<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 26, 1999
FILE NO. 33-45671
FILE NO. 811-6557
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933 / /
POST-EFFECTIVE AMENDMENT NO. 26 /X/
AND
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 / /
AMENDMENT NO. 28 /X/
STI CLASSIC FUNDS
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
2 OLIVER STREET
BOSTON, MASSACHUSETTS 02109
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE (800) 342-5734
MARK NAGLE
C/O SEI INVESTMENTS COMPANY
ONE FREEDOM VALLEY ROAD
OAKS, PENNSYLVANIA 19456
(NAME AND ADDRESS OF AGENT FOR SERVICE)
</TABLE>
COPIES TO:
<TABLE>
<S> <C>
RICHARD W. GRANT, ESQ. JOHN H. GRADY, JR., ESQ.
MORGAN, LEWIS & BOCKIUS LLP MORGAN, LEWIS & BOCKIUS LLP
1701 MARKET STREET 1701 MARKET STREET
PHILADELPHIA, PA 19103 PHILADELPHIA, PA 19103
</TABLE>
<TABLE>
<S> <C>
Units of Beneficial
Title of Securities Being Registered............................. Interest
</TABLE>
It is proposed that this filing will become effective (check appropriate
box)
<TABLE>
<S> <C>
Immediately upon filing pursuant to paragraph (b), or
On [date] pursuant to paragraph (b), or
60 days after filing pursuant to paragraph (a) or
X 75 days after filing pursuant to paragraph (a) or
On September 28, 1998 pursuant to paragraph (a) of Rule 485.
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CLASSIC INSTITUTIONAL U.S. GOVERNMENT SECURITIES
MONEY MARKET FUND
INVESTMENT ADVISOR TO THE FUND:
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 Shares of the Classic Institutional
U.S. Government Securities Money Market 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
Investments Distribution Co., 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 NOR HAS THE SECURITIES AND EXCHANGE 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 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.
May __, 1999
<PAGE>
2
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 Investments Distribution Co.
(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.
Shares of the Classic Institutional U.S. Government Securities Money Market
Fund (the "Fund") are offered primarily to various types of institutional
investors ("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.
TABLE OF CONTENTS
<TABLE>
<S> <C>
Expense Summary...................... 3
The Trust............................ 4
The Fund and its Investment
Objectives and Policies............. 4
General Investment Policies and
Strategies.......................... 5
Investment Risks..................... 6
Investment Limitations............... 6
Performance Information.............. 7
Purchase of Fund Shares.............. 7
Redemption of Fund Shares............ 8
Dividends and Distributions.......... 8
Tax Information...................... 9
STI Classic Funds Information........ 10
The Trust............................ 10
Board of Trustees.................... 10
Investment Advisor................... 10
Banking Laws......................... 11
Distribution......................... 11
Administration....................... 12
Transfer Agent and Dividend
Disbursing Agent.................... 12
Custodian............................ 12
Legal Counsel........................ 12
Independent Public Accountants....... 12
Other Information.................... 12
Voting Rights........................ 12
Reporting............................ 13
Shareholder Inquiries................ 13
Description of Permitted
Investments......................... 13
</TABLE>
<PAGE>
3
EXPENSE SUMMARY
Below is a summary of the estimated annual operating expenses for shares of
the Fund. A hypothetical example based on the summary is also shown. Actual
expenses may vary.
ANNUAL OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
CLASSIC INSTITUTIONAL
U.S. GOVERNMENT SECURITIES
MONEY MARKET FUND
<S> <C>
- ----------------------------------------------------------------------------------------
Management Fees (after voluntary reductions)(1)............. .12%
All Other Expenses (after voluntary reductions)(2).......... .13%
- ----------------------------------------------------------------------------------------
Total Operating Expenses (after voluntary reductions)(3).... .25%
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
</TABLE>
(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 and reimbursements, Advisory Fees
for the Fund would be .20%. See "Investment Advisors." A person that
purchases shares through an account with a financial institution may be
charged separate fees by the financial institution.
(2) The Administrator is waiving, on a voluntary basis, a portion of its fee
from the Fund. The Administrator reserves the right to terminate its waiver
at any time in its sole discretion. Absent such waivers and reimbursements,
Other Expenses for the Fund would be .17%.
(3) Absent the voluntary waivers described above, Total Operating Expenses for
the Funds would be .37%.
<TABLE>
<CAPTION>
CLASSIC INSTITUTIONAL
U.S. GOVERNMENT SECURITIES
MONEY MARKET FUND
<S> <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:
One Year....................................................... $ 3
Three Years.................................................... 8
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
</TABLE>
THE EXAMPLE IS BASED UPON THE ESTIMATED 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. The purpose of this table is
to assist the investor in understanding the various costs and expenses that may
be directly or indirectly borne by investors in the Trust.
<PAGE>
4
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. This
Prospectus relates to the Classic Institutional U.S. Government Securities
Money Market Fund (the "Fund") described below.
THE FUND AND ITS INVESTMENT OBJECTIVES AND POLICIES
The Classic Institutional U.S. Government Securities Money Market Fund will
invest solely in (i) U.S. Treasury Obligations; (ii) obligations issued or
guaranteed as to principal and interest by agencies or instrumentalities of
the U.S. Government;(iii) repurchase agreements involving any of the
foregoing obligations; and (iv) shares of registered money market funds that
invest in the foregoing.
It is a fundamental policy of the Fund to use its best efforts to maintain a
constant net asset value of $1.00 per share. There can be no assurance that
the Fund will achieve its investment objective or maintain a net asset value
of $1.00 per share on a continuous basis.
The Fund intends to comply with federal regulations applicable to money
market funds using the amortized cost method for calculating net asset value,
which require the 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.
<PAGE>
5
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 engage in securities lending or enter into repurchase agreements
and will limit such practice in either case to 33 1/3% of its total assets.
It is a non-fundamental policy of the Fund to invest no more than 10% 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.
<PAGE>
6
INVESTMENT RISKS
GOVERNMENT SECURITIES
Guarantees of the 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 the Fund's shares.
<PAGE>
7
PERFORMANCE INFORMATION
From time to time the Fund may advertise its "current yield" and "effective
yield." Both yield figures are based on historical earnings and are not
intended to indicate future performance. The "current yield" of the Fund
refers to the income generated by an investment in the 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 the 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.
PURCHASE OF FUND SHARES
Shares of the Fund are sold primarily to various types of institutional
investors, 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. Shares are sold without a sales charge, although
the institutional investors may charge their customer accounts for services
provided in connection with the purchase of shares. The minimum initial
investment is $10,000,000. Institutional investors 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 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 institutional
investors. Shares will be held of record by the institutional investors,
although customers may have or be given the right to vote the shares depending
upon the terms of their relationship with the institutional investor.
Confirmations of share purchases and redemptions will be sent to the
institutional investor 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, shares cannot be purchased or redeemed for
same day settlement on days the Federal Reserve is closed.
<PAGE>
8
Purchase orders for the Fund will be effective as of the Business Day received
by the Transfer Agent and eligible to receive dividends declared the same day if
the Transfer Agent receives the order before [1:00 p.m. Eastern time, and the
Custodian receives federal funds before 4:00 p.m. Eastern time] on such day.
Otherwise, purchase orders for the Fund 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 is calculated as of the regularly scheduled close
of normal trading on 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.
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).
Neither the Trust's 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. The Trust maintains procedures, including
identification methods and other means, for ascertaining the identity of callers
and authenticity of instructions.
REDEMPTION OF FUND SHARES
An order to redeem shares must be transmitted to the Transfer Agent by the
institutional investor as the record owner of shares. Institutional investors
may establish procedures for their customers to request redemption of shares
held in their account with the institutional investor. Customers should contact
their institutional investor for information concerning these procedures.
Redemption orders must be received by the Transfer Agent on a Business Day
before 1:00 p.m. Eastern time. Redemption orders received after the time noted
above will 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.
DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (exclusive of capital gains) of the Fund
is 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 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. 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
<PAGE>
9
paid within ten Business Days after the end of each month in the form of
additional 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 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. Accordingly, 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 is treated as a separate entity for federal tax purposes, and is not
combined with the Trust's other Funds. 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 all of its 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 Fund will make annual
reports 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
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 the Fund and may be exempt, depending on the
state, when received by a Shareholder 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
states.
A sale, exchange or redemption of Fund shares is a taxable event to the
Shareholder.
<PAGE>
10
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 ADVISOR
The Advisor is an indirect wholly-owned subsidiary of SunTrust Banks, Inc.
("SunTrust"), a southeastern regional bank holding company with assets of $76
billion as of June 30, 1998. SunTrust ranks among the twenty largest U.S.
banking companies. Its four principal subsidiaries, SunTrust Banks of
Florida, Inc., SunTrust Banks of Georgia, Inc., SunTrust Banks of Tennessee,
Inc., and Crestar Bank 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 $103 billion as of June 30, 1998.
The Trust and the 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 the Fund's investment program. The Advisor
discharges its 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, is entitled to receive advisory fees
<PAGE>
11
computed daily and paid monthly at the annual rate of .20% of the average daily
net assets of the Fund.
From time to time, the Advisor may waive (either voluntarily or pursuant to
applicable state 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 anytime.
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
affiliates, as well as future interpretations of present requirements, could
prevent the Advisor from continuing to perform services for the Funds. If the
Advisor was prohibited from providing services to the Funds, the Board of
Trustees would consider selecting another qualified firm. 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 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 Investments Distribution Co. (the "Distributor"), a wholly-owned
subsidiary of SEI Investments Company ("SEI Investments"), and the Trust are
parties to a distribution agreement. No compensation is paid to the
Distributor for distribution services. Shares of the Fund are offered
primarily to institutional investors,
<PAGE>
12
including affiliates and correspondents for the investment of funds in which
they act in a fiduciary, agency or custodial capacity.
The Fund may execute brokerage or other agency transactions through the
Distributor for which the Distributor receives compensation.
ADMINISTRATION
SEI Investments Mutual Fund Services (the "Administrator") serves as
Administrator to 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, which is calculated daily and paid
monthly, at an annual rate of [0.08%] of the average daily net assets of the
Fund.
From time to time, the Administrator may voluntarily waive all or a portion of
its fee to limit the net expenses of the Fund to the amounts in the Fund's
Expense Summary.
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 Fund as required by the Investment Company Act of 1940.
LEGAL COUNSEL
Morgan, Lewis & Bockius LLP, 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>
13
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 Fund.
Further discussion is contained in the Statement of Additional Information.
<PAGE>
14
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.
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 GNMA, FNMA and 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.
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS"): 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>
15
earlier than 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 investes 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.
<PAGE>
16
RECEIPTS -- Receipts are interests in separately traded interest and principal
component parts of U.S. Treasury obligations that are issued by banks and
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 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 amortized over the life of the
security and such amortization will constitute the income earned on the security
for both accounting and tax purposes. Because of these features, receipts may be
subject to greater price volatility than interest paying U.S. Treasury
obligations. See also "Taxes".
