policy, the Fund will invest at least 65% of its assets in
mid-size companies. Current income will not be an important criterion of
investment selection and any such income should be considered incidental. In
selecting securities for the Fund, the Fund's Advisor will evaluate factors such
as the issuer's background, industry position, historical returns on equity and
experience and qualifications of the management team.
Most of the common stocks in which the Fund invests are traded on registered
exchanges or on the over-the-counter market in the United States. Assets of the
Fund not invested in the securities described above may be invested in U.S.
dollar denominated equity securities of foreign issuers (including sponsored
ADRs that are traded on exchanges or listed on NASDAQ); securities issued by
mutual funds; repurchase agreements; and bonds. The bonds that the Fund may
purchase, including any variable or floating rate instruments, must be rated B
or better by S&P or Moody's, provided that this requirement shall not apply to
the Fund's purchase of bonds issued by the government of Canada or by various
supranational entities, and provided further that no more than 10% of the Fund's
total assets will be invested in bonds rated below BBB by S&P or below Baa by
Moody's or securities not rated by S&P or Moody's of comparable quality. The
Fund may invest up to 10% of its assets in restricted securities.
The Fund's turnover rate for the fiscal year ended May 31, 1996 was 116%. This
rate of turnover, if continued, will likely result in higher brokerage
commissions and higher levels of realized capital gains than if the turnover
rate was lower.
SUNBELT EQUITY FUND
The Sunbelt Equity Fund seeks to provide capital appreciation by investing
substantially all, and under normal market conditions at least 65%; of its
assets in common stocks; preferred stocks; warrants; and securities convertible
into common stock of U.S. companies headquartered and/or conducting a
substantial portion of their operations in (i.e., maintaining at least 50% of
their assets in or deriving at least 50% of their revenues and/or sales from)
the southern region of the United States. Current income will not be an
important criterion of investment selection and any such income
<PAGE>
21
should be considered incidental. The Fund's Advisor will seek to identify and
purchase securities of companies that it believes to be undervalued and that
possess a strong balance sheet, a strong earnings record and adequate market
liquidity.
Most of the common stocks in which the Fund invests are traded on registered
exchanges such as the New York or American Stock Exchange or on NASDAQ. The Fund
will invest no more than 10% of its assets in convertible securities rated lower
than BBB. The Fund may invest up to 10% of its total assets in restricted
securities. The Fund may also purchase futures and options for hedging purposes.
Obligations relating to futures contracts will be limited to not more than 20%
of the Fund's total assets.
The Fund will invest primarily in stocks of U.S. companies headquartered and/or
operating in the following U.S. states: Texas, Arkansas, Alabama, Mississippi,
Tennessee, Kentucky, Florida, Virginia, Georgia, North Carolina, South Carolina
and Louisiana. To the extent that the Fund's investments are not as
geographically dispersed across the U.S. as other funds with comparable
objectives, the impact of economic forces on and the relative economic
conditions of these states will be greater on the Fund.
The Fund's turnover rate for the fiscal year ended May 31, 1996 was 106%. This
rate of turnover, if continued, will likely result in higher brokerage
commissions and higher levels of realized capital gains than if the turnover
rate was lower.
BALANCED FUND
The Balanced Fund seeks to provide capital appreciation and current income
through investments in a diversified portfolio of common and preferred stocks,
warrants, securities convertible into common stocks, and investment grade fixed
income securities. Under normal conditions, no more than 70% of the total assets
of the Fund will be invested in common stocks and other equity securities, and
no more than 60% of the Fund's total assets will be invested in bonds and other
fixed income securities. The Fund will maintain at least 25% of its total assets
in senior fixed income securities.
In selecting equity securities for the Fund, the Fund's Advisor will evaluate
factors believed to affect capital appreciation such as the issuer's background,
industry position, historical returns on equity and experience and
qualifications of the management team. The Fund's Advisor will rotate the Fund's
holdings between various market sectors based on economic analysis of the
overall business cycle.
All of the common stocks in which the Fund invests are traded on registered
exchanges or on NASDAQ. Assets of the Fund not invested in the securities
described above may be invested in U.S. dollar denominated equity securities of
foreign issuers (including sponsored ADRs that are traded on exchanges or listed
on NASDAQ), securities issued by investment companies, and bonds.
The Fund will invest in investment grade fixed income securities rated BBB or
better by S&P or Baa or better by Moody's or, if not rated by S&P or Moody's, of
comparable quality at the time of purchase as determined by the Fund's Advisor,
including corporate debt obligations; mortgage-backed securities, collateralized
mortgage obligations and asset-backed securities; obligations issued or
guaranteed as to principal and interest by the U.S. Government, its agencies or
instrumentalities; custodial receipts involving U.S. Treasury obligations;
securities of the government of Canada and its provincial and local governments;
securities issued or guaranteed
<PAGE>
22
by foreign governments, their political subdivisions, agencies or
instrumentalities; and obligations of supranational entities. No more than 25%
of the Fund's assets will be invested in securities rated BBB by S&P or Baa by
Moody's or, if not rated by S&P or Moody's, of comparable quality at the time of
purchase as determined by the Fund's Advisor.
The Fund may purchase mortgage-backed securities issued or guaranteed as to the
payment of principal and interest by the U.S. Government, its agencies or
instrumentalities or, subject to a limit of 25% of the Fund's assets,
mortgage-backed securities issued by private issuers. These mortgage-backed
securities may be backed or collateralized by fixed, adjustable or floating rate
mortgages. The Fund may also invest in asset backed securities which consist of
securities backed by company receivables, truck and auto loans, leases, credit
card receivables and home equity loans.
In order to reduce interest rate risk, the Fund may purchase floating or
variable rate securities. It may also buy securities on a when-issued basis,
putable securities, pay-in-kind securities and zero coupon securities. The Fund
may also invest futures and options. Some floating or variable rate securities
will be subject to interest rate "caps" or "floors."
The Balanced Fund's turnover rate for the fiscal year ended May 31, 1996 was
148% for the equity portion of its portfolio and 164% for the fixed income
portion of its portfolio. These rates of turnover, if continued will likely
result in higher transaction costs and brokerage commissions and higher levels
of realized capital gains than if the turnover rate was lower.
INTERNATIONAL EQUITY INDEX FUND
The Fund will invest substantially all and, under normal market conditions, at
least 65% of its assets in common and preferred stocks; warrants; options; and
securities convertible into common stock of companies headquartered or based in
the approximately twenty foreign countries included in the EAFE-GDP Index. The
Fund will invest only in the 1088 or so companies included in the EAFE-GDP
Index. Because it is impractical to invest in every company included in the
Index, the Fund will select a representative sample of securities in each
country using a statistically-based optimization process. Morgan Stanley & Co.
Incorporated maintains the optimization computer programs which will be utilized
to select companies within each country.
The Fund will be constructed to have aggregate investment characteristics
similar to those of the EAFE-GDP Index. The Fund will invest in a statistically
selected sample of the securities included in the EAFE-GDP Index, although not
all countries nor all companies within a country will be represented in the
Fund's portfolio of securities at any time. The Fund expects to invest in
approximately 300 stocks so that the results fall within a targeted tracking
error range. From time to time, adjustments may be made in the Fund's portfolio
because of changes in the composition of the EAFE-GDP Index. No attempt will be
made to manage the portfolio using traditional economic, financial and market
analyses.
The Fund expects that there will be a close correlation between the Fund's
performance and that of the EAFE-GDP Index. A 1.00 correlation would indicate
perfect correlation, which would be achieved when the net asset value of the
Fund, including the value of its dividend and capital gains distributions,
increases or decreases in exact proportion to changes in the EAFE-GDP Index. The
correlation between the Fund and the EAFE-GDP Index is expected to be over 0.95
on an annual basis. The Fund's ability to track the
<PAGE>
23
EAFE-GDP Index, however, may be affected by, among other things, transaction
costs, changes in either the composition of the EAFE-GDP Index or number of
shares outstanding for the component companies of the EAFE-GDP Index, and the
timing and amount of purchases and redemptions.
Securities of foreign issuers purchased by the Fund may be purchased in foreign
markets, on United States registered exchanges, the over-the-counter market or
in the form of sponsored or unsponsored ADRs traded on registered exchanges or
NASDAQ, or sponsored or unsponsored European Depositary Receipts ("EDRs").
The Fund may enter into forward foreign currency contracts as a hedge against
possible variations in foreign exchange rates. A forward foreign currency
contract is a commitment to purchase or sell a specified currency, at a
specified future date, at a specified price. The Fund may enter into forward
foreign currency contracts to hedge a specific security transaction or to hedge
a portfolio position. These contracts may be bought or sold to protect the Fund,
to some degree, against a possible loss resulting from an adverse change in the
relationship between foreign currencies and the U.S. dollar.
The Fund expects to be fully invested in the investments described above, but
may invest up to 35% of its total assets in U.S. and non-U.S. denominated money
market instruments; repurchase agreements; futures contracts, including stock
index futures contracts; and options on futures contracts. Obligations relating
to futures contracts will be limited to 20% of the Fund's total assets. The Fund
is also permitted to acquire floating and variable rate securities; purchase
securities on a when-issued basis; and purchase illiquid securities.
INTERNATIONAL EQUITY FUND
The Fund under normal market conditions will invest at least 65% of its assets
in equity securities of foreign issuers consisting of: common and preferred
stocks, warrants, options and securities convertible into common stock.
Securities of foreign issuers purchased by the Fund may be purchased in foreign
markets, on United States registered exchanges, the over-the-counter market or
in the form of sponsored or unsponsored American Depositary Receipts ("ADRs")
traded on registered exchanges or NASDAQ, or sponsored or unsponsored European
Depositary Receipts ("EDRs").
The Fund may enter into forward foreign currency contracts as a hedge against
possible variations in foreign exchange rates. A forward foreign currency
contract is a commitment to purchase or sell a specified currency, at a
specified future date, at a specified price. The Fund may enter into forward
foreign currency contracts to hedge a specific security transaction or to hedge
a portfolio position. The Fund also may purchase and write put and call options
on foreign currencies (traded on U.S. and foreign exchanges or over-the-counter
markets) to manage the portfolio's exposure to changes in dollar exchange rates.
The Fund expects to be fully invested in the investments described above, but
may invest up to 35% of its total assets in bonds and debentures issued by
non-U.S. or U.S. companies, securities issued or guaranteed by foreign or U.S.
governments and foreign and U.S. commercial paper. The Fund may invest in
futures contracts, including stock index futures contracts, and options on
futures contracts. The bonds that the Fund may purchase may be rated in any
rating category or may be unrated provided that no more than 10% of the Fund's
total assets will be rated below BBB by S&P or
<PAGE>
24
below Baa by Moody's or not rated by S&P or Moody's securities of comparable
quality (see "Investment Risks -- High Yield, Lower Rated Bonds"). When
investing in bonds, the Fund may seek capital gains by taking advantage of price
appreciation caused by interest rate and credit quality changes. The Fund may
also purchase shares of closed-end investment companies that invest in the
securities of issuers in a single country or region. The Fund is also permitted
to acquire floating and variable rate securities, purchase securities on a
when-issued basis and purchase illiquid securities.
The Fund will invest in the foreign issues of at least three different countries
outside the United States. A foreign issue is one the issuer of which (1) is
organized under the laws of a specific country, (2) for which the principal
securities trading market is in a specific country or (3) derives a significant
proportion (at least 50 percent) of its revenues or profits from goods produced
or sold, investments made, or services performed in a specific country or which
have at least 50 percent of its assets situated in that country. The Fund will
invest primarily in developed countries (for example Japan, Canada and the
United Kingdom). In addition, the Fund may invest in securities of issuers whose
principal activities are in countries with emerging markets. The Fund defines an
emerging market country as any country the economy and market of which the World
Bank or the United Nations considers to be emerging or developing.
The Fund's portfolio turnover rate for the fiscal year ended May 31, 1996 was
113%. This rate of turnover, if continued, will likely result in higher
brokerage commissions and higher levels of realized capital gains than if the
turnover rate was lower.
GENERAL INVESTMENT POLICIES AND STRATEGIES
For temporary defensive purposes, during periods when its Advisor determines
that market conditions warrant, each Fund, except the Short-Term U.S. Treasury
Securities Fund, may hold a portion of its assets in cash and invest up to 100%
of its assets in money market instruments consisting of: securities issued or
guaranteed as to principal and interest by the U.S. Government, its agencies or
instrumentalities; custodial receipts involving U.S. Treasury obligations;
repurchase agreements; certificates of deposit; bankers' acceptances; time
deposits issued by banks or savings and loan associations; and commercial paper
rated in the highest rating category. A Fund may not be pursuing its investment
objective when it is engaged in temporary defensive investing. The Equity Funds
and the Balanced Fund may invest in money market instruments for liquidity
purposes.
The municipal bonds that the Investment Grade Tax-Exempt Bond Fund and State
Tax-Exempt Bond Funds may purchase include general obligation bonds, revenue or
special obligation bonds, and private activity and industrial development bonds.
General obligation bonds are backed by the taxing power of the issuing
municipality while revenue or special obligation bonds are backed by a specific
project or facility. The State Tax-Exempt Bond Funds may also purchase
certificates of participation which represent an interest in an underlying
obligation or commitment such as an obligation issued in connection with a
leasing arrangement. The payment of principal and interest on private activity
and industrial development bonds generally is dependent solely on the ability of
the facility's user to meet its obligation and the pledge, if any, of real or
personal property as security for such payment.
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25
The Advisor to a State Tax-Exempt Bond Fund or the Investment Grade Tax-Exempt
Bond Fund may buy or sell portfolio securities with the intention of generating
capital gains. Such gains will increase the Fund's total return and will be
taxable upon distribution to Shareholders. See "Tax Information."
In the event that a security owned by a Fund is downgraded below the stated
rating categories, its Advisor will review and take appropriate action with
regard to the security.
Each Fund may purchase securities issued by money market mutual funds. A Fund's
purchase of shares of other investment companies is limited by the Investment
Company Act of 1940 (the "1940 Act") and will ordinarily result in an additional
layer of charges and expenses.
Each of the Funds may engage in securities lending and will limit such practice
to 33 1/3% of its total assets. No Fund may purchase additional securities while
its outstanding borrowings exceed 5% of its assets.
It is a non-fundamental policy of each Fund to invest no more than 15% of its
net assets in illiquid securities. An illiquid security is a security which
cannot be disposed of in the usual course of business within seven days at a
price approximating its carrying value.
The Capital Growth Fund, Value Income Stock Fund, Mid-Cap Equity Fund, Balanced
Fund, Sunbelt Equity Fund and International Equity Fund may purchase restricted
securities, including Rule 144A securities, that its Advisor determines are
liquid pursuant to the guidelines established by the Trust's Board of Trustees.
For additional information regarding permitted investments, see "Description of
Permitted Investments" in this Prospectus and in the Statement of Additional
Information.
INVESTMENT RISKS
EQUITY SECURITIES
Investment in equity securities are generally subject to market risks that may
cause their prices to fluctuate over time. The values of convertible equity
securities are also affected by prevailing interest rates, the credit quality of
the issuer and any call provision. Fluctuations in the value of equity
securities in which a Fund invests will cause the net asset value of the Fund to
fluctuate.
FIXED INCOME SECURITIES
The market value of a Fund's fixed income investments will change in response to
interest rate changes and other factors. During periods of falling interest
rates, the values of outstanding fixed income securities generally rise.
Conversely, during periods of rising interest rates, the values of such
securities generally decline. Securities with longer maturities are subject to
greater fluctuations in value than securities with shorter maturities. Changes
by an NRSRO to the rating of any fixed income security and in the ability of an
issuer to make payments of interest and principal also affect the value of these
investments. Changes in the value of a Fund's securities will not affect cash
income derived from these securities but will affect the Fund's net asset value.
Fixed income securities rated BBB by S&P or Baa by Moody's (the lowest rating of
investment grade bonds) are deemed by these rating services to have speculative
characteristics.
Guarantees of a Fund's securities by the U.S. Government or its agencies or
instrumentalities guarantee only the payment of principal and interest on the
guaranteed securities, and do
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26
not guarantee the securities' yield or value or the yield or value of a Fund's
shares.
There is a risk that the current interest rate on floating and variable rate
instruments may not accurately reflect existing market interest rates.
FOREIGN SECURITIES AND FOREIGN CURRENCY CONTRACTS
Investing in the securities of foreign companies involves special risks and
considerations not typically associated with investing in U.S. companies. These
risks and considerations include differences in accounting, auditing and
financial reporting standards, generally higher commission rates on foreign
portfolio transactions, the possibility of expropriation or confiscatory
taxation, adverse changes in investment or exchange control regulations,
political instability which could affect U.S. investment in foreign countries
and potential restrictions of the flow of international capital and currencies.
Foreign companies may also be subject to less government regulation than U.S.
companies. Moreover, the dividends payable on the foreign securities may be
subject to foreign withholding taxes, thus reducing the net amount of income
available for distribution to a Fund's Shareholders. Further, foreign securities
often trade with less frequency and volume than domestic securities and,
therefore, may exhibit greater price volatility. Changes in foreign exchange
rates will affect, favorably or unfavorably, the value of those securities which
are denominated or quoted in currencies other than the U.S. dollar.
By entering into forward foreign currency contracts, the International Equity
Index Fund and International Equity Fund will seek to protect the value of its
respective investment securities against a decline in the value of a currency.
However, these forward foreign currency contracts will not eliminate
fluctuations in the underlying prices of the securities. Rather, they simply
establish a rate of exchange which one can obtain at some future point in time.
Although such contracts tend to minimize the risk of loss due to a decline in
the value of the hedged currency, they tend to limit any potential gain which
might result should the value of such currency increase.
HIGH YIELD, LOWER RATED BONDS
A Fund's investments in high yield, lower rated bonds ("junk bonds") involve
greater risk of default or price declines than investments in investment grade
securities (E.G., securities rated BBB or higher by S&P or Baa or higher by
Moody's) due to changes in the issuer's creditworthiness. The market for high
risk, high yield securities may be thinner and less active, causing market price
volatility and limited liquidity in the secondary market. This may limit the
ability of a Fund to sell such securities at their fair market value either to
meet redemption requests or in response to changes in the economy or the
financial markets. Market prices for high risk, high yield securities may also
be affected by investors' perception of the issuer's credit quality and the
outlook for economic growth. Thus, prices for high risk, high yield securities
may move independently of interest rates and the overall bond market. In
addition, the market for high risk, high yield securities may be adversely
affected by legislative and regulatory developments.
MORTGAGE-BACKED SECURITIES
Mortgage-backed securities are subject to the risk of prepayment of the
underlying mortgages. During periods of declining interest rates, prepayment of
mortgages underlying these securities can be expected to accelerate. When the
mortgage-backed securities held by a Fund are prepaid, the Fund generally will
reinvest the proceeds in securities with a yield
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27
that reflects prevailing interest rates, which may be lower than the prepaid
security.
MUNICIPAL SECURITIES
Since each State Tax-Exempt Bond Fund invests in municipal securities issued by
governmental entities of its specific state, the performance of each State
Tax-Exempt Bond Fund may be especially affected by factors pertaining to such
state's economy and other factors specifically affecting the ability of issuers
in that state to meet their obligations. As a result, the value of each State
Tax-Exempt Bond Fund's shares may fluctuate more widely than the value of shares
of a portfolio investing in securities relating to a number of different states.
The ability of state, county, or local governments to meet their obligations
will depend primarily on the availability of tax and other revenues to those
governments and on their fiscal conditions generally. Municipal securities may
be affected from time to time by economic, political, geographic and demographic
conditions. In addition, constitutional amendments, legislative measures,
executive orders, administrative regulations and voter initiatives may limit a
government's power to raise revenues or increase taxes and thus could adversely
affect an issuer's ability to meet financial obligations.
ZERO COUPON OBLIGATIONS
Zero coupon obligations are sold at original issue discount and do not make
periodic payments. Zero coupon obligations may be subject to greater
fluctuations in value due to interest rate changes than interest bearing
obligations. A Fund will be required to include the imputed interest in zero
coupon obligations in its current income. Because each Fund distributes all of
its net investment income to Shareholders, a Fund may have to sell portfolio
securities to distribute the income attributable to these obligations and
securities at a time when its Advisor would not have chosen to sell such
obligations or securities and which may result in a taxable gain or loss.
INVESTMENT LIMITATIONS
The following investment limitations constitute fundamental policies of each
Fund. Fundamental policies cannot be changed with respect to a Fund without the
consent of the holders of a majority of the Fund's outstanding shares. The term
"majority of the outstanding shares" means the vote of (i) 67% or more of a
Fund's shares present at a meeting, if more than 50% of the outstanding shares
of the Fund are present or represented by proxy, or (ii) more than 50% of a
Fund's outstanding shares, whichever is less.
Each Fund may not:
1. Purchase securities of any issuer (except securities issued or guaranteed by
the United States, its agencies or instrumentalities and repurchase agreements
involving such securities) if as a result more than 5% of the total assets of a
Fund would be invested in the securities of such issuer; provided, however, that
a Fund may invest up to 25% of its total assets without regard to this
restriction as permitted by applicable law.
2. Purchase any securities which would cause more than 25% of the total assets
of a Fund to be invested in the securities of one or more issuers conducting
their principal business activities in the same industry, provided that this
limitation does not apply to investments in obligations issued or guaranteed by
the U.S. Government or its agencies and instrumentalities, repurchase agreements
involving such securities or tax-exempt securities issued by governments or
political subdivisions of governments. For purposes of this limitation, (i)
utility companies will be divided according to their services, for example, gas,
gas transmission, electric and telephone
<PAGE>
28
will each be considered a separate industry; (ii) financial service companies
will be classified according to the end users of their services, for example,
automobile finance, bank finance and diversified finance will each be considered
a separate industry; and (iii) supranational entities will be considered to be a
separate industry.
It is a non-fundamental policy of the Investment Grade Tax-Exempt Bond Fund that
it will not invest more than 25% of its net assets in securities of one or more
issuers conducting their principal activities in the same state. In addition,
the Investment Grade Tax-Exempt Bond Fund and State Tax-Exempt Bond Funds will
not invest more than 25% of their respective total assets in securities the
interest on which is derived from revenues of similar type projects.
The foregoing percentages will apply at the time of the purchase of a security.
Additional investment limitations are set forth in the Statement of Additional
Information.
PERFORMANCE INFORMATION
From time to time, the Funds may advertise performance (yield and total return).
These figures will be based on historical earnings and are not intended to
indicate future performance. The yield of a Fund refers to the annualized income
generated by an investment in that Fund over a specified 30-day period. The
yield is calculated by assuming that the income generated by the investment
during that period is generated over one year and is shown as a percentage of
the investment.
The Investment Grade Tax-Exempt and State Tax-Exempt Bond Funds may also
advertise a "tax-equivalent yield," which is calculated by determining the rate
of return that would have been achieved on a fully taxable investment to produce
the after tax equivalent of the Fund's yield, assuming certain tax brackets for
a Shareholder.
The total return of a Fund refers to the average compounded rate of return to a
hypothetical investment, including any sales charge imposed, for designated time
periods (including but not limited to, the period from which a Fund commenced
operations through the specified date), assuming that the entire investment is
redeemed at the end of each period and assuming the reinvestment of all dividend
and capital gains distributions.
The performance of the Trust's Investor Shares and Flex Shares will normally be
lower than for Trust Shares because Investor Shares and Flex Shares are subject
to distribution, services, and certain transfer agent fees not charged to Trust
Shares. Because of their differing sales charge and distribution expense
arrangements, the performance of Flex Shares in comparison to Investor Shares
will vary depending upon the investor's investment time horizon.
Each Fund may periodically compare its performance to other mutual funds tracked
by mutual fund rating services, to broad groups of comparable mutual funds or to
unmanaged indices which may assume reinvestment of dividends but generally do
not reflect deductions for administrative and management costs.
FUNDLINK
All purchases and redemptions of Flex Shares may be completed via FUNDLINK, a
telephone activated service that allows Shareholders to transfer money between
the STI Classic Funds and a Shareholder's SunTrust bank account(s). To initiate
a FUNDLINK transaction, Shareholders are provided a toll-free telephone number
(1-800-428-6970) to call the Trust's transfer agent. To utilize this service, a
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29
Shareholder must contact an Investment Consultant of a SunTrust Banks, Inc.
affiliate bank and complete the appropriate application and authorization
agreements.
PURCHASE OF FUND SHARES
Flex Shares are sold at net asset value (without an initial sales charge) and
are subject to a deferred sales charge if redeemed within one year of purchase.
Flex Shares provide the benefit of permitting all investor dollars to be
invested from the initial time of purchase.
Flex Shares are sold on a continuous basis and may be purchased by contacting
the Trust's transfer agent, Federated Services Company (the "Transfer Agent"),
either by mail, by telephone or by wire. Flex Shares may also be purchased
through Investment Consultants of SunTrust Securities, Inc. which serves as
Shareholder Servicing Agents to the Trust. Furthermore, Flex Shares may be
purchased through certain correspondent banks of SunTrust Banks, Inc. or other
financial institutions who have executed dealer sales agreements.
Shares may be purchased on days on which the New York Stock Exchange is open for
business (a "Business Day").
A purchase order for any of the Funds will be effective as of the Business Day
it is received by the Transfer Agent if the Transfer Agent receives the order
before 4:00 p.m. Eastern time. Purchases will be made in full and fractional
shares of a Fund calculated to three decimal places. All purchases made by check
should be in U.S. dollars and made payable to the "STI Classic Funds (Fund
Name)." Third party checks, credit cards, credit card checks and cash will not
be accepted. When purchases are made by check, redemptions will not be allowed
until the investment being redeemed has been in the account for 15 business
days. Purchases by mail are considered received after payment by check is
converted into federal funds. The purchase price of Flex Shares of a Fund is the
net asset value next determined after a purchase order is effective. The net
asset value per share of a Fund is determined by dividing the total market value
of the Fund's investments and other assets, less any liabilities, by the total
outstanding shares of the Fund. Net asset value per share is determined daily as
of the close of business of the New York Stock Exchange (currently 4:00 p.m.
Eastern time) on any Business Day. Pursuant to guidelines established by the
Trustees, the Trust may use a pricing service to provide market quotations or
valuations for securities owned by each Fund.
Minimum initial and subsequent purchase amounts, respectively, for each Fund are
$10,000 and $1,000 ($100 via statement coupon). Purchases made pursuant to the
Systematic Investment Plan (described below) are subject to lower minimum
initial and subsequent purchase amounts. The minimum initial purchase amount for
retirement plans is $2,000. These minimums may be waived at the Distributor's
discretion such as for any one trust or fiduciary account including employee
benefit plans created under sections 401 or 457 of the Internal Revenue Code
including related plans of the same employer.
Financial institutions may impose an earlier cut-off time for receipt of
purchase orders directed through them to allow for processing and transmittal of
these orders to the Transfer Agent for effectiveness the same day.
The Trust reserves the right to reject a purchase order when the Distributor
determines that it is not in the best interest of the Trust and/or
Shareholder(s).
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30
The Trust and the Transfer Agent maintain procedures, including identification
methods and other means, for ascertaining the identity of callers and
authenticity of instructions. If reasonable procedures are not employed, the
Trust and/or the Transfer Agent may be liable for any losses due to unauthorized
or fraudulent telephone transactions. Neither the Transfer Agent nor the Trust
will be responsible for any loss, liability, cost or expense for acting upon
telephone or wire instructions reasonably believed to be genuine.
Shares of the Funds are offered only to residents of states in which the shares
are eligible for purchase. Investors in certain states may be required to
purchase shares through institutions registered as brokers/dealers in such
states.
In deciding whether to purchase Investor Shares or Flex Shares, investors should
take into consideration their present and anticipated purchase amounts, and time
horizons. Investors should consider, based on the anticipated life of their
investment, whether the accumulated distribution fees and contingent deferred
sales charge on Flex Shares would be less than the initial sales charge plus
accumulated distribution on Investor Shares. Investors should also consider
whether, and to what extent, such differential would be offset by the higher
dividend distributions per share on the Investor Shares. To assist investors in
making this decision, an analysis program is available through a local SunTrust
Securities Investment Consultant upon request.
SYSTEMATIC INVESTMENT PLAN
Shares of each Fund may be purchased systematically through deductions from
checking or savings accounts maintained through SunTrust Banks, Inc. affiliate
banks. The Systematic Investment Plan is subject to subsequent minimum
maintained balance requirements. The minimum initial purchase amount for the
Systematic Investment Plan is $500. Since the minimum normal initial investment
amount for Flex Shares is $10,000 per Fund, it is expected that Systematic
Investment Plan purchases will total $10,000 per Fund within a two-year period.
The distributor maintains the right to terminate a Systematic Investment Plan
account if the account fails to reach this $10,000 total cumulative purchase
amount within the two-year period. Investors may purchase shares on a fixed
schedule (semi-monthly or monthly) with amounts from $50 up to $100,000. The
purchases will be effective on the Business Day that the Transfer Agent receives
the transmission.
CONTINGENT DEFERRED SALES CHARGE INFORMATION
Flex Shares of the Funds may be purchased at their net asset value. Shares
redeemed within the first year after purchase will be subject to a contingent
deferred sales charge ("CDSC") equal to 2.00% of the lesser of the net asset
value of the shares at the time of purchase or the net asset value of the shares
at the time of redemption.
The CDSC will not apply to shares purchased through reinvestment of dividends or
capital gain distributions; accordingly, no sales charge is imposed on increases
in net asset value above the initial purchase price. In determining whether a
particular redemption is subject to a CDSC, it is assumed that the redemption is
first of shares held for over one year or shares acquired through reinvestment
of dividends or other distributions. No CDSC will be charged on exchanges of
Flex Shares of any Fund for Flex Shares of any other Fund. See "Exchanges." In
determining the amount of the
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31
Flex Shares CDSC that applies, all purchases shall be considered as having been
made on the trade date.
The CDSC will not be imposed when a redemption occurs under the following
circumstances: (i) a total or partial distribution from a qualified plan, other
than an IRA, Keogh Plan, or a custodial account following retirement; (ii) a
total or partial distribution from an IRA, Keogh Plan, or a custodial account
after the beneficial owner or participant attains age 59 1/2; or (iii) from the
death or complete disability (as defined in the Internal Revenue Code or
evidenced by a certificate from the U.S. Social Security Administration) of the
beneficial owner or participant. The exemption from the CDSC for qualified
plans, an IRA, Keogh Plan, or a custodial account does not extend to account
transfers, rollovers and other redemptions made for purposes of reinvestment.
CDSCs are not charged in connection with redemptions by the Fund of accounts
with low balances.
Under the Systematic Withdrawal Plan discussed later, annual redemptions of up
to 12% of the value of a Shareholder's Flex Shares are not subject to the CDSC.
REDEMPTION OF FUND SHARES
Shareholders may redeem their Flex Shares on any day that net asset value is
calculated. Flex Shares may ordinarily be redeemed by mail or telephone request
to the Transfer Agent. All redemption orders are effected at the net asset value
per share next determined after receipt of a valid redemption request, reduced
by any applicable CDSC. See "Sales Charge Information."
However, all or part of a shareholder's holdings of Flex Shares may be redeemed
in accordance with instructions and limitations pertaining to his or her
account. Redemption orders must be received by the Transfer Agent before 4:00
p.m. Eastern time on any Business Day to be effective that day. Redemption
proceeds are normally remitted within five Business Days following receipt of
the order.
Requests for redemptions from the Funds may be placed in writing or by telephone
directly to an Investment Consultant of a SunTrust Banks, Inc. affiliate bank,
through SunTrust Securities, Inc. and through certain correspondent banks of
SunTrust Banks, Inc. (or via FUNDLINK to the Transfer Agent). Redemptions placed
via telephone or FUNDLINK (1-800-428-6970) can only be placed for a minimum of
$1,000.
Redemption proceeds can be wired, distributed by check, or transferred to a
Shareholder's account via FUNDLINK. There will be a $7.00 wire charge for
redemptions processed from accounts which require wires to particular banks.
When Flex Shares are purchased by check the proceeds from the redemption of
those Shares are not available, and the Shares may not be exchanged, until the
Trust or its agents are reasonably certain that the purchase check has cleared,
which could take up to 15 Business Days.
A Shareholder may be required to redeem Flex Shares if the balance in a
Shareholder's Fund account drops below $10,000 as a result of redemptions, and,
the Shareholder does not increase its balance to at least $10,000 on 60 days'
written notice. The Trust intends to pay cash for all shares redeemed, but under
abnormal conditions which make payment in cash unwise, payment may be made
wholly or partly in liquid portfolio securities with a market value equal to the
redemption price. In such cases, an investor may incur brokerage costs in
converting such securities to cash.
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32
Redemptions of $25,000 or greater for a Fund must be in writing and a signature
guarantee must accompany the written request.
SYSTEMATIC WITHDRAWAL PLAN
A systematic withdrawal plan can be established for any Fund account with a
$10,000 minimum balance. Under the plan, redemptions can be automatically
processed (monthly, quarterly, semi-annually or annually) by check or through an
electronic transfer to a Shareholder's SunTrust Banks, Inc. affiliate bank
account with a minimum redemption amount of $50.
Other exceptions to the CDSC charge relating to systematic withdrawals from
qualified retirement plans were previously referenced.
EXCHANGES
Flex Shares of the Funds may be exchanged at net asset value only for Flex
Shares of the other Funds of the Trust or for Investor Shares of the Money
Market Funds of the Trust. No CDSC will be imposed on redemptions of Money
Market Fund Shares acquired in an exchange, provided they are held for at least
one year from the initial purchase date of the Flex Shares or are exchanged back
into Flex Shares. Subsequent exchanges of Investor Shares of the Money Market
Funds (which were acquired in an exchange of Flex Shares) may be only for Flex
Shares of the Equity or Fixed Income Funds.
Flex Shares owned by qualifying investors may be exchanged for Trust Shares
(Shares for which SunTrust Banks, Inc. or one of its affiliates acts in a
fiduciary, agency, investment advisory or custodial capacity) at net asset
value. Trust Shares acquired in an exchange of Flex Shares will not be subject
to a CDSC upon redemption.
Four exchanges may be made per calendar year. More than four exchanges in a year
may be considered an abuse of the exchange privilege. The Trust reserves the
right to charge a $10.00 fee for each exchange. A Shareholder with more than
four exchanges per year will be notified prior to the imposition of any such
fee. Exchanges may be requested through an Investment Consultant of a SunTrust
Banks, Inc. affiliate bank, SunTrust Securities, Inc. and certain correspondent
banks of SunTrust Banks, Inc. either by telephone or in writing (or via FUNDLINK
through the Transfer Agent). The minimum exchange amount is $1,000 subject to
account minimum initial purchase amounts and minimum maintained balance
requirements. This exchange offer is subject to change or termination by the
Trust at any time upon 60 days' notice.
DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (exclusive of capital gains) are declared
on each Business Day and paid monthly by each of the Bond and State Tax-Exempt
Bond Funds. Dividends from net investment income (exclusive of capital gains)
are declared and paid quarterly by the Equity Funds and Balanced Fund, except
that dividends are declared and paid annually by the International Equity Index
Fund and International Equity Fund. Each Fund's net realized capital gains
(including net short-term capital gains) are distributed at least annually. Net
income for dividend purposes consists of (i) interest accrued and original issue
discount earned on a Fund assets, (ii) plus the amortization of market discount
(except in the case of the Investment Grade Tax-Exempt Bond and State Tax-Exempt
Bond Funds) and minus the amortization of market premium on such assets, (iii)
plus dividend or distribution income on such assets, (iv) less accrued expenses
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33
directly attributable to the Fund and the general expenses of the Trust prorated
to the Fund on the basis of its relative net assets. Flex Shares invested in the
Bond and State Tax-Exempt Bond Funds are eligible to begin earning dividends
that are declared on the Business Day after the purchase order is effective and
continue to be eligible for dividends through and including the day the
redemption order is effective.
The net asset value of Flex Shares of the Funds will be reduced by the amount of
any dividend or distribution. Dividends and distributions are paid in the form
of additional Flex Shares of the same Fund unless the customer has elected prior
to the date of distribution to receive payment in cash. Such election, or any
revocation thereof, must be made in writing prior to the date of distribution to
the Transfer Agent and will become effective with respect to dividends paid
after its receipt. Dividends and distributions are paid within ten days of the
end of the time period to which the dividend relates. Dividends and
distributions payable to a Shareholder are paid in cash within ten Business Days
after a Shareholder's complete redemption of its Flex Shares in a Fund.
TAX INFORMATION
The following summary of federal income tax consequences is based on current tax
laws and regulations, which may be changed by legislative, judicial or
administrative action. No attempt has been made to present a detailed
explanation of the federal, state or local income tax treatment of each Fund or
its Shareholders. In particular, no attempt has been made herein to provide
information on the tax laws of Florida, Georgia or Tennessee. Accordingly,
Shareholders are urged to consult their tax advisors regarding specific
questions as to federal, state and local income taxes.
TAX STATUS OF EACH FUND
Each Fund is treated as a separate entity for federal tax purposes, and is not
combined with the Trust's other Funds. Each Fund intends to qualify for the
special tax treatment afforded regulated investment companies by the Internal
Revenue Code of 1986, as amended, (the "Code") so that it will be relieved of
federal income tax on that part of its net investment income and net capital
gains (the excess of long-term capital gains over net short-term capital loss)
which is distributed to Shareholders. Each Fund intends to make sufficient
distributions prior to the end of each calendar year to avoid liability for the
federal excise tax applicable to regulated investment companies.
TAX STATUS OF DISTRIBUTIONS: BOND AND STATE TAX-EXEMPT BOND FUNDS
Each Fund will distribute substantially all of its net investment income
(including, for this purpose, net short-term capital gains) to Shareholders.
Dividends from net investment income paid by the Funds will be taxable to
Shareholders as ordinary income whether received in cash or in additional
shares.
Each of the Investment Grade Tax-Exempt Bond and State Tax-Exempt Bond Funds
will distribute all of its net investment income (including net short-term
capital gains) to Shareholders. If, at the close of each quarter of its taxable
year, at least 50% of the value of a Fund's assets consist of obligations the
interest on which is excludable from gross income, the Fund may pay
exempt-interest dividends to its Shareholders. Those dividends constitute the
portion of the aggregate dividends as designated by the Fund, equal to the
excess of the excludable interest over certain amounts disallowed as deductions.
Exempt-interest dividends are excludable from a Shareholder's
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34
gross income for regular federal income tax purposes, but may have alternative
minimum tax consequences. See the Statement of Additional Information.
Current federal tax law limits the types and volume of bonds qualifying for the
federal income tax exemption of interest, which may have an effect on the
ability of the Investment Grade Tax-Exempt Bond and State Tax-Exempt Bond Funds
to purchase sufficient amounts of tax-exempt securities to satisfy the Code's
requirements for the payment of exempt-interest dividends.
TAX STATUS OF DISTRIBUTIONS: ALL FUNDS
Dividends from net investment income will qualify for the dividends received
deduction for corporate Shareholders only to the extent such distributions are
derived from dividends paid by domestic corporations. Dividends from net capital
gains (the excess of net long-term capital gains over net short-term capital
loss) will be treated as long-term capital gains, regardless of how long the
Shareholder has held shares and regardless of whether distributions are received
in cash or in additional shares. For certain individual Shareholders, net
long-term capital gains may be taxed at a lower rate than ordinary income. Each
Fund will make annual reports to Shareholders of the federal income tax status
of all distributions. Dividends declared by a Fund in October, November or
December of any year and payable to Shareholders of record on a date in that
month will be deemed to have been paid by the Fund and received by the
Shareholders on December 31, of that year, if paid by the Fund any time during
the following January.
Income received on direct U.S. obligations is exempt from tax at the state level
when received directly by a Fund and may be exempt, depending on the state, when
received by a Shareholder from a Fund provided certain state-specific conditions
are satisfied. Not all states permit such income dividends to be tax-exempt and
some require that a certain minimum percentage of an investment company's income
be derived from state tax-exempt interest. Each Fund will inform Shareholders
annually of the percentage of income and distributions derived from direct U.S.
obligations. Shareholders should consult their tax advisors to determine whether
any portion of the income dividends received from a Fund is considered tax
exempt in their particular states.
Income derived by a Fund from obligations of foreign issuers may be subject to
foreign withholding taxes. The International Equity Index and International
Equity Funds expect to elect to treat Shareholders as having paid their
proportionate share of such foreign taxes. The other Funds will not be able to
make this election.
Interest on indebtedness incurred or continued by a Shareholder in order to
purchase shares of a "tax-exempt" Fund is not deductible. Furthermore, entities
or persons who are "substantial users" (or persons related to "substantial
users") of facilities financed by "private activity bonds" or certain industrial
development bonds should consult their tax advisors before purchasing shares.
For these purposes, the term "substantial user" is defined generally to include
a "non-exempt person" who regularly uses in trade or business a part of a
facility financed from the proceeds of such bonds. See the Statement of
Additional Information.
A sale, exchange or redemption of Fund shares is a taxable event to the
Shareholder.
<PAGE>
35
STI CLASSIC FUNDS INFORMATION
THE TRUST
The Trust was organized as a Massachusetts business trust under a Declaration of
Trust dated January 15, 1992. The Declaration of Trust permits the Trust to
offer separate portfolios of shares and different classes of each Fund. All
consideration received by the Trust for shares of any Fund and all assets of
such Fund belong to that Fund and would be subject to liabilities related
thereto.
The Trust pays its expenses, including fees of its service providers, audit and
legal expenses, expenses of preparing prospectuses, proxy solicitation material
and reports to Shareholders, costs of custodial services and registering the
shares under federal and state securities laws, pricing, insurance expenses,
litigation and other extraordinary expenses, brokerage costs, interest charges,
taxes and organization expenses.
BOARD OF TRUSTEES
The management and affairs of the Trust are supervised by the Trustees under the
laws governing business trusts in the Commonwealth of Massachusetts. The
Trustees have approved contracts under which, as described below, certain
companies provide essential management services to the Trust.
INVESTMENT ADVISORS
The Advisors are indirect wholly-owned subsidiaries of SunTrust Banks, Inc.
("SunTrust"), a southeastern regional bank holding company with assets of $66
billion as of December 31, 1995. SunTrust ranks among the twenty largest U.S.
banking companies. Its three principal subsidiaries--SunTrust Bank of Florida,
Inc., SunTrust Banks of Georgia, Inc. and SunTrust Banks of Tennessee, Inc.--
provide a wide range of personal and corporate banking, trust, and investment
services through more than 600 locations in the three-state area. Total
discretionary assets under management with SunTrust Banks, Inc. equalled
approximately $47 billion as of December 31, 1995.
Trusco Capital Management, Inc. ("Trusco") serves as the Advisor to the
Short-Term U.S. Treasury Securities, Short-Term Bond, U.S. Government Securities
and Sunbelt Equity Funds and joint advisor to the International Equity Index
Fund. As of June 30, 1996, Trusco had approximately $13.7 billion in assets
under management. The principal business address of Trusco is 50 Hurt Plaza,
Suite 1400, Atlanta, Georgia 30303.
STI Capital Management, N.A. ("STI Capital") serves as the Advisor to the
Limited-Term Federal Mortgage Securities, Investment Grade Bond, Investment
Grade Tax-Exempt Bond, Florida Tax-Exempt Bond, Capital Growth, Value Income
Stock, Mid-Cap Equity, Balanced and International Equity Funds and joint advisor
to the International Equity Index Fund. As of June 30, 1996, STI Capital had
discretionary management authority with respect to assets of approximately $11
billion. The principal business address of STI Capital is P.O. Box 3808,
Orlando, Florida 32802.
SunTrust Bank, Chattanooga, N.A. ("SunTrust Bank, Chattanooga") (formerly
American National Bank & Trust Company) serves as the Advisor to the Tennessee
Tax-Exempt Bond Fund. SunTrust Bank, Chattanooga had approximately $1.7 billion
in assets under management as of December 31, 1995. The principal business
address of SunTrust Bank, Chattanooga is 736 Market Street, Chattanooga,
Tennessee 37402.
<PAGE>
36
SunTrust Bank, Atlanta (formerly Trust Company Bank) serves as the Advisor to
the Georgia Tax-Exempt Bond Fund. As of December 31, 1995, SunTrust Bank,
Atlanta had approximately $12.5 billion in assets under management. The
principal address for SunTrust Bank, Atlanta is 25 Park Place, Atlanta, Georgia
30303.
The Trust and the above Advisors have entered into advisory agreements (the
"Advisory Agreements"). Under the Advisory Agreements, the Advisors make the
investment decisions for the assets of the Fund(s) they advise and continuously
review, supervise and administer their Fund's respective investment program. The
Advisors discharge their responsibilities subject to the supervision of, and
policies established by, the Trustees of the Trust. STI CLASSIC FUNDS ARE NOT
DEPOSITS, ARE NOT INSURED OR GUARANTEED BY THE FDIC OR ANY OTHER GOVERNMENT
AGENCY, AND ARE NOT ENDORSED OR GUARANTEED BY AND DO NOT CONSTITUTE OBLIGATIONS
OF SUNTRUST BANKS, INC. OR ANY OF ITS AFFILIATES. INVESTMENTS IN THE FUNDS
INVOLVE RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. RETURNS AND PRINCIPAL
VALUES WILL FLUCTUATE AND SHARES AT REDEMPTION MAY BE WORTH MORE OR LESS THAN
THEIR ORIGINAL COST. THERE IS NO GUARANTEE THAT ANY STI CLASSIC FUND WILL
ACHIEVE ITS INVESTMENT OBJECTIVE. With respect to all Funds, the Advisors may
execute brokerage or other agency transactions through affiliates of the
Advisors.
For the services provided and expenses incurred pursuant to the Advisory
Agreements: Trusco is entitled to receive advisory fees computed daily and paid
monthly at the annual rate of 0.74%, 0.65%, 0.65% and 1.15% of the average daily
net assets of the U.S. Government Securities Fund, Short-Term U.S. Treasury
Securities Fund, Short-Term Bond Fund and Sunbelt Equity Fund, respectively; STI
Capital is entitled to receive advisory fees computed daily and paid monthly at
the annual rate of 0.65%, 0.74%, 0.74%, 0.65%, 1.15%, 0.95%, 1.15%, 0.80% and
1.25% of the average daily net assets of the Florida Tax-Exempt Bond Fund,
Investment Grade Bond Fund, Investment Grade Tax-Exempt Bond Fund, Limited-Term
Federal Mortgage Securities Fund, Capital Growth Fund, Balanced Fund, Mid-Cap
Equity Fund, Value Income Stock Fund and International Equity Fund,
respectively. Trusco and STI Capital jointly are entitled to receive an advisory
fee computed daily and paid monthly at the annual rate of 0.90% of the average
daily net assets of the International Equity Index Fund; SunTrust Bank,
Chattanooga is entitled to receive advisory fees computed daily and paid monthly
at the annual rates of .65% of the average daily net assets of the Tennessee
Tax-Exempt Bond Fund; and SunTrust Bank, Atlanta is entitled to receive advisory
fees computed daily and paid monthly at the annual rate of .65% of the average
daily net assets of the Georgia Tax-Exempt Bond Fund.
Although the advisory fees for the Sunbelt Equity Fund, Capital Growth Fund,
Balanced Fund, Mid-Cap Equity Fund, Value Income Stock Fund and International
Equity Index Fund are higher than advisory fees paid by other mutual funds, the
Trust believes that the fees are comparable to the advisory fees paid by many
other mutual funds with similar investment objectives and policies. From time to
time, an Advisor may waive (either voluntarily or pursuant to applicable state
limitations) advisory fees payable by a Fund. Currently, the Advisors and the
Distributor have agreed to voluntary reductions in their respective fees as well
as reductions in service and distribution fees in amounts necessary to maintain
the total operating expenses at the amounts set forth in the Expense Summary.
Voluntary reductions of fees may be terminated at any time.
<PAGE>
37
For the fiscal year ended May 31, 1996: Trusco received advisory fees computed
daily and paid monthly at the annual rate of 0.22%, 0.46%, 1.02%, and 0.16% of
the average daily net assets of the Short-Term U.S. Treasury Securities Fund,
Short-Term Bond Fund, Sunbelt Equity Fund, and U.S. Government Securities Fund,
respectively; STI Capital received advisory fees computed daily and paid monthly
at the annual rate of 0.38%, 0.63%, 0.61%, 1.03%, 0.79%, 1.00%, 0.80%, 0.43% and
1.06%, of the average daily net assets of the Florida Tax-Exempt Bond Fund,
Investment Grade Bond Fund, Investment Grade Tax-Exempt Bond Fund, Capital
Growth Fund, Balanced Fund, Mid-Cap Equity Fund, Value Income Stock Fund,
Limited-Term Federal Mortgage Securities Fund and International Equity Fund,
respectively; Trusco and STI Capital jointly received an advisory fee computed
daily and paid monthly at the annual rate of 0.76% of the average daily net
assets of the International Equity Index Fund; SunTrust Bank, Chattanooga
received advisory fees computed daily and paid monthly at the annual rates of
0.00% of the average daily net assets of the Tennessee Tax-Exempt Bond Fund; and
SunTrust Bank, Atlanta received advisory fees computed daily and paid monthly at
the annual rate of 0.37% of the average daily net assets of the Georgia Tax-
Exempt Bond Fund.
PORTFOLIO MANAGERS
Mr. Charles B. Leonard, CFA, First Vice President of Trusco, and Michael L.
Ford, an Associate of Trusco, have been responsible for the day-to-day
management of the U.S. Government Securities Fund since it commenced operations.
Mr. Leonard has been with Trusco since 1986 as the senior fixed income manager.
Mr. Ford has been with Trusco since April 1994. Prior to joining Trusco, Mr.
Ford served as a senior securities analyst with Liberty Capital Advisors from
January, 1992 to April, 1994 and has served as a securities analyst at Southern
Farm Bureau Life Insurance Company from 1990 to 1992.
Mr. L. Earl Denney, CFA, and Mr. Dave E. West, CFA, have been responsible for
the day-to-day management of the Limited-Term Federal Mortgage Securities Fund
since it commenced operations. Mr. Denney has served as Executive Vice President
of STI Capital since 1983. Mr. West has served as a fixed income portfolio
manager with STI Capital since 1989. Mr. Denney has also been responsible for
the day-to-day management of the Investment Grade Bond Fund since it commenced
operations and the fixed income portion of the Balanced Fund since it commenced
operations.
Ms. Gay Cash has been responsible for the day-to-day management of the Georgia
Tax-Exempt Bond Fund since it commenced operations. Ms. Cash has served as a
Vice President of SunTrust Bank, Atlanta since January 1, 1987.
Mr. Ronald Schwartz, CFA, has been responsible for the day-to-day management of
the Florida Tax-Exempt Bond and Investment Grade Tax-Exempt Bond Funds since
each Fund commenced operations. Mr. Schwartz joined STI Capital in 1988 and
currently serves as a Senior Vice President. Mr. Schwartz, has also been
responsible for the day-to-day management of the Tennessee Tax-Exempt Bond Fund
since July, 1995. Mr. Schwartz serves as Vice President and Trust Investment
Officer of SunTrust Bank, Chattanooga.
Mr. Mills Riddick, CFA, has been responsible for the day-to-day management of
the Value Income Stock Fund since April, 1995. Mr. Riddick has been a value
portfolio manager at STI Capital since 1989.
Mr. Anthony Gray has been responsible for the day-to-day management of the
Capital Growth
<PAGE>
38
Fund since it commenced operations. Mr. Gray has served as Chief Executive
Officer and Chief Investment Officer of STI Capital since 1979. Mr. Gray has
also been responsible for the day-to-day management of the equity portion of the
Balanced Fund since it commenced operations.
Mr. Elliott A. Perny has been responsible for the day-to-day management of the
Mid-Cap Equity Fund since October 1, 1996. Mr. Perny has served as Senior
Executive Vice President of STI Capital since September, 1992 and has served as
a portfolio manager with STI Capital since 1991.
Mr. Dan Jaworski has been responsible for the day-to-day management of the
International Equity Fund since it commenced operations. Mr. Jaworski joined STI
Capital in 1995. Prior to joining STI Capital he managed international
portfolios at Lazard Freres Asset Management from 1993 through 1994 and the
Principal Financial Group from 1988 through 1993.
Mr. David Yealy has been responsible for the day-to-day management of the
Short-Term Bond and Short-Term U.S. Treasury Securities Funds since July 1996.
Mr. Yealy joined Trusco in 1991 and currently serves as a Vice President.
Mr. James Foster has been responsible for the day-to-day management of the
Sunbelt Equity Fund since it commenced operations. Mr. Foster has served as a
Vice President of Trusco since 1989.
Mr. Stanley J. Cherny and Mr. Robert J. Rhodes, CFA, have been responsible for
the day-to-day operations of the International Equity Index Fund since it
commenced operations, Mr. Cherny has been with Trusco since 1994. Prior to
joining Trusco, Mr. Cherny served as a portfolio manager with Payden & Rygel
from 1988 to 1994. Mr. Rhodes has served as a portfolio manager and Director of
Research with Trusco since June, 1985.
BANKING LAWS
Banking laws and regulations, including the Glass-Steagall Act as presently
interpreted by the Board of Governors of the Federal Reserve System, currently
(a) prohibit a bank holding company registered under the Federal Bank Holding
Company Act of 1956 or its affiliates from sponsoring, organizing, controlling,
or distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and generally prohibit banks
from underwriting securities, but (b) do not prohibit such a bank holding
company or affiliate or banks generally from acting as an investment advisor,
transfer agent, or custodian to such an investment company or from purchasing
shares of such a company as agent for and upon the order of a customer. The
Advisors believe that each may perform the services for STI Classic Funds
contemplated by their respective Advisory Agreements described in this
Prospectus without violation of applicable banking laws or regulations. However,
future changes in legal requirements relating to the permissible activities of
banks and their affiliates, as well as future interpretations of present
requirements, could prevent the Advisors from continuing to perform services for
STI Classic Funds. If the Advisors were prohibited from providing services to
STI Classic Funds, the Board of Trustees would consider selecting other
qualified firms. Any new investment advisory agreements would be subject to
Shareholder approval.
If current restrictions preventing a bank or its affiliates from legally
sponsoring, organizing, controlling, or distributing shares of an investment
company were relaxed, the Advisors, or their affiliates, would consider the
possibility of offering to perform additional services for STI Classic Funds. It
is not possible, of course, to predict whether or in what form such legislation
might be enacted or
<PAGE>
39
the terms upon which the Advisors, or such affiliates, might offer to provide
such services.
In addition, state securities laws on this issue may differ from the
interpretations of federal law expressed herein and banks and financial
institutions may be required to register as dealers pursuant to state law.
DISTRIBUTION
SEI Financial Services Company (the "Distributor"), a wholly-owned subsidiary of
SEI Corporation ("SEI"), and the Trust, are parties to a distribution agreement
(the "Distribution Agreement") dated May 29, 1992. The Flex Shares of each Fund
have a distribution plan ("Flex Plan"). The Distribution Agreement and the Flex
Plan provide that the Flex Shares of the Funds may pay a distribution services
fee to the Distributor of up to .75% of the average daily net assets of the Flex
Shares of each Fund. Flex Shares are also subject to a service fee of up to .25%
of the average daily net assets of the Flex Shares of each Fund. This service
fee may be used for personal service and maintenance of shareholder accounts.
Asset-based sales charges are designed to permit an investor to purchase Fund
shares without the assessment of a front-end sales charge. The Distributor will
waive all or a portion of the distribution fee in order to limit the net
expenses of the Flex Shares to the amounts set forth under "Expense Summary."
The Distributor may apply the distribution fee toward: (a) compensation for its
services in connection with distribution assistance or provision of shareholder
services; or (b) payments to financial institutions and intermediaries such as
banks (including SunTrust Banks, Inc.'s affiliate banks), savings and loan
associations, insurance companies, and investment counselors, broker-dealers,
and the Distributor's affiliates and subsidiaries as compensation for services,
reimbursement of expenses incurred in connection with distribution assistance,
or provision of Shareholder services.
The Flex Plan is characterized as a compensation plan since the distribution fee
will be paid to the Distributor without regard to the distribution or
shareholder service expenses incurred by the Distributor or the amount of
payments made to financial institutions and intermediaries. SunTrust Banks,
Inc.'s affiliate banks and certain correspondent banks may serve as shareholder
servicing agents to the Trust. A prospective investor may visit any one of the
Investment Services offices of the SunTrust Banks, Inc.'s affiliate banks, as
listed on the last pages of the Prospectus, SunTrust Securities, Inc. or certain
correspondent banks of SunTrust Banks, Inc. to receive copies of the
Prospectuses for the Flex Shares of the Trust and application forms. Trust
Shares of each Fund are offered without a sales charge or a distribution or
service fee primarily to institutional investors, including affiliates and
correspondents for the investment of funds in which they act in a fiduciary,
agency, investment advisory or custodial capacity. Investor Shares of each Fund
are offered subject to a sales load on purchases and a distribution fee. The
different sales charge option of the Investor Shares provides investors with an
alternative purchase arrangement to the Flex Shares. An investor may call
1-800-874-4770 to receive more information regarding Trust Shares or Investor
Shares. It is possible that financial institutions and intermediaries may offer
different classes of shares to their customers and thus receive different
compensation with respect to different classes of shares.
Each Fund may execute brokerage or other agency transactions through the
Distributor, for which the Distributor receives compensation.
<PAGE>
40
With respect to each of the Funds, the Distributor may, from time to time and at
its own expense, provide promotional incentives, in the form of cash or other
compensation, to certain financial institutions whose representatives have sold
or are expected to sell significant amounts of these Funds.
ADMINISTRATION
SEI Fund Resources (the "Administrator") serves as Administrator of the Trust.
The Administrator provides the Trust with certain administrative services, other
than investment advisory services, including regulatory reporting, all necessary
office space, equipment, personnel and facilities.
The Administrator is entitled to a fee from each Fund, which is calculated daily
and paid monthly at an annual rate as follows:
<TABLE>
<CAPTION>
AVERAGE AGGREGATE DAILY NET ASSETS FEE
- ---------------------------------------- ---------
<S> <C>
$1 - $1 billion......................... 0.10%
over $1 billion to $5 billion........... 0.07%
over $5 billion to $8 billion........... 0.05%
over $8 billion to $10 billion.......... 0.045%
over $10 billion........................ 0.04%
</TABLE>
From time to time, the Administrator may waive (either voluntarily or pursuant
to applicable state limitations) all or a portion of the administration fee
payable with respect to the Trust.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, Federated Investors Tower Pittsburgh, Pennsylvania
15222-3779, is the transfer agent for the shares of the Trust and dividend
disbursing agent for the Trust.
CUSTODIAN
SunTrust Bank, Atlanta, c/o STI Trust & Investment Operations, Inc., 303
Peachtree Street, N.E., 14th floor, Atlanta, Georgia 30308, serves as custodian
of the assets of each Fund of the Trust except the International Equity Index
and International Equity Funds. Union Bank of California, 475 Sansome Street,
Suite 1200, San Francisco, CA 94111, serves as custodian for the International
Equity Index Fund. The Bank of New York, One Wall Street, New York, New York,
10286, serves as custodian for the International Equity Fund. The custodians
hold cash, securities and other assets of the Trust as required by the 1940 Act.
LEGAL COUNSEL
Morgan, Lewis & Bockius LLP, Philadelphia, Pennsylvania, serves as legal counsel
to the Trust.
INDEPENDENT PUBLIC ACCOUNTANTS
The independent public accountants to the Trust are Arthur Andersen LLP,
Philadelphia, Pennsylvania.
OTHER INFORMATION
VOTING RIGHTS
Each share held entitles the Shareholder of record to one vote. Each Fund or
class of a Fund will vote separately on matters relating solely to that Fund or
class. As a Massachusetts business trust, the Trust is not required to hold
annual meetings of Shareholders but approval will be sought for certain changes
in the operation of the Trust and for the election of Trustees under certain
circumstances. In addition, a Trustee may be removed by the remaining Trustees
or by Shareholders at a special meeting called upon
<PAGE>
41
written request of Shareholders owning at least 10% of the outstanding shares of
the Trust. In the event that such a meeting is requested the Trust will provide
appropriate assistance and information to the Shareholders requesting the
meeting.
REPORTING
The Trust issues unaudited financial information and audited financial
statements annually. The Trust furnishes proxy statements and other reports to
Shareholders of record.
SHAREHOLDER INQUIRIES
Shareholders may contact the Transfer Agent in order to obtain information on
account statements, procedures and other related information by calling
1-800-874-4770.
DESCRIPTION OF PERMITTED INVESTMENTS
The following is a description of the permitted investments for the Funds.
Further discussion is contained in the Statement of Additional Information.
AMERICAN DEPOSITARY RECEIPTS ("ADRs") -- ADRs are securities, typically issued
by a U.S. financial institution (a "depositary"), that evidence ownership
interests in a security or a pool of securities issued by a foreign issuer and
deposited with the depositary. ADRs may be available through "sponsored" or
"unsponsored" facilities. A sponsored facility is established jointly by the
issuer of the security underlying the receipt and a depositary, whereas an
unsponsored facility may be established by a depositary without participation by
the issuer of the underlying security. Holders of unsponsored depositary
receipts generally bear all the costs of the unsponsored facility. The
depositary of an unsponsored facility frequently is under no obligation to
distribute shareholder communications received from the issuer of the deposited
security or to pass through, to the holders of the receipts, voting rights with
respect to the deposited securities.
ASSET-BACKED SECURITIES -- Asset-backed securities are securities secured by
non-mortgage assets such as company receivables, truck and auto loans, leases
and credit card receivables. Such securities are generally issued as
pass-through certificates, which represent undivided fractional ownership
interests in the underlying pools of assets. Such securities also may be debt
instruments, which are also known as collateralized obligations and are
generally issued as the debt of a special purpose entity, such as a trust,
organized solely for the purpose of owning such assets and issuing such debt.
Asset-backed securities are not issued or guaranteed by the U.S. Government, its
agencies or instrumentalities; however, the payment of principal and interest on
such obligations may be guaranteed up to certain amounts and for a certain
period by a letter of credit issued by a financial institution (such as a bank
or insurance company) unaffiliated with the issuers of such securities. The
purchase of asset-backed securities raises risk considerations peculiar to the
financing of the instruments underlying such securities. For example, there is a
risk that another party could acquire an interest in the obligations superior to
that of the holders of the asset-backed securities. There also is the
possibility that recoveries on repossessed collateral may not, in some cases, be
available to support payments on those securities. Asset-backed securities
entail prepayment risk, which may vary depending on the type of asset, but is
generally less than the prepayment risk associated with mortgage-backed
securities. In
<PAGE>
42
addition, credit card receivables are unsecured obligations of the card holder.
The market for asset-backed securities is at a relatively early stage of
development. Accordingly, there may be a limited secondary market for such
securities.
BANKERS' ACCEPTANCES -- Bankers' acceptances are bills of exchange or time
drafts drawn on and accepted by a commercial bank. Bankers' acceptances are used
by corporations to finance the shipment and storage of goods. Maturities are
generally six months or less.
CERTIFICATES OF DEPOSIT -- Certificates of deposit are interest bearing
instruments with a specific maturity. They are issued by banks and savings and
loan institutions in exchange for the deposit of funds and normally can be
traded in the secondary market prior to maturity. Certificates of deposit with
penalties for early withdrawal will be considered illiquid.
COMMERCIAL PAPER -- Commercial paper is a term used to describe unsecured
short-term promissory notes issued by banks, municipalities, corporations and
other entities. Maturities on these issues vary from a few to 270 days.
CONVERTIBLE SECURITIES -- Convertible securities are corporate securities that
are exchangeable for a set number of another security at a prestated price.
Convertible securities typically have characteristics similar to both fixed
income and equity securities. Because of the conversion feature, the market
value of a convertible security tends to move with the market value of the
underlying stock. The value of a convertible security is also affected by
prevailing interest rates, the credit quality of the issuer, and any call
provisions.
CORPORATE DEBT OBLIGATIONS -- Corporate debt obligations are debt instruments
issued by corporations with maturities exceeding 270 days. Such instruments may
include putable corporate bonds and zero coupon bonds.
CUSTODIAL RECEIPTS -- Custodial receipts are interests in separately traded
interest and principal component parts of U.S. Treasury obligations that are
issued by banks or brokerage firms and are created by depositing U.S. Treasury
obligations into a special account at a custodian bank. The custodian holds the
interest and principal payments for the benefit of the registered owners of the
certificates or receipts. The custodian arranges for the issuance of the
certificates or receipts evidencing ownership and maintains the register.
Receipts include Treasury Receipts ("TRs"), Treasury Investment Growth Receipts
("TIGRs"), and Certificates of Accrual on Treasury Securities ("CATS").
Receipts are sold as zero coupon securities which means that they are sold at a
substantial discount and redeemed at face value at their maturity date without
interim cash payments of interest or principal. This discount is accreted over
the life of the security, and such accretion will constitute the income earned
on the security for both accounting and tax purposes. Because of these features,
such securities may be subject to greater interest rate volatility than interest
paying investments. See "Zero Coupon Obligations."
DERIVATIVES -- Derivatives are securities whose value is derived from an
underlying contract, index or security, or any combination thereof. This
includes: futures, swap agreements, and some mortgage-back securities (CMOs,
REMICs, and SMBs). See elsewhere in this "Description of Permitted Investments"
for discussions of these various instruments, and see "Investment Policies and
Strategies" for more information about any investment policies and limitations
applicable to their use.
<PAGE>
43
DOLLAR ROLLS -- Dollar rolls are transactions in which securities are sold for
delivery in the current month and the seller simultaneously contracts to
repurchase substantially similar securities on a specified future date. Any
difference between the sale price and the purchase price is netted against the
interest income foregone on the securities sold to arrive at an implied
borrowing rate. Alternatively, the sale and purchase transactions can be
executed at the same price, with the Fund being paid a fee as consideration for
entering into the commitment to purchase. Dollar rolls may be renewed prior to
cash settlement and initially may involve only a firm commitment agreement by
the Fund to buy a security. If the broker-dealer to whom the Fund sells the
security becomes insolvent, the Fund's right to repurchase the security may be
restricted. Other risks involved in entering into dollar rolls include the risk
that the value of the security may change adversely over the term of the dollar
roll and that the security the Fund is required to repurchase may be worth less
than the security that the Fund originally held.
To avoid any leveraging concerns, the Fund will place U.S. Government or other
liquid, high grade assets in a segregated account in an amount sufficient to
cover its repurchase obligation.
