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STI CLASSIC FUNDS
SMALL CAP EQUITY FUND
FLEX SHARES
INVESTMENT ADVISOR TO THE FUND:
STI CAPITAL MANAGEMENT, N.A.
(THE "ADVISOR")
The STI Classic Funds (the "Trust") is a mutual fund that offers shares in a
number of separate investment portfolios. This Prospectus sets forth concisely
the information about the Flex Shares of the Small Cap Equity Fund (the "Fund").
Investors are advised to read this Prospectus and retain it for future
reference.
A Statement of Additional Information relating to the Fund 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, Oaks, Pennsylvania 19456 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.
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THE TRUST'S SHARES ARE NOT SPONSORED, ENDORSED, OR GUARANTEED BY, AND DO NOT
CONSTITUTE OBLIGATIONS OR DEPOSITS OF, THE ADVISOR OR ANY OF ITS 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.
DECEMBER 31, 1996
AS SUPPLEMENTED MAY 19, 1997
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2
TABLE OF CONTENTS
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Expense Summary........................................................... 3
Performance Information for the Predecessor Collective Fund............... 4
The Trust................................................................. 4
Investment Objective...................................................... 4
Investment Policies and Strategies........................................ 4
General Investment Policies and Strategies................................ 5
Investment Risks.......................................................... 6
Investment Limitations.................................................... 7
Performance Information................................................... 8
FUNDLINK.................................................................. 8
Purchase of Fund Shares................................................... 8
Redemption of Fund Shares................................................. 10
Exchanges................................................................. 11
Dividends and Distributions............................................... 12
Tax Information........................................................... 12
STI Classic Funds Information............................................. 13
The Trust................................................................. 13
Board of Trustees......................................................... 13
Investment Advisor........................................................ 13
Portfolio Manager......................................................... 14
Banking Laws.............................................................. 14
Distribution.............................................................. 15
Administration............................................................ 16
Transfer Agent and Dividend Disbursing Agent.............................. 16
Custodian................................................................. 16
Legal Counsel............................................................. 16
Independent Public Accountants............................................ 16
Other Information......................................................... 16
Voting Rights............................................................. 16
Reporting................................................................. 17
Shareholder Inquiries..................................................... 17
Description of Permitted Investments...................................... 17
Appendix.................................................................. A-1
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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.
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3
EXPENSE SUMMARY
FLEX 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 Flex Shares of the Fund.
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SHAREHOLDER TRANSACTION EXPENSES
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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
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(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)
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<CAPTION>
SMALL CAP
EQUITY FUND
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Management Fees (after fee waivers & reimbursements)(1).............................................. 1.00%
12b-1 Distribution & Service Fees (after fee waivers & reimbursements)(2)............................ 0.93%
Other Fund Expenses(3)............................................................................... 0.32%
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Total Fund Operating Expenses (after fee waivers & reimbursements)(4)................................ 2.25%
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(1) The Advisor is waiving, on a voluntary basis, a portion of its fee from the
Fund. The Advisor reserves the right to terminate its waiver at any time in
its sole discretion. Absent such waivers, Management Fees would be 1.15% for
the Fund. See "Investment Advisor."
(2) The Distributor is reimbursing, on a voluntary basis, a portion of its
expenses. 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 1.00%.
(3) Other Fund Expenses are based on estimated amounts for the current year.
(4) Absent the voluntary waivers described above, the estimated Total Fund
Operating Expenses would be 2.47%.
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<CAPTION>
ONE THREE
EXAMPLES YEAR YEARS
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An investor would pay the following expenses on a
$1,000 investment assuming: (1) a 5% annual
return, (2) assessment of Maximum Sales Charge
and (3) redemption at the end of each time
period.
Small Cap Equity Fund............................. $43 $ 70
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THE EXAMPLES ARE BASED UPON ESTIMATED TOTAL OPERATING EXPENSES OF THE FUND AND
SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL
EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. INFORMATION ABOUT THE ACTUAL
PERFORMANCE OF THE FUND WILL BE CONTAINED IN THE TRUST'S ANNUAL REPORT TO
SHAREHOLDERS, WHICH MAY BE OBTAINED WITHOUT CHARGE WHEN AVAILABLE. 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 Conduct
Rules.