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
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.
<PAGE>
17
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.
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, the Federal Home Loan Mortgage Corporation, 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., Government National
Mortgage Association 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., Fannie Mae 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.
<PAGE>
18
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
the Fund generally purchases securities on a when-issued or forward
commitment basis with the intention of actually acquiring securities for its
portfolio, the Fund may dispose of a when-issued security or forward
commitment prior to settlement if it deems appropriate.
<PAGE>
<TABLE>
<S> <C> <C>
STI CLASSIC FUNDS ORGANIZATIONAL OVERVIEW
* INVESTMENT ADVISOR
Trusco Capital Management, INC. 50 Hurt Plaza
Suite 1400
Atlanta, GA 30303
* DISTRIBUTOR
SEI Investments Distribution Co. Oaks, PA 19456
* ADMINISTRATOR
SEI Investments Mutual Fund Services Oaks, PA 19456
* 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 1800 M Street, N.W.
Washington, D.C. 20036
* INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen, LLP 1601 Market Street
Philadelphia, PA 19103
</TABLE>
<PAGE>
DISTRIBUTOR
SEI Investments
Distribution Co.
PROSPECTUS
CLASSIC INSTITUTIONAL
U.S. GOVERNMENT SECURITIES
MONEY MARKET FUND
INVESTMENT ADVISOR
MAY ___, 1999
[LOGO]
<PAGE>
INVESTMENT ADVISOR:
Trusco Capital Management, Inc.
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 Classic U.S. Government
Securities Money Market Fund prospectus dated _________, 1999. The prospectus
may be obtained through the Distributor, SEI Investments Distribution Co., Oaks,
Pennsylvania 19456.
TABLE OF CONTENTS
PAGE
THE TRUST. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .B-2
DESCRIPTION OF PERMITTED INVESTMENTS . . . . . . . . . . . . . . . . . . . .B-2
INVESTMENT LIMITATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . .B-7
INVESTMENT ADVISOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . .B-8
THE ADMINISTRATOR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .B-9
THE DISTRIBUTOR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-10
THE TRANSFER AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-10
THE CUSTODIAN. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-10
INDEPENDENT PUBLIC ACCOUNTANTS . . . . . . . . . . . . . . . . . . . . . . B-10
LEGAL COUNSEL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-10
TRUSTEES AND OFFICERS OF THE TRUST . . . . . . . . . . . . . . . . . . . . B-11
PERFORMANCE INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . B-15
PURCHASE AND REDEMPTION OF SHARES. . . . . . . . . . . . . . . . . . . . . B-16
DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . . . . . . . . . . . B-17
TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-18
FUND TRANSACTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-19
TRADING PRACTICES AND BROKERAGE. . . . . . . . . . . . . . . . . . . . . . B-19
DESCRIPTION OF SHARES. . . . . . . . . . . . . . . . . . . . . . . . . . . B-22
SHAREHOLDER LIABILITY. . . . . . . . . . . . . . . . . . . . . . . . . . . B-22
LIMITATION OF TRUSTEES' LIABILITY. . . . . . . . . . . . . . . . . . . . . B-22
YEAR 2000. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-22
____________, 1999
<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. This
Statement of Additional Information relates to the Trust's Classic U.S.
Government Securities Money Market Fund (the "Fund"), which currently offers one
class of shares.
DESCRIPTION OF PERMITTED INVESTMENTS
INVESTMENT COMPANY SHARES
Investment companies typically incur fees that are separate from those fees
incurred directly by the Fund. The 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.
B-2
<PAGE>
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements. Repurchase agreements are
agreements by which a person (E.G., the 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
B-3
<PAGE>
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 the Fund for purposes of its
investment limitations. The repurchase agreements entered into by the 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 Advisor monitors
compliance with this requirement). Under all repurchase agreements entered into
by the Fund, the Custodian or its agent must take possession of the underlying
collateral. However, if the seller defaults, the 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, the 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.
RESTRICTED AND ILLIQUID 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 Fund include
restricted securities. The Fund may invest up to 10% of its net assets in
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 the Fund's
Advisor pursuant to guidelines adopted by the Board of Trustees. Under these
guidelines, the 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, the Advisor intends to purchase securities that are exempt from
registration under Rule 144A under the 1933 Act.
SECURITIES LENDING
The 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 the 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, the
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
Advisor to be of good standing and when, in the judgment of the Advisor, the
consideration which can be earned currently from such
B-4
<PAGE>
securities loans justifies the attendant risk. Any loan may be terminated by
either party upon reasonable notice to the other party. The Fund may use the
Distributor or a broker-dealer affiliate of the Advisor as a broker in these
transactions.
STANDBY COMMITMENTS AND PUTS
The Fund 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 it 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 Fund to meet redemptions and remain as fully invested as
possible in municipal securities. The Fund reserves 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. The 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, the 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 originally issued held in the
Fund will not exceed 1/2 of 1% of the value of its total assets of the Fund
calculated immediately after any such put is acquired.
STRIPS
B-5
<PAGE>
The 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. The Advisor will only purchase STRIPS that it
determines are liquid or, if illiquid, do not violate each 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
Advisor will only purchase STRIPS for the Fund that have a remaining maturity of
397 days or less; therefore, the Fund currently may only purchase interest
component parts of U.S. Treasury Securities. While there is no limitation on
the percentage of the Fund's assets that may be comprised of STRIPS, the 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
Fund.
U.S. GOVERNMENT AGENCY SECURITIES
Certain investments of the 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, Federal Intermediate Credit Banks, Federal Land Banks, Fannie Mae,
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, 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. 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.
VARIABLE RATE MASTER DEMAND NOTES
The 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 the Fund, as lender, and the 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 Advisor, be
equivalent to the ratings applicable to permitted investments for the Fund. The
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-6
<PAGE>
INVESTMENT LIMITATIONS
The following are fundamental policies of the Fund and 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 "a majority of the outstanding shares" of the Fund means the vote of
the lesser of (i) 67% or more of the shares of the Fund present at a meeting, if
the holders of more than 50% of the outstanding shares of the Fund is present or
represented by proxy or (ii) more than 50% of the outstanding shares of the
Fund.
The Fund may not:
1. Acquire more than 10% of the voting securities of any one issuer.
2. Borrow money except for temporary or emergency purposes and then only in a
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 the Fund's total assets will be repaid before making additional
investments and any interest paid on such borrowings will reduce income.
3. Make loans, except that (a) the Fund may purchase or hold debt instruments
in accordance with its investment objective and policies; (b) the Fund may
enter into repurchase agreements, and (c) the Fund may engage in securities
lending as permitted by applicable law.
4. 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 or repurchase agreements.
5. Purchase or sell real estate, real estate limited partnership interests,
commodities or commodities contracts and interests in a pool of securities
that are secured by interests in real estate. However, subject to their
permitted investment spectrum, the Fund may invest in companies which
invest in real estate commodities or commodities contracts.
B-7
<PAGE>
6. 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
The Fund may not purchase or hold illiquid securities, I.E., securities that
cannot be disposed of for their approximate carrying value in seven days or less
(which term includes repurchase agreements and time deposits maturing in more
than seven days) if, in the aggregate, more than 10% of its net assets would be
invested in illiquid securities.
The Fund may not invest in interests in oil, gas or other mineral explorations
or development programs and oil, gas or mineral leases.
1. The Fund may not 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;
this limitation shall not prohibit short sales "against the box."
2. The Fund may not act as an underwriter of securities of other issuers
except as it may be deemed an underwriter in selling a security.
3. The Fund may not 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 1940 Act and the rules and
regulations thereunder. [Under these rules and regulations, the 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 the Fund; or
securities (other than treasury stock) issued by all investment companies
represent more than 10% of the total assets of the Fund.]
The foregoing percentages, except with respect to holding illiquid securities,
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.
INVESTMENT ADVISOR
The Trust and Trusco Capital Management, Inc., (the "Advisor") have entered
into an advisory agreement with the Trust (the "Advisory Agreement").
The Advisor is an indirect wholly-owned subsidiary of SunTrust Banks, Inc.
("SunTrust"). SunTrust is a southeastern regional bank holding company with
assets of $ 76 billion as of June 30, 1998. The Advisory Agreement provides
that the 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.
B-8
<PAGE>
The Advisory Agreement provides that if, for any fiscal year, the ratio of
expenses of the Fund (including amounts payable to the 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 the
Fund's inability to qualify as a regulated investment company under provisions
of the Internal Revenue Code.
The continuance of the 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. The 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 Fund, by a majority of the outstanding shares of the Fund, 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.
BANKING LAWS
Current interpretations of federal banking laws and regulations:
- - prohibit SunTrust and the Advisor from sponsoring, organizing, controlling,
or distributing the Fund's shares; but
- - do not prohibit SunTrust or the Advisor generally from acting as an
investment advisor, transfer agent, or custodian to the Fund or from
purchasing Fund shares as agent for and upon the order of a customer.
The Advisor believes that it may perform advisory and related services for the
Trust without violating applicable banking laws or regulations. However, the
legal requirements and interpretations about the permissible activities of banks
and their affiliates may change in the future. These changes could prevent the
Advisor from continuing to perform services for the Trust. If this happens, the
Board of Trustees would consider selecting other qualified firms. Shareholders
would approve any new investment advisory agreements would be subject to
Shareholder approval.
If current restrictions on bank activities with mutual funds were relaxed, the
Advisor, or its affiliates, would consider performing additional services for
the Trust. We cannot predict whether these changes will be enacted. We also
cannot predict the terms that the Advisor, or its affiliates, might offer to
provide additional services.
THE ADMINISTRATOR
B-9
<PAGE>
The Trust and SEI Investments Mutual Funds Services (the "Administrator"), are
parties to an administration agreement (the "Administration Agreement") dated
May 29, 1992. 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 Administrator, a Delaware business trust, has its principal business offices
at Oaks, Pennsylvania 19456. SEI Investments Management Corporation ("SIMC"), a
wholly-owned subsidiary of SEI Investments Company ("SEI Investments"), is the
owner of all beneficial interest in the Administrator. SEI and its subsidiaries
and affiliates, including 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 or
sub-administrator to the following other mutual funds: The Achievement Funds
Trust, The Advisors' Inner Circle Fund, The Arbor Fund, ARK Funds, Armada Funds,
Bishop Street Funds, Boston 1784 Funds-Registered Trademark-, CrestFunds, Inc.,
CUFUND, The Expedition Funds, First American Funds, Inc., First American
Investment Funds, Inc., First American Strategy Funds, Inc., HighMark Funds,
Monitor Funds, The Nevis Fund, Inc., Oak Associates Funds, The PBHG Funds, Inc.,
PBHG Insurance Series Fund, Inc., The Pillar Funds, SEI Asset Allocation Trust,
SEI Daily Income Trust, SEI Index Funds, SEI Institutional International Trust,
SEI Institutional Investments Trust, SEI Institutional Managed Trust, SEI Liquid
Asset Trust, SEI Tax Exempt Trust, STI Classic Variable Trust, TIP Funds and
Alpha Select Funds.