EUROPEAN DEPOSITARY RECEIPTS ("EDRs") -- EDRs are securities, typically issued
by a non-U.S. financial institution, that evidence ownership interests in a
security or a pool of securities issued by either a U.S. or foreign issuer. EDRs
may be available for investment through "sponsored" or "unsponsored" facilities.
See "ADRs."
EURODOLLAR AND YANKEE BANK OBLIGATIONS -- Eurodollar bank obligations are U.S.
dollar-denominated certificates of deposit or time deposits issued outside the
United States by foreign branches of U.S. banks or by foreign banks. Yankee bank
obligations are U.S. dollar denominated obligations issued in the United States
by foreign banks.
FORWARD FOREIGN CURRENCY CONTRACTS -- A forward foreign currency contract
involves an obligation to purchase or sell a specific currency amount at a
future date, agreed upon by the parties, at a price set at the time of the
contract. A Fund may also enter into a contract to sell, for a fixed amount of
U.S. dollars or other appropriate currency, the amount of foreign currency
approximating the value of some or all of the Fund's securities denominated in
such foreign currency.
At the maturity of a forward contract, the Fund may either sell a portfolio
security and make delivery of the foreign currency, or it may retain the
security and terminate its contractual obligation to deliver the foreign
currency by purchasing an "offsetting" contract with the same currency trader,
obligating it to purchase, on the same maturity date, the same amount of the
foreign currency. The Fund may realize a gain or loss from currency
transactions.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS -- Futures contracts provide
for the future sale by one party and purchase by another party of a specified
amount of a specific security at a specified future time and at a specified
price. An option on a futures contract gives the purchaser the right, in
exchange for a premium, to assume a position in a futures contract at a
specified exercise price during the term of the option. A Fund may use futures
contracts and related options for bona fide hedging purposes, to offset changes
in the value of securities held or expected to be acquired, to minimize
fluctuations in foreign currencies, or to gain exposure to a particular market
or instrument. A Fund will minimize the risk that it will be unable to close out
a futures contract by only
<PAGE>
44
entering into futures contracts which are traded on national futures exchanges.
Stock index futures are futures contracts for various stock indices that are
traded on registered securities exchanges. A stock index futures contract
obligates the seller to deliver (and the purchaser to take) an amount of cash
equal to a specific dollar amount times the difference between the value of a
specific stock index at the close of the last trading day of the contract and
the price at which the agreement is made.
There are risks associated with these activities, including the following: (1)
the success of a hedging strategy may depend on an ability to predict movements
in the prices of individual securities, fluctuations in markets and movements in
interest rates, (2) there may be an imperfect or no correlation between the
changes in market value of the securities held by the Fund and the prices of
futures and options on futures, (3) there may not be a liquid secondary market
for a futures contract or option, (4) trading restrictions or limitations may be
imposed by an exchange, and (5) government regulations may restrict trading in
futures contracts and futures options.
GUARANTEED INVESTMENT CONTRACTS ("GICs") -- GICs are contracts issued by U.S.
insurance companies. Pursuant to such contracts, the Fund makes cash
contributions to a deposit fund of the insurance company's general account. The
insurance company then credits to the Fund on a monthly basis guaranteed
interest at either a fixed, variable or floating rate. A GIC provides that this
guaranteed interest will not be less than a certain minimum rate. A GIC is a
general obligation of the issuing insurance company and not a separate account.
The purchase price paid for a GIC becomes part of the general assets of the
issuer, and the contract is paid at maturity from the general assets of the
issuer.
Generally, GICs are not assignable or transferable without the permission of the
issuing insurance company. For this reason, an active secondary market in GICs
does not currently exist and GICs are considered to be illiquid investments.
ILLIQUID SECURITIES -- Illiquid securities are securities that cannot be
disposed of within seven business days at approximately the price at which they
are being carried on the Fund's books. An illiquid security includes a demand
instrument with a demand notice period exceeding seven days, where there is no
secondary market for such security, and repurchase agreements with durations (or
maturities) over seven days in length.
LOAN PARTICIPATIONS -- Loan participations are interests in loans to U.S.
corporations which are administered by the lending bank or agent for a syndicate
of lending banks, and sold by the lending bank or syndicate member
("intermediary bank"). In a loan participation, the borrower corporation will be
deemed to be the issuer of the participation interest except to the extent the
Fund derives its rights from the intermediary bank. Because the intermediary
bank does not guarantee a loan participation, a loan participation is subject to
the credit risks associated with the underlying corporate borrower. In the event
of bankruptcy or insolvency of the corporate borrower, a loan participation may
be subject to certain defenses that can be asserted by such borrower as a result
of improper conduct by the intermediary bank. In addition, in the event the
underlying corporate borrower fails to pay principal and interest when due, the
Fund may be subject to delays, expenses and risks that are greater than those
that would have been involved if the Fund had purchased a direct obligation of
such borrower. Under the terms of
<PAGE>
45
a Loan Participation, the Fund may be regarded as a creditor of the intermediary
bank (rather than of the underlying corporate borrower), so that the Fund may
also be subject to the risk that the intermediary bank may become insolvent.
The secondary market for loan participations is limited and any such
participation purchased by the Fund may be regarded as illiquid.
MEDIUM TERM NOTES -- Medium term notes are periodically or continuously offered
corporate or agency debt that differs from traditionally underwritten corporate
bonds only in the process by which they are issued.
MORTGAGE-BACKED SECURITIES -- Mortgage-backed securities are instruments that
entitle the holder to a share of all interest and principal payments from
mortgages underlying the security. The mortgages backing these securities
include conventional thirty-year fixed rate mortgages, graduated payment
mortgages, and adjustable rate mortgages. During periods of declining interest
rates, prepayment of mortgages underlying mortgage-backed securities can be
expected to accelerate. Prepayment of mortgages which underlie securities
purchased at a premium often results in capital losses, while prepayment of
mortgages purchased at a discount often results in capital gains. Because of
these unpredictable prepayment characteristics, it is often not possible to
predict accurately the average life or realized yield of a particular issue.
GOVERNMENT PASS-THROUGH SECURITIES: These are securities that are issued or
guaranteed by a U.S. Government agency representing an interest in a pool of
mortgage loans. The primary issuers or guarantors of these mortgage-backed
securities are the Government National Mortgage Association ("GNMA"), the
Federal National Mortgage Association ("FNMA"), and the Federal Home Loan
Mortgage Corporation ("FHLMC"). FNMA and FHLMC obligations are not backed by the
full faith and credit of the U.S. Government as GNMA certificates are, but FNMA
and FHLMC securities are supported by the instrumentalities' right to borrow
from the U.S. Treasury. GNMA, FNMA and FHLMC each guarantees timely
distributions of interest to certificate holders. GNMA and FNMA also each
guarantees timely distributions of scheduled principal. FHLMC has in the past
guaranteed only the ultimate collection of principal of the underlying mortgage
loan; however, FHLMC now issues mortgage-backed securities (FHLMC Gold PCs)
which also guarantee timely payment of monthly principal reductions. Government
and private guarantees do not extend to the securities' value, which is likely
to vary inversely with fluctuations in interest rates.
PRIVATE PASS-THROUGH SECURITIES: These are mortgage-backed securities issued by
a non-governmental entity, such as a trust. These securities include
collateralized mortgage obligations ("CMOs") and real estate mortgage investment
conduits ("REMICs") that are rated in one of the top two rating categories.
While they are generally structured with one or more types of credit
enhancement, private pass-through securities typically lack a guarantee by an
entity having the credit status of a governmental agency or instrumentality.
COLLATERALIZED MORTGAGE OBLIGATIONS: CMOs are debt obligations or multiclass
pass-through certificates issued by agencies or instrumentalities of the U.S.
Government or by private originators or investors in mortgage loans. In a CMO,
series of bonds or certificates are usually issued in multiple classes.
Principal and interest paid on the underlying mortgage assets may be allocated
among the several classes of a series of a CMO in a variety of ways. Each class
of a CMO, often referred to as a "tranche," is issued with a specific fixed
<PAGE>
46
or floating coupon rate and has a stated maturity or final distribution date.
Principal payments on the underlying mortgage assets may cause CMOs to be
retired substantially earlier then their stated maturities or final distribution
dates, resulting in a loss of all or part of any premium paid.
REMICS: A REMIC is a CMO that qualifies for special tax treatment under the
Internal Revenue Code and invests in certain mortgages principally secured by
interests in real property. Investors may purchase beneficial interests in
REMICs, which are known as "regular" interests, or "residual" interests.
Guaranteed REMIC pass-through certificates ("REMIC Certificates") issued by FNMA
or FHLMC represent beneficial ownership interests in a REMIC trust consisting
principally of mortgage loans or FNMA, FHLMC or GNMA-guaranteed mortgage
pass-through certificates. For FHLMC REMIC Certificates, FHLMC guarantees the
timely payment of interest, and also guarantees the payment of principal as
payments are required to be made on the underlying mortgage participation
certificates. FNMA REMIC Certificates are issued and guaranteed as to timely
distribution of principal and interest by FNMA.
STRIPPED MORTGAGE-BACKED SECURITIES ("SMBS"): SMBs are usually structured with
two classes that receive specified proportions of the monthly interest and
principal payments from a pool of mortgage securities. One class may receive all
of the interest payments and is thus termed an interest-only class ("IO"), while
the other class may receive all of the principal payments and thus is termed the
principal-only class ("PO"). The value of IOs tends to increase as rates rise
and decrease as rates fall; the opposite is true of POs. SMBs are extremely
sensitive to changes in interest rates because of the impact thereon of
prepayment of principal on the underlying mortgage securities. The market for
SMBs is not as fully developed as other markets; SMBs therefore may be illiquid.
RISK FACTORS: Due to the possibility of prepayments of the underlying mortgage
instruments, mortgage-backed securities generally do not have a known maturity.
In the absence of a known maturity, market participants generally refer to an
estimated average life. An average life estimate is a function of an assumption
regarding anticipated prepayment patterns, based upon current interest rates,
current conditions in the relevant housing markets and other factors. The
assumption is necessarily subjective, and thus different market participants can
produce different average life estimates with regard to the same security. There
can be no assurance that estimated average life will be a security's actual
average life.
MUNICIPAL FORWARDS -- Municipal forwards are forward commitments for the
purchase of tax-exempt bonds with a specified coupon to be delivered by an
issuer at a future date, typically exceeding 45 days but normally less than one
year after the commitment date. Municipal forwards are normally used as a
refunding mechanism for bonds that may only be redeemed on a designated future
date. A Fund will enter into municipal forwards when the price and yield of the
underlying bonds are believed to be favorable when compared to current prices
and yields. As with forward commitments, municipal forwards are subject to
market fluctuations due to changes in market interest rates between the
commitment date and the settlement date. Municipal forwards may be considered to
be illiquid investments.
To avoid any leveraging concerns, a Fund will maintain liquid, high grade
securities in a segregated account at least equal to the purchase price of the
municipal forward.
<PAGE>
47
MUNICIPAL LEASE OBLIGATIONS -- Municipal lease obligations are securities issued
by state and local governments and authorities to finance the acquisition of
equipment and facilities. They may take the form of a lease, an installment
purchase contract, a conditional sales contract, or a participation interest in
any of the above. Depending upon the market for such securities, municipal lease
obligations may be illiquid.
MUNICIPAL SECURITIES -- Municipal securities consist of (i) debt obligations
issued by or on behalf of public authorities to obtain funds to be used for
various public facilities, for refunding outstanding obligations, for general
operating expenses, and for lending such funds to other public institutions and
facilities, and (ii) certain private activity and industrial development bonds
issued by or on behalf of public authorities to obtain funds to provide for the
construction, equipment, repair or improvement of privately operated facilities.
General obligation bonds are backed by the taxing power of the issuing
municipality. Revenue bonds are backed by the revenues of a project or facility
(tolls from a bridge, for example). Certificates of participation represent an
interest in an underlying obligation or commitment, such as an obligation issued
in connection with a leasing arrangement. The payment of principal and interest
on private activity and industrial development bonds generally is dependent
solely on the ability of a facility's user to meet its financial obligations and
the pledge, if any, of real and personal property as security for such payment.
Municipal securities include both municipal notes and municipal bonds. Municipal
notes include general obligation notes, tax anticipation notes, revenue
anticipation notes, bond anticipation notes, certificates of indebtedness,
demand notes and construction loan notes and participation interests in
municipal notes. Municipal bonds include general obligation bonds, revenue or
special obligation bonds, private activity and industrial development bonds and
participation interests in municipal bonds.
OPTIONS ON CURRENCIES -- The International Equity Index Fund may purchase and
write put and call options on foreign currencies (traded on U.S. and foreign
exchanges or over-the-counter markets) to manage the portfolio's exposure to
changes in dollar exchange rates. Call options on foreign currency written by
the Fund will be "covered," which means that the Fund will own an equal amount
of the underlying foreign currency. With respect to put options on foreign
currency written by the Fund, the Fund will establish a segregated account with
its custodian bank consisting of cash, U.S. Government securities or other high
grade liquid debt securities in an amount equal to the amount the Fund would be
required to pay upon exercise of the put.
OBLIGATIONS OF SUPRANATIONAL ENTITIES -- Supranational entities are entities
established through the joint participation of several governments, and include
the Asian Development Bank, the Inter-American Development Bank, International
Bank for Reconstruction and Development (World Bank), African Development Bank,
European Economic Community, European Investment Bank and the Nordic Investment
Bank.
PAY-IN-KIND SECURITIES -- Pay-in-Kind securities are bonds or preferred stock
that pay interest or dividends in the form of additional bonds or preferred
stock.
REPURCHASE AGREEMENTS -- Repurchase agreements are agreements by which a Fund
obtains a security and simultaneously commits to return the security to the
seller at an agreed upon price on an agreed upon date within a number of days
from the date of purchase. The custodian will hold the security as collateral
for
<PAGE>
48
the repurchase agreement. A Fund bears a risk of loss in the event the other
party defaults on its obligations and the Fund is delayed or prevented from
exercising its right to dispose of the collateral or if the Fund realizes a loss
on the sale of the collateral. A Fund will enter into repurchase agreements only
with financial institutions deemed to present minimal risk of bankruptcy during
the term of the agreement based on established guidelines. Repurchase agreements
are considered loans under the Investment Company Act of 1940.
RESTRICTED SECURITIES -- Restricted securities are securities that may not be
sold freely to the public absent registration under the Securities Act of 1933
or an exemption from registration. Rule 144A securities are securities that have
not been registered under the Securities Act of 1933 but which may be traded
between certain institutional investors including investment companies. The
Trust's Board of Trustees is responsible for developing guidelines and
procedures for determining the liquidity of restricted securities, and for
monitoring the Advisor's implementation of the guidelines and procedures.
SECURITIES LENDING -- In order to generate additional income, a Fund may lend
securities which it owns pursuant to agreements requiring that the loan be
continuously secured by collateral consisting of cash, securities of the U.S.
Government or its agencies equal to at least 100% of the market value of the
securities lent. A Fund continues to receive interest on the securities lent
while simultaneously earning interest on the investment of cash collateral.
Collateral is marked to market daily. There may be risks of delay in recovery of
the securities or even loss of rights in the collateral should the borrower of
the securities fail financially or become insolvent.
SECURITIES OF FOREIGN ISSUERS -- There are certain risks connected with
investing in foreign securities. These include risks of adverse political and
economic developments (including possible governmental seizure or
nationalization of assets), the possible imposition of exchange controls or
other governmental restrictions, less uniformity in accounting and reporting
requirements, the possibility that there will be less information on such
securities and their issuers available to the public, the difficulty of
obtaining or enforcing court judgments abroad, restrictions on foreign
investments in other jurisdictions, difficulties in effecting repatriation of
capital invested abroad, and difficulties in transaction settlements and the
effect of delay on shareholder equity. Foreign securities may be subject to
foreign taxes, and may be less marketable than comparable U.S. securities. The
value of a Fund's investments denominated in foreign currencies will depend on
the relative strengths of those currencies and the U.S. dollar, and a Fund may
be affected favorably or unfavorably by changes in the exchange rates or
exchange control regulations between foreign currencies and the U.S. dollar.
Changes in foreign currency exchange rates also may affect the value of
dividends and interest earned, gains and losses realized on the sale of
securities and net investment income and gains, if any, to be distributed to
shareholders by a Fund.
STANDBY COMMITMENTS AND PUTS -- Securities subject to standby commitments or
puts permit the holder thereof to sell the securities at a fixed price prior to
maturity. Securities subject to a standby commitment or put may be sold at any
time at the current market price. However, unless the standby commitment or put
was an integral part of the security as originally issued, it may not be
marketable or assignable; therefore, the standby commitment or put would only
have value to the Fund owning the security to which it relates. In certain
cases, a premium may be
<PAGE>
49
paid for a standby commitment or put, which premium will have the effect of
reducing the yield otherwise payable on the underlying security. The Fund will
limit standby commitment or put transactions to institutions believed to present
minimal credit risk.
SWAPS, CAPS, FLOORS and COLLARS -- Interest rate swaps, mortgage swaps, currency
swaps and other types of swap agreements such as caps, floors and collars are
designed to permit the purchaser to preserve a return or spread on a particular
investment or portion of its portfolio, and to protect against any increase in
the price of securities the Fund anticipates purchasing at a later date. In a
typical interest rate swap, one party agrees to make regular payments equal to a
floating interest rate times a "notional principal amount," in return for
payments equal to a fixed rate times the same amount, for a specific period of
time. If a swap agreement provides for payment in different currencies, the
parties might agree to exchange the notional principal amount as well. Swaps may
also depend on other prices or rates, such as the value of an index or mortgage
prepayment rates.
In a typical cap or floor agreement, one party agrees to make payments only
under specified circumstances, usually in return for payment of a fee by the
other party. For example, the buyer of an interest rate cap obtains the right to
receive payments to the extent that a specific interest rate exceeds an
agreed-upon level, while the seller of an interest rate floor is obligated to
make payments to the extent that a specified interest rate falls below an
agreed-upon level. An interest rate collar combines elements of buying a cap and
selling a floor.
Swap agreements are sophisticated hedging instruments that typically involve a
small investment of cash relative to the magnitude of risk assumed. As a result,
swaps can be highly volatile and have a considerable impact on the Fund's
performance. Swap agreements are subject to risks related to the counterparty's
ability to perform, and may decline in value if the counterparty's
creditworthiness deteriorates. The Fund may also suffer losses if it is unable
to terminate outstanding swap agreements or reduce its exposure through
offsetting transactions. Any obligation the Fund may have under these types of
arrangements will be covered by setting aside liquid high grade securities in a
segregated account.
TIME DEPOSITS -- Time deposits are non-negotiable receipts issued by a bank in
exchange for the deposit of funds. Like a certificate of deposit, it earns a
specified rate of interest over a definite period of time; however, it cannot be
traded in the secondary market. Time deposits are considered to be illiquid
securities.
U.S. GOVERNMENT AGENCIES -- Obligations issued or guaranteed by agencies of the
U.S. Government, including, among others, the Federal Farm Credit Bank, the
Federal Housing Administration and the Small Business Administration, and
obligations issued or guaranteed by instrumentalities of the U.S. Government,
including, among others, FHLMC, the Federal Land Banks and the U.S. Postal
Service. Some of these securities are supported by the full faith and credit of
the U.S. Treasury (e.g., GNMA securities), others are supported by the right of
the issuer to borrow from the Treasury (e.g., Federal Farm Credit Bank
securities), while still others are supported only by the credit of the
instrumentality (e.g., FNMA securities). Guarantees of principal by agencies or
instrumentalities of the U.S. Government may be a guarantee of payment at the
maturity of the obligation so that in the event of a default prior to maturity
there might not be a market and thus no means of realizing on the obligation
prior to maturity. Guarantees as to the timely payment of principal and interest
do
<PAGE>
50
not extend to the value or yield of these securities nor to the value of the
Fund's shares.
U.S. TREASURY OBLIGATIONS -- U.S. Treasury obligations consist of bills, notes
and bonds issued by the U.S. Treasury and separately traded interest and
principal component parts of such obligations that are transferable through the
Federal book-entry system known as Separately Traded Registered Interest and
Principal Securities ("STRIPS") and Coupon Under Book Entry Safekeeping
("CUBES").
VARIABLE AND FLOATING RATE INSTRUMENTS -- Certain obligations may carry variable
or floating rates of interest, and may involve a conditional or unconditional
demand feature. Such instruments bear interest at rates which are not fixed, but
which vary with changes in specified market rates or indices. The interest rates
on these securities may be reset daily, weekly, quarterly or some other reset
period, and may have a floor or ceiling on interest rate changes. There is a
risk that the current interest rate on such obligations may not accurately
reflect existing market interest rates. A demand instrument with a demand notice
exceeding seven days may be considered illiquid if there is no secondary market
for such security.
WARRANTS -- Warrants are instruments giving holders the right, but not the
obligation to buy shares of a company at a given price during a specified
period.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES -- When-issued or delayed delivery
basis transactions involve the purchase of an instrument with payment and
delivery taking place in the future. Delivery of and payment for these
securities may occur a month or more after the date of the purchase commitment.
The Fund will segregate with liquid high grade debt securities or cash in an
amount at least equal to these commitments. The interest rate realized on these
securities is fixed as of the purchase date and no interest accrues to the Fund
before settlement. These securities are subject to market fluctuation due to
changes in market interest rates and it is possible that the market value at the
time of settlement could be higher or lower than the purchase price if the
general level of interest rates has changed. Although a Fund generally purchases
securities on a when-issued or forward commitment basis with the intention of
actually acquiring securities for its portfolio, a Fund may dispose of a
when-issued security or forward commitment prior to settlement if it deems
appropriate.
ZERO COUPON OBLIGATIONS -- Zero coupon obligations are debt securities that do
not bear any interest, but instead are issued at a deep discount from par. The
value of a zero coupon obligation increases over time to reflect the interest
accreted. Such obligations will not result in the payment of interest until
maturity, and will have greater price volatility than similar securities that
are issued at par and pay interest periodically.
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<PAGE>
A-1
APPENDIX
I. BOND RATINGS
CORPORATE AND MUNICIPAL BONDS
The following are descriptions of Standard & Poor's Corporation ("S&P") and
Moody's Investors Service, Inc. ("Moody's") corporate and municipal bond
ratings.
Bonds rated AAA have the highest rating S&P assigns to a debt obligation. Such a
rating indicates an extremely strong capacity to pay principal and interest.
Bonds rated AA also qualify as high-quality debt obligations. Capacity to pay
principal and interest is very strong, and in the majority of instances they
differ from AAA issues only in small degree. Debt rated A has a strong capacity
to pay interest and repay principal although it is somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions than
debt in higher rated categories.
Bonds which are rated BBB are considered to be medium-grade obligations (i.e.,
they are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Debt rated BB, B, CCC, CC or C is regarded as having predominately speculative
characteristics with respect to capacity to pay interest and repay principal. BB
indicates the least degree of speculation and C the highest degree of
speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposure to adverse conditions.
Bonds which are rated Aaa by Moody's are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large, or an exceptionally
stable, margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues. Bonds rated Aa by
Moody's are judged by Moody's to be of high quality by all standards. They are
rated lower than the best bonds because margins of protection may not be as
large as in Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than in Aaa securities. Together with
bonds rated Aaa, they comprise what are generally known as high-grade bonds.
Bonds which are rated A possess many favorable investment attributes and are to
be considered as upper-medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Debt rated Baa is regarded as having an adequate capacity to pay interest and
repay principal. Whereas it normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay interest and repay principal for debt in this
category than in higher rated categories.
Bonds which are rated Ba are judged to have speculative elements; their future
cannot be considered as well-assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times
<PAGE>
A-2
over the future. Uncertainty of position characterizes bonds in this class.
Bonds which are rated B generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small. Bonds
which are rated Caa are of poor standing. Such issues may be in default or there
may be present elements of danger with respect to principal and interest. Bonds
which are rated Ca represent obligations which are speculative in a high degree.
Such issues are often in default or have other marked shortcomings. Bonds which
are rated C are the lowest rated class of bonds and issues so rated can be
regarded as having extremely poor prospects of ever attaining any real
investment standing.
MUNICIPAL NOTE RATINGS
Moody's highest rating for state and municipal and other short-term notes is
MIG-1 and VMIG-1. Short-term municipal securities rated MIG-1 or VMIG-1 are of
the best quality. They have strong protection from established cash flows of
funds for their servicing or from established and broad-based access to the
market for refinancing or both. Short-term municipal securities rated MIG-2 and
VMIG-2 are of high quality. Margins of protection are ample although not so
large as in the preceding group.
An S&P note rating reflects the liquidity concerns and market access risks
unique to notes. Notes due in 3 years or less will likely receive a note rating.
Notes maturing beyond 3 years will most likely receive a long-term debt rating.
The following criteria will be used in making that assessment.
- - Amortization schedule (the larger the final
maturity relative to other maturities the more likely it will be treated as a
note).
- - Source of Payment (the more dependent the
issue is on the market for its refinancing, the more likely it will be treated
as a note).
Note rating symbols are as follows:
SP-1. Very strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics will be given a plus
(+) designation.
SP-2. Satisfactory capacity to pay principal and interest.
II. COMMERCIAL PAPER AND SHORT-TERM RATINGS
The following descriptions of commercial paper ratings have been published by
S&P, Moody's, Fitch Investors Service, Inc. ("Fitch"), Duff and Phelps ("Duff")
and IBCA Limited ("IBCA"), respectively.
Commercial paper rated A by S&P is regarded by S&P as having the greatest
capacity for timely payment. Issues rated A are further refined by use of the
numbers 1+ and 1. Issues rated A-1+ are those with an "overwhelming degree" of
credit protection. Those rated A-1 reflect a "very strong" degree of safety
regarding timely payment. Those rated A-2 reflect a safety regarding timely
payment but not as high as A-1.
Commercial paper issues rated Prime-1 and Prime-2 by Moody's are judged by
Moody's to have superior ability and strong ability for repayment, respectively.
The rating Fitch-1+ (Exceptionally Strong Credit Quality) is the highest
commercial rating assigned by Fitch. Paper rated Fitch-1+ is regarded as having
the strongest degree of assurance for timely payment. The rating Fitch-1 (Strong
Credit Quality) is the second highest commercial paper rating assigned by Fitch
which reflects an assurance of timely
<PAGE>
A-3
payment only slightly less in degree than issues rated F-1+.
The rating Duff-1 is the highest commercial paper rating assigned by Duff. Paper
rated Duff-1 is regarded as having very high certainty of timely payment with
excellent liquidity factors which are supported by ample asset protection. Risk
factors are minor. Paper rated Duff-2 is regarded as having good certainty of
timely payment, good access to capital markets and sound liquidity factors and
company fundamentals. Risk factors are small.
The designation A1 by IBCA indicates that the obligation is supported by a very
strong capacity for timely repayment. Those obligations rated A1+ are supported
by the highest capacity for timely repayment. Obligations rated A2 are supported
by a strong capacity for timely repayment, although such capacity may be
susceptible to adverse changes in business, economic or financial conditions.
<PAGE>
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<PAGE>
INVESTMENT SERVICES OFFICES OF SUNTRUST BANKS, INC. AFFILIATE BANKS:
FLORIDA: (STATEWIDE TOLL FREE) 1-800-526-1177
SUNTRUST SECURITIES, INC. -- FLORIDA
200 S. Orange Avenue
Tower 10
Orlando, FL 32801
(407) 237-4380
1-800-432-4760, ext.4380
501 E. Las Olas Boulevard
Ft. Lauderdale, FL 33301
(954) 765-7422
Boca Raton Office
800 S. Federal Highway
Boca Raton, FL 33435
(561) 243-6707
Coral Ridge Office
2626 E. Oakland Park Blvd.
Ft. Lauderdale, FL 33306
(305) 765-2155
Delray Beach Office
302 E. Atlantic Avenue
Delray Beach, FL 33483
(561) 243-6750
5200 W. Atlantic Ave.
Delray Beach, FL 33484
(561) 243-6743
Hollywood Office
2001 Hollywood Blvd.
Hollywood, FL 33021
(954) 765-7062
Palm Beach Office
303 Royal Poinciana Plaza
Palm Beach, FL 33480
(561) 835-2855
PGA Office
4500 PGA Blvd.
Palm Beach Gardens, FL 33410
(561) 835-2802
8200 W. Broward Blvd.
Plantation, FL 33324
(954) 765-7661
777 Brickall Avenue
Miami, FL 33131
(305) 579-7450
401 E. Jackson Street
Tampa, FL 33602
(813) 224-2517
700 Virginia Avenue
Ft. Pierce, FL 34982
(407) 467-6459
Osceola Office
111 East Osceola Street
Stuart, FL 34994
(407) 223-6012
Belnova Office
120 S. Ridgewood Avenue
Daytona Beach, FL 32114
(904) 258-2390
Bill France Office
4900 Clyde Morris Blvd.
Port Orange, FL 32119
(904) 258-2654
Deland Office
302 E. New York Avenue
Deland, FL 32724
(904) 822-5891
200 W. Forsyth Street
Jacksonville, FL 32202
(904) 632-2534
1612 E. Cape Coral Parkway
Cape Coral, FL 33904
(941) 540-6128
Pelican Bay Office
801 Laurel Oak Drive
Naples, FL 33963
(941) 598-0515
South Gate Office
3400 S. Tamiami Trail
Sarasota, FL 34230
(941) 316-4027
Port Charlotte Office
18501 Murdock Circle
Port Charlotte, FL 33949
(941) 625-9286
5899 Whitfield Avenue
Sarasota, FL 34243
(941) 359-7415
North Beneva Office
3577 Fruitville Road
Sarasota, FL 34237
(941) 316-4003
<PAGE>
South Beneva Office
8181 S. Tamiami Trail
Sarasota, FL 34231
(941) 927-7903
Venice Office
200 Nokomis Ave South
Venice, FL 34285
(941) 486-4417
210 Security Square
Winter Haven, FL 33880
(941) 297-6855
One East Jefferson Street
Brooksville, FL 34601
(352) 754-5798
Crystal River Office
1502 SE Highway 19
Crystal River, FL 34428
(352) 795-8214
5435 Gall Blvd.
Zephyrhills, FL 33541
(813) 780-4154
6335 U.S. Highway 19
New Port Richey, FL 34652
(813) 861-4375
Seven Hills Office
1170 Mariner Blvd.
Spring Hill, FL 34609
(352) 754-5779
203 E. Silver Springs Blvd.
Ocala, FL 34470
(352) 368-6477
3522 Thomasville Road
Tallahassee, FL 32308
(904) 298-5064
511 W. 23rd Street
Panama City, FL 32405
(904) 872-6086
11 Hoffman Drive
Gulf Breeze, FL 32561
(904)435-1264
GEORGIA:
SUNTRUST SECURITIES, INC. -- GEORGIA
55 Park Place
First Floor
Atlanta, GA 30303
(404) 588-8108
1-800-600-6350
101 N. Lumpkin Street
Athens, GA 30601
(704) 354-5346
Gainesville Branch
427 Oak Street
Gainesville, GA 30501
(770) 503-8674
100 East Second Avenue
Rome, GA 30161
(706) 236-4325
2815 Wrightsboro Road
Augusta, GA 30909
(706) 821-2015
606 Cherry Street
Macon, GA 31201
(912) 755-5175
1246 First Avenue
Columbus, GA 31901
(706) 649-3631
33 Bull Street, Suite 208
Savannah, GA 31401
(912) 944-1165
410 W. Broad Avenue
Albany, GA 31701
(912) 430-5468
Coffee County Branch
201 S. Peterson Avenue
Douglas, GA 31533
(912) 383-5242
510 Gloucester Street
Brunswick, GA 31520
(912) 262-5322
701 Sea Island Road
St. Simons Island, GA 31522
(912) 638-3620
(912) 262-2227
<PAGE>
TENNESSEE:
SUNTRUST SECURITIES, INC. -- TENNESSEE
424 Church Street
4th Floor
Nashville, TN 37219
(615) 748-4477
1-800-932-2652
736 Market Street
Chattanooga, TN 37402
(423) 757-3005
TN WATS 1-800-572-7306, Ext. 3005
Bordering States WATS
1-800-874-1083, Ext. 3005
Out of State WATS
1-800-251-6266, Ext. 3005
9950 Kingston Pike
Knoxville, TN 37922
(423) 544-2181
1-800-456-1177
207 Mockingbird Lane
Johnson City, TN 37604
(423) 461-1005
25 Public Square
Lawrenceburg, TN 38464
615-762-3511
ALABAMA:
SUNTRUST SECURITIES, INC. -- ALABAMA
201 South Court Street
Florence, AL 35630
(205) 767-8537
<PAGE>
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<PAGE>
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<PAGE>
DISTRIBUTOR
SEI Financial Services
Company
...............................................................................
100159/10-95
PROSPECTUS
STI CLASSIC FUNDS
FLEX SHARES
A CLASS OF NO INITIAL SALES CHARGE FUNDS
INVESTMENT ADVISORS
STI CAPITAL MANAGEMENT, N.A.
TRUSCO CAPITAL MANAGEMENT, INC.
SUNTRUST BANK, CHATTANOOGA, N.A.,
SUNTRUST BANK, ATLANTA
OCTOBER 1, 1996
Z
<PAGE>
STI CLASSIC FUNDS
INVESTMENT ADVISORS:
STI CAPITAL MANAGEMENT, N.A.
TRUSCO CAPITAL MANAGEMENT, INC.
SUNTRUST BANK, CHATTANOOGA, N.A.
SUNTRUST BANK, ATLANTA
This Statement of Additional Information is not a prospectus. It is intended
to provide additional information regarding the activities and operations of
the Trust and should be read in conjunction with the Trust's prospectuses
dated October 1, 1996. Prospectuses may be obtained through the Distributor,
SEI Financial Services Company, 680 E. Swedesford Road, Wayne, Pennsylvania
19087-1658.
TABLE OF CONTENTS
PAGE
THE TRUST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-2
DESCRIPTION OF PERMITTED INVESTMENTS . . . . . . . . . . . . . . . . . . . B-2
INVESTMENT LIMITATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . B-14
INVESTMENT ADVISORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-17
THE ADMINISTRATOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-19
THE DISTRIBUTOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-20
TRUSTEES AND OFFICERS OF THE TRUST . . . . . . . . . . . . . . . . . . . . B-26
COMPUTATION OF YIELD . . . . . . . . . . . . . . . . . . . . . . . . . . . B-29
CALCULATION OF TOTAL RETURN . . . . . . . . . . . . . . . . . . . . . . . . B-34
PURCHASE AND REDEMPTION OF SHARES . . . . . . . . . . . . . . . . . . . . . B-38
DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . . . . . . . . . . . B-39
TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-40
FUND TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-44
TRADING PRACTICES AND BROKERAGE . . . . . . . . . . . . . . . . . . . . . . B-44
DESCRIPTION OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . B-49
SHAREHOLDER LIABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . B-49
LIMITATION OF TRUSTEES' LIABILITY . . . . . . . . . . . . . . . . . . . . . B-49
5% AND 25% SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . B-50
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-60
October 1, 1996
<PAGE>
THE TRUST
STI Classic Funds (the "Trust") is a diversified, open-end management
investment company established under Massachusetts law as a Massachusetts
business trust under a Declaration of Trust dated January 15, 1992. The
Declaration of Trust permits the Trust to offer separate series ("Funds") of
units of beneficial interest ("shares") and different classes of shares of
each Fund. Shareholders at present may purchase shares of the Trust's money
market funds through two separate classes (Trust Shares and Investor Shares)
and shares of the Trust's other funds through three separate classes (Trust
Shares, Investor Shares and Flex Shares), which provide for variations in
sales charges, distribution costs, transfer agent fees, voting rights and
dividends. Except for these differences, each Trust Share, Investor Share
and Flex Share, if any, of each Fund represents an equal proportionate
interest in that portfolio. See "Description of Shares." This Statement of
Additional Information relates to the Trust Shares and Investor Shares of the
Trust's Prime Quality Money Market Fund, U.S. Government Securities Money
Market Fund and Tax-Exempt Money Market Fund (the "Money Market Funds") and
the Trust Shares, Investor Shares and Flex Shares of the Trust's Investment
Grade Bond Fund, Short-Term U.S. Treasury Securities Fund, Short-Term Bond
Fund, U.S. Government Securities Fund and Limited-Term Federal Mortgage
Securities Fund (the "Bond Funds"); Investment Grade Tax-Exempt Bond Fund,
Florida Tax-Exempt Bond Fund, Georgia Tax-Exempt Bond Fund and Tennessee
Tax-Exempt Bond Fund (the "Tax-Exempt Bond Funds"); Capital Growth Fund,
Value Income Stock Fund, Mid-Cap Equity Fund, Sunbelt Equity Fund,
International Equity Index Fund and International Equity Fund (the "Equity
Funds"); and the Balanced Fund. These various series are collectively
referred to herein as the "Funds."
DESCRIPTION OF PERMITTED INVESTMENTS
VARIABLE RATE MASTER DEMAND NOTES
The Tax-Exempt Money Market Fund, Balanced Fund, Tax-Exempt Bond Funds and
Value Income Stock Fund may invest in variable rate master demand notes which
may or may not be backed by bank letters of credit. These notes permit the
investment of fluctuating amounts at varying market rates of interest
pursuant to direct arrangements between a Fund, as lender, and a borrower.
Such notes provide that the interest rate on the amount outstanding varies on
a daily, weekly or monthly basis depending upon a stated short-term interest
rate index. Both the lender and the borrower have the right to reduce the
amount of outstanding indebtedness at any time. There is no secondary market
for the notes and it is not generally contemplated that such instruments will
be traded. The quality of the note or the underlying credit must, in the
opinion of the appropriate Advisor, be equivalent to the ratings applicable
to permitted investments for the particular Fund. The appropriate Advisor
will monitor on an ongoing basis the earning power, cash flow and liquidity
ratios of the issuers of such instruments and will similarly monitor the
ability of an issuer of a demand instrument to pay principal and interest on
demand.
B-2
<PAGE>
STRIPS
Each Fund may invest in Separately Traded Interest and Principal Securities
("STRIPS"), which are component parts of U.S. Treasury Securities traded
through the Federal Book-Entry System. An Advisor will only purchase STRIPS
that it determines are liquid or, if illiquid, do not violate the affected
Fund's investment policy concerning investments in illiquid securities.
Consistent with Rule 2a-7 under the Investment Company Act of 1940, as
amended, (the "1940 Act"), the Money Market Funds' Advisor will only purchase
STRIPS for Money Market Funds that have a remaining maturity of 397 days or
less; therefore, the Money Market Funds currently may only purchase interest
component parts of U.S. Treasury Securities. While there is no limitation on
the percentage of a Fund's assets that may be comprised of STRIPS, the Money
Market Funds' Advisor will monitor the level of such holdings to avoid the
risk of impairing shareholders' redemption rights and of deviations in the
value of shares of the Money Market Funds.
U.S. GOVERNMENT AGENCY SECURITIES
Certain investments of each of the Funds except the Short-Term U.S. Treasury
Securities Fund may include U.S. Government Agency Securities. Agencies of
the United States Government which issue obligations consist of, among
others, the Export Import Bank of the United States, Farmers Home
Administration, Federal Farm Credit Bank, Federal Housing Administration,
Government National Mortgage Association ("GNMA"), Maritime Administration,
Small Business Administration and The Tennessee Valley Authority.
Obligations of instrumentalities of the United States Government include
securities issued by, among others, Federal Home Loan Banks, Federal Home
Loan Mortgage Corporation ("FHLMC"), Federal Intermediate Credit Banks,
Federal Land Banks, Federal National Mortgage Association ("FNMA") and the
United States Postal Service as well as government trust certificates. Some
of these securities are supported by the full faith and credit of the United
States Treasury (E.G., GNMA securities), others are supported by the right of
the issuer to borrow from the Treasury and still others are supported only by
the credit of the instrumentality (E.G., FNMA securities). Guarantees of
principal by agencies or instrumentalities of the U.S. Government may be a
guarantee of payment at the maturity of the obligation so that in the event
of a default prior to maturity there might not be a market and thus no means
of realizing the value of the obligation prior to maturity.
MORTGAGE-BACKED SECURITIES
Each of the Funds except the Short-Term U.S. Treasury Securities Fund,
Sunbelt Equity Fund, Aggressive Growth Fund and International Equity Index
Fund may invest in mortgage-backed securities issued or guaranteed by U.S.
Government agencies or instrumentalities such as GNMA, FNMA and FHLMC.
Obligations of GNMA are backed by the full faith and credit of the United
States Government. Obligations of FNMA and FHLMC are not backed by the full
faith and credit of the United States Government but are considered to
B-3
<PAGE>
be of high quality since they are considered to be instrumentalities of the
United States. The market value and interest yield of these mortgage-backed
securities can vary due to market interest rate fluctuations and early
prepayments of underlying mortgages. These securities represent ownership in
a pool of federally insured mortgage loans with a maximum maturity of 30
years. However, due to scheduled and unscheduled principal payments on the
underlying loans, these securities have a shorter average maturity and,
therefore, less principal volatility than a comparable 30-year bond. Since
prepayment rates vary widely, it is not possible to accurately predict the
average maturity of a particular mortgage-backed security. The scheduled
monthly interest and principal payments relating to mortgages in the pool
will be "passed through" to investors. Government mortgage-backed securities
differ from conventional bonds in that principal is paid back to the
certificate holders over the life of the loan rather than at maturity. As a
result, there will be monthly scheduled payments of principal and interest.
In addition, there may be unscheduled principal payments representing
prepayments on the underlying mortgages. Although these securities may offer
yields higher than those available from other types of U.S. Government
securities, mortgage-backed securities may be less effective than other types
of securities as a means of "locking in" attractive long-term rates because
of the prepayment feature. For instance, when interest rates decline, the
value of these securities likely will not rise as much as comparable debt
securities due to the prepayment feature. In addition, these prepayments can
cause the price of a mortgage-backed security originally purchased at a
premium to decline in price to its par value, which may result in a loss.
The Bond Funds, Prime Quality Money Market Fund and the Balanced Fund may
also invest in privately issued mortgage-backed securities. Two principal
types of mortgage-backed securities are collateralized mortgage obligations
("CMOs") and real estate mortgage investment conduits ("REMICs"), which are
rated in one of the two highest categories by Standard & Poor's Corporation
("S&P") or Moody's Investors Service, Inc. ("Moody's"). CMOs are securities
collateralized by mortgages, mortgage pass-throughs, mortgage pay-through
bonds (bonds representing an interest in a pool of mortgages where the cash
flow generated from the mortgage collateral pool is dedicated to bond
repayment), and mortgage-backed bonds (general obligations of the issuers
payable out of the issuers' general funds and additionally secured by a first
lien on a pool of single family detached properties). Many CMOs are issued
with a number of classes or series which have different expected maturities.
Investors purchasing such CMOs are credited with their portion of the
scheduled payments of interest and principal on the underlying mortgages plus
all unscheduled prepayments of principal based on a predetermined priority
schedule. Accordingly, the CMOs in the longer maturity series are less
likely than other mortgage pass-throughs to be prepaid prior to their stated
maturity. Although some of the mortgages underlying CMOs may be supported by
various types of insurance, and some CMOs may be backed by GNMA certificates
or other mortgage pass-throughs issued or guaranteed by U.S. Government
agencies or instrumentalities, the CMOs themselves are not generally
guaranteed.
B-4
<PAGE>
REMICs, which were authorized under the Tax Reform Act of 1986, are private
entities formed for the purpose of holding a fixed pool of mortgages secured
by an interest in real property. REMICs are similar to CMOs in that they
issue multiple classes of securities.
DETERMINING MATURITIES OF MORTGAGE-BACKED SECURITIES
Due to prepayments of the underlying mortgage instruments, mortgage-backed
securities do not have a known actual maturity. In the absence of a known
maturity, market participants generally refer to an estimated average life.
The Advisors believe that the estimated average life is the most appropriate
measure of the maturity of a mortgage-backed security. Accordingly, in order
to determine whether such security is a permissible investment for a Fund, it
will be deemed to have a remaining maturity equal to its average life as
estimated by that Fund's Advisor. An average life estimate is a function of
an assumption regarding anticipated prepayment patterns. The assumption is
based upon current interest rates, current conditions in the relevant housing
markets and other factors. The assumption is necessarily subjective, and
thus different market participants could produce somewhat different average
life estimates with regard to the same security. There can be no assurance
that the average life as estimated by an Advisor will be the actual average
life.
STRIPPED MORTGAGE-BACKED SECURITIES
The Limited-Term Federal Mortgage Securities Fund may also invest in stripped
mortgage-backed securities, which are securities that are created when a U.S.
Government agency or a financial institution separates the interest and
principal components of a mortgage-backed security and sells them as
individual securities. The holder of the "principal-only" security (PO)
receives the principal payments made by the underlying mortgage-backed
security, while the holder of the "interest-only" security (IO) receives
interest payments from the same underlying security.
The prices of stripped mortgage-backed securities may be particularly
affected by changes in interest rates. As interest rates fall, prepayment
rates tend to increase, which tends to reduce prices of IOs and increase
prices of POs. Rising interest rates can have the opposite effect.
ASSET-BACKED SECURITIES
In addition to mortgage-backed securities, the Bond Funds, Prime Quality
Money Market Fund, Limited-Term Federal Mortgage Securities Fund and Balanced
Fund may invest in other asset-backed securities rated in one of the two
highest rating categories by S&P or Moody's, including company receivables,
truck and auto loans, leases and credit card receivables. The Bond Funds may
invest in other asset-backed securities that may be created in the future if
the Advisor determines they are suitable. These issues may be traded
over-the-counter and typically have a short-intermediate maturity structure
depending on the paydown
B-5
<PAGE>
characteristics of the underlying financial assets which are passed through
to the security holder.
REPURCHASE AGREEMENTS
Each of the Funds except the Short-Term U.S. Treasury Securities Fund may
enter into repurchase agreements. Repurchase agreements are agreements by
which a person (e.g., a Fund) obtains a security and simultaneously commits
to return the security to the seller (a primary securities dealer as
recognized by the Federal Reserve Bank of New York or a national member bank
as defined in Section 3(d)(1) of the Federal Deposit Insurance Act, as
amended) at an agreed upon price (including principal and interest) on an
agreed upon date within a number of days (usually not more than seven) from
the date of purchase. The resale price reflects the purchase price plus an
agreed upon market rate of interest which is unrelated to the coupon rate or
maturity of the underlying security. A repurchase agreement involves the
obligation of the seller to pay the agreed upon price, which obligation is,
in effect, secured by the value of the underlying security.
Repurchase agreements are considered to be loans by a Fund for purposes of
its investment limitations. The repurchase agreements entered into by a Fund
will provide that the underlying security at all times shall have a value at
least equal to 102% of the resale price stated in the agreement (the Advisors
monitor compliance with this requirement). Under all repurchase agreements
entered into by a Fund, the appropriate Custodian or its agent must take
possession of the underlying collateral. However, if the seller defaults, a
Fund could realize a loss on the sale of the underlying security to the
extent that the proceeds of the sale including accrued interest are less than
the resale price provided in the agreement including interest. In addition,
even though the Bankruptcy Code provides protection for most repurchase
agreements, if the seller should be involved in bankruptcy or insolvency
proceedings, a Fund may incur delay and costs in selling the underlying
security or may suffer a loss of principal and interest if the Fund is
treated as an unsecured creditor and required to return the underlying
security to the seller's estate.
MUNICIPAL SECURITIES
MUNICIPAL NOTES in which the Short-Term Bond Fund, Tax-Exempt Money Market
Fund and Tax-Exempt Bond Funds may invest, consist of general obligation
notes, tax anticipation notes (notes sold to finance working capital needs of
the issuer in anticipation of receiving taxes on a future date), revenue
anticipation notes (notes sold to provide needed cash prior to receipt of
expected non-tax revenues from a specific source), bond anticipation notes,
certificates of indebtedness, demand notes and construction loan notes. A
Fund's investments in any of the notes described above will be limited to
those obligations (i) where both principal and interest are backed by the
full faith and credit of the United States, (ii) which are rated MIG-2 or
V-MIG-2 at the time of investment by Moody's, (iii) which are rated SP-2 at
the time of
B-6
<PAGE>
investment by S&P, or (iv) which, if not rated by S&P or Moody's, are in the
Advisor's judgement, of at least comparable quality to MIG-2, VMIG-2 or SP-2.
MUNICIPAL BONDS must be rated at least BBB or better by S&P or at least Baa
or better by Moody's at the time of purchase for the Tax-Exempt Bond Funds or
in one of the two highest short-term rating categories by S&P or Moody's for
the Tax-Exempt Money Market Fund or, if not rated by S&P or Moody's, must be
deemed by the Advisor to have essentially the same characteristics and
quality as bonds having the above ratings. A Fund may purchase industrial
development and pollution control bonds if the interest paid is exempt from
Federal income tax. These bonds are issued by or on behalf of public
authorities to raise money to finance various privately-operated facilities
for business and manufacturing, housing, sports and pollution control. These
bonds are also used to finance public facilities such as airports, mass
transit systems, ports and parking. The payment of the principal and
interest on such bonds is dependent solely on the ability of the facility's
user to meet its financial obligations and the pledge, if any, of real and
personal property so financed as security for such payment.
OTHER TYPES OF TAX-EXEMPT INSTRUMENTS which are permissible investments for
the Short-Term Bond Fund, Tax-Exempt Money Market Fund and Tax-Exempt Bond
Funds include floating rate notes. Investments in such floating rate
instruments will normally involve industrial development or revenue bonds
which provide that the rate of interest is set as a specific percentage of a
designated base rate (such as the prime rate) at a major commercial bank, and
that the Fund can demand payment of the obligation at all times or at
stipulated dates on short notice (not to exceed 30 days) at par plus accrued
interest. Such obligations are frequently secured by letters of credit or
other credit support arrangements provided by banks. The quality of the
underlying credit or of the bank, as the case may be, must, in the Advisor's
opinion be equivalent to the long-term bond or commercial paper ratings
stated above. The Advisor will monitor the earning power, cash flow and
liquidity ratios of the issuers of such instruments and the ability of an
issuer of a demand instrument to pay principal and interest on demand. The
Funds may also purchase participation interests in municipal securities (such
as industrial development bonds and municipal lease/purchase agreements). A
participation interest gives a Fund an undivided interest in the underlying
municipal security. If it is unrated, the participation interest will be
backed by an irrevocable letter of credit or guarantee of a credit-worthy
financial institution or the payment obligations otherwise will be
collateralized by U.S. Government Securities. Participation interests may
have fixed, variable or floating rates of interest and may include a demand
feature. A participation interest without a demand feature or with a demand
feature exceeding seven days may be deemed to be an illiquid security subject
to the Funds' investment limitations restricting their purchases of illiquid
securities. A Fund may purchase other types of tax-exempt instruments as
long as they are of a quality equivalent to the bond or commercial paper
ratings stated above.
Opinions relating to the validity of municipal securities and to the
exemption of interest thereon from federal income tax are rendered by bond
counsel to the respective issuers at the time of
B-7
<PAGE>
issuance. Neither the Funds nor an Advisor will review the proceedings
relating to the issuance of municipal securities or the basis for such
opinions.
STANDBY COMMITMENTS AND PUTS
The Prime Quality Money Market Fund, Tax-Exempt Money Market Fund, Balanced
Fund, Tax-Exempt Bond Funds and the Bond Funds may purchase securities at a
price which would result in a yield to maturity lower than that generally
offered by the seller at the time of purchase when they can simultaneously
acquire the right to sell the securities back to the seller, the issuer or a
third party (the "writer") at an agreed-upon price at any time during a
stated period or on a certain date. Such a right is generally denoted as a
"standby commitment" or a "put." The purpose of engaging in transactions
involving puts is to maintain flexibility and liquidity to permit the Funds
to meet redemptions and remain as fully invested as possible in municipal
securities. The Funds reserve the right to engage in put transactions. The
right to put the securities depends on the writer's ability to pay for the
securities at the time the put is exercised. A Fund would limit its put
transactions to institutions which the Advisor believes present minimal
credit risks, and the Advisor would use its best efforts to initially
determine and continue to monitor the financial strength of the sellers of
the options by evaluating their financial statements and such other
information as is available in the marketplace. It may, however be difficult
to monitor the financial strength of the writers because adequate current
financial information may not be available. In the event that any writer is
unable to honor a put for financial reasons, a Fund would be a general
creditor (I.E., on a parity with all other unsecured creditors) of the
writer. Furthermore, particular provisions of the contract between the Fund
and the writer may excuse the writer from repurchasing the securities; for
example, a change in the published rating of the underlying securities or any
similar event that has an adverse effect on the issuer's credit or a
provision in the contract that the put will not be exercised except in
certain special cases, for example, to maintain portfolio liquidity. The
Fund could, however, at any time sell the underlying portfolio security in
the open market or wait until the portfolio security matures, at which time
it should realize the full par value of the security.
The securities purchased subject to a put may be sold to third persons at any
time, even though the put is outstanding, but the put itself, unless it is an
integral part of the security as originally issued, may not be marketable or
otherwise assignable. Therefore, the put would have value only to the Fund.
Sale of the securities to third parties or lapse of time with the put
unexercised may terminate the right to put the securities. Prior to the
expiration of any put option, the Fund could seek to negotiate terms for the
extension of such an option. If such a renewal cannot be negotiated on terms
satisfactory to the Fund, the Fund could, of course, sell the portfolio
security. The maturity of the underlying security will generally be
different from that of the put. There will be no limit to the percentage of
portfolio securities that the Fund may purchase subject to a standby
commitment or put, but the amount paid directly or indirectly for all standby
commitments or puts which are not integral parts of the security as
B-8
<PAGE>
originally issued held in the Fund will not exceed 1/2 of 1% of the value of
the total assets of such Fund calculated immediately after any such put is
acquired.
FOREIGN SECURITIES
The Prime Quality Money Market Fund, Investment Grade Bond Fund, Short-Term
Bond Fund, Balanced Fund and each of the Equity Funds, except the Sunbelt
Equity Fund, may invest in U.S. dollar denominated obligations or securities
of foreign issuers. The International Equity Index and International Equity
Funds will invest primarily in certain obligations or securities of foreign
issuers. Possible investments include equity securities of foreign entities,
obligations of foreign branches of U.S. banks and of foreign banks,
including, without limitation, European Certificates of Deposit, European
Time Deposits, European Bankers' Acceptances, Canadian Time Deposits and
Yankee Certificates of Deposit, and investments in Canadian Commercial Paper
and foreign securities. Permissible investments may consist of obligations
of foreign branches of U.S. banks and of foreign banks, including European
Certificates of Deposit, European Time Deposits, Canadian Time Deposits and
Yankee Certificates of Deposits, Canadian Commercial Paper, and Europaper.
In addition, each of the above-mentioned Funds except for the Short-Term Bond
Fund may invest in American Depositary Receipts. These instruments may
subject the Funds to investment risks that differ in some respects from
those related to investments in obligations of U.S. domestic issuers. Such
risks include future adverse political and economic developments, the
possible imposition of withholding taxes on interest or other income,
possible seizure, nationalization, or expropriation of foreign deposits, the
possible establishment of exchange controls or taxation at the source,
greater fluctuations in value due to changes in exchange rates, or the
adoption of other foreign governmental restrictions which might adversely
affect the payment of principal and interest on such obligations. Such
investments may also entail higher custodial fees and sales commissions than
domestic investments. Foreign issuers of securities or obligations are
often subject to accounting treatment and engage in business practices
different from those respecting domestic issuers of similar securities or
obligations. Foreign branches of U.S. banks and foreign banks may be subject
to less stringent reserve requirements than those applicable to domestic
branches of U.S. banks.
By investing in foreign securities, the International Equity Index and
International Equity Funds attempt to take advantage of differences between
both economic trends and the performance of securities markets in the various
countries, regions and geographic areas as prescribed by each Fund's
investment objective and policies. During certain periods the investment
return on securities in some or all countries may exceed the return on
similar investments in the United States, while at other times the investment
return may be less than that on similar U.S. securities. Shares of the
International Equity Index and International Equity Funds, when included in
appropriate amounts in a portfolio otherwise consisting of domestic
securities, may provide a source of increased diversification. The
International Equity Index and International Equity Funds seek increased
diversification by combining securities from various countries and geographic
areas that offer different investment opportunities and are affected by
different
B-9
<PAGE>
economic trends. The international investments of the International Equity
Index and International Equity Funds may reduce the effect that events in any
one country or geographic area will have on its investment holdings. Of
course, negative movement by a Fund's investments in one foreign market
represented in its portfolio may offset potential gains from the Fund's
investments in another country's markets.
OBLIGATIONS OF SUPRANATIONAL AGENCIES
The Prime Quality Money Market Fund, U.S. Government Securities Fund,
Investment Grade Bond Fund, Balanced Fund and Short-Term Bond Fund may
purchase obligations of supranational agencies. Currently these Funds intend
to invest only in obligations issued or guaranteed by the Asian Development
Bank, Inter-American Development Bank, International Bank for Reconstruction
and Development (World Bank), African Development Bank, European Coal and
Steel Community, European Economic Community, European Investment Bank and
the Nordic Investment Bank.
WHEN-ISSUED SECURITIES AND MUNICIPAL FORWARDS
The Tax-Exempt Money Market Fund, Balanced Fund, Bond Funds, Tax-Exempt Bond
Funds, Value Income Stock Fund, U.S. Government Securities Fund and the
Limited-Term Federal Mortgage Securities Fund may purchase when-issued
securities, in which case delivery and payment normally take place within 45
days (90 days with respect to the Limited-Term Federal Mortgage Security
Fund) after the date of commitment to purchase. In addition, the Tax-Exempt
Bond Funds may purchase municipal forwards for which delivery of the
underlying municipal security normally occurs after 45 days but before one
year after the commitment date. The Funds will only make commitments to
purchase when-issued securities and municipal forwards with the intention of
actually acquiring the securities, but may sell them before the settlement
date. When-issued securities are subject to market fluctuation, and accrue
no interest to the purchaser during this pre-settlement period. The payment
obligation and the interest rate that will be received on the securities are
each fixed at the time the purchaser enters into the commitment. Purchasing
municipal forwards and when-issued securities entails leveraging and can
involve a risk that the yields available in the market when the delivery
takes place may actually be higher than those obtained in the transaction
itself. In that case, there could be an unrealized loss at the time of
delivery.
Segregated accounts will be established with the appropriate Custodian, and a
Fund will maintain high quality, liquid assets in an amount at least equal in
value to its commitments to purchase when-issued securities and municipal
forwards. If the value of these assets declines, the Fund will place
additional liquid assets in the account on a daily basis so that the value of
the assets in the account is equal to the amount of such commitments.
B-10
<PAGE>
RESTRICTED SECURITIES
Restricted Securities are securities that may not be sold to the public
without registration under the Securities Act of 1933 (the "1933 Act") absent
an exemption from registration. Permitted investments for the Balanced Fund,
Bond Funds, Tax-Exempt Bond Funds and Equity Funds include restricted
securities, and each such Fund may invest up to 15% of its total assets in
illiquid securities, subject to each Fund's investment limitations on the
purchase of illiquid securities. Restricted Securities, including securities
eligible for re-sale under 1933 Act Rule 144A, that are determined to be
liquid are not subject to this limitation. This determination is to be made
by a Fund's Advisor pursuant to guidelines adopted by the Board of Trustees.
Under these guidelines, the particular Advisor will consider the frequency of
trades and quotes for the security, the number of dealers in, and potential
purchasers for, the securities, dealer undertakings to make a market in the
security, and the nature of the security and of the marketplace trades. In
purchasing such Restricted Securities, each Advisor intends to purchase
securities that are exempt from registration under Rule 144A under the 1933
Act.
SECURITIES LENDING
Each Fund may lend securities pursuant to agreements which require that the
loans be continuously secured by collateral at all times equal to 100% of the
market value of the loaned securities which consists of: cash, securities of
the U.S. Government or its agencies, or any combination of cash and such
securities. Such loans will not be made if, as a result, the aggregate
amount of all outstanding securities loans for a Fund exceed one-third of the
value of the Fund's total assets taken at fair market value. A Fund will
continue to receive interest on the securities lent while simultaneously
earning interest on the investment of the cash collateral in U.S. Government
securities. However, a Fund will normally pay lending fees to such
broker-dealers and related expenses from the interest earned on invested
collateral. There may be risks of delay in receiving additional collateral or
risks of delay in recovery of the securities or even loss of rights in the
collateral should the borrower of the securities fail financially. However,
loans are made only to borrowers deemed by the appropriate Advisor to be of
good standing and when, in the judgment of that Advisor, the consideration
which can be earned currently from such securities loans justifies the
attendant risk. Any loan may be terminated by either party upon reasonable
notice to the other party. The Funds may use the Distributor or a
broker-dealer affiliate of an Advisor as a broker in these transactions.
FUTURES CONTRACTS AND OPTIONS ON FUTURES
The Balanced Fund, Bond Funds, Tax-Exempt Bond Funds, International Equity
Index Fund, International Equity Fund and Value Income Stock Fund may invest
in futures contracts and options on futures. Although futures contracts by
their terms call for actual delivery or acceptance of the underlying
securities, in most cases the contracts are closed out before the settlement
date without the making or taking of delivery. Closing out an open futures
position is done by taking an opposite position ("buying" a contract which
has previously been "sold" or
B-11
<PAGE>
"selling" a contract which has previously been "purchased") in an identical
contract to terminate the position. Brokerage commissions are incurred when
a futures contract is bought or sold.
Futures traders are required to make a good faith margin deposit in cash or
government securities with or for the account of a broker or custodian to
initiate and maintain open secondary market will exist for any particular
futures contract at any specific time. Thus, it may not be possible to close
a futures position. In the event of adverse price movements, a Fund would
continue to be required to make daily cash payments to maintain its required
margin. In such situations, if a Fund has insufficient cash, it may have to
sell portfolio securities to meet daily margin requirements at a time when it
may be disadvantageous to do so. In addition, the Funds may be required to
make delivery of the instruments underlying the futures contracts they hold.
The inability to close options and futures positions also could have an
adverse impact on the ability to effectively hedge the underlying securities.
The Funds will minimize the risk that they will be unable to close out a
futures contract by entering into futures contracts that are traded on
national futures exchanges and for which there appears to be a liquid
secondary market.
The risk of loss in trading futures contracts can be substantial, due both to
the low margin deposits required and the extremely high degree of leverage
involved in futures pricing. As a result, a relatively small price movement
in a futures contract may result in immediate and substantial loss (or gain)
to a Fund. For example, if at the time of purchase, 10% of the value of the
futures contract is deposited as margin, a subsequent 10% decrease in the
value of the futures contract would result in a total loss of the margin
deposit, before any deduction for the transaction costs, if the account were
then closed out. A 15% decrease would result in a loss equal to 150% of the
original margin deposit if the contract were closed out. Thus, a purchase or
sale of a futures contract may result in losses in excess of the amount
invested in the contract. However, because the Funds will be engaged in
futures transactions only for hedging purposes, the Advisors do not believe
that the Funds will generally be subject to the risks of loss frequently
associated with futures transactions. The Funds presumably would have
sustained comparable losses if, instead of the futures contract, they had
invested in the underlying financial instrument and sold it after the
decline. The risk of loss from the purchase of options is less as compared
with the purchase or sale of futures contracts because the maximum amount at
risk is the premium paid for the option.
Utilization of futures transactions by the Funds does involve the risk of
imperfect or no correlation where the securities underlying futures contracts
have different maturities than the fund securities being hedged. It is also
possible that the Funds could both lose money on futures contracts and
experience a decline in value of its fund securities. There is also the risk
of loss by the Funds of margin deposits in the event of the bankruptcy of a
broker with whom the Funds have an open position in a futures contract or
related option.
B-12
<PAGE>
Most futures exchanges limit the amount of fluctuation permitted in futures
contract prices during a single trading day. The daily limit establishes the
maximum amount that the price of a futures contract may vary either up or
down from the previous day's settlement price at the end of a trading
session. Once the daily limit has been reached in a particular type of
contract, no trades may be made on that day at a price beyond that limit.
The daily limit governs only price movement during a particular trading day
and therefore does not limit potential losses because the limit may prevent
the liquidation of unfavorable positions. Futures contract prices have
occasionally moved to the daily limit for several consecutive trading days
with little or no trading, thereby preventing prompt liquidation of future
positions and subjecting some futures traders to substantial losses.
OPTIONS
The Balanced Fund, Bond Funds, Tax-Exempt Bond Funds, International Equity
Index Fund, International Equity Fund and Value Income Stock Fund may write
call options on a covered basis only, and will not engage in option writing
strategies for speculative purposes. A call option gives the purchaser of
such option the right to buy, and the writer, in this case the Fund, the
obligation to sell the underlying security at the exercise price during the
option period. The advantage to the Funds of writing covered calls is that
the Funds receive a premium which is additional income. However, if the
security rises in value, the Funds may not fully participate in the market
appreciation.
During the option period, a covered call option writer may be assigned an
exercise notice by the broker-dealer through whom such call option was sold
requiring the writer to deliver the underlying security against payment of
the exercise price. This obligation is terminated upon the expiration of the
option period or at such earlier time in which the writer effects a closing
purchase transaction. A closing purchase transaction is one in which the
Fund, when obligated as a writer of an option, terminates its obligation by
purchasing an option of the same series as the option previously written.
A closing purchase transaction cannot be effected with respect to an option
once the option writer has received an exercise notice for such option.
Closing purchase transactions will ordinarily be effected to realize a profit
on an outstanding call option, to prevent an underlying security from being
called, to permit the sale of the underlying security or to enable a Fund to
write another call option on the underlying security with either a different
exercise price or expiration date or both. A Fund may realize a net gain or
loss from a closing purchase transaction depending upon whether the net
amount of the original premium received on the call option is more or less
than the cost of effecting the closing purchase transaction. Any loss
incurred in a closing purchase transaction may be partially or entirely
offset by the premium received from a sale of a different call option on the
same underlying security. Such a loss may also be wholly or partially offset
by unrealized appreciation in the market value of the underlying security.
B-13
<PAGE>
If a call option expires unexercised, a Fund will realize a short-term
capital gain in the amount of the premium on the option, less the commission
paid. Such a gain, however, may be offset by depreciation in the market
value of the underlying security during the option period. If a call option
is exercised, a Fund will realize a gain or loss from the sale of the
underlying security equal to the difference between the cost of the
underlying security, and the proceeds of the sale of the security plus the
amount of the premium on the option, less the commission paid.