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4
PERFORMANCE INFORMATION FOR PREDECESSOR COLLECTIVE FUND
The Small Cap Equity Fund is the successor to a collective investment fund
previously managed by STI Capital Management, N.A. A substantial portion of the
assets of the collective investment fund was transferred to the Fund in
connection with the Fund's commencement of operations. Set forth below is
certain performance data for the predecessor collective investment fund, which
is deemed relevant because the collective investment fund was managed using
virtually the same investment objectives, policies and restrictions as those
used by the Fund. The performance data, however, is not necessarily indicative
of the future performance of the Fund. Further, the predecessor collective fund
was not subject to certain investment limitations imposed on mutual funds,
which, if they had been imposed, may have adversely affected the collective
fund's performance.
The predecessor collective fund did not incur expenses that correspond to the
advisory, administrative, and other fees to which the Fund is subject.
Accordingly, the following performance information has been adjusted by applying
the total expense ratio for the 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 Fund expenses, net of
voluntary waivers and reimbursements) for the following periods ended December
31, 1996:
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ONE TWO SINCE
YEAR YEARS INCEPTION
(ENDING (ENDING (9/1/94-
12/31/96) 12/31/96) 12/31/96)
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Small Cap Equity
Collective Fund.... 30.77% 30.37% 25.80%
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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 Investment
portfolios (together with the Fund, the "Funds"). Shareholders may purchase
shares in three separate classes (Trust Shares, Investor Shares and Flex Shares)
which provide for variations in distribution and service fees, transfer agent
fees, voting rights and dividends. Except for differences between classes, each
share represents an undivided, proportionate interest in the Fund. This
Prospectus relates to the Flex Shares of the Small Cap Equity Fund.
INVESTMENT OBJECTIVE
THE SMALL CAP EQUITY FUND seeks to provide capital appreciation with a secondary
goal of achieving current income.
The investment objective of the Fund is nonfundamental and may be changed
without shareholder approval. Further, there can be no assurance that the Fund
will achieve its investment objective.
INVESTMENT POLICIES AND STRATEGIES
The Small Cap Equity Fund invests substantially all, and under normal market
conditions at least 65%, of its assets in the equity securities of smaller
companies (I.E., companies with market capitalizations of less than $1 billion)
which, in the Advisor's opinion, are undervalued for above-average capital
growth. Any remaining assets may be invested in the equity securities of
companies with larger market capitalizations which the Advisor believes are also
undervalued. The Fund may also invest in U.S.
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5
dollar denominated equity securities of foreign issuers (including American
Depositary Receipts). Equity securities include common stock, preferred stock,
warrants and rights to subscribe to common stock and, in general, any security
that is convertible into or exchangeable for common stock.
In order to meet liquidity needs, or for temporary defensive purposes, the Fund
may invest all or a portion of its assets in common stocks of larger, more
established companies, fixed income securities, repurchase agreements, cash or
money market securities. Fixed income securities will only be purchased if they
are rated investment grade or better by one or more nationally recognized
statistical ratings organizations ("NRSROs"). Investment grade bonds include
securities rated at least BBB by Standard & Poor's Corporation ("S&P") or Baa by
Moody's Investor's Services, Inc. ("Moodys"). Money market securities will only
be purchased if they have been given one of the two top ratings by two or more
NRSROs, or if not rated, determined to be of comparable quality by the Fund's
Advisor. To the extent the Fund is engaged in temporary defensive investing, the
Fund may not be pursuing its investment objective.
The Fund may engage in options transactions for hedging purposes only. The Fund
will not invest more than 20% of its total assets in unsponsored ADR facilities.
The Fund's annual turnover rate may exceed 100%. This rate of turnover, if
continued, will likely result in higher brokerage commissions, higher levels of
realized capital gains and additional taxes than if the turnover rate was lower.
See "Tax Information."
GENERAL INVESTMENT POLICIES AND STRATEGIES
In the event that a security owned by the Fund is downgraded below the stated
rating categories, the Advisor will review and take appropriate action with
regard to the security.
The Fund may borrow money for temporary or emergency purposes in an amount not
to exceed one-third of the value of its total assets. The Fund may not purchase
additional securities while its outstanding borrowings exceed 5% of its assets.
The Fund may purchase securities issued by money market mutual funds. The 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.
The Fund may engage in securities lending and will limit such practice to 33
1/3% of its total assets.
The Fund may purchase securities on a "when-issued" basis and reserves the right
to engage in standby commitments.
It is a non-fundamental policy of the 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.
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6
INVESTMENT RISKS
AMERICAN DEPOSITARY RECEIPTS
American Depositary Receipts ("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.
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 the Fund invests will cause the net asset value of the Fund
to fluctuate.