THE DISTRIBUTOR
SEI Investments Distribution Co. (the "Distributor"), a wholly-owned subsidiary
of SEI Investments, 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 Shares.
The Distribution Agreement is renewable annually and may be terminated by the
Distributor, the Qualified Trustees (as defined in the Distribution Agreement),
or by a majority vote of the outstanding securities of the Trust upon not more
than 60 days' written notice by either party.
THE TRANSFER AGENT
Federated Services Company, Federated Investors Tower, Pittsburgh, PA
15222-3779 serves as the Trust's transfer agent.
THE CUSTODIAN
SunTrust Bank, Atlanta, 303 Peachtree Street N.E., 14th Floor, Atlanta, GA
30308 serves as the custodian for the all of the Portfolios.
INDEPENDENT PUBLIC ACCOUNTANTS
_________________, serves as independent public accountants for the Trust.
LEGAL COUNSEL
Morgan, Lewis & Bockius LLP, serves as legal counsel to the Trust.
B-10
<PAGE>
TRUSTEES AND OFFICERS OF THE TRUST
The Trustees supervise the management and affairs of the Trust. The Trustees
have approved contracts with certain companies that provide the Trust with
essential management services. The Trustees and Executive Officers of the
Trust, their respective dates of birth, and their principal occupations for the
last five years are set forth below. Each may have held other positions with
the named companies during that period. The business address of each Trustee
and each Executive Officer is SEI Investments Company, Oaks, Pennsylvania 19456.
Certain officers of the Trust also serve as officers of some or all of the
following: The Achievement Funds Trust, The Advisors' Inner Circle Fund, The
Arbor Fund, ARK Funds, Armada Funds, Bishop Street Funds, Boston
1784 Funds-Registered Trademark-, CrestFunds, Inc., CUFUND, The Expedition
Funds, First American Funds, Inc., First American Investment Funds, Inc., First
American Strategy Funds, Inc., HighMark Funds, Monitor Funds, Morgan Grenfell
Investment Trust, The Nevis Fund, Inc., Oak Associates Funds, The PBHG Funds,
Inc., PBHG Insurance Series Fund, Inc., The Pillar Funds, SEI Asset Allocation
Trust, SEI Daily Income Trust, SEI Index Funds, SEI Institutional International
Trust, SEI Institutional Investments Trust, SEI Institutional Managed Trust, SEI
Liquid Asset Trust, SEI Tax Exempt Trust, STI Classic Variable Trust, TIP Funds
and Alpha Select Funds, each of which is an open-end management investment
company managed by SEI Investments Mutual Funds Services or its affiliates and,
except for PBHG Advisor Funds, Inc., distributed by SEI Investments Distribution
Co.
DANIEL S. GOODRUM (7/11/26) - Trustee* - 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* - 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.
CHAMPNEY A. MCNAIR (10/30/24) - Trustee* - 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 - Retired. President, Orange County
Publishing Co., Inc., 1981 - 1997, Publisher of the Paoli News and the Paoli
Republican and Editor of the Paoli Republican, 1981 - 1997, President, H & W
Distribution, Inc., 1984 - 1997. 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 - 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.
B-11
<PAGE>
DR. BERNARD F. SLIGER (9/30/24) - Trustee - Director, Stavros Center for
Economic Education, Florida State University, 1991-present. 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* - Executive Vice President, SunTrust Banks,
Inc., 1985-1994; Director of Crawford & Company since 1979; Member, Atlanta
Estate Planning Council, 1988-1993.
JONATHAN T. WALTON (3/28/30) - Trustee - Retired. Executive Vice President, NBD
Bank, N.A. and NBD Bancorp, October 1956 to March 1995. Trustee, W.K. Kellogg
Trust.
WILLIAM H. CAMMACK (11/24/29) - Trustee* - Chairman & Director, SunTrust
Equitable Securities Corporation, January 1998-present. Chairman and CEO,
Equitable Asset Management, Inc., December 1993-present. Chairman and CEO,
Equitable Trust Company, June 1991-present. Chairman, Equitable Securities
Corporation, July 1972-January 1998.
MARK NAGLE (10/20/59) - President and Chief Executive Officer - Vice President
and Controller, Funds Accounting since 1996. Vice President of the Administrator
and Distributor since 1996. Vice President of Fund Accounting - BISYS Fund
Services 1995-1996. Senior Vice President - Fidelity Investments 1981-1995.
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.
LYDIA A. GAVALIS (6/5/64) - Vice President and Assistant Secretary - Vice
President and Assistant Secretary of the Administrator and the Distributor since
1998. Assistant General Counsel and Director of Arbitration, Philadelphia Stock
Exchange, 1989-1998.
KATHY HEILIG (12/21/58) - Vice President and Assistant Secretary - Treasurer of
SEI Investments Company since 1997. Assistant Controller of SEI Investments
Company since 1995. Vice President of SEI Investments Company since 1991.
Director of Taxes of SEI Investments Company, 1987-1991.
JOSEPH M. O'DONNELL (11/13/54) - Vice President and Assistant Secretary - Vice
President and Assistant Secretary of the Administrator and the Distributor since
1998. Vice President and General Counsel, FPS Services, Inc., 1993-1997.
SANDRA K. ORLOW (10/18/53) - Vice President, Assistant Secretary - Vice
President and Assistant Secretary of the Administrator and Distributor since
1983.
B-12
<PAGE>
LYNDA J. STRIEGEL (10/30/48) - Vice President and Assistant Secretary - Vice
President and Assistant Secretary of the Administrator and the Distributor since
1998. Senior Asset Management Counsel, Barnett Banks, Inc., 1997-1998.
Partner, Groom and Nordberg, Chartered, 1996-1997. Associate General Counsel,
Riggs Bank, N.A., 1991-1995.
KEVIN P. ROBINS (4/15/61) - Vice President, Assistant Secretary - Senior Vice
President & General Counsel of SEI Investments, the Administrator and the
Distributor since 1994. Vice President of SEI, the Administrator and the
Distributor, 1992-1994.
KATHRYN L. STANTON (11/19/58) - Vice President, Assistant Secretary - Vice
President, Assistant Secretary of SEI Investments, the Administrator and
Distributor since 1994. Associate, Morgan, Lewis & Bockius LLP (law firm),
1989-1994.
CAROL ROONEY (5/8/64) - Controller, Chief Financial Officer - A Director of SEI
Investments Mutual Funds Services since 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, since 1989.
JOHN H. GRADY, JR. (6/1/61) - Assistant Secretary - 2000 One Logan Square,
Philadelphia, Pennsylvania 19103. Partner, Morgan, Lewis & Bockius LLP (law
firm) since 1995, counsel to the Trust, Administrator and Distributor.
Associate, Morgan, Lewis & Bockius LLP, 1993-1995.
- --------------------
* Messrs. Looney, Goodrum, McNair, Hall and Cammack may be deemed to be an
"interested person" of the Trust as defined in the 1940 Act.
The Trustees and Officers of the Trust own, in the aggregate, less than 1% of
the outstanding shares of the Trust.
B-13
<PAGE>
For the fiscal year end May 31, 1998, the Trust paid the following amounts to
Trustees and Officers of the Trust:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
ESTIMATED
PENSION OR ANNUAL TOTAL COMPENSATION FROM FUND AND FUND
AGGREGATE RETIREMENT BENEFITS COMPLEX PAID TO TRUSTEES
COMPENSATION BENEFITS UPON
NAME OF PERSON, FROM FUND ACCRUED AS RETIREMENT
POSITION PART OF FUND
EXPENSES
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Daniel S. Goodrum, $ N/A N/A $ for service on two boards
Trustee
- -----------------------------------------------------------------------------------------------------------
Wilton Looney, Trustee $ N/A N/A $ for service on two boards
- -----------------------------------------------------------------------------------------------------------
Champney A. McNair, $ N/A N/A $ for service on two boards
Trustee
- -----------------------------------------------------------------------------------------------------------
F. Wendell Gooch, $ N/A N/A $ for service on two boards
Trustee
- -----------------------------------------------------------------------------------------------------------
T. Gordy Germany, $ N/A N/A $ for service on two boards
Trustee
- -----------------------------------------------------------------------------------------------------------
Dr. Bernard F. Sliger, $ N/A N/A $ for service on two boards
Trustee
- -----------------------------------------------------------------------------------------------------------
Jesse S. Hall, Trustee $ N/A N/A $ for service on two boards
- -----------------------------------------------------------------------------------------------------------
Jonathan T. Walton, $ N/A N/A $ for service on two boards
Trustee*
- -----------------------------------------------------------------------------------------------------------
William H. Cammack, N/A N/A N/A $ for service on two boards
Trustee
- -----------------------------------------------------------------------------------------------------------
</TABLE>
*Messr. Walton's compensation reflects a starting date of June 19, 1998.
B-14
<PAGE>
PERFORMANCE INFORMATION
From time to time the Fund may advertise its performance. Performance figures
are based on historical earnings and are not intended to indicate future
performance.
PERFORMANCE COMPARISONS
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. These comparisons may assume reinvestment of dividends
but generally do not reflect deductions for administrative and management costs.
COMPUTATION OF YIELD
The current yield of the Fund will be calculated daily based upon the seven
days ending on the date of calculation (the "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 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 Fund 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) TO THE POWER OF 365/7] - 1. The current and the
effective yields reflect the reinvestment of net income earned daily on
portfolio assets.
The yield of the Fund fluctuates, 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 the 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 Fund 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.
B-15
<PAGE>
ADVERTISING
From time to time, the Trust may include the names of clients of the Advisor in
advertisements and/or sales literature for the Trust.
PURCHASE AND REDEMPTION OF SHARES
Purchases and redemptions of shares of the Fund may be made on any day the New
York Stock Exchange ("NYSE") is open for business. Currently, the NYSE is
closed on the days following holidays are observed: New Year's Day, Martin
Luther King, Jr. 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 Fund 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
B-16
<PAGE>
result of disposal or valuation of the 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 the Fund for any period during which the NYSE, an Advisor, the
Administrator and/or the Custodian are not open for business. Investors will
receive written notification at least thirty days prior to any change in the
Fund's investment objective.
Certain state securities laws may require those financial institutions providing
certain distribution services to the Trust to register as dealers pursuant to
state law.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of the Fund 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 the Fund would receive if it sold the
instrument. During periods of declining interest rates, the daily yield of the
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 the Fund resulted in a lower aggregate portfolio
value on a particular day, a prospective investor in the 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 the Fund would
experience a lower yield. The converse would apply in a period of rising
interest rates.