The market value of a call option generally reflects the market price of an
underlying security. Other principal factors affecting market value include
supply and demand, interest rates, the price volatility of the underlying
security and the time remaining until the expiration date.
The Funds will write call options only on a covered basis, which means that a
Fund will own the underlying security subject to a call option at all times
during the option period. Unless a closing purchase transaction is effected,
a Fund would be required to continue to hold a security which it might
otherwise wish to sell, or deliver a security it would want to hold. Options
written by the Funds will normally have expiration dates between one and nine
months from the date written. The exercise price of a call option may be
below, equal to or above the current market value of the underlying security
at the time the option is written.
INVESTMENT COMPANY SHARES
Investment companies typically incur fees that are separate from those fees
incurred directly by the Fund. A Fund's purchase of such investment company
securities results in the layering of expenses, such that Shareholders would
indirectly bear a proportionate share of the operating expenses of such
investment companies, including advisory fees.
OTHER INVESTMENTS
The Trust is not prohibited from investing in obligations of banks which are
clients of SEI Corporation ("SEI"), the parent company of the Administrator
and the Distributor. However, the purchase of shares of the Funds by such
banks or by their customers will not be a consideration in determining which
bank obligations the Funds will purchase. The Funds will not purchase
obligations issued by the Advisors.
Investors will receive written notification at least thirty days prior to any
change in a Fund's investment objective. INVESTMENT LIMITATIONS
The following are fundamental policies of each Fund and cannot be changed
with respect to a Fund without the consent of the holders of a majority of
that Fund's outstanding shares.
A Fund may not:
B-14
<PAGE>
1. Acquire more than 10% of the voting securities of any one issuer.
2. Invest in companies for the purpose of exercising control.
3. Borrow money except for temporary or emergency purposes and then only in
an amount not exceeding one-third of the value of total assets. Any
borrowing will be done from a bank and, to the extent that such borrowing
exceeds 5% of the value of the Fund's assets, asset coverage of at least
300% is required. In the event that such asset coverage shall at any
time fall below 300%, the Fund shall, within three days thereafter or
such longer period as the Securities and Exchange Commission may
prescribe by rules and regulations, reduce the amount of its borrowings
to such an extent that the asset coverage of such borrowings shall be at
least 300%. This borrowing provision is included solely to facilitate
the orderly sale of portfolio securities to accommodate heavy redemption
requests if they should occur and is not for investment purposes. All
borrowings in excess of 5% of the value of a Fund's total assets will be
repaid before making additional investments and any interest paid on such
borrowings will reduce income.
4. Make loans, except that (a) a Fund may purchase or hold debt instruments
in accordance with its investment objective and policies; (b) a Fund may
enter into repurchase agreements, and (c) the Bond Funds, Balanced Fund,
U.S. Government Securities Fund, Limited-Term Federal Mortgage Securities
Fund, International Equity Index Fund, International Equity Fund and the
Value Income Stock Fund may engage in securities lending as described in
the Prospectuses and in this Statement of Additional Information.
5. Pledge, mortgage or hypothecate assets except to secure temporary
borrowings permitted by (3) above in aggregate amounts not to exceed 10%
of the Fund's total assets, taken at current value at the time of the
incurrence of such loan, except as permitted with respect to securities
lending.
6. Purchase or sell real estate, real estate limited partnership interests,
commodities or commodities contracts (except for financial futures
contracts) and interests in a pool of securities that are secured by
interests in real estate (except that each Bond Fund may purchase
mortgage-backed and other mortgage-related securities, including
collateralized mortgage obligations and REMICs). However, subject to
their permitted investment spectrum, any Fund may invest in companies
which invest in real estate commodities or commodities contracts.
7. Make short sales of securities, maintain a short position or purchase
securities on margin, except that the Trust may obtain short-term credits
as necessary for the clearance of security transactions.
B-15
<PAGE>
8. Act as an underwriter of securities of other issuers except as it may be
deemed an underwriter in selling a security.
9. Purchase securities of other investment companies except for money market
funds and CMOs and REMICs deemed to be investment companies and then only
as permitted by the Investment Company Act of 1940 (the "1940 Act") and
the rules and regulations thereunder, except that the Mid-Cap Equity,
Sunbelt Equity, Balanced, Georgia Tax-Exempt Bond, Florida Tax-Exempt
Bond, Tennessee Tax-Exempt Bond, U.S. Government Securities, Limited-Term
Federal Mortgage Securities, International Equity Index and International
Equity Funds' purchases of investment company shares are not limited to
money market funds. Under these rules and regulations, a Fund is
prohibited from acquiring the securities of other investment companies
if, as a result of such acquisition, the Fund owns more than 3% of the
total voting stock of the company; securities issued by any one
investment company represent more than 5% of the total assets of a Fund; or
securities (other than treasury stock) issued by all investment companies
represent more than 10% of the total assets of the Fund.
10. Issue senior securities (as defined in the 1940 Act) except in connection
with permitted borrowings as described above or as permitted by rule,
regulation or order of the SEC.
NON-FUNDAMENTAL POLICIES
No Fund may purchase or retain securities of an issuer if, to the knowledge
of the Trust, an officer, trustee, partner or director of the Trust or any
Advisor of the Trust owns beneficially more than 1/2 of 1% of the shares or
securities of such issuer and all such officers, trustees, partners and
directors owning more than 1/2 of 1% of such shares or securities together
own more than 5% of such shares or securities.
No Fund may invest in warrants except that the Value Income Stock, Mid-Cap
Equity, Sunbelt Equity, Capital Growth, International Equity Index,
International Equity and Balanced Funds may each invest in warrants in an
amount not exceeding 5% of its net assets as valued at the lower of cost or
market value. Included in that amount, but not to exceed 2% of the Fund's
net assets, may be warrants not listed on the New York Stock Exchange or
American Stock Exchange.
No Fund may invest in illiquid securities in an amount exceeding, in the
aggregate, 15% of a Fund's assets (10% for the Prime Quality Money Market,
U.S. Government Securities Money Market and Tax-Exempt Money Market Funds).
An illiquid security is a security which cannot be disposed of promptly
(within seven days), and in the usual course of business without a loss, and
includes repurchase agreements maturing in excess of seven days, time
deposits with a withdrawal penalty, non-negotiable instruments and
instruments for which no market exists.
B-16
<PAGE>
No Fund may invest in interests in oil, gas or other mineral exploration or
development programs and oil, gas or mineral leases.
No Fund may write or purchase puts, calls, options or combinations thereof,
except that the Balanced Fund, Bond Funds, Tax-Exempt Bond Funds,
International Equity Index Fund, International Equity Fund and Value Income
Stock Fund may write covered call options with respect to any or all parts of
their Fund securities and engage in futures transactions, and the Prime,
Tax-Exempt Money Market, Balanced, Short Term Bond and Tax-Exempt Bond Funds
may purchase putable securities. Funds may sell options previously purchased
and enter into closing transactions with respect to covered call options.
No Fund may invest in securities of issuers which together with predecessors
have a record of less than three years continuous operation or equity
securities of issuers which are not readily marketable if such investments
will exceed 5% of the Fund's total assets.
With the exception of the limitations on liquidity standards, the foregoing
percentages will apply at the time of the purchase of a security and shall
not be considered violated unless an excess occurs or exists immediately
after and as a result of a purchase of such security.
The Prime Quality Money Market Fund may not invest in guaranteed investment
contracts.
INVESTMENT ADVISORS
The Trust and STI Capital Management, N.A., Trusco Capital Management, Inc.,
SunTrust Bank, Atlanta and SunTrust Bank, Chattanooga, N.A. (the "Advisors")
have entered into advisory agreements with the Trust (the "Advisory
Agreements"). The Advisory Agreements provide that each Advisor shall not be
protected against any liability to the Trust or its Shareholders by reason of
willful misfeasance, bad faith or gross negligence on its part in the
performance of its duties or from reckless disregard of its obligations or
duties thereunder.
Each Advisory Agreement provides that if, for any fiscal year, the ratio of
expenses of any Fund (including amounts payable to an Advisor but excluding
interest, taxes, brokerage, litigation, and other extraordinary expenses)
exceeds limitations established by certain states, the Advisor and/or the
Administrator will bear the amount of such excess. The Advisor will not be
required to bear expenses of the Trust to an extent which would result in a
Fund's inability to qualify as a regulated investment company under
provisions of the Internal Revenue Code.
The continuance of each Advisory Agreement, after the first two years, must
be specifically approved at least annually (i) by the vote of the Trustees,
and (ii) by the vote of a majority of the Trustees who are not parties to
each Agreement or "interested persons" of any party thereto, cast in person
at a meeting called for the purpose of voting on such approval. Each
Advisory Agreement will terminate automatically in the event of its
assignment, and is terminable at any time without penalty by the Trustees of
the Trust or, with respect to the
B-17
<PAGE>
Funds, by a majority of the outstanding shares of the Funds, on not less than
30 days' nor more than 60 days' written notice to the Advisor, or by the
Advisor on 90 days' written notice to the Trust.
For the fiscal years ended May 31, 1996, 1995, and 1994, the Funds paid the
following advisory fees:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
FEES PAID FEES WAIVED
OR REIMBURSED
-----------------------------------------------------------------------------------
FUND 1996 1995 1994 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment Grade Bond Fund $ 3,868,222 $ 3,274,146 $ 2,855,556 $ 709,139 $ 636,033 $ 664,188
- ----------------------------------------------------------------------------------------------------------------------------------
Florida Tax-Exempt Bond Fund(1) $ 107,618 $ 10,562 $ 0 $ 72,476 $ 45,986 $ 7,414
- ----------------------------------------------------------------------------------------------------------------------------------
Georgia Tax-Exempt Bond Fund(2) $ 83,243 $ 35,579 $ 0 $ 63,991 $ 50,699 $ 12,260
- ----------------------------------------------------------------------------------------------------------------------------------
Tennessee Tax-Exempt Bond Fund(3) $ 0 $ 0 $ 0 $ 46,809 $ 14,014 $ 2,016
- ----------------------------------------------------------------------------------------------------------------------------------
Short-Term Bond Fund $ 361,936 $ 212,070 $ 114,825 $ 149,827 $ 118,030 $ 85,482
- ----------------------------------------------------------------------------------------------------------------------------------
Investment Grade Tax-Exempt Bond Fund $ 917,948 $ 627,607 $ 280,656 $ 202,552 $ 138,553 $ 69,202
- ----------------------------------------------------------------------------------------------------------------------------------
U.S. Government Securities Fund(4) $ 16,097 $ 0 * $ 53,312 $ 7,817 *
- ----------------------------------------------------------------------------------------------------------------------------------
Short-Term U.S. Treasury Securities Fund $ 36,729 $ 26,399 $ 124,578 $ 72,116 $ 64,786 $ 75,823
- ----------------------------------------------------------------------------------------------------------------------------------
Limited-Term Federal Mortgage Securities Fund $ 224,595 $ 78,778 * $ 119,538 $ 74,494 *
- ----------------------------------------------------------------------------------------------------------------------------------
Prime Quality Money Market Fund $ 5,346,850 $ 4,052,982 $ 3,099,410 $ 1,602,546 $ 1,215,895 $ 929,822
- ----------------------------------------------------------------------------------------------------------------------------------
U.S. Government Securities Money Market Fund $ 2,068,133 $ 1,729,860 $ 1,807,117 $ 577,384 $ 507,624 $ 474,434
- ----------------------------------------------------------------------------------------------------------------------------------
Tax-Exempt Money Market Fund $ 1,422,777 $ 910,742 $ 492,172 $ 685,205 $ 583,588 $ 464,333
- ----------------------------------------------------------------------------------------------------------------------------------
Capital Growth Fund $ 12,099,047 $ 11,023,563 $ 8,819,976 $ 1,408,275 $ 1,393,475 $ 1,255,835
- ----------------------------------------------------------------------------------------------------------------------------------
Sunbelt Equity Fund $ 3,424,453 $ 2,353,943 $ 236,512 $ 465,317 $ 407,677 $ 143,666
- ----------------------------------------------------------------------------------------------------------------------------------
Value Income Stock Fund $ 9,447,738 $ 6,976,518 $ 2,998,756 $ 318,958 $ 28,394 $ 426,576
- ----------------------------------------------------------------------------------------------------------------------------------
International Equity Fund $ 746,780 * * $ 0 * *
- ----------------------------------------------------------------------------------------------------------------------------------
International Equity Index Fund $ 0 $ 340,065 * $ 0 $ 135,043 *
- ----------------------------------------------------------------------------------------------------------------------------------
Mid-Cap Equity Fund $ 2,057,932 $ 940,045 $ 52,988 $ 318,958 $ 195,873 $ 68,285
- ----------------------------------------------------------------------------------------------------------------------------------
Balanced Fund $ 823,692 $ 823,692 $ 209,237 $ 166,361 $ 149,133 $ 118,661
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Not in operation during the period.
B-18
<PAGE>
(1) STI Capital Management, advisor to the Florida Tax Exempt Bond Fund
reimbursed expenses of $7,846 for the fiscal year ended May 31, 1994.
(2) SunTrust Bank, Atlanta, advisor to the Georgia Tax-Exempt Bond Fund
reimbursed expenses of $4,536 for the fiscal year ended May 31, 1994.
(3) SunTrust Bank, Chattanooga, advisor to the Tennessee Tax-Exempt Bond Fund,
reimbursed expenses of $10,011 for the fiscal year ended May 31, 1994,
$19,803 for the fiscal year ended May 31, 1995 and $17,277 for the fiscal
year ended May 31, 1996.
(4) Trusco Capital Management, Inc., advisor to the U.S. Government Securities
Fund, reimbursed expenses of $27,216.
THE ADMINISTRATOR
The Trust and SEI Fund Resources (the "Administrator") are parties to an
Administrative Agreement. Formerly, SEI Financial Management Corporation
("SFM") served as administrator to the Trust. The Administration Agreement
provides that the Administrator shall not be liable for any error of judgment
or mistake of law or for any loss suffered by the Trust in connection with
the matters to which the Administration Agreement relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence on the
part of the Administrator in the performance of its duties or from reckless
disregard by it of its duties and obligations thereunder. The Administration
Agreement shall remain in effect for a period of five years after the date of
the Agreement and shall continue in effect for successive periods of two
years subject to review at least annually by the Trustees of the Trust unless
terminated by either party on not less than ninety days' written notice to
the other party.
The Administrator, a Delaware business trust, has its principal business
offices at 680 East Swedesford Road, Wayne, Pennsylvania 19087-1658. SFM, a
wholly-owned subsidiary of SEI Corporation ("SEI"), is the owner of all
beneficial interest in the Administrator, SEI, its subsidiaries and the
Administrator are leading providers of funds evaluation services, trust
accounting systems, and brokerage and information services to financial
institutions, institutional investors and money managers. The Administrator
and its affiliates also serve as administrator to the following other mutual
funds: The Achievement Funds Trust; The Advisors' Inner Circle Fund; The
Arbor Fund; ARK Funds; Bishop Street Funds; CoreFunds, Inc.; CrestFunds,
Inc.; CUFUND; FMB Funds, Inc.; First American Funds, Inc.; First American
Investment Funds, Inc.; First American Strategy Funds, Inc.; Inventor Funds,
Inc; Marquis Funds-Registered Trademark-; Monitor Funds; Morgan Grenfell
Investment Trust; The PBHG Funds, Inc.; The Pillar Funds; The Profit Funds
Investment Trust; Rembrandt Funds-Registered Trademark-; 1784
Funds-Registered Trademark-; SEI Asset Allocation Trust; SEI Daily Income
Trust; SEI Index Funds; SEI Institutional Investments Trust; SEI
Institutional Managed Trust; SEI International Trust; SEI Liquid Asset Trust;
SEI Tax Exempt Trust; Stepstone Funds; and Turner Funds.
For the fiscal years ended May 31, 1996, 1995 and 1994, the Funds paid the
following administrative fees:
B-19
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
FEES PAID FEES WAIVED
----------------------------------------------------------------------------------
FUND 1996 1995 1994 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment Grade Bond Fund $ 443,569 $ 404,413 $ 379,548 $ 0 $ 0 $ 0
- ---------------------------------------------------------------------------------------------------------------------------------
Georgia Tax-Exempt Bond Fund $ 16,304 $ 10,140 $ 1,473 $ 0 $ 0 $ 0
- ---------------------------------------------------------------------------------------------------------------------------------
Florida Tax-Exempt Bond Fund $ 19,989 $ 6,645 $ 885 $ 0 $ 0 $ 0
- ---------------------------------------------------------------------------------------------------------------------------------
Tennessee Tax-Exempt Bond Fund $ 3,148 $ 1,648 $ 241 $ 0 $ 0 $ 0
- ---------------------------------------------------------------------------------------------------------------------------------
Short-Term Bond Fund $ 56,317 $ 38,813 $ 24,575 $ 0 $ 0 $ 0
- ---------------------------------------------------------------------------------------------------------------------------------
Investment Grade Tax-Exempt Bond Fund $ 108,204 $ 77,499 $ (8,955) $ 0 $ 1,745 $ 46,343
- ---------------------------------------------------------------------------------------------------------------------------------
U.S. Government Securities Fund $ 7,311 $ 807 * $ 0 $ 0 *
- ---------------------------------------------------------------------------------------------------------------------------------
Short-Term U.S. Treasury Securities Fund $ 12,012 $ 10,761 $ 24,738 $ 0 $ 0 $ 0
- ---------------------------------------------------------------------------------------------------------------------------------
Limited-Term Federal Mortgage Securities Fund $ 37,854 $ 17,962 * $ 0 $ 0 *
- ---------------------------------------------------------------------------------------------------------------------------------
Prime Quality Money Market Fund $ 315,880 $ 155,054 $ 131,571 $ 449,492 $ 465,158 $ 363,160
- ---------------------------------------------------------------------------------------------------------------------------------
U.S. Government Securities Money Market Fund $ 219,380 $ 129,165 $ 197,818 $ 72,463 $ 134,192 $ 83,382
- ---------------------------------------------------------------------------------------------------------------------------------
Tax-Exempt Money Market Fund $ 274,701 $ 128,912 $ 93,437 $ 0 $ 79,032 $ 45,179
- ---------------------------------------------------------------------------------------------------------------------------------
Capital Growth Fund $ 842,411 $ 826,735 $ 680,627 $ 0 $ 0 $ 17,482
- ---------------------------------------------------------------------------------------------------------------------------------
Sunbelt Equity Fund $ 842,411 $ 183,657 $ 25,851 $ 0 $ 0 $ 0
- ---------------------------------------------------------------------------------------------------------------------------------
Value Income Stock Fund $ 845,706 $ 669,692 $ 340,218 $ 0 $ 0 $ 0
- ---------------------------------------------------------------------------------------------------------------------------------
International Equity Fund $ 50,404 * * $ 0 * *
- ---------------------------------------------------------------------------------------------------------------------------------
International Equity Index Fund $ 70,690 $ 40,223 * $ 0 $ 0 *
- ---------------------------------------------------------------------------------------------------------------------------------
Mid-Cap Equity Fund $ 147,613 $ 75,507 $ 8,225 $ 0 $ 0 $ 0
- ---------------------------------------------------------------------------------------------------------------------------------
Balanced Fund $ 74,634 $ 64,645 $ 27,056 $ 0 $ 0 $ 0
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Not in operation during the period.
THE DISTRIBUTOR
SEI Financial Services Company (the "Distributor"), a wholly-owned subsidiary of
SEI, and the Trust have entered into a distribution agreement (the "Distribution
Agreement") dated May 29, 1992. The Distributor will receive no compensation
for distribution of Trust Shares. In
B-20
<PAGE>
addition, the Investor Shares of the Funds have a distribution plan
("Investor Plan"), and the Flex Shares of the Funds have a distribution plan
("Flex Plan").
The Distribution Agreement is renewable annually and may be terminated by the
Distributor, the Qualified Trustees, or by a majority vote of the outstanding
securities of the Trust upon not more than 60 days' written notice by either
party.
For the fiscal years ended May 31, 1996, 1995 and 1994, the aggregate sales
charges payable to the Distributor with respect to the Investor Shares of the
Funds were as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
AGGREGATE SALES
CHARGE PAYABLE TO AMOUNT RETAINED BY
FUND DISTRIBUTOR DISTRIBUTOR
----------------------------------------------------------------------------------
1996 1995 1994 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment Grade Bond Fund $ 50,016 $ 61,948 $ 352,000 $ 143 $ 0 $ 0
- ---------------------------------------------------------------------------------------------------------------------------------
Georgia Tax-Exempt Bond Fund $ 1,208 $ 1,495 $ 0 $ 6 $ 762 $ 0
- ---------------------------------------------------------------------------------------------------------------------------------
Florida Tax-Exempt Bond Fund $ 1,386 $ 8,271 $ 1,000 $ 14 $ 0 $ 0
- ---------------------------------------------------------------------------------------------------------------------------------
Tennessee Tax-Exempt Bond Fund $ 515 $ 0 $ 0 $ 0 $ 0 $ 0
- ---------------------------------------------------------------------------------------------------------------------------------
Short-Term Bond Fund $ 1,204 $ 0 $ 6,000 $ 0 $ 0 $ 0
- ---------------------------------------------------------------------------------------------------------------------------------
Investment Grade Tax-Exempt Bond Fund $ 12,005 $ 13,613 $ 61,000 $ 30 $ 2,133 $ 0
- ---------------------------------------------------------------------------------------------------------------------------------
U.S. Government Securities Fund $ 7,279 $ 4,006 * $ 0 $ 0 *
- ---------------------------------------------------------------------------------------------------------------------------------
Short-Term U.S. Treasury Securities Fund $ 2,641 $ 4,241 $ 3,000 $ 9 $ 0 $ 0
- ---------------------------------------------------------------------------------------------------------------------------------
Limited-Term Federal Mortgage Securities Fund $ 4,067 $ 1,541 * $ 50 $ 100 *
- ---------------------------------------------------------------------------------------------------------------------------------
Capital Growth Fund $ 258,267 $ 373,314 $ 974,000 $ 243 $ 2,078 $ 1,000
- ---------------------------------------------------------------------------------------------------------------------------------
Sunbelt Equity Fund $ 46,854 $ 135,566 $ 159,000 $ 61 $ 1,981 $ 0
- ---------------------------------------------------------------------------------------------------------------------------------
Value Income Stock Fund $ 306,061 $ 406,633 $ 583,000 $ 3,104 $ 3,774 $ 0
- ---------------------------------------------------------------------------------------------------------------------------------
International Equity Fund $ 29,032 * * $ 85 * *
- ---------------------------------------------------------------------------------------------------------------------------------
International Equity Index Fund $ 19,058 $ 59,784 * $ 50 $ 1,620 *
- ---------------------------------------------------------------------------------------------------------------------------------
Mid-Cap Equity Fund $ 91,344 $ 63,337 $ 24,000 $ 197 $ 858 $ 0
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
B-21
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
AGGREGATE SALES
CHARGE PAYABLE TO AMOUNT RETAINED BY
FUND DISTRIBUTOR DISTRIBUTOR
-----------------------------------------------------------------------------------
1996 1995 1994 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balanced Fund $ 16,540 $ 37,732 $ 31,000 $ 22 $ 0 $ 0
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Not in operation during the period.
For the fiscal years ended May 31, 1996 and 1995, the aggregate sales charges
payable to the Distributor with respect to the Flex Shares of the Funds were
as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
AGGREGATE SALES CHARGE AMOUNT RETAINED BY
FUND PAYABLE TO DISTRIBUTOR DISTRIBUTOR
1996 1996
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Investment Grade Bond Fund $ 4,329 $ 0
- -----------------------------------------------------------------------------------------
Georgia Tax-Exempt Bond Fund $ 2,896 $ 0
- -----------------------------------------------------------------------------------------
Florida Tax-Exempt Bond Fund $ 153 $ 0
- -----------------------------------------------------------------------------------------
Tennessee Tax-Exempt Bond Fund $ 1,008 $ 0
- -----------------------------------------------------------------------------------------
Short-Term Bond Fund $ 344 $ 0
- -----------------------------------------------------------------------------------------
Investment Grade Tax-Exempt Bond Fund $ 2,782 $ 0
- -----------------------------------------------------------------------------------------
U.S. Government Securities Fund $ 1,067 $ 0
- -----------------------------------------------------------------------------------------
Short-Term U.S. Treasury Securities Fund $ 3,687 $ 0
- -----------------------------------------------------------------------------------------
Limited-Term Federal Mortgage Securities Fund $ 1,442 $ 0
- -----------------------------------------------------------------------------------------
Capital Growth Fund $ 6,283 $ 0
- -----------------------------------------------------------------------------------------
Sunbelt Equity Fund $ 324 $ 0
- -----------------------------------------------------------------------------------------
Value Income Stock Fund $ 10,574 $ 0
- -----------------------------------------------------------------------------------------
International Equity Fund $ 60 $ 0
- -----------------------------------------------------------------------------------------
International Equity Index Fund $ 392 $ 0
- -----------------------------------------------------------------------------------------
Mid-Cap Equity Fund $ 5,222 $ 0
- -----------------------------------------------------------------------------------------
Balanced Fund $ 713 $ 0
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
</TABLE>
* Not in operation during the period.
B-22
<PAGE>
INVESTOR SHARES AND FLEX SHARES DISTRIBUTION PLANS
The Distribution Agreement and the Investor Plan adopted by the Trust provide
that Investor Shares of the Fund will pay the Distributor fees of up to the
following respective levels: .20% of the average daily net assets of the Prime
Quality Money Market Fund; .17% of the average daily net assets of the U.S.
Government Securities Money Market Fund; .15% of the average daily net assets of
the Tax-Exempt Money Market Fund; .18% of the average daily net assets of the
Short-Term U.S. Treasury Securities Fund; .23% of the average daily net assets
of the Short-Term Bond Fund; .43% of the average daily net assets of the
Investment Grade Bond Fund; .43% of the average daily net assets of the
Investment Grade Tax-Exempt Bond Fund; .68% of the average daily net assets of
the Capital Growth Fund; .33% of the average daily net assets of the Value
Income Stock Fund; .43% of the average daily net assets of the Mid-Cap Equity
Fund; .43% of the average daily net assets of the Sunbelt Equity Fund; .28% of
the average daily net assets of the Balanced Fund; .18% of the average daily net
assets of the Florida Tax-Exempt Bond Fund; .18% of the average daily net assets
of the Georgia Tax-Exempt Bond Fund; .18% of the average daily net assets of the
Tennessee Tax-Exempt Bond Fund; .38% of the average daily net assets of the U.S.
Government Securities Fund; .38% of the average daily net assets of the
International Equity Index Fund; .33% of the average daily net assets of the
International Equity Fund; and .23% of the average daily net assets of the
Limited-Term Federal Mortgage Securities Fund.
The Distribution Agreement and the Flex Plan adopted by the Trust provide that
each Flex Shares Fund will pay the Distributor a fee of up to .75% of the
average daily net assets of that Fund. The Distributor can use these fees to
compensate broker-dealers and service providers, including SunTrust and its
affiliates, which provide administrative and/or distribution services to
Investor Shares or Flex Shares Shareholders or their customers who beneficially
own Investor Shares or Flex Shares. In addition, Flex Shares are subject to a
service fee of up to .25% of the average daily net assets of the Flex Shares of
each Fund. This service fee will be used for services provided and expenses
incurred in maintaining shareholder accounts, responding to shareholder
inquiries and providing information on their investments.
Services for which broker-dealers and service providers may be compensated
include establishing and maintaining customer accounts and records; aggregating
and processing purchase and redemption requests from customers; placing net
purchase and redemption orders with the Distributor; automatically investing
customer account cash balances; providing periodic statements to customers;
arranging for wires; answering customer inquiries concerning their investments;
assisting customers in changing dividend options, account designations, and
addresses; performing sub-accounting functions; processing dividend payments
from the Trust on behalf of customers; and forwarding Shareholder communications
from the Trust (such as proxies, Shareholder reports, and dividend distribution
and tax notices) to these customers with respect to investments in the Trust.
Certain state securities laws may require those financial institutions providing
such distribution services to register as dealers pursuant to state law.
Although banking laws and regulations prohibit banks from
B-23
<PAGE>
distributing shares of open-end investment companies such as the Trust,
according to an opinion issued to the staff of the SEC by the Office of the
Comptroller of the Currency, financial institutions are not prohibited from
acting in other capacities for investment companies, such as providing
shareholder services. Should future legislative, judicial or administrative
action prohibit or restrict the activities of financial institutions in
connection with providing shareholder services, the Trust may be required to
alter materially or discontinue its arrangements with such financial
institutions.
The Trust has adopted the Investor Plan and the Flex Plan in each case in
accordance with the provisions of Rule 12b-1 under the 1940 Act, which Rule
regulates circumstances under which an investment company may directly or
indirectly bear expenses relating to the distribution of its shares.
Continuance of the Investor Plan and the Flex Plan must be approved annually by
a majority of the Trustees of the Trust and by a majority of the Qualified
Trustees. The Investor Plan and the Flex Plan require that quarterly written
reports of amounts spent under the Investor Plan and the Flex Plan,
respectively, and the purposes of such expenditures be furnished to and reviewed
by the Trustees. The Investor Plan and the Flex Plan may not be amended to
increase materially the amount which may be spent thereunder without approval by
a majority of the outstanding shares of the affected class of shares of the
Trust. All material amendments of the Plans will require approval by a majority
of the Trustees of the Trust and of the Qualified Trustees.
There is no sales charge on purchases of Flex Shares, but Flex Shares are
subject to a contingent deferred sales charge if they are redeemed within one
year of purchase. Pursuant to the Distribution Agreement and the Flex Plan,
Flex Shares are subject to an ongoing distribution and service fee calculated on
each of the Bond Funds', State Tax-Exempt Bond Funds', Equity Funds' and
Balanced Fund's aggregate average daily net assets attributable to its Flex
Shares.
For the fiscal years ended May 31, 1996, 1995, and 1994, the Funds paid the
following amounts pursuant to the Investor Plan:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
DISTRIBUTION FEES
AMOUNT PAID
-------------------------------------------------
FUND 1996 1995 1994
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment Grade Bond Fund $ 78,963 $ 54,455 $ 102,671
- ---------------------------------------------------------------------------------------------------
Georgia Tax-Exempt Bond Fund $ 5,001 $ 1,548 $ 1,256
- ---------------------------------------------------------------------------------------------------
Florida Tax-Exempt Bond Fund $ 6,021 $ 1,471 $ 765
- ---------------------------------------------------------------------------------------------------
Tennessee Tax-Exempt Bond Fund $ 1,266 $ 1,347 $ 277
- ---------------------------------------------------------------------------------------------------
B-24
<PAGE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
DISTRIBUTION FEES
AMOUNT PAID
-------------------------------------------------
FUND 1996 1995 1994
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Short-Term Bond Fund $ 5,067 $ 2,141 $ 3,297
- ---------------------------------------------------------------------------------------------------
Investment Grade Tax-Exempt Bond Fund $ 113,467 $ 107,645 $ 110,695
---------------------------------------------------------------------------------------------------
U.S. Government Securities Fund $ 4,218 $ 386 *
- ---------------------------------------------------------------------------------------------------
Short-Term U.S. Treasury Securities Fund $ 8,499 $ 5,291 $ 9,246
- ---------------------------------------------------------------------------------------------------
Limited-Term Federal Mortgage Securities Fund $ 2,360 $ 241 *
- ---------------------------------------------------------------------------------------------------
Prime Quality Money Market Fund $ 273,316 $ 179,128 $ 207,428
- ---------------------------------------------------------------------------------------------------
U.S. Government Securities Money Market Fund $ 44,107 $ 16,661 $ 43,328
- ---------------------------------------------------------------------------------------------------
Tax-Exempt Money Market Fund $ 80,845 $ 44,182 $ 56,471
- ---------------------------------------------------------------------------------------------------
Capital Growth Fund $ 912,685 $ 806,373 $ 847,998
- ---------------------------------------------------------------------------------------------------
Sunbelt Equity Fund $ 99,366 $ 49,826 $ 14,508
- ---------------------------------------------------------------------------------------------------
Value Income Stock Fund $ 304,282 $ 217,152 $ 136,086
- ---------------------------------------------------------------------------------------------------
International Equity Fund $ 0 * *
- ---------------------------------------------------------------------------------------------------
International Equity Index Fund $ 369 $ 1,649 *
- ---------------------------------------------------------------------------------------------------
Mid-Cap Equity Fund $ 51,485 $ 8,123 $ 2,150
- ---------------------------------------------------------------------------------------------------
Balanced Fund $ 10,808 $ 3,233 $ 1,220
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
</TABLE>
*Not in operation during the period.
For the fiscal years ended May 31, 1996, the Funds paid the following amounts
pursuant to the Flex Plan:
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
DISTRIBUTION FEES
AMOUNT PAID
---------------------------
FUND 1996
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Investment Grade Bond Fund $ 9,277
- -----------------------------------------------------------------------------
Georgia Tax-Exempt Bond Fund $ 7,409
- -----------------------------------------------------------------------------
Florida Tax-Exempt Bond Fund $ 2,675
- -----------------------------------------------------------------------------
B-25
<PAGE>
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
DISTRIBUTION FEES
AMOUNT PAID
---------------------------
FUND 1996
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Tennessee Tax-Exempt Bond Fund $ 7,238
- -----------------------------------------------------------------------------
Short-Term Bond Fund $ 0
- -----------------------------------------------------------------------------
Investment Grade Tax-Exempt Bond Fund $ 21,786
- -----------------------------------------------------------------------------
U.S. Government Securities Fund $ 4,460
- -----------------------------------------------------------------------------
Short-Term U.S. Treasury Securities Fund $ 321
- -----------------------------------------------------------------------------
Limited-Term Federal Mortgage Securities Fund $ 169
- -----------------------------------------------------------------------------
Capital Growth Fund $ 37,344
- -----------------------------------------------------------------------------
Sunbelt Equity Fund $ 1,560
- -----------------------------------------------------------------------------
Value Income Stock Fund $ 99,703
- -----------------------------------------------------------------------------
International Equity Fund $ 0
- -----------------------------------------------------------------------------
International Equity Index Fund $ 580
- -----------------------------------------------------------------------------
Mid-Cap Equity Fund $ 10,115
- -----------------------------------------------------------------------------
Balanced Fund $ 6,985
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
*Not in operation during the period.
TRUSTEES AND OFFICERS OF THE TRUST
The management and affairs of the Trust are supervised by the Trustees under the
laws governing business trusts in the Commonwealth of Massachusetts. The
Trustees and executive officers of the Trust and their dates of birth and their
principal occupations for the last five years are set forth below. Unless
otherwise noted, the principal business address for each officer listed below is
680 East Swedesford Road, Wayne, Pennsylvania 19087-1658.
DANIEL S. GOODRUM (7/11/26) - Trustee - 48 Cayuga Road, Fort Lauderdale, Florida
33308. Chairman & CEO, SunBank/South Florida, N.A., 1985-1991; Chairman, Audit
Committee and Director, Holy Cross Hospital; Executive Committee Member and
Director, Honda Classic Foundation; Director, Broward Community College
Foundation.
WILTON LOONEY (4/18/19) - Trustee - 2999 Circle 75 Parkway, Atlanta, Georgia
30339. President of Genuine Parts Company, 1961-1964; Chairman of the Board,
1964-1990; Honorary Chairman of the Board, 1990 to present. Director, Rollins,
Inc.; Director, RPC Energy Services, Inc.
B-26
<PAGE>
Honorary Chairman of the Board, 1990 to present, Director, Rollins, Inc.;
Director, RPC Energy Services, Inc.
CHAMPNEY A. MCNAIR (10/30/24) - Trustee - 1405 Trust Co. of Georgia Building,
Atlanta, Georgia 30303. Director and Chairman of Investment Committee and
member of Executive Committee, Cotton States Life and Health Insurance Company;
Director and Chairman of Investment Committee and member of Executive Committee,
Cotton States Mutual Insurance Company; Chairman, Trust Company of Georgia
Advisory Council.
F. WENDELL GOOCH (12/3/32) - Trustee - P.O. Box 190, Paoli, Indiana 47454.
President, Orange County Publishing Co., Inc., since October 1981. Publisher of
the Paoli News and the Paoli Republican and Editor of the Paoli Republican since
January 1981, President, H & W Distribution, Inc. since July 1984. Current
Trustee on the Board of Trustees for the SEI Family of Funds and The Capitol
Mutual Funds. Executive Vice President, Trust Department, Harris Trust and
Savings Bank and Chairman of the Board of Directors of The Harris Trust Company
of Arizona before January 1981.
T. GORDY GERMANY (11/28/25) -Trustee - 17 Windy Point, Alexander City, Alabama
35010. Retired President, Chairman, and CEO of Crawford & Company; held these
positions, 1973-1987. Member of the Board of Directors, 1970-1990, joined
company in 1948; spent entire career at Crawford, currently serves on Boards of
Norrell Corporation and Mercy Health Services, the latter being the holding
company of St. Joseph's Hospitals.
DR. BERNARD F. SLIGER (9/30/24) - Trustee - Florida State University, The Gus A.
Stavros Center, 250 South Woodward Avenue, Tallahassee, Florida 32306-4035.
Currently on sabbatical leave from Florida State University (1991-92); now
serves as visiting professor at the University of New Orleans. President of
Florida State University, 1976-91; previous four years EVP and Chief Academic
Officer. During educational career, taught at Florida State, Michigan State,
Louisiana State and Southern University. Spent 19 years as faculty member and
administrator at Louisiana State University and served as Head of Economics
Department, member and Chairman of the Graduate Council, Dean of Academic
Affairs and Vice Chancellor. Member of Board of Directors of Federal Reserve
Bank of Atlanta, 1983-1988.
JESSE HALL (9/26/29) - Trustee* - 988 Winall Down Road, NE, Atlanta, Georgia
30318. Executive Vice President, SunTrust Banks, Inc., 1985-1994; Director of
Crawford & Company since 1979; Member, Atlanta Estate Planning Council,
1988-1993.
DAVID G. LEE (4/16/52) - President, Chief Executive Officer - Senior Vice
President of the Administrator and Distributor since 1993. Vice President of
the Administrator and Distributor (1991-1993). President, GW Sierra Trust Funds
before 1991.
B-27
<PAGE>
STEPHEN G. MEYER (7/12/65) - Controller, Chief Financial Officer - Vice
President & Controller of SEI Corporation since 1994. Director, Internal Audit
and Risk Management, SEI Corporation, 1992-1994. Senior Associate, Coopers &
Lybrand, 1990-1992. Internal Audit, Vanguard Group of Investment Prior to 1992.
RICHARD W. GRANT (10/25/45) - Secretary - 2000 One Logan Square, Philadelphia,
Pennsylvania 19103. Partner, Morgan, Lewis & Bockius LLP (law firm). Counsel
to the Trust, Administrator and Distributor.
SANDRA K. ORLOW (10/18/53) - Vice President, Assistant Secretary - Vice
President and Assistant Secretary of the Administrator and Distributor since
1983.
KEVIN P. ROBINS (4/15/61) - Vice President, Assistant Secretary - Senior Vice
President & General Counsel of SEI, the Administrator and the Distributor since
1994. Vice President of SEI, the Administrator and the Distributor, 1992-1994.
Associate, Morgan, Lewis & Bockius LLP (law firm) prior to 1992.
KATHRYN L. STANTON (11/19/58) - Vice President, Assistant Secretary - Vice
President, Assistant Secretary of SEI, the Administrator and Distributor since
1994. Associate, Morgan, Lewis & Bockius LLP (law firm), 1989-1994.
JOSEPH M. LYDON (9/27/59) - Vice President - Director of Business Administration
of Fund Resources, SEI Coporation since 1995. Vice President of Fund Group and
Vice President of the Adviser, Dreman Value Management and President of Dremen
Financial Services, Inc. prior to 1995.
TODD CIPPERMAN (2/14/66) - Vice President, Assistant Secretary - Vice President
and Assistant Secretary of the Administrator and the Distributor since 1995.
Associate, Dewey Ballantine (law firm), 1994-1995. Associate, Winston & Strawn
(law firm), 1991-1994.
BARBARA NUGENT (6/18/56) - Vice President, Assistant Secretary - Vice President
and Assistant Secretary of SEI Corporation, the Distributor and Administrator,
Associate, Drinker Biddle & Reath (law firm), 1994-1996. Assistant Vice
President/Administration, Delaware Service Company, Inc., 1981-1994.
MARC H. CAHN (6/19/57) - Vice President, Assistant Secretary - Vice President
and Assistant Secretary of SEI Corporation, the Distributor and Administrator,
Associate General Counsel, Barclays Bank PLC., 1995-1996. Counsel for First
Fidelity Bancorporation prior to 1995.
B-28
<PAGE>
JOHN H. GRADY, JR. (6/1/61) - Assistant Secretary - 1800 M Street, N.W.
Washington, DC 20036. Partner, Morgan, Lewis & Bockius LLP (law firm) since
1995. Associate, Morgan, Lewis & Bockius LLP, 1993-1995. Associate, Ropes &
Gray (law firm), 1988-1993.
- -----------------
* Jesse S. Hall may be deemed to be an "interested person" of the Trust as
defined in the Investment Company Act of 1940.
The Trustees and officers of the Trust own, in the aggregate, less than 1% of
the outstanding shares of the Trust.
For the fiscal year end May 31, 1996, the Trust paid the following amounts to
Trustees and Officers of the Trust:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
Aggregate Pension or Total Compensation
Compensation Retirement from Registrant and
From Registrant Benefits Estimated Annual Fund Complex Paid to
Name of Person for Fiscal Year Accrued as Part Benefits Upon Directors for Fiscal
Position Ended 1996 of Fund Retirement Year Ended 1996
Expenses
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Daniel S. Goodrum, Trustee $13,500 N/A N/A $13,500 for service on
two boards
- ---------------------------------------------------------------------------------------------------------------------------
Wilton Looney, Trustee $16,000 N/A N/A $16,000 for service on
two boards
- ---------------------------------------------------------------------------------------------------------------------------
Champney A. McNair, Trustee $13,500 N/A N/A $13,500 for service on
two boards
- ---------------------------------------------------------------------------------------------------------------------------
F. Wendell Gooch, Trustee $13,500 N/A N/A $13,500 for service on
two boards
- ---------------------------------------------------------------------------------------------------------------------------
T. Gordy Germany, Trustee $13,500 N/A N/A $13,500 for service on
two boards
- ---------------------------------------------------------------------------------------------------------------------------
Dr. Bernard F. Sliger, Trustee $13,500 N/A N/A $13,500 for service on
two boards
- ---------------------------------------------------------------------------------------------------------------------------
Jesse S. Hall, Trustee $13,500 N/A N/A $13,500 for service on
two boards
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
COMPUTATION OF YIELD
The current yield of the Money Market Funds will be calculated daily based upon
the seven days ending on the date of calculation ("base period"). The yield is
computed by determining the net change (exclusive of capital changes) in the
value of a hypothetical pre-existing shareholder account having a balance of one
share at the beginning of the period, subtracting a hypothetical charge
reflecting deductions from shareholder accounts, and dividing such net
B-29
<PAGE>
change by the value of the account at the beginning of the same period to obtain
the base period return and multiplying the result by (365/7). Realized and
unrealized gains and losses are not included in the calculation of the yield.
The effective compound yield of the Funds is determined by computing the net
change, exclusive of capital changes, in the value of a hypothetical
pre-existing account having a balance of one share at the beginning of the
period, subtracting a hypothetical charge reflecting deductions from shareholder
accounts, and dividing the difference by the value of the account at the
beginning of the base period to obtain the base period return, and then
compounding the base period return by adding 1, raising the sum to a power equal
to 365 divided by 7, and subtracting 1 from the result, according to the
following formula: Effective Yield = [Base Period Return + 1) 365/7] - 1. The
current and the effective yields reflect the reinvestment of net income earned
daily on portfolio assets.
For the 7-day period ended May 31, 1996, the Money Market Funds' current
effective and tax-equivalent yields were as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
7-DAY 7-DAY
7-DAY TAX-EQUIVALENT TAX-
FUND CLASS 7-DAY YIELD EFFECTIVE YIELD EQUIVALENT
YIELD EFFECTIVE
YIELD
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Prime Quality Money Investor 4.63% 4.74% N/A N/A
-------------------------------------------------------------------------
Money Market fund Trust 4.80% 4.92% N/A N/A
- -------------------------------------------------------------------------------------------------------
U.S. Government Investor 4.45% 4.55% N/A N/A
Securities Money -------------------------------------------------------------------------
Market Fund Trust 4.59% 4.70% N/A N/A
- -------------------------------------------------------------------------------------------------------
Tax-Exempt Money Investor 3.03% 3.08% 5.02% 5.10%
-------------------------------------------------------------------------
Market Fund Trust 3.15% 3.20% 5.22% 5.30%
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
</TABLE>
The yields of these Funds fluctuate, and the annualization of a week's dividend
is not a representation by the Trust as to what an investment in the Fund will
actually yield in the future. Actual yields will depend on such variables as
asset quality, average asset maturity, the type of instruments a Fund invests
in, changes in interest rates on money market instruments, changes in the
expenses of the Fund and other factors.
Yields are one basis upon which investors may compare the Funds with other money
market funds; however, yields of other money market funds and other investment
vehicles may not be comparable because of the factors set forth above and
differences in the methods used in valuing portfolio instruments.
The Tax-Exempt Money Market and Tax-Exempt Bond Fund's "tax equivalent yield" is
calculated by determining the rate of return that would have to be achieved on a
fully taxable
B-30
<PAGE>
investment to produce the after-tax equivalent of the Fund's yield, assuming
certain tax brackets for a Shareholder. Tax-exempt yield is calculated
according to the same formula except that a = interest exempt from federal
income tax earned during the period. This tax-exempt yield is then translated
into tax-equivalent yield according to the following formula:
TAX-EQUIVALENT YIELD = ( E ) + t
-------
1-P
E = tax-exempt yield
p = stated income tax rate
t = taxable yield
Tax equivalent yields assume the payment of federal income taxes at a rate of
39.6% and, for the Georgia Tax-Exempt Bond Fund, Georgia income taxes at a rate
of 6.0% and, for the Tennessee Tax-Exempt Bond Fund, Tennessee income taxes at a
rate of 6.0%.
For the 30-day period ended May 31, 1996, the Tax-Equivalent yield for the Trust
Shares were as follows: for the Investment Grade Tax-Exempt Bond Fund - 6.5%,
Georgia Tax-Exempt Bond Fund - 8.40%, Florida Tax-Exempt Bond Fund - 7.68% and
Tennessee Tax-Exempt Bond Fund - 8.62%.
For the 30-day period ended May 31, 1996, the Tax-Equivalent Yields for the
Investor Shares of the Tax-Exempt Funds were as follows: for the Investment
Grade Tax-Exempt Bond Fund - 5.68%, Georgia Tax-Exempt Bond Fund -7.78%, Florida
Tax-Exempt Bond Fund - 7.05% and Tennessee Tax-Exempt Bond Fund - 7.92%.
For the 30-day period ended May 31, 1996, the Tax-Equivalent Yields for the Flex
Shares of the Tax-Exempt Funds were as follows: for the Investment Grade
Tax-Exempt Bond Fund - 5.12%, Georgia Tax-Exempt Bond Fund - 7.11%, Florida
Tax-Exempt Bond Fund - 6.54% and Tennessee Tax-Exempt Bond Fund - 7.32%.
The Bond, Short-Term U.S. Treasury, Tax-Exempt Bond and Equity Funds may
advertise a 30-day yield. In particular, yield will be calculated according to
the following formula:
Yield = (2 (a-b/cd + 1)6 - 1) where a = dividends and interest earned during the
period; b = expenses accrued for the period (net of reimbursement); c = the
current daily number of shares outstanding during the period that were entitled
to receive dividends; and d = the maximum offering price per share on the last
day of the period.
For the 30-day period ended May 31, 1996, yields on the Funds other than the
Money Market Funds were as follows:
B-31
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
FUND CLASS YIELD
- -------------------------------------------------------------------------------
Investment Grade Bond Fund Investor Class 5.47%
---------------------------------------
Trust Class 6.09%
---------------------------------------
Flex Shares 5.23%
- -------------------------------------------------------------------------------
Short-Term U.S. Treasury Investor Class 5.21%
---------------------------------------
Securities Fund Trust Class 5.42%
---------------------------------------
Flex Shares 5.02%
- -------------------------------------------------------------------------------
Short-Term Bond Fund Investor Class 5.42%
---------------------------------------
Trust Class 5.73%
---------------------------------------
Flex Shares 5.18%
- -------------------------------------------------------------------------------
U.S. Government Securities Investor Class 5.59%
---------------------------------------
Fund Trust Class 6.14%
---------------------------------------
Flex Shares 5.25%
- -------------------------------------------------------------------------------
Limited-Term Federal Mortgage Investor Class 5.45%
---------------------------------------
Securities Fund Trust Class 5.78%
---------------------------------------
Flex Shares 5.24%
- -------------------------------------------------------------------------------
Florida Tax-Exempt Bond Fund Investor Class 4.26%
---------------------------------------
Trust Class 4.64%
---------------------------------------
Flex Shares 3.95%
- -------------------------------------------------------------------------------
Georgia Tax-Exempt Bond Fund Investor Class 4.23%
---------------------------------------
Trust Class 4.57%
---------------------------------------
Flex Shares 3.87%
- -------------------------------------------------------------------------------
Tennessee Tax-Exempt Bond Investor Class 4.31%
---------------------------------------
Fund Trust Class 4.69%
---------------------------------------
Flex Shares 3.98%
- -------------------------------------------------------------------------------
Capital Growth Fund Investor Class 0%
---------------------------------------
Trust Class .53%
---------------------------------------
Flex Shares 0%
- -------------------------------------------------------------------------------
Value Income Stock Fund Investor Class 1.87%
---------------------------------------
Trust Class 2.28%
---------------------------------------
B-32
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
FUND CLASS YIELD
---------------------------------------
Flex Shares 1.25%
- -------------------------------------------------------------------------------
B-33
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
FUND CLASS YIELD
- -------------------------------------------------------------------------------
Mid-Cap Equity Fund Investor Class .21%
---------------------------------------
Trust Class .66%
---------------------------------------
Flex Shares 0%
- -------------------------------------------------------------------------------
Balanced Fund Investor Class 2.43%
---------------------------------------
Trust Class 2.81%
---------------------------------------
Flex Shares 1.79%
- -------------------------------------------------------------------------------
Sunbelt Equity Fund Investor Class 0%
---------------------------------------
Trust Class 0%
---------------------------------------
Flex Shares 0%
- -------------------------------------------------------------------------------
International Equity Fund Investor Class N/A
---------------------------------------
Trust Class N/A
---------------------------------------
Flex Shares N/A
- -------------------------------------------------------------------------------
International Equity Index Fund Investor Class N/A
---------------------------------------
Trust Class N/A
---------------------------------------
Flex Shares N/A
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
*Not in operation during the period.
CALCULATION OF TOTAL RETURN
From time to time, the Bond, Short-Term U.S. Treasury, Tax-Exempt Bond, Balanced
and Equity Funds may advertise total return. In particular, total return will
be calculated according to the following formula: P (1 + T)(n) = ERV, where
P = a hypothetical initial payment of $1,000; T = average annual total return;
n = number of years; and ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the designated time period as of the end of
such period.
From time to time, the Trust may include the names of clients of the Advisors in
advertisements and/or sales literature for the Trust. The SEI Funds Evaluation
database tracks the total return of numerous tax-exempt pension accounts. The
range of returns in these accounts determines the percentile rankings. SunTrust
Bank's investment advisory affiliates, STI Capital Management, N.A. and Trusco
Capital Management, have been in the top 1% of the SEI Funds Evaluation database
for equity managers over the past ten years. SEI's database includes research
data on over 1,000 investment managers responsible for over $450 billion in
assets.
B-34
<PAGE>
Based on the foregoing, the average annual total returns for the Funds from
inception through May 31, 1996 and for the one year period ended May 31, 1996
were as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN
----------------------------
FUND CLASS ONE YEAR SINCE
INCEPTION
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Prime Quality Money Market Fund Investor(1) 5.08% 3.79%
----------------------------------------------------------
Trust(1) 5.25% 3.96%
- ----------------------------------------------------------------------------------------------------------------
U.S. Government Securities Money Investor(1) 4.99% 3.70%
----------------------------------------------------------
Market Fund Trust(1) 5.14% 3.84%
- ----------------------------------------------------------------------------------------------------------------
Tax-Exempt Money Market Fund Investor(1) 3.16% 2.53%
----------------------------------------------------------
Trust(1) 3.28% 2.65%
- ----------------------------------------------------------------------------------------------------------------
Investment Grade Bond Fund Investor--Offering Price(2) (.38)% 4.81%
----------------------------------------------------------
Investor--Net Asset Value(2) 3.50% 5.82%
----------------------------------------------------------
Trust(3) 4.02% 6.07%
----------------------------------------------------------
Flex--Offering Price(25) N/A .51%
----------------------------------------------------------
Flex--Net Asset Value(25) N/A 2.50%
- ----------------------------------------------------------------------------------------------------------------
Investment Grade Tax-Exempt Bond Investor--Offering Price(4) 1.45% 7.05%
----------------------------------------------------------
Fund Investor--Net Asset Value(4) 5.40% 8.08%
----------------------------------------------------------
Trust(5) 5.82% 5.63%
----------------------------------------------------------
Flex--Offering Price(26) N/A 2.95%
----------------------------------------------------------
Flex--Net Asset Value(26) N/A 4.91%
- ----------------------------------------------------------------------------------------------------------------
Short-Term U.S. Treasury Securities Investor--Offering Price(6) 3.58% 3.70%
----------------------------------------------------------
Fund Investor--Net Asset Value(6) 4.52% 4.03%
----------------------------------------------------------
Trust(7) 4.73% 4.19%
----------------------------------------------------------
Flex--Offering Price(27) N/A 1.64%
----------------------------------------------------------
Flex--Net Asset Value(27) N/A 3.74%
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
B-35
<PAGE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN
----------------------------
FUND CLASS ONE YEAR SINCE
INCEPTION
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Short-Term Bond Fund Investor--Offering Price(8) 2.19% 3.62%
----------------------------------------------------------
Investor--Net Asset Value(8) 4.23% 4.30%
----------------------------------------------------------
Trust(7) 4.45% 4.66%
----------------------------------------------------------
Flex--Offering Price(28) N/A 1.65%
----------------------------------------------------------
Flex-Net Asset Value(28) N/A 3.73%
- ----------------------------------------------------------------------------------------------------------------
U.S. Government Securities Fund Investor--Offering Price(20) (1.38)% 3.52%
----------------------------------------------------------
Investor--Net Asset Value(20) 2.47% 5.54%
----------------------------------------------------------
Trust(21) 2.77% 6.21%
----------------------------------------------------------
Flex-Offering Price(25) N/A (.54)%
----------------------------------------------------------
Flex--Net Asset Value(25) N/A 1.42%
- ----------------------------------------------------------------------------------------------------------------
Limited-Term Federal Mortgage Fund Investor--Offering Price(22) 1.97% 4.99%
----------------------------------------------------------
Investor--Net Asset Value(22) 4.59% 6.45%
----------------------------------------------------------
Trust(23) 4.84% 6.21%
----------------------------------------------------------
Flex--Offering Price(25) N/A 2.09%
----------------------------------------------------------
Flex--Net Asset Value(25) N/A 4.10%
- ----------------------------------------------------------------------------------------------------------------
Florida Tax-Exempt Bond Fund Investor--Offering Price(9) (.16)% 3.13%
----------------------------------------------------------
Investor--Net Asset Value(9) 3.76% 4.82%
----------------------------------------------------------
Trust(10) 3.87% 5.01%
----------------------------------------------------------
Flex--Offering Price(26) N/A 1.29%
----------------------------------------------------------
Flex--Net Asset Value(26) N/A 3.27%
- ----------------------------------------------------------------------------------------------------------------
Georgia Tax-Exempt Bond Fund Investor--Offering Price(11) (.24)% .81%
----------------------------------------------------------
Investor--Net Asset Value(11) 3.69% 2.46%
----------------------------------------------------------
Trust(9) 3.89% 2.57%
----------------------------------------------------------
Flex--Offering Price(31) N/A .26%
----------------------------------------------------------
Flex--Net Asset Value(31) N/A 2.26%
- ----------------------------------------------------------------------------------------------------------------
B-36
<PAGE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN
----------------------------
FUND CLASS ONE YEAR SINCE
INCEPTION
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tennessee Tax-Exempt Bond Fund Investor--Offering Price(11) (.58)% .30%
----------------------------------------------------------
Investor--Net Asset Value(11) 3.28% 1.94%
----------------------------------------------------------
Trust(12) 3.43% 1.94%
----------------------------------------------------------
Flex--Offering Price(29) N/A .00%
----------------------------------------------------------
Flex--Net Asset Value(29) N/A 1.98%
- ----------------------------------------------------------------------------------------------------------------
Capital Growth Fund Investor--Offering Price(4) 23.41% 12.87%
----------------------------------------------------------
Investor--Net Asset Value(4) 28.18% 13.96%
----------------------------------------------------------
Trust(13) 28.97% 13.86%
----------------------------------------------------------
Flex--Offering Price(26) N/A 25.55%
----------------------------------------------------------
Flex--Net Asset Value(26) N/A 27.56%
- ----------------------------------------------------------------------------------------------------------------
Value Income Stock Fund Investor--Offering Price(14) 22.62% 17.08%
----------------------------------------------------------
Investor--Net Asset Value(14) 27.39% 18.46%
----------------------------------------------------------
Trust(15) 27.91% 17.89%
----------------------------------------------------------
Flex--Offering Price(26) N/A 24.52%
----------------------------------------------------------
Flex--Net Asset Value(26) N/A 26.60%
- ----------------------------------------------------------------------------------------------------------------
Mid-Cap Equity Fund Investor--Offering Price(16) 20.23% 12.84%
----------------------------------------------------------
Investor--Net Asset Value(16) 24.93% 14.71%
----------------------------------------------------------
Trust(17) 25.54% 15.35%
----------------------------------------------------------
Flex--Offering Price(29) N/A 21.00%
----------------------------------------------------------
Flex--Net Asset Value(29) N/A 23.03%
- ----------------------------------------------------------------------------------------------------------------
Balanced Fund Investor--Offering Price(18) 12.51% 7.60%
----------------------------------------------------------
Investor--Net Asset Value(18) 16.88% 9.32%
----------------------------------------------------------
Trust(19) 17.26% 9.80%
----------------------------------------------------------
Flex--Offering Price(30) N/A 13.58%
----------------------------------------------------------
Flex--Net Asset Value(30) N/A 15.67%
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
B-37
<PAGE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN
----------------------------
FUND CLASS ONE YEAR SINCE
INCEPTION
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sunbelt Equity Fund Investor--Offering Price(18) 37.21% 14.06%
----------------------------------------------------------
Investor--Net Asset Value(18) 42.58% 15.89%
----------------------------------------------------------
Trust(19) 43.19% 16.44%
----------------------------------------------------------
Flex--Offering Price(29) N/A 37.90%
----------------------------------------------------------
Flex--Net Asset Value(29) N/A 39.93%
- ----------------------------------------------------------------------------------------------------------------
International Equity Fund Investor--Offering Price(32) N/A 12.31%
----------------------------------------------------------
Investor--Net Asset Value(32) N/A 23.34%
----------------------------------------------------------
Trust(33) N/A 30.05%
----------------------------------------------------------
Flex--Offering Price(32) N/A 17.65%
----------------------------------------------------------
Flex--Net Asset Value(32) N/A 23.08%
- ----------------------------------------------------------------------------------------------------------------
International Equity Index Fund Investor--Offering Price(24) 4.79%3.52%
----------------------------------------------------------
Investor--Net Asset Value(24) 8.90%5.53%
----------------------------------------------------------
Trust(24) 9.29% 5.99%
----------------------------------------------------------
Flex--Offering Price(34) N/A 6.26%
----------------------------------------------------------
Flex--Net Asset Value(34) N/A 8.31%
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C>
(1) Commenced operations 6/8/92 (11) Commenced operations 1/19/94 (21) Commenced operations 7/31/94
(2) Commenced operations 6/11/92 (12) Commenced operations 1/27/94 (22) Commenced operations 7/17/94
(3) Commenced operations 7/16/92 (13) Commenced operations 7/1/92 (23) Commenced operations 6/7/94
(4) Commenced operations 6/9/92 (14) Commenced operations 2/17/93 (24) Commenced operations 6/6/94
(5) Commenced operations 10/21/93 (15) Commenced operations 2/12/93 (25) Commenced operations 6/2/95
(6) Commenced operations 3/18/93 (16) Commenced operations 2/1/94 (26) Commenced operations 6/2/95
(7) Commenced operations 3/15/93 (17) Commenced operations 2/2/94 (27) Commenced operations 6/23/95
(8) Commenced operations 3/22/93 (18) Commenced operations 1/4/94 (28) Commenced operations 6/21/95
(9) Commenced operations 1/18/94 (19) Commenced operations 1/3/94 (29) Commenced operations 6/6/95
(10) Commenced operations 1/25/94 (20) Commenced operations 6/9/94 (30) Commenced operations 6/15/95
(31) Commenced operations 6/7/95
(32) Commenced operations 1/2/96
(33) Commenced operations 12/1/95
(34) Commenced operations 6/8/95
</TABLE>
*Not in operation during period.
Flex Shares of the Trust commenced operations after May 31, 1995.
PURCHASE AND REDEMPTION OF SHARES
Purchases and redemptions of shares of the Funds may be made on any day the New
York Stock Exchange ("NYSE") is open for business. Currently, the NYSE is
closed on the days
B-38
<PAGE>
the following holidays are observed: New Year's Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.
It is currently the Trust's policy to pay for all redemptions in cash. The
Trust retains the right, however, to alter this policy to provide for
redemptions in whole or in part by a distribution in-kind of readily marketable
securities held by the Funds in lieu of cash. Shareholders may incur brokerage
charges on the sale of any such securities so received in payment of
redemptions. A Shareholder will at all times be entitled to aggregate cash
redemptions from all Funds of the Trust during any 90-day period of up to the
lesser of $250,000 or 1% of the Trust's net assets.
The Trust reserves the right to suspend the right of redemption and/or to
postpone the date of payment upon redemption for any period on which trading on
the NYSE is restricted, or during the existence of an emergency (as determined
by the Securities and Exchange Commission by rule or regulation) as a result of
disposal or valuation of a Fund's securities is not reasonably practicable, or
for such other periods as the Securities and Exchange Commission has by order
permitted. The Trust also reserves the right to suspend sales of shares of a
Fund for any period during which the NYSE, an Advisor, the Administrator and/or,
the Custodian are not open for business.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of the Money Market Funds is calculated daily by
the Administrator by adding the value of securities and other assets,
subtracting liabilities and dividing by the number of outstanding shares.
Securities will be valued by the amortized cost method which involves valuing a
security at its cost on the date of purchase and thereafter (absent unusual
circumstances) assuming a constant amortization to maturity of any discount or
premium, regardless of the impact of fluctuations in general market rates of
interest on the value of the instrument. While this method provides certainty
in valuation, it may result in periods during which a security's value, as
determined by this method, is higher or lower than the price a Fund would
receive if it sold the instrument. During periods of declining interest rates,
the daily yield of a Fund may tend to be higher than a like computation made by
a company with identical investments utilizing a method of valuation based upon
market prices and estimates of market prices for all of its portfolio
securities. Thus, if the use of amortized cost by a Fund resulted in a lower
aggregate portfolio value on a particular day, a prospective investor in a Fund
would be able to obtain a somewhat higher yield than would result from
investment in a company utilizing solely market values, and existing investors
in a Fund would experience a lower yield. The converse would apply in a period
of rising interest rates.
A Fund's use of amortized cost and the maintenance of a Fund's net asset value
at $1.00 are permitted by regulations promulgated by Rule 2a-7 under the 1940
Act, provided that certain conditions are met. The regulations also require the
Trustees to establish procedures which are reasonably designed to stabilize the
net asset value per share at $1.00 for the Funds.
B-39
<PAGE>
Such procedures include the determination of the extent of deviation, if any, of
the Funds current net asset value per share calculated using available market
quotations from the Funds amortized cost price per share at such intervals as
the Trustees deem appropriate and reasonable in light of market conditions and
periodic reviews of the amount of the deviation and the methods used to
calculate such deviation. In the event that such deviation exceeds 1/2 of 1%,
the Trustees are required to consider promptly what action, if any, should be
initiated, and, if the Trustees believe that the extent of any deviation may
result in material dilution or other unfair results to Shareholders, the
Trustees are required to take such corrective action as they deem appropriate to
eliminate or reduce such dilution or unfair results to the extent reasonably
practicable. Such actions may include the sale of portfolio instruments prior
to maturity to realize capital gains or losses or to shorten average portfolio
maturity; withholding dividends; redeeming shares in kind; or establishing a net
asset value per share by using available market quotations. In addition, if the
Funds incur a significant loss or liability, the Trustees have the authority to
reduce pro rata the number of shares of the Funds in each Shareholder's account
and to offset each Shareholder's pro rata portion of such loss or liability from
the Shareholder's accrued but unpaid dividends or from future dividends while
each other Fund must annually distribute at least 90% of its investment company
taxable income.
The securities of the Bond, Short-Term U.S. Treasury Securities and Equity Funds
are valued by the Administrator pursuant to valuations provided by an
independent pricing service. The pricing service relies primarily on prices of
actual market transactions as well as trader quotations. However, the service
may also use a matrix system to determine valuations of fixed income securities,
which system considers such factors as security prices, yields, maturities, call
features, ratings and developments relating to specific securities in arriving
at valuations. The procedures of the pricing service and its valuations are
reviewed by the officers of the Trust under the general supervision of the
Trustees.
Although the methodology and procedures are identical, the net asset value per
share of Trust Shares, Flex Shares and Investor Shares of the Bond, Short-Term
U.S. Treasury Securities and Equity Funds may differ because of variations in
the distribution and service fees and transfer agent fees charged to Investor
Shares.