Investments in small capitalization companies involve greater risk than is
customarily associated with larger, more established companies due to the
greater business risks of small size, limited markets and financial resources,
narrow product lines and the frequent lack of depth of management. The
securities of small companies are often traded over-the-counter and may not be
traded in volumes typical on a national securities exchange. Consequently, the
securities of smaller companies may have limited market stability and may be
subject to more abrupt or erratic market movements than securities of larger,
more established growth companies or the market averages in general.
FIXED INCOME SECURITIES
The market value of the 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 the 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
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, limited
publicly available information regarding
<PAGE>
7
foreign issuers, less liquidity of securities, possible seizure, nationalization
and expropriation of the foreign issuer or foreign deposits, 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 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.
INVESTMENT LIMITATIONS
The following investment limitations constitute fundamental policies of the
Fund. Fundamental policies cannot be changed with respect to the 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
the 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
the Fund's outstanding shares, whichever is less.
The 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
the Fund would be invested in the securities of such issuer; provided, however,
that the Fund may invest up to 25% of its total assets without regard to this
restriction.
2. Purchase any securities which would cause more than 25% of the total assets
of the 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.
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8
PERFORMANCE INFORMATION
From time to time, the Fund may advertise performance (total return and yield).
These figures will be historical and are not intended to indicate future
performance.
The yield of the Fund refers to the annualized income generated by an investment
in the 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 the 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 the 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 Fund's Flex Shares will normally be lower than for Trust
Shares because Flex Shares are subject to distribution, services, and certain
transfer agent fees not charged to Trust Shares.
The 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 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
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.
Shares of the Fund 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. Shares may also be purchased
through Investment Consultants of SunTrust Securities, Inc. which serves as
Shareholder Servicing Agents to the Trust. Furthermore, 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 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 Fund
calculated to three decimal places. All purchases made by check should be in
U.S.
<PAGE>
9
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 the Fund is the net
asset value next determined after a purchase order is effective. The net asset
value per share of the 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 the Fund.
Minimum initial and subsequent purchase amounts, respectively, for Flex Shares
of the 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).
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.
SYSTEMATIC INVESTMENT PLAN
Shares of the 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 and subsequent purchase
amounts, respectively, for the Systematic Investment Plan are $500 and $50.
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
<PAGE>
10
purchases will be effective on the Business Day that the Transfer Agent receives
the transmission.
CONTINGENT DEFERRED SALES CHARGE INFORMATION
Flex Shares of the Fund 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 the Fund for Flex Shares of any other Fund. See "Exchanges." In
determining the amount of the 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 "Contingent Deferred Sales Charge Information."
However, all or part of a shareholder's holdings of Flex Shares of the Fund 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 Fund may be placed in writing or by telephone
directly to an Investment Consultant of 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.
<PAGE>
11
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.
Redemptions of $25,000 or greater for Fund shares 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 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 Fund 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
<PAGE>
12
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
and paid quarterly by the Fund. The 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 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 Flex Shares of the Fund 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 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 the 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 the 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 THE FUND:
The 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.
The 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:
The 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 Fund 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
<PAGE>
13
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 Fund will make an
annual report to Shareholders of the federal income tax status of all
distributions. Dividends declared by the 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 received on direct U.S. obligations is exempt from tax at the state level
when received directly by the Fund and may be exempt, depending on the state,
when received by the Shareholder as income dividends from the 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 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 the 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 the Fund. All
consideration received by the Trust for shares of the Fund and all assets of the
Fund belong to the 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, state filing fees and
registering the shares under federal 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 ADVISOR
STI Capital Management, N.A. ("STI Capital") serves as the Advisor to the Small
Cap Equity Fund. As of December 31, 1996, STI Capital had discretionary
management authority with respect to assets of approximately $11.5 billion. The
principal business address of STI Capital is P.O. Box 3808, Orlando, Florida
32802.
The Advisor is an indirect wholly-owned subsidiary of SunTrust Banks, Inc.
("SunTrust"), a southeastern regional bank holding
company with assets of $52.5 billion as of December 31, 1996. SunTrust ranks
among the twenty largest U.S. banking companies. Its
<PAGE>
14
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 $53.4 billion as of
December 31, 1996.
The Trust and the Investment Advisor have entered into an advisory agreement
(the "Advisory Agreement"). Under the Advisory Agreement, the Advisor makes the
investment decisions for the assets of the Fund and continuously reviews,
supervises and administers Fund's investment program. The Advisor discharges the
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 the Fund, the Advisor may execute brokerage or other agency
transactions through affiliates of the Advisor.