The Fund's use of amortized cost and the maintenance of the 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 Fund. Such procedures
include the determination of the extent of deviation, if any, of the Fund
current net asset value per share calculated using available market quotations
from the Fund 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 Fund incur a
significant loss or liability, the Trustees have the authority to reduce pro
rata the number of shares of the Fund in each Shareholder's account and
B-17
<PAGE>
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.
TAXES
The following is a summary of certain Federal income tax considerations
generally affecting the Fund and its shareholders that are not described in the
Fund's prospectus. No attempt is made to present a detailed explanation of the
Federal tax treatment of the Fund or its Shareholders, and the discussion here
and in the Fund's prospectus is not intended as a substitute for careful tax
planning.
This discussion of Federal income tax consequences is based on the Internal
Revenue Code of 1986, as amended (the "Code"), and the regulations issued
thereunder, in effect on the date of this Statement of Additional Information.
New legislation, as well as administrative changes or court decisions, may
change the conclusions expressed herein, and may have a retroactive effect with
respect to the transactions contemplated herein.
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"), the 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
the Fund's gross income each taxable year must be derived from dividends,
interest, payments with respect to securities loans, and gains from the sale or
other disposition of stock or securities, or certain other income; (ii) at the
close of each quarter of the 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 of any one issuer, to an amount that does not
exceed 5% of the value of the Fund's assets and that does not represent more
than 10% of the outstanding voting securities of such issuer; and (iii) at the
close of each quarter of the 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. Requirement (ii) no longer applies for tax
years beginning after August 5, 1997.
In addition, the Fund will 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. 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.
B-18
<PAGE>
If, at the close of each quarter of its taxable year, at least 50% of the value
of the Fund's total assets consists of obligations the interest on which is
excludable from gross income, the Fund may pay "exempt-interest dividends," as
defined in Section 852(b)(5) of the Code, to its Shareholders.
Any gain or loss recognized on a sale or redemption of Shares of the 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,
and short-term if for a year or less. Any loss realized on a sale or exchange
will be disallowed to the extent the shares disposed of are replaced within
the 61-day period beginning 30 days before and ending 30 days after the
shares are disposed of. Any loss realized by a shareholder on the
disposition of shares held 6 months or less is treated as a long-term capital
loss to the extent of any distributions of net long-term capital gains
received by the shareholder with respect to such shares or any inclusion of
undistributed capital gain with respect to such shares.
The Fund will make annual reports to Shareholders of the Federal income tax
status of all distributions.
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, the Advisor is responsible for placing the orders
to execute transactions for the 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 the 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 Fund 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, the 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
B-19
<PAGE>
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.
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.
B-20
<PAGE>
Consistent with the Conduct Rules of the National Association of Securities
Dealers, Inc., and subject to seeking best price and execution, the Fund, 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.
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.
B-21
<PAGE>
DESCRIPTION OF SHARES
The Declaration of Trust authorizes the issuance of an unlimited number of
shares and classes of shares of the Fund 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 Fund. 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
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.
YEAR 2000
The Trust depends on the smooth functioning of computer systems in almost every
aspect of its business. Like other mutual funds, businesses and individuals
around the world, the Trust could be adversely affected if the computer systems
used by its service providers do not properly process dates on and after January
1, 2000 and distinguish between the year 2000 and the year 1900. The Trust has
asked its service providers whether they expect to have their computer systems
adjusted for the year 2000 transition, and received
B-22
<PAGE>
assurances from each from each that its system is expected to accommodate the
year 2000 without material adverse consequences to the Trust. The Trust and its
shareholders may experience losses if these assurances prove to be incorrect or
as a result of year 2000 computer difficulties experienced by issuers of
portfolio securities or third parties, such as custodians, banks, broker-dealers
or others with which the Trust does business.
B-23
<PAGE>
PROSPECTUS
HOW TO READ
THIS PROSPECTUS
The STI Classic Funds is a mutual fund family that offers different classes
of shares in separate investment portfolios (Funds). The Funds have
individual investment goals and strategies. This prospectus gives you
important information about the Trust Shares of the Funds that you should
know before investing. Please read this prospectus and keep it for future
reference.
We arranged the prospectus into different sections so that you can easily review
this important information. On the next page, we discuss general information you
should know about investing in the Funds.
IF YOU WOULD LIKE MORE DETAILED INFORMATION
ABOUT EACH FUND, PLEASE SEE:
2 MARYLAND MUNICIPAL BOND FUND
4 TAX-FREE MONEY MARKET FUND
6 U.S. TREASURY MONEY MARKET FUND
8 GROWTH AND INCOME FUND
10 VIRGINIA INTERMEDIATE MUNICIPAL BOND FUND
12 VIRGINIA MUNICIPAL BOND FUND
IF YOU WOULD LIKE MORE INFORMATION ABOUT THE
FOLLOWING TOPICS, PLEASE SEE:
26 EACH FUND'S PRINCIPAL INVESTMENTS
27 THE ADVISORS AND THEIR PORTFOLIO MANAGERS
28 PURCHASING, SELLING AND EXCHANGING FUND SHARES
32 DISTRIBUTIONS OF DIVIDENDS AND CAPITAL GAINS
32 TAXES
TO OBTAIN MORE INFORMATION ABOUT THE STI CLASSIC
FUNDS PLEASE REFER TO THE BACK COVER OF THE
PROSPECTUS
FOR INFORMATION ABOUT KEY TERMS AND CONCEPTS, LOOK FOR OUR "SIMPLY SPEAKING"
EXPLANATIONS.
- --------------------------------------------------------------------------------
[GRAPHIC] FUND SUMMARY
[GRAPHIC] INVESTMENT STRATEGY
[GRAPHIC] WHAT ARE THE RISKS OF INVESTING?
[GRAPHIC] WHAT IS AN INDEX?
[GRAPHIC] FUND EXPENSES
[GRAPHIC] FUND INVESTMENTS
[GRAPHIC] INVESTMENT ADVISOR
[GRAPHIC] PURCHASING FUND SHARES
- --------------------------------------------------------------------------------
[ ] --, 1999
<PAGE>
PROSPECTUS 1
INTRODUCTION
Each Fund is a mutual fund. A mutual fund pools shareholders' money and, using
professional investment managers, invests it in securities like stocks and
bonds. Before you invest, you should know a few things about investing in mutual
funds.
The value of your investment in a Fund (except the Money Market Funds) is
based on the market prices of the securities the Fund holds. These prices
change daily due to economic and other events that affect securities markets
generally, as well as those that affect particular companies or governments.
These price movements, sometimes called volatility, will vary depending on
the types of securities a Fund owns and the markets where these securities
trade. The Value Fund invests primarily in common stocks and other
securities. Historically, equity securities have outperformed other types of
investments on a long-term basis, but have been subject to more price
fluctuation in the short run.
Like other investments, you could lose money on your investment in a Fund. Your
investment in a Fund is not a bank deposit. It is not insured or guaranteed by
the FDIC or any government agency.
The Money Market Funds try to maintain a constant price per share of $1.00,
but we cannot guarantee this.
Each Fund has its own investment goal and strategies for reaching that goal. But
we cannot guarantee that a Fund will achieve its goal. A Fund's goal may be
changed without shareholder approval. Before investing, make sure that the
Fund's goal matches your own.
The Advisor invests each Fund's assets in a way that the Advisor
believes will help the Fund achieve its goal. An Advisor's judgments about
the stock markets, economy and companies, or selecting investments may not
reflect actual market movements, economic conditions or company performance.
SUNTRUST BANK, ATLANTA SERVES AS CUSTODIAN OF THE ASSETS OF THE FUNDS. SUNTRUST
BANK, ATLANTA AND THE ADVISOR ARE OWNED BY SUNTRUST BANKS, INC. THE FEES PAID
FOR CUSTODIAN SERVICES ARE INCLUDED IN THE "OTHER EXPENSES" FIGURE OF THE "FUND
EXPENSES" TABLE ON THE FOLLOWING PAGES. LAST FISCAL YEAR, THE FUNDS PAID
SUNTRUST BANK, ATLANTA $1.3 MILLION FOR SERVING AS CUSTODIAN.
<PAGE>
2 PROSPECTUS
MARYLAND MUNICIPAL BOND FUND
FUND SUMMARY
Investment Goal High current income exempt from
federal and Maryland income tax,
consistent with preservation of
capital
Investment Focus Maryland municipal securities
Share Price Volatility Medium
Principal Investment Strategy Attempts to limit risk by investing
in investment grade municipal securities
Investor Profile Maryland residents who want income
exempt from federal and state income
taxes
INVESTMENT STRATEGY
The Maryland Municipal Bond Fund invests substantially all of its assets in
municipal securities with income exempt from federal and Maryland income taxes.
Issuers of these securities can be located in Maryland, the District of
Columbia, Puerto Rico and other U.S. territories and possessions. In selecting
investments for the Fund, we try to limit risk by buying investment grade
securities. There are no limits on the Fund's average weighted maturity or on
the remaining maturities of individual securities.
MONEY MARKET FUNDS
The Fund invests primarily in Maryland debt securities. As a result, the Fund
is subject to the risk that the prices of debt securities will decline due to
rising interest rates. This risk is greater for long-term debt securities than
for short-term debt securities. The Fund's concentration of investments in
securities of issuers located in Maryland subjects the Fund to economic
conditions and government policies within Maryland. Because the Fund is
non-diversified the performance of any one holding may have a significant effect
on the whole Fund. Debt securities may decline in credit quality due to
economic or governmental events. In addition, an issuer may be unable to make
timely payments of principal or interest to the Fund.
<PAGE>
FUND EXPENSES
THIS TABLE DESCRIBES THE FUND'S EXPENSES THAT YOU MAY PAY INDIRECTLY IF YOU
HOLD FUND SHARES.
ANNUAL FUND OPERATING EXPENSES
------------------------------------------------------------
Investment Advisory Fees .XX%
Other Expenses .XX%
----
Total Annual Fund Operating Expenses X.XX%
SIMPLY SPEAKING...
FUND EXPENSES
Unlike an index, every mutual fund has operating expenses to pay for
professional advisory, shareholder, distribution, administration and custody
services. The Fund's expenses in the table above are shown as a percentage of
the Fund's net assets. These expenses are deducted from Fund assets. The table
shows the highest expenses that could be currently charged to the Fund. Actual
expenses are lower because the Advisor is voluntarily waiving a portion of its
fees. ACTUAL INVESTMENT ADVISORY FEES AND TOTAL OPERATING EXPENSES ARE [ %]
AND [ %], RESPECTIVELY. The Advisor could discontinue this voluntary waiver
at any time. For more information about these fees, see "Investment Advisors."
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated and that you sell your
shares at the end of the period.