TAXES
FEDERAL INCOME TAX
In order to qualify for treatment as a regulated investment company ("RIC")
under the Internal Revenue Code of 1986, as amended ("Code"), each Fund must
distribute annually to its Shareholders at least the sum of 90% of its net
interest income excludable from gross income plus 90% of its investment company
taxable income (generally, net investment income plus net short-term capital
gain) ("Distribution Requirement") and also must meet several additional
requirements. Among these requirements are the following: (i) at least 90% of
a Fund's gross income each taxable year must be derived from dividends,
interest, payments with respect to
B-40
<PAGE>
securities loans, and gains from the sale or other disposition of stock or
securities, or certain other income, (ii) a Fund must derive less than 30% of
its gross income each taxable year from the sale or other disposition of stocks
or securities held for less than three months; (iii) at the close of each
quarter of a Fund's taxable year, at least 50% of the value of its total assets
must be represented by cash and cash items, U.S. Government securities,
securities of other RIC's and other securities, with such other securities
limited, in respect to any one issuer, to an amount that does not exceed 5% of
the value of a Fund's assets and that does not represent more than 10% of the
outstanding voting securities of such issuer; and (iv) at the close of each
quarter of a Fund's taxable year, not more than 25% of the value of its assets
may be invested in securities (other than U.S. Government securities or the
securities of other RIC's) of any one issuer, or of two or more issuers engaged
in same or similar businesses if the Fund owns at least 20% of the voting power
of such issuers.
Notwithstanding the Distribution Requirement described above, which only
requires a Fund to distribute at least 90% of its annual investment company
taxable income and does not require any minimum distribution of net capital
gains (the excess of net long-term capital gains over net short-term capital
loss), a Fund will be subject to a nondeductible 4% excise tax to the extent it
fails to distribute by the end of any calendar year 98% of its ordinary income
for that year and 98% of its capital gain net income for the one-year period
ending on October 31 of that calendar year, plus certain other amounts.
As noted in the Prospectus, the Tax-Exempt Money Market Fund, the Investment
Grade Tax-Exempt Bond Fund, and the State Tax-Exempt Bond Funds intend to pay
exempt-interest dividends. Exempt-interest dividends are excludable from a
Shareholder's gross income for regular federal income tax purposes, but may
nevertheless be subject to the alternative minimum tax (the "Alternative Minimum
Tax") imposed by Section 55 of the Code or the environmental tax (the
"Environmental Tax") imposed by Section 59A of the Code. The Alternative
Minimum Tax is imposed at the rate of 26% (with a maximum rate of 28%) in the
case of non-corporate taxpayers and at the rate of 20% in the case of corporate
taxpayers, to the extent it exceeds the taxpayer's regular tax liability. The
Environmental Tax is imposed at the rate of 0.12% and applies only to corporate
taxpayers. The Alternative Minimum Tax and the Environmental Tax may be
imposed in two circumstances. First, exempt-interest dividends derived from
certain "private activity bonds" issued after August 7, 1986, will generally be
an item of tax preference (and therefore potentially subject to the Alternative
Minimum Tax and the Environmental Tax) for both corporate and non-corporate
taxpayers. Second, in the case of exempt-interest dividends received by
corporate Shareholders, all exempt-interest dividends, regardless of when the
bonds from which they are derived were issued or whether they are derived from
private activity bonds, will be included in the corporation's "adjusted current
earnings," as defined in Section 56(g) of the Code, in calculating the
corporation's alternative minimum taxable income for purposes of determining the
Alternative Minimum Tax and the Environmental Tax.
B-41
<PAGE>
Any gain or loss recognized on a sale or redemption of Shares of a Fund by a
Shareholder who is not a dealer in securities will generally be treated as a
long-term capital gain or loss if the shares have been held for more than twelve
months and otherwise will be generally treated as a short-term capital gain or
loss. Any loss recognized by a Shareholder upon the sale or redemption of
shares of a tax-free Fund held for six months or less, however, will be
disallowed to the extent of any exempt-interest dividends received by the
Shareholder with respect to such shares. If shares on which a net capital gain
distribution has been received are subsequently sold or redeemed and such shares
have been held for six months or less, any loss recognized will be treated as a
long-term capital loss to the extent of the long-term capital gain distribution.
Interest on indebtedness incurred by Shareholders to purchase or carry shares of
a tax-free Fund will not be deductible for federal income tax purposes to the
extent that the Fund distributes exempt interest dividends during the taxable
year. The deduction otherwise allowable to property and casualty insurance
companies for "losses incurred" will be reduced by an amount equal to a portion
of exempt-interest dividends received or accrued during any taxable year.
Certain foreign corporations engaged in a trade or business in the United States
will be subject to a "branch profits tax" on their "dividend equivalent amount"
for the taxable year, which will include exempt-interest dividends. Certain
Subchapter S corporations may also be subject to taxes on their "passive
investment income," which could include exempt-interest dividends. Up to 85%
(up to 50% for years prior to 1994) of the Social Security benefits or railroad
retirement benefits received by an individual during any taxable year will be
included in the gross income of such individual if the individual's "modified
adjusted gross income" (which includes exempt-interest dividends) plus one-half
of the Social Security benefits or railroad retirement benefits received by such
individual during that taxable year exceeds the base amount described in Section
86 of the Code.
A tax-free Fund may not be an appropriate investment for persons (including
corporations and other business entities) who are "substantial users" (or
persons related to such users) of facilities financed by industrial development
or private activity bonds. A "substantial user" is defined generally to include
certain persons who regularly use a facility in their trade or business. Such
entities or persons should consult their tax advisors before purchasing shares
of a tax-free Fund.
Issuers of bonds purchased by a tax-free fund (or the beneficiary of such bonds)
may have made certain representations or covenants in connection with the
issuance of such bonds to satisfy certain requirements of the Code that must be
satisfied subsequent to the issuance of such bonds. Investors should be aware
that exempt-interest dividends derived from such bonds may become subject to
federal income taxation retroactively to the date thereof if such
representations are determined to have been inaccurate or if the issuer of such
bonds (or the beneficiary of such bonds) fails to comply with such covenants.
B-42
<PAGE>
STATE TAXES
A Fund is not liable for any income or franchise tax in Massachusetts if it
qualifies as a RIC for federal income tax purposes. Distributions by the Funds
to Shareholders and the ownership of shares may be subject to state and local
taxes.
FOREIGN TAXES
Dividends and interests received by a Fund may be subject to income, withholding
or other taxes imposed by foreign countries and U.S. possessions that would
reduce the yield on the Fund's securities. Tax conventions between certain
countries and the United States may reduce or eliminate these taxes. Foreign
countries generally do not impose taxes on capital gains with respect to
investments by foreign investors.
If the International Equity Index and International Equity Funds meet the
Distribution Requirement and if more than 50% of the value of such Funds' total
assets at the close of its taxable year consists of securities of foreign
corporations, the Funds will be eligible to, and will, file an election with the
Internal Revenue Service that will enable Shareholders, in effect, to receive
the benefit of the foreign tax credit with respect to any foreign and U.S.
possessions income taxes paid by the Funds. Pursuant to the election, each Fund
will treat those taxes as dividends paid to its Shareholders. Each Shareholder
will be required to include a proportionate share of those taxes in gross income
as income received from a foreign source and must treat the amount so included
as if the Shareholder had paid the foreign tax directly. The Shareholder may
then either deduct the taxes deemed paid by him or her in computing his or her
taxable income or, alternatively, use the foregoing information in calculating
the foreign tax credit against the Shareholders' federal income tax. If the
International Equity Index and International Equity Funds make the election,
such Fund will report annually to its Shareholders the respective amounts per
share of the Fund's income from sources within, and taxes paid to, foreign
countries and U.S. possessions.
The International Equity Index and International Equity Funds' transactions in
foreign currencies and forward foreign currency contracts will be subject to
special provisions of the Code that, among other things, may affect the
character of gains and losses realized by Funds (I.E., may effect whether gains
or losses are ordinary or capital), accelerate recognition of income to the fund
and defer Fund losses. These rules could therefore affect the character, amount
and timing of distributions to Shareholders. These provisions also may require
the Funds to mark-to-market certain types of the positions in its portfolio
(I.E., treat them as if they were closed out) which may cause the Funds to
recognize income without receiving cash with which to make distributions in
amounts necessary to satisfy the 90% and 98% distribution requirements for
avoiding income and excise taxes. Each Fund will monitor its transactions, will
make the appropriate tax elections, and will make the appropriate entries in the
books and records when it acquires any foreign currency or forward foreign
currency contract in order to
B-43
<PAGE>
mitigate the effect of these rules and prevent disqualification of the Fund as a
regulated investment company and minimize the imposition of income and excise
taxes.
FUND TRANSACTIONS
The Trust has no obligation to deal with any dealer or group of dealers in the
execution of transactions in portfolio securities. Subject to policies
established by the Trustees, an Advisor is responsible for placing the orders
to execute transactions for a Fund. In placing orders, it is the policy of the
Trust to seek to obtain the best net results taking into account such factors as
price (including the applicable dealer spread), the size, type and difficulty of
the transaction involved, the firm's general execution and operational
facilities, and the firm's risk in positioning the securities involved. While
an Advisor generally seeks reasonably competitive spreads or commissions, the
Trust will not necessarily be paying the lowest spread or commission available.
The money market securities in which the Funds invest are traded primarily in
the over-the-counter market. Bonds and debentures are usually traded
over-the-counter, but may be traded on an exchange. Where possible, an Advisor
will deal directly with the dealers who make a market in the securities involved
except in those circumstances where better prices and execution are available
elsewhere. Such dealers usually are acting as principal for their own account.
On occasion, securities may be purchased directly from the issuer. Money market
securities are generally traded on a net basis and do not normally involve
either brokerage commissions or transfer taxes. The cost of executing portfolio
securities transactions of the Trust will primarily consist of dealer spreads
and underwriting commissions.
TRADING PRACTICES AND BROKERAGE
The Trust selects brokers or dealers to execute transactions for the purchase or
sale of portfolio securities on the basis of its judgment of their professional
capability to provide the service. The primary consideration is to have brokers
or dealers provide transactions at best price and execution for the Trust. Best
price and execution includes many factors, including the price paid or received
for a security, the commission charged, the promptness and reliability of
execution, the confidentiality and placement accorded the order and other
factors affecting the overall benefit obtained by the account on the
transaction. The Trust's determination of what are reasonably competitive rates
is based upon the professional knowledge of its trading department as to rates
paid and charged for similar transactions throughout the securities industry.
In some instances, the Trust pays a minimal share transaction cost when the
transaction presents no difficulty. Some trades are made on a net basis where
the Trust either buys securities directly from the dealer or sells them to the
dealer. In these instances, there is no direct commission charged but there is
a spread (the difference between the buy and sell price) which is the equivalent
of a commission.
B-44
<PAGE>
The Trust may allocate out of all commission business generated by all of the
funds and accounts under management by an Advisor, brokerage business to brokers
or dealers who provide brokerage and research services. These research services
include advice, either directly or through publications or writings, as to the
value of securities, the advisability of investing in, purchasing or selling
securities, and the availability of securities or purchasers or sellers of
securities; furnishing of analyses and reports concerning issuers, securities or
industries; providing information on economic factors and trends, assisting in
determining portfolio strategy, providing computer software used in security
analyses, and providing portfolio performance evaluation and technical market
analyses. Such services are used by an Advisor in connection with its
investment decision-making process with respect to one or more funds and
accounts managed by it, and may not be used exclusively with respect to the fund
or account generating the brokerage.
As provided in the Securities Exchange Act of 1934 (the "1934 Act") higher
commissions may be paid to broker-dealers who provide brokerage and research
services than to broker-dealers who do not provide such services if such higher
commissions are deemed reasonable in relation to the value of the brokerage and
research services provided. Although transactions are directed to broker-
dealers who provide such brokerage and research services, the Trust believes
that the commissions paid to such broker-dealers are not, in general, higher
than commissions that would be paid to broker-dealers not providing such
services and that such commissions are reasonable in relation to the value of
the brokerage and research services provided. In addition, portfolio
transactions which generate commissions or their equivalent are directed to
broker-dealers who provide daily portfolio pricing services to the Trust.
Subject to best price and execution, commissions used for pricing may or may not
be generated by the funds receiving the pricing service.
An Advisor may place a combined order for two or more accounts or funds engaged
in the purchase or sale of the same security if, in its judgment, joint
execution is in the best interest of each participant and will result in best
price and execution. Transactions involving commingled orders are allocated in
a manner deemed equitable to each account or fund. It is believed that the
ability of the accounts to participate in volume transactions will generally be
beneficial to the accounts and funds. Although it is recognized that, in some
cases, the joint execution of orders could adversely affect the price or volume
of the security that a particular account or Fund may obtain, it is the opinion
of each Advisor and the Trust's Board of Trustees that the advantages of
combined orders outweigh the possible disadvantages of separate transactions.
Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc., and subject to seeking best price and execution, the
Funds, at the request of the Distributor, give consideration to sales of shares
of the Trust as a factor in the selection of brokers and dealers to execute
Trust portfolio transactions.
B-45
<PAGE>
It is expected that the Trust may execute brokerage or other agency transactions
through the Distributor or an affiliate of an Advisor, both of which are
registered broker-dealers, for a commission in conformity with the 1940 Act, the
1934 Act and rules promulgated by the SEC. Under these provisions, the
Distributor or an affiliate of an Advisor is permitted to receive and retain
compensation for effecting portfolio transactions for the Trust on an exchange
if a written contract is in effect between the Distributor and the Trust
expressly permitting the Distributor or an affiliate of an Advisor to receive
and retain such compensation. These rules further require that commissions paid
to the Distributor by the Trust for exchange transactions not exceed "usual and
customary" brokerage commissions. The rules define "usual and customary"
commissions to include amounts which are "reasonable and fair compared to the
commission, fee or other renumeration received or to be received by other
brokers in connection with comparable transactions involving similar securities
being purchased or sold on a securities exchange during a comparable period of
time." In addition, the Trust may direct commission business to one or more
designated broker-dealers in connection with such broker/dealer's provision of
services to the Trust or payment of certain Trust expenses (e.g., custody,
pricing and professional fees). The Trustees, including those who are not
"interested persons" of the Trust, have adopted procedures for evaluating the
reasonableness of commissions paid to the Distributor, and will review these
procedures periodically.
For the fiscal year ended May 31, 1996, the Funds paid the following brokerage
commissions .50 with respect to portfolio transactions:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL $ AMOUNT TOTAL $
OF BROKERED TOTAL $ AMOUNT OF TOTAL $
TOTAL $ AMOUNT TRANSACTIONS AMOUNT OF BROKERAGE TOTAL $ AMOUNT OF
OF THROUGH BROKERAGE COMMISSIONS AMOUNT OF BROKERAGE
BROKERED AFFILIATES FOR COMMISSIONS PAID TO BROKERAGE COMMISSIONS
TRANSACTIONS FYE 5/3/96 PAID IN FYE AFFILIATES IN TRANSACTIONS PAID FOR
PORTFOLIO FOR FYE 5/3/96 5/3/96 FYE 5/31/96 FOR RESEARCH RESEARCH
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Prime Quality
Money Market $18,165,470,547 $8,173,145,355 $ 0 $108,992 $ 0 $ 0
Fund
U.S.
Government
Securities
Money Market
Fund $ 6,938,095,040 $5,584,646,677 $ 0 $173,038 $ 0 $ 0
Tax-Exempt
Money Market
Fund $ 1,394,861,574 $ 0 $ 0 $ 0 $ 0 $ 0
Investment
Grade Bond
Fund $ 3,917,308,841 $1,597,915,449 $ 0 $ 18,536 $ 0 $ 0
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
B-46
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL $ AMOUNT TOTAL $
OF BROKERED TOTAL $ AMOUNT OF TOTAL $
TOTAL $ AMOUNT TRANSACTIONS AMOUNT OF BROKERAGE TOTAL $ AMOUNT OF
OF THROUGH BROKERAGE COMMISSIONS AMOUNT OF BROKERAGE
BROKERED AFFILIATES FOR COMMISSIONS PAID TO BROKERAGE COMMISSIONS
TRANSACTIONS FYE 5/3/96 PAID IN FYE AFFILIATES IN TRANSACTIONS PAID FOR
PORTFOLIO FOR FYE 5/3/96 5/3/96 FYE 5/31/96 FOR RESEARCH RESEARCH
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment
Grade Tax-
Exempt Bond
Fund $2,432,012,487 $ 604,899,058 $ 0 $ 3,392 $ 0 $ 0
Capital Growth
Fund $1,392,191,063 $1,426,392,445 $3,399,393 $ 34,827 $ 0 $ 0
Value Income
Stock Fund $1,773,007,196 $1,662,823,629 $4,325,977 $ 37,379 $ 0 $ 0
Short-Term
Bond Fund $ 394,165,379 $ 0 $ 0 $ 0 $ 0 $ 0
Short-Term U.S.
Treasury
Securities Fund $ 47,038,183 $ 0 $ 0 $ 0 $ 0 $ 0
Sunbelt Equity
Fund $ 818,595,159 $ 436,071,109 $ 904,698 $ 5,202 $ 0 $ 0
Balanced Fund $ 379,763,192 $ 207,714,650 $ 169,222 $ 4,280 $ 0 $ 0
Mid-Cap Equity
Fund $ 434,829,138 $ 283,836,941 $ 528,220 $ 18,224 $ 0 $ 0
Florida Tax-
Exempt Bond
Fund $ 147,449,991 $ 38,144,634 $ 0 $ 200 $ 0 $ 0
Georgia Tax-
Exempt Bond
Fund $ 85,645,251 $ 9,916,819 $ 0 $ 135 $ 0 $ 0
Tennessee Tax-
Exempt Bond
Fund $ 17,455,638 $ 5,454,080 $ 0 $ 69 $ 0 $ 0
U.S.
Government
Securities Fund $ 51,183,076 $ 0 $ 0 $ 0 $ 0 $ 0
Limited-Term
Federal
Mortgage
Securities Fund $ 253,894,488 $ 97,256,140 $ 0 $ 73 $ 0 $ 0
International
Equity Fund
$ 456,530,733 $ 27,781,590 $1,532,834 $ 71 $ 0 $ 0
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
B-47
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL $ AMOUNT TOTAL $
OF BROKERED TOTAL $ AMOUNT OF TOTAL $
TOTAL $ AMOUNT TRANSACTIONS AMOUNT OF BROKERAGE TOTAL $ AMOUNT OF
OF THROUGH BROKERAGE COMMISSIONS AMOUNT OF BROKERAGE
BROKERED AFFILIATES FOR COMMISSIONS PAID TO BROKERAGE COMMISSIONS
TRANSACTIONS FYE 5/3/96 PAID IN FYE AFFILIATES IN TRANSACTIONS PAID FOR
PORTFOLIO FOR FYE 5/3/96 5/3/96 FYE 5/31/96 FOR RESEARCH RESEARCH
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
International
Equity Index
Fund $ 59,709,286 $ 0 $ 129,411 $ 0 $ 0 $ 0
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
For the fiscal years ended May 31, 1995 and 1994, the Funds paid the following
brokerage commissions with respect to portfolio transactions:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
TOTAL $ AMOUNT OF TOTAL $ AMOUNT OF
BROKERAGE BROKERED COMMISSIONS
COMMISSIONS PAID PAID TO AFFILIATES
------------------------------ ------------------------------
FUND 1995 1994 1995 1994
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Capital Growth Fund $2,641,999 $2,636,443 $ 46,411 $ 212,766
Sunbelt Equity Fund $ 654,499 $ 173,919 $ 4,802 $ 7,229
Value Income Stock Fund $3,542,773 $2,235,841 $ 17,510 $ 162,405
International Equity Index Fund $ 176,784 * $ 0 *
Mid-Cap Equity Fund $ 191,298 $ 58,527 $ 11,418 $ 5,267
International Equity Fund * * * *
Balanced Fund $ 140,109 $ 73,119 $ 4,063 $ 18,103
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
</TABLE>
For the fiscal years ended May 31, 1996 and 1995, the portfolio turnover rate
for each of the non-money market Funds was as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
TURNOVER RATE
------------------------
FUND 1996 1995
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Investment Grade Bond Fund 184% 238%
Investment Grade Tax-Exempt Bond Fund 514% 592%
Short-Term U.S. Treasury Securities Fund 94% 88%
- ------------------------------------------------------------------------------------------
</TABLE>
B-48
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
TURNOVER RATE
------------------------
FUND 1996 1995
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Short-Term Bond Fund 163% 201%
U.S. Government Securities Fund 83% 30%
Limited-Term Federal Mortgage Securities Fund 83% 68%
Florida Tax-Exempt Bond Fund 63% 105%
Georgia Tax-Exempt Bond Fund 60% 25%
Tennessee Tax-Exempt Bond Fund 41% 28%
Capital Growth Fund 156% 128%
Value Income Stock Fund 134% 126%
Mid-Cap Equity Fund 116% 66%
Balanced Fund 155% 157%
Sunbelt Equity Fund 106% 80%
International Equity Fund 113% *
International Equity Index Fund 30% 10%
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
</TABLE>
*Not in operation during the period.
DESCRIPTION OF SHARES
The Declaration of Trust authorizes the issuance of an unlimited number of
shares and classes of shares of the Funds each of which represents an equal
proportionate interest in that Fund with each other share. Shares are entitled
upon liquidation to a PRO RATA share in the net assets of the Funds.
Shareholders have no preemptive rights. The Declaration of Trust provides that
the Trustees of the Trust may create additional series of shares or classes of
series. All consideration received by the Trust for shares of any additional
series and all assets in which such consideration is invested would belong to
that series and would be subject to the liabilities related thereto. Share
certificates representing shares will not be issued.
SHAREHOLDER LIABILITY
The Trust is an entity of the type commonly known as a "Massachusetts business
trust." Under Massachusetts law, shareholders of such a trust could, under
certain circumstances, be held personally liable as partners for the obligations
of the trust. Even if, however, the Trust were held to be a partnership, the
possibility of the Shareholders' incurring financial loss for that reason
appears remote because the Trust's Declaration of Trust contains an express
B-49
<PAGE>
disclaimer of Shareholder liability for obligations of the Trust and requires
that notice of such disclaimer be given in each agreement, obligation or
instrument entered into or executed by or on behalf of the Trust or the
Trustees, and because the Declaration of Trust provides for indemnification out
of the Trust property for any Shareholder held personally liable for the
obligations of the Trust.
LIMITATION OF TRUSTEES' LIABILITY
The Declaration of Trust provides that a Trustee shall be liable only for his
own willful defaults and, if reasonable care has been exercised in the selection
of officers, agents, employees or investment advisors, shall not be liable for
any neglect or wrongdoing of any such person. The Declaration of Trust also
provides that the Trust will indemnify its Trustees and officers against
liabilities and expenses incurred in connection with actual or threatened
litigation in which they may be involved because of their offices with the
Trust unless it is determined in the manner provided in the Declaration of Trust
that they have not acted in good faith in the reasonable belief that their
actions were in the best interests of the Trust. However, nothing in the
Declaration of Trust shall protect or indemnify a Trustee against any liability
for his willful misfeasance, bad faith, gross negligence or reckless disregard
of his duties.
5% AND 25% SHAREHOLDERS
As of July 5, 1996, the following persons were the only persons who were record
owners (or to the knowledge of the Trust, beneficial owners) of 5% and 25% or
more of the shares of the Funds. Persons who owned of record or beneficially
more than 25% of a Fund's outstanding shares may be deemed to control the Fund
within the meaning of the Act. The Trust believes that most of the shares of
the Trust Class of the Funds were held for the record owner's fiduciary, agency
or custodial customers.
<TABLE>
<CAPTION>
TRUST SHARES
- ------------
FUND NAME AND ADDRESS NUMBER OF SHARES % OF FUND
---- ---------------- ---------------- ---------
<S> <C> <C> <C>
Prime Obligation Money Market Fund SunTrust Bank, Atlanta 1,017,340,735.9800 96.78%
P.O. Box 105504
Atlanta, GA 30348
US Government Securities Money SunTrust Bank, Atlanta 320,058,711.3200 98.23%
Market Fund P.O. Box 105504
Atlanta, GA 30348
Tax Exempt Money Market Fund SunTrust Bank, Atlanta 273,617,174.8600 100.00%
P.O. Box 105504
Atlanta, GA 30348
Investment Grade Bond Fund Trustman 48,083,117.4740 80.69%
Mail Code 3144
P.O. Box 105870
Atlanta, GA 30348-5870
</TABLE>
B-50
<PAGE>
<TABLE>
<CAPTION>
FUND NAME AND ADDRESS NUMBER OF SHARES % OF FUND
---- ---------------- ---------------- ---------
<S> <C> <C> <C>
Trustman 3,440,058.7660 5.77%
Mail Code 3144
P.O. Box 105870
Atlanta, GA 30348-5870
Trustman 8,067,193.7390 13.54%
Mail Code 3144
P.O. Box 105870
Atlanta, GA 30348-5870
Investment Grade Tax Exempt Trustman 2,854,065.5280 26.61%
Bond Fund Mail Code 3144
P.O. Box 105870
Atlanta, GA 30348-5870
Trustman 2,571,660.2110 23.98%
Mail Code 3144
P.O. Box 105870
Atlanta, GA 30348-5870
Trustman 5,300,111.4770 49.41%
Mail Code 3144
P.O. Box 105504
Atlanta, GA 30348
Capital Growth Fund Trustman 51,607,779.7980 78.44%
Mail Code 3144
P.O. Box 105870
Atlanta, GA 30348-5870
Trustman 11,363,691.9550 17.27%
Mail Code 3144
P.O. Box 105870
Atlanta, GA 30348-5870
Value Income Stock Fund Trustman 70,173,646.4320 74.21%
Mail Code 3144
P.O. Box 105870
Atlanta, GA 30348-5870
Trustman 18,135,163.4630 19.18%
Mail Code 3144
P.O. Box 105870
Atlanta, GA 30348-5870
Short-Term U.S. Treasury Trustman 429,216.7160 43.59%
Securities Fund Mail Code 3144
P.O. Box 105870
Atlanta, GA 30348-5870
Trustman 257,751.4080 26.18%
Mail Code 3144
P.O. Box 105870
Atlanta, GA 30348-5870
Trustman 297,590.5360 30.23%
Mail Code 3144
P.O. Box 105870
Atlanta, GA 30348-5870
Short-Term Bond Fund Trustman 5,836,666.2750 63.15%
Mail Code 3144
P.O. Box 105870
Atlanta, GA 30348-5870
</TABLE>
B-51
<PAGE>
<TABLE>
<CAPTION>
FUND NAME AND ADDRESS NUMBER OF SHARES % OF FUND
---- ---------------- ---------------- ---------
<S> <C> <C> <C>
Trustman 1,004,117.0210 10.86%
Mail Code 3144
P.O. Box 105870
Atlanta, GA 30348-5870
Trustman 2,401,162.8160 25.98%
Mail Code 3144
P.O. Box 105870
Atlanta, GA 30348-5870
Sunbelt Equity Fund Trustman 20,649,993.7390 70.69%
Mail Code 3144
P.O. Box 105870
Atlanta, GA 30348-5870
Trustman 1,582,327.4770 5.42%
Mail Code 3144
P.O. Box 105870
Atlanta, GA 30348-5870
Trustman 6,977,764.6800 23.89%
Mail Code 3144
P.O. Box 105870
Atlanta, GA 30348-5870
Mid-Cap Equity Fund Trustman 12,293,386.9360 61.85%
Mail Code 3144
P.O. Box 105870
Atlanta, GA 30348-5870
Trustman 6,088,060.0450 30.63%
Mail Code 3144
P.O. Box 105870
Atlanta, GA 30348-5870
Trustman 1,495,048.9880 7.52%
Mail Code 3144
P.O. Box 105870
Atlanta, GA 30348-5870
Balanced Fund Trustman 9,475,264.5430 98.03%
Mail Code 3144
P.O. Box 105870
Atlanta, GA 30348-5870
Florida Tax-Exempt Bond Fund Trustman 403,555.6470 13.50%
Mail Code 3144
P.O. Box 105870
Atlanta, GA 30348-5870
Trustman 790,165.4270 26.43%
Mail Code 3144
P.O. Box 105870
Atlanta, GA 30348-5870
Trustman 1,796,356.2170 60.08%
Mail Code 3144
P.O. Box 105870
Atlanta, GA 30348-5870
Georgia Tax-Exempt Bond Fund Trustman 1,187,392.0830 49.37%
Mail Code 3144
P.O. Box 105870
Atlanta, GA 30348-5870
</TABLE>
B-52
<PAGE>
<TABLE>
<CAPTION>
FUND NAME AND ADDRESS NUMBER OF SHARES % OF FUND
---- ---------------- ---------------- ---------
<S> <C> <C> <C>
Trustman 653,344.7550 27.17%
Mail Code 3144
P.O. Box 105870
Atlanta, GA 30348-5870
Trustman 564,318.9730 23.46%
Mail Code 3144
P.O. Box 105870
Atlanta, GA 30348-5870
Tennessee Tax-Exempt Bond Fund Trustman 90,545.0710 46.63%
Mail Code 3144
P.O. Box 105870
Atlanta, GA 30348-5870
Trustman 21,867.1410 11.26%
Mail Code 3144
P.O. Box 105870
Atlanta, GA 30348-5870
Trustman 81,749.3740 42.10%
Mail Stop 3144
P.O. Box 105870
Atlanta, GA 30348-5870
International Equity Index Fund Trustman 5,851,225.2770 70.46%
Mail Stop 3144
P.O. Box 105870
Atlanta, GA 30348-5870
Trustman 578,664.7100 6.97%
Mail Stop 3144
P.O. Box 105870
Atlanta, GA 30348-5870
Trustman 1,874,150.7710 22.57%
Mail Code 3144
P.O. Box 105870
Atlanta, GA 30348-5870
International Equity Fund Trustman 12,470,861.1530 66.75%
Mail Code 3144
P.O. Box 105870
Atlanta, GA 30348-5870
Trustman 5,570,530.5350 29.82%
Mail Code 3144
P.O. Box 105870
Atlanta, GA 30348-5870
U.S. Government Securities Fund Trustman 396,590.0730 38.16%
Mail Code 3144
P.O. Box 105870
Atlanta, GA 30348-5870
Trustman 445,930.0890 42.91%
Mail Code 3144
P.O. Box 105870
Atlanta, GA 30348-5870
Trustman 196,765.0530 18.93%
Mail Code 3144
P.O. Box 105870
Atlanta, GA 30348-5870
</TABLE>
B-53
<PAGE>
<TABLE>
<CAPTION>
FUND NAME AND ADDRESS NUMBER OF SHARES % OF FUND
---- ---------------- ---------------- ---------
<S> <C> <C> <C>
Limited Term Federal Mortgage Trustman 5,100,466.6770 69.67%
Securities Fund Mail Code 3144
P.O. Box 105870
Atlanta, GA 30348-5870
Trustman 471,486.3110 6.44%
Mail Code 3144
P.O. Box 105870
Atlanta, GA 30348-5870
Trustman 1,749,245.0220 23.89%
Mail Code 3144
P.O. Box 105870
Atlanta, GA 30348-5870
INVESTOR SHARES
- ---------------
FUND NAME AND ADDRESS NUMBER OF SHARES % OF FUND
---- ---------------- ---------------- ---------
<S> <C> <C> <C>
Prime Quality Money Market Fund BHC Securities Inc 136,822,323.1200 62.23%
Attn: Cash Sweeps Dept.
2005 Market Street
One Commerce Square
11th Floor
Philadelphia, PA 19103-7042
U.S. Government Securities BHC Securities Inc 16,793,888.1900 28.56%
Money Market Fund Attn: Cash Sweeps Dept.
2005 Market Street
One Commerce Square
11th Floor
Philadelphia, PA 19103-7042
Tax Exempt Money Market Fund BHC Securities Inc 48,161,150.5900 50.25%
Attn: Cash Sweeps Dept.
2005 Market Street
One Commerce Square
11th Floor
Philadelphia, PA 19103-7042
Rock-Tenn Company 8,002,157.2300 8.39%
P.O. Box 4098
Chattanooga, TN 30091-4098
Investment Grade Bond Fund BHC Securities Inc. 660,890.3710 18.32%
Trade House Account
Attn: Mutual Funds
One Commerce Square
2005 Market Street
Philadelphia, PA 19103-7042
Investment Grade Tax-Exempt BHC Securities Inc. 466,047.6580 13.81%
Bond Fund Trade House Account
Attn: Mutual Funds
One Commerce Square
2005 Market Street
Philadelphia, PA 19103-7042
</TABLE>
B-54
<PAGE>
<TABLE>
<CAPTION>
FUND NAME AND ADDRESS NUMBER OF SHARES % OF FUND
---- ---------------- ---------------- ---------
<S> <C> <C> <C>
Capital Growth Fund BHC Securities Inc. 1,703,780.4660 13.28%
Trade House Account
Attn: Mutual Funds
One Commerce Square
2005 Market Street
Philadelphia, PA 19103-7042
Value Income Stock Fund BHC Securities Inc. 2,258,542.8990 22.71%
Trade House Account
Attn: Mutual Funds
One Commerce Square
2005 Market Street
Philadelphia, PA 19103-7042
Short-Term U.S. Treasury Securities BHC Securities Inc. 71,826.3790 16.78%
Attn: Mutual Funds
One Commerce Square
2005 Market Street
Philadelphia, PA 19103-7042
Clarence A. Rittenhouse 57,816.3280 13.51%
Margaret S. Rittenhouse JT WROS
700 Golden Beach Blvd #126
Venice, FL 34285-3311
International Investment 44,811.0180 10.47%
Conference Inc
9100 South Dadeland Blvd.
Suite 702
Miami, FL 33156-7815
Georgia Academy for Children 39,274.4700 9.18%
and Youth Prof
260 Peachtree Street
Suite 800
Atlanta, GA 30303-1237
Cal Sadler & Ronda Sadler JTTEN 27,155.9580 6.35%
P.O. Box 770482
Winter Garden, FL 34777-0482
Short-Term Bond Fund SunTrust Bank, Atlanta. Cust for 40,000.0000 14.59%
Rollover IRA of Dewey L. Haggard
549 Hollydale Court NW
Atlanta, GA 30342-3633
Atlanta Convention & Visitors 25,237.4270 9.21%
Bureau
233 Peachtree Street NE
Suite 2000
Atlanta, GA 30303-1508
Betty H. Anderson 13,901.6960 5.07%
207 Suburban Drive
Brunswick, GA 31520-2920
BHC Securities Inc. 53,504.9300 19.52%
Attn: Mutual Funds
One Commerce Square
2005 Market Street
Philadelphia, PA 19103-7042
</TABLE>
B-55
<PAGE>
<TABLE>
<CAPTION>
FUND NAME AND ADDRESS NUMBER OF SHARES % OF FUND
---- ---------------- ---------------- ---------
<S> <C> <C> <C>
Rex Packaging Inc 14,230.5460 5.19%
Attn: Tom Wilson
P.O. Box 18247
Jacksonville, FL 32229-0247
Sunbelt Equity Fund BHC Securities Inc. 507,393.6580 24.41%
Trade House Account
Attn: Mutual Funds
One Commerce Square
2005 Market Street
Philadelphia, PA 19103-7042
Mid-Cap Equity Fund Anthony R. Gray 76,591.8150 5.44%
460 Virginia Drive
Winter Park, FL 32789-5805
BHC Securities Inc. 485,406.6920 34.46%
Trade House Account
Attn: Mutual Funds
One Commerce Square
2005 Market Street
Philadelphia, PA 19103-7042
BHC Securities Inc. 86,221.8130 20.42%
Trade House Account
Attn: Mutual Funds
One Commerce Square
2005 Market Street
Philadelphia, PA 19103-7042
Florida Tax-Exempt Bond Fund Philip O. Deputy 25,597.6670 6.39%
Antoinette M. Grasselli JTWROS
12534 S Lake Mary Jane Road
Orlando, FL 32832-6405
Mildred Meinhart Rast 23,898.860 5.96%
1303 South 8th Street
Leesburg, FL 34748-6822
BHC Securities Inc. 101,675.0800 25.37%
Trad House Account
Attn: Mutual Funds
One Commerce Square
2005 Market Street
Philadelphia, PA 19103-7042
Georgia Tax-Exempt Bond Fund Patrick J. Doran & 27,962.0110 7.81%
Norma R. Doran JTTEN
2024 Fisher Trail NE
Atlanta, GA 30345-3429
BHC Securities Inc. 128,066.4710 35.77%
Attn: Mutual Funds
One Commerce Square
2005 Market Street
Philadelphia, PA 19103-7042
Tennessee Tax-Exempt Bond Fund Grace M. Bryan 18,894.1970 11.65%
P.O. Box 176
St. Joseph, TN 38481-0176
Ralph Laine 13,213.5310 8.15%
2823 Lumar Lane
Nashville, TN 37214-1834
</TABLE>
B-56
<PAGE>
<TABLE>
<CAPTION>
FUND NAME AND ADDRESS NUMBER OF SHARES % OF FUND
---- ---------------- ---------------- ---------
<S> <C> <C> <C>
Claude M. Pitman & 10,742.8000 6.62%
Mildred Pitman JTTEN
2730 New Lake Road
Spring City, TN 37381-5478
BHC Securities, Inc. 69,526.8140 42.87%
Attn: Mutual Funds
One Commerce Square
2005 Market Street
Philadelphia, PA 19103-7042
International Equity Index Fund BHC Securities Inc. 207,023.5460 40.22%
Trade House Account
Attn: Mutual Funds
One Commerce Square
2005 Market Street
Philadelphia, PA 19103-7042
International Equity Fund Anthony R. Gray 28,449.8200 9.39%
460 Virginia Drive
Winter Park, FL 32789-5805
BHC Securities Inc. 159,855.1590 52.78%
Trade House Account
Attn: Mutual Funds
One Commerce Square
2005 Market Street
Philadelphia, PA 19103-7042
U.S. Government Securities Fund BHC Securities, Inc. 191,709.4610 78.92%
Attn: Mutual Funds
One Commerce Square
2005 Market Street
Philadelphia, PA 19103-7042
Limited Term Federal Mortgage BHC Securities Inc. 178,232.5950 70.48%
Securities Fund Trade House Account
Attn: Mutual Funds
One Commerce Square
2005 Market Street
Philadelphia, PA 19103-7042
FLEX SHARES
FUND NAME AND ADDRESS NUMBER OF SHARES % OF SHARES
---- ---------------- ---------------- -----------
<S> <C> <C> <C>
Investment Grade Bond Fund Jesse Palmer TTEE 24,963.9380 5.43%
The First National Bank
P.O. Box 647
Waynesboro, GA 30830
Investment Grade Tax-Exempt Donald D. Lorberbaum 33,237.3700 6.65%
Bond Fund 165 E. 72nd Street
Apt. 10G
New York, NY 10021
Short-Term U.S. Treasury Gene Lotti 20,101.7610 8.12%
Securities Fund Stella Lotti Jt WROS
2648 Van Buren Street
Hollywood, FL 33020-4818
</TABLE>
B-57
<PAGE>
<TABLE>
<CAPTION>
FUND NAME AND ADDRESS NUMBER OF SHARES % OF SHARES
---- ---------------- ---------------- -----------
<S> <C> <C> <C>
Stuart's Sales & Service Inc. 33,367.3190 13.48%
401-K Profit Sharing Plan
3810 Hollywood Boulevard
Hollywood, FL 33021-6730
BHC Securities Inc. 20,952.1260 8.47%
FAO 21618707
Attn: Mutual Funds
One Commerce Square
2005 Market Street
Philadelphia, PA 19103-7042
BHC Securities Inc. 20,566.2080 8.31%
FAO 21523219
Attn: Mutual Funds
One Commerce Square
2005 Market Street
Philadelphia, PA 19103-7042
BHC Securities Inc. 19,478.3390 7.87%
FAO 21627702
Attn: Mutual Funds
One Commerce Square
2005 Market Street
Philadelphia, PA 19103-7042
Short-Term Bond Fund Dorothy S. McAlpin, Trustee U/A of 5,026.5160 5.12%
William J. McAlpin
Dtd 09-16-89
382 Pineland Road NW
Atlanta, GA 30342-4021
Rex Miller TTEE 33,590.0600 34.21%
Nale Inc. 401(K) Profit Sharing Plan
P.O. Box 2410
Kennesaw, GA 30144-9106
BHC Securities Inc. 6,914.7090 7.04%
FAO 21305136
Attn: Mutual Funds
One Commerce Square
2005 Market Street
Philadelphia, PA 19103-7042
BHC Securities Inc. 6,364.0270 6.48%
FAO 21707586
Attn: Mutual Funds
One Commerce Square
2005 Market Street
Philadelphia, PA 19103-7042
BHC Securities Inc. 5,255.5410 5.35%
FAO 21421126
Attn: Mutual Funds
One Commerce Square
2005 Market Street
Philadelphia, PA 19103-7042
Sunbelt Equity Fund Rex Miller TTEE 19,124.8750 9.93%
Nale Inc. 401(K) Profit Sharing Plan
P.O. Box 2410
Kennesaw, GA 30144-9106
</TABLE>
B-58
<PAGE>
<TABLE>
<CAPTION>
FUND NAME AND ADDRESS NUMBER OF SHARES % OF SHARES
---- ---------------- ---------------- -----------
<S> <C> <C> <C>
Balanced Fund BHC Securities Inc. 14,406.4070 5.31%
FAO 21616586
Attn: Mutual Funds
One Commerce Square
2005 Market Square
Philadelphia, PA 19103-7042
Braxton Greer TTEE 15,150.7640 5.59%
Banner Ford Inc. Cash or Deferred
Retirement Plan
1665 Scott Boulevard
Decatur, GA 30033
Rex Miller TTEE 19,539.3200 7.21%
Nale Inc. 401(K) Profit Sharing Plan
P.O. Box 2410
Kennesaw, GA 30144
Florida Tax-Exempt Bond Fund H. Lorene Kleinlein TTE 28,183.2200 10.53%
H. Lorene Kleinlein Trust
9519 Sun Point Drive
Boynton Beach, FL 33437-3343
Anthony Mason 20,515.8220 7.66%
1525 Lands End Road
Manalapan, FL 33462-4740
BHC Securities Inc. 15,795.8090 5.90%
FAO 21815996
Attn: Mutual Funds
One Commerce Square
2005 Market Street
Philadelphia, PA 19103-7042
Georgia Tax-Exempt Bond Fund Yasmin N. Dharamsi 33,552.6820 7.60%
1255 Vineyard Drive
Conyers, GA 30208-2467
Tennessee Tax-Exempt Bond Fund SunTrust Bank Nashville NA 17,638.4770 8.21%
Collateral Account
FO Leslie Cappama
3606 Hamilton Church
Antioch, TN 37013-1417
Allen Zang 10,981.5600 5.11%
Nancy Zang JT WROS
108 Savoy Circle
Nashville, TN 37205-5013
BHC Securities Inc. 21,381.3170 9.95%
FAO 21610240
Attn: Mutual Funds
One Commerce Square
2005 Market Street
Philadelphia, PA 19103-7042
BHC Securities Inc. 41,152.2630 19.15%
FAO 21627721
Attn: Mutual Funds
One Commerce Square
2005 Market Street
Philadelphia, PA 19103-7042
</TABLE>
B-59
<PAGE>
<TABLE>
<CAPTION>
FUND NAME AND ADDRESS NUMBER OF SHARES % OF SHARES
---- ---------------- ---------------- -----------
<S> <C> <C> <C>
International Equity Index Fund Braxton Greer TTEE 6,159.4530 7.36%
Banner Ford Inc. Cash or
Deferred Retirement Plan
1665 Scott Boulevard
Decatur, GA 30033-5604
BHC Securities Inc. 4,248.7980 5.08%
FAO 21810258
Attn: Mutual Funds
One Commerce Square
2005 Market Street
Philadelphia, PA 19103-7042
International Equity Fund BHC Securities Inc. 9,425.0710 11.24%
FAO 21525567
Attn: Mutual Funds
One Commerce Square
2005 Market Street
Philadelphia, PA 19103-7042
U.S. Government Securities Fund Jesse Palmer TTEE 25,220.9870 8.81%
The First National Bank
P.O. Box 647
Waynesboro, GA 30830-0647
Ralph L. Struever 14,519.5660 5.07%
5350 Woodland Lakes Drive
Palm Beach Gardens, FL 33418
BHC Securities Inc. 19,933.7090 6.98%
FAO 21531479
Attn: Mutual Funds
One Commerce Square
2005 Market Street
Philadelphia, PA 19103-7042
Limited-Term Federal Mortgage Viola T. High 10,319.2840 7.61%
Security Fund Richard T. High TEN ENT
254 British Woods Drive
Nashville, TN 37217-3339
BHC Securities Inc. 9,961.4900 7.35%
FAO 21838525
Attn: Mutual Funds
One Commerce Square
2005 Market Street
Philadelphia, PA 19103-7042
</TABLE>
EXPERTS
The financial statements as of May 31, 1996 have been audited by Arthur Andersen
LLP, Independent Public Accountants, as indicated in their report dated July 12,
1996 with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said report.
B-60
<PAGE>
ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Trustees of
STI Classic Funds:
We have audited the accompanying statements of net assets of the Value Income
Stock, Mid-Cap Equity, Capital Growth, Balanced, International Equity Index,
Sunbelt Equity, Tennessee Tax-Exempt Bond, Georgia Tax-Exempt Bond, Investment
Grade Bond, Short-Term Bond, Short-Term U.S. Treasury Securities, Limited-Term
Federal Mortgage Securities, U.S. Government Securities, Prime Quality Money
Market, U.S. Government Securities Money Market and Tax-Exempt Money Market
funds and the statement of assets and liabilities, including the schedule of
investments, of the international Equity, Investment Grade Tax-Exempt Bond and
Florida Tax-Exempt Bond funds of STI Classic Funds (the "Trust") as of May 31,
1996, and the related statements of operations, changes in net assets, and
financial highlights for the periods presented. These financial statements and
financial highlights are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of May
31, 1996, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Value Income Stock, Mid-Cap Equity, Capital Growth, Balanced, International
Equity Index, International Equity Sunbelt Equity, Investment Grade Tax-exempt
Bond, Florida Tax-Exempt Bond, Tennessee Tax-Exempt bond, Georgia Tax-Exempt
Bond, Investment Grade bond, short-Term Bond, Short-Term U.S. Treasury
Securities, Limited-Term Federal Mortgage Securities, U.S. Government
Securities, Prime Quality Money Market, U.S. Government Securities Money Market
and Tax-Exempt Money Market funds of STI Classic funds as of May 31, 1996, the
results of their operations, changes in their net assets, and financial
highlights for the periods presented, in conformity with generally accepted
accounting principles.
/s/ Arthur Andersen, LLP
Philadelphia, Pa.
July 12, 1996
<PAGE>
STATEMENT OF NET ASSETS
============================================================
STI CLASSIC FUNDS MAY 31, 1996
VALUE INCOME STOCK FUND
- ------------------------------------------------------------
MARKET
SHARES VALUE (000)
- ------------------------------------------------------------
COMMON STOCKS (92.1%)
BANKS (7.5%)
AmSouth Bancorp 169,300 $ 6,433
Bank of Boston 162,500 8,105
Bankers Trust New York 283,000 21,260
Central Fidelity Banks 257,400 8,816
Crestar Financial 111,200 6,269
First American Bank 139,200 6,368
First American of Tennessee 160,900 7,059
First Virginia Banks 158,300 6,332
Fleet Financial Group 324,000 14,297
Great Western Financial 307,100 7,063
Magna Group 291,500 6,996
Summit Bancorp 170,554 6,204
----------
Total Banks 105,202
----------
CHEMICALS (6.6%)
Akzo 155,400 9,421
Ethyl 1,789,300 18,564
Imperial Chemical Industries 397,200 21,101
Lawter International 520,600 5,987
Nalco Chemical 618,500 19,637
Rohm & Haas 195,100 13,218
Witco Chemical 164,800 5,253
----------
Total Chemicals 93,181
----------
CONCRETE & MINERAL PRODUCTS (1.5%)
Tele Danmark A/S ADR 852,100 21,196
----------
ELECTRICAL SERVICES (3.7%)
Central & South West 502,000 13,868
Cinergy 563,008 16,679
General Public Utilities 203,700 6,824
Pacificorp 701,800 14,124
----------
Total Electrical Services 51,495
----------
FOOD, BEVERAGE, TOBACCO &
HOUSEHOLD PRODUCTS (15.5%)
B.A.T. Industries ADR 1,848,000 30,261
ConAgra 527,200 22,472
Dean Foods 460,200 11,217
Dial 251,100 7,219
Grand Metropolitan ADR 1,023,500 27,507
H.J. Heinz 376,200 12,509
Lance 265,800 4,419
Masco 879,200 27,475
Maytag 604,200 12,990
McCormick 934,000 21,249
Snap-On Tools 279,800 13,465
Unilever 181,100 13,673
Unilever ADR 98,300 13,258
----------
Total Food, Beverage, Tobacco
& Household 217,714
----------
ENERGY (7.5%)
Atlantic Richfield 110,500 13,219
Elf Aquitaine ADR 377,200 13,815
Occidental Petroleum 476,300 12,324
Pennzoil 336,000 14,532
Phillips Petroleum 314,800 13,064
Questar 380,700 12,468
Repsol 409,600 13,926
USX-Marathon Group 564,500 12,348
----------
Total Energy 105,696
----------
HEALTH CARE (6.4%)
Bausch & Lomb 473,700 20,369
Bristol-Myers Squibb 334,400 28,549
Pharmacia Upjohn ADR 545,700 22,306
Warner Lambert 341,400 19,118
----------
Total Health Care 90,342
----------
INSURANCE (7.1%)
American Financial Group 465,200 13,956
American General 448,000 15,904
ITT Hartford Group 551,400 28,535
Lincoln National 448,400 21,075
Marsh & McLennan 217,600 20,373
----------
Total Insurance 99,843
----------
F-1
<PAGE>
- ------------------------------------------------------------
MARKET
SHARES VALUE (000)
- ------------------------------------------------------------
MACHINERY (5.6%)
Cooper Industries 544,700 $ 23,218
General Signal 715,400 27,364
Goulds Pumps 310,800 7,382
Tenneco 385,600 20,726
----------
Total Machinery 78,690
----------
MEDIA (4.2%)
American Greetings, Cl A 724,800 19,660
Houghton Mifflin 293,500 13,905
McGraw-Hill 415,600 19,481
Reader's Digest, Cl A 152,600 6,466
----------
Total Media 59,512
----------
METALS & MINING (2.9%)
Allegheny Ludlum 671,900 13,438
Reynolds Metals 380,200 20,531
USX-U.S. Steel Group 183,100 5,676
----------
Total Metals & Mining 39,645
----------
MISCELLANEOUS BUSINESS
SERVICES (3.9%)
Deluxe 377,500 13,684
Kelly Services, Cl A 398,800 11,864
Ogden 786,900 15,246
Xerox 91,600 14,416
----------
Total Miscellaneous Business
Services 55,210
----------
PAPER & PAPER PRODUCTS (3.8%)
International Paper 342,100 13,641
James River 815,900 20,296
Tambrands 410,300 18,925
----------
Total Paper & Paper Products 52,862
----------
RETAIL (2.7%)
Giant Food 228,900 7,897
J.C. Penney 273,000 14,162
May Department Stores 331,600 15,710
----------
Total Retail 37,769
----------
- ------------------------------------------------------------
SHARES/FACE MARKET
AMOUNT (000) VALUE (000)
- ------------------------------------------------------------
TECHNOLOGY (6.2%)
AMP 417,600 $ 17,591
GTE 452,300 19,336
ITT Industries 1,041,100 28,500
Philips Electronics ADR 602,500 21,163
----------
Total Technology 86,590
----------
TELEPHONES &
TELECOMMUNICATION (5.6%)
Alltel 618,800 19,492
Frontier 702,800 22,490
Southern New England
Telecommunications 467,300 20,152
Sprint 336,700 14,268
----------
Total Telephones &
Telecommunication 76,402
----------
TRANSPORTATION (1.4%)
Ryder System 686,800 20,089
----------
Total Common Stocks
(Cost $1,170,974,717) 1,291,438
----------
REPURCHASE AGREEMENTS (8.3%)
Deutsche Bank 5.33%, dated
05/31/96, matures 06/03/96,
repurchase price $57,449,239
(collateralized by various FHLB
discount notes, total par value
$15,275,000, 07/01/96-07/29/96;
various FHLMC obligations,
total par value $20,759,349,
5.494%-996.969%, 11/15/05-
11/15/23; and various FNMA
obligations, total par value
$43,981,328, 0.00%-8.40%,
02/25/08-03/25/24: total
market value $58,576,767) 57,424 57,424
F-2
<PAGE>
STATEMENT OF NET ASSETS
============================================================
STI CLASSIC FUNDS MAY 31, 1996
VALUE INCOME STOCK FUND--CONCLUDED
- ------------------------------------------------------------
FACE AMOUNT MARKET
(000) VALUE (000)
- ------------------------------------------------------------
REPURCHASE AGREEMENTS--CONTINUED
Salomon Brothers 5.33%, dated
05/31/96, matures 06/03/96,
repurchase price $38,606,723
(collateralized by various
FHLMC obligations, total par
value $15,729,565, 6.00%-9.50%,
07/01/99-03/01/26; and various
FNMA obligations, total par
value $57,245,349, 6.00%-9.50%,
10/01/01-05/01/26: total
market value $39,635,606) $ 38,590 $ 38,590
Swiss Bank 5.33%, dated
05/31/96, matures 06/03/96,
repurchase price $19,932,895
(collateralized by various
FHLMC obligations, total par
value $7,263,678, 7.50%,
11/01/25-12/01/25; and
various U.S. Treasury
obligations, total par value
$11,207,000, 7.25%-13.25%,
02/15/05-05/15/20: total
market value $20,367,151) 19,924 19,924
----------
Total Repurchase Agreements
(Cost $115,937,362) 115,938
----------
Total Investments (100.4%)
(Cost $1,286,912,079) 1,407,376
----------
OTHER ASSETS AND LIABILITIES (-0.4%)
Total Other Assets and Liabilities, Net (6,082)
----------
NET ASSETS:
Fund shares of the Trust Class (unlimited
authorization --no par value) based
on 94,636,309 outstanding shares of
benefical interest 1,004,096
Fund shares of the Investor Class (unlimited
authorization--no par value) based
on 9,944,754 outstanding shares of
beneficial interest 106,927
Fund shares of the Flex Class (unlimited
authorization--no par value) based
on 2,009,853 outstanding shares of
beneficial interest 24,778
Undistributed net investment income 5,610
Accumulated net realized gain on
investments 139,419
Unrealized appreciation on investments 120,464
----------
Total Net Assets (100.0%) $1,401,294
==========
Net Asset Value, Offering Price and
Redemption Price Per Share--
Trust Shares $ 13.15
==========
Net Asset Value, and Redemption Price
Per Share--Investor Shares $ 13.13
==========
Maximum Public Offering Price Per
Share--Investor Shares
($13.13 (DIVIDED BY) 96.25%) $ 13.64
==========
Net Asset Value, Offering Price and
Redemption Price Per Share--
Flex Shares (1) $ 13.08
==========
(1)The Flex Shares have a contingent sales charge. For a description of a
possible sales charge, see notes to the financial statements.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
FOR DESCRIPTIONS OF ABBREVIATIONS, PLEASE SEE PAGE 101.
F-3
<PAGE>
MID-CAP EQUITY FUND (FORMERLY THE AGGRESSIVE GROWTH FUND)
- ------------------------------------------------------------
MARKET
SHARES VALUE (000)
- ------------------------------------------------------------
COMMON STOCKS (85.3%)
AEROSPACE & DEFENSE (2.2%)
General Dynamics 31,100 $ 1,917
Litton Industries* 52,000 2,412
Sundstrand 49,600 1,748
----------
Total Aerospace & Defense 6,077
----------
AUTOMOTIVE (1.6%)
Dana 37,800 1,266
Federal Signal 23,500 590
Magna International, Cl A 29,800 1,438
Sonoco Products 39,500 1,081
----------
Total Automotive 4,375
----------
BANKS (7.8%)
Bancorp Hawaii 29,500 1,073
Bank of Boston 34,100 1,701
Cal Fed Bancorp* 82,400 1,514
Crestar Financial 20,200 1,139
First Security 59,550 1,414
Merchantile Bancorp 28,400 1,335
Northern Trust 40,000 2,190
PNC Bank 37,965 1,153
Regions Financial 21,700 1,025
Republic New York 61,900 3,915
Signet Banking 39,700 1,027
SouthTrust 59,200 1,621
Summit Bancorp 67,900 2,470
----------
Total Banks 21,577
----------
BUILDING (1.5%)
Clayton Homes 58,200 1,120
Foster Wheeler 66,200 2,946
----------
Total Building 4,066
----------
CHEMICALS (1.9%)
Georgia Gulf 28,000 959
IMC Fertilizer Group 39,600 1,450
Olin 13,800 1,277
Witco Chemical 49,500 1,578
----------
Total Chemicals 5,264
----------
ELECTRICAL SERVICES (2.7%)
Aes* 42,700 1,185
Illinova 124,900 3,279
Nipsco Industries 42,700 1,590
Wisconsin Energy 48,500 1,358
----------
Total Electrical Services 7,412
----------
ENERGY (4.1%)
Anadarko Petroleum 40,400 2,171
Apache 44,900 1,285
Kerr-McGee 36,200 2,127
Mapco 17,000 982
Lyondell Petrochemical 26,600 688
Valero Energy 47,100 1,295
Noble Affiliates 50,800 1,721
Questar 34,900 1,143
----------
Total Energy 11,412
----------
ENVIRONMENTAL SERVICES (0.8%)
Laidlaw, Cl B 47,000 476
Molten Metal Technology* 57,300 1,748
----------
Total Environmental Services 2,224
----------
FINANCIAL SERVICES (2.6%)
Bear Stearns 59,975 1,447
Charles Schwab 75,100 1,821
Franklin Resources 49,100 2,878
Green Tree Financial 33,000 1,081
----------
Total Financial Services 7,227
----------
FOOD, BEVERAGE,TOBACCO &
HOUSEHOLD PRODUCTS (5.0%)
Dial 67,900 1,952
First Brands 81,300 2,012
Hubbell, Cl B 30,520 2,132
IBP 57,500 1,574
McCormick 65,700 1,495
Nine West Group* 26,300 1,279
Solectron* 43,800 1,900
Tyson Foods 64,800 1,587
----------
Total Food, Beverage,Tobacco
& Household 13,931
----------
F-4
<PAGE>
STATEMENT OF NET ASSETS
============================================================
STI CLASSIC FUNDS MAY 31, 1996
MID-CAP EQUITY FUND (FORMERLY THE AGGRESSIVE GROWTH FUND) -- CONTINUED
- ------------------------------------------------------------
MARKET
SHARES VALUE (000)
- ------------------------------------------------------------
HEALTH CARE (9.2%)
Apria Healthcare Group* 26,800 $ 784
Biogen* 42,600 2,577
Cardinal Health 28,100 1,795
Chiron* 17,700 1,859
Elan ADR* 26,100 1,638
Healthcare & Retirement* 26,900 972
HEALTHSOUTH Rehabilitation* 82,400 2,884
Ivax 64,100 1,763
Mylan Laboratories 55,700 1,058
Nellcor* 23,300 1,270
R.P. Scherer* 22,500 945
Stryker 37,000 1,915
Sunglass Hut International * 45,800 1,259
Tenet Healthcare* 57,300 1,232
Teva Pharmaceuticals ADR 41,900 1,875
Varian Associates 31,200 1,778
----------
Total Health Care 25,604
----------
INSURANCE (5.5%)
AFLAC 55,800 1,681
Aon 48,900 2,463
Equifax 62,500 1,547
Healthcare Compare* 33,700 1,630
Pacificare Health Systems, Cl B* 27,300 2,259
Progressive of Ohio 43,900 2,030
Sunamerica 44,600 2,498
Transatlantic Holdings 17,900 1,150
----------
Total Insurance 15,258
----------
LEISURE (2.8%)
Circus Circus Enterprises* 59,600 2,481
HFS* 36,200 2,258
Mirage Resorts* 37,100 2,110
Wendy's International 48,000 864
----------
Total Leisure 7,713
----------
MACHINERY (4.0%)
Agco 52,300 1,576
American Standard* 75,300 2,231
General Signal 40,600 1,553
Goulds Pumps 28,100 667
Smith International* 12,600 397
Trinity Industries 30,900 1,070
Tyco International 37,800 1,493
York International 38,300 2,025
----------
Total Machinery 11,012
----------
MEDIA (1.6%)
Chris-Craft Industries* 18,722 765
Interpublic Group 30,400 1,410
Omnicom Group 32,200 1,405
TCA Cable Television 27,300 771
----------
Total Media 4,351
----------
METALS & MINING (1.3%)
Alumax* 39,600 1,317
Potash of Saskatchewan 33,300 2,214
----------
Total Metals & Mining 3,531
----------
PAPER & PAPER PRODUCTS (1.1%)
Bowater 21,800 858
Tambrands 20,200 932
Westvaco 40,800 1,306
----------
Total Paper & Paper Products 3,096
----------
PRINTING & PUBLISHING (1.7%)
American Greetings, Cl A 100,800 2,734
Belo, Cl A 36,000 1,377
Houghton Mifflin 11,400 540
----------
Total Printing & Publishing 4,651
----------
RAILROADS (0.8%)
Illinois Central 72,750 2,173
----------
F-5
<PAGE>
- ------------------------------------------------------------
MARKET
SHARES VALUE (000)
- ------------------------------------------------------------
RETAIL (7.9%)
Cintas 13,200 $ 706
Dollar General 26,300 730
Federated Department Stores* 85,400 2,957
Fisher Scientific International 43,500 1,778
Hannaford Brothers 72,100 2,280
Kohls* 42,100 1,394
Lone Star Steakhouse & Saloon* 33,700 1,361
Office Depot* 73,400 1,881
Outback Steakhouse* 100,100 3,791
Price/Costco* 107,000 2,140
Staples* 141,800 2,836
----------
Total Retail 21,854
----------
TECHNOLOGY (15.3%)
ADC Telecommunications* 24,200 1,113
Adobe Systems 31,500 1,169
America Online* 48,800 2,757
Analog Devices* 79,525 2,197
Atmel* 58,200 2,066
Avnet 29,900 1,540
Borland International* 48,800 656
Cabletron Systems* 10,100 735
Cadence Design Systems* 19,950 1,132
CUC International* 35,400 1,310
Dell Computer* 25,800 1,429
Diebold 45,600 1,739
Electronic Arts* 27,500 870
EMC* 68,500 1,516
Fiserv* 26,000 816
Informix* 77,300 1,758
Linear Technology 46,800 1,615
Mentor Graphics* 51,000 912
Molex 42,337 1,349
Network General * 81,400 1,933
Octel Communications * 15,000 368
Olsten 42,300 1,301
Parametric Technology* 52,400 2,397
Reynolds & Reynolds 22,200 1,107
Seagate Technology* 64,000 3,760
Stratacom* 28,600 1,555
Symantec* 43,600 687
U.S. Robotics* 28,000 2,569
----------
Total Technology 42,356
----------
TELEPHONES &
TELECOMMUNICATION (3.4%)
360 Communications* 68,300 1,579
Century Telephone Enterprises 34,100 1,108
Frontier 84,800 2,714
Southern New England Telecom 34,400 1,484
Telephone & Data Systems 21,300 929
Worldcom* 34,100 1,667
----------
Total Telephones &
Telecommunication 9,481
----------
TRANSPORTATION (0.5%)
Atlantic Southeast Airlines 51,500 1,365
----------
Total Common Stocks
(Cost $215,086,805) 236,010
----------
CONVERTIBLE BOND (0.7%)
Broadband Tech, Convertible to
24.108 shares (B)
5.000%, 05/15/01 $2,000 2,000
----------
Total Convertible Bond
(Cost $2,000,000) 2,000
----------
F-6
<PAGE>
STATEMENT OF NET ASSETS
============================================================
STI CLASSIC FUNDS MAY 31, 1996
MID-CAP EQUITY FUND (FORMERLY THE AGGRESSIVE GROWTH FUND) -- CONCLUDED
- ------------------------------------------------------------
FACE AMOUNT MARKET
(000) VALUE (000)
- ------------------------------------------------------------
REPURCHASE AGREEMENT (15.2%)
Deutsche Bank 5.33%, dated
05/31/96, matures 06/03/96,
repurchase price $42,138,594
(collateralized by FHLB discount
note, par value $15,895,000, 0.00%,
07/01/96, various FHLMC
obligations, total par value
$11,493,334, 0.00%-8.2055%,
10/15/08-07/15/19, and various
FNMA obligations, total par
value $29,123,728, 0.00%-7.5075%,
12/25/06-10/25/23: total
market value $42,962,287) 42,120 $ 42,120
----------
Total Repurchase Agreement
(Cost $42,119,885) 42,120
----------
Total Investments (101.2%)
(Cost $259,206,690) 280,130
----------
OTHER ASSETS AND LIABILITIES (-1.2%)
Total Other Assets and Liabilities, Net (3,225)
----------
NET ASSETS:
Fund shares of the Trust Class (unlimited
authorization --no par value) based
on 19,896,278 outstanding shares of
benefical interest 216,555
Fund shares of the Investor Class (unlimited
authorization--no par value) based
on 1,410,060 outstanding shares of
beneficial interest 15,667
Fund shares of the Flex Class (unlimited
authorization--no par value) based
on 396,479 outstanding shares of
beneficial interest 4,840
Undistributed net investment income 249
Accumulated net realized gain on
investments 18,671
Unrealized appreciation on investments 20,923
----------
Total Net Assets (100.0%) $276,905
========
Net Asset Value, Offering Price and Redemption
Price Per Share--Trust Shares $ 12.76
========
Net Asset Value and Redemption Price
Per Share--Investor Shares $ 12.74
========
Maximum Public Offering Price Per Share--
Investor Shares ($12.74 (DIVIDED BY) 96.25%) $ 13.24
========
Net Asset Value, Offering Price and Redemption
Price Per Share--Flex Shares (1) $ 12.69
========
(1) The Flex Shares have a contingent sales charge. For a description of a
possible sales charge, see notes to the financial statements.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
FOR DESCRIPTIONS OF ABBREVIATIONS, PLEASE SEE PAGE 101.