For the services provided and expenses incurred pursuant to the Advisory
Agreement, STI Capital is entitled to receive advisory fees computed daily and
paid monthly at the annual rate of 1.15% of the average daily net assets of the
Fund.
From time to time, the Advisor may waive (either voluntarily or pursuant to
applicable regulatory limitations) advisory fees payable by the Fund. Currently,
the Advisor has agreed to voluntary reductions in its 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.
PORTFOLIO MANAGER
Mr. Brett Barner, CFA, has been responsible for the day-to-day management of the
Fund since commencement of operations. Mr. Barner has been a portfolio manager
with STI Capital since 1990.
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
Advisor believes that it may perform the services for STI Classic Funds
contemplated by its Advisory Agreement 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
<PAGE>
15
affiliates, as well as future interpretations of present requirements, could
prevent the Advisor from continuing to perform services for STI Classic Funds.
If the Advisor was prohibited from providing services to STI Classic Funds, the
Board of Trustees would consider selecting other qualified firms. Any new
investment advisory agreement 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 Advisor, or its 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 Advisor, 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 Investments Company ("SEI"), and the Trust, are parties to a distribution
agreement (the "Distribution Agreement") dated May 29, 1992. The Flex Shares of
the Fund have a distribution plan ("Flex Plan"). The Distribution Agreement and
the Flex Plan provide that the Flex Shares of the Fund may pay a distribution
services fee to the Distributor of up to .75% of the average daily net assets of
the Flex Shares of the 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 the 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
fees 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 the 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
<PAGE>
16
which they act in a fiduciary, agency, investment advisory or custodial
capacity. An Investor may call 1-800-874-4770 to receive more information
regarding Trust 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.
The Fund may execute brokerage or other agency transactions through the
Distributor, for which the Distributor receives compensation.
With respect to the Fund, 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 the Fund.
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
Peachtree Street N.E., 14th Floor, Atlanta, Georgia 30308, serves as custodian
of the assets of the 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. The Fund or
class will vote separately on matters relating solely to the Fund or class. As a
Massachusetts business trust, the Trust is not required to hold annual
<PAGE>
17
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 Fund.
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.
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.
<PAGE>
18
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.
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. The Fund may use options
on futures contracts 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.
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
corporate or agency debt that differs from traditionally underwritten corporate
bonds only in the process by which they are issued.
OPTIONS ON CURRENCIES -- The 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 the 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. The Fund bears a risk of loss in the event the
other party defaults on its obligations and the Fund is delayed or
<PAGE>
19
prevented from exercising its right to dispose of the collateral or if the Fund
realizes a loss on the sale of the collateral. The 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, the 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. The 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.
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
<PAGE>
20
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 with a withdrawal penalty 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.
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>
<TABLE>
<S> <C> <C>
STI CLASSIC FUNDS ORGANIZATIONAL OVERVIEW
* INVESTMENT ADVISOR
STI Capital Management, N.A. P.O. Box 3808
Orlando, FL 32802
* DISTRIBUTOR
SEI Financial Services Company Oaks, PA 19456
* ADMINISTRATOR
SEI Fund Resources Oaks, PA 19456
* TRANSFER AGENT
Federated Services Company Federated Investors Tower
Pittsburgh, PA 15222-3779
* CUSTODIAN
SunTrust Bank, Atlanta 303 Peachtree Street, N.E.
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>
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>
DISTRIBUTOR
SEI Financial Services
Company
-- - - - - - - - - - - - - - -
PROSPECTUS
FLEX SHARES
SMALL CAP
EQUITY FUND
INVESTMENT ADVISOR
STI CAPITAL MANAGEMENT, N.A.
[LOGO]
<PAGE>
STI CLASSIC FUNDS
EMERGING MARKETS EQUITY FUND
SMALL CAP EQUITY FUND
SUPPLEMENT DATED MAY 19, 1997 TO
THE STATEMENT OF ADDITIONAL INFORMATION
DATED DECEMBER 31, 1996
This Supplement provides new and additional information beyond that contained in
the Statement of Additional Information and should be retained and read in
cojunction with the Statement of Additional Information.
The fifth sentence of the section titled "The Trust" on page B-2 of the
Statement of Additional Information should be replaced with the following:
The Trust offers Trust Shares, Investor Shares and Flex Shares of each
Fund; however, at present investors may only purchase Trust Shares of
the Emerging Markets Equity Fund and Trust and Flex Shares of the Small
Cap Equity Fund.
PLEASE RETAIN THIS SUPPLEMENT FOR FUTURE REFERENCE.
<PAGE>
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