The Example also assumes that each year your investment has a 5% return and Fund
expenses remain the same. Although your actual costs and returns might be
different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS
------------------------------------
$XXX $XXX
<PAGE>
4 PROSPECTUS
TAX-FREE MONEY MARKET FUND
FUND SUMMARY
Investment Goal High current income exempt from
federal income tax, while preserving
liquidity
Investment Focus Municipal money market instruments
Principal Investment Strategy Attempts to increase income without
added risk by analyzing credit
quality
Investor Profile Conservative investors who want to
receive tax-exempt current income from
their investment
INVESTMENT STRATEGY
The Tax-Free Money Market Fund invests substantially all of its assets in money
market instruments issued by municipalities and issuers that pay income exempt
from federal income taxes. In selecting investments for the Fund, we analyze
the credit quality and structure of each security to minimize risk. We actively
manage the Fund's average maturity based on current interest rates and our
outlook for the market.
MONEY MARKET FUNDS
Money market funds invest in high quality, short-term debt securities, commonly
known as money market instruments. These include CDs, bankers' acceptances,
commercial paper, U.S. Treasury securities, some municipal securities, and
repurchase agreements. A money market fund follows strict rules about credit
risk, maturity and diversification of its investments. An investment in a money
market fund is not a bank deposit. Although a money market fund seeks to keep a
constant price per share of $1.00, you may lose money by investing in a money
market fund.
FUND EXPENSES
THIS TABLE DESCRIBES THE FUND'S EXPENSES THAT YOU MAY PAY INDIRECTLY IF YOU OWN
FUND SHARES.
ANNUAL FUND OPERATING EXPENSES
------------------------------------------------------------
Investment Advisory Fees .XX%
Other Expenses .XX%
----
Total Annual Fund Operating Expenses X.XX%
<PAGE>
SIMPLY SPEAKING...
FUND EXPENSES
Unlike an index, every mutual fund has operating expenses to pay for
professional advisory, shareholder, distribution, administration and custody
services. The Fund's expenses in the table above are shown as a percentage of
the Fund's net assets. These expenses are deducted from Fund assets. The table
shows the highest expenses that could be currently charged to the Fund. Actual
expenses are lower because the Advisor is voluntarily waiving a portion of its
fees. ACTUAL INVESTMENT ADVISORY FEES AND TOTAL OPERATING EXPENSES ARE [ %]
AND [ %], RESPECTIVELY. The Advisor could discontinue this voluntary waiver
at any time. For more information about these fees, see "Investment Advisors."
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated and that you sell your
shares at the end of the period.
The Example also assumes that each year your investment has a 5% return and Fund
expenses remain the same. Although your actual costs and returns might be
different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS
------------------------------------
$XXX $XXX
<PAGE>
6 PROSPECTUS
U.S. TREASURY MONEY MARKET FUND
FUND SUMMARY
Investment Goal High current income while maintaining liquidity
Investment Focus Money market instruments issued and guaranteed
by the U.S. Treasury
Principal Investment Strategy Investing in U.S. Treasury obligations and
repurchase agreements
Investor Profile Conservative investors who want to receive
current income from their investment
Investment Strategy
The U.S. Treasury Money Fund invests solely in U.S. Treasury obligations and
repurchase agreements that are collateralized by obligations issued or
guaranteed by the U.S. Treasury. The Fund limits its investments so as to
obtain the highest investment quality rating by a nationally recognized
statistical rating organization. The Fund will maintain an average maturity
of 90 days or less, and will only acquire securities that have a remaining
maturity of 397 days or less.
MONEY MARKET FUNDS
Money market funds invest in high quality, short-term debt securities,
commonly known as money market instruments. These include CDs, bankers'
acceptances, commercial paper, U.S. Treasury securities, some municipal
securities, and repurchase agreements. A money market fund follows strict
rules about credit risk, maturity and diversification of its investments. An
investment in a money market fund is not a bank deposit. Although a money
market funds seeks to keep a constant price per share of $1.00, you may lose
money by investing in a money market fund.
FUND EXPENSES
This table describes the fund's expenses that you may pay indirectly if you own
Fund shares.
ANNUAL FUND OPERATING EXPENSES
------------------------------------------------------------
Investment Advisory Fees .XX%
Other Expenses .XX%
----
Total Annual Fund Operating Expenses X.XX%
<PAGE>
SIMPLY SPEAKING...
FUND EXPENSES
Unlike an index, every mutual fund has operating expenses to pay for
professional advisory, shareholder, distribution, administration and custody
services. The Fund's expenses in the table above are shown as a percentage of
the Fund's net assets. These expenses are deducted from Fund assets. The table
shows the highest expenses that could be currently charged to the Fund. Actual
expenses are lower because the Advisor is voluntarily waiving a portion of its
fees. ACTUAL INVESTMENT ADVISORY FEES AND TOTAL OPERATING EXPENSES ARE [ %]
AND [ %], RESPECTIVELY. The Advisor could discontinue this voluntary waiver
at any time. For more information about these fees, see "Investment Advisors."
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated and that you sell your
shares at the end of the period.
The Example also assumes that each year your investment has a 5% return and Fund
expenses remain the same. Although your actual costs and returns might be
different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS
------------------------------------
$XXX $XXX
<PAGE>
8 PROSPECTUS
GROWTH AND INCOME FUND
FUND SUMMARY
Investment Goal
PRIMARY Long-term capital appreciation
SECONDARY Current income
Investment Focus Equity securities
Share Price Volatility Medium
Principal Investment Strategy Attempts to identify income producing
securities of companies with low
price/earnings ratios and above
average earnings momentum
Investor Profile Investors who are looking for capital
appreciation potential and income with
less volatility than the equity
markets as a whole
INVESTMENT STRATEGY
The Growth and Income Fund invests primarily in domestic and foreign common
stock of companies with market capitalizations of at least $1 billion. We
use a qualitative screening to select companies with a favorable price to
earnings ratio and to create a portfolio we believe with low risk
characteristics. Companies with strong financial quality and above average
earnings momentum are selected to secure the best relative values in each
economic sector.
WHAT ARE THE RISKS OF INVESTING IN THIS FUND?
The Fund invests primarily in equity securities. As a result, the Fund is
subject to the risk that stock prices will fall over short or extended periods
of time. The equity markets tend to move in cycles, with periods of risking
prices and periods of falling prices. This price volatility which is the
principal risk of investing in the Fund.
<PAGE>
FUND EXPENSES
This table describes Fund's expenses that you may pay indirectly if you hold
Fund shares.
ANNUAL FUND OPERATING EXPENSES
------------------------------------------------------------
Investment Advisory Fees .XX%
Other Expenses .XX%
----
Total Annual Fund Operating Expenses X.XX%
SIMPLY SPEAKING...
FUND EXPENSES
Unlike an index, every mutual fund has operating expenses to pay for
professional advisory, shareholder, distribution, administration and custody
services. The Fund's expenses in the table above are shown as a percentage of
the Fund's net assets. These expenses are deducted from Fund assets. The table
shows the highest expenses that could be currently charged to the Fund. Actual
expenses are lower because the Advisor is voluntarily waiving a portion of its
fees. ACTUAL INVESTMENT ADVISORY FEES AND TOTAL OPERATING EXPENSES ARE [ %]
AND [ %], RESPECTIVELY. The Advisor could discontinue this voluntary waiver
at any time. For more information about these fees, see "Investment Advisors."
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated and that you sell your
shares at the end of the period.
The Example also assumes that each year your investment has a 5% return and Fund
expenses remain the same. Although your actual costs and returns might be
different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS
------------------------------------
$XXX $XXX
<PAGE>
10 PROSPECTUS
VIRGINIA INTERMEDIATE MUNICIPAL BOND FUND
FUND SUMMARY
Investment Goal High current income exempt from
federal and Virginia income tax,
consistent with preservation of
capital
Investment Focus Virginia municipal securities
Share Price Volatility Low to medium
Principal Investment Strategy Attempts to limit risk by investing
in investment grade municipal
securities with an intermediate average
maturity
Investor Profile Virginia residents who want income
exempt from federal and state income
taxes
INVESTMENT STRATEGY
The Virginia Intermediate Municipal Bond Fund invests substantially all of
its assets in municipal securities with income exempt from federal and
Virginia income taxes. Issuers of these securities can be located in
Virginia, the District of Columbia, Puerto Rico and other U.S. territories
and possessions. In selecting investments for the Fund, we try to limit risk
by buying investment grade securities. We expect that the Fund's dollar
weighted average maturity will range from 5 to 10 years but there is no limit
on the maturities of individual securities.
WHAT ARE THE RISKS OF INVESTING IN THIS FUND?
The Fund invests primarily in Virginia debt securities. As a result, the Fund
is subject to the risk that the prices of debt securities will decline due to
rising interest rates. This risk is greater for long-term debt securities than
for short-term debt securities. The Fund's concentration of investments in
securities of issuers located in Virginia subjects the Fund to economic
conditions and government policies within Virginia. Because the Fund is
non-diversified the performance of any one holding may have a significant effect
on the whole Fund. Debt securities may decline in credit quality due to
economic or governmental events. In addition, an issuer may be unable to make
timely payments of principal or interest to the Fund.
<PAGE>
FUND EXPENSES
This table describes the Fund's expenses that you may pay indirectly if you hold
Fund shares.
ANNUAL FUND OPERATING EXPENSES
------------------------------------------------------------
Investment Advisory Fees .XX%
Other Expenses .XX%
----
Total Annual Fund Operating Expenses X.XX%
SIMPLY SPEAKING...
FUND EXPENSES
Unlike an index, every mutual fund has operating expenses to pay for
professional advisory, shareholder, distribution, administration and custody
services. The Fund's expenses in the table above are shown as a percentage of
the Fund's net assets. These expenses are deducted from Fund assets. The table
shows the highest expenses that could be currently charged to the Fund. Actual
expenses are lower because the Advisor is voluntarily waiving a portion of its
fees. ACTUAL INVESTMENT ADVISORY FEES AND TOTAL OPERATING EXPENSES ARE [ %]
AND [ %], RESPECTIVELY. The Advisor could discontinue this voluntary waiver
at any time. For more information about these fees, see "Investment Advisors."
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated and that you sell your
shares at the end of the period.
The Example also assumes that each year your investment has a 5% return and Fund
expenses remain the same. We also consider stability and growth of principal.
Although your actual costs and returns might be different, your approximate
costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS
------------------------------------
$XXX $XXX
<PAGE>
12 PROSPECTUS
VIRGINIA MUNICIPAL BOND FUND
FUND SUMMARY
Investment Goal High current income exempt from
federal and Virginia income taxes,
consistent with preservation of
capital
Investment Focus Virginia municipal securities
Share Price Volatility Medium
Principal Investment Strategy Attempts to limit risk by investing
in investment grade municipal securities
Investor Profile Virginia residents who want income
exempt from federal and state income
taxes
INVESTMENT STRATEGY
The Virginia Municipal Bond Fund invests substantially all of its assets in
municipal securities with income exempt from federal and Virginia income taxes.