F-7
<PAGE>
CAPITAL GROWTH FUND
- ------------------------------------------------------------
MARKET
SHARES VALUE (000)
- ------------------------------------------------------------
COMMON STOCKS (93.0%)
AEROSPACE & DEFENSE (3.9%)
Allied Signal 317,500 $ 17,383
General Dynamics 54,000 3,328
Lockheed Martin 68,000 5,704
United Technologies 182,600 19,972
----------
Total Aerospace & Defense 46,387
----------
AUTOMOTIVE (3.5%)
General Motors 222,900 12,287
General Motors, Cl E 266,700 15,035
Goodyear Tire & Rubber 137,600 6,949
Lear* 202,200 7,810
----------
Total Automotive 42,081
----------
BANKS (3.5%)
Bank of Boston 170,700 8,514
BayBanks 1,900 205
Chase Manhattan Bank 377,900 26,453
CoreStates Financial 41,300 1,626
Cullen/Frost Bankers 65,100 3,353
Signet Banking 59,700 1,545
Wells Fargo 565 136
----------
Total Banks 41,832
----------
BUILDING (1.4%)
American Standard* 345,300 10,230
Foster Wheeler 136,000 6,052
----------
Total Building 16,282
----------
CHEMICALS (2.9%)
Air Products & Chemicals 103,300 6,146
Dow Chemical 36,400 3,044
E.I. du Pont de Nemours 118,400 9,442
Hercules 233,200 13,234
Morton International 74,200 2,820
----------
Total Chemicals 34,686
----------
ELECTRICAL EQUIPMENT (4.2%)
Emerson Electric 75,000 6,422
General Electric 348,500 28,838
General Signal 393,000 15,032
----------
Total Electrical Equipment 50,292
----------
ENERGY (5.5%)
Amoco 231,000 16,748
Atlantic Richfield 50,100 5,993
Dresser Industries 148,400 4,341
Enron 130,200 5,208
Halliburton 25,100 1,396
Kerr-McGee 96,500 5,669
Mobil 112,400 12,687
Schlumberger 60,600 5,053
Texaco 35,000 2,931
Union Texas Petroleum 261,700 4,874
----------
Total Energy 64,900
----------
ENVIRONMENTAL SERVICES (0.7%)
Molten Metal Technology* 196,100 5,981
WMX Technologies 81,100 2,859
----------
Total Environmental Services 8,840
----------
FINANCIAL SERVICES (0.8%)
FHLMC 118,500 9,791
----------
FOOD, BEVERAGE, TOBACCO &
HOUSEHOLD PRODUCTS (10.5%)
Bush Boake Allen* 144,400 3,574
Coca Cola 162,600 7,480
Colgate-Palmolive 59,700 4,701
CPC International 207,900 14,371
Dial 50,000 1,438
Gillette 66,400 3,926
JP Foodservice* 114,700 2,695
Kellogg 36,400 2,648
Newell 230,400 6,912
PepsiCo 550,200 18,294
Philip Morris 218,950 21,758
F-8
<PAGE>
STATEMENT OF NET ASSETS
============================================================
STI CLASSIC FUNDS MAY 31, 1996
CAPITAL GROWTH FUND--CONTINUED
- ------------------------------------------------------------
MARKET
SHARES VALUE (000)
- ------------------------------------------------------------
FOOD, BEVERAGE, TOBACCO &
HOUSEHOLD PRODUCTS--CONTINUED
Procter & Gamble 232,900 $ 20,466
Ralston-Ralston Purina Group 101,500 6,217
Sara Lee 114,800 3,831
Sysco 163,700 5,586
----------
Total Food, Beverage,
Tobacco & Household 123,897
----------
HEALTH CARE (12.1%)
Abbott Laboratories 111,800 4,821
Allergan 3,200 123
American Home Products 57,800 3,092
Astra, Cl A ADR 100,100 4,555
Boston Scientific* 84,200 3,610
Bristol-Myers Squibb 98,300 8,392
Columbia/HCA Healthcare 297,564 16,031
HEALTHSOUTH Rehabilitation* 117,700 4,120
Johnson & Johnson 283,194 27,576
Medtronic 47,100 2,649
Merck 339,482 21,939
Pfizer 100,300 7,096
Pharmacia Upjohn ADR 50,800 2,076
Schering Plough 42,800 2,509
SmithKline Beecham 285,600 14,566
Tenet Healthcare* 349,100 7,506
Varian Associates 78,300 4,463
Vencor* 243,370 7,697
----------
Total Health Care 142,821
----------
INSURANCE (6.2%)
American International Group 163,450 15,405
Chubb 120,400 5,614
General Re 55,000 8,030
ITT Hartford Group 127,400 6,593
MGIC Investment 91,000 5,346
PMI Group 145,400 6,289
Sphere Drake Holdings 306,000 2,984
Travelers 308,697 12,811
Washington National 374,600 9,927
----------
Total Insurance 72,999
----------
LEISURE (6.6%)
ITT* 177,700 10,929
Carnival 716,800 21,325
Marriott 177,900 8,450
Mattel 207,300 5,649
McDonald's 397,100 19,110
Walt Disney 201,066 12,215
Wendy's International 55,000 990
----------
Total Leisure 78,668
----------
MACHINERY (0.8%)
Deere 215,400 8,966
----------
MEDIA (3.2%)
Hollinger International 235,300 2,912
McGraw-Hill 34,000 1,594
Tele-Communications, Cl A* 858,200 16,199
Viacom, Cl B* 377,721 16,006
World Color Press* 41,800 982
----------
Total Media 37,693
----------
METALS & MINING (0.8%)
Alumax* 24,700 821
Aluminum Company of America 137,800 8,492
Worthington Industries 22,100 445
----------
Total Metals & Mining 9,758
----------
MISCELLANEOUS (2.5%)
Eastman Kodak 73,200 5,444
Tyco International 598,700 23,649
----------
Total Miscellaneous 29,093
----------
PAPER & PAPER PRODUCTS (0.3%)
Kimberly Clark 51,100 3,724
----------
RETAIL (6.3%)
Federated Department Stores* 342,200 11,849
General Nutrition* 128,900 1,998
Home Depot 534,032 27,302
Intimate Brands 198,100 4,284
Melville 40,200 1,633
Office Depot* 279,400 7,160
F-9
<PAGE>
- ------------------------------------------------------------
MARKET
SHARES VALUE (000)
- ------------------------------------------------------------
RETAIL--CONTINUED
Price/Costco* 84,100 $ 1,682
Safeway* 58,300 1,968
Staples* 149,100 2,982
Wal-Mart Stores 513,700 13,292
----------
Total Retail 74,150
----------
TECHNOLOGY (11.6%)
AMP 8,600 362
Arrow Electronics* 150,800 7,427
Automatic Data Processing 73,000 2,801
Bay Networks* 140,800 4,083
Cisco Systems* 268,600 14,706
CompuServe* 7,500 186
Ericsson Telephone ADR 254,700 5,874
First Data 41,900 3,342
Hewlett Packard 92,000 9,821
IBM 125,600 13,408
Informix* 61,700 1,404
Intel 65,500 4,945
Microsoft* 147,900 17,563
Motorola 206,100 13,757
Oracle* 300,950 9,969
Scientific-Atlanta 726,800 13,718
Xerox 92,100 14,494
----------
Total Technology 137,860
----------
TELEPHONES & TELECOMMUNICATION (3.5%)
Airtouch Communications* 94,100 2,999
Alltel 44,800 1,411
AT&T 468,358 29,214
BellSouth 61,900 2,515
Cellular Communications, Cl A* 70,000 3,763
Pacific Telesis Group 48,100 1,605
----------
Total Telephones &
Telecommunication 41,507
----------
TRANSPORTATION (2.1%)
Burlington Northern Santa Fe 100,200 8,492
Conrail 21,800 1,531
Southwest Airlines 126,800 3,471
Union Pacific 162,700 11,409
----------
Total Transportation 24,903
----------
Total Common Stocks
(Cost $966,088,933) 1,101,130
----------
PREFERRED STOCKS (2.5%)
AIR TRANSPORTATION (0.6%)
Continental Airline Financial,
8.50% (A) 110,000 7,205
----------
BROADCASTING, NEWSPAPERS &
ADVERTISING (0.3%)
SFX Broadcasting, Ser D (B) 70,000 3,614
----------
CONTAINERS & PACKAGING (0.2%)
Crown Cork & Seal 43,000 1,962
----------
PAPER & PAPER PRODUCTS (0.4%)
International Paper CV, 5.25% 100,000 4,775
----------
PETROLEUM & FUEL PRODUCTS (0.4%)
Occidental Petroleum (B) 80,000 4,890
----------
TELEPHONES &
TELECOMMUNICATION (0.2%)
TCI Communications CV, $2.125 50,000 2,300
----------
WHOLESALE (0.4%)
Westinghouse Electric, Convertible
to 0.885 Shares (B) 300,000 5,138
----------
Total Preferred Stocks
(Cost $27,955,615) 29,884
----------
F-10
<PAGE>
STATEMENT OF NET ASSETS
============================================================
STI CLASSIC FUNDS MAY 31, 1996
CAPITAL GROWTH FUND--CONCLUDED
- ------------------------------------------------------------
FACE AMOUNT MARKET
(000) VALUE (000)
- ------------------------------------------------------------
CONVERTIBLE BONDS (2.2%)
Baker Hughes
Zero Coupon, 05/05/08 $ 6,500 $ 4,436
Continental Airlines Convertible
to 16.5590 Shares
6.750%, 04/15/06 3,100 3,418
Mariott, LYON (A) (B)
Zero Coupon, 03/25/11 5,000 2,638
Molten Metal Technology,
Convertible to 25.8065 Shares (B)
5.500%, 05/01/06 2,000 1,985
Noble Affiliates
4.250%, 11/01/03 2,500 2,603
Tele Communications International,
Convertible to 36.63 Shares
4.500%, 02/15/06 4,000 3,610
Tenet Healthcare
6.000%, 12/01/05 4,500 4,770
WMX Technologies
2.000%, 01/24/05 2,000 1,962
----------
Total Convertible Bonds
(Cost $25,430,492) 25,422
----------
REPURCHASE AGREEMENTS (1.6%)
Salomon Brothers 5.33%, dated
05/31/96, matures 06/03/96,
repurchase price $14,986,982
(collateralized by FHLMC
obligation, par value $11,200,000,
7.7291%, 06/15/23; and various
FNMA obligations, total par
value $123,624,662, 5.90%-9.50%,
07/01/22-02/25/23: total
market value $16,138,834) 14,980 14,980
Swiss Bank 5.33%, dated
05/31/96, matures 06/03/96,
repurchase price $3,513,875
(collateralized by U.S.
Treasury Bond, par value
$2,778,000, 9.875%, 11/15/15:
market value $3,604,137) 3,512 3,512
----------
Total Repurchase Agreements
(Cost $18,492,644) 18,492
----------
Total Investments (99.3%)
(Cost $1,037,967,684) 1,174,928
----------
OTHER ASSETS AND LIABILITIES (0.7%)
Total Other Assets and Liabilities, Net 8,617
----------
NET ASSETS:
Fund shares of the Trust Class (unlimited
authorization --no par value) based
on 65,851,300 outstanding shares of
benefical interest 740,420
Fund shares of the Investor Class (unlimited
authorization--no par value) based
on 12,833,227 outstanding shares of
beneficial interest 146,753
Fund shares of the Flex Class (unlimited
authorization--no par value) based
on 739,091 outstanding shares of
beneficial interest 10,094
Undistributed net investment income 3,296
Accumulated net realized gain on
investments 146,022
Unrealized appreciation on investments 136,960
----------
Total Net Assets (100.0%) $1,183,545
==========
Net Asset Value, Offering Price and
Redemption Price Per Share--
Trust Shares $ 14.90
==========
Net Asset Value and Redemption Price
Per Share--Investor Shares $ 14.89
==========
Maximum Public Offering Price Per Share--
Investor Shares ($14.89 (DIVIDED BY) 96.25%) $ 15.47
==========
Net Asset Value, Offering Price and
Redemption Price Per Share--
Flex Shares (1) $ 14.84
==========
(1) The Flex Shares have a contingent sales charge. For a description of a
possible sales charge, see notes to the financial statements.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
FOR DESCRIPTIONS OF ABBREVIATIONS, PLEASE SEE PAGE 101.
F-11
<PAGE>
BALANCED FUND
- ------------------------------------------------------------
MARKET
SHARES VALUE (000)
- ------------------------------------------------------------
COMMON STOCKS (55.7%)
AEROSPACE & DEFENSE (2.3%)
Allied Signal 18,800 $ 1,029
General Dynamics 3,200 197
Lockheed Martin 4,000 336
United Technologies 10,900 1,192
--------
Total Aerospace & Defense 2,754
--------
AUTOMOTIVE (2.1%)
General Motors 13,300 733
General Motors, Cl E 15,200 857
Goodyear Tire & Rubber 8,200 414
Lear* 11,800 456
--------
Total Automotive 2,460
--------
BANKS (2.4%)
Bank of Boston 6,400 319
BayBanks 3,300 356
Chase Manhattan Bank 22,400 1,568
CoreStates Financial 2,500 98
Cullen/Frost Bankers 3,900 201
Signet Banking 3,900 101
Wells Fargo 900 217
--------
Total Banks 2,860
--------
BUILDING (0.9%)
American Standard* 18,700 554
Foster Wheeler 12,000 534
--------
Total Building 1,088
--------
CHEMICALS (1.7%)
Air Products & Chemicals 5,800 345
Dow Chemical 1,400 117
E.I. du Pont de Nemours 6,700 534
Hercules 13,400 760
Morton International 6,000 228
--------
Total Chemicals 1,984
--------
ELECTRICAL EQUIPMENT (2.5%)
Emerson Electric 4,700 402
General Electric 20,500 1,696
General Signal 23,300 891
--------
Total Electrical Equipment 2,989
--------
ENERGY (3.0%)
Amoco 13,700 993
Atlantic Richfield 2,800 335
Dresser Industries 8,800 257
Enron 7,700 308
Halliburton 1,500 84
Kerr-McGee 5,700 335
Mobil 6,700 756
Schlumberger 3,600 300
Union Texas Petroleum 9,400 175
--------
Total Energy 3,543
--------
ENVIRONMENTAL SERVICES (0.6%)
Molten Metal Technology* 13,600 415
WMX Technologies 8,100 286
--------
Total Environmental Services 701
--------
FINANCIAL SERVICES (0.5%)
FHLMC 6,900 570
--------
FOOD, BEVERAGE, TOBACCO &
HOUSEHOLD PRODUCTS (6.1%)
Bush Boake Allen* 5,300 131
Coca Cola 9,500 437
Colgate-Palmolive 3,500 276
CPC International 13,500 933
Gillette 4,200 248
JP Foodservice * 8,900 209
Kellogg 2,000 146
Newell 13,700 411
PepsiCo 33,300 1,107
Philip Morris 12,700 1,262
F-12
<PAGE>
STATEMENT OF NET ASSETS
============================================================
STI CLASSIC FUNDS MAY 31, 1996
BALANCED FUND--CONTINUED
- ------------------------------------------------------------
MARKET
SHARES VALUE (000)
- ------------------------------------------------------------
FOOD, BEVERAGE, TOBACCO &
HOUSEHOLD PRODUCTS--CONTINUED
Procter & Gamble 13,900 $ 1,221
Ralston-Ralston Purina Group 6,000 368
Sara Lee 5,700 190
Sysco 9,800 334
--------
Total Food, Beverage, Tobacco
& Household 7,273
--------
HEALTH CARE (7.4%)
Abbott Laboratories 6,600 285
American Home Products 2,600 139
Astra, Cl A ADR 3,600 164
Boston Scientific* 8,000 343
Bristol-Myers Squibb 5,600 478
Columbia/HCA Healthcare 17,040 918
Healthcare & Retirement* 6,000 217
HEALTHSOUTH Rehabilitation* 12,284 430
Johnson & Johnson 16,800 1,636
Medtronic 3,200 180
Merck 20,100 1,299
Pfizer 6,000 425
Pharmacia Upjohn ADR 3,000 123
Schering Plough 2,600 152
SmithKline Beecham 16,900 862
Tenet Healthcare* 22,000 473
Varian Associates 6,100 348
Vencor* 12,400 392
--------
Total Health Care 8,864
--------
INSURANCE (3.8%)
American International Group 9,700 914
Chubb 11,800 550
General Re 3,200 467
ITT Hartford Group 7,600 393
MGIC Investment 5,900 347
PMI Group 9,700 420
Sphere Drake Holdings 21,000 205
Travelers 18,300 759
Washington National 19,500 517
--------
Total Insurance 4,572
--------
LEISURE (4.8%)
Carnival 39,000 1,160
ITT* 10,500 646
Marriott 9,500 451
Mattel 11,750 320
McDonald's 29,700 1,429
Viacom, Cl B* 21,544 913
Walt Disney 11,195 680
Wendy's International 10,000 180
--------
Total Leisure 5,779
--------
MACHINERY (0.4%)
Deere 12,400 516
--------
MEDIA (0.5%)
Tele-Communications, Cl A* 34,000 642
--------
METALS (0.6%)
Alumax* 1,400 47
Aluminum Company of America 7,900 487
Worthington Industries 12,000 242
--------
Total Metals 776
--------
MISCELLANEOUS BUSINESS SERVICES (1.5%)
Eastman Kodak 5,400 402
Tyco International 35,600 1,406
--------
Total Miscellaneous Business Services 1,808
--------
PAPER & PAPER PRODUCTS (0.2%)
Kimberly Clark 3,000 219
--------
RETAIL (3.7%)
Federated Department Stores* 19,400 672
General Nutrition* 7,600 118
Home Depot 31,700 1,621
Intimate Brands 10,500 227
Melville 2,400 98
Office Depot* 11,100 284
Price/Costco* 12,700 254
Safeway 7,000 236
Staples* 4,700 94
Wal-Mart Stores 30,500 789
--------
Total Retail 4,393
--------
F-13
<PAGE>
- ------------------------------------------------------------
MARKET
SHARES VALUE (000)
- ------------------------------------------------------------
TECHNOLOGY (7.1%)
AMP 3,600 $ 152
Arrow Electronics* 10,500 517
Automatic Data Processing 4,270 164
Bay Networks* 8,300 241
Cisco Systems* 16,100 881
Ericsson Telephone ADR 15,100 348
First Data 4,400 351
Hewlett Packard 5,500 587
IBM 8,800 939
Intel 3,400 257
Microsoft* 8,800 1,045
Motorola 12,200 814
Oracle* 17,900 593
Scientific-Atlanta 38,600 729
Xerox 5,400 850
--------
Total Technology 8,468
--------
TELEPHONES &
TELECOMMUNICATION (2.0%)
Airtouch Communications* 8,600 274
Alltel 4,100 129
AT&T 27,800 1,734
BellSouth 3,500 142
Pacific Telesis Group 2,900 97
--------
Total Telephones &
Telecommunication 2,376
--------
TRANSPORTATION (1.3%)
Burlington Northern Santa Fe 6,300 534
Conrail 1,400 98
Southwest Airlines 8,300 227
Union Pacific 9,700 680
--------
Total Transportation 1,539
--------
UTILITIES (0.3%)
Texas Utilities 8,200 335
--------
Total Common Stocks
(Cost $58,836,551) 66,509
--------
- ------------------------------------------------------------
SHARES/FACE MARKET
AMOUNT (000) VALUE (000)
- ------------------------------------------------------------
PREFERRED STOCKS (1.0%)
AIR TRANSPORTATION (0.3%)
Continental Airline
Financial, 8.50% 5,000 $ 328
--------
CONTAINERS & PACKAGING (0.4%)
Crown Cork & Seal 11,800 538
--------
PETROLEUM & FUEL PRODUCTS (0.3%)
Occidental Petroleum (B) 6,000 367
--------
Total Preferred Stocks
(Cost $1,172,700) 1,233
--------
CORPORATE OBLIGATIONS (12.0%)
Aristar Financial
7.500%, 07/01/99 $1,000 1,014
AT&T Capital
5.500%, 02/09/98 1,000 985
Capital One Bank
6.660%, 08/17/98 500 497
Capital One Bank, MTN
6.490%, 08/15/97 1,000 998
Ford Motor Credit, MTN
6.110%, 12/28/01 1,000 953
General Electric Capital
6.660%, 05/01/18 1,000 988
International Lease Finance
8.125%, 01/15/98 1,000 1,023
Merrill Lynch
7.375%, 05/15/06 1,500 1,481
Paine Webber
6.250%, 06/15/98 3,500 3,442
Salomon
6.700%, 12/01/98 1,000 994
Sears, MTN
7.360%, 08/15/97 1,000 1,013
Societe Generale - NY
7.400%, 06/01/06 1,000 990
--------
Total Corporate Obligations
(Cost $14,561,130) 14,378
--------
F-14
<PAGE>
STATEMENT OF NET ASSETS
============================================================
STI CLASSIC FUNDS MAY 31, 1996
BALANCED FUND--CONCLUDED
- ------------------------------------------------------------
FACE AMOUNT MARKET
(000) VALUE (000)
- ------------------------------------------------------------
CONVERTIBLE BONDS (1.0%)
Pennzoil, 4.75%
4.750%, 10/01/03 $ 800 $ 870
Time Warner Finance, $1.24
Zero Coupon, 06/22/13 900 372
--------
Total Convertible Bonds
(Cost $1,216,874) 1,242
--------
U.S. AGENCY MORTGAGE-BACKED
OBLIGATIONS (5.5%)
FHLMC
8.000%, 06/01/02 730 749
FNMA
8.500%, 04/01/17 904 924
GNMA
6.500%, 12/15/23 2,458 2,275
9.000%, 11/15/17 2,500 2,653
--------
Total U.S. Agency Mortgage-Backed
Obligations
(Cost $6,639,387) 6,601
--------
U.S. TREASURY OBLIGATIONS (21.7%)
U.S. Treasury Bonds
7.500%, 11/15/16 4,000 4,142
8.125%, 08/15/19 3,750 4,144
U.S. Treasury Notes
5.625%, 01/31/98 250 248
7.500%, 10/31/99 1,500 1,542
6.250%, 08/31/00 4,500 4,436
7.500%, 11/15/01 750 777
7.500%, 05/15/02 3,500 3,637
5.750%, 08/15/03 7,500 7,060
--------
Total U.S. Treasury Obligations
(Cost $26,837,668) 25,986
--------
REPURCHASE AGREEMENT (4.0%)
Merrill Lynch 5.31%, dated
05/31/96, matures 06/03/96,
repurchase price $4,754,406
(collateralized by FHLMC ARM,
par value $8,062,000, 7.86%,
04/01/24: total market value
$4,929,158) 4,752 4,752
--------
Total Repurchase Agreement
(Cost $4,752,303) 4,752
--------
Total Investments (100.9%)
(Cost $114,016,613) 120,701
--------
OTHER ASSETS AND LIABILITIES (-0.9%)
Total Other Assets and Liabilities, Net (1,036)
--------
NET ASSETS:
Fund shares of the Trust Class (unlimited
authorization --no par value) based
on 9,665,824 outstanding shares of
benefical interest 97,978
Fund shares of the Investor Class (unlimited
authorization--no par value) based on
422,202 outstanding shares of
beneficial interest 4,229
Fund shares of the Flex Class (unlimited
authorization--no par value) based on
271,519 outstanding shares of
beneficial interest 2,980
Undistributed net investment income 527
Accumulated net realized gain on
investments 7,267
Unrealized appreciation on investments 6,684
--------
Total Net Assets (100.0%) $119,665
========
F-15
<PAGE>
- ----------------------------------------------------------
- ----------------------------------------------------------
Net Asset Value, Offering Price and
Redemption Price Per Share--
Trust Shares $ 11.55
========
Net Asset Value and Redemption
Price Per Share--Investor Shares $ 11.60
========
Maximum Public Offering Price Per
Share--Investor Shares
($11.60 (DIVIDED BY) 96.25%) $ 12.05
========
Net Asset Value, Offering Price and
Redemption Price Per Share--
Flex Shares (1) $ 11.53
========
(1) The Flex Shares have a contingent sales charge. For a description of a
possible sales charge, see notes to the financial statements.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
FOR DESCRIPTIONS OF ABBREVIATIONS, PLEASE SEE PAGE 101.
F-16
<PAGE>
STATEMENT OF NET ASSETS
============================================================
STI CLASSIC FUNDS MAY 31, 1996
INTERNATIONAL EQUITY INDEX FUND
- ------------------------------------------------------------
MARKET
SHARES VALUE (000)
- ------------------------------------------------------------
FOREIGN COMMON STOCKS (97.6%)
AUSTRALIA (2.4%)
Amcor 13,361 $ 91
Broken Hill Proprietary 39,869 601
Coles Myer 40,644 149
CRA 9,418 153
CSR 27,994 102
Lend Lease 9,731 152
Mount Isa Mines Holdings 42,910 61
National Australia Bank 38,256 359
Newscorp 33,881 190
Pacific Dunlop 68,655 148
Western Mining 25,702 195
Westpac Banking 36,880 172
--------
Total Australia 2,373
--------
AUSTRIA (1.7%)
Bank of Austria 5,549 517
Creditanstalt Bankverein 4,114 290
Ea - Generali 720 236
Oest El Wirtsch , Cl A 3,274 250
OMV 2,270 235
Wienerberger Baustoff 570 118
--------
Total Austria 1,646
--------
BELGIUM (1.8%)
Bekaert 150 128
Delhaize Freres 2,100 107
Electrabel 1,000 215
Fortis 1,400 189
Generale Banque 470 163
Groupe Bruxelles Lambert 700 93
Kredietbank 540 157
Petrofina 600 179
Royale Belge 500 101
Solvay, Cl A 275 165
Tractabel 350 155
Union Minere* 680 51
--------
Total Belgium 1,703
--------
DENMARK (1.0%)
Carlsberg, Cl B 1,540 86
D/S 1912, Cl B 6 132
D/S Svendborg, Cl B 5 163
Danisco 3,040 147
Novo Nordisk, Cl B 1,490 205
Sophus Berendsen, Cl B 410 55
Tele Danmark, Cl B 3,958 195
--------
Total Denmark 983
--------
FINLAND (0.5%)
Merita* 16,000 34
Nokia, Cl K 3,700 161
Outokumpu Oy Akt, Cl A 3,500 62
UPM - Kymmene 11,900 229
--------
Total Finland 486
--------
FRANCE (10.9%)
Accor 1,197 173
Air Liquide 2,497 435
Alcatel Alsthom 4,183 381
Axa 5,898 335
Banque National Paris, Cl A 4,950 186
Bouygues 1,800 196
Carrefour 669 367
Carrefour Bonus Rights* 668 184
Cie Bancaire 1,660 182
Cie de Saint Gobain 3,826 489
Cie Financiara Paribas 4,093 249
Cie Generale des Eaux 2,945 315
Compagnie de Suez 5,063 196
CSF Thomson 7,000 183
Elf Aquitaine 8,312 602
Elf Sanofi 4,123 317
Eridania Beghin - Say 1,709 268
Groupe Danone 2,414 353
Havas 3,700 317
Lafarge Coppee 2,218 146
Legrand 950 168
L'Oreal 2,213 674
Louis Vuitton - Moet Hennessy 3,837 932
Lyonnaise des Eaux Dumez 2,050 199
Michelin, Cl B 4,244 214
Pernod - Ricard 3,729 245
Peugeot 2,290 319
Pinault - Printemps Redoute 550 170
F-17
<PAGE>
- -----------------------------------------------------------------
MARKET
SHARES VALUE (000)
- -----------------------------------------------------------------
FRANCE--CONTINUED
Promodes 650 $ 170
Rhone - Poulenc, Cl A 13,550 338
Schneider 6,627 307
Societe Generale 2,630 280
Total Compaigne, Cl B 6,920 501
Unibail 1,850 192
--------
Total France 10,583
--------
GERMANY (16.4%)
Aachener & Munchener Bete 216 136
Allianz 1,208 2,002
Asko Deutche Kaufhaus 156 106
BASF 2,755 766
Bayer 3,211 1,076
Bayerische Hypotheken und
Wechselbank 9,900 250
Bayerische Vereinsbank 9,760 275
Biersdorf 167 152
Bremer Vulkan Verbund* 788 2
Colonia Konzern 156 102
Daimler - Benz* 2,123 1,166
Degussa 399 137
Deutsche Bank 26,770 1,258
Dresdner Bank Frankfurt 20,600 517
Heidelberger Zement 299 196
Hochtief 676 297
Karstadt 1,025 402
Kaufhof 821 284
Linde 341 218
Lufthansa 2,108 325
Man Muenchen 531 137
Mannesmann 1,103 384
Munchener Ruckvers 356 631
Preussag 1,261 321
RWE 15,240 600
SAP 2,800 381
Schering 4,610 347
Siemens 25,340 1,421
Strabag 90 9
Thyssen 1,351 250
Veba 19,110 1,001
Viag 1,133 440
Volkswagen 1,061 374
--------
Total Germany 15,963
--------
HONG KONG (1.0%)
Cathay Pacific Airways 45,000 83
Cheung Kong Holdings 18,000 133
China Light & Power 15,000 71
Hang Seng Bank 14,900 156
Hong Kong Telecommunications 92,000 171
Hutchison Whampoa 22,000 141
Sun Hung Kai Properties 14,000 143
Swire Pacific, Cl A 9,000 80
--------
Total Hong Kong 978
--------
ITALY (9.0%)
Assicurazioni Generali 67,575 1,607
Banca Commerciale Italiana 68,500 145
Banco Ambrosian 37,000 104
Benetton Group 14,500 178
Credito Italiano 245,000 305
Edison 52,000 303
Fiat 275,000 971
Fiat Non-Convertible 42,000 78
Fidis 44,000 125
Finanziaria Autogrill* 640 1
Istituto Bancario san Paolo di Torino 75,000 459
Istituto Nazionale 323,919 486
Italgas 80,000 289
Mediobanca 41,400 287
Montedison* 182,000 111
Olivetti* 252,500 158
Parmalat Finanziaria 102,800 129
Pirelli 120,000 198
RAS 34,835 369
Sirti 19,500 125
SME Meridonale di Electric 31,640 36
Telecom Italia 410,000 821
Telecom Italia di Risp 88,000 149
Telecom Italia Mobile 515,946 1,103
Telecom Italia Mobile di Risp 154,164 213
--------
Total Italy 8,750
--------
JAPAN (33.8%)
Ajinomoto 16,000 193
Asahi Bank 37,000 446
Asahi Chemical Industries 46,000 334
Asahi Glass 31,000 374
F-18
<PAGE>
STATEMENT OF NET ASSETS
============================================================
STI CLASSIC FUNDS MAY 31, 1996
INTERNATIONAL EQUITY INDEX FUND--CONTINUED
- ------------------------------------------------------------
MARKET
SHARES VALUE (000)
- ------------------------------------------------------------
JAPAN--CONTINUED
Bank of Tokyo - Mitsubushi* 24,800 $ 589
Bank of Yokohama 11,000 94
Bridgestone 21,000 366
Chiba Bank 12,000 104
Chiyoda 5,000 56
Citizen Watch 17,000 139
Cosmo Oil 48,000 313
Dai-Ichi Kangyo Bank 45,000 814
Dai Nippon Printing 25,000 464
Daiei 11,000 135
Daimaru 17,000 124
Daiwa Kosho Lease 11,000 115
Daiwa Securities 24,000 323
Ebara 11,000 167
Fanuc 4,300 168
Fuji Bank 42,000 915
Fuji Photo Film 9,000 280
Fujitsu 22,000 200
Furukawa Electric 39,000 230
Hankyu 48,000 287
Hitachi 54,000 501
Honda Motor 16,000 386
Industrial Bank of Japan 38,000 980
Ito Ham Foods 1,000 8
Ito Yokado 5,000 284
Itochu 31,000 223
Japan Air Lines* 49,000 396
Japan Energy 41,000 159
Joyo Bank 13,000 102
Jusco 5,000 148
Kansai Electric Power 13,800 319
Kao 23,000 307
Kawasaki Steel 46,000 171
Kinki Nippon Railway 26,780 198
Kirin Brewery 21,000 261
Kobe Steel* 60,000 166
Komatsu 13,000 124
Kubota 37,000 248
Kyocera 4,000 274
Marui 6,000 124
Matsushita Electric 33,000 569
Mitsubishi 21,000 288
Mitsubishi Chemical 45,000 223
Mitsubishi Electric 62,000 425
Mitsubishi Estate 35,000 490
Mitsubishi Heavy Industries 65,000 560
Mitsubishi Materials 47,000 275
Mitsubishi Steel* 13,000 71
Mitsubishi Trust & Banking 23,000 384
Mitsui 23,000 212
Mitsui Trust & Banking 28,000 309
Mitsukoshi 16,000 177
Murata Manufacturing 3,000 110
NEC 32,000 353
New Oji Paper 39,000 341
Nichido Fire & Marine Insurance 15,750 128
Nippon Express 38,000 381
Nippon Oil 36,000 239
Nippon Paper Industries 30,000 202
Nippon Sharyo 5,000 50
Nippon Steel 88,000 299
Nippon Yusen 27,000 159
Nippondenso 26,000 562
Nissan Motor 45,000 371
NKK* 24,000 70
Nomura Securities 35,000 662
Obayashi 44,000 406
Odakyu Electric Railway 24,720 165
Olympus Optical 8,000 82
Osaka Gas 44,000 172
Ricoh 20,000 202
Sakura Bank 48,000 525
Sankyo 16,000 380
Sanyo Electric 32,000 191
Sega Enterprises 1,600 75
Sekisui Chemical 16,000 190
Sekisui House 7,000 82
Seven Eleven 7,000 428
Sharp 16,000 261
Shimizu 21,000 241
Shin - Etsu Chemical 9,450 189
Shizuoka Bank 13,000 169
Skylark 3,000 61
Sony 6,000 382
Sumitomo Bank 58,000 1,145
F-19
<PAGE>
- ------------------------------------------------------------
MARKET
SHARES VALUE (000)
- ------------------------------------------------------------
JAPAN--CONTINUED
Sumitomo Chemical 47,000 $ 235
Sumitomo Metal 42,000 130
Taisei 61,000 461
Takeda Chemical 33,000 548
Teijin 28,000 145
Tobu Railway 23,000 149
Tohoku Electric Power 8,600 196
Tokai Bank 29,000 363
Tokio Marine & Fire Insurance 34,000 441
Tokyo Electric Power 16,600 426
Tokyo Electronics 5,000 154
Tokyo Gas 36,000 137
Tokyu 42,000 315
Toppan Printing 11,000 157
Toray 38,000 257
Tostem 5,000 146
Toto 18,000 265
Toyo Seikan Kaisha 5,000 179
Toyoda Automatic Loom 8,000 162
Toyota Motor 65,000 1,489
Yamaichi Securities 28,000 203
Yamanouchi Pharmaceutical 18,000 389
Yasuda Trust & Banking 20,000 121
--------
Total Japan 32,933
--------
NETHERLANDS (2.7%)
ABN-Amro Holdings 3,850 212
Akzo Nobel 970 117
International Nederlanden 4,477 369
Koninklijke 5,370 194
Koninklijke Nederlanden
Papierfabriek 2,724 68
Philips Electronics 3,742 133
Royal Dutch Petroleum 7,190 1,091
Unilever 1,850 252
Wolters Kluwer 1,761 197
--------
Total Netherlands 2,633
--------
NORWAY (1.0%)
Bergesen, Cl A 5,700 111
Hafslund Nycomed, Cl B 5,900 41
Kvaerner 2,250 88
Norsk Hydro 12,200 579
Nycomed, Cl B* 5,900 119
Uni Storebrand* 16,012 77
--------
Total Norway 1,015
--------
SPAIN (3.8%)
Argentaria Bancaria de Espana 4,616 193
Autopistas CESA 12,879 139
Banco Bilbao Vizcaya 7,937 300
Banco Central Hispano 5,523 111
Banco de Santander 5,066 231
Dragados Construccion 6,786 91
Empresa Nacional de Electricidad 10,736 667
Fomento de Construcciones Contratas 958 77
Gas Natural 1,322 233
Iberdola 37,946 385
Mapfre 1,018 50
Repsol 12,707 435
Telefonica de Espana 37,645 676
Union Electrica Fenosa 26,994 164
--------
Total Spain 3,752
--------
SWEDEN (1.9%)
Asea, Cl A 1,950 202
Astra, Cl A 14,150 647
Electrolux, Cl B 1,300 66
Ericsson, Cl B 18,400 412
Skandinaviska Enskilda Banken 13,500 106
Skanska, Cl B 2,500 81
Stora Kopparbergs Bergslags, Cl A 5,000 67
Svenska Cellulosa, Cl B 7,000 137
Swedish Match 4,500 15
Volvo, Cl B 4,500 95
--------
Total Sweden 1,828
--------
SWITZERLAND (2.0%)
Asea Brown Boveri 60 72
Ciba - Geigy 320 353
Nestle 372 420
Roche Holdings, Genusshein 34 261
Roche Holdlings, Bearer 12 146
F-20
<PAGE>
STATEMENT OF NET ASSETS
============================================================
STI CLASSIC FUNDS MAY 31, 1996
INTERNATIONAL EQUITY INDEX FUND--CONCLUDED
- ------------------------------------------------------------
MARKET
SHARES VALUE (000)
- ------------------------------------------------------------
SWITZERLAND--CONTINUED
Sandoz Pharmaceutical, Cl R 300 $ 312
Schweizerische Bankgesellschaft 200 187
Schweizerische Bankverein 1,300 231
--------
Total Switzerland 1,982
--------
UNITED KINGDOM (7.7%)
Abbey National 32,519 279
B.A.T. Industries 36,624 295
Barclays Bank 28,563 333
Bass 17,787 225
Blue Circle Industries 46,936 256
British Gas 20,778 61
British Petroleum 93,113 802
British Telecommunications 55,837 308
BTR 47,897 209
Cable & Wireless 29,090 200
General Electric 61,851 357
Glaxo Wellcome 31,899 416
Grand Metropolitan 39,465 266
Great Universal Stores 14,129 149
Guinness 42,734 308
Hanson Trust 128,670 373
HSBC Holdings HK$10 22,268 338
HSBC Holdings, Ordinary 12,295 187
Imperial Chemical 15,754 208
Marks & Spencer 48,514 348
National Power 11,877 96
Reuters Holdings 24,899 290
Rio Tinto Zinc 20,914 326
RMC Group 6,371 99
Sainsbury, J. 22,515 138
SmithKline Beecham, Cl A 24,760 252
Unilever 13,002 242
Vodafone Groupe 36,942 146
--------
Total United Kingdom 7,507
--------
Total Foreign Common Stocks
(Cost $86,238,260) 95,115
--------
- ------------------------------------------------------------
SHARES/FACE MARKET
AMOUNT (000) VALUE (000)
- ------------------------------------------------------------
FOREIGN PREFERRED STOCKS (1.2%)
AUSTRALIA (0.1%)
Newscorp 22,401 $ 109
--------
AUSTRIA (0.2%)
Creditanstalt Bankverein 3,876 211
--------
FINLAND (0.1%)
Nokia, Cl A 2,600 113
--------
GERMANY (0.7%)
RWE 8,480 262
SAP 2,130 295
Volkswagen 197 53
--------
Total Germany 610
--------
ITALY (0.1%)
Fiat 42,800 80
--------
Total Foreign Preferred Stocks
(Cost $1,032,723) 1,123
--------
CASH EQUIVALENT (0.2%)
Highmark Diversified Money
Market Fund (A)
4.670% $ 257 257
--------
Total Cash Equivalent
(Cost $256,765) 257
--------
Total Investments (99.0%)
(Cost $87,527,748) 96,495
--------
OTHER ASSETS AND LIABILITIES (1.0%)
Total Other Assets and Liabilities, Net 999
--------
NET ASSETS:
Fund shares of the Trust Shares
(unlimited authorization --
no par value) based on
8,304,051 outstanding shares
of beneficial interest 81,977
F-21
<PAGE>
- ------------------------------------------------------------
MARKET
VALUE (000)
- ------------------------------------------------------------
Fund shares of the Investor Shares
(unlimited authorization --
no par value) based on
514,693 outstanding shares
of beneficial interest $ 5,175
Fund shares of the Flex Shares
(unlimited authorization --
no par value) based
on 84,360 outstanding shares
of beneficial interest 878
Undistributed net investment income 232
Accumulated net realized gain
on investments 269
Net unrealized appreciation
on investments 8,967
Net unrealized depreciation on
foreign currency and translation
of other assets and liabilities in
foreign currency (4)
--------
Total Net Assets (100.0%) $ 97,494
========
Net Asset Value, Offering Price and
Redemption Price Per Share --
Trust Shares $ 10.96
========
Net Asset Value and Redemption
Price Per Share-- Investor Shares $ 10.88
========
Maximum Public Offering
Price Per Share -- Investor Shares
($10.88 (DIVIDE) 96.25%) $ 11.30
========
Net Asset Value, Offering Price and
Redemption Price Per Share --
Flex Shares (1) $ 10.87
========
(1) The Flex Shares have a contingent sales charge. For a description
of a possible sales charge, see notes to the financial statements.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
FOR DESCRIPTIONS OF ABBREVIATIONS, PLEASE SEE PAGE 101.
F-22
<PAGE>
SCHEDULE OF INVESTMENTS
============================================================
STI CLASSIC FUNDS MAY 31, 1996
INTERNATIONAL EQUITY FUND
- ------------------------------------------------------------
MARKET
SHARES VALUE (000)
- ------------------------------------------------------------
FOREIGN COMMON STOCKS (95.7%)
ARGENTINA (0.8%)
Compania Inversiones Telefonica 30,000 $ 1,755
--------
AUSTRALIA (3.6%)
Comalco 420,000 2,463
Leighton Holdings 560,000 1,881
Newscorp 125,779 706
QBE Insurance 88,632 506
Queensland Nickel 900,000 2,191
--------
Total Australia 7,747
--------
BRAZIL (2.2%)
Telecom Brasileiras ADR 43,800 2,820
Usiminas ADR 180,000 1,947
--------
Total Brazil 4,767
--------
CANADA (3.5%)
Alcan Aluminum 60,000 1,965
Bank of Montreal 85,000 2,022
CAE 224,988 1,946
Noranda 83,000 1,793
--------
Total Canada 7,726
--------
CROATIA (0.2%)
Pliva GDR* 14,700 454
--------
DENMARK (1.8%)
Novo Nordisk, Cl B 12,700 1,745
Sophus Berendsen, Cl B 16,000 2,130
--------
Total Denmark 3,875
--------
FINLAND (6.5%)
Cultor, Ser 2 117,700 5,571
Finnair, Ser 1 220,000 1,760
Konecranes International* 50,000 1,221
Metra, Cl B 27,800 1,304
Tietotehdas, Cl B 50,000 2,271
UPM - Kymmene 110,000 2,120
--------
Total Finland 14,247
--------
FRANCE (6.0%)
B.I.S.* 11,135 $ 1,445
Christian Dior 42,350 5,986
Lagardere Groupe 87,500 2,377
Michelin, Cl B 40,000 2,018
Societe Generale 11,000 1,171
--------
Total France 12,997
--------
GERMANY (3.8%)
Hoechst 3,000 1,003
Mannesmann 3,500 1,217
Siemens 32,000 1,795
Veba 59,600 3,121
Wella 2,000 1,066
--------
Total Germany 8,202
--------
HONG KONG (2.7%)
Cheung Kong Holdings 300,000 2,220
Esprit Asia Holdings 1,066,000 355
HSBC Holdings 142,000 2,147
Swire Pacific, Cl A 125,000 1,111
--------
Total Hong Kong 5,833
--------
INDONESIA (1.3%)
Asahimas Flat Glass 800,000 926
Indorama Synthetic, F 364,500 1,016
Tambang Timah, F 500,000 986
--------
Total Indonesia 2,928
--------
IRELAND (0.2%)
CRH - Dublin 36,661 346
--------
ISRAEL (0.8%)
Comverse Technology* 40,700 1,196
Koor Industries ADR 30,700 553
--------
Total Israel 1,749
--------
F-23
<PAGE>
- ------------------------------------------------------------
MARKET
SHARES VALUE (000)
- ------------------------------------------------------------
ITALY (2.4%)
Cartiere Burgo 336,000 $ 2,084
Instituto Mobiliare Italiano 130,000 1,063
Saipem 500,000 2,051
--------
Total Italy 5,198
--------
JAPAN (15.2%)
Amway Japan ADR 87,900 2,110
Canon 282,000 5,543
Dai Nippon Printing 177,000 3,282
Fuji Photo Film 108,000 3,365
Mitsubishi Heavy Industries 475,000 4,092
Nippon Television Network 11,000 3,121
Omron 119,000 2,416
Paris Miki 51,700 2,267
Sanyo Shinpan Finance 13,300 911
Sony 95,400 6,077
--------
Total Japan 33,184
--------
MEXICO (4.0%)
Alfa, Cl A 270,000 4,381
Panamerican Beverages, Cl A 103,000 4,326
--------
Total Mexico 8,707
--------
NETHERLANDS (8.6%)
ABN - Amro Holding 46,000 2,537
Dutch State Mines 17,500 1,797
Fortis AMEV 56,000 4,364
Hollandsche Beton Groep 11,000 2,054
IHC Caland 24,200 1,117
International Nederlanden 55,000 4,528
VNU 140,000 2,295
--------
Total Netherlands 18,692
--------
NEW ZEALAND (0.3%)
Fletcher Challenge Building
Division 297,500 604
--------
PANAMA (1.2%)
Banco Latinamericano
de Exportaciones 44,800 $ 2,570
--------
PERU (1.8%)
Credicorp 102,707 1,900
Telefonica del Peru, Cl B 971,569 1,923
--------
Total Peru 3,823
--------
PHILIPPINES (2.0%)
Benpres Holdings GDR* 519,961 4,290
--------
SOUTH AFRICA (0.7%)
Rembrandt Group 173,000 1,540
--------
SOUTH KOREA (0.6%)
Korea Chemical 10,000 1,253
--------
SPAIN (3.4%)
Repsol 36,000 1,232
Telefonica de Espana 349,000 6,268
--------
Total Spain 7,500
--------
SWEDEN (8.5%)
Avesta Sheffield* 170,200 1,733
Cardo 80,000 1,754
Dahl International* 45,000 616
Ericsson, Cl B 108,100 2,419
Gettinge, Cl B 213,300 3,900
Pharmacia & Upjohn 50,000 2,044
SKF, Cl B 70,000 1,571
Svedala Industrial 236,800 4,541
--------
Total Sweden 18,578
--------
F-24
<PAGE>
SCHEDULE OF INVESTMENTS
============================================================
STI CLASSIC FUNDS MAY 31, 1996
INTERNATIONAL EQUITY FUND--CONCLUDED
- ------------------------------------------------------------
MARKET
SHARES VALUE (000)
- ------------------------------------------------------------
SWITZERLAND (4.0%)
Asea Brown Boveri 1,315 $ 1,575
Ciba - Geigy 2,100 2,314
Sandoz Pharmaceutical 1,300 1,351
SMH 13,700 2,127
Societe Generale de Surveillance 640 1,444
--------
Total Switzerland 8,811
--------
UNITED KINGDOM (9.6%)
Astec 457,000 1,063
Bank of Ireland 301,055 2,128
B.A.T. Industries 520,000 4,184
British Airport Authority 200,000 1,522
CRH - Dublin 139,545 1,330
Grand Metropolitan 205,000 1,382
National Power 150,000 1,212
Orange ADR* 283,000 5,377
Rank Organisation 207,000 1,643
Unilever 55,000 1,023
--------
Total United Kingdom 20,864
--------
Total Foreign Common Stocks
(Cost $194,622,776) $208,240
--------
Total Investments (95.7% of Net Assets)
(Cost $194,622,776) $208,240
========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
FOR DESCRIPTIONS OF ABBREVIATIONS, PLEASE SEE PAGE 101.
F-25
<PAGE>
STATEMENT OF NET ASSETS
==================================================================
STI CLASSIC FUNDS MAY 31, 1996
SUNBELT EQUITY FUND
- ------------------------------------------------------------------
MARKET
SHARES VALUE (000)
- ------------------------------------------------------------------
COMMON STOCKS (96.3%)
AEROSPACE & DEFENSE (1.1%)
Tech-Sym * 146,316 $ 4,993
--------
AIR TRANSPORTATION (3.9%)
Atlantic Southeast Airlines 190,960 5,060
Comair 318,408 8,358
Southwest Airlines 139,901 3,830
--------
Total Air Transportation 17,248
--------
BANKS (2.8%)
CCB Financial 64,475 3,353
Eagle Bancshares 78,426 1,314
First Tennessee National 125,577 4,223
Hibernia, Cl A 230,693 2,538
Texas Regional Bancshares, Cl A 43,740 1,072
--------
Total Banks 12,500
--------
BUILDING & CONSTRUCTION (1.0%)
Beazer Homes USA* 89,605 1,534
Centex 89,994 2,711
--------
Total Building & Construction 4,245
--------
BUILDING & CONSTRUCTION SUPPLIES (1.4%)
American Buildings* 111,881 3,440
NCI Building Systems* 78,427 2,686
--------
Total Building & Construction Supplies 6,126
--------
BUILDING-MOBILE HOMES (2.9%)
Clayton Homes 167,943 3,233
Oakwood Homes 65,759 3,189
Palm Harbor Homes* 100,222 2,781
Redman Industries* 175,439 3,838
--------
Total Building-Mobile Homes 13,041
--------
COMMUNICATIONS EQUIPMENT (1.3%)
Glenayre Technologies* 113,833 5,606
--------
COMPUTER SOFTWARE & SERVICES (5.1%)
Harbinger* 102,328 2,456
Landmark Graphics* 148,237 2,779
National Data 115,701 4,368
Nichols Research* 129,689 4,182
Optical Data Systems* 47,458 1,092
SCB Computer Technology* 82,993 1,743
Sterling Commerce* 64,475 2,829
Sterling Software* 40,622 3,270
--------
Total Computer Software & Services 22,719
--------
ELECTRONICS (0.7%)
SCI Systems* 73,747 3,319
--------
ENVIRONMENTAL SERVICES (1.0%)
USA Waste Services* 147,491 4,351
--------
FINANCE-MORTGAGE (0.6%)
Triad Guaranty* 80,530 2,879
--------
FINANCE-REIT (1.7%)
Equity Inns 259,867 3,086
Felcor Suite Hotels 104,828 3,237
Winston Hotels 115,953 1,333
--------
Total Finance-REIT 7,656
--------
FINANCIAL SERVICES (3.2%)
Capital One Financial 110,620 3,360
Medaphis* 284,812 10,752
--------
Total Financial Services 14,112
--------
FOOD, BEVERAGE & TOBACCO (1.0%)
Tyson Foods 174,961 4,287
--------
HOTELS & LODGING (1.1%)
Promus Hotel* 175,392 4,823
--------
INSURANCE (3.9%)
Compdent* 135,960 6,594
Jefferson-Pilot 65,080 3,343
Provident* 92,296 3,311
United Finance 136,100 4,134
--------
Total Insurance 17,382
--------
F-26
<PAGE>
STATEMENT OF NET ASSETS
================================================================
STI CLASSIC FUNDS MAY 31, 1996
SUNBELT EQUITY FUND--CONTINUED
- ----------------------------------------------------------------
MARKET
SHARES VALUE (000)
- ----------------------------------------------------------------
LEISURE (1.1%)
Play By Play Toys & Novelties* 92,182 $ 1,302
Varsity Spirit 209,341 3,506
--------
Total Leisure 4,808
--------
LUMBER & WOOD PRODUCTS (0.6%)
American Homestar* 119,786 2,665
--------
MACHINERY (4.5%)
Agco 92,182 2,777
Blount International 330,327 10,983
Greenfield Industries 116,591 4,401
Roper Industries 40,601 1,908
--------
Total Machinery 20,069
--------
MEASURING DEVICES (3.1%)
Input/Output 344,567 13,912
--------
MEDICAL PRODUCTS & SERVICES (4.7%)
Gulf South Medical Supply* 210,931 10,072
Phycor* 116,439 6,317
Quorum Health Group* 186,951 4,791
--------
Total Medical Products & Services 21,180
--------
METAL PRODUCTS & SERVICES (2.5%)
Citation* 283,174 4,177
Imco Recycling 110,745 2,575
Wolverine Tube* 113,942 4,159
--------
Total Metal Products & Services 10,911
--------
MISCELLANEOUS BUSINESS SERVICES (2.8%)
Norrell 106,725 4,416
PMT Services* 231,008 7,854
--------
Total Miscellaneous Business Services 12,270
--------
MISCELLANEOUS CONSUMER SERVICES (1.9%)
Accustaff* 240 8
Central Parking 85,827 2,661
Service International 101,849 5,691
--------
Total Miscellaneous Consumer Services 8,360
--------
OIL & GAS-DRILLING (4.2%)
Diamond Offshore Drilling* 120,600 5,774
Ensco International* 107,975 3,280
Global Marine* 383,022 4,692
Sonat Offshore Drilling 92,709 4,914
--------
Total Oil & Gas-Drilling 18,660
--------
OIL & GAS-EXPLORATION (1.9%)
Nuevo Energy* 148,647 4,608
Stone Energy* 214,614 3,997
--------
Total Oil & Gas-Exploration 8,605
--------
OIL & GAS-INTEGRATED (1.6%)
Louisiana Land & Exploration 73,838 3,978
Union Pacific Resources Group 119,934 3,088
--------
Total Oil & Gas-Integrated 7,066
--------
OIL & GAS-MACHINERY & EQUIPMENT (1.8%)
Baker Hughes 70,386 2,208
Tidewater 135,956 5,608
--------
Total Oil & Gas-Machinery &
Equipment 7,816
--------
OIL & GAS-MARKETING (0.9%)
World Fuel Services 230,924 4,128
--------
OIL & GAS-SERVICES (2.6%)
Global Industries* 92,183 2,858
Offshore Logistics* 92,182 1,337
Pride Petroleum Service* 255,444 4,406
Production Operators 79,513 2,902
--------
Total Oil & Gas-Services 11,503
--------
PAPER & PAPER PRODUCTS (2.5%)
Inbrand* 262,435 7,643
Rock Tenn, Cl A 176,973 3,495
--------
Total Paper & Paper Products 11,138
--------
PRINTING & PUBLISHING (0.5%)
Cadmus Communications 144,169 2,379
--------
F-27
<PAGE>
===================================================================
- -------------------------------------------------------------------
MARKET
SHARES VALUE (000)
- -------------------------------------------------------------------
RETAIL (9.0%)
Autozone* 203,852 $ 7,160
Bombay* 253,132 1,962
Books-A-Million* 367,876 4,368
Claire's Stores 222,839 5,571
Discount Auto Parts* 219,123 5,642
Dollar General 161,548 4,483
Food Lion, Cl A 11,187 86
Friedman's, Cl A* 148,271 4,189
Movie Gallery* 139,340 4,250
Sports & Recreation* 222,153 2,110
--------
Total Retail 39,821
--------
RETAIL-RESTAURANT (3.3%)
Brinker International* 184,260 3,086
Cracker Barrel Old Country Stores 127,591 3,381
Longhorn Steaks* 93,233 2,401
Luby's Cafeterias 147,490 3,632
O'Charleys* 112,066 1,401
Sonic* 29,876 717
--------
Total Retail-Restaurant 14,618
--------
SEMI-CONDUCTORS/INSTRUMENTS (0.7%)
AVX 92,123 2,004
Kemet* 53,241 1,185
--------
Total Semi-Conductors/Instruments 3,189
--------
STEEL & STEEL WORKS (0.6%)
Maverick Tube* 204,034 2,678
--------
TELEPHONES & TELECOMMUNICATION (1.3%)
Harris 52,056 3,364
Premiere Technologies* 37,418 1,768
U.S. Long Distance* 22,407 804
--------
Total Telephones & Telecommunication 5,936
--------
TRANSPORTATION SERVICES (1.3%)
United Transnet* 222,334 5,642
--------
TRUCK & PARTS-HEAVY DUTY (1.8%)
Miller Industries* 256,869 8,059
--------
TRUCKING (2.5%)
American Freightways* 458,778 5,849
M.S. Carriers* 46,096 887
MTL* 84,290 1,465
USA Truck* 233,217 2,682
--------
Total Trucking 10,883
--------
WHOLESALE (5.9%)
Barnett* 188,947 4,535
Isolyser* 317,432 4,365
Kent Electronics* 183,645 6,519
Richfood Holdings 129,056 4,323
Serologicals* 63,717 1,657
Watsco 161,176 4,855
--------
Total Wholesale 26,254
--------
Total Common Stocks (Cost $329,210,358) 427,837
--------
CONVERTIBLE BONDS (3.0%)
Food Lion, Convertible to
126.582 shares (B) 5.000%, 06/01/03 $1,873 1,981
HEALTHSOUTH Rehabilitation,
Convertible to 26.5781 shares
5.000%, 04/01/01 4,413 8,407
Pride Petroleum Services,
Convertible to 81.6327 shares
6.250%, 02/15/06 1,872 2,979
--------
Total Convertible Bonds
(Cost $11,611,272) 13,367
--------
F-28
<PAGE>
STATEMENT OF NET ASSETS
===================================================================
STI CLASSIC FUNDS MAY 31, 1996
SUNBELT EQUITY FUND--CONCLUDED
- -------------------------------------------------------------------
FACE AMOUNT MARKET
(000) VALUE (000)
- -------------------------------------------------------------------
REPURCHASE AGREEMENT (0.1%)
Swiss Bank 5.27%, dated 05/31/96,
matures 06/03/96, repurchase
price $432,113 (collateralized by
U.S. Treasury Bond, par value
$746,000, 8.75%, 05/15/20:
market value $888,829) 432 $ 432
--------
Total Repurchase Agreement
(Cost $431,924) 432
--------
Total Investments (99.4%)
(Cost $341,253,554) 441,636
--------
OTHER ASSETS AND LIABILITIES (0.6%)
Total Other Assets and Liabilities, Net 2,501
--------
NET ASSETS:
Fund shares of the Trust Class (unlimited
authorization --no par value) based
on 29,227,841 outstanding shares of
benefical interest 298,601
Fund shares of the Investor Class (unlimited
authorization--no par value) based on
2,078,593 outstanding shares of
beneficial interest 20,386
Fund shares of the Flex Class (unlimited
authorization--no par value) based
on 193,565 outstanding shares of
beneficial interest 2,386
Accumulated net realized gain on
investments 22,383
Unrealized appreciation on investments 100,381
--------
Total Net Assets (100.0%) $444,137
========
Net Asset Value, Offering Price and
Redemption Price Per Share--Trust Shares $ 14.11
========
Net Asset Value and Redemption Price
Per Share--Investor Shares $ 13.95
========
Maximum Public Offering Price Per
Share--Investor Shares
($13.95 (DIVIDED BY) 96.25%) $ 14.49
========
Net Asset Value, Offering Price and
Redemption Price Per Share--Flex Shares (1) $ 13.97
========
(1) The Flex Shares have a contingent sales charge. For a
description of a possible sales charge, see notes to the
financial statements.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
FOR DESCRIPTIONS OF ABBREVIATIONS, PLEASE SEE PAGE 101.
F-29
<PAGE>
SCHEDULE OF INVESTMENTS
===================================================================
STI CLASSIC FUNDS MAY 31, 1996
INVESTMENT GRADE TAX-EXEMPT BOND FUND
- -------------------------------------------------------------------
FACE AMOUNT MARKET
(000) VALUE (000)
- -------------------------------------------------------------------
MUNICIPAL BONDS (89.8%)
ARIZONA (2.0%)
Phoenix, GO, Ser A
5.000%, 07/01/19 $1,600 $ 1,400
Phoenix, Ser B Callable
07/01/05 @ 100
5.500%, 07/01/08 2,000 2,005
--------
Total Arizona 3,405
--------
FLORIDA (12.8%)
Dade County, Water & Sewer
Systems, RB (FGIC)
6.250%, 10/01/10 1,000 1,064
Jacksonville, Electric Authority
Revenue, RB, Callable
10/01/00 @ 101.50
6.750%, 10/01/05 1,000 1,085
Okeechobee Correctional Facility,
COP (AMBAC)
5.800%, 03/01/03 1,000 1,041
Palm Beach County, Solid Waste
Resource Recovery Revenue, RB
Callable 12/01/04 @ 100 (MBIA)
6.000%, 12/01/06 1,500 1,575
Reedy Creek, Improvement District
Utility Revenue Ser 1991-1, RB,
Pre-Refunded 10/01/01 @ 101
(MBIA) 6.500%, 10/01/16 3,000 3,274
State Board of Education Capital
Outlay, Ser C, Pre-Refunded
06/01/02 @ 101 6.625%, 06/01/22 3,000 3,304
State Bond Finance Department,
Environmental Department,
Preservation 2000 Project,
Ser A (MBIA) 5.000%, 07/01/03 3,000 2,993
5.000%, 07/01/04 5,000 4,956
Volusia County, Master Lease
Program, COP, Callable
08/01/01 @ 102 (FSA)
6.625%, 08/01/06 2,000 2,210
--------
Total Florida 21,502
--------
GEORGIA (0.9%)
Downtown Savannah Authority,
Chatham County Detention
Project, Ser A, RB, Pre-Refunded
01/01/99 @ 102 6.400%, 01/01/01 1,415 1,509
--------
ILLINOIS (2.6%)
Chicago, GO, Callable 07/01/07
@ 100 (AMBAC) 5.900%, 01/01/09 1,680 1,705
Chicago, Motor Fuel Tax Revenue,
RB, Pre-Refunded 01/01/01
@ 102 (AMBAC) 7.100%, 01/01/11 1,500 1,665
Chicago, Wastewater Transmission
Revenue, RB (FGIC) 5.375%, 01/01/13 1,100 1,046
--------
Total Illinois 4,416
--------
IOWA (0.7%)
LeClaire, Electric Authority
Revenue, RB, Mandatory
Put 09/01/96 @ 100
4.125%, 09/01/26 1,185 1,186
--------
LOUISIANA (1.2%)
State Refunding GO, Ser A (FGIC)
6.000%, 08/01/00 2,000 2,085
--------
MARYLAND (3.8%)
Stadium Authority, Sports
Facility, RB
5.300%, 03/01/07 1,205 1,194
5.300%, 03/01/08 1,000 983
5.400%, 03/01/10 1,125 1,098
State Industrial Development
Authority, Bon Secours Health
Systems Project, RB (MBIA)
5.500%, 08/15/20 1,940 1,814
Worcester County, Public
Improvements Project, RB
5.400%, 08/01/11 1,315 1,262
--------
Total Maryland 6,351
--------
F-30
<PAGE>
SCHEDULE OF INVESTMENTS
===================================================================
STI CLASSIC FUNDS MAY 31, 1996
INVESTMENT GRADE TAX-EXEMPT BOND FUND--CONCLUDED
- -------------------------------------------------------------------
FACE AMOUNT MARKET
(000) VALUE (000)
- -------------------------------------------------------------------
MICHIGAN (5.5%)
Detroit, School District, Ser A,
GO (AMBAC)
6.250%, 05/01/06 $1,040 $ 1,106
6.500%, 05/01/07 1,165 1,258
6.500%, 05/01/08 2,305 2,481
6.500%, 05/01/09 2,455 2,642
Underground Storage Tank
Financial Assurance Authority,
Ser I, RB (AMBAC)
5.000%, 05/01/01 1,750 1,757
--------
Total Michigan 9,244
--------
MINNESOTA (14.4%)
Burnsville, Independent School
District #191, Ser A, GO
4.875%, 02/01/13 1,450 1,269
State GO
4.750%, 05/01/00 4,710 4,734
4.750%, 05/01/01 2,430 2,436
5.000%, 08/01/01 4,000 4,055
State RB, Ser A, (AMBAC)
5.000%, 06/30/99 6,445 6,509
5.000%, 06/30/00 5,000 5,031
--------
Total Minnesota 24,034
--------
MISSISSIPPI (1.7%)
State GO, Callable 12/01/04 @ 100
6.400%, 12/01/07 2,595 2,767
--------
MISSOURI (1.4%)
State Environmental Improvements
Energy Resource Authority,
Pollution Control, RB
5.750%, 12/01/02 2,305 2,391
--------
NEW JERSEY (2.1%)
State GO, Ser E
5.000%, 07/15/00 3,475 3,518
--------
NEW YORK (10.4%)
Battery Park City Authority, RB,
Pre-Refunded 05/01/99 @ 100
6.500%, 05/01/20 10,000 10,563
State Dorm Authority, State
University Educational Facilities,
RB (FGIC)
5.875%, 05/15/11 2,000 2,060
State GO, Pre-Refunded 03/01/00
@ 102 (AMBAC)
7.100%, 03/01/20 1,650 1,821
State Local Assistance Corporation,
Ser A, RB, Pre-Refunded
04/01/01 @ 102
7.000%, 04/01/16 1,065 1,186
Triborough Bridge & Tunnel
Authority, Ser B, RB
5.000%, 01/01/14 2,000 1,828
--------
Total New York 17,458
--------
OHIO (3.4%)
Cleveland, Waterworks First
Mortgage, Ser F-92 A, RB,
Pre-Refunded 01/01/02
@ 102 (AMBAC)
6.500%, 01/01/21 3,250 3,567
State Building Authority, State
Correctional Facilities, Ser C,
RB, Callable 10/01/1996 @ 102
8.400%, 04/01/97 2,000 2,064
--------
Total Ohio 5,631
--------
OKLAHOMA (2.7%)
State Industrial Authority Health
Systems, Integris Baptist Medical
Center, RB, (AMBAC)
6.000%, 08/15/10 1,000 1,025
Tulsa, Hospital Revenue, RB,
Pre-Refunded 06/01/03 @ 102
7.200%, 06/01/17 3,000 3,439
--------
Total Oklahoma 4,464
--------
F-31
<PAGE>
- -------------------------------------------------------------------
FACE AMOUNT MARKET
(000) VALUE (000)
- -------------------------------------------------------------------
PUERTO RICO (14.4%)
Commonwealth Highway &
Transportation Authority,
Ser Z, RB (FSA)
6.000%, 07/01/18 $10,500 $ 10,920
Commonwealth Public
Improvements, RB, Pre-Refunded
07/01/02 @ 101.50
6.800%, 07/01/21 7,000 7,805
Commonwealth Unlimited
Tax GO (MBIA)
6.500%, 07/01/07 1,500 1,661
Electric & Power Authority, Ser K, RB,
Pre-Refunded 07/01/97 @ 102
9.250%, 07/01/06 2,500 2,690
Electric Power Authority, Ser W,
RB (MBIA)
6.000%, 07/01/01 1,000 1,049
--------
Total Puerto Rico 24,125
--------
SOUTH CAROLINA (0.7%)
State Public Service Authority, Ser B,
RB, Pre-Refunded 07/01/01 @ 102
7.100%, 07/01/21 1,000 1,120
--------
TEXAS (2.7%)
Alief, Independent School
District, GO (PSFG)
5.000%, 02/15/13 1,025 935
5.000%, 02/15/14 1,025 923
State Unlimited GO, College
Student Loan, Callable
08/01/02 @ 100 (F)
6.200%, 08/01/04 1,420 1,491
Wylie, Independent School
District, GO, Callable
08/15/11 @ 100 (PSFG)
6.900%, 08/15/13 1,100 1,213
--------
Total Texas 4,562
--------
VIRGINIA (4.6%)
Southeastern Public Service
Authority, Ser A (MBIA)
5.000%, 07/01/07 5,700 5,493
State Transportation Board,
U.S. Route 58 Corridor
Project, Ser A, RB
5.250%, 05/15/12 2,250 2,129
--------
Total Virginia 7,622
--------
WASHINGTON (1.8%)
Tacoma, Department of Public
Utilities, RB, Callable
07/01/96 @ 102
8.600%, 01/01/97 2,000 2,048
9.000%, 01/01/00 1,000 1,023
--------
Total Washington 3,071
--------
Total Municipal Bonds
(Cost $151,156,212) 150,461
--------
CASH EQUIVALENT (4.5%)
SEI Tax Exempt Trust Institutional
Tax Free Portfolio 7,509 7,509
--------
Total Cash Equivalent
(Cost $7,509,478) 7,509
--------
Total Investments (94.3% of Net Assets)
(Cost $158,665,690) 157,970
========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
FOR DESCRIPTIONS OF ABBREVIATIONS, PLEASE SEE PAGE 101.