Issuers of these securities can be located in Virginia, the District of
Columbia, Puerto Rico and other U.S. territories and possessions. In selecting
investments for the Fund, we try to limit risk by buying investment grade
securities. There are no limits on the Fund's average weighted maturity or on
the remaining maturities of individual securities.
WHAT ARE THE RISKS OF INVESTING IN THIS FUND?
The Fund invests primarily in Virginia debt securities. As a result, the Fund
is subject to the risk that the prices of debt securities will decline due to
rising interest rates. This risk is greater for long-term debt securities than
for short-term debt securities. The Fund's concentration of investments in
securities of issuers located in Virginia subjects the Fund to economic
conditions and government policies within Virginia. Because the Fund is
non-diversified the performance of any one holding may have a significant effect
on the whole Fund. Debt securities may decline in credit quality due to
economic or governmental events. In addition, an issuer may be unable to make
timely payments of principal or interest to the Fund.
<PAGE>
FUND EXPENSES
This table describes the Fund's expenses that you may pay indirectly if you hold
Fund shares.
ANNUAL FUND OPERATING EXPENSES
------------------------------------------------------------
Investment Advisory Fees .XX%
Other Expenses .XX%
----
Total Annual Fund Operating Expenses X.XX%
SIMPLY SPEAKING...
FUND EXPENSES
Unlike an index, every mutual fund has operating expenses to pay for
professional advisory, shareholder, distribution, administration and custody
services. The Fund's expenses in the table above are shown as a percentage of
the Fund's net assets. These expenses are deducted from Fund assets. The table
shows the highest expenses that could be currently charged to the Fund. Actual
expenses are lower because the Advisor is voluntarily waiving a portion of its
fees. ACTUAL INVESTMENT ADVISORY FEES AND TOTAL OPERATING EXPENSES ARE [ %]
AND [ %], RESPECTIVELY. The Advisor could discontinue this voluntary waiver
at any time. For more information about these fees, see "Investment Advisors."
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated and that you sell your
shares at the end of the period.
The Example also assumes that each year your investment has a 5% return and Fund
expenses remain the same. Although your actual costs and returns might be
different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS
------------------------------------
$XXX $XXX
<PAGE>
26 PROSPECTUS
EACH FUND'S PRINCIPAL INVESTMENTS
[GRAPHIC] FUND INVESTMENTS
The table below shows each Fund's principal investments. In other words,
the table describes the type or types of investments that we believe will
most likely help each Fund achieve its investment goal.
<TABLE>
<CAPTION>
MARYLAND TAX-FREE U.S. TREASURY GROWTH VIRGINIA VIRGINIA
MUNICIPAL EXEMPT MONEY SECURITIES AND INCOME INTERMEDIATE MUNICIPAL
BOND FUND MARKET FUND MONEY MARKET FUND FUND BOND FUND BOND FUND
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Convertible X
Securities
- --------------------------------------------------------------------------------------------------
Municipal
Securities X X X X
- --------------------------------------------------------------------------------------------------
U.S. Stocks X
- --------------------------------------------------------------------------------------------------
U.S. Treasury
Securities X
- --------------------------------------------------------------------------------------------------
</TABLE>
Each Fund also may invest in other securities, use other strategies and engage
in other investment practices, which are described in detail in our Statement of
Additional Information. Of course, we cannot guarantee that any Fund will
achieve its investment goal.
The investments listed above and the investments and strategies described
throughout this prospectus are those that we use under normal conditions.
During unusual economic or market conditions or for temporary defensive or
liquidity purposes, each Fund (except the Tax-Free Money Market Fund) may
invest up to 100% of its assets in cash, money market instruments, repurchase
agreements and short-term obligations. When a Fund is investing for
temporary defensive purposes, it is not pursuing its investment goal.
<PAGE>
PROSPECTUS 27
THE ADVISOR AND ITS PORTFOLIO MANAGERS
[GRAPHIC] INVESTMENT ADVISOR
The Investment Advisor makes investment decisions for the Funds and
continuously reviews, supervises and administers each Fund's respective
investment programs. The Board of Trustees supervises the Advisor and
establishes policies that the Advisor must follow in its management
activities.
Trusco Capital Management, Inc. (Trusco), 50 Hurt Plaza Suite 1400, Atlanta,
Georgia 30303, serves as the Advisor to the Funds. As of ___________, 1999,
Trusco had approximately $_____ billion in assets under management.
The Advisor may use its affiliates as brokers for Fund transactions.
PORTFOLIO MANAGERS
The Growth and Income Fund is managed by a team of investment professionals
from Trusco. No one person is responsible for making investment
recommendations to the team.
The Municipal Bond Funds are managed by a team of investment professionals
from Trusco. No one person is primarily responsible for making investment
recommendations to the team.
<PAGE>
28 PROSPECTUS
PURCHASING, SELLING AND EXCHANGING FUND SHARES
[GRAPHIC] PURCHASING FUND SHARES
HOW TO PURCHASE FUND SHARES
Generally you may not purchase Trust Shares directly. Rather, Trust Shares
are sold to financial institutions or intermediaries, including
[Crestar Bank and other] subsidiaries of SunTrust Banks, Inc. (SunTrust) on
behalf of accounts for which they act as fiduciary, agent, investment
advisor, or custodian. As a result, you, as a customer of a financial
institution, may 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 will be held of record by (in the name of) your financial
institution. Depending upon the terms of your account, however, you may have,
or be given, the right to vote your Trust Shares. We may reject any purchase
order if we determine that accepting the order would not be in the best
interests of the STI Classic Funds or its shareholders.
SIMPLY SPEAKING . . .
WHEN CAN YOU PURCHASE SHARES?
You may purchase shares on any day that the New York Stock Exchange is open
for business (a Business Day). But you may not purchase shares of a Money
Market Fund on federal holidays.
The price per share (the offering price) will be the net asset value per
share (NAV) next determined after we received your purchase order. The NAV
of the Tax-Free Money Market Fund is determined as of 12:00 noon Eastern
time, and as of the regularly-scheduled close of normal trading on the New
York Stock Exchange (normally 4:00 p.m. Eastern time). The NAV of the U.S.
Treasury Money Market Fund is determined as of 1:00 p.m. Eastern time and as
of the regularly-scheduled close of normal trading on the New York Stock
Exchange. For each non-money market fund, we calculate each Fund's NAV once
each Business Day at the regularly-scheduled close of normal trading on the
New York Stock Exchange. So, to receive the current Business Day's NAV for
all Funds (except the Money Market Funds), generally we must receive your
purchase order from your financial institution before 4:00 p.m. Eastern time.
For the Tax-Free Money Market Fund, your purchase order will be effective,
and you will begin earning dividends, on the Business Day we receive it if:
- - we receive your order before 12:00 noon Eastern time; and
- - we receive federal funds (readily available) before we calculate NAV.
For the U.S. Treasury Money Market Fund, your purchase order will be
effective, and you will begin earning dividends, on the Business day we
receive it if:
- - we receive your order before 1:00 p.m. Eastern time; and
- - we receive federal funds (readily available) before we calculate NAV.
Otherwise, your purchase order will be effective the following Business Day, as
long as we receive federal funds before we calculate NAV on that following day.
SIMPLY SPEAKING . . .
FOR CUSTOMERS OF OTHER FINANCIAL INSTITUTIONS
You may have to transmit your purchase and sale requests to your financial
institution at an earlier time for your transaction to become effective that
day. This allows the financial institution time to process your request and
transmit it to us. For more information about how to purchase or sell Fund
shares through your financial institution, you should contact your financial
institution directly.
<PAGE>
PROSPECTUS 29
PURCHASING, SELLING AND EXCHANGING FUND SHARES
HOW WE CALCULATE NAV
In calculating NAV for all Funds, except for the Money Market Funds, we
generally value a Fund's portfolio at market price. In calculating NAV for
the Money Market Funds, we generally value the Fund's portfolio using the
amortized cost valuation method, which is described in detail in our
Statement of Additional Information. If market prices are unavailable, or we
think that the market prices or the amortized cost valuation method are
unreliable, fair value prices may be determined in good faith using methods
approved by the Board of Trustees. We expect the NAV of the Money Market
Funds to remain constant at $1.00 per share, although we cannot guarantee
this.
SIMPLY SPEAKING . . .
NET ASSET VALUE
NAV for one Fund share is the value of that share's portion of all of the
assets in the Fund.
SELLING FUND SHARES
HOW TO SELL YOUR FUND SHARES
You may sell (sometimes called "redeem") your shares on any Business Day by
contacting your financial institution. Your financial institution will give
you information about how to sell your shares. The sale price of each share
will be the next NAV determined after we receive your request from your
financial institution.
SIMPLY SPEAKING . . .
TELEPHONE TRANSACTIONS
Purchasing and selling Fund shares over the telephone is extremely convenient,
but not without risk. Although we have certain safeguards and procedures to
confirm the identity of callers and the authenticity of instructions, we are
not responsible for any losses or costs incurred by following telephone
instructions we reasonably believe to be genuine. If you or your financial
institution transact with us over the telephone, you will generally bear the
risk of any loss.
REDEMPTIONS IN KIND
We generally pay sale (redemption) proceeds in cash. However, under unusual
conditions that make the payment of cash unwise (and for the protection of the
Fund's remaining shareholders) we might pay all or part of your redemption
proceeds in liquid securities with a market value equal to the redemption price
(redemption in kind). Although it is highly unlikely that your shares would ever
be redeemed in kind, you would probably have to pay brokerage costs to sell the
securities distributed to you, as well as taxes on any capital gains from the
sale as with any redemption.
SUSPENSION OF YOUR RIGHT TO SELL YOUR SHARES
We may suspend your right to sell your shares if the NYSE restricts trading, the
SEC declares an emergency or for other reasons. More information about this is
in our Statement of Additional Information.
<PAGE>
32 PROSPECTUS
OTHER INFORMATION
DIVIDENDS AND DISTRIBUTIONS
Each Fund declares income dividends daily and pays these dividends monthly. The
Funds make distributions of capital gains, if any, at least annually.
You will receive dividends and distributions in the form of additional Fund
shares unless you elect to receive payment in cash. To elect cash payment, you
must notify us in writing prior to the date of the distribution. Your election
will be effective for dividends and distributions paid after we receive your
written notice. To cancel your election, simply send us written notice.
SIMPLY SPEAKING . . .
THE "RECORD DATE"
If you own Fund shares on a Fund's record date, you will be entitled to
receive the distribution.
TAXES
PLEASE CONSULT YOUR TAX ADVISOR REGARDING YOUR SPECIFIC QUESTIONS ABOUT FEDERAL,
STATE AND LOCAL INCOME TAXES. Below we have summarized some important tax issues
that affect the Funds and their shareholders. This summary is based on current
tax laws, which may change.
Each Fund will distribute substantially all of its income and capital gains, if
any. The dividends and distributions you receive may be subject to federal,
state and local taxation, depending upon your tax situation. Capital gains
distributions may be taxable at different rates depending on the length of time
a Fund holds its portfolio securities. YOU MAY BE TAXED ON EACH SALE OF FUND
SHARES.
The Maryland Municipal Bond, Virginia Intermediate Municipal Bond, Virginia
Municipal Bond, and Tax-Free Money Market Funds intend to distribute
federally tax-exempt income. Each Fund may invest a portion of its assets in
securities that generate taxable income for federal or state income taxes.
Income exempt from federal tax may be subject to state and local taxes. Any
capital gains distributed by these Funds may be taxable.
[The Funds use a tax management technique known as "highest in, first out."
Using this technique, the portfolio holdings that have experienced the smallest
gain or largest loss are sold first in an effort to minimize capital gains and
enhance after-tax returns.]
MORE INFORMATION ABOUT TAXES IS IN OUR STATEMENT OF ADDITIONAL INFORMATION.
SIMPLY SPEAKING . . .
FUND DISTRIBUTIONS
Distributions you receive from a Fund may be taxable whether or not you
reinvest them.
<PAGE>
HOW TO OBTAIN MORE INFORMATION
INVESTMENT ADVISOR
Trusco Capital Management, Inc.
DISTRIBUTOR
SEI Investments Distribution Co.
LEGAL COUNSEL
Morgan, Lewis & Bockius LLP
More information about the Funds is available without charge through the
following:
STATEMENT OF ADDITIONAL INFORMATION (SAI)
More detailed information about the STI Classic Funds is included in our SAI.
The SAI has been filed with the SEC and is incorporated by reference into this
prospectus. This means that the SAI, for legal purposes, is a part of this
prospectus.
ANNUAL AND SEMIANNUAL REPORTS
These reports list the Funds' holdings and contain information from the Funds'
managers about fund strategies, and recent market conditions and trends.
TO OBTAIN MORE INFORMATION:
BY TELEPHONE:
Call 1-800-874-4770
BY MAIL:
Write to us c/o
SEI Investments Distribution Co.
Oaks, Pennsylvania 19456.
FROM THE SEC: You can also obtain these documents, and other information about
the STI Classic Funds, from the SEC's website
("http://www.sec.gov"). You may review and copy documents at the SEC Public
Reference Room in Washington, DC (for information call 1-800-SEC-0330). You may
request documents by mail from the SEC, upon payment of a duplicating fee, by
writing to: Securities and Exchange Commission, Public Reference Section,
Washington, DC 20549-6009. The Fund's Investment Company Act registration number
is 811-06557.
<PAGE>
NOTES
<PAGE>
NOTES
<PAGE>
STI CLASSIC FUNDS
INVESTMENT ADVISOR:
Trusco Capital Management, Inc.
This Statement of Additional Information is not a prospectus. It is intended to
provide additional information regarding the activities and operations of the
STI Classic Funds (the "Trust") and should be read in conjunction with the
Trust's prospectuses dated May , 1999. Prospectuses may be obtained through
the Distributor, SEI Investments Distribution Co., One Freedom Valley Road,
Oaks, Pennsylvania 19456.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
<S> <C>
THE TRUST. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-2
DESCRIPTION OF PERMITTED INVESTMENTS . . . . . . . . . . . . . . . . . . . . B-2
INVESTMENT LIMITATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . .B-21
INVESTMENT ADVISOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . .B-24
THE ADMINISTRATOR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .B-25
THE DISTRIBUTOR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .B-26
THE TRANSFER AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . .B-27
THE CUSTODIAN. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .B-28
INDEPENDENT PUBLIC ACCOUNTANTS . . . . . . . . . . . . . . . . . . . . . . .B-28
LEGAL COUNSEL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .B-28
TRUSTEES AND OFFICERS OF THE TRUST . . . . . . . . . . . . . . . . . . . . .B-28
PERFORMANCE INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . .B-31
COMPUTATION OF YIELD . . . . . . . . . . . . . . . . . . . . . . . . . . . .B-33
CALCULATION OF TOTAL RETURN. . . . . . . . . . . . . . . . . . . . . . . . .B-35
PURCHASING SHARES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .B-37
REDEEMING SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .B-37
DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . . . . . . . . . . . .B-38
TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .B-39
FUND TRANSACTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .B-43
TRADING PRACTICES AND BROKERAGE. . . . . . . . . . . . . . . . . . . . . . .B-43
DESCRIPTION OF SHARES. . . . . . . . . . . . . . . . . . . . . . . . . . . .B-45
SHAREHOLDER LIABILITY. . . . . . . . . . . . . . . . . . . . . . . . . . . .B-45
LIMITATION OF TRUSTEES' LIABILITY. . . . . . . . . . . . . . . . . . . . . .B-45
YEAR 2000. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .B-46
</TABLE>
May , 1999
<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 (through financial
institutions or intermediaries) Trust Shares of each Fund. Each Trust Share
of each Fund represents an equal proportionate interest in that portfolio.
See "Description of Shares." This Statement of Additional Information
relates to the STI Maryland Municipal Bond Fund, STI Virginia Intermediate
Municipal Bond Fund, STI Virginia Municipal Bond Fund, STI Tax-Free Money
Market Fund, STI U.S. Treasury Money Market Fund and STI Growth and Income
Fund. These various series are collectively referred to herein as the
"Funds."
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.
DESCRIPTION OF PERMITTED INVESTMENTS
AMERICAN DEPOSITARY RECEIPTS (ADRs), EUROPEAN DEPOSITARY RECEIPTS (EDRs) AND
GLOBAL DEPOSITORY RECEIPTS (GDRs)
ADRs, EDRs, and GDRs are securities, typically issued by a U.S. financial
institution or a non-U.S. financial institution in the case of an EDR or GDR (a
"depositary"). The institution has ownership interests in a security, or a pool
of securities, issued by a foreign issuer and deposited with the depositary.
ADRs, EDRs and GDRs 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. 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 backed by non-mortgage assets such as
company receivables, truck and auto loans, leases and credit card receivables.
Other asset-backed securities may be created in the future. These securities
may be traded over-the-counter and typically have a short-intermediate maturity
structure depending on the paydown characteristics of the underlying financial
assets which are passed through to the security holder.
B-2
<PAGE>
These securities are generally issued as pass-through certificates, which
represent undivided fractional ownership interests in the underlying pool of
assets. Asset-backed securities may also be debt obligations, which are 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
these assets and issuing debt obligations.
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.
BANK OBLIGATIONS
Bank obligations are short-term obligations issued by U.S. and foreign banks,
including bankers' acceptances, certificates of deposit, custodial receipts, and
time deposits. Eurodollar and Yankee Bank Obligations are U.S.
dollar-denominated certificates of deposit or time deposits issued outside the
U.S. by foreign branches of U.S. banks or by foreign banks.
COMMON AND PREFERRED STOCKS
Common and preferred stocks represent units of ownership in a corporation.
Owners of common stock typically are entitled to vote on important matters.
Owners of preferred stock ordinarily do not have voting rights, but are entitled
to dividends at a specified rate. Preferred stock has a prior claim to common
stockholders with respect to dividends.
CONVERTIBLE SECURITIES
Convertible securities are securities issued by corporations that are
exchangeable for a set number of another security at a prestated price. 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 option
provisions.
CUSTODIAL 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.
DEBT SECURITIES
B-3
<PAGE>
Debt securities represent money borrowed that obligates the issuer (E.G., a
corporation, municipality, government, government agency) to repay the borrowed
amount at maturity (when the obligation is due and payable) and usually to pay
the holder interest at specific times (E.G., bonds, notes, debentures).
DELAYED DELIVERY TRANSACTIONS
These transactions involve a commitment by a Fund to purchase or sell specific
securities at a predetermined price and/or yield, with payment and delivery
taking place after a period longer than the customary settlement period for that
type of security (and more than seven days in the future). Typically, no
interest accrues to the purchaser until the security is delivered. Each money
market and bond fund may receive fees for entering into delayed delivery
transactions.
When purchasing securities on a delayed delivery basis, a Fund assumes the
rights and risks of ownership, including the risk of price and yield
fluctuations. Because a Fund is not required to pay for securities until the
delivery date, these risks are in addition to the risks associated with the
Fund's other investments. If a Fund remains substantially fully invested at a
time when delayed delivery purchases are outstanding, the delayed delivery
purchases may result in a form of leverage. When delayed delivery purchases are
outstanding, a Fund will set aside cash or other appropriate liquid assets such
as U.S. Government securities, or other high grade debt securities in a
segregated custodial account to cover its purchase obligations. When a Fund has
sold a security on a delayed delivery basis, the Fund does not participate in
further gains or losses with respect to the security. If the other party to a
delayed delivery transaction fails to deliver or pay for the securities, the
Fund could miss a favorable price or yield opportunity, or could suffer a loss.
A Fund may renegotiate delayed delivery transactions after they are entered
into, and may sell underlying securities before they are delivered, which may
result in capital gains or losses.
DEMAND FEATURE
A put that entities the security holder to repayment of the principal amount of
the underlying security on no more than 30 days' notice at any time or at
specified intervals is a demand feature. With respect to the money market
funds, such intervals may not exceed 397 days. A standby commitment is a put
that entities the security holder to dame-day settlement at amortized cost plus
accrued interest.
DOLLAR ROLLS
Dollar rolls are transactions in which securities are sold for delivery in the
current month and the seller contracts to repurchase substantially similar
securities on a specified future date. Any difference between the sale price
and the purchase price (plus interest earned on the cash proceeds of the sale)
is applied against the past interest income on the securities sold to arrive at
an implied borrowing rate.
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.
B-4
<PAGE>
THE EURO
On January 1, 1999, the European Monetary Union (EMU) implemented a new currency
unit, the Euro, which is expected to reshape financial markets, banking systems
and monetary policies in Europe and other parts of the world. The countries
initially expected to convert or tie their currencies to the Euro include
Austria, Belgium, France, Germany, Luxembourg, the Netherlands, Ireland,
Finland, Italy, Portugal, and Spain. Implementation of this plan will mean that
financial transactions and market information, including share quotations and
company accounts, in participating countries will be denominated in Euros.
Approximately 46% of the stock exchange capitalization of the total European
market may be reflected in Euros, and participating governments will issue their
bonds in Euros. Monetary policy for participating countries will be uniformly
managed by a new central bank, the European Central Bank (ECB).
Although it is not possible to predict the impact of the Euro implementation
plan on the Funds, the transition to the Euro may change the economic
environment and behavior of investors, particularly in European markets. For
example, investors may begin to view those countries participating in the EMU as
a single entity, and the Advisors may need to adapt investment strategies
accordingly. The process of implementing the Euro also may adversely affect
financial markets worldwide and may result in changes in the relative strength
and value of the U.S. dollar or other major currencies, as well as possible
adverse tax consequences. The transition to the Euro is likely to have a
significant impact on fiscal and monetary policy in the participating countries
and may produce unpredictable effects on trade and commerce generally. These
resulting uncertainties could create increased volatility in financial markets
world-wide.