F-32
<PAGE>
SCHEDULE OF INVESTMENTS
===================================================================
STI CLASSIC FUNDS MAY 31, 1996
FLORIDA TAX-EXEMPT BOND FUND
- -------------------------------------------------------------------
FACE AMOUNT MARKET
(000) VALUE (000)
- -------------------------------------------------------------------
MUNICIPAL BONDS (91.2%)
FLORIDA (72.8%)
Brevard County, Health Facilities,
Wuesthoff Memorial Hospital
Project, RB (MBIA)
6.250%, 04/01/06 $ 930 $ 996
Brevard County, School Board,
COP, Ser A (AMBAC)
5.400%, 07/01/12 1,000 963
Dade County, Aviation Revenue,
Ser A, RB, Callable 10/01/05
@ 102 (AMBAC)
6.000%, 10/01/09 500 517
Dade County, Seaport Revenue,
RB (MBIA)
6.200%, 10/01/07 750 801
6.200%, 10/01/08 750 797
Dade County, Water & Sewer
System, RB (FGIC)
6.250%, 10/01/07 755 815
6.250%, 10/01/09 750 803
Deerfield Beach, Water & Sewer
Revenue, RB (FGIC)
6.125%, 10/01/06 250 267
Florida Keys, Aqueduct Authority
Revenue, RB, Pre-Refunded
09/01/01 @ 101 (AMBAC)
6.750%, 09/01/21 170 187
Gainesville Utility Systems,
Ser A, RB
5.750%, 10/01/09 500 511
Gulf Breeze, Local Government
Lien, Ser B, RB, Mandatory
Tender 12/01/08 (FGIC)
5.650%, 12/01/15 460 466
Gulf Breeze, Local Government
Lien, Ser B, RB, Mandatory
Tender 12/01/09 (FGIC)
5.750%, 12/01/15 410 416
Hillsborough County, Capital
Improvement Revenue,
RB (FGIC)
5.900%, 08/01/04 300 320
Hillsborough County, School
Board Revenue, COP, Callable
07/01/06 @ 100 (MBIA)
5.875%, 07/01/08 1,000 1,025
Hillsborough County, Tampa
Port Authority, RB, ETM,
Callable 06/01/05 @ 102
(FSA) (F)
5.600%, 06/01/07 500 500
Hillsborough County, University
Community Hospital,
RB (MBIA)
6.500%, 08/15/19 145 156
Indian Trace Community, Water
Management Split Benefit,
Ser A-1, RB, Callable 05/01/05
@ 102 (MBIA)
5.500%, 05/01/07 455 458
Jacksonville, Water & Sewer
Revenue, RB, Callable
10/01/06 @ 102 (MBIA)
5.125%, 10/01/15 500 454
Key West, Sewer Revenue, Ser A,
RB, Pre-Refunded 10/01/96
@ 103 (FGIC)
7.125%, 10/01/26 500 520
Lakeland, Electric & Water
Revenue, RB
6.650%, 10/01/98 100 105
Lakeland, Hospital Systems,
Lakeland Regional Medical
Center Project, RB Callable
11/15/06 @ 102 (MBIA)
5.000%, 11/15/11 1,570 1,444
Miami, Health Facilities, Mercy
Hospital Project, Ser A,
RB Callable 8/15/04 @ 102 (AMBAC)
5.125%, 08/15/20 1,700 1,500
North Broward, Hospital District
Revenue, RB (MBIA)
5.950%, 01/01/01 1,000 1,045
F-33
<PAGE>
===================================================================
- -------------------------------------------------------------------
FACE AMOUNT MARKET
(000) VALUE (000)
- -------------------------------------------------------------------
Orange County, Health
Facilities Authority,
Pre-Refunded Municipal
Certificates, RB, ETM
5.700%, 10/01/12 $ 500 $ 504
Orange County, Public Facilities
Revenue, Ser A, RB, Callable
10/01/04 @ 102 (AMBAC)
5.650%, 10/01/07 200 204
Orlando, Community Water &
Electric Revenue, RB, ETM
9.625%, 10/01/03 450 578
Orlando, Community Water &
Electric Revenue, Ser D, RB
6.750%, 10/01/17 500 563
Orlando, Parking Facilities
Revenue, Ser A, RB Callable
10/01/04 @ 101 (FGIC)
5.000%, 10/01/12 1,000 911
Palm Beach, Health Facilities
Revenue, JFK Medical Center
Project, RB, Pre-Refunded
12/01/03 @ 102 (FSA)
5.750%, 12/01/14 365 389
Pinellas County, Morton Plant
Health Systems Project, RB,
Callable 11/15/03 @ 102
(MBIA)
5.500%, 11/15/08 1,500 1,494
Plant City, Utility System
Revenue, RB, Callable
10/01/04 @ 101 (MBIA)
6.000%, 10/01/15 400 410
Reedy Creek, Utility Revenue,
Ser 1991-1, RB, Pre-Refunded
10/01/01 @ 101 (MBIA)
6.250%, 10/01/11 240 259
Sarasota, Sarasota-Manatee
Airport Authority, Ser B,
Callable 08/01/96 @ 102
7.700%, 08/01/06 200 205
South Miami, Health Facilities
Revenue, Baptist Health
Systems, RB, Callable
10/01/05 @ 102 (MBIA)
5.250%, 10/01/09 1,000 963
State Board of Education
Capital Outlay, RB
6.600%, 06/01/98 125 130
State Board of Education
Capital Outlay, Ser B, GO,
Callable 06/01/02 @ 101
5.900%, 06/01/12 450 452
State Board of Education
Capital Outlay, Ser B, RB,
Callable 06/01/02 @ 101
6.000%, 06/01/15 170 171
State Board of Education, Public
Education Administration
Cap, Ser B, GO Pre-Refunded
06/01/97 @ 102
7.750%, 06/01/16 425 450
State Board of Education, Ser C,
GO, ETM, Pre-Refunded
06/01/97 @ 102
7.100%, 07/01/07 190 196
State Board of Education,
Ser E, GO, Callable
06/01/05 @ 101
5.000%, 06/01/20 2,000 1,750
State Board of Finance
Department, General Services
Revenue, Preservation 2000
Project, Ser A, RB (AMBAC)
5.300%, 07/01/04 460 466
State Department of Natural
Resources, Preservation 2000
Project, Ser A, RB,
Callable 07/01/01 @ 102 (AMBAC)
6.750%, 07/01/06 80 88
State Pollution Control, Ser N,
GO, Callable 07/01/96 @ 102
8.000%, 07/01/97 420 427
F-34
<PAGE>
SCHEDULE OF INVESTMENTS
===================================================================
STI CLASSIC FUNDS MAY 31, 1996
FLORIDA TAX-EXEMPT BOND FUND--CONCLUDED
- -------------------------------------------------------------------
FACE AMOUNT MARKET
(000) VALUE (000)
- -------------------------------------------------------------------
State Transportation Authority,
GO, Pre-Refunded 07/01/00
@ 102
7.375%, 07/01/11 $ 100 $ 112
State Turnpike Authority Revenue,
Ser A, RB, Callable 07/01/03
@ 101 (FGIC)
5.000%, 07/01/16 500 444
State Turnpike Authority, Ser A,
RB, Pre-Refunded 07/01/02
@ 101 (FGIC)
6.350%, 07/01/22 970 1,056
-------
Total Florida 27,288
-------
PUERTO RICO (18.4%)
Commonwealth, GO (MBIA)
4.500%, 07/01/03 2,100 2,061
Commonwealth, GO,
Pre-Refunded 07/01/98 @ 102
8.000%, 07/01/06 500 546
Commonwealth, Highway &
Transportation Authority,
Ser Y, RB (FSA)
5.000%, 07/01/16 750 678
Commonwealth, Highway &
Transportation Authority,
Ser Z, RB (MBIA)
6.250%, 07/01/14 2,000 2,140
Electric Power Authority
Revenue, Ser S, RB
5.500%, 07/01/00 200 206
Public Buildings Authority
Revenue, Guaranteed
Government Facilities, Ser A,
RB (AMBAC)
6.250%, 07/01/14 750 798
Public Buildings Authority
Revenue, Public Education
& Health Facilities, RB
5.300%, 07/01/03 475 479
-------
Total Puerto Rico 6,908
-------
Total Municipal Bonds
(Cost $34,552,846) 34,196
-------
CASH EQUIVALENTS (3.8%)
AIM Management Institutional
Tax-Free Portfolio 1,352 1,352
SEI Tax-Exempt
Trust Institutional Tax-Free
Portfolio 102 102
-------
Total Cash Equivalents
(Cost $1,454,437) 1,454
-------
Total Investments (95.0% of Net Assets)
(Cost $36,007,283) 35,650
=======
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
FOR DESCRIPTIONS OF ABBREVIATIONS, PLEASE SEE PAGE 101.
F-35
<PAGE>
STATEMENT OF NET ASSETS
===================================================================
STI CLASSIC FUNDS MAY 31, 1996
TENNESSEE TAX-EXEMPT BOND FUND
- -------------------------------------------------------------------
FACE AMOUNT MARKET
(000) VALUE (000)
- -------------------------------------------------------------------
MUNICIPAL BONDS (98.0%)
TENNESSEE (74.7%)
Chattanooga, Health Facilities
Board, Memorial Hospital
Project, Ser A, RB (MBIA)
6.300%, 09/01/05 $ 20 $ 21
Chattanooga, GO, Callable
08/01/02 @ 102
5.900%, 08/01/05 50 52
Chattanooga-Hamilton County,
Erlanger Medical Center Project,
RB (FSA)
5.600%, 10/01/08 50 50
Hamilton County, GO, Callable
07/01/04 @ 102
5.500%, 07/01/08 100 100
Harpeth Valley, Utility District
Revenue, RB, Callable
09/01/03 @ 102
5.625%, 09/01/07 100 100
Jackson, Water & Sewer Utilities
Revenue, RB, Callable 07/01/06
@ 100 (AMBAC)
5.250%, 07/01/11 200 190
Johnson City, Water & Sewer
Regulation System, GO, Callable
05/01/06 @ 100 (AMBAC)
5.800%, 05/01/09 100 101
Kingsport, GO
5.500%, 09/01/02 50 52
Knox County, First Utility District
Sewer Revenue, RB, ETM
7.250%, 12/01/05 55 64
Knox County, Health Facilities
Board, Mercy Health Systems,
Ser B, RB, Callable 09/01/05
@ 100 (AMBAC)
5.875%, 09/01/15 50 50
Knoxville, Natural Gas Revenue,
Ser E, Callable 03/01/03 @ 100
5.900%, 03/01/10 100 100
Madison County, Ser A, GO,
Callable 08/01/01 @ 102
6.000%, 08/01/05 40 41
Madison County, Water Revenue,
RB, Callable 02/01/08 @ (MBIA)
5.500%, 02/01/09 250 244
Memphis-Shelby County, Airport
Authority, RB, Callable 09/01/05
@ 100 (MBIA)
5.550%, 09/01/08 50 50
Memphis-Shelby County, Airport
Authority, Ser B, RB (MBIA) (F)
6.500%, 02/15/09 85 90
Metro Government, Nashville &
Davidson County, Electric System
Revenue, RB
5.625%, 05/15/14 200 194
Metro Government, Nashville &
Davidson County, Water & Sewer
Revenue, RB, ETM
6.500%, 12/01/14 225 242
Metro Government, Nashville &
Davidson County, Convention
Center Project, GO, ETM
6.250%, 03/01/10 200 214
Metro Government, Nashville &
Davidson County, Electric
Revenue, RB, ETM
6.000%, 07/01/04 100 107
Metro Government, Nashville &
Davidson County, Correctional
Facility Impovements, RB,
Callable 09/01/01 @ 102
7.000%, 09/01/11 100 108
Metro Government, Nashville &
Davidson County, Water &
Sewer, RB, Callable 01/01/04
@ 100 (AMBAC)
5.900%, 01/01/07 100 103
Metro Government, Nashville &
Davidson County, Vanderbilt
University Hospital, RB, ETM,
Callable 07/01/06 @ 100
6.100%, 07/01/10 100 107
Metro Government, Nashville &
Davidson County, Vanderbilt
University, Ser A, RB
5.500%, 01/01/06 125 126
F-36
<PAGE>
STATEMENT OF NET ASSETS
===================================================================
STI CLASSIC FUNDS MAY 31, 1996
TENNESSEE TAX-EXEMPT BOND FUND--CONCLUDED
- -------------------------------------------------------------------
FACE AMOUNT MARKET
(000) VALUE (000)
- -------------------------------------------------------------------
TENNESSEE --CONTINUED
Shelby County, GO
5.100%, 03/01/13 $300 $ 281
Shelby County, School Boards,
GO, Callable 03/01/02 @ 101
5.800%, 03/01/10 300 301
Shelby County, Ser A, GO
5.500%, 03/01/10 300 293
Sullivan County, Health Facilities
Board, Holston Valley Health,
RB, Callable 02/15/05
@ 100 (MBIA)
5.750%, 02/15/13 50 49
State GO, Ser C
5.000%, 03/01/04 100 100
State GO, Ser A, Callable
03/01/07 @ 100
5.500%, 03/01/09 50 50
State Local Development Authority,
State Loan Program, Ser A, RB,
Callable 03/01/04 @ 100
7.000%, 03/01/12 50 54
State Metropolitan Nashville Airport,
Ser B, RB, Pre-Refunded 07/01/01
@ 102 (FGIC)
7.750%, 07/01/06 100 115
State Housing Development Agency,
Ser A, RB (AMBAC)
6.550%, 01/01/08 50 52
State School Board Authority, Higher
Education Facilities, Ser A, RB,
Callable 05/01/02 @ 101.5
5.800%, 05/01/04 150 155
Williamson County, Rural School,
GO, Callable 09/01/06 @ 100
5.400%, 09/01/07 50 49
------
Total Tennessee 4,005
------
PUERTO RICO (23.3%)
Commonwealth, GO, Pre-Refunded
07/01/98 @ 102
8.000%, 07/01/06 500 547
Commonwealth, GO, Callable
07/01/05 @ 100 (MBIA)
5.500%, 07/01/13 175 170
Commonwealth, Highway &
Transportation Authority,
Ser Z, RB (MBIA)
6.250%, 07/01/15 500 533
------
Total Puerto Rico 1,250
------
Total Municipal Bonds
(Cost $5,287,821) 5,255
------
CASH EQUIVALENT (0.7%)
SEI Tax-Exempt Trust
Institutional Tax-Free Portfolio 36 36
------
Total Cash Equivalent
(Cost $36,106) 36
------
Total Investments (98.7%)
(Cost $5,323,927) 5,291
------
OTHER ASSETS AND LIABILITIES, NET (1.3%)
Total Other Assets and Liabilities, Net 72
------
NET ASSETS:
Fund shares of the Trust Class (unlimited
authorization --no par value) based
on 193,781 outstanding shares of
benefical interest 1,813
Fund shares of the Investor Class (unlimited
authorization--no par value) based
on 161,737 outstanding shares of
beneficial interest 1,528
Fund shares of the Flex Class (unlimited
authorization--no par value) based
on 214,422 outstanding shares of
beneficial interest 2,056
Accumulated net realized loss on investments (1)
Unrealized depreciation on investments (33)
------
Total Net Assets (100.0%) $5,363
======
F-37
<PAGE>
- -------------------------------------------------------------------
- -------------------------------------------------------------------
NET ASSETS--CONTINUED:
Net Asset Value, Offering Price and Redemption
Price Per Share--Trust Shares $ 9.40
======
Net Asset Value Redemption Price
Per Share--Investor Shares $ 9.42
======
Maximum Public Offering Price Per Share--
Investor Shares ($9.42 (DIVIDED BY) 96.25%) $ 9.79
======
Net Asset Value, Offering Price and Redemption
Price Per Share--Flex Shares (1) $ 9.41
======
(1) The Flex Shares have a contingent sales charge. For a
description of a possible sales charge, see notes to the
financial statements.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
FOR DESCRIPTIONS OF ABBREVIATIONS, PLEASE SEE PAGE 101.
F-38
<PAGE>
STATEMENT OF NET ASSETS
===================================================================
STI CLASSIC FUNDS MAY 31, 1996
GEORGIA TAX-EXEMPT BOND FUND
- -------------------------------------------------------------------
FACE AMOUNT MARKET
(000) VALUE (000)
- -------------------------------------------------------------------
MUNICIPAL BONDS (93.0%)
GEORGIA (93.0%)
Albany-Dougherty County, Georgia
Hospital Authority, Ser B,
Anticipation Cerificate,
Pre-Refunded 09/01/00 @ 102
(AMBAC)
7.500%, 09/01/20 $ 255 $ 287
Athens, Water & Sewer Revenue,
RB (ETM)
5.700%, 07/01/00 165 172
Atlanta, Airport Facilities Revenue,
Callable Anytime @ 100 (AMBAC)
6.300%, 01/01/07 500 501
Augusta, Water & Sewer Revenue,
RB, Callable 05/01/02 @ 102
6.200%, 05/01/03 130 138
Bibb County, GO
7.000%, 01/01/04 985 1,102
Cherokee County, School District,
GO, Callable 06/01/02 @ 102
6.375%, 06/01/07 605 645
Clayton County, Water & Sewer
Authority, RB (AMBAC)
5.350%, 05/01/09 1,500 1,463
Cobb County & Marietta, Coliseum &
Exhibit Hall Authority, RB (MBIA)
5.500%, 10/01/12 940 920
Cobb County & Marietta, Water
Authority, RB
5.100%, 11/01/04 1,000 1,003
Cobb County, GO
5.000%, 02/01/03 1,025 1,025
Columbus, Water & Sewer, RB (FGIC)
6.300%, 05/01/07 300 318
Dalton-Whitfield County, Hospital
Authority, RB, Pre-Refunded
07/01/00 @ 102
7.000%, 07/01/03 355 391
DeKalb County, Development
Authority, Emory University
Project, RB
5.375%, 11/01/05 650 657
DeKalb County, Development Authority,
Emory University Project, Ser A, RB
5.200%, 11/01/08 500 485
DeKalb County, RB, Pre-Refunded
01/01/02 @ 102
6.350%, 01/01/05 510 555
DeKalb County, School District,
Ser A, GO
6.250%, 07/01/11 1,250 1,345
DeKalb County, Water & Sewer
Authority, RB, Callable
10/01/03 @ 102
5.125%, 10/01/14 1,455 1,309
East Point Building Authority, RB
(AMBAC)
4.800%, 02/01/07 535 506
Fayette County, School District, GO
6.250%, 03/01/07 450 487
Fayette County, Water Authority,
RB (MBIA) (ETM)
8.550%, 10/01/01 300 352
Forsyth County, GO
6.500%, 07/01/06 1,000 1,097
Fulton County, Hospital Authority,
Northside Hospital Project, Ser B,
RB, Pre-Refunded 10/01/02
@ 102 (MBIA)
6.625%, 10/01/16 575 638
6.600%, 10/01/11 1,250 1,386
Gwinnett County, Recreation
Authority, RB
5.875%, 02/01/07 1,390 1,442
Gwinnett County, School District,
Ser B
6.400%, 02/01/07 1,000 1,087
Hall County, GO
6.300%, 12/01/05 675 728
Henry County, School District,
Ser B, GO (MBIA)
5.500%, 08/01/01 350 361
Henry County, School District,
Ser A, GO
6.150%, 08/01/06 150 159
F-39
<PAGE>
===================================================================
- -------------------------------------------------------------------
FACE AMOUNT MARKET
(000) VALUE (000)
- -------------------------------------------------------------------
GEORGIA--CONTINUED
Henry County, GO
6.300%, 08/01/08 $ 300 $ 321
Henry County, Water & Sewer
Authority, GO
4.700%, 02/01/04 120 116
Housing Authority, Single Family
Mortgage, Ser B, Sub-series B-1, RB
5.550%, 12/01/07 550 553
Medical Center Hospital Authority,
Columbus Regional Healthcare
System, RB
6.000%, 08/01/06 1,000 1,049
Metropolitan Atlanta Rapid Transit
Authority, Sinking Fund
07/01/08 @ 100
7.000%, 07/01/11 875 973
Paulding County, School District,
Ser A
6.625%, 02/01/08 500 553
Private Colleges & Universities
Facilities Authority, Emory
University Project, Ser C, RB,
Callable 10/01/02 @ 102
5.900%, 10/01/04 305 320
Private Colleges & Universities
Facilities Authority, Spelman
College Project, RB (FGIC)
6.000%, 06/01/09 475 487
Rockdale County, School District, RB,
Pre-Refunded 01/01/99 @ 102
6.400%, 01/01/05 150 160
Savannah, Water & Sewer
Revenue, RB
6.450%, 12/01/04 1,000 1,099
State GO, Ser B, Pre-Refunded
07/01/99 @ 102
6.800%, 07/01/06 460 498
State GO, Ser C
6.500%, 04/01/08 1,000 1,107
Vidalia, Water & Sewer Revenue,
RB (ETM)
6.000%, 07/01/07 605 642
-------
Total Georgia 28,437
-------
Total Municipal Bonds
(Cost $29,017,611) 28,437
-------
CASH EQUIVALENTS (5.5%)
AIM Management Institutional
Tax-Free Portfolio 424 424
SEI Tax-Exempt Trust
Institutional Tax-Free Portfolio 1,241 1,241
-------
Total Cash Equivalents
(Cost $1,664,716) 1,665
-------
Total Investments (98.5%)
(Cost $30,682,327) 30,102
-------
OTHER ASSETS AND LIABILITIES (1.5%)
Total Other Assets and Liabilities, Net 473
-------
NET ASSETS:
Fund shares of the Trust Class (unlimited
authorization --no par value) based
on 2,400,749 outstanding shares of
benefical interest 23,200
Fund shares of the Investor Class (unlimited
authorization--no par value) based
on 356,968 outstanding shares of
beneficial interest 3,478
Fund shares of the Flex Class (unlimited
authorization--no par value) based
on 440,098 outstanding shares of
beneficial interest 4,281
F-40
<PAGE>
STATEMENT OF NET ASSETS
===================================================================
STI CLASSIC FUNDS MAY 31, 1996
GEORGIA TAX-EXEMPT BOND FUND--CONCLUDED
- -------------------------------------------------------------------
MARKET
VALUE (000)
- -------------------------------------------------------------------
NET ASSETS--CONTINUED:
Accumulated net realized gain on
investments $ 196
Unrealized depreciation on investments (580)
-------
Total Net Assets (100.0%) $30,575
=======
Net Asset Value, Offering Price and
Redemption Price Per Share--Trust Shares $ 9.56
=======
Net Asset Value and Redemption Price
Per Share--Investor Shares $ 9.58
=======
Maximum Public Offering Price Per Share--
Investor Shares ($9.58 (DIVIDED BY) 96.25%) $ 9.95
=======
Net Asset Value, Offering Price and Redemption
Price Per Share--Flex Shares (1) $ 9.56
=======
(1) The Flex Shares have a contingent sales charge. For a
description of a possible sales charge, see notes to the
financial statements.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
FOR DESCRIPTIONS OF ABBREVIATIONS, PLEASE SEE PAGE 101.
F-41
<PAGE>
===================================================================
INVESTMENT GRADE BOND FUND
- -------------------------------------------------------------------
FACE AMOUNT MARKET
(000) VALUE (000)
- -------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS (52.0%)
U.S. Treasury Bonds
7.500%, 11/15/16 $65,000 $ 67,310
8.125%, 08/15/19 37,500 41,444
U.S. Treasury Notes
5.625%, 01/31/98 16,000 15,860
7.500%, 10/31/99 27,600 28,379
6.250%, 08/31/00 56,000 55,201
7.500%, 11/15/01 11,000 11,394
7.500%, 05/15/02 50,500 52,471
5.750%, 08/15/03 64,500 60,716
--------
Total U.S. Treasury Obligations
(Cost $340,493,441) 332,775
--------
CORPORATE OBLIGATIONS (29.0%)
Aristar Financial
7.500%, 07/01/99 11,000 11,157
Associates of North America, MTN
8.470%, 01/12/00 6,000 6,316
AT&T Capital
5.500%, 02/09/98 14,000 13,786
Capital One Bank
6.660%, 08/17/98 7,000 6,956
Capital One Bank, MTN
6.490%, 08/15/97 19,850 19,800
Ford Motor Credit, MTN
6.110%, 12/28/01 13,000 12,383
General Electric Capital
6.660%, 05/01/18 21,000 20,737
International Lease Finance, MTN
8.125%, 01/15/98 15,000 15,346
Merrill Lynch
7.375%, 05/15/06 23,000 22,713
Paine Webber
6.250%, 06/15/98 5,500 5,409
Salomon
6.700%, 12/01/98 20,000 19,874
Sears, MTN
7.360%, 08/15/97 15,000 15,187
Societe Generale, New York
7.400%, 06/01/06 16,500 16,335
--------
Total Corporate Obligations
(Cost $187,719,112) 185,999
--------
U.S. GOVERNMENT AGENCY
OBLIGATIONS (15.9%)
FHLMC
8.000%, 06/01/02 10,232 10,484
FNMA
8.500%, 04/01/17 18,099 18,484
GNMA
9.000%, 11/15/17 34,172 36,255
6.500%, 12/15/23 39,335 36,397
--------
Total U.S. Government Agency Obligations
(Cost $102,434,144) 101,620
--------
ASSET-BACKED SECURITIES (0.1%)
Merrill Lynch, Ser 1993-1, A2
5.125%, 07/15/98 394 394
--------
Total Asset-Backed Securities
(Cost $394,377) 394
--------
REPURCHASE AGREEMENT (4.5%)
Deutsche Bank
5.27%, dated 05/31/96, matures
06/03/96, repurchase price
$28,939,456 (collateralized by
various U.S. Treasury obligations,
total par value $53,881,000,
0.00%-9.125%, 08/22/96-
08/15/20: total market
value $29,506,244) 28,927 28,927
--------
Total Repurchase Agreement
(Cost $28,926,752) 28,927
--------
Total Investments (101.5%)
(Cost $659,967,826) 649,715
--------
F-42
<PAGE>
STATEMENT OF NET ASSETS
===================================================================
STI CLASSIC FUNDS MAY 31, 1996
INVESTMENT GRADE BOND FUND--CONCLUDED
- -------------------------------------------------------------------
MARKET
VALUE (000)
- -------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-1.5%)
Total Other Assets and Liabilities, Net $ (9,425)
--------
NET ASSETS:
Fund shares of the Trust Class (unlimited
authorization --no par value) based
on 59,555,941 outstanding shares of
benefical interest 615,859
Fund shares of the Investor Class (unlimited
authorization--no par value) based
on 3,592,421 outstanding shares of
beneficial interest 37,624
Fund shares of the Flex Class (unlimited
authorization--no par value) based
on 458,624 outstanding shares of
beneficial interest 4,759
Undistributed net investment income 157
Accumulated net realized loss
on investments (7,856)
Unrealized depreciation on investments (10,253)
--------
Total Net Assets (100.0%) $640,290
========
Net Asset Value, Offering Price and Redemption
Price Per Share--Trust Shares $ 10.07
========
Net Asset Value and Redemption
Price Per Share--Investor Shares $ 10.06
========
Maximum Public Offering Price Per
Share--Investor Shares
($10.06 (DIVIDED BY) 96.25%) $ 10.45
========
Net Asset Value, Offering Price and
Redemption Price Per Share--
Flex Shares (1) $ 10.07
========
(1) The Flex Shares have a contingent sales charge. For a
description of a possible sales charge, see notes to the
financial statements.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
FOR DESCRIPTIONS OF ABBREVIATIONS, PLEASE SEE PAGE 101.
F-43
<PAGE>
===================================================================
SHORT-TERM BOND FUND
- -------------------------------------------------------------------
FACE AMOUNT MARKET
(000) VALUE (000)
- -------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS (57.5%)
U.S. Treasury Bond
6.125%, 05/15/98 $ 2,000 $ 1,996
U.S. Treasury Notes
6.000%, 08/31/97 3,750 3,749
7.250%, 02/15/98 7,500 7,622
4.750%, 09/30/98 10,000 9,668
4.750%, 10/31/98 9,000 8,684
5.500%, 02/28/99 18,000 17,588
7.500%, 11/15/01 5,000 5,179
-------
Total U.S. Treasury Obligations
(Cost $55,153,402) 54,486
-------
CORPORATE OBLIGATIONS (27.5%)
Associates of North America
5.790%, 01/19/01 750 714
Associates of North America, MTN
5.980%, 12/19/00 1,250 1,200
Chrysler Financial
6.440%, 06/23/99 1,000 989
Dow Capital BV
5.750%, 09/15/97 1,250 1,247
Federal Express
6.250%, 04/15/98 750 743
Ford Motor Credit
6.250%, 11/08/00 1,500 1,453
General Electric Capital Callable &
Putable 4/14/98 @ 100 (C)(D)
6.650%, 04/14/08 2,000 2,005
General Motors Acceptance
8.170%, 01/02/00 1,672 1,715
Household Netherlands BV
6.125%, 03/01/03 2,035 1,915
International Lease Finance
5.625%, 03/01/98 1,000 985
6.125%, 11/01/99 1,500 1,464
Norwest
6.125%, 10/15/00 1,000 965
NYNEX Credit, MTN
6.900%, 06/15/99 2,000 2,005
Pacific
5.880%, 10/15/97 1,000 993
Philip Morris
9.000%, 05/15/98 1,500 1,564
Puget Sound Power & Light, MTN
7.875%, 10/01/97 1,250 1,275
RJR Nabisco
8.300%, 04/15/99 1,000 1,033
Sears Roebuck Acceptance, MTN
6.300%, 10/18/00 1,250 1,209
6.150%, 11/15/05 750 722
Tenneco Credit
10.000%, 08/01/98 1,750 1,864
-------
Total Corporate Obligations
(Cost $26,548,543) 26,060
-------
U.S. AGENCY MORTGAGE-BACKED
OBLIGATIONS (5.2%)
FHLMC
6.500%, 04/01/98 1,135 1,125
8.000%, 01/01/00 1,318 1,325
FNMA
8.500%, 11/01/01 2,395 2,456
-------
Total U.S. Agency Mortgage-Backed
Obligations
(Cost $4,962,568) 4,906
-------
ASSET-BACKED SECURITIES (4.6%)
Premier Auto Trust Series,
Ser 1995-3, Cl A4
6.100%, 07/06/99 3,000 2,997
Union Pacific Equipment Trust
7.060%, 05/15/03 1,500 1,479
-------
Total Asset-Backed Securities
(Cost $4,520,923) 4,476
-------
CERTIFICATE OF DEPOSIT (1.5%)
Wachovia Bank
5.400%, 02/20/01 1,500 1,404
-------
Total Certificate of Deposit
(Cost $1,474,542) 1,404
-------
F-44
<PAGE>
STATEMENT OF NET ASSETS
===================================================================
STI CLASSIC FUNDS MAY 31, 1996
SHORT-TERM BOND FUND--CONCLUDED
- -------------------------------------------------------------------
FACE AMOUNT MARKET
(000) VALUE (000)
- --------------------------------------------------------------------
CASH EQUIVALENT (2.7%)
SEI Daily Income Trust Prime
Obligation Portfolio $2,584 $ 2,584
-------
Total Cash Equivalent
(Cost $2,583,673) 2,584
-------
Total Investments (99.0%)
(Cost $95,243,651) 93,916
-------
OTHER ASSETS AND LIABILITIES (1.0%)
Total Other Assets and Liabilities, Net 906
-------
NET ASSETS:
Fund shares of the Trust Class (unlimited
authorization --no par value) based
on 9,240,587 outstanding shares of
benefical interest 91,971
Fund shares of the Investor Class (unlimited
authorization--no par value) based
on 273,195 outstanding shares of
beneficial interest 2,729
Fund shares of the Flex Class (unlimited
authorization--no par value) based
on 97,806 outstanding shares of
beneficial interest 983
Undistributed net investment income 90
Accumulated net realized gain on
investments 377
Unrealized depreciation on investments (1,328)
-------
Total Net Assets (100.0%) $94,822
=======
Net Asset Value, Offering Price and
Redemption Price Per Share--
Trust Shares $ 9.86
=======
Net Asset Value and Redemption Price
Per Share--Investor Shares $ 9.88
=======
Maximum Public Offering Price Per
Share--Investor Shares
($9.88 (DIVIDED BY) 98.00%) $ 10.08
=======
Net Asset Value, Offering Price and
Redemption Price Per Share--
Flex Shares (1) $ 9.88
=======
(1) The Flex Shares have a contingent sales charge. For a
description of a possible sales charge, see notes to the
financial statements.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
FOR DESCRIPTIONS OF ABBREVIATIONS, PLEASE SEE PAGE 101.
F-45
<PAGE>
====================================================================
SHORT-TERM U.S. TREASURY SECURITIES FUND
- --------------------------------------------------------------------
FACE AMOUNT MARKET
(000) VALUE (000)
- --------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS (93.1%)
U.S. Treasury Bond
6.125%, 05/15/98 $2,250 $ 2,245
U.S. Treasury Notes
7.500%, 01/31/97 300 303
6.375%, 06/30/97 2,000 2,010
6.000%, 08/31/97 2,650 2,649
7.250%, 02/15/98 900 915
5.125%, 06/30/98 2,250 2,201
5.875%, 08/15/98 1,400 1,388
5.500%, 11/15/98 1,600 1,569
5.000%, 01/31/99 1,900 1,836
6.375%, 05/15/99 500 499
-------
Total U.S. Treasury Obligations
(Cost $15,734,275) 15,615
-------
CASH EQUIVALENT (3.0%)
SEI Daily Income Trust Treasury II
Portfolio 501 501
-------
Total Cash Equivalent
(Cost $500,598) 501
-------
Total Investments (96.1%)
(Cost $16,234,873) 16,116
-------
OTHER ASSETS AND LIABILITIES (3.9%)
Total Other Assets and Liabilities, Net 648
-------
NET ASSETS:
Fund shares of the Trust Class (unlimited
authorization --no par value) based
on 1,031,587 outstanding shares of
benefical interest 10,430
Fund shares of the Investor Class (unlimited
authorization--no par value) based
on 426,165 outstanding shares of
beneficial interest 4,283
Fund shares of the Flex Class (unlimited
authorization--no par value) based
on 245,766 outstanding shares of
beneficial interest 2,454
Undistributed net investment income 52
Accumulated net realized loss on
investments (337)
Unrealized depreciation on investments (118)
-------
Total Net Assets (100.0%) $16,764
=======
Net Asset Value, Offering Price and Redemption
Price Per Share--Trust Shares $ 9.84
=======
Net Asset Value and Redemption Price
Per Share--Investor Shares $ 9.84
=======
Maximum Public Offering Price Per
Share--Investor Shares
($9.84 (DIVIDED BY) 99.00%) $ 9.94
=======
Net Asset Value, Offering Price and
Redemption Price Per Share--
Flex Shares (1) $ 9.82
=======
(1) The Flex Shares have a contingent sales charge. For a
description of a possible sales charge, see notes to the
financial statements.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
FOR DESCRIPTIONS OF ABBREVIATIONS, PLEASE SEE PAGE 101.
F-46
<PAGE>
STATEMENT OF NET ASSETS
=============================================================
STI CLASSIC FUNDS MAY 31, 1996
LIMITED-TERM FEDERAL MORTGAGE SECURITIES FUND
- -------------------------------------------------------------
FACE AMOUNT MARKET
(000) VALUE (000)
- -------------------------------------------------------------
U.S. TREASURY OBLIGATIONS (37.6%)
U.S. Treasury Notes
8.750%, 10/15/97 $ 600 $ 621
8.125%, 02/15/98 5,800 5,976
8.875%, 11/15/98 1,600 1,689
8.875%, 02/15/99 4,300 4,557
9.125%, 05/15/99 4,200 4,495
7.125%, 09/30/99 2,200 2,238
7.500%, 10/31/99 4,300 4,421
7.125%, 02/29/00 3,960 4,027
6.125%, 07/31/00 1,000 981
-------
Total U.S. Treasury Obligations
(Cost $29,422,934) 29,005
-------
U.S. GOVERNMENT AGENCY
OBLIGATIONS (59.1%)
FHLMC
6.830%, 09/29/97 3,000 3,038
6.000%, 07/01/00 5,315 5,103
8.000%, 06/01/02 1,461 1,498
7.000%, 10/01/02 4,736 4,716
8.000%, 12/01/02 4,053 4,121
FHLMC REMIC, Ser 1637-E
5.750%, 02/15/19 2,699 2,605
FNMA
8.500%, 04/01/17 1,357 1,386
FNMA REMIC, Ser 92-68J
7.500%, 10/25/05 4,200 4,227
FNMA REMIC, Ser 93-95PC
5.500%, 12/25/05 7,000 6,861
FNMA REMIC, Ser G96-1PC
7.000%, 05/01/26 4,921 4,922
FNMA REMIC, Ser 1992-134G
6.000%, 11/25/18 5,586 5,372
GNMA
9.000%, 11/15/17 1,666 1,768
-------
Total U.S. Government Agency Obligations
(Cost $45,647,939) 45,617
-------
CASH EQUIVALENT (0.7%)
SEI Liquid Asset Trust Prime
Obligation Portfolio 548 548
-------
Total Cash Equivalent
(Cost $548,340) 548
-------
REPURCHASE AGREEMENT (7.4%)
J.P. Morgan
5.24%, dated 05/31/96, matures
06/03/96, repurchase price
$5,760,404 (collateralized by
various FNMA obligations,
total par value $6,210,000,
6.00%-7.00%, 05/01/11: total
market value $5,874,449) 5,758 5,758
-------
Total Repurchase Agreement
(Cost $5,757,890) 5,758
-------
Total Investments (104.8%)
(Cost $81,377,103) 80,928
-------
OTHER ASSETS AND LIABILITIES, NET (-4.8%)
Investment Securities Purchased Payable (4,924)
Other Assets and Liabilities,Net 1,227
-------
Total Other Assets and Liabilities,Net (3,697)
-------
NET ASSETS:
Fund shares of the Trust Class (unlimited
authorization --no par value) based
on 7,347,381 outstanding shares of
benefical interest 73,656
Fund shares of the Investor Class (unlimited
authorization--no par value) based
on 251,847 outstanding shares of
beneficial interest 2,534
Fund shares of the Flex Class (unlimited
authorization--no par value) based
on 135,071 outstanding shares of
beneficial interest 1,369
Accumulated net investment loss (2)
F-47
<PAGE>
- -------------------------------------------------------------
MARKET
VALUE (000)
- -------------------------------------------------------------
NET ASSETS--CONTINUED:
Accumulated net realized gain on
investments $ 122
Unrealized depreciation on investments (448)
-------
Total Net Assets (100.0%) $77,231
=======
Net Asset Value, Offering Price and Redemption
Price Per Share--Trust Shares $ 9.99
=======
Net Asset Value and Redemption
Price Per Share--Investor Shares $ 9.97
=======
Maximum Public Offering Price Per Share--
Investor Shares ($9.97 (DIVIDE) 97.50%) $ 10.23
=======
Net Asset Value, Offering Price and Redemption
Price Per Share--Flex Shares (1) $ 9.99
=======
(1) The Flex Shares have a contingent sales charge. For a description of a
possible sales charge, see notes to the financial statements.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
FOR DESCRIPTIONS OF ABBREVIATIONS, PLEASE SEE PAGE 101.
F-48
<PAGE>
STATEMENT OF NET ASSETS
=============================================================
STI CLASSIC FUNDS MAY 31, 1996
U.S. GOVERNMENT SECURITIES FUND
- -------------------------------------------------------------
FACE AMOUNT MARKET
(000) VALUE (000)
- -------------------------------------------------------------
U.S. TREASURY OBLIGATIONS (37.5%)
U.S. Treasury Bond
6.875%, 08/15/25 $1,000 $ 976
U.S. Treasury Notes
8.500%, 04/15/97 100 102
7.875%, 04/15/98 150 154
7.125%, 10/15/98 500 509
7.750%, 11/30/99 200 207
8.500%, 11/15/00 1,000 1,071
7.750%, 02/15/01 100 104
8.000%, 05/15/01 200 211
7.500%, 11/15/01 600 621
7.500%, 05/15/02 100 104
7.875%, 11/15/04 275 292
7.500%, 02/15/05 1,000 1,041
7.625%, 02/15/25 400 425
------
Total U.S. Treasury Obligations
(Cost $5,992,435) 5,817
------
U.S. AGENCY MORTGAGE-BACKED
OBLIGATIONS (54.9%)
FHLMC
7.000%, 01/01/09 153 151
7.000%, 04/01/09 511 503
7.000%, 04/01/09 164 162
FHLMC CMO
7.000%, 08/01/10 1,004 986
FNMA REMIC, Ser G93-40, Cl VC
6.500%, 08/25/10 261 242
FNMA, Ser 1990-143, Cl J
8.750%, 12/25/20 140 146
GNMA
7.500%, 10/20/09 83 83
8.250%, 01/15/12 123 127
7.000%, 11/15/22 436 415
8.000%, 02/15/23 42 43
8.500%, 03/15/23 91 93
7.500%, 04/15/23 146 143
7.500%, 05/20/23 1,000 948
7.500%, 09/15/23 922 903
7.000%, 01/15/24 179 171
7.500%, 04/15/24 958 939
7.000%, 06/15/24 953 908
8.000%, 08/15/24 120 122
8.000%, 09/15/24 29 29
8.000%, 10/15/24 38 39
8.000%, 11/15/24 42 43
8.500%, 12/15/24 78 80
8.500%, 02/15/25 41 42
7.000%, 12/15/25 495 472
7.000%, 12/20/25 248 235
7.000%, 03/15/26 509 485
-------
Total U.S. Agency Mortgage-Backed Obligations
(Cost $8,763,727) 8,510
-------
CASH EQUIVALENTS (7.5%)
SEI Daily Income Trust
Government II Portfolio 730 730
SEI Daily Income Trust
Treasury II Portfolio 431 431
-------
Total Cash Equivalents
(Cost $1,160,595) 1,161
-------
Total Investments (99.9%)
(Cost $15,916,757) 15,488
-------
OTHER ASSETS AND LIABILITIES (0.1%)
Total Other Assets and Liabilities, Net 11
-------
NET ASSETS:
Fund shares of the Trust Class (unlimited
authorization --no par value) based
on 1,037,259 outstanding shares of
benefical interest 10,588
Fund shares of the Investor Class (unlimited
authorization--no par value) based
on 241,893 outstanding shares of
beneficial interest 2,453
F-49
<PAGE>
- -------------------------------------------------------------
MARKET
VALUE (000)
- -------------------------------------------------------------
NET ASSETS--CONTINUED:
Fund shares of the Flex Class (unlimited
authorization--no par value) based
on 285,283 outstanding shares of
beneficial interest $ 2,930
Accumulated net realized loss on
investments (44)
Unrealized depreciation on investments (428)
-------
Total Net Assets (100.0%) $15,499
=======
Net Asset Value, Offering Price and
Redemption Price Per Share--
Trust Shares $ 9.91
=======
Net Asset Value and Redemption
Price Per Share--Investor Shares $ 9.90
=======
Maximum Public Offering Price Per Share--
Investor Shares ($9.90 (DIVIDE) 96.25%) $ 10.29
=======
Net Asset Value, Offering Price and Redemption
Price Per Share--Flex Shares (1) $ 9.91
=======
(1) The Flex Shares have a contingent sales charge. For a description of a
possible sales charge, see notes to the financial statements.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
FOR DESCRIPTIONS OF ABBREVIATIONS, PLEASE SEE PAGE 101.
F-50
<PAGE>
STATEMENT OF NET ASSETS
=============================================================
STI CLASSIC FUNDS MAY 31, 1996
PRIME QUALITY MONEY MARKET FUND
- -------------------------------------------------------------
FACE AMOUNT VALUE
(000) (000)
- -------------------------------------------------------------
COMMERCIAL PAPER (55.0%)
Arco Coal Australia
5.310%, 07/10/96 $20,429 $ 20,312
Associates of North America
5.300%, 06/17/96 35,000 34,918
AT&T
5.300%, 06/27/96 1,300 1,295
5.300%, 08/05/96 2,700 2,674
Banc One Funding
5.310%, 06/11/96 28,951 28,908
5.310%, 06/14/96 7,419 7,405
5.320%, 07/10/96 8,703 8,653
Bankers Trust (C)
5.550%, 02/14/97 20,000 20,000
BellSouth Telephone
5.300%, 06/13/96 10,000 9,982
Beneficial Finance
5.300%, 06/05/96 25,000 24,985
Cargill
5.290%, 07/01/96 20,000 19,912
5.350%, 06/14/96 4,500 4,491
Cargill Financial Services
5.400%, 06/03/96 16,399 16,394
Carolina Power & Light
5.300%, 09/03/96 1,782 1,757
Caterpillar Finance Australia
5.300%, 06/03/96 2,238 2,237
Colgate-Palmolive
5.280%, 06/25/96 1,200 1,196
5.320%, 07/22/96 25,400 25,209
Commoloco
5.320%, 07/10/96 20,000 19,885
Dow Chemical
5.300%, 06/06/96 2,200 2,198
5.300%, 06/18/96 1,000 998
Dresser Industries
5.300%, 06/03/96 1,486 1,486
5.320%, 06/03/96 3,300 3,299
5.290%, 06/24/96 1,271 1,267
Eaton
5.400%, 01/03/97 7,570 7,325
5.380%, 01/13/97 13,711 13,248
Exxon Imperial
5.300%, 06/12/96 12,110 12,090
5.280%, 06/18/96 1,226 1,223
First Chicago Financial
5.330%, 06/03/96 20,000 19,994
Ford Motor Credit
5.300%, 06/26/96 1,000 996
5.310%, 06/07/96 2,500 2,498
Gannett
5.300%, 06/14/96 8,775 8,758
General Electric Capital
5.290%, 06/17/96 1,410 1,407
General Re
5.320%, 06/27/96 7,100 7,073
General Telephone Northwest
5.290%, 06/12/96 2,376 2,372
Golden Peanut
5.230%, 06/10/96 2,000 1,997
GTE Northwest
5.320%, 06/14/96 16,883 16,851
H.J. Heinz
5.300%, 06/10/96 1,600 1,598
Hanson Finance
5.380%, 07/17/96 10,000 9,931
5.390%, 07/29/96 20,000 19,826
5.400%, 08/09/96 5,000 4,948
5.370%, 08/19/96 2,500 2,471
IBM Credit
5.300%, 06/03/96 6,650 6,648
5.280%, 06/03/96 2,000 2,000
5.290%, 06/13/96 3,300 3,294
International Lease Finance
5.300%, 06/12/96 1,210 1,208
John Hancock Capital
5.300%, 07/11/96 2,800 2,784
Kansas City Power & Light
5.290%, 06/11/96 1,830 1,827
5.290%, 06/12/96 1,500 1,498
Marsh & McLennan
5.320%, 07/12/96 17,000 16,897
McGraw Hill
5.230%, 07/09/96 5,000 4,972
F-51
<PAGE>
- -------------------------------------------------------------
FACE AMOUNT VALUE
(000) (000)
- -------------------------------------------------------------
COMMERCIAL PAPER--CONTINUED
New England Power
5.300%, 06/11/96 $ 1,796 $ 1,793
5.300%, 06/13/96 6,475 6,464
5.290%, 06/18/96 2,275 2,269
5.320%, 06/19/96 5,300 5,286
5.350%, 06/20/96 8,000 7,977
5.350%, 06/21/96 7,703 7,680
Panasonic Finance
5.350%, 06/03/96 2,000 1,999
5.350%, 06/04/96 1,268 1,268
5.310%, 06/07/96 10,000 9,991
5.300%, 07/16/96 10,000 9,934
Philip Morris
5.400%, 06/03/96 26,845 26,837
PPG Industries
5.300%, 07/11/96 18,000 17,894
Progress Capital
5.300%, 06/03/96 15,800 15,795
5.300%, 06/05/96 1,600 1,599
5.320%, 06/07/96 2,100 2,098
5.290%, 06/10/96 7,000 6,991
Sony Capital
5.280%, 06/05/96 12,147 12,140
5.320%, 06/21/96 2,892 2,884
South Carolina Electric & Gas
5.320%, 06/07/96 1,000 999
5.400%, 07/12/96 2,500 2,485
Southern California Edison
5.300%, 09/05/96 10,035 9,893
Transamerica
5.310%, 06/14/96 26,375 26,324
Unilever
5.330%, 12/12/96 4,000 3,885
Walt Disney
5.320%, 07/08/96 1,000 995
5.220%, 07/17/96 10,000 9,933
Weyerhauser
5.300%, 06/04/96 1,500 1,499
5.320%, 06/10/96 2,700 2,696
5.310%, 06/10/96 3,725 3,720
5.300%, 06/12/96 19,050 19,019
WMX Technologies
5.330%, 11/01/96 $23,050 $ 22,528
5.330%, 11/05/96 15,000 14,651
Xerox
5.300%, 06/19/96 2,021 2,016
----------
Total Commercial Paper
(Cost $696,736,514) 696,737
----------
CORPORATE OBLIGATIONS (19.4%)
American General Finance
5.800%, 04/01/97 1,000 1,000
Associates of North America
4.625%, 11/30/96 3,000 2,992
Banc One Milwaukee (C)
5.420%, 05/14/97 25,000 24,984
BankAmerica
7.500%, 03/15/97 2,850 2,889
Bankers Trust New York
8.000%, 03/15/97 5,642 5,736
Beneficial, MTN
8.700%, 08/15/96 9,000 9,057
9.375%, 02/17/97 1,500 1,544
Caterpillar Financial Services, MTN
4.640%, 09/30/96 1,000 997
Caterpillar Financial Services,
MTN (C)
5.400%, 06/14/96 1,000 1,000
5.394%, 07/23/96 15,000 15,000
CoreStates Capital (C)
5.410%, 11/26/96 30,000 30,000
5.430%, 12/03/96 10,000 10,000
Dean Witter Discover, MTN (C)
5.618%, 11/22/96 15,000 15,010
Ford Motor
5.200%, 01/01/97 9,800 9,799
Ford Motor Credit
5.625%, 03/03/97 4,500 4,511
8.875%, 08/01/96 2,400 2,413
Ford Motor Credit, MTN
9.050%, 07/23/96 2,000 2,010
F-52
<PAGE>
STATEMENT OF NET ASSETS
=============================================================
STI CLASSIC FUNDS MAY 31, 1996
PRIME QUALITY MONEY MARKET FUND--CONCLUDED
- -------------------------------------------------------------
FACE AMOUNT VALUE
(000) (000)
- -------------------------------------------------------------
CORPORATE OBLIGATIONS--CONTINUED
Ford Motor Credit, MTN (C)
5.600%, 05/20/97 $ 2,000 $ 1,999
Ford Motor, Global Note
7.875%, 10/15/96 2,500 2,525
General Electric Capital Callable
& Putable 12/15/96 @ 100
7.980%, 12/15/07 5,500 5,582
General Electric Capital, MTN
6.877%, 03/21/97 10,000 10,092
General Electric Capital,
MTN (C)(D)
5.390%, 07/26/96 575 575
Household Finance
7.625%, 12/15/96 5,000 5,058
7.500%, 03/15/97 2,800 2,839
Household Finance, MTN
4.551%, 08/16/96 2,521 2,515
International Lease Finance
4.750%, 07/15/96 5,000 4,996
7.900%, 10/01/96 3,675 3,702
6.375%, 11/01/96 7,010 7,030
NationsBank
7.500%, 02/15/97 1,600 1,619
Pacific Gas & Electric, MTN
4.900%, 12/09/96 4,500 4,480
PHH
8.000%, 01/01/97 1,450 1,468
Philip Morris
8.750%, 12/01/96 1,300 1,323
7.500%, 03/15/97 3,255 3,297
9.750%, 05/01/97 1,500 1,550
Society Bank Cleveland
7.125%, 04/15/97 2,000 2,020
Toyota Motor Credit, MTN (C)
5.360%, 06/13/96 16,270 16,269
Virginia Electric & Power
7.250%, 03/01/97 7,000 7,081
Waste Management
7.875%, 08/15/96 3,000 3,013
Xerox Credit, MTN
5.810%, 03/17/97 $18,000 $ 18,016
----------
Total Corporate Obligations
(Cost $245,990,716) 245,991
----------
U.S. GOVERNMENT AGENCY
OBLIGATIONS (3.7%)
FHLMC
5.100%, 01/13/97 1,000 1,000
FHLMC Gold Balloon,
Pool #M90081
7.000%, 01/15/97 16,546 16,649
FNMA MTN
6.490%, 06/10/98 7,500 7,505
FNMA (C)
5.465%, 09/27/96 6,000 6,001
SLMA (C)
5.370%, 06/02/96 5,000 4,979
5.370%, 12/20/96 10,000 10,000
Tennessee Valley Authority
4.600%, 12/15/96 500 499
----------
Total U.S. Government Agency Obligations
(Cost $46,632,963) 46,633
----------
U.S. TREASURY OBLIGATION (5.0%)
U.S. Treasury Note
6.875%, 02/28/97 62,000 62,776
----------
Total U.S. Treasury Obligation
(Cost $62,775,537) 62,776
----------
BANK NOTES (1.2%)
Comerica Bank of Detroit (C)
5.390%, 12/31/96 10,000 9,990
Huntington National Bank (C)
5.390%, 11/13/96 5,000 5,000
----------
Total Bank Notes
(Cost $14,990,111) 14,990
----------
F-53
<PAGE>
- -------------------------------------------------------------
FACE AMOUNT VALUE
(000) (000)
- -------------------------------------------------------------
REPURCHASE AGREEMENTS (15.8%)
Deutsche Bank
5.33%, dated 05/31/96, matures
06/03/96, repurchase price
$131,189,359 (collateralized by
FHLB obligation, par value
$15,505,000, 0.00%, 07/01/96,
various FHLMC obligations,
total par value
$90,241,632, 0.00%-928.25%,
07/15/07-03/15/24, and
various FNMA obligations,
par value $117,530,748, 0.00%-
11.198%, 08/25/05-03/25/24:
total market value
$133,756,481), $131,131 $ 131,131
Swiss Bank
5.33%, dated 05/31/96, matures
06/03/96, repurchase price
$26,824,249 (collateralized by
U.S. Treasury Bond, par value
$21,201,000, 9.875%, 11/15/15:
total market value $27,505,870) 26,812 26,812
UBS Securities
5.33%, dated 05/31/96, matures
06/03/96, repurchase price
$42,342,759 (collateralized by
FHLMC obligation, par value
$45,105,000, 7.00%, 12/15/07:
total market value $43,595,735)
42,324 42,324
----------
Total Repurchase Agreements
(Cost $200,267,414) $ 200,267
----------
Total Investments (100.1%)
(Cost $1,267,393,255) 1,267,394
----------
OTHER ASSETS AND LIABILITIES (-0.1%)
Total Other Assets and Liabilities, Net (898)
----------
NET ASSETS:
Fund shares of the Trust Class (unlimited
authorization--no par value) based
on 1,051,048,972 outstanding shares
of benefical interest 1,051,049
Fund shares of the Investor Class (unlimited
authorization--no par value) based
on 215,731,965 outstanding shares
of beneficial interest 215,732
Accumulated net realized loss
on investments (285)
----------
Total Net Assets (100.0%) $1,266,496
==========
Net Asset Value, Offering Price and
Redemption Price Per Share--
Trust Shares $ 1.00
==========
Net Asset Value, Offering Price and
Redemption Price Per Share--
Investor Shares $ 1.00
==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
FOR DESCRIPTIONS OF ABBREVIATIONS, PLEASE SEE PAGE 101.
F-54
<PAGE>
STATEMENT OF NET ASSETS
=============================================================
STI CLASSIC FUNDS MAY 31, 1996
U.S. GOVERNMENT SECURITIES MONEY MARKET FUND
- -------------------------------------------------------------
FACE AMOUNT VALUE
(000) (000)
- -------------------------------------------------------------
U.S. TREASURY OBLIGATIONS (35.2%)
U.S. Treasury Bills
5.145%, 11/29/96 $25,000 $ 24,353
5.190%, 12/12/96 10,000 9,720
5.400%, 04/03/97 5,000 4,771
U.S. Treasury Notes
6.250%, 08/31/96 10,000 10,018
7.500%, 01/31/97 50,000 50,769
6.875%, 02/28/97 25,000 25,313
6.875%, 03/31/97 10,000 10,103
--------
Total U.S. Treasury Obligations
(Cost $135,046,455) 135,047
--------
REPURCHASE AGREEMENTS (64.7%)
Barclay's
5.27%, dated 05/31/96, matures
06/03/96, repurchase price
$17,009,913 (collateralized by
various U.S. Treasury obligations,
total par value $69,332,000, 0.00%-
11.25%, 02/15/15-08/15/19: total
market value $17,343,717) 17,002 17,002
Deutsche Bank
5.27%, dated 05/31/96, matures
06/03/96, repurchase price
$90,221,797 (collateralized by
various U.S. Treasury obligations,
total par value $87,539,000, 0.00%-
12.00%, 11/21/96-05/15/21: total
market value $91,986,687) 90,182 90,182
Merrill Lynch
5.27%, dated 05/31/96, matures
06/03/96, repurchase price
$17,012,807 (collateralized by
various GNMA obligations, total
par value $33,290,000, 6.50%-
9.50%, 08/15/09-05/15/26: total
market value $17,349,017) 17,005 17,005
Salomon Brothers
5.27%, dated 05/31/96, matures
06/03/96, repurchase price
$16,954,509 (collateralized by
various U.S. Treasury obligations,
total par value $83,327,000, 5.75%-
9.125%, 10/31/00-05/15/18: total
market value $17,317,855) 16,947 16,947
Swiss Bank
5.27%, dated 05/31/96, matures
06/03/96, repurchase price
$17,456,231 (collateralized by
U.S. Treasury Note, par value
$17,364,000, 6.875%, 02/28/97:
market value $17,816,219) $17,449 $ 17,449
Union Bank of Switzerland
5.27%, dated 05/31/96, matures
06/03/96, repurchase price
$90,158,025 (collateralized by
various U.S. Treasury STRIPS,
total par value $142,042,000,
02/15/00-11/15/04: total market
value $91,921,160) 90,119 90,119
--------
Total Repurchase Agreements
(Cost $248,704,059) 248,704
--------
Total Investments (99.9%)
(Cost $383,750,514) 383,751
--------
OTHER ASSETS AND LIABILITIES (0.1%)
Total Other Assets and Liabilities, Net 350
--------
NET ASSETS:
Fund shares of the Trust Class (unlimited
authorization --no par value) based
on 325,493,550 outstanding shares of
benefical interest 325,493
Fund shares of the Investor Class (unlimited
authorization--no par value) based on
58,617,308 outstanding shares of
beneficial interest 58,617
Accumulated net realized loss
on investments (9)
--------
Total Net Assets (100.0%) $384,101
========
Net Asset Value, Offering Price and
Redemption Price Per Share--
Trust Shares $ 1.00
========
Net Asset Value, Offering Price and
Redemption Price Per Share--
Investor Shares $ 1.00
========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
FOR DESCRIPTIONS OF ABBREVIATIONS, PLEASE SEE PAGE 101.