FEDERALLY TAXABLE OBLIGATIONS
The municipal bond funds do not intend to invest in securities whose interest is
taxable; however, from time to time each such Fund may invest a portion of its
assets in fixed-income obligations whose interest is subject to federal income
tax. For example, each such Fund may invest in obligations whose interest is
taxable pending the investment or reinvestment in municipal securities of
proceeds from the sale of its shares or sales of portfolio securities.
Should a municipal bond fund invest in taxable obligations, it would purchase
securities that in the Adviser's judgment are of high quality. These include
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities; obligations of domestic banks; and repurchase agreements.
The bond funds' standards for high quality taxable obligations are essentially
the same as those described by Moody's Investors Service, Inc. in rating
corporate obligations within its two highest ratings of Prime-1 and Prime-2, and
those described by Standard and Poor's Corporation in rating corporate
obligations within its two highest ratings of A-1 and A-2. Additionally, each
Fund will purchase such obligations only in accordance with the quality
standards as set forth in the Prospectus.
Proposals to restrict or eliminate the federal income tax exemption for interest
on municipal obligations are introduced before Congress from time to time.
Proposals may also be introduced before state legislatures that would affect the
state tax treatment of a Fund's distributions. If such proposals were enacted,
the availability of municipal obligations and the value of each Funds' holdings
would be affected and the Board of Directors would reevaluate the Funds'
objectives and policies.
Each municipal bond fund anticipates being as fully invested as practicable in
municipal securities; however, there may be occasions when as a result of
maturities of portfolio securities, or sales of Fund shares, or in order to meet
redemption requests, a Fund may hold cash that is not earning income. In
addition, there may be occasions when, in order to raise cash to meet
redemptions or to preserve credit quality, a Fund may be required to sell
securities at a loss.
B-5
<PAGE>
FOREIGN SECURITIES
Foreign securities 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, Europaper and Yankee Certificates
of Deposit, and investments in Canadian Commercial Paper and foreign securities.
These instruments have 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.
In making investment decisions for the Fund, the Advisor evaluates the risks
associated with investing Fund assets in a particular country, including risks
stemming from a country's financial infrastructure and settlement practices; the
likelihood of expropriation, nationalization or confiscation of invested assets;
prevailing or developing custodial practices in the country; the country's laws
and regulations regarding the safekeeping, maintenance and recovery of invested
assets, the likelihood of government-imposed exchange control restrictions which
could impair the liquidity of Fund assets maintained with custodians in that
country, as well as risks from political acts of foreign governments ("country
risks"). Of course, the Advisor cannot assure that the Fund will not suffer
losses resulting from investing in foreign countries.
Holding Fund assets in foreign countries through specific foreign custodians
presents additional risks, including but not limited to the risks that a
particular foreign custodian or depository will not exercise proper care with
respect to Fund assets or will not have the financial strength or adequate
practices and procedures to properly safeguard Fund assets.
By investing in foreign securities, the 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, International Equity, and Emerging Markets 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, International Equity, and Emerging Markets Equity
Funds seek increased diversification by combining securities from various
countries and geographic areas that offer different investment opportunities and
are affected by different economic trends. The international investments of the
International Equity Index, International Equity, and Emerging Markets 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.
Emerging countries are all countries that are considered to be developing or
emerging countries by the World Bank or the International Finance Corporation,
as well as countries classified by the United Nations or otherwise regarded by
the international financial community as developing. Currently, the countries
excluded from this category are Ireland, Spain, New Zealand, Australia, the
United Kingdom, Italy, the Netherlands, Belgium, Austria, France, Canada,
Germany, Denmark, the United States, Sweden, Finland, Norway, Japan, and
Switzerland.
B-6
<PAGE>
FORWARD FOREIGN CURRENCY CONTRACTS
Forward foreign currency contracts involve obligations 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 the foreign currency. A 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
purchase 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. They may also be used 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 and for
which there appears to be a liquid secondary market.
Index futures are futures contracts for various indices that are traded on
registered securities exchanges. An 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 index at the
close of the last trading day of the contract and the price at which the
agreement is made.
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 "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 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
B-7
<PAGE>
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.
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.
GOVERNMENT SECURITIES
Securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities am to as government securities. They may be backed by the
credit of the U.S. Government as a whole or only by the issuing agency. For
example, securities issued by the Federal Home Loan Banks and the Federal Home
Loan Mortgage Corporation are supported only by the credit of the issuing
agency, and not by the U.S. Government. Securities issued by the Federal Farm
Credit System, the Federal Land Banks and the Federal National Mortgage
Association are supported by the agency's right to borrow money from the U.S.
Treasury under certain circumstances. U.S. Treasury securities and some agency
securities, such as those issued by the Federal Housing Administration and the
Government National Mortgage Association, are backed by the full faith and
credit of the U.S. Government and are the highest quality government securities.
GICS
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.
HIGH YIELD SECURITIES
High yield securities, commonly referred to as junk bonds, are debt obligations
rated below investment grade, I.E., below BBB by Standard & Poor's Corporation
("S&P") or Baa by Moody's Investors Service, Inc. ("Moody's"), or their unrated
equivalents. The risks associated with investing in high yield securities
include:
B-8
<PAGE>
(1) High yield, lower rated 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.
(2) 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 these
securities at their fair market values either to meet redemption requests,
or in response to changes in the economy or the financial markets.
(3) 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.
(4) The market for high risk, high yield securities may be adversely
affected by legislative and regulatory developments.
HEDGING TECHNIQUES
Hedging in an investment strategy designed to offset investment risks. Hedging
activities include, among other things, the use of options and futures. There
are risks associated with hedging activities, including: (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 a Fund and the prices of futures and option on
futures; (3) there may not be a liquid secondary market for a futures contract
or option; and (4) trading restrictions or limitations may be imposed by an
exchange, and government regulations may restrict trading in futures contracts
and options.
INDEXED SECURITIES
A Fund may purchase securities whose prices are indexed to the prices of other
securities, securities indices, currencies, precious metals or other
commodities, or other financial indicators. Indexed securities typically, but
not always, are debt securities or deposits whose value at maturity or coupon
rate is determined by reference to a specific instrument or statistic.
Gold-indexed securities, for example, typically provide for a maturity value
that depends on the price of gold, resulting in a security whose price tends to
rise and fall together with gold prices.
The performance of indexed securities depends to a great extent on the
performance of the security or other instrument to which they are indexed, and
may also be influenced by interest rate changes. At the same time, indexed
securities are subject to the credit risks associated with the issuer of the
security, and their values may decline substantially if the issuer's
creditworthiness deteriorates. Recent issuers of indexed securities have
included banks, corporations, and certain U.S. Government agencies. Indexed
securities may be more volatile than the underlying instruments.
ILLIQUID SECURITIES
Illiquid securities are securities that cannot be disposed of within seven days
at approximately the price at which they are being carried on a Fund's books.
INVESTMENT COMPANY SHARES
The Funds may purchase shares of other mutual funds to the extent consistent
with applicable law. Investment companies typically incur fees that are
separate from those fees incurred directly by the Funds. A Fund's
B-9
<PAGE>
purchase of such investment company securities results in the layering of
expenses, such that you would indirectly bear a proportionate share of
investment company operating expenses, such as advisory fees.
INVESTMENT GRADE OBLIGATIONS
Investment grade obligations are debt obligations rated BBB by S&P or Baa by
Moody's, or their unrated equivalents. These securities are deemed to have
speculative characteristics.
LOAN PARTICIPATIONS
Loan participations are interest in loans to U.S. corporations which are
administered by the lending bank or agent for a syndicate of lending banks. In
a loan participation, the borrower corporation is 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 the
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 the 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.
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, adjustable rate mortgages, and floating
mortgages.
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"), Fannie Mae, and the Federal Home Loan Mortgage
Corporation ("FHLMC"). Fannie Mae and FHLMC obligations are not backed by the
full faith and credit of the U.S. Government as GNMA certificates are, but
Fannie Mae and FHLMC securities are supported by the instrumentalities' right to
borrow from the U.S. Treasury. GNMA, Fannie Mae, and FHLMC each guarantees
timely distributions of interest to certificate holders. GNMA and Fannie Mae
also guarantee timely distributions of scheduled principal. In the past, FHLMC
has only guaranteed 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.
Obligations of GNMA are backed by the full faith and credit of the United States
Government. Obligations of Fannie Mae and FHLMC are not backed by the full
faith and credit of the United States Government but are
B-10
<PAGE>
considered to 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.
PRIVATE PASS-THROUGH SECURITIES
Private pass-through securities are mortgage-backed securities issued by a
non-governmental agency, such as a trust. While they are generally structured
with one or more types of credit enhancement, private pass-through securities
generally lack a guarantee by an entity having the credit status of a
governmental agency or instrumentality. The two principal types of private
mortgage-backed securities are collateralized mortgage obligations ("CMOs") and
real estate mortgage investment conduits ("REMICs").
CMOS
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). CMOs are rated
in one of the two highest categories by S&P or Moody's. 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.
REMICS
REMICs 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 and are rated in one of the
two highest categories by S&P or Moody's.
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 Fannie Mae or
B-11
<PAGE>
FHLMC represent beneficial ownership interests in a REMIC trust consisting
principally of mortgage loans or Fannie Mae, FHLMC or GNMA-guaranteed mortgage
pass-through certificates. For FHLMC REMIC Certificates, FHLMC guarantees the
timely payment of interest. GNMA REMIC Certificates are backed by the full
faith and credit of the U.S. Government.
STRIPPED MORTGAGE-BACKED SECURITIES
Stripped mortgage-backed securities 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.
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.
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 (see "When-Issued Securities and
Municipal Forwards" for more information).
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
make take the form of a lease, an installment purchase contract, an conditional
sales contract, or a participation interest in any of the above.
MUNICIPAL SECURITIES
MUNICIPAL BONDS include general obligation bonds, revenue or special obligation
bonds, private activity and industrial development bonds and participation
interests in municipal bonds. 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 (for example, tolls from a bridge). Certificates of
participation represent an interest in an underlying
B-12
<PAGE>
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 totally dependent 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 the payment.
MUNICIPAL NOTES 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 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 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 issuance. Neither the Funds nor an Advisor
will review the proceedings relating to the issuance of municipal securities or
the basis for such opinions.
B-13
<PAGE>
OPTIONS
A 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.
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.
OTHER INVESTMENTS
The Funds are not prohibited from investing in bank obligations issued by
clients of SEI Investments Company ("SEI Investments"), the parent company of
the Administrator and the Distributor. The purchase of Fund shares by these
banks or their customers will not be a consideration in deciding which bank
obligations