F-55
<PAGE>
TAX-EXEMPT MONEY MARKET FUND
- -------------------------------------------------------------
FACE AMOUNT VALUE
(000) (000)
- -------------------------------------------------------------
MUNICIPAL BONDS (99.7%)
ALABAMA (1.4%)
McIntosh, Industrial Development
Board, Ciba-Geigy Project,
Ser A, VRDN (C)(D)(E)
3.600%, 06/05/96 $3,500 $3,500
Special Care Facilities, Montgomery
Hospital Revenue,
VRDN (FGIC) (C)(D)
3.500%, 06/05/96 1,600 1,600
--------
Total Alabama 5,100
--------
ALASKA (3.1%)
Anchorage, TAN
4.250%, 12/13/96 1,500 1,507
Valolez, TECP (E)
3.400%, 06/18/96 9,900 9,900
--------
Total Alaska 11,407
--------
ARIZONA (4.2%)
Cochise County, Electric Power
Cooperative Project, RB Putable
09/01/96 @ 100 (C)(D)(E)(F)
3.900%, 09/01/24 2,000 2,000
Maricopa County, Pollution
Control Authority,
Ser A, VRDN (C)(D)(E)
3.600%, 06/05/96 4,000 4,000
Pima County, Industrial
Development Authority, Tucson
Electric Project, VRDN (C)(D)(E)(F)
3.750%, 06/05/96 3,400 3,400
Pima County, Industrial
Development Authority, Tuscon
Electric Project,
Ser A, VRDN (C)(D)(E)
3.500%, 06/05/96 6,000 6,000
--------
Total Arizona 15,400
--------
CALIFORNIA (1.7%)
Contra Costa County, Multi-Family
Mortgage, Delta Square Project,
Ser A, VRDN (C)(D)(E)
3.500%, 06/06/96 $4,200 $ 4,200
Higher Education Loan Authority,
VRDN (C)(D)(E)
3.600%, 06/05/96 1,900 1,900
--------
Total California 6,100
--------
COLORADO (1.1%)
Highlands Ranch, Metropolitan
District #2, GO, Pre-Refunded
06/15/96 @ 100 (G)
6.700%, 06/15/01 2,000 2,002
Jefferson County, COP (MBIA)
5.450%, 12/01/96 1,000 1,010
North Glen, Castle Garden
Retirement Center, VRDN (C)(D)(E)
3.500%, 06/06/96 1,200 1,200
--------
Total Colorado 4,212
--------
DELAWARE (0.5%)
State Educational Development
Authority, VRDN (C)(D)(E)
3.875%, 06/06/96 1,875 1,875
--------
FLORIDA (8.5%)
Collier County, Housing Finance
Authority, VRDN (C)(D)(E)
3.600%, 06/05/96 2,400 2,400
Dade County, Power & Light
Project, VRDN (C)(D)(E)
3.600%, 06/03/96 2,200 2,200
Housing Finance Agency,
VRDN (C)(D)(E)(F)
3.750%, 06/05/96 8,900 8,900
Housing Finance Agency,
Multi-Family Housing,
VRDN (C)(D)(E)
3.600%, 06/05/96 4,400 4,400
Jacksonville, TECP (E)
3.150%, 08/09/96 3,000 3,000
F-56
<PAGE>
STATEMENT OF NET ASSETS
=============================================================
STI CLASSIC FUNDS MAY 31, 1996
TAX-EXEMPT MONEY MARKET FUND--CONTINUED
- -------------------------------------------------------------
FACE AMOUNT VALUE
(000) (000)
- -------------------------------------------------------------
FLORIDA--CONTINUED
Monroe County, Industrial
Development Authority, Beverly
Enterprises Project,
VRDN (C)(D)(E)
3.600%, 06/05/96 $2,300 $ 2,300
Palm Beach County, Norton
Gallery Project, VRDN (C)(D)(E)
3.600%, 06/05/96 3,000 3,000
Saint Lucie County, Pollution
Control Board, Power & Light
Project, VRDN (C)(D)(E)
3.600%, 06/03/96 5,000 5,000
--------
Total Florida 31,200
--------
GEORGIA (7.4%)
Burke County, Development
Authority, TECP (E)
3.250%, 06/03/96 4,000 4,000
Cobb County, Industrial
Development Authority,
VRDN (C)(D)(E)
3.700%, 06/05/96 1,030 1,030
Cobb County, TAN
4.000%, 12/31/96 6,000 6,014
Dekalb County, TRAN
3.750%, 12/31/96 5,000 5,014
Fulton County, Industrial
Development Authority,
American Red Cross Project,
VRDN (C)(D)(E)
3.650%, 06/06/96 1,600 1,600
Fulton County, School District, RB,
Pre-Refunded 05/01/97 @ 103 (G)
7.625%, 05/01/17 3,000 3,195
Lafayette, Industrial Development
Authority, Blue-Bird Project,
Ser 1991, VRDN (C)(D)(E)
3.650%, 06/06/96 1,000 1,000
Monroe County, Industrial
Development Authority, Forsyth
Inns Project, VRDN (C)(D)(E)
3.700%, 06/05/96 2,525 2,525
Municipal Electric Authority,
VRDN (FGIC) (C)(D)
3.650%, 06/06/96 $3,000 $ 3,000
--------
Total Georgia 27,378
--------
HAWAII (0.8%)
State Housing Finance &
Development Authority,
VRDN (C)(D)(E)
3.800%, 06/05/96 3,000 3,000
--------
IDAHO (0.8%)
Nez Pierce County, Pollution
Control Board, VRDN (C)(D)(E)
3.550%, 06/05/96 1,000 1,000
Nez Pierce County, Pollution
Control Board, Potlatch
Corporation Project,
VRDN (C)(D)(E)
3.600%, 06/05/96 2,000 2,000
--------
Total Idaho 3,000
--------
ILLINOIS (4.9%)
Chicago, Board of Education, COP (E)
3.700%, 12/01/96 3,000 3,000
Cook County, VRDN (C)(D)
3.650%, 06/05/96 4,900 4,900
Decatur, GO (AMBAC)
3.850%, 10/01/96 1,030 1,030
Savanna, Industrial Development
Authority, Metform Project,
Ser B, VRDN (C)(D)(E)
3.750%, 06/05/96 1,400 1,400
Savanna, Industrial Development
Authority, Ser A, VRDN (C)(D)(E)
3.700%, 06/05/96 500 500
State Anti-Pollution Authority, GO
5.250%, 11/01/96 1,400 1,411
F-57
<PAGE>
- -------------------------------------------------------------
FACE AMOUNT VALUE
(000) (000)
- -------------------------------------------------------------
ILLINOIS--CONTINUED
State Health Facilities Authority,
University of Chicago Hospital
Project, Ser C,
VRDN (MBIA) (C)(D)
3.600%, 06/05/96 $4,000 $ 4,000
State Health Facilities Authority,
Streeterville Project,
VRDN (C)(D)(E)
3.600%, 06/05/96 2,000 2,000
--------
Total Illinois 18,241
--------
INDIANA (2.2%)
Allen County, Industrial Economic
Development, Mattel Power
Wheels Project, VRDN (C)(D)(E)(F)
3.900%, 06/05/96 1,500 1,500
Fort Wayne, Economic Development
Authority, ND Tech Project,
VRDN (C)(D)(E)(F)
3.700%, 06/05/96 1,000 1,000
Indianapolis, Industrial Economic
Development Authority,
VRDN (C)(D)(E)
3.750%, 06/05/96 2,000 2,000
Jasper County, Pollution Control
Board, Northern Indiana Public
Service Project, Ser C,
VRDN (C)(D)(E)
3.700%, 06/03/96 2,200 2,200
State Bond Bank Advance Funding
Notes (E)
4.250%, 07/08/96 1,250 1,251
--------
Total Indiana 7,951
--------
IOWA (0.7%)
West Des Moines, Commercial
Development Authority,
Greyhound Lines Project,
VRDN (C)(D)(E)
3.700%, 06/05/96 2,500 2,500
--------
KANSAS (0.5%)
Burlington, Pollution Control
Authority, Kansas City Power &
Light Project, Ser B, TECP (E)
3.650%, 08/08/96 $2,000 $ 2,000
--------
KENTUCKY (1.2%)
Lexington-Fayette Urban County,
Government Residential Facilities,
Richmond Place Project,
RB Mandatory Put 04/01/97
@ 100 (E)
4.500%, 04/01/15 1,000 1,000
Pendleton County, VRDN (C)(D)(E)
3.966%, 07/01/96 1,000 1,000
State League of Cities,
VRDN (C)(D)(E)
3.700%, 06/05/96 1,380 1,380
State Turnpike Authority, RB,
Pre-Refunded 07/01/96 @ 102 (G)
7.400%, 01/01/97 1,025 1,048
--------
Total Kentucky 4,428
--------
LOUISIANA (2.0%)
Lake Charles, Harbor & Terminal
District Authority, Reynolds
Metals Project, VRDN (C)(D)(E)
3.500%, 06/05/96 3,000 3,000
Port Authority, Occidental
Petroleum Project, VRDN (C)(D)(E)
3.600%, 06/05/96 4,500 4,500
--------
Total Louisiana 7,500
--------
MARYLAND (3.5%)
Baltimore County, Gas &
Electric, TECP (E)
3.200%, 06/04/96 5,000 5,000
Baltimore County, Allied Signal
Project, VRDN (C)(D)(E)
3.700%, 06/05/96 1,000 1,000
F-58
<PAGE>
STATEMENT OF NET ASSETS
=============================================================
STI CLASSIC FUNDS MAY 31, 1996
TAX-EXEMPT MONEY MARKET FUND--CONTINUED
- -------------------------------------------------------------
FACE AMOUNT VALUE
(000) (000)
- -------------------------------------------------------------
MARYLAND--CONTINUED
Health & Higher Education
Authority, Pooled Loan Program,
Ser B, VRDN (C)(D)(E)
3.700%, 06/05/96 $5,000 $ 5,000
Montgomery County, TECP (E)
3.250%, 06/05/96 2,000 2,000
--------
Total Maryland 13,000
--------
MICHIGAN (4.0%)
State Housing Finance Authority,
VRDN (C)(D)(E)(F)
3.800%, 06/05/96 1,000 1,000
State Housing Development
Authority, VRDN (C)(D)(E)
3.625%, 06/06/96 3,000 3,000
State Industrial Development
Authority, VRDN (C)(D)(E)
3.600%, 06/05/96 3,000 3,000
Pollution Control Board,
Underground Storage Tanks
Project, VRDN (C)(D)(E)
4.000%, 06/05/96 4,900 4,900
State Strategic Fund, Dow
Chemical Project, TECP (E)
3.550%, 06/17/96 2,900 2,900
--------
Total Michigan 14,800
--------
MINNESOTA (0.3%)
Hennepin County, Waste
Treatment Authority, GO
4.400%, 10/01/96 1,000 1,003
--------
MISSISSIPPI (0.6%)
State GO
4.500%, 12/01/96 2,300 2,309
--------
MISSOURI (3.8%)
Environmental Improvement
Authority, RB Putable
06/01/96 @ 100 (E)
4.000%, 06/01/14 1,000 1,000
Environmental Improvement
Authority, Utilicorp United
Project, VRDN (C)(D)(E)
3.750%, 06/05/96 $ 700 $ 700
Improvement & Energy Resource
Authority, Kansas City Power &
Light Project, TECP (E)
3.750%, 11/06/96 5,000 5,000
Industrial Development Authority,
Bachman Machine Project,
Ser A, VRDN (C)(D)(E)(F)
3.950%, 06/05/96 140 140
Industrial Development Authority,
Excelsior Manufacturing Project,
Ser B, VRDN (C)(D)(E)(F)
3.950%, 06/05/96 40 40
Industrial Development Authority,
Milbank Systems Project, Ser B,
VRDN (C)(D)(E)(F)
3.950%, 06/05/96 115 115
Industrial Development Authority,
Precision Stainless Project,
Ser I, VRDN (C)(D)(E)(F)
3.950%, 06/05/96 80 80
Industrial Development Authority,
Plastic Enterprises Project,
Ser A, VRDN (C)(D)(E)(F)
3.950%, 06/05/96 415 415
Saint Louis, Industrial Development
Authority, Multi-Family Housing,
Sugar Pines Apartments Project,
VRDN (C)(D)(E)
3.600%, 06/06/96 1,200 1,200
State Custody Receipt, Third Street
Building Project, VRDN (C)(D)
3.900%, 06/05/96 2,000 2,000
State Ecomonic Development
Authority, Milbank System
Project, Ser C, VRDN (C)(D)(E)
3.950%, 06/05/96 200 200
F-59
<PAGE>
- -------------------------------------------------------------
FACE AMOUNT VALUE
(000) (000)
- -------------------------------------------------------------
MISSOURI--CONTINUED
State Health & Educational
Facilities Authority, Sisters
of Mercy Health Systems Project,
RB 3.600%, 12/01/96 $1,000 $ 1,000
State VRDN
3.650%, 06/06/96 2,125 2,125
--------
Total Missouri 14,015
--------
NEBRASKA (0.6%)
Higher Education Authority,
Student Loan Program,
Ser C, VRDN (SLMA) (C)(D)
3.700%,06/05/96 2,300 2,300
--------
NEVADA (1.4%)
Clark County, Nevada Power
Project, Ser A, VRDN (C)(D)(E)(F)
3.700%, 06/05/96 5,000 5,000
--------
NEW HAMPSHIRE (2.8%)
State Housing Finance Authority,
Multi-Family Housing,
Fairways Project, VRDN (C)(D)(E)
3.750%, 06/05/96 5,000 5,000
State Housing Finance Authority,
Ser A, RB Putable 01/15/97
@ 100 (F) 3.650%, 07/01/26 1,500 1,500
State Pollution Control
Authority, VRDN (C)(D)(E)
3.700%, 06/05/96 800 800
State Business Finance
Authority, TECP (E)
3.750%, 06/12/96 3,000 3,000
--------
Total New Hampshire 10,300
--------
NEW MEXICO (2.4%)
Educational Assistance Foundation,
Student Loan Program, VRDN
(AMBAC)
3.800%, 06/06/96 $3,950 $ 3,950
Mortgage Finance Authority,
Single-Family Mortgage,
Ser A, RB Mandatory Put 12/31/96
@ 100 (GNMA)
3.250%, 01/01/28 5,000 4,987
--------
Total New Mexico 8,937
--------
NEW YORK (1.4%)
Suffolk County, Ser I, TAN (E)
4.000%, 08/15/96 5,000 5,007
--------
NORTH DAKOTA (1.4%)
Mercer County, Solid Waste
Disposal Authority, United
Power Project, RB Optional Put
12/01/96 @ 100 (F)
3.650%, 12/01/18 5,000 5,000
--------
OHIO (1.6%)
State Air Quality Development
Authority, JMG Limited
Partnership, Ser A,
VRDN (C)(D)(E)(F)
3.600%, 06/05/96 3,000 3,000
State Pollution Control Authority,
Duquesne Project, VRDN (C)(D)(E)
3.750%, 06/05/96 3,000 3,000
--------
Total Ohio 6,000
--------
OREGON (0.3%)
State Housing & Community
Services, Single-Family Mortgage
Program, Ser C, RB (F)
3.850%, 05/15/97 1,000 1,000
--------
F-60
<PAGE>
STATEMENT OF NET ASSETS
=============================================================
STI CLASSIC FUNDS MAY 31, 1996
TAX-EXEMPT MONEY MARKET FUND--CONTINUED
- -------------------------------------------------------------
FACE AMOUNT VALUE
(000) (000)
- -------------------------------------------------------------
PENNSYLVANIA (6.5%)
Allegheny County Health Center
Development Ser B, TECP (E)
3.700%, 06/10/96 $5,000 $ 5,000
Beaver County, Industrial
Development Authority,
Duquesne Light Company
Project, Ser B, VRDN (C)(D)(E)
3.650%, 06/05/96 1,000 1,000
Delaware County, Industrial
Development Authority,
Philadelphia Electric Project,
Ser C, TECP (FGIC)
3.250%, 06/05/96 6,000 6,000
Philadelphia School District,
Ser 1995, TRAN
4.500%, 06/28/96 3,000 3,001
Philadelphia, Ser A, TRAN
4.500%, 06/27/96 4,000 4,002
State TAN
4.500%, 06/28/96 5,000 5,003
--------
Total Pennsylvania 24,006
--------
RHODE ISLAND (3.0%)
State TAN (E)
4.500%, 06/28/96 5,000 5,003
Student Loan Authority,
VRDN (C)(D)(E)(F)
3.650%, 06/05/96 6,000 6,000
--------
Total Rhode Island 11,003
--------
SOUTH CAROLINA (1.4%)
State Public Service Authority,
Ser C, RB
3.800%, 01/01/97 2,000 2,006
York County, Pollution Control
Authority, North Carolina
Electric Power Project,
Ser N-5, VRDN (C)(D)(E)
3.250%, 09/15/96 3,000 3,000
--------
Total South Carolina 5,006
--------
TENNESSEE (4.0%)
Covington, Industrial Development
Board, Charms Project,
VRDN (C)(D)(E)
3.700%, 06/05/96 $3,000 $ 3,000
Hamilton County, Industrial
Development Board, Tennessee
Aquarium Project, VRDN (C)(D)(E)
3.650%, 06/06/96 3,000 3,000
Memphis-Shelby County, Industrial
Development Board, Ponderosa
Fibres American Project,
VRDN (C)(D)(E)
3.800%, 06/06/96 1,800 1,800
Nashville & Davidson County,
Government Health & Education
Authority, Vanderbilt University
Project, Ser B, VRDN (C)(D)
3.700%, 05/01/97 1,400 1,400
Nashville & Davidson County,
Industrial Development
Authority, Multi-Family
Mortgage, Chimneytop II
Project, VRDN (C)(D)(E)
3.700%, 06/05/96 1,325 1,325
State School Board Authority,
VRDN (C)(D)
3.600%, 06/05/96 750 750
State School Board Authority,
Ser B, BAN, VRDN (C)(D)
3.600%, 06/05/96 1,400 1,400
State School Board Authority,
VRDN (C)(D)
3.600%, 06/05/96 2,200 2,200
--------
Total Tennessee 14,875
--------
F-61
<PAGE>
- -------------------------------------------------------------
FACE AMOUNT VALUE
(000) (000)
- -------------------------------------------------------------
TEXAS (7.9%)
Brazos River, TECP (E)(F)
3.700%, 08/08/96 $2,790 $ 2,790
Brazos River, Dow Chemical
Project, TECP (E)
3.450%, 08/23/96 2,700 2,700
Harris County, Health Facility
Authority, TECP (E)
3.200%, 06/10/96 3,000 3,000
Harris County, Industrial
Development Authority,
Lubrizol Project, VRDN (C)(D)(E)
3.600%, 06/05/96 1,600 1,600
Harris County, Toll Roads,
Ser H, VRDN (C)(D)
3.600%, 06/05/96 5,500 5,500
Harris County, Housing Finance
Corporation, Ser 1985,
VRDN (C)(D)(E)
3.875%, 06/06/96 1,000 1,000
Houston, TECP (E)
3.250%, 06/11/96 5,000 5,000
Lone Star, Airport Improvement,
VRDN (C)(D)
3.650%, 06/03/96 1,700 1,700
State Public Finance Authority,
Ser C, GO
6.400%, 10/01/96 1,000 1,009
State TAN (E)
4.750%, 08/30/96 5,000 5,008
--------
Total Texas 29,307
--------
UTAH (4.3%)
Davis County, School District, TAN
4.250%, 06/28/96 6,500 6,502
Salt Lake County, Solid Waste
Disposal Authority, Kennecott
Copper Project, Ser A,
VRDN (C)(D)(E)(F)
3.800%, 06/05/96 6,400 6,400
Tooele County, Hazardous Waste
Treatment, Westinghouse
Project, Ser A, TECP (E)
3.650%, 07/23/96 $3,000 $ 3,000
--------
Total Utah 15,902
--------
VERMONT (2.7%)
State TECP (E)
3.400%, 06/14/96 10,000 10,000
--------
VIRGINIA (2.4%)
Chesterfield County, Industrial
Development Authority, Allied
Signal Project, VRDN (C)(D)(E)
3.750%, 06/05/96 3,000 3,000
Commonwealth, Ser 1994,
VRDN (C)(D)
3.750%, 06/06/96 3,000 3,000
Front Royal & Warren County,
Industrial Development Authority,
Pen Tab Industries Project,
VRDN (C)(D)(E)(F)
3.900%, 06/06/96 3,000 3,000
--------
Total Virginia 9,000
--------
WASHINGTON (0.5%)
Port of Seattle, VRDN (C)(D)
3.500%, 06/05/96 1,800 1,800
--------
WEST VIRGINIA (1.1%)
Marshall County, Pollution Control
Authority, Allied Signal Project,
VRDN (C)(D)(E)
3.750%, 06/05/96 2,000 2,000
Marshall County, PPG Industries
Project, VRDN (C)(D)(E)
3.800%, 06/06/96 2,000 2,000
--------
Total West Virginia 4,000
--------
F-62
<PAGE>
STATEMENT OF NET ASSETS
=============================================================
STI CLASSIC FUNDS MAY 31, 1996
TAX-EXEMPT MONEY MARKET FUND--CONCLUDED
- -------------------------------------------------------------
FACE AMOUNT VALUE
(000) (000)
- -------------------------------------------------------------
WISCONSIN (0.8%)
State VRDN (C)(D)
3.600%, 06/06/96 $3,000 $ 3,000
--------
Total Municipal Bonds
(Cost $367,861,479) 367,862
--------
CASH EQUIVALENT (1.1%)
SEI Tax-Exempt Trust Institutional
Tax-Free Portfolio 3,966 3,966
--------
Total Cash Equivalent
(Cost $3,965,853) 3,966
--------
Total Investments (100.8%)
(Cost $371,827,332) 371,828
--------
OTHER ASSETS AND LIABILITIES (-0.8%)
Total Other Assets and Liabilities, Net (2,992)
--------
- -------------------------------------------------------------
VALUE
(000)
- -------------------------------------------------------------
NET ASSETS:
Fund shares of the Trust Class (unlimited
authorization --no par value) based
on 273,619,007 outstanding shares of
benefical interest $273,619
Fund shares of the Investor Class (unlimited
authorization--no par value) based on
95,230,640 outstanding shares of
beneficial interest 95,231
Accumulated net realized loss on
investments (14)
--------
Total Net Assets (100.0%) $368,836
========
Net Asset Value, Offering Price and
Redemption Price Per Share--
Trust Shares $ 1.00
========
Net Asset Value, Offering Price and
Redemption Price Per Share--
Investor Shares $ 1.00
========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
FOR DESCRIPTIONS OF ABBREVIATIONS, PLEASE SEE PAGE 101.
F-63
<PAGE>
STATEMENT OF NET ASSETS
=============================================================
STI CLASSIC FUNDS MAY 31, 1996
KEY TO ABBREVIATIONS USED IN THE STATEMENT OF NET ASSETS
ADR American Depository Receipt
AMBAC Security insured by the American Municipal
Bond Assurance Company
ARM Adjustable Rate Mortgage
BAN Bond Anticipation Note
Cl Class
CMO Collateralized Mortgage Obligation
COP Certificate of Participation
CV Convertible Security
ETM Escrowed to Maturity
F Foreign Registry Shares
FGIC Security insured by the Financial Guaranty
Insurance Corporation
FHLB Federal Home Loan Bank
FHLMC Federal Home Loan Mortgage Corporation
FNMA Federal National Mortgage Association
FSA Security insured by Financial Security
Assurance
GDR Global Depository Receipt
GECC General Electric Capital Corporation
GMAC General Motors Acceptance Corporation
GNMA Government National Mortgage Association
GO General Obligation
MBIA Security insured by the Municipal Bond
Insurance Association
MTN Medium Term Note
PSFG Permanent School Fund Guarantee
RB Revenue Bond
REIT Real Estate Investment Trust
REMIC Real Estate Mortgage Investment Conduit
Ser Series
SLMA Student Loan Marketing Association
STRIPS Separately Traded Registered Interest and
Principal Security
TAN Tax Anticipation Note
TECP Tax Exempt Commercial Paper
TRAN Tax & Revenue Anticipation Note
VRDN Variable Rate Demand Note
* Non-income producing securities
(A) Zero Coupon Bond
(B) Private Placement Security
(C) Variable rate security. The rate reported on the
Statement of Net Assets is the rate in effect on
May 31, 1996
(D) Put and demand features exist requiring the
issuer to repurchase the instrument prior to
maturity
(E) Securities are held in connection with a letter
of credit issued by a major bank
(F) Income on security may be subject to the
Alternative Minimum Tax
(G) Collateralized by U.S. Government Securities
F-64
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
F-65
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES (000)
================================================================================
STI CLASSIC FUNDS FOR THE YEAR ENDED MAY 31, 1996
<TABLE>
<CAPTION>
------------- ---------- ----------
INTERNATIONAL INVESTMENT FLORIDA
EQUITY GRADE TAX-EXEMPT TAX-EXEMPT
FUND BOND FUND BOND FUND
------------ ---------- ----------
<S> <C> <C> <C>
Assets:
Investments at Market Value
(Cost $194,622,776, $158,665,690, $36,007,283, respectively)................. $208,240 $157,970 $ 35,650
Cash and Foreign Currency...................................................... 12,765 -- --
Receivables for Investment Securities Sold..................................... -- 6,359 --
Receivables for Capital Shares Sold............................................ 493 5,660 1,459
Other Assets................................................................... 622 2,546 578
-------- -------- -------
Total Assets................................................................... 222,120 172,535 37,687
-------- -------- -------
Liabilities:
Payables for Investment Securities Purchased................................... 3,488 3,970 --
Payables for Capital Shares Repurchased........................................ 512 285 --
Accrued Expenses............................................................... 413 177 43
Distribution Payable........................................................... -- 535 137
Other Liabilities.............................................................. -- 98 --
-------- -------- -------
Total Liabilities.............................................................. 4,413 5,065 180
-------- -------- -------
Net Assets:
Fund Shares of the Trust Shares (Unlimited Authorization -- No Par Value)
Based on 18,703,354, 11,214,957, 3,059,386, respectively Outstanding Shares
of Beneficial Interest....................................................... 195,165 123,950 31,003
Fund Shares of the Investor Shares (Unlimited Authorization -- No Par Value)
Based on 302,894, 3,367,080, 399,731, respectively Outstanding Shares
of Beneficial Interest....................................................... 3,247 36,440 3,971
Fund Shares of the Flex Shares (Unlimited Authorization -- No Par Value)
Based on 83,847, 498,358, 267,043, respectively Outstanding Shares
of Beneficial Interest....................................................... 908 5,632 2,741
Undistributed Net Investment Income............................................ 986 2 4
Accumulated Net Realized Gain on Investments................................... 4,059 2,142 145
Accumulated Net Realized Loss on Foreign Currency Transactions................. (265) -- --
Net Unrealized Appreciation (Depreciation) on Investments...................... 13,617 (696) (357)
Net Unrealized Depreciation on Foreign Currency and
Translation of Other Assets and Liabilities in Foreign Currency.............. (10) -- --
-------- -------- --------
Total Net Assets............................................................... $217,707 $167,470 $ 37,507
======== ======== ========
Net Asset Value, Offering Price and Redemption Price Per Share -- Trust Shares... $ 11.40 $ 11.10 $ 10.06
======== ======== ========
Net Asset Value and Redemption Price Per Share -- Investor Shares................ $ 11.38 $ 11.12 $ 10.07
======== ======== ========
Maximum Public Offering Price Per Share -- Investor Shares
($11.38 (DIVIDED BY) 96.25%), ($11.12 (DIVIDED BY) 96.25%),
($10.07 (DIVIDED BY) 96.25%).................................................... $ 11.82 $ 11.55 $ 10.46
======== ======== ========
Net Asset Value,Offering and Redemption Price Per Share--Flex Shares (1)......... $ 11.37 $ 11.11 $ 10.08
======== ======== ========
</TABLE>
(1) Flex Class has a contingent deferred sales charge. For a description of a
possible sales charge, see notes to the Financial Statements
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
F-66
<PAGE>
STATEMENT OF OPERATIONS (000)
================================================================================
STI CLASSIC FUNDS FOR THE PERIOD ENDED MAY 31, 1996
<TABLE>
<CAPTION>
MID-CAP CAPITAL INTERNATIONAL
VALUE INCOME EQUITY GROWTH BALANCED EQUITY
STOCK FUND FUND FUND FUND INDEX FUND
---------- --------- --------- ---------- -----------
06/01/95- 06/01/95- 06/01/95- 06/01/95- 06/01/95-
05/31/96 05/31/96 05/31/96 05/31/96 05/31/96
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Income:
Interest Income ........................................ $ 4,145 $ 1,718 $ 4,354 $ 3,136 $ 34
Dividend Income ........................................ 40,342 2,105 19,620 972 2,008
Less Foreign Taxes Withheld ............................ -- -- -- -- (182)
-------- ------- -------- ------- ------
Total Investment Income ................................ 44,487 3,823 23,974 4,108 1,860
-------- ------- -------- ------- ------
Expenses:
Investment Advisory Fees ............................... 9,448 2,377 13,507 990 885
Investment Advisory Fees Waived ........................ -- (319) (1,409) (166) (144)
Contribution from Advisor .............................. -- -- -- -- --
Administrator Fees ..................................... 846 148 842 75 71
Transfer Agent Fees-- Trust Class of Shares ............ 14 15 10 15 15
Transfer Agent Fees-- Investor Class of Shares ......... 131 31 218 23 24
Transfer Agent Fees-- Flex Class of Shares ............. 26 16 19 13 13
Transfer Agent Out of Pocket Fees ...................... 74 16 95 8 10
Printing Expenses ...................................... 99 22 109 10 10
Custody Fees ........................................... 43 9 48 3 132
Professional Fees ...................................... 76 19 90 9 8
Trustee Fees ........................................... 18 3 22 2 2
Registration Fees ...................................... 144 51 132 12 4
Distribution Fees -- Investor Class of Shares .......... 363 55 1,188 12 18
Distribution Fees Waived-- Investor Class of Shares .... (60) (4) (275) (1) (18)
Distribution Fees-- Flex Class of Shares ............... 116 22 49 16 6
Distribution Fees Waived-- Flex Class of Shares ........ (17) (12) (12) (9) (6)
Insurance and Other Fees ............................... 52 6 53 5 22
Amortization of Deferred Organization Costs ............ 13 3 10 3 8
-------- ------- -------- ------- ------
Total Expenses ......................................... 11,386 2,458 14,696 1,020 1,060
-------- ------- -------- ------- ------
Net Investment Income (Loss) ........................... 33,101 1,365 9,278 3,088 800
-------- ------- -------- ------- ------
Net Realized and Unrealized Gain (Loss) on Investments:
Net Realized Gain on Securities Sold ................... 196,134 29,513 224,050 11,091 1,134
Net Realized Loss on Foreign Currency Transactions ..... -- -- -- -- --
Net Change in Unrealized Depreciation on Foreign Currency
and Translation of Other Assets and Liabilities in
Foreign Currency ..................................... -- -- -- -- (7)
Net Change in Unrealized Appreciation (Depreciation)
on Investments ....................................... 60,796 12,518 63,301 1,891 6,362
-------- ------- -------- ------- ------
Net Increase in Net Assets from Operations ............. $290,031 $43,396 $296,629 $16,070 $8,289
======== ======= ======== ======= ======
</TABLE>
*Commencement of operations
Amounts designated as "--" are either $0 or round to $0.
F-67
<PAGE>
================================================================================
<TABLE>
<CAPTION>
INTERNATIONAL SUNBELT INTERNATIONAL GRADE FLORIDA TENNESSEE
EQUITY EQUITY TAX-EXEMPT TAX-EXEMPT TAX-EXEMPT
FUND FUND BOND FUND BOND FUND BOND FUND
------------ --------- ------------------- ---------- -----------
06/01/95- 06/01/95- 06/01/95- 06/01/95- 06/01/95-
05/31/96 05/31/96 05/31/96 05/31/96 05/31/96
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Income:
Interest Income .................................... $ 192 $ 443 $7,184 $1,438 $226
Dividend Income .................................... 2,079 2,293 -- -- --
Less Foreign Taxes Withheld ........................ (235) -- -- -- --
------- -------- ------ ------ --------
Total Investment Income ............................ 2,036 2,736 7,184 1,438 226
------- -------- ------ ------ --------
Expenses:
Investment Advisory Fees ........................... 899 3,890 1,120 182 29
Investment Advisory Fees Waived .................... (152) (465) (204) (76) (29)
Contribution from Advisor .......................... -- -- -- -- (18)
Administrator Fees ................................. 50 242 108 20 3
Transfer Agent Fees -- Trust Class of Shares ....... 7 15 15 16 16
Transfer Agent Fees -- Investor Class of Shares .... 9 58 45 15 14
Transfer Agent Fees -- Flex Class of Shares ........ 6 13 14 13 12
Transfer Agent Out of Pocket Fees .................. 6 26 14 3 2
Printing Expenses .................................. 9 34 15 4 --
Custody Fees ....................................... 113 14 6 1 --
Professional Fees .................................. 10 28 13 3 1
Trustee Fees ....................................... 1 5 2 1 --
Registration Fees .................................. 83 30 30 10 1
Distribution Fees -- Investor Class of Shares ...... 3 107 175 7 2
Distribution Fees Waived -- Investor Class
of Shares ........................................ (3) (7) (61) (1) (1)
Distribution Fees-- Flex Class of Shares ........... 2 10 39 17 14
Distribution Fees Waived-- Flex Class of Shares .... (2) (9) (17) (14) (5)
Insurance and Other Fees ........................... 8 17 9 1 --
Amortization of Deferred Organization Costs ........ 1 3 10 1 --
------- -------- ------ ------ ------
Total Expenses ..................................... 1,050 4,011 1,333 203 41
------- -------- ------ ------ ------
Net Investment Income (Loss) ....................... 986 (1,275) 5,851 1,235 185
------- -------- ------ ------ ------
Net Realized and Unrealized Gain (Loss) on Investments:
Net Realized Gain on Securities Sold ............... 4,059 39,898 5,634 220 13
Net Realized Loss on Foreign Currency Transactions.. (265) -- -- -- --
Net Change in Unrealized Depreciation on Foreign
Currencyand Translation of Other Assets and
Liabilities in
Foreign Currency ................................. (10) -- -- -- --
Net Change in Unrealized Appreciation (Depreciation)
on Investments .................................... 13,617 84,777 (3,672) (723) (96)
------- -------- ------ ------ ------
Net Increase in Net Assets from Operations .......... $18,387 $123,400 $7,813 $ 732 $102
======= ======== ====== ====== ======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
F-68
<PAGE>
STATEMENT OF OPERATIONS (000) (concluded)
================================================================================
STI CLASSIC FUNDS FOR THE PERIOD ENDED MAY 31, 1996
<TABLE>
<CAPTION>
SHORT-TERM
GEORGIA INVESTMENT U.S. TREASURY LIMITED-TERM
TAX-EXEMPT GRADE BOND SHORT-TERM SECURITIES FEDERAL MORTGAGE
BOND FUND FUND BOND FUND FUND BOND FUND
---------- ---------- ----------- -------------- ----------------
06/01/95- 06/01/95- 06/01/95- 06/01/95- 06/01/95-
05/31/96 05/31/96 05/31/96 05/31/96 05/31/96
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Income:
Interest Income .................................. $1,144 $40,504 $4,745 $1,037 $3,533
Dividend Income .................................. -- -- -- -- --
------ ------- ------ ------ ------
Total Investment Income .......................... 1,144 40,504 4,745 1,037 3,533
------ ------- ------ ------ ------
Expenses:
Investment Advisory Fees ......................... 149 4,580 512 109 344
Investment Advisory Fees Waived .................. (65) (711) (150) (72) (119)
Administrator Fees ............................... 16 444 56 12 38
Administrator Fees Waived ........................ -- -- -- -- --
Transfer Agent Fees-- Trust Class of Shares ...... 16 15 14 16 13
Transfer Agent Fees-- Investor Class of Shares ... 15 54 18 17 14
Transfer Agent Fees-- Flex Class of Shares ....... 13 14 12 12 12
Transfer Agent Out of Pocket Fees ................ 3 46 7 3 8
Printing Expenses ................................ 3 58 8 2 5
Custody Fees ..................................... 1 26 3 -- 2
Professional Fees ................................ 2 51 7 1 6
Trustee Fees ..................................... -- 9 1 -- 1
Registration Fees ................................ 7 98 16 6 13
Distribution Fees -- Investor Class of Shares .... 6 152 6 10 3
Distribution Fees Waived -- Investor Class
of Shares ...................................... (1) (73) (1) (2) (1)
Distribution Fees-- Flex Class of Shares ......... 24 24 6 12 7
Distribution Fees Waived -- Flex Class
of Shares ...................................... (17) (15) (6) (12) (7)
Insurance and Other Fees ......................... 1 28 4 -- 2
Amortization of Deferred Organization Costs ...... -- 10 8 8 11
------ ------- ------ ------ -------
Total Expenses ................................... 173 4,810 521 122 352
------ ------- ------ ------ -------
Net Investment Income .............................. 971 35,694 4,224 915 3,181
------ ------- ------ ------ -------
Net Realized and Unrealized Gain (Loss) on
Investments.......................................
Net Realized Gain (Loss) on Securities Sold ...... 330 19,716 1,358 95 389
Net Change in Unrealized Depreciation
on Investments ................................. (789) (32,383) (2,395) (294) (1,359)
------ ------- ------ ------ -------
Net Increase in Net Assets from Operations ......... $ 512 $23,027 $3,187 $ 716 $ 2,211
====== ======= ====== ====== =======
</TABLE>
Amounts designated as "--" are either $0 or round to $0.
F-69
<PAGE>
================================================================================
<TABLE>
<CAPTION>
TAX-EXEMPT
U.S. PRIME QUALITY U.S. GOVERNMENT MONEY
GOVERNMENT MONEY MARKET SECURITIES MONEY MARKET
SECURITIES FUND FUND MARKET FUND FUND
--------------- ------------- ---------------- ----------
06/01/95- 06/01/95- 06/01/95- 06/01/95-
05/31/96 05/31/96 05/31/96 05/31/96
--------- --------- --------- --------
<S> <C> <C> <C> <C>
Income:
Interest Income ................................ $698 $60,664 $22,883 $14,248
Dividend Income ................................ -- -- -- --
---- ------- ------- -------
Total Investment Income ........................ 698 60,664 22,883 14,248
---- ------- ------- -------
Expenses:
Investment Advisory Fees ....................... 76 6,950 2,646 2,108
Investment Advisory Fees Waived ................ (60) (1,603) (578) (685)
Administrator Fees ............................. 7 765 292 275
Administrator Fees Waived ...................... -- (450) (73) --
Transfer Agent Fees-- Trust Class of Shares .... 16 16 16 16
Transfer Agent Fees-- Investor Class of Shares.. 13 48 29 25
Transfer Agent Fees-- Flex Class of Shares ..... 14 -- -- --
Transfer Agent Out of Pocket Fees .............. 3 70 27 25
Printing Expenses .............................. 1 95 38 38
Custody Fees ................................... -- 43 18 17
Professional Fees .............................. 1 83 30 32
Trustee Fees ................................... -- 14 3 6
Registration Fees .............................. 6 200 63 72
Distribution Fees -- Investor Class of Shares... 5 382 97 139
Distribution Fees Waived -- Investor Class
of Shares .................................... (1) (108) (53) (59)
Distribution Fees -- Flex Class of Shares ...... 16 -- -- --
Distribution Fees Waived-- Flex Class
of Shares .................................... (12) -- -- --
Insurance and Other Fees ....................... 1 17 7 12
Amortization of Deferred Organization Costs .... 10 10 10 10
---- ------- ------- -------
Total Expenses ................................. 96 6,532 2,572 2,031
---- ------- ------- -------
Net Investment Income ............................ 602 54,132 20,311 12,217
---- ------- ------- -------
Net Realized and Unrealized Gain (Loss) on
Investments....................................
Net Realized Gain (Loss) on Securities Sold .... (24) (82) 90 9
Net Change in Unrealized Depreciation
on Investments .............................. (557) -- -- --
---- ------- ------- -------
Net Increase in Net Assets from Operations ....... $ 21 $54,050 $20,401 $12,226
==== ======= ======= =======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
F-70
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS (000)
================================================================================
STI CLASSIC FUNDS FOR THE PERIOD ENDED MAY 31, 1996
<TABLE>
<CAPTION>
VALUE INCOME MID-CAP EQUITY
STOCK FUND FUND CAPITAL GROWTH FUND BALANCED FUND
--------------------- -------------------- -------------------- ---------------------
06/01/95- 06/01/94- 06/01/95- 06/01/94- 06/01/95- 06/01/94- 06/01/95- 06/01/94-
05/31/96 05/31/95 05/31/96 05/31/95 05/31/96 05/31/95 05/31/96 05/31/95
---------- --------- --------- --------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operations:
Net Investment Income .................. $ 33,101 $27,417 $ 1,365 $ 848 $ 9,278 $ 13,878 $3,088 $ 2,894
Net Realized Gain (Loss) on
Investments .......................... 196,134 63,692 29,513 3,443 224,050 (25,085) 11,091 (2,649)
Net Realized Gain (Loss) on Foreign
Currency Transactions ................ -- -- -- -- -- -- -- --
Net Change in Unrealized Appreciation
(Depreciation) on Foreign Currency
and Translation of Other Assets and
Liabilities in Foreign Currency ...... -- -- -- -- -- -- -- --
Net Change in Unrealized Appreciation
(Depreciation) on Investments ........ 60,796 72,296 12,518 9,545 63,301 81,722 1,891 7,258
---------- ---------- -------- --------- ---------- ---------- --------- --------
Increase in Net Assets from Operations 290,031 163,405 43,396 13,836 296,629 70,515 16,070 7,503
---------- ---------- -------- --------- ---------- ---------- --------- --------
Distributions to Shareholders:
Net Investment Income:
Trust Shares ......................... (29,124) (23,754) (1,285) (718) (9,644) (11,234) (2,933) (2,702)
Investor Shares ...................... (2,618) (1,920) (30) (14) (570) (928) (115) (97)
Flex Shares .......................... (206) -- (1) -- (5) -- (31) --
Capital Gains:
Trust Shares ......................... (92,363) (38,976) (13,072) -- (41,659) (30,893) (904) --
Investor Shares ...................... (9,853) (3,570) (922) -- (7,343) (5,364) (44) --
Flex Shares .......................... (1,106) -- (167) -- (227) -- (18) --
---------- ---------- -------- --------- ---------- ---------- --------- --------
Total Distributions .................... (135,270) (68,220) (15,477) (732) (59,448) (48,419) (4,045) (2,799)
---------- ---------- -------- --------- ---------- ---------- --------- --------
Capital Transactions (1):
Trust Shares:
Proceeds from Shares Issued .......... 371,542 468,283 133,402 86,594 187,108 394,468 54,735 44,516
Reinvestment of Cash Distributions ... 111,671 58,468 13,361 546 48,431 40,271 3,784 2,692
Cost of Shares Repurchased ........... (369,739) (195,046) (44,487) (31,035) (439,271) (362,047) (47,301) (53,242)
---------- ---------- -------- --------- ---------- ---------- --------- --------
Increase (Decrease) in Net Assets
From Trust Share Transactions ........ 113,474 331,705 102,276 56,105 (203,732) 72,692 11,218 (6,034)
---------- ---------- -------- --------- ---------- ---------- --------- --------
Investor Shares:
Proceeds from Shares Issued .......... 31,177 32,292 10,027 4,519 21,971 25,080 1,315 2,054
Reinvestment of Cash Distributions ... 12,291 5,319 948 14 7,818 6,057 155 93
Cost of Shares Repurchased ........... (19,420) (13,939) (2,010) (875) (34,867) (43,510) (844) (891)
---------- ---------- -------- --------- ---------- ---------- --------- --------
Increase (Decrease) in Net Assets
From Investor Share Transactions ... 24,048 23,672 8,965 3,658 (5,078) (12,373) 626 1,256
---------- ---------- -------- --------- ---------- ---------- --------- --------
Flex Shares:
Proceeds from Shares Issued .......... 24,893 -- 5,125 -- 10,505 -- 3,359 --
Reinvestment of Cash Distributions ... 1,301 -- 163 -- 230 -- 49 --
Cost of Shares Repurchased ........... (1,416) -- (450) -- (641) -- (428) --
---------- ---------- -------- --------- ---------- ---------- --------- --------
Increase in Net Assets From Flex
Share Transactions ................... 24,778 -- 4,838 -- 10,094 -- 2,980 --
---------- ---------- -------- --------- ---------- ---------- --------- --------
Increase (Decrease) in Net Assets
From Share Transactions ............ 162,300 355,377 116,079 59,763 (198,716) 60,319 14,824 (4,778)
---------- ---------- -------- --------- ---------- ---------- --------- --------
Total Increase (Decrease) in
Net Assets ....................... 317,061 450,562 143,998 72,867 38,465 82,415 26,849 (74)
---------- ---------- -------- --------- ---------- ---------- --------- --------
Net Assets:
Beginning of Period .................... 1,084,233 633,671 132,907 60,040 1,145,080 1,062,665 92,816 92,890
---------- ---------- -------- --------- ---------- ---------- --------- --------
End of Period .......................... $1,401,294 $1,084,233 $276,905 $132,907 $1,183,545 $1,145,080 $119,665 $ 92,816
========== ========== ======== ========= ========== ========== ========= ========
Shares Issued and Redeemed(1):
Trust Shares:
Shares Issued ........................ 9,898 43,588 10,952 8,666 13,624 33,987 4,974 4,636
Shares Issued in Lieu of Cash
Distributions ...................... 9,282 5,715 1,144 54 3,617 3,668 346 283
Shares Redeemed ...................... (30,154) (18,063) (3,620) (3,090) (32,204) (31,242) (4,335) (5,520)
---------- ----------- -------- --------- ---------- ---------- --------- --------
Net Trust Share Transactions ........... 9,026 31,240 8,476 5,630 (14,963) 6,413 985 (601)
---------- ----------- -------- --------- ---------- ---------- --------- --------
Investor Shares:
Shares Issued ........................ 2,522 2,985 824 448 1,605 2,153 119 212
Shares Issued in Lieu of Cash
Distributions ...................... 1,023 521 82 1 585 555 14 10
Shares Redeemed ...................... (1,569) (1,297) (165) (86) (2,576) (3,751) (76) (92)
---------- ----------- -------- --------- ---------- ---------- --------- --------
Net Investor Share Transactions ........ 1,976 2,209 741 363 (386) (1,043) 57 130
---------- ----------- -------- --------- ---------- ---------- --------- --------
Flex Shares:
Shares Issued ........................ 2,014 -- 419 -- 768 -- 305 --
Shares Issued in Lieu of Cash
Distributions ...................... 108 -- 14 -- 17 -- 5 --
Shares Redeemed ...................... (113) -- (37) -- (46) -- (38) --
---------- ----------- -------- --------- ---------- ---------- --------- --------
Net Flex Share Transactions ............ 2,009 -- 396 -- 739 -- 272 --
========== =========== ======== ========= ========== ========== ======== ========
</TABLE>
*Commencement of operations.
Amounts designated as "--" are either $0 or round to $0.
F-71
<PAGE>
<TABLE>
<CAPTION>
INTERNATIONAL INTERNATIONAL
EQUITY EQUITY
INDEX FUND FUND SUNBELT EQUITY FUND
----------------------- ------------- -----------------------
06/01/95- 06/06/94-* 12/01/95-* 06/01/95- 01/03/94-*
05/31/96 05/31/95 05/31/96 05/31/96 05/31/95
--------- ---------- -------------- --------- ----------
<S> <C> <C> <C> <C> <C>
Operations:
Net Investment Income .................. $ 800 $ 583 $ 986 $ (1,275) $ (390)
Net Realized Gain (Loss) on
Investments .......................... 1,134 28 4,059 39,898 (10,446)
Net Realized Gain (Loss) on Foreign
Currency Transactions ................ -- 42 (265) -- --
Net Change in Unrealized Appreciation
(Depreciation) on Foreign Currency
and Translation of Other Assets and
Liabilities in Foreign Currency ...... (7) 3 (10) -- --
Net Change in Unrealized Appreciation
(Depreciation) on Investments ........ 6,362 2,605 13,617 84,777 20,987
------- ------- -------- -------- --------
Increase in Net Assets from
Operations ......................... 8,289 3,261 18,387 123,400 10,151
------- ------- -------- -------- --------
Distributions to Shareholders:
Net Investment Income:
Trust Shares ......................... (1,048) (143) -- -- --
Investor Shares ...................... (59) (4) -- -- --
Flex Shares .......................... (7) -- -- -- --
Capital Gains:
Trust Shares ......................... (743) (31) -- (5,188) (999)
Investor Shares ...................... (43) (2) -- (426) (89)
Flex Shares .......................... (6) -- -- (20) --
------- ------- -------- -------- --------
Total Distributions .................... (1,906) (180) -- (5,634) (1,088)
------- ------- -------- -------- --------
Capital Transactions (1):
Trust Shares:
Proceeds from Shares Issued .......... 62,965 96,472 212,805 132,237 168,189
Reinvestment of Cash Distributions ... 1,417 115 -- 4,956 948
Cost of Shares Repurchased ........... (68,891) (10,101) (17,640) (92,700) (46,896)
------- ------- -------- -------- --------
Increase (Decrease) in Net Assets
From Trust Share Transactions ........ (4,509) 86,486 195,165 44,493 122,241
------- ------- -------- -------- --------
Investor Shares:
Proceeds from Shares Issued .......... 3,017 4,324 3,467 5,187 10,546
Reinvestment of Cash Distributions ... 101 5 -- 426 89
Cost of Shares Repurchased ........... (1,782) (490) (220) (7,209) (5,208)
------- ------- -------- -------- --------
Increase (Decrease) in Net Assets
From Investor Share Transactions ... 1,336 3,839 3,247 (1,596) 5,427
------- ------- -------- -------- --------
Flex Shares:
Proceeds from Shares Issued .......... 992 -- 911 2,489 --
Reinvestment of Cash Distributions ... 13 -- -- 20 --
Cost of Shares Repurchased ........... (127) -- (3) (123) --
------- ------- -------- -------- --------
Increase in Net Assets From Flex
Share Transactions ................... 878 -- 908 2,386 --
------- ------- -------- -------- --------
Increase (Decrease) in Net Assets
From Share Transactions ............ (2,295) 90,325 199,320 45,283 127,668
------- ------- -------- -------- --------
Total Increase (Decrease) in
Net Assets ....................... 4,088 93,406 217,707 163,049 136,731
------- ------- -------- -------- --------
Net Assets:
Beginning of Period .................... 93,406 -- -- 281,088 144,357
------- ------- -------- -------- --------
End of Period .......................... $97,494 $93,406 $217,707 $444,137 $281,088
======= ======= ======== ======== ========
Shares Issued and Redeemed(1):
Trust Shares:
Shares Issued ........................ 5,971 9,758 20,338 10,848 17,356
Shares Issued in Lieu of Cash
Distributions ...................... 134 12 -- 437 96
Shares Redeemed ...................... (6,536) (1,035) (1,635) (7,882) (4,848)
------- ------- -------- -------- --------
Net Trust Share Transactions ........... (431) 8,735 18,703 3,403 12,604
------- ------- -------- -------- --------
Investor Shares:
Shares Issued ........................ 286 438 324 428 1,095
Shares Issued in Lieu of Cash
Distributions ...................... 10 1 -- 38 9
Shares Redeemed ...................... (170) (51) (21) (614) (537)
------- ------- -------- -------- --------
Net Investor Share Transactions ........ 126 388 303 (148) 567
------- ------- -------- -------- --------
Flex Shares:
Shares Issued ........................ 95 -- 84 202 --
Shares Issued in Lieu of Cash
Distributions ...................... 1 -- -- 2 --
Shares Redeemed ...................... (12) -- -- (10) --
------- ------- -------- -------- --------
Net Flex Share Transactions ............ 84 -- 84 194 --
======= ======= ======== ======== ========
<CAPTION>
FLORIDA TENNESSEE
INVESTMENT GRADE TAX-EXEMPT TAX-EXEMPT
TAX EXEMPT BOND FUND BOND FUND BOND FUND
---------------------- ---------------------- --------------------
06/01/95- 06/01/94- 06/01/95- 06/01/94- 06/01/95- 06/01/94-
05/31/96 05/31/95 05/31/96 05/31/95 05/31/96 05/31/95
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Operations:
Net Investment Income .................. $ 5,851 $ 4,295 $ 1,235 $ 395 $ 185 $ 103
Net Realized Gain (Loss) on Investments 5,634 2,511 220 85 13 (11)
Net Realized Gain (Loss) on Foreign
Currency Transactions ................ -- -- -- -- -- --
Net Change in Unrealized Appreciation
(Depreciation) on Foreign Currency
and Translation of Other Assets and
Liabilities in Foreign Currency ...... -- -- -- -- -- --
Net Change in Unrealized Appreciation
(Depreciation) on Investments ........ (3,672) 3,246 (723) 421 (96) 99
-------- -------- -------- -------- ------- -------
Increase in Net Assets from Operations 7,813 10,052 732 901 102 191
-------- -------- -------- -------- ------- -------
Distributions to Shareholders:
Net Investment Income:
Trust Shares ......................... (4,292) (2,582) (996) (264) (80) (45)
Investor Shares ...................... (1,492) (1,658) (171) (130) (54) (58)
Flex Shares .......................... (120) -- (65) -- (51) --
Capital Gains:
Trust Shares ......................... (3,335) (17) (111) -- -- --
Investor Shares ...................... (1,295) (11) (21) -- -- --
Flex Shares .......................... (137) -- (10) -- -- --
-------- -------- -------- -------- ------- -------
Total Distributions .................... (10,671) (4,268) (1,374) (394) (185) (103)
-------- -------- -------- -------- ------- -------
Capital Transactions (1):
Trust Shares:
Proceeds from Shares Issued .......... 87,347 51,898 30,124 8,390 414 1,263
Reinvestment of Cash Distributions ... 4,062 1,220 228 83 36 29
Cost of Shares Repurchased ........... (42,946) (23,091) (9,139) (1,914) (264) (274)
-------- -------- -------- -------- ------- -------
Increase (Decrease) in Net Assets
From Trust Share Transactions ........ 48,463 30,027 21,213 6,559 186 1,018
-------- -------- -------- -------- ------- -------
Investor Shares:
Proceeds from Shares Issued .......... 4,535 6,818 1,865 1,793 668 398
Reinvestment of Cash Distributions ... 2,347 1,410 127 97 35 45
Cost of Shares Repurchased ........... (10,550) (14,915) (1,235) (990) (333) (436)
-------- -------- -------- -------- ------- -------
Increase (Decrease) in Net Assets
From Investor Share Transactions ... (3,668) (6,687) 757 900 370 7
-------- -------- -------- -------- ------- -------
Flex Shares:
Proceeds from Shares Issued .......... 6,823 -- 2,844 -- 2,235 --
Reinvestment of Cash Distributions ... 222 -- 50 -- 36 --
Cost of Shares Repurchased ........... (1,413) -- (153) -- (215) --
-------- -------- -------- -------- ------- -------
Increase in Net Assets From Flex
Share Transactions ................... 5,632 -- 2,741 -- 2,056 --
-------- -------- -------- -------- ------- -------
Increase (Decrease) in Net Assets
From Share Transactions ............ 50,427 23,340 24,711 7,459 2,612 1,025
-------- -------- -------- -------- ------- -------
Total Increase (Decrease) in
Net Assets ....................... 47,569 29,124 24,069 7,966 2,529 1,113
-------- -------- -------- -------- ------- -------
Net Assets:
Beginning of Period .................... 119,901 90,777 13,438 5,472 2,834 1,721
-------- -------- -------- -------- ------- -------
End of Period .......................... $167,470 $119,901 $ 37,507 $ 13,438 $ 5,363 $ 2,834
======== ======== ======== ======== ======= =======
Shares Issued and Redeemed(1):
Trust Shares:
Shares Issued ........................ 7,736 4,811 2,945 857 43 137
Shares Issued in Lieu of Cash
Distributions ...................... 362 113 22 9 4 3
Shares Redeemed ...................... (3,816) (2,168) (902) (199) (28) (29)
-------- -------- -------- -------- ------- -------
Net Trust Share Transactions ........... 4,282 2,756 2,065 667 19 111
-------- -------- -------- -------- ------- -------
Investor Shares:
Shares Issued ........................ 401 630 182 183 70 43
Shares Issued in Lieu of Cash
Distributions ...................... 208 131 12 10 4 5
Shares Redeemed ...................... (934) (1,389) (120) (101) (35) (47)
-------- -------- -------- -------- ------- -------
Net Investor Share Transactions ........ (325) (628) 74 92 39 1
-------- -------- -------- -------- ------- -------
Flex Shares:
Shares Issued ........................ 603 -- 277 -- 233 --
Shares Issued in Lieu of Cash
Distributions ...................... 20 -- 5 -- 4 --
Shares Redeemed ...................... (125) -- (15) -- (23) --
-------- -------- -------- -------- ------- -------
Net Flex Share Transactions ............ 498 -- 267 -- 214 --
======== ======== ======== ======== ======= =======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
F-72
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS (000) (concluded)
================================================================================
STI CLASSIC FUNDS FOR THE YEAR ENDED MAY 31, 1996
<TABLE>
<CAPTION>
GEORGIA
TAX-EXEMPT INVESTMENT GRADE SHORT-TERM BOND
BOND FUND BOND FUND FUND
---------------------- --------------------- -----------------------
06/01/95- 06/01/94- 06/01/95- 06/01/94- 06/01/95- 06/01/94-
05/31/96 05/31/95 05/31/96 05/31/95 05/31/96 05/31/95
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Operations:
Net Investment Income ........................ $ 971 $ 598 $ 35,694 $ 32,705 $ 4,224 $ 2,786
Net Realized Gain (Loss) on Investments ...... 330 (92) 19,716 (17,663) 1,358 (854)
Net Change in Unrealized Appreciation
(Depreciation) on Investments (789) 488 (32,383) 38,279 (2,395) 2,073
------- ------- -------- -------- -------- -------
Increase in Net Assets from Operations ... 512 994 23,027 53,321 3,187 4,005
------- ------- -------- -------- -------- -------
Distributions to Shareholders:
Net Investment Income:
Trust Shares ............................... (747) (459) (33,703) (30,731) (4,065) (2,639)
Investor Shares ............................ (139) (137) (1,908) (1,979) (133) (144)
Flex Shares ................................ (88) -- (114) -- (26) --
Capital Gains:
Trust Shares ............................... (26) -- -- (181) (124) --
Investor Shares ............................ (6) -- -- (12) (4) --
Flex Shares ................................ (4) -- -- -- (1) --
------- ------- -------- -------- -------- -------
Total Distributions ...................... (1,010) (596) (35,725) (32,903) (4,353) (2,783)
------- ------- -------- -------- -------- -------
Capital Transactions (1):
Trust Shares:
Proceeds from Shares Issued ................ 17,893 12,139 203,235 209,252 60,843 34,765
Reinvestment of Cash Distributions ......... 215 107 26,403 28,634 2,588 1,886
Cost of Shares Redeemed .................... (7,944) (3,723) (161,583) (174,411) (32,113) (11,630)
------- ------- -------- -------- -------- -------
Increase (Decrease) in Net Assets From
Trust Share Transactions 10,164 8,523 68,055 63,475 31,318 25,021
------- ------- -------- -------- -------- -------
Investor Shares:
Proceeds from Shares Issued ................ 661 1,052 8,832 6,058 642 1,244
Reinvestment of Cash Distributions ......... 109 104 1,510 1,695 90 110
Cost of Shares Redeemed .................... (596) (1,260) (7,248) (10,879) (606) (1,189)
------- ------- -------- -------- -------- -------
Increase (Decrease) in Net Assets From
Investor Share Transactions ................ 174 (104) 3,094 (3,126) 126 165
------- ------- -------- -------- -------- -------
Flex Shares:
Proceeds from Shares Issued ................ 4,355 -- 5,179 -- 1,014 --
Reinvestment of Cash Distributions ......... 75 -- 88 -- 22 --
Cost of Shares Redeemed .................... (150) -- (508) -- (53) --
------- ------- -------- -------- -------- -------
Increase in Net Assets From Flex
Share Transactions ......................... 4,280 -- 4,759 -- 983 --
------- ------- -------- -------- -------- -------
Increase (Decrease) in Net Assets From
Share Transactions ....................... 14,618 8,419 75,908 60,349 32,427 25,186
------- ------- -------- -------- -------- -------
Total Increase (Decrease) in Net Assets .. 14,120 8,817 63,210 80,767 31,261 26,408
------- ------- -------- -------- -------- -------
Net Assets:
Beginning of Period .......................... 16,455 7,638 577,080 496,313 63,561 37,153
------- ------- -------- -------- -------- -------
End of Period ................................ $30,575 $16,455 $640,290 $577,080 $ 94,822 $63,561
======= ======= ======== ======== ======== =======
(1) Shares Issued and Redeemed:
Trust Shares:
Shares Issued .............................. 1,832 1,295 19,682 21,353 6,066 3,561
Shares Issued in Lieu of Cash Distributions 22 11 2,550 2,923 258 193
Shares Redeemed ............................ (823) (398) (15,629) (17,890) (3,190) (1,201)
------- ------- -------- -------- -------- -------
Net Trust Share Transactions ............. 1,031 908 6,603 6,386 3,134 2,553
------- ------- -------- -------- -------- -------
Investor Shares:
Shares Issued .............................. 68 113 856 618 64 128
Shares Issued in Lieu of Cash Distributions 11 11 146 173 9 11
Shares Redeemed ............................ (61) (135) (701) (1,115) (60) (121)
------- ------- -------- -------- -------- -------
Net Investor Share Transactions .......... 18 (11) 301 (324) 13 18
------- ------- -------- -------- -------- -------
Flex Shares:
Shares Issued .............................. 448 -- 499 -- 101 --
Shares Issued in Lieu of Cash Distributions 8 -- 8 -- 2 --
Shares Redeemed ............................ (15) -- (49) -- (5) --
------- ------- -------- -------- -------- -------
Net Flex Share Transactions .............. 441 -- 458 -- 98 --
======= ======= ======== ======== ======== =======
</TABLE>
*Commencement of operations
Amounts designated as "--" are either $0 or round to $0.
F-73
<PAGE>
<TABLE>
<CAPTION>
SHORT-TERM U.S. TREASURY LIMITED-TERM FEDERAL U.S. GOVERNMENT
SECURITIES FUND MORTGAGE SECURITIES FUND SECURITIES FUND
------------------------ ------------------------ -----------------------
06/01/95- 06/01/94- 06/01/95- 06/07/94-* 06/01/95- 06/09/94-*
05/31/96 05/31/95 05/31/96 05/31/95 05/31/96 05/31/95
--------- --------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Operations:
Net Investment Income ........................ $ 915 $ 679 $ 3,181 $ 1,515 $ 602 $ 69
Net Realized Gain (Loss) on Investments ...... 95 (160) 389 (267) (24) 6
Net Change in Unrealized Appreciation
(Depreciation) on Investments .............. (294) 375 (1,359) 910 (557) 130
------- ------- -------- -------- ------- ------
Increase in Net Assets from Operations ... 716 894 2,211 2,158 21 205
------- ------- -------- -------- ------- ------
Distributions to Shareholders:
Net Investment Income:
Trust Shares ............................... (551) (415) (3,012) (1,573) (453) (54)
Investor Shares ............................ (308) (264) (68) (8) (68) (15)
Flex Shares ................................ (56) -- (37) -- (81) --
Capital Gains:
Trust Shares ............................... -- -- -- -- (18) --
Investor Shares ............................ -- -- -- -- (3) --
Flex Shares ................................ -- -- -- -- (5) --
------- ------- -------- -------- ------- ------
Total Distributions ...................... (915) (679) (3,117) (1,581) (628) (69)
------- ------- -------- -------- ------- ------
Capital Transactions (1):
Trust Shares:
Proceeds from Shares Issued ................ 5,744 7,487 46,841 50,881 9,824 3,385
Reinvestment of Cash Distributions ......... 334 271 1,846 1,254 144 15
Cost of Shares Redeemed .................... (5,409) (11,026) (16,287) (10,879) (2,556) (224)
------- ------- -------- -------- ------- ------
Increase (Decrease) in Net Assets From
Trust Share Transactions 669 (3,268) 32,400 41,256 7,412 3,176
------- ------- -------- -------- ------- ------
Investor Shares:
Proceeds from Shares Issued ................ 966 4,263 2,404 633 2,290 562
Reinvestment of Cash Distributions ......... 278 260 51 7 50 8
Cost of Shares Redeemed .................... (4,147) (2,291) (533) (27) (456) (2)
------- ------- -------- -------- ------- ------
Increase (Decrease) in Net Assets From
Investor Share Transactions ................ (2,903) 2,232 1,922 613 1,884 568
------- ------- -------- -------- ------- ------
Flex Shares:
Proceeds from Shares Issued ................ 2,603 -- 1,538 -- 3,019 --
Reinvestment of Cash Distributions ......... 39 -- 27 -- 59 --
Cost of Shares Redeemed .................... (188) -- (196) -- (148) --
------- ------- -------- -------- ------- ------
Increase in Net Assets From Flex
Share Transactions ......................... 2,454 -- 1,369 -- 2,930 --
------- ------- -------- -------- ------- ------
Increase (Decrease) in Net Assets From
Share Transactions ....................... 220 (1,036) 35,691 41,869 12,226 3,744
------- ------- -------- -------- ------- ------
Total Increase (Decrease) in Net Assets .. 21 (821) 34,785 42,446 11,619 3,880
------- ------- -------- -------- ------- ------
Net Assets:
Beginning of Period .......................... 16,743 17,564 42,446 -- 3,880 --
------- ------- -------- -------- ------- ------
End of Period ................................ $16,764 $16,743 $ 77,231 $ 42,446 $15,499 $3,880
======= ======= ======== ======== ======= ======
(1) Shares Issued and Redeemed:
Trust Shares:
Shares Issued .............................. 579 765 4,639 5,110 952 342
Shares Issued in Lieu of Cash
Distributions ............................ 34 28 182 126 14 2
Shares Redeemed ............................ (547) (1,122) (1,610) (1,101) (249) (23)
------- ------- -------- -------- ------- ------
Net Trust Share Transactions ............. 66 (329) 3,211 4,135 717 321
------- ------- -------- -------- ------- ------
Investor Shares:
Shares Issued .............................. 97 433 238 64 225 56
Shares Issued in Lieu of Cash
Distributions ............................ 28 27 5 1 5 1
Shares Redeemed ............................ (418) (234) (53) (3) (45) --
------- ------- -------- -------- ------- ------
Net Investor Share Transactions .......... (293) 226 190 62 185 57
------- ------- -------- -------- ------- ------
Flex Shares:
Shares Issued .............................. 262 -- 152 -- 294 --
Shares Issued in Lieu of Cash
Distributions ............................ 4 -- 2 -- 6 --
Shares Redeemed ............................ (19) -- (19) -- (15) --
------- ------- -------- -------- ------- ------
Net Flex Share Transactions .............. 247 -- 135 -- 285 --
======= ======= ======== ======== ======= ======
<CAPTION>
PRIME QUALITY U.S. GOVERNMENT SECURITIES TAX-EXEMPT
MONEY MARKET FUND MONEY MARKET FUND MONEY MARKET FUND
---------------------- ------------------------- -------------------
- -
06/01/95- 06/01/94- 06/01/95- 06/01/94- 06/01/95- 06/01/94-
05/31/96 05/31/95 05/31/96 05/31/95 05/31/96 05/31/95
--------- --------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Operations:
Net Investment Income ........................ $54,132 $ 38,348 $ 20,311 $ 15,936 $ 12,217 $8,400
Net Realized Gain (Loss) on Investments ...... (82) 71 90 (98) 9 (14)
Net Change in Unrealized Appreciation
(Depreciation) on Investments .............. -- -- -- -- -- --
---------- ---------- ---------- --------- --------- --------
Increase in Net Assets from Operations ... 54,050 38,419 20,401 15,838 12,226 8,386
---------- ---------- ---------- --------- --------- --------
Distributions to Shareholders:
Net Investment Income:
Trust Shares ............................... (44,689) (32,217) (17,516) (14,171) (9,342) (6,323)
Investor Shares ............................ (9,442) (6,118) (2,795) (1,765) (2,872) (2,044)
Flex Shares ................................ -- -- -- -- -- --
Capital Gains:
Trust Shares ............................... -- -- -- -- -- --
Investor Shares ............................ -- -- -- -- -- --
Flex Shares ................................ -- -- -- -- -- --
---------- ---------- ---------- --------- --------- --------
Total Distributions ...................... (54,131) (38,335) (20,311) (15,936) (12,214) (8,367)
---------- ---------- ---------- --------- --------- --------
Capital Transactions (1):
Trust Shares:
Proceeds from Shares Issued ................ 2,131,623 2,066,213 1,156,411 1,082,598 719,678 493,579
Reinvestment of Cash Distributions ......... 1,223 538 60 14 3 1
Cost of Shares Redeemed .................... (1,881,171) (1,851,031) (1,265,169) (957,634) (661,491) (422,164)
---------- ---------- ---------- --------- --------- --------
Increase (Decrease) in Net Assets From
Trust Share Transactions ................... 251,675 215,720 (108,698) 124,978 58,190 71,416
---------- ---------- ---------- --------- --------- --------
Investor Shares:
Proceeds from Shares Issued ................ 1,012,310 1,019,462 231,451 338,408 322,435 235,805
Reinvestment of Cash Distributions ......... 8,255 5,689 2,414 1,594 2,480 1,523
Cost of Shares Redeemed .................... (962,468) (996,964) (221,906) (325,755) (317,341) (211,360)
---------- ---------- ---------- --------- --------- --------
Increase (Decrease) in Net Assets From
Investor Share Transactions ................ 58,097 28,187 11,959 14,247 7,574 25,968
---------- ---------- ---------- --------- --------- --------
Flex Shares:
Proceeds from Shares Issued ................ -- -- -- -- -- --
Reinvestment of Cash Distributions ......... -- -- -- -- -- --
Cost of Shares Redeemed .................... -- -- -- -- -- --
---------- ---------- ---------- --------- --------- --------
Increase in Net Assets From Flex
Share Transactions ......................... -- -- -- -- -- --
---------- ---------- ---------- --------- --------- --------
Increase (Decrease) in Net Assets From
Share Transactions ....................... 309,772 243,907 (96,739) 139,225 65,764 97,384
---------- ---------- ---------- --------- --------- --------
Total Increase (Decrease) in Net Assets .. 309,691 243,991 (96,649) 139,127 65,776 97,403
---------- ---------- ---------- --------- --------- --------
Net Assets:
Beginning of Period .......................... 956,805 712,814 480,750 341,623 303,060 205,657
---------- ---------- ---------- --------- --------- --------
End of Period ................................ $1,266,496 $ 956,805 $ 384,101 $ 480,750 $ 368,836 $303,060
========== ========= ========== ========= ========= ========
(1) Shares Issued and Redeemed:
Trust Shares:
Shares Issued .............................. 2,131,623 2,066,213 1,156,411 1,082,598 719,678 493,579
Shares Issued in Lieu of Cash
Distributions ............................ 1,223 538 60 14 3 1
Shares Redeemed ............................ (1,881,171) (1,851,031) (1,265,169) (957,634) (661,491) (422,164)
---------- ---------- ---------- --------- --------- --------
Net Trust Share Transactions ............. 251,675 215,720 (108,698) 124,978 58,190 71,416
---------- ---------- ---------- --------- --------- --------
Investor Shares:
Shares Issued .............................. 1,012,310 1,019,462 231,451 338,408 322,435 235,805
Shares Issued in Lieu of Cash
Distributions ............................ 8,255 5,689 2,414 1,594 2,480 1,523
Shares Redeemed ............................ (962,468) (996,964) (221,906) (325,755) (317,341) (211,360)
---------- ---------- ---------- --------- --------- --------
Net Investor Share Transactions .......... 58,097 28,187 11,959 14,247 7,574 25,968
---------- ---------- ---------- --------- --------- --------
Flex Shares:
Shares Issued .............................. -- -- -- -- -- --
Shares Issued in Lieu of Cash Distributions -- -- -- -- -- --
Shares Redeemed ............................ -- -- -- -- -- --
---------- ---------- ---------- --------- --------- --------
Net Flex Share Transactions .............. -- -- -- -- -- --
========== ========== ========== ========= ========= ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
F-74
<PAGE>
FINANCIAL HIGHLIGHTS
================================================================================
STI CLASSIC FUNDS FOR THE PERIOD FROM INCEPTION THROUGH MAY 31, 1996
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
<TABLE>
<CAPTION>
NET REALIZED AND
NET UNREALIZED GAIN
NET ASSET VALUE INVESTMENT (LOSSES) DISTRIBUTIONS FROM DISTRIBUTIONS FROM ASSET VALUE
BEGINNING OF PERIOD INCOME ON INVESTMENTS NET INVESTMENT INCOME REALIZED CAPITOL GAIN END OF PERIOD
------------------- ---------- ---------------- --------------------- --------------------- -------------
<S> <C> <C> <C> <C> <C> <C>
VALUE INCOME STOCK FUND
Trust Shares
1996 $11.59 $0.35 $ 2.71 $(0.34) $(1.16) $13.15
1995 10.54 0.32 1.56 (0.32) (0.51) 11.59
1994 10.23 0.29 0.70 (0.32) (0.36) 10.54
1993(1) 10.00 0.11 0.16 (0.04) -- 10.23
Investor Shares
1996 $11.58 $0.30 $ 2.71 $(0.30) $(1.16) $13.13
1995 10.52 0.28 1.56 (0.27) (0.51) 11.58
1994 10.23 0.26 0.67 (0.27) (0.37) 10.52
1993(2) 9.73 0.09 0.44 (0.03) -- 10.23
Flex Shares
1996(3) $11.59 $0.26 $ 2.65 $(0.26) $(1.16) $13.08
MID-CAP EQUITY FUND (A)
Trust Shares
1996 $11.00 $0.08 $ 2.63 $(0.08) $(0.87) $12.76
1995 9.85 0.08 1.15 (0.08) -- 11.00
1994(4) 10.00 0.02 (0.16) (0.01) -- 9.85
Investor Shares
1996 $10.99 $0.03 $ 2.62 $(0.03) $(0.87) $12.74
1995 9.84 0.03 1.15 (0.03) -- 10.99
1994(5) 10.00 0.01 (0.17) -- -- 9.84
Flex Shares
1996(6) $11.13 -- $ 2.45 $(0.02) $(0.87) $12.69
CAPITAL GROWTH FUND
Trust Shares
1996 $12.18 $0.12 $ 3.32 $(0.13) $(0.59) $14.90
1995 11.99 0.16 0.57 (0.14) (0.40) 12.18
1994 11.95 0.16 0.31 (0.17) (0.26) 11.99
1993(7) 10.36 0.12 1.57 (0.10) -- 11.95
Investor Shares
1996 $12.17 $0.03 $ 3.32 $(0.04) $(0.59) $14.89
1995 11.98 0.09 0.57 (0.07) (0.40) 12.17
1994 11.93 0.09 0.31 (0.09) (0.26) 11.98
1993(8) 10.00 0.06 1.93 (0.06) -- 11.93
Flex Shares
1996(3) $12.20 $0.02 $ 3.26 $(0.05) $(0.59) $14.84
BALANCED FUND
Trust Shares
1996 $10.26 $0.33 $ 1.41 $(0.34) $(0.11) $11.55
1995 9.76 0.33 0.49 (0.32) -- 10.26
1994(9) 10.00 0.11 (0.29) (0.06) -- 9.76
Investor Shares
1996 $10.30 $0.30 $ 1.41 $(0.30) $(0.11) $11.60
1995 9.79 0.28 0.51 (0.28) -- 10.30
1994(10) 10.00 0.03 (0.24) -- -- 9.79
Flex Shares
1996(11) $10.36 $0.24 $ 1.29 $(0.25) $(0.11) $11.53
INTERNATIONAL EQUITY
INDEX FUND
Trust Shares
1996 $10.24 $0.10 $ 0.84 $(0.13) $(0.09) $10.96
1995(12) 10.00 0.08 0.19 (0.02) (0.01) 10.24
Investor Shares
1996 $10.20 $0.05 $ 0.85 $(0.13) $(0.09) $10.88
1995(12) 10.00 0.05 0.17 (0.01) (0.01) 10.20
Flex Shares
1996(13) $10.24 -- $ 0.82 $(0.10) $(0.09) $10.87
</TABLE>
* Annualized.
+ Cumulative since inception.
(1) Commenced operations on February 12, 1993.
(2) Commenced operations on February 17, 1993.
(3) Commenced operations on June 1, 1995.
(4) Commenced operations on February 2, 1994.
(5) Commenced operations on February 1, 1994.
(6) Commenced operations on June 5, 1995.
F-75
<PAGE>
================================================================================
<TABLE>
<CAPTION>
RATIO OF
RATIO OF NET INVESTMENT
RATIO OF EXPENSES TO INCOME (LOSS) TO
NET ASSETS RATIO OF NET INVESTMENTS AVERAGE NET ASSETS AVERAGE NET ASSETS PORTFOLIO
TOTAL END OF EXPENSES TO INCOME (LOSS) TO (EXCLUDING WAIVERS EXCLUDING WAIVERS TURNOVER
RETURN (B) PERIOD (000) AVERAGE NET ASSETS AVERAGE NET ASSETS AND REIMBURSEMENTS) AND REIMBURSEMENTS) RATE
----------- ------------ ------------------ ------------------- ------------------- ------------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
VALUE INCOME STOCK FUND
Trust Shares
1996 27.91% $1,244,399 0.92% 2.86% 0.92% 2.86% 133.99%
1995 19.06% 991,977 0.95% 3.16% 0.95% 3.16% 125.71%
1994 9.95% 573,082 0.88% 3.21% 0.97% 3.12% 149.28%
1993(1) 9.05%* 137,761 0.80%* 4.32%* 0.96%* 4.16%* 34.71%
Investor Shares
1996 27.39% $ 130,597 1.30% 2.47% 1.37% 2.40% 133.99%
1995 18.71% 92,256 1.30% 2.80% 1.41% 2.69% 125.71%
1994 9.27% 60,589 1.25% 2.80% 1.44% 2.61% 149.28%
1993(2) 19.42%* 24,779 1.15%* 4.51%* 1.63%* 4.04%* 34.71%
Flex Shares
1996(3) 26.52%* $ 26,298 2.00%* 1.72%* 2.15%* 1.57%* 133.99%
MID-CAP EQUITY FUND (A)
Trust Shares
1996 25.54% $ 253,905 1.15% 0.70% 1.29% 0.56% 115.62%
1995 12.56% 125,562 1.15% 0.88% 1.32% 0.71% 65.63%
1994(4) (1.39%)+ 57,036 1.15%* 1.20%* 1.68%* 0.67%* 7.99%
Investor Shares
1996 24.93% $ 17,971 1.60% 0.25% 1.96% (0.11%) 115.62%
1995 11.96% 7,345 1.60% 0.43% 2.27% (0.24%) 65.63%
1994(5) (1.60%)+ 3,004 1.60%* 0.74%* 4.60%* (2.26%)* 7.99%
Flex Shares
1996(6) 23.00%* $ 5,029 2.20%* (0.37%)* 3.04%* (1.21%)* 115.62%
CAPITAL GROWTH FUND
Trust Shares
1996 28.97% $ 981,498 1.15% 0.90% 1.27% 0.78% 156.46%
1995 6.63% 984,205 1.15% 1.38% 1.28% 1.25% 127.79%
1994 3.87% 891,870 1.15% 1.25% 1.29% 1.11% 123.87%
1993(7) 17.90%* 507,692 1.15%* 1.43%* 1.28%* 1.30%* 95.02%
Investor Shares
1996 28.18% $ 191,078 1.80% 0.24% 2.08% (0.04%) 156.46%
1995 5.93% 160,875 1.80% 0.73% 2.10% 0.43% 127.79%
1994 3.26% 170,795 1.80% 0.64% 2.11% 0.33% 123.87%
1993(8) 20.49%* 131,858 1.80%* 0.81%* 2.06%* 0.55%* 95.02%
Flex Shares
1996(3) 27.48%* $ 10,969 2.27%* (0.29%)* 2.68%* (0.70%)* 156.46%
BALANCED FUND
Trust Shares
1996 17.26% $ 111,638 0.95% 3.00% 1.09% 2.86% 154.63%
1995 8.72% 89,051 0.95% 3.44% 1.11% 3.28% 156.61%
1994(9) (1.78%)+ 90,579 0.95%* 2.76%* 1.25%* 2.46%* 105.65%
Investor Shares
1996 16.88% $ 4,896 1.25% 2.70% 1.89% 2.06% 154.63%
1995 8.29% 3,765 1.25% 3.17% 1.80% 2.62% 156.61%
1994(10) (2.10%)+ 2,311 1.25%* 2.46%* 4.91%* (1.20%)* 105.65%
Flex Shares
1996(11) 15.58%* $ 3,131 2.00%* 1.85%* 2.97%* 0.88%* 154.63%
INTERNATIONAL EQUITY
INDEX FUND
Trust Shares
1996 9.29% $ 90,980 1.05% 0.84% 1.19% 0.70% 30.46%
1995(12) 2.69%+ 89,446 1.05%* 1.13%* 1.31%* 0.87%* 10.37%
Investor Shares
1996 8.90% $ 5,597 1.45% 0.48% 2.06% (0.13%) 30.46%
1995(12) 2.18%+ 3,960 1.45%* 0.67%* 2.44%* (0.32%)* 10.37%
Flex Shares
1996(13) 8.32%+ $ 917 2.10%* (0.24%)* 4.14%* (2.28%)* 30.46%
</TABLE>
(7) Commenced operations on July 1, 1992.
(8) Commenced operations on June 9, 1992.
(9) Commenced operations on January 3, 1994.
(10) Commenced operations on January 4, 1994.
(11) Commenced operations on June 14, 1995.
(12) Commenced operations on June 6, 1994.
(13) Commenced operations on June 8, 1995.
(A) During the fiscal year ended May 31,1996, the
Aggressive Growth Fund changed its name to the Mid-Cap Equity Fund.
(B) Total return figures do not reflect applicable sales loads.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
F-76
<PAGE>
FINANCIAL HIGHLIGHTS (continued)
================================================================================
STI CLASSIC FUNDS FOR THE PERIOD FROM INCEPTION THROUGH MAY 31, 1996
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
<TABLE>
<CAPTION>
NET NET REALIZED AND DISTRIBUTIONS
NET ASSET VALUE INVESTMENT UNREALIZED FROM DISTRIBUTIONS NET ASSET
BEGINNING INCOME GAINS (LOSSES) NET INVESTMENT FROM REALIZED VALUE END
OF PERIOD (LOSS) ON INVESTMENTS INCOME CAPITAL GAINS OF PERIOD
--------------- ----------- ---------------- -------------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
INTERNATIONAL EQUITY FUND
Trust Shares
1996(1) $10.00 $ 0.05 $ 1.35 -- -- $11.40
Investor Shares
1996(2) $10.44 $ 0.04 $ 0.90 -- -- $11.38
Flex Shares
1996(2) $10.44 $ 0.02 $ 0.91 -- -- $11.37
SUNBELT EQUITY FUND
Trust Shares
1996 $10.03 $(0.04) $ 4.32 -- $(0.20) $14.11
1995 9.70 (0.01) 0.38 -- (0.04) 10.03
1994(3) 10.00 -- (0.30) -- -- 9.70
Investor Shares
1996 $9.96 $(0.11) $ 4.30 -- $(0.20) $13.95
1995 9.69 (0.05) 0.36 -- (0.04) 9.96
1994(4) 10.00 (0.02) (0.29) -- -- 9.69
Flex Shares
1996(5) $10.20 $(0.07) $ 4.04 -- $(0.20) $13.97
INVESTMENT GRADE
TAX-EXEMPT BOND FUND
Trust Shares
1996 $11.28 $ 0.45 $ 0.19 $(0.45) $(0.37) $11.10
1995 10.68 0.46 0.60 (0.46) -- 11.28
1994(6) 11.37 0.22 (0.34) (0.22) (0.35) 10.68
Investor Shares
1996 $11.30 $ 0.41 $ 0.19 $(0.41) $(0.37) $11.12
1995 10.69 0.42 0.61 (0.42) -- 11.30
1994 10.79 0.33 0.25 (0.33) (0.35) 10.69
1993(7) 10.00 0.35 0.82 (0.35) (0.03) 10.79
Flex Shares
1996(8) $11.30 $ 0.37 $ 0.18 $(0.37) $(0.37) $11.11
FLORIDA TAX-EXEMPT
BOND FUND
Trust Shares
1996 $10.18 $ 0.46 $(0.07) $(0.46) $(0.05) $10.06
1995 9.75 0.44 0.43 (0.44) -- 10.18
1994(9) 10.00 0.13 (0.25) (0.13) -- 9.75
Investor Shares
1996 $10.18 $ 0.44 $(0.06) $(0.44) $(0.05) $10.07
1995 9.75 0.42 0.43 (0.42) -- 10.18
1994(10) 10.00 0.13 (0.25) (0.13) -- 9.75
Flex Shares
1996(8) $10.19 $ 0.39 $(0.06) $(0.39) $(0.05) $10.08
TENNESSEE TAX-EXEMPT
BOND FUND
Trust Shares
1996 $9.50 $ 0.43 $(0.11) $(0.42) $ -- $ 9.40
1995 9.22 0.44 0.28 (0.44) -- 9.50
1994(11) 10.00 0.12 (0.77) (0.13) -- 9.22
Investor Shares
1996 $9.53 $ 0.41 $(0.10) $(0.42) $ -- $ 9.42
1995 9.23 0.44 0.29 (0.43) -- 9.53
1994(12) 10.00 0.13 (0.77) (0.13) -- 9.23
Flex Shares
1996(5) $9.59 $ 0.37 $(0.18) $(0.37) $ -- $ 9.41
</TABLE>
* Annualized.
+ Cumulative since inception.
(1) Commenced operations on December 1, 1995.
(2) Commenced operations on January 2, 1996.
(3) Commenced operations on January 3, 1994.
(4) Commenced operations on January 4, 1994.
(5) Commenced operations on June 5, 1995.
F-77
<PAGE>
<TABLE>
<CAPTION>
RATIO OF
RATIO OF NET INVESTMENT
RATIO OF EXPENSES TO INCOME (LOSS) TO
NET ASSETS RATIO OF NET INVESTMENTS AVERAGE NET ASSETS AVERAGE NET ASSETS PORTFOLIO
TOTAL END OF EXPENSES TO INCOME (LOSS) TO (EXCLUDING WAIVERS EXCLUDING WAIVERS TURNOVER
RETURN (B) PERIOD (000) AVERAGE NET ASSETS AVERAGE NET ASSETS AND REIMBURSEMENTS) AND REIMBURSEMENTS) RATE
----------- ------------ ------------------ ------------------- ------------------- ------------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
INTERNATIONAL EQUITY FUND
Trust Shares
1996(1) 14.00%+ $213,306 1.46%* 1.36%* 1.65%* 1.17%* 113.34%
Investor Shares
1996(2) 9.00%+ $ 3,448 1.81%* 1.73%* 3.14%* 0.40%* 113.34%
Flex Shares
1996(2) 8.91%+ $ 953 2.51%* 1.08%* 5.86%* (2.27)%* 113.34%
SUNBELT EQUITY FUND
Trust Shares
1996 43.19% $412,430 1.15% (0.34%) 1.28% (0.47%) 106.27%
1995 3.81% 258,908 1.15% (0.12%) 1.30% (0.27%) 80.03%
1994(3) (2.99%)+ 128,280 1.15%* (0.19%)* 1.58%* (0.62%)* 21.42%
Investor Shares
1996 42.58% $ 29,002 1.60% (0.79%) 1.93% (1.12%) 106.27%
1995 3.20% 22,180 1.60% (0.57%) 1.98% (0.95%) 80.03%
1994(4) (3.10%)+ 16,077 1.60%* (0.63%)* 2.04%* (1.07%)* 21.42%
Flex Shares
1996(5) 39.86%* $ 2,705 2.20%* (1.43%)* 3.62%* (2.85%)* 106.27%
INVESTMENT GRADE
TAX-EXEMPT BOND FUND
Trust Shares
1996 5.82% $124,507 0.75% 4.01% 0.89% 3.87% 513.90%
1995 10.21% 78,208 0.75% 4.34% 0.91% 4.18% 591.91%
1994(6) (1.10%)+ 44,595 0.75%* 3.46%* 0.95%* 3.26%* 432.46%
Investor Shares
1996 5.40% $ 37,427 1.15% 3.61% 1.42% 3.34% 513.90%
1995 9.91% 41,693 1.15% 3.88% 1.43% 3.60% 591.91%
1994 5.37% 46,182 1.14% 2.96% 1.51% 2.59% 432.46%
1993(7) 11.88%* 15,844 1.12%* 3.61%* 1.83%* 2.90%* 344.87%
Flex Shares
1996(8) 4.91%* $ 5,536 1.63%* 3.12%* 2.25%* 2.50%* 513.90%
FLORIDA TAX-EXEMPT
BOND FUND
Trust Shares
1996 3.87% $ 30,790 0.65% 4.49% 0.88% 4.26% 62.68%
1995 9.26% 10,118 0.65% 4.63% 1.13% 4.15% 105.01%
1994(9) (1.19%)+ 3,192 0.65%* 3.86%* 1.12%* 3.39%* 53.24%
Investor Shares
1996 3.76% $ 4,025 0.85% 4.28% 1.36% 3.77% 62.68%
1995 9.04% 3,320 0.85% 4.36% 1.50% 3.71% 105.01%
1994(10) (1.22%)+ 2,280 0.85%* 3.67%* 3.20%* 1.32%* 53.24%
Flex Shares
1996(8) 3.27%* $ 2,692 1.35%* 3.79%* 2.54%* 2.60%* 62.68%
TENNESSEE TAX-EXEMPT
BOND FUND
Trust Shares
1996 3.43% $ 1,823 0.65% 4.49% 1.68% 3.46% 41.00%
1995 8.17% 1,664 0.65% 4.90% 2.65% 2.90% 27.73%
1994(11) (6.52%)+ 594 0.65%* 4.24%* 1.43%* 3.46%* 13.05%
Investor Shares
1996 3.28% $ 1,523 0.85% 4.29% 2.08% 3.06% 41.00%
1995 8.24% 1,170 0.85% 4.70% 2.10% 3.45% 27.73%
1994(12) (6.39%)+ 1,127 0.85%* 3.74%* 6.60%* (2.01%)* 13.05%
Flex Shares
1996(5) 1.98%* $ 2,017 1.34%* 3.80%* 2.74%* 2.40%* 41.00%
</TABLE>
(6) Commenced operations on October 21, 1993.
(7) Commenced operations on June 9, 1992.
(8) Commenced operations on June 1, 1995.
(9) Commenced operations on January 25, 1994.
(10) Commenced operations on January 18, 1994.
(11) Commenced operations on January 27, 1994.
(12) Commenced operations on January 19, 1994.
(A) Total return figures do not reflect applicable sales loads.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
F-78
<PAGE>
FINANCIAL HIGHLIGHTS (continued)
================================================================================
STI CLASSIC FUNDS FOR THE PERIOD FROM INCEPTION THROUGH MAY 31, 1996
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
<TABLE>
<CAPTION>
NET NET REALIZED AND DISTRIBUTIONS
NET ASSET VALUE INVESTMENT UNREALIZED FROM DISTRIBUTIONS NET ASSET
BEGINNING INCOME GAINS (LOSSES) NET INVESTMENT FROM REALIZED VALUE END
OF PERIOD (LOSS) ON INVESTMENTS INCOME CAPITAL GAINS OF PERIOD
--------------- ----------- ---------------- -------------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
GEORGIA TAX-EXEMPT
BOND FUND
Trust Shares
1996 $ 9.63 $0.43 $(0.05) $(0.43) $(0.02) $ 9.56
1995 9.42 0.42 0.21 (0.42) -- 9.63
1994 (1) 10.00 0.14 (0.58) (0.14) -- 9.42
Investor Shares
$ 9.65 $0.41 $(0.05) $(0.41) $(0.02) $ 9.58
1995 9.44 0.40 0.21 (0.40) -- 9.65
1994 (2) 10.00 0.13 (0.56) (0.13) -- 9.44
Flex Shares
1996(3) $ 9.72 $0.36 $(0.14) $(0.36) $(0.02) $ 9.56
INVESTMENT GRADE
BOND FUND
Trust Shares
1996 $10.26 $0.60 $(0.19) $(0.60) -- $10.07
1995 9.89 0.61 0.37 (0.61) -- 10.26
1994 10.45 0.50 (0.36) (0.50) $(0.20) 9.89
1993(4) 10.09 0.45 0.36 (0.45) -- 10.45
Investor Shares
1996 $10.26 $0.56 $(0.20) $(0.56) -- $10.06
1995 9.89 0.57 0.38 (0.58) -- 10.26
1994 10.44 0.46 (0.35) (0.46) $(0.20) 9.89
1993(5) 10.00 0.44 0.44 (0.44) -- 10.44
Flex Shares
1996(6) $10.33 $0.52 $(0.26) $(0.52) -- $10.07
SHORT-TERM BOND FUND
Trust Shares
1996 $ 9.98 $0.54 $(0.10) $(0.54) $(0.02) $ 9.86
1995 9.79 0.53 0.19 (0.53) -- 9.98
1994 10.01 0.42 (0.21) (0.42) (0.01) 9.79
1993(7) 10.00 0.08 0.01 (0.08) -- 10.01
Investor Shares
1996 $10.01 $0.52 $(0.10) $(0.53) $(0.02) $ 9.88
1995 9.81 0.51 0.19 (0.50) -- 10.01
1994 10.03 0.40 (0.21) (0.40) (0.01) 9.81
1993(8) 10.06 0.06 (0.03) (0.06) -- 10.03
Flex Shares
1996(9) $10.02 $0.47 $(0.12) $(0.47) $(0.02) $ 9.88
SHORT-TERM U.S. TREASURY
SECURITIES FUND
Trust Shares
1996 $ 9.93 $0.55 $(0.09) $(0.55) -- $ 9.84
1995 9.82 0.47 0.11 (0.47) -- 9.93
1994 9.98 0.33 (0.11) (0.33) $(0.05) 9.82
1993(7) 10.00 0.07 (0.02) (0.07) -- 9.98
Investor Shares
1996 $ 9.94 $0.54 $(0.10) $(0.54) -- $ 9.84
1995 9.83 0.46 0.11 (0.46) -- 9.94
1994 9.99 0.32 (0.12) (0.31) $(0.05) 9.83
1993(10) 10.01 0.06 (0.02) (0.06) -- 9.99
Flex Shares
1996(11) $ 9.96 $0.48 $(0.14) $(0.48) -- $ 9.82
</TABLE>
* Annualized.
+ Cumulative since inception.
(1) Commenced operations on January 18, 1994.
(2) Commenced operations on January 19, 1994.
(3) Commenced operations on June 6, 1995.
(4) Commenced operations on July 16, 1992.
(5) Commenced operations on June 11, 1992.
F-79
<PAGE>
================================================================================
<TABLE>
<CAPTION>
RATIO OF
RATIO OF NET INVESTMENT
RATIO OF EXPENSES TO INCOME (LOSS) TO
NET ASSETS RATIO OF NET INVESTMENTS AVERAGE NET ASSETS AVERAGE NET ASSETS PORTFOLIO
TOTAL END OF EXPENSES TO INCOME (LOSS) TO (EXCLUDING WAIVERS EXCLUDING WAIVERS TURNOVER
RETURN (B) PERIOD (000) AVERAGE NET ASSETS AVERAGE NET ASSETS AND REIMBURSEMENTS) AND REIMBURSEMENTS) RATE
----------- ------------ ------------------ ------------------- ------------------- ------------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
GEORGIA TAX-EXEMPT
BOND FUND
Trust Shares
1996 3.89% $ 22,950 0.65% 4.36% 0.89% 4.12% 60.02%
1995 6.94% 13,187 0.65% 4.56% 0.98% 4.23% 24.50%
1994 (1) (4.43%)+ 4,338 0.65%* 4.12%* 1.06%* 3.71%* 25.90%
Investor Shares
3.69% $ 3,418 0.85% 4.17% 1.41% 3.61% 60.02%
1995 6.70% 3,268 0.85% 4.31% 1.43% 3.73% 24.50%
1994 (2) (4.29%)+ 3,300 0.85%* 3.93%* 2.36%* 2.42%* 25.90%
Flex Shares
1996(3) 2.25%* $ 4,207 1.35%* 3.66%* 2.35%* 2.66%* 60.02%
INVESTMENT GRADE
BOND FUND
Trust Shares
1996 4.02% $599,514 0.75% 5.81% 0.87% 5.69% 184.33%
1995 10.39% 543,308 0.75% 6.22% 0.88% 6.09% 237.66%
1994 1.17% 460,538 0.75% 4.77% 0.88% 4.64% 259.19%
1993(4) 9.34%* 336,132 0.74%* 5.14%* 0.87%* 5.01%* 299.32%
Investor Shares
1996 3.50% $ 36,155 1.15% 5.40% 1.44% 5.11% 184.33%
1995 10.04% 33,772 1.15% 5.79% 1.49% 5.45% 237.66%
1994 0.86% 35,775 1.14% 4.39% 1.41% 4.12% 259.19%
1993(5) 9.21% 24,375 1.14%* 4.75%* 1.46%* 4.43%* 299.32%
Flex Shares
1996(6) 2.50%* $ 4,621 1.64%* 4.84%* 2.49%* 3.99%* 184.33%
SHORT-TERM BOND FUND
Trust Shares
1996 4.45% $ 91,156 0.65% 5.39% 0.81% 5.23% 162.62%
1995 7.60% 60,952 0.65% 5.49% 0.85% 5.29% 200.49%
1994 2.02% 34,772 0.65% 4.15% 0.85% 3.95% 74.85%
1993(7) 4.45%* 25,334 0.64%* 3.88%* 1.11%* 3.41%* 63.89%
Investor Shares
1996 4.23% $ 2,700 0.85% 5.20% 1.72% 4.33% 162.62%
1995 7.44% 2,609 0.85% 5.24% 1.56% 4.53% 200.49%
1994 1.81% 2,381 0.85% 3.94% 2.52% 2.27% 74.85%
1993(8) 1.65%* 716 0.85%* 3.85%* 7.22%* (2.52%)* 63.89%
Flex Shares
1996(9) 3.73%* $ 966 1.20%* 4.77%* 4.06%* 1.91%* 162.62%
SHORT-TERM U.S. TREASURY
SECURITIES FUND
Trust Shares
1996 4.73% $ 10,149 0.65% 5.56% 1.00% 5.21% 94.00%
1995 6.11% 9,599 0.65% 4.91% 1.08% 4.48% 87.98%
1994 2.17% 12,723 0.65% 3.23% 0.81% 3.07% 116.57%
1993(7) 2.22%* 30,336 0.63%* 3.34%* 1.04%* 2.93%* 36.44%
Investor Shares
1996 4.52% $ 4,192 0.80% 5.43% 1.32% 4.91% 94.00%
1995 6.03% 7,144 0.80% 4.74% 1.33% 4.21% 87.98%
1994 2.01% 4,841 0.78% 3.11% 1.41% 2.48% 116.57%
1993(10) 1.84%* 2,423 0.80%* 3.16%* 3.42%* 0.54%* 36.44%
Flex Shares
1996(11) 3.72%* $ 2,423 1.05%* 5.03%* 2.97%* 3.11%* 94.00%
</TABLE>
(6) Commenced operations on June 7, 1995.
(7) Commenced operations on March 15, 1993.
(8) Commenced operations on March 22, 1993.
(9) Commenced operations on June 20, 1995.
(10) Commenced operations on March 18, 1993.
(11) Commenced operations on June 22, 1995.
(A) Total return figures do not reflect applicable sales loads.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
F-80
<PAGE>
FINANCIAL HIGHLIGHTS (concluded)
================================================================================
STI CLASSIC FUNDS FOR THE PERIOD FROM INCEPTION THROUGH MAY 31, 1996
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
<TABLE>
<CAPTION>
NET REALIZED AND DISTRIBUTIONS
NET ASSET VALUE NET UNREALIZED FROM DISTRIBUTIONS NET ASSET
BEGINNING INVESTMENT GAINS (LOSSES) NET INVESTMENT FROM REALIZED VALUE END
OF PERIOD INCOME ON INVESTMENTS INCOME CAPITAL GAINS OF PERIOD
--------------- ----------- ---------------- -------------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
LIMITED-TERM FEDERAL
MORTGAGE SECURITIES FUND
Trust Shares
1996 $10.11 $0.62 $(0.14) $(0.60) -- $ 9.99
1995(1) 10.00 0.58 0.13 (0.60) -- 10.11
Investor Shares
1996 $10.11 $0.60 $(0.14) $(0.60) -- $ 9.97
1995(2) 9.98 0.58 0.13 (0.58) -- 10.11
Flex Shares
1996(3) $10.14 $0.55 $(0.15) $(0.55) -- $ 9.99
U.S. GOVERNMENT
SECURITIES FUND
Trust Shares
1996 $10.27 $0.62 $(0.33) $(0.62) $(0.03) $ 9.91
1995(4) 9.98 0.53 0.29 (0.53) -- 10.27
Investor Shares
1996 $10.26 $0.59 $(0.33) $(0.59) $(0.03) $ 9.90
1995(5) 10.00 0.56 0.26 (0.56) -- 10.26
Flex Shares
1996(3) $10.31 $0.52 $(0.37) $(0.52) $(0.03) $ 9.91
PRIME QUALITY MONEY
MARKET FUND
Trust Shares
1996 $1.00 $0.05 -- $(0.05) -- $1.00
1995 1.00 0.05 -- (0.05) -- 1.00
1994 1.00 0.03 -- (0.03) -- 1.00
1993(6) 1.00 0.03 -- (0.03) -- 1.00
Investor Shares
1996 $1.00 $0.05 -- $(0.05) -- $1.00
1995 1.00 0.05 -- (0.05) -- 1.00
1994 1.00 0.03 -- (0.03) -- 1.00
1993(6) 1.00 0.03 -- (0.03) -- 1.00
U.S. GOVERNMENT SECURITIES
MONEY MARKET FUND
Trust Shares
1996 $1.00 $0.05 -- $(0.05) -- $1.00
1995 1.00 0.05 -- (0.05) -- 1.00
1994 1.00 0.03 -- (0.03) -- 1.00
1993(6) 1.00 0.03 -- (0.03) -- 1.00
Investor Shares
1996 $1.00 $0.05 -- $(0.05) -- $1.00
1995 1.00 0.04 -- (0.04) -- 1.00
1994 1.00 0.03 -- (0.03) -- 1.00
1993(6) 1.00 0.03 -- (0.03) -- 1.00
TAX-EXEMPT MONEY MARKET FUND
Trust Shares
1996 $1.00 $0.03 -- $(0.03) -- $1.00
1995 1.00 0.03 -- (0.03) -- 1.00
1994 1.00 0.02 -- (0.02) -- 1.00
1993(6) 1.00 0.02 -- (0.02) -- 1.00
Investor Shares
1996 $1.00 $0.03 -- $(0.03) -- $1.00
1995 1.00 0.03 -- (0.03) -- 1.00
1994 1.00 0.02 -- (0.02) -- 1.00
1993(6) 1.00 0.02 -- (0.02) -- 1.00
</TABLE>
* Annualized.
+ Cumulative since inception.
(1) Commenced operations on June 7, 1994.
(2) Commenced operations on July 17, 1994.
(3) Commenced operations on June 7, 1995.
(4) Commenced operations on July 31, 1994.
(5) Commenced operations on June 9, 1994.
(6) Commenced operations on June 8, 1992.
F-81
<PAGE>
================================================================================
<TABLE>
<CAPTION>
RATIO OF
RATIO OF NET INVESTMENT
RATIO OF EXPENSES TO INCOME (LOSS) TO
NET ASSETS RATIO OF NET INVESTMENTS AVERAGE NET ASSETS AVERAGE NET ASSETS PORTFOLIO
TOTAL END OF EXPENSES TO INCOME TO (EXCLUDING WAIVERS EXCLUDING WAIVERS TURNOVER
RETURN PERIOD (000) AVERAGE NET ASSETS AVERAGE NET ASSETS AND REIMBURSEMENTS) AND REIMBURSEMENTS) RATE
----------- ------------ ------------------ ------------------- ------------------- ------------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
LIMITED-TERM FEDERAL
MORTGAGE SECURITIES FUND
Trust Shares
1996 4.84% $ 73,370 0.65% 6.04% 0.84% 5.85% 83.01%
1995(1) 7.50%+ 41,823 0.65%* 6.43%* 0.93%* 6.15%* 67.63%
Investor Shares
1996 4.59% $ 2,512 0.90% 5.75% 2.25% 4.40% 83.01%
1995(2) 7.45%+ 623 0.90%* 6.27%* 7.74%* (0.57%)* 67.63%
Flex Shares
1996(3) 4.10%* 1,349 1.25%* 5.38%* 3.59%* 3.04%* 83.01%
U.S. GOVERNMENT
SECURITIES FUND
Trust Shares
1996 2.77% $ 10,277 0.75% 6.05% 1.25% 5.55% 83.38%
1995(4) 8.64%+ 3,291 0.75%* 6.67%* 3.33%* 4.09%* 30.39%
Investor Shares
1996 2.47% $ 2,396 1.15% 5.68% 2.50% 4.33% 83.38%
1995(5) 8.61%+ 589 1.15%* 6.08%* 6.84%* 0.39%* 30.39%
Flex Shares
1996(3) 1.42%* $ 2,826 1.66%* 5.18%* 2.86%* 3.98%* 83.38%
PRIME QUALITY MONEY
MARKET FUND
Trust Shares
1996 5.25% $1,050,800 0.58% 5.11% 0.78% 4.91% --
1995 4.79% 799,189 0.58% 4.77% 0.79% 4.56% --
1994 2.88% 583,399 0.58% 2.86% 0.79% 2.65% --
1993(6) 2.92%* 410,991 0.58%* 2.85%* 0.78%* 2.65%* --
Investor Shares
1996 5.08% $ 215,696 0.75% 4.94% 1.00% 4.69% --
1995 4.62% 157,616 0.75% 4.55% 1.01% 4.29% --
1994 2.71% 129,415 0.75% 2.67% 0.99% 2.43% --
1993(6) 2.75%* 61,578 0.75%* 2.68%* 1.02%* 2.41%* --
U.S. GOVERNMENT SECURITIES
MONEY MARKET FUND
Trust Shares
1996 5.14% $ 325,493 0.61% 5.02% 0.78% 4.85% --
1995 4.67% 434,111 0.61% 4.64% 0.80% 4.45% --
1994 2.77% 309,228 0.61% 2.69% 0.77% 2.53% --
1993(6) 2.79%* 453,567 0.61%* 2.71%* 0.78%* 2.54%* --
Investor Shares
1996 4.99% $ 58,608 0.75% 4.88% 0.99% 4.64% --
1995 4.51% 46,639 0.75% 4.51% 1.02% 4.24% --
1994 2.63% 32,395 0.75% 2.54% 0.97% 2.32% --
1993(6) 2.65%* 16,688 0.75%* 2.57%* 1.11%* 2.21%* --
TAX-EXEMPT MONEY
MARKET FUND
Trust Shares
1996 3.28% $ 273,613 0.50% 3.23% 0.68% 3.05% --
1995 3.10% 215,413 0.45% 3.12% 0.70% 2.87% --
1994 2.08% 143,982 0.42% 2.05% 0.71% 1.76% --
1993(6) 2.12%* 78,416 0.41%* 2.07%* 0.70%* 1.78%* --
Investor Shares
1996 3.16% $ 95,223 0.62% 3.10% 0.85% 2.87% --
1995 3.00% 87,647 0.55% 3.00% 0.87% 2.68% --
1994 1.96% 61,675 0.54% 1.93% 0.88% 1.59% --
1993(6) 2.00%* 35,209 0.53%* 1.95%* 0.95%* 1.53%* --
</TABLE>
(A) Total return figures do not reflect applicable sales loads.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
F-82
<PAGE>
NOTES TO FINANCIAL STATEMENTS
================================================================================
STI CLASSIC FUNDS MAY 31, 1996
1. Organization:
The STI Classic Funds (the "Trust") was organized as a Massachusetts
Business Trust under a Declaration of Trust dated January 15, 1992. The
Trust is registered under the Investment Company Act of 1940, as amended, as
an open-end management investment company with nineteen portfolios: the Prime
Quality Money Market Fund, the U.S. Government Securities Money Market
Fund, the Tax-Exempt Money Market Fund (collectively the "Money Market
Funds"), the Investment Grade Bond Fund, the Investment Grade Tax-Exempt
Bond Fund, the Short-Term U.S. Treasury Securities Fund, the Short-Term Bond
Fund, the Capital Growth Fund, the Value Income Stock Fund, the Sunbelt
Equity Fund, the Mid-Cap Equity Fund, the Balanced Fund, the Florida
Tax-Exempt Bond Fund, the Georgia Tax-Exempt Bond Fund, the Tennessee
Tax-Exempt Bond Fund, the U.S. Government Securities Fund, the Limited-Term
Federal Mortgage Securities Fund, the International Equity Fund and the
International Equity Index Fund (collectively the "Non-Dollar Funds"). The
assets of each portfolio are segregated, and a shareholder's interest is
limited to the Fund in which shares are held. Each Fund's prospectus provides
a description of the Fund's investment objectives, policies and strategies.
2. Significant Accounting Policies:
The following is a summary of significant accounting policies followed by
the Trust.
SECURITY VALUATION -- Investment securities held by the Money Market
Funds are stated at amortized cost, which approximates market value.
Investment securities held by the Non-Dollar Funds which are listed on
a securities exchange for which market quotations are available are
valued at the last quoted sales price on each business day. If there
is no such reported sale, these securities and unlisted securities for
which market quotations are readily available are valued at the most
recently quoted bid price. Foreign securities in the International
Equity Fund and the International Equity Index Fund are valued based
upon quotations from the primary market in which they are traded. Debt
obligations with sixty days or less remaining until maturity may be
valued at their amortized cost.
FEDERAL INCOME TAXES -- It is each Fund's intention to qualify as
a regulated investment company for Federal income tax purposes and
distribute all of its taxable income and net capital gains. Accordingly,
no provisions for Federal income taxes are required.
SECURITY TRANSACTIONS AND INVESTMENT INCOME -- Security transactions are
accounted for on the date the security is purchased or sold (trade date).
Dividend income is recognized on the ex-dividend date and interest income
is recognized on an accrual basis. Costs used in determining net realized
gains and losses on the sales of investment securities are those of the
specific securities sold adjusted for the accretion and amortization of
purchase discounts and premiums during the respective holding period.
Purchase discounts and premiums on securities held by the Money Market
Funds are accreted and amortized ratably to maturity and are included in
interest income. Purchase discounts and premiums on securities held by the
Non-Dollar Funds are accreted and amortized to maturity using the
scientific interest method, which approximates the effective interest
method.
REPURCHASE AGREEMENTS -- Securities pledged as collateral for repurchase
agreements are held by the custodian bank until the respective agreements
mature. Provisions of the repurchase agreements ensure that the market
value of the collateral, including accrued interest thereon, is sufficient
in
F-83
<PAGE>
================================================================================
the event of default of the counterparty. If the counterparty defaults and
the value of the collateral declines or if the counterparty enters into an
insolvency proceeding, realization of the collateral by the Funds may be
delayed or limited.
NET ASSET VALUE PER SHARE -- The net asset value per share of each Fund is
calculated on each business day, by dividing the total value of each Fund's
assets, less liabilities, by the number of shares outstanding. The maximum
offering price per share for Investor shares of the Investment Grade Bond,
the Investment Grade Tax-Exempt Bond, the Capital Growth, the Value Income
Stock, the Sunbelt Equity, the Mid-Cap Equity, the Balanced, the Florida
Tax-Exempt Bond, the Georgia Tax-Exempt Bond, the Tennessee Tax-Exempt
Bond, the U.S. Government Securities, the International Equity, and the
International Equity Index Funds is equal to the net asset value per share
plus a sales load of 3.75%. The maximum offering price per share for
Investor shares of the Short-Term U.S. Treasury Securities Fund is equal to
the net asset value per share plus a sales load of 1.00%. The maximum
offering price per share for Investor shares of the Short-Term Bond Fund is
equal to the net asset value per share plus a sales load of 2.00%. The
maximum offering price per share for Investor shares of the Limited-Term
Federal Mortgage Securities Fund is equal to the net asset value per share
plus a sales load of 2.50%
Flex Shares of the Funds may be purchased at their net asset value. Shares
redeemed within the first year after purchase will be subject to a
contingent deferred sales charge ("CDSC") equal to 2.00% of the net asset
value of the shares at the time of redemption. The CDSC will not apply to
shares redeemed after such time.
FOREIGN CURRENCY TRANSLATION -- The books and records of the International
Equity and the International Equity Index Funds are maintained in U.S.
dollars on the following basis:
(I) market value of investment securities, assets and liabilities at
the current rate of exchange; and
(II) purchases and sales of investment securities, income and expenses
at the relevant rates of exchange prevailing on the respective
dates of such transactions.
The International Equity and the International Equity Index Funds do not
isolate that portion of gains and losses on investments in equity
securities which is due to changes in the foreign exchange rates from that
which is due to changes in market prices of equity securities.
The International Equity and the International Equity Index Funds report
certain foreign currency related transactions as components of realized and
unrealized gains and losses for financial reporting purposes, whereas such
components are treated as ordinary income for Federal income tax purposes.
OTHER -- Expenses that are directly related to a specific Fund are charged
to that Fund. Class specific expenses are borne by that class. Other
operating expenses of the Trust are pro-rated to the Funds on the basis of
relative net assets. Fund expenses are pro-rated to the respective classes
on the basis of relative net assets.
Distributions from net investment income of each of the Money Market Funds
and the Investment Grade Bond, the Investment Grade Tax-Exempt Bond, the
Short-Term U.S. Treasury Securities, the Short-Term Bond, the Florida
Tax-Exempt Bond, the Georgia Tax-Exempt Bond, the Tennessee Tax-Exempt
Bond, the U.S. Government Securities and the Limited-Term Federal Mortgage
Securities Funds are declared on each business day and paid to shareholders on
a monthly basis. Distributions from net investment income are declared and
paid each calendar quarter by the Capital Growth, the Value Income Stock, the
F-84
<PAGE>
NOTES TO FINANCIAL STATEMENTS
================================================================================
STI CLASSIC FUNDS MAY 31, 1996
Sunbelt Equity, the Mid-Cap Equity and the Balanced Funds. Distributions
from net investment income are declared and paid annually by the International
Equity and the International Equity Index Funds. Any net realized capital
gains on sales of securities are distributed to shareholders at least annually.
RECLASSIFICATION ON COMPONENTS OF NET ASSETS -- In accordance with Statement
of Position 93-2, "Determination, Disclosure, and Financial Statement
Presentation of Income, Capital Gain, and Return of Capital Distribution
by Investment Companies", $2,231,493, $1,362,183, $187,659, $87,216, and
$52,703 relating to differences attributable to the classification of
short-term capital gains and net investment income for tax distribution
purposes of the Capital Growth, Sunbelt, Investment Grade Bond, Short-Term
Bond, and Short-Term U.S. Treasury Securities Funds, respectively, as of
May 31, 1996 have been reclassified between the Fund's accumulated net
realized gains/losses and undistributed net income accounts, as appropriate.
These reclassifications had no effect on net asset value.
3. Organization Costs and Transactions with Affiliates:
The Trust incurred organization costs of approximately $653,100. These
costs have been deferred in the accounts of the Funds and are being
amortized on a straight line basis over a period of sixty months commencing
with operations. These costs include legal fees of approximately $41,100 for
organizational work performed by a law firm of which an officer of the Trust
is a partner. On March 18, 1992, the Trust sold initial shares of beneficial
interest to SEI Financial Management Corporation (the "Administrator"). In
the event any of the initial shares of the Trust are redeemed by any holder
thereof during the period that the Trust is amortizing its organizational
costs, the redemption proceeds payable to the holder thereof by the Trust
will be reduced by the unamortized organizational costs in the same ratio as
the number of initial shares being redeemed bears to the number of
initial shares outstanding at the time of redemption.
Certain officers of the Trust are also officers of the Administrator and/or
SEI Financial Services Company (the "Distributor"). Such officers are paid
no fees by the Trust for serving as officers of the Trust.
4. Administration, Transfer Agency Servicing and Distribution Agreements:
The Trust and the Administrator are parties to an Administration Agreement
dated May 29, 1995, under which the Administrator provides administrative
services for an annual fee (expressed as a percentage of the combined
average daily net assets of the Trust and STI Classic Variable Annuity
Trust) of: .10% up to $1 billion, .07% on the next $4 billion, .05% on the
next $3 billion, .045% on the next $2 billion and .04% for over $10 billion.
The Trust and Federated Services Company are parties to a Transfer
Agency servicing agreement dated May 14, 1994 under which Federated Services
Company provides transfer agency services to the Trust.
The Trust and the Distributor are parties to a Distribution Agreement dated
May 29, 1995. The Distributor will receive no fees for its distribution
services under this agreement for the Trust Shares of any Fund. With
respect to the Investor Shares and Flex Shares, the Distributor receives
amounts, pursuant to a Distribution Plan and (in the case of Flex Shares) a
Service Plan, as outlined in the table in footnote 5 under the column titled
"Distribution Fee".
5. Investment Advisory and Custodian Agreements:
The Trust and STI Capital Management, N.A., ("STI Capital Management,
N.A."), Trusco Capital
F-85
<PAGE>
================================================================================
Management ("Trusco"), the SunTrust Bank, Atlanta and SunTrust Bank,
Chattanooga have entered into advisory agreements dated May 29, 1992
(December 20, 1993 in the case of SunTrust Bank, Chattanooga) (the "Advisory
Agreements"). On May 26, 1993, the Trust's Board of Trustees approved the
termination of Trust Company Bank as investment advisor to the Trust's
Tax-Exempt Money Market Fund and approved the appointment of Trusco as
advisor to such Fund. The Trust and Trusco subsequently entered into an
advisory agreement dated June 15, 1993 (the "Advisory Agreement") which
superseded the May 29, 1992 agreement between the parties.
Under terms of the respective agreements, the Funds are charged the
following annual fees based upon average daily net assets:
<TABLE>
<CAPTION>
MAXIMUM
FLEX
SHARE
MAXIMUM DISTRI-
MAXIMUM TRUST INVESTOR INVESTOR BUTION FLEX
ANNUAL SHARE SHARE SHARE AND SHARE
ADVISORY MAXIMUM DISTRI- MAXIMUM SERVICE MAXIMUM
FEE EXPENSE BUTION FEE EXPENSE FEE EXPENSE
-------- -------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
TRUSCO:
International
Equity Index
Fund* .......... .90% 1.05% .38% 1.45% 1.00% 2.10%
Sunbelt Equity
Fund ........... 1.15% 1.15% .43% 1.60% 1.00% 2.20%
Short-Term Bond
Fund ........... .65% .65% .23% .85% 1.00% 1.20%
Short-Term U.S.
Treasury
Securities
Fund ........... .65% .65% .18% .80% 1.00% 1.05%
U.S. Government
Securities
Fund ........... .74% .75% .38% 1.15% 1.00% 1.65%
Prime Quality
Money Market
Fund ........... .65% .58% .20% .75% -- --
U.S. Government
Securities
Money Market
Fund ........... .65% .61% .17% .75% -- --
Tax-Exempt
Money Market
Fund ........... .55% .60% .15% .72% -- --
STI CAPITAL MANAGEMENT, N.A.:
Value Income
Stock Fund ..... .80% .95% .33% 1.30% 1.00% 2.00%
Mid-Cap Equity
Fund ........... 1.15% 1.15% .43% 1.60% 1.00% 2.20%
Capital Growth
Fund ........... 1.15% 1.15% .68% 1.80% 1.00% 2.27%
Balanced Fund ... .95% .95% .28% 1.25% 1.00% 2.00%
Investment
Grade
Tax-Exempt
Bond Fund ...... .74% .75% .43% 1.15% 1.00% 1.63%
Florida
Tax-Exempt
Bond Fund ...... .65% .65% .18% .85% 1.00% 1.35%
Investment
Grade Bond
Fund ........... .74% .75% .43% 1.15% 1.00% 1.64%
Limited-Term
Federal Mortgage
Securities
Fund ........... .65% .65% .23% .90% 1.00% 1.25%
International
Equity Fund .... 1.25% 1.46% .33% 1.81% 1.00% 2.51%
SUNTRUST BANK, ATLANTA:
Georgia
Tax-Exempt
Bond Fund ...... .65% .65% .18% .85% 1.00% 1.35%
SUNTRUST BANK, CHATTANOOGA:
Tennessee
Tax-Exempt
Bond Fund ...... .65% .65% .18% .85% 1.00% 1.35%
</TABLE>
- -----------------
*Trusco and SunBank serve as joint advisors to the
International Equity Index Fund.
The Investment Advisors, the Administrator and the Distributor have
voluntarily agreed to waive all or a portion of their fees (and to
reimburse Funds' expenses) in order to limit operating expenses to an
amount as outlined in the table above. Fee waivers and expense
reimbursements are voluntary and may be terminated at any time.
SunTrust Bank, Atlanta, formerly Trust Company Bank, acts as custodian for
all the Funds except the International Equity and the International Equity
F-86
<PAGE>
NOTES TO FINANCIAL STATEMENTS
===============================================================================
STI CLASSIC FUNDS MAY 31, 1996
Index Funds. The Bank of New York serves as custodian to the International
Equity Fund and the Bank of California serves as custodian to the International
Equity Index Fund. Fees of the Custodians are paid on the basis of the net
assets of the Funds. The Custodians play no role in determining the investment
policies of the Trust or which securities are to be purchased or sold in the
Funds.
6. Investment Transactions:
The cost of purchases and the proceeds from sales of securities, excluding
short-term investments and U.S. Government Securities, for the period ended
May 31, 1996, were as follows:
PURCHASES SALES
(000) (000)
---------- ----------
Value Income Stock Fund ........................ $1,493,020 $1,485,530
Mid-Cap Equity Fund ............................ 289,235 205,572
Capital Growth Fund ............................ 1,729,362 1,898,664
Balanced Fund .................................. 117,600 110,702
International Equity Index Fund ................ 29,233 31,167
International Equity Fund ...................... 361,787 171,233
Sunbelt Equity Fund ............................ 387,532 349,431
Investment Grade Tax-Exempt Bond Fund .......... 660,206 618,286
Florida Tax-Exempt Bond Fund ................... 38,105 15,798
Tennessee Tax-Exempt Bond Fund ................. 4,376 1,626
Georgia Tax-Exempt Bond Fund ................... 27,200 12,685
Investment Grade Bond Fund ..................... 416,076 456,626
Short-Term Bond Fund ........................... 67,798 50,754
Short-Term U.S. Treasury Securities Fund ....... -- --
Limited-Term Federal Mortgage Securities Fund... -- --
U.S. Government Securities Fund ................ -- --
The cost of purchases and proceeds from sales of U.S. Government Securities
were:
PURCHASES SALES
(000) (000)
---------- ----------
Value Income Stock Fund ..................... -- --
Mid-Cap Equity Fund ......................... -- --
Capital Growth Fund ......................... -- --
Balanced Fund ............................... $ 54,234 $ 36,688
International Equity Index Fund ............. -- --
International Equity Fund ................... -- --
Sunbelt Equity Fund ......................... -- --
Investment Grade Tax-Exempt Bond Fund ....... -- --
Florida Tax-Exempt Bond Fund ................ -- --
Tennessee Tax-Exempt Bond Fund .............. -- --
Georgia Tax-Exempt Bond Fund ................ -- --
Investment Grade Bond Fund ..................... $828,696 $619,825
Short-Term Bond Fund ........................... 84,205 67,661
Short-Term U.S. Treasury Securities Fund ....... 15,534 14,800
Limited-Term Federal Mortgage Securities Fund... 76,783 42,100
U.S. Government Securities Fund ................ 19,279 8,016
The aggregate gross unrealized appreciation and depreciation for securities
held by the Funds at May 31, 1996, and the total cost of securities for
Federal income tax purposes were as follows:
VALUE INCOME MID-CAP CAPITAL
STOCK EQUITY GROWTH
FUND FUND FUND
(000) (000) (000)
------------ -------- ----------
Aggregate gross unrealized
appreciation ................... $128,322 $ 25,315 $150,430
Aggregate gross unrealized
depreciation ................... (7,858) (4,392) (13,470)
---------- -------- ----------
Net unrealized appreciation ...... $120,464 $ 20,923 $136,960
========== ======== ==========
Total cost of securities for
Federal income tax purposes .... $1,287,255 $260,367 $1,042,462
========== ======== ==========
INTERNATIONAL INTERNATIONAL SUNBELT
BALANCED EQUITY EQUITY EQUITY
FUND INDEX FUND FUND FUND
(000) (000) (000) (000)
-------- ------------- ------------- --------
Aggregate gross unrealized
appreciation ............... $ 8,701 $11,273 $15,901 $113,112
Aggregate gross unrealized
depreciation ............... (2,017) (2,306) (2,284) (12,731)
-------- ------- -------- --------
Net unrealized appreciation.. $ 6,684 $ 8,967 $13,617 $100,381
======== ======= ======== ========
Total cost of securities for
Federal income tax
purposes................... $114,332 $87,565 $195,658 $341,821
======== ======= ======== ========
INVESTMENT
GRADE
TAX-EXEMPT FLORIDA TENNESSEE
BOND TAX-EXEMPT TAX-EXEMPT
FUND BOND FUND BOND FUND
(000) (000) (000)
---------- ---------- ----------
Aggregate gross unrealized appreciation .. $ 482 $ 246 $ 43
Aggregate gross unrealized depreciation .. (1,178) (603) (76)
-------- ------- ------
Net unrealized depreciation .............. $ (696) $ (357) $ (33)
======== ======= ======
Total cost of securities for
Federal income tax purposes ............ $158,666 $36,007 $5,325
======== ======= ======
F-87
<PAGE>
===============================================================================
INVESTMENT
GEORGIA GRADE SHORT-
TAX-EXEMPT BOND TERM BOND
FUND FUND FUND
(000) (000) (000)
--------- ---------- ---------
Aggregate gross unrealized appreciation . $ 114 $3,382 $ 14
Aggregate gross unrealized depreciation . (694) (13,635) (1,342)
------- -------- -------
Net unrealized depreciation ............. $ (580) $(10,253) $(1,328)
======= ======== =======
Total cost of securities for
Federal income tax purposes ........... $30,682 $661,060 $95,244
======= ======== =======
SHORT- LIMITED-
TERM TERM
U.S. FEDERAL U.S.
TREASURY MORTGAGE GOVERNMENT
SECURITIES SECURITIES SECURITIES
FUND FUND FUND
(000) (000) (000)
--------- ---------- ----------
Aggregate gross unrealized appreciation . $ 19 $ 301 $ 37
Aggregate gross unrealized depreciation . (137) (749) (465)
------- -------- -------
Net unrealized depreciation ............. $ (118) $ (448) $ (428)
======= ======== =======
Total cost of securities for
Federal income tax purposes ........... $16,235 $341,253 $15,964
======= ======== =======
Subsequent to October 31, 1995, the Funds recognized net capital losses for
tax purposes that have been deferred to 1996 and can be used to offset future
capital gains at May 31, 1996. The Funds also had capital losses carryforward
at May 31, 1996, to the extent provided in the regulations for Federal income
tax as follows:
CAPITAL LOSS
CARRYOVER EXPIRES EXPIRES EXPIRES
5/31/96 2002 2003 2004
FUND (000) (000) (000) (000)
------------- ------- ------- -------
Investment Grade Bond Fund $6,806 -- $6,806 --
Short-Term U.S. Treasury Fund 232 -- 203 $ 29
Prime Quality Money Market Fund 176 -- 3 173
U.S. Government Securities
Money Market Fund 11 -- -- 11
Tax-Exempt Money Market Fund 14 $9 1 4
CAPITAL LOSS
POST OCTOBER UTILIZED DURING
DEFERRED LOSSES THE CURRENT YEAR
FUND (000) (000)
--------------- ----------------
Capital Growth Fund -- $ 1,541
Sunbelt Equity Fund -- 3,762
Balanced Fund -- 2,002
Investment Grade Bond Fund -- 11,848
Georgia Tax-Exempt Bond Fund -- 12
Tennessee Tax-Exempt Bond Fund -- 3
Short-Term Bond Fund -- 288
Limited Term Federal Mortgage
Securities Fund -- 15
U.S. Government Securities Fund $37 --
Prime Quality Money Market Fund 82 --
U.S. Govenment Securities Money
Market Fund -- 59
7. Concentration of Credit Risk:
The Prime Quality Money Market Fund Invests primarily in high quality money
market instruments rated in the highest short-term rating category by
Standard & Poor's Corporation ("S&P") or Moody's Investors Services, Inc.
("Moody's") or, if not rated, are determined by the Advisor to be of
comparable quality. The U.S. Government Securities Money Market Fund invests
exclusively in U.S. Treasury obligations, U.S. Government subsidiary
corporation securities which are backed by the full faith and credit of the
U.S. Government and repurchase agreements with approved dealers
collateralized by U.S. Treasury securities and U.S. Government subsidiary
corporation securities. The Tax-Exempt Money Market Fund invests in high
quality, U.S. dollar denominated municipal securities rated in one of the two
highest short-term rating categories or, if not rated, are determined by the
Advisor to be of comparable quality. The Investment Grade Bond Fund, the
Short-Term Bond Fund and the Balanced Fund invest primarily in investment
grade obligations rated at least BBB or better by S&P or Baa or better by
Moody's or, if not rated, are determined by the Advisor to be of comparable
quality. The Investment Grade Tax-Exempt Fund invests primarily in investment
grade municipal securities. Municipal
F-88
<PAGE>
NOTES TO FINANCIAL STATEMENTS (concluded)
================================================================================
STI CLASSIC FUNDS MAY 31, 1996
securities must be rated BBB or better by S&P or Baa or better by Moody's in
the case of bonds; SP-1, SP-2 or MIG-1, MIG-2 in the case of notes; A-1, A-2
or P-1, P-2 in the case of commercial paper; and VMIG-1, VMIG-2 in the case
of variable rate demand obligations. The Short-Term U.S. Treasury Securities
Fund invests exclusively in obligations issued by the U.S. Treasury with a
maximum remaining maturity of 3 years or less. The Florida Tax-Exempt Bond
Fund, the Georgia Tax-Exempt Bond Fund, and the Tennessee Tax-Exempt Bond
Fund invest primarily in municipal bonds concentrated in each of their
respective states. Municipal securities must be rated BBB or better by S&P or
Baa or better by Moody's in the case of bonds; A-1, A-2 or P-1, P-2 in the
case of tax-exempt commercial paper; and VMIG-1, VMIG-2 in the case of
variable rate demand obligations. The U.S. Government Securities Fund invests
primarily in obligations issued or guaranteed by the U.S. Government or its
agencies or instrumentalities, including mortgage backed securities. The
Limited-Term Federal Mortgage Securities Fund invests in mortgage related
securities issued or guaranteed by U.S. Government agencies. Up to 35% of the
U.S. Government Securities Fund and the Limited-Term Federal Mortgage
Securities Fund may be invested in corporate, or government bonds that carry
a rating of BBB or better by S&P or Baa or better by Moody's. The ability of
the issuers of the securities held by the Funds to meet their obligations may
be affected by economic developments in a specific industry, state or region,
or by changing business conditions.
The summary of credit quality ratings for the securities held by the Funds as
rated by S & P at May 31, 1996 were as follows:
U.S. GOV'T.
PRIME QUALITY SECURITIES TAX-EXEMPT
MONEY MARKET MONEY MARKET MONEY MARKET
FUND FUND FUND
------------- ------------ ------------
AAA ................... 7.5% 35.0% 5.5%
AA .................... 0.2% -- 6.9%
A ..................... 12.7% -- 5.4%
A-1 ................... 57.2% -- 51.1%
A-2 ................... 2.9% -- --
A1+ ................... -- -- 1.1%
SP-1. ................. -- -- 12.5%
Not Rated ............. 3.7% -- 16.5%
Repurchase Agreement .. 15.8% 65.0% --
Cash Equivalents ...... -- -- 1.0%
------------- ------------ ------------
Totals .............. 100.0% 100.0% 100.0%
============= ============ ============
SHORT-TERM
INVESTMENT INVESTMENT U.S.
GRADE GRADE SHORT-TERM TREASURY
BOND TAX-EXEMPT BOND SECURITIES
FUND BOND FUND FUND FUND
---------- ---------- ---------- ----------
AAA ...................... 70.6% 57.7% 68.6% 96.9%
AA ....................... 3.1% 22.7% 6.1%
A ........................ 10.1% 9.4% 12.7 --
A-3 ...................... -- -- 2.1% --
BBB ...................... 11.8% 2.2% 7.7% --
Not Rated ................ -- 3.3% -- --
Repurchase Agreement ..... 4.4% -- -- --
Cash Equivalents ......... -- 4.7% 2.8% 3.1%
---------- ---------- ---------- ----------
Totals ................. 100.0% 100.0% 100.0% 100.0%
========== ========== ========== ==========
LTD.-TERM
FEDERAL
FLORIDA TENNESSEE GEORGIA MORTGAGE U.S. GOV'T
BALANCED TAX-EXEMPT TAX-EXEMPT TAX-EXEMPT SECURITIES SECURITIES
FUND BOND FUND BOND FUND BOND FUND FUND FUND
-------- ---------- ---------- ---------- ---------- -----------
AAA ......... 27.8% 81.2% 53.3% 35.7% 88.4% 92.5%
AA .......... .8% 11.5% 32.2% 41.5% -- --
A ........... 3.7% 1.9% 4.9% 8.7% -- --
A-1 ......... -- -- -- -- -- --
A-2 ......... -- -- -- -- -- --
A-3 ......... -- -- -- -- -- --
BBB ......... 7.6% -- -- -- -- --
BB .......... -- -- -- -- -- --
S - 1 ....... -- -- -- -- -- --
Equities .... 56.2% -- -- -- -- --
Not Rated ... -- 1.3% 8.6% 8.6% 3.8% --
Repurchase
Agreement.. 3.9% -- -- -- 7.1% --
Cash
Equivalents -- 4.1% 0.7% 5.5% 0.7% 7.5%
------ ------ ------ ------ ------ ------
Totals .... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
====== ====== ====== ====== ====== ======
F-89
<PAGE>
===============================================================================
The summary of credit quality ratings for the securities held by the Funds as
rated by Moody's at May 31, 1996 were as follows:
U.S. GOV'T.
PRIME QUALITY SECURITIES TAX-EXEMPT
MONEY MARKET MONEY MARKET MONEY MARKET
FUND FUND FUND
------------- ------------ ------------
Aaa .................. 9.9% 35.0% 6.4%
Aa ................... 0.4% -- 10.5%
A .................... -- -- 1.3%
A-1 .................. 3.0% -- 2.5%
A-2 .................. 8.3% -- 2.2%
A-3 .................. 0.8% -- --
P-1 .................. 57.2% -- 14.2%
P-2. ................. 2.9% -- --
MIG-1 ................ -- -- 12.9%
VMIG-1 ............... -- -- 30.4%
Not Rated ............ 1.7% -- 18.5%
Repurchase Agreement . 15.8% 65.0% --
Cash Equivalents ..... -- -- 1.1%
------------- ------------ ------------
Totals ............ 100.0% 100.0% 100.0%
============= ============ ============
INVESTMENT SHORT-TERM
GRADE U.S.
INVESTMENT TAX-EXEMPT SHORT-TERM TREASURY
GRADE BOND BOND SECURITIES
BOND FUND FUND FUND FUND
---------- ---------- ---------- ----------
Aaa ................ 70.6% 61.5% 68.6% 96.9%
Aa ................. 5.5% 16.0% 6.1% --
A .................. -- 5.0% 2.1% --
A-1 ................ 5.3% 4.8% 2.9% --
A-2 ................ 4.6% -- 6.3% --
A-3 ................ -- -- 6.3% --
Baa ................ 9.6% -- 4.9% --
Not Rated .......... -- 7.9% -- --
Repurchase Agreement 4.4% -- -- --
Cash Equivalents ... -- 4.8% 2.8% 3.1%
---------- ---------- ---------- ----------
Totals .......... 100.0% 100.0% 100.0% 100.0%
========== ========== ========== ==========
LTD.-TERM
FEDERAL
FLORIDA TENNESSEE GEORGIA MORTGAGE U.S. GOV'T
BALANCED TAX-EXEMPT TAX-EXEMPT TAX-EXEMPT SECURITIES SECURITIES
FUND BOND BOND FUND BOND FUND FUND FUND
-------- ---------- ---------- ---------- ---------- ----------
Aaa ....... 27.8% 80.4% 51.1% 41.7% 92.2% 92.5%
Aa ........ 1.6% 11.5% 25.4% 32.3% -- --
A ......... -- -- 1.8% 5.1% -- --
A-1 ....... 2.0% -- 10.7% 11.1% -- --
A-2 ....... 1.7% -- -- -- -- --
Baa ....... 6.5% 3.5% 10.3% -- -- --
Ba-1 ...... 0.3% -- -- -- -- --
Not Rated . -- 0.5% -- 4.3% -- --
Equities .. 56.2% -- -- -- -- --
Repurchase
Agreement 3.9% -- -- -- 7.1% --
Cash
Equivalents -- 4.1% 0.7% 5.5% 0.7% 7.5%
------ ------ ------ ------ ------ ------
Totals .. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
====== ====== ====== ====== ====== ======
F-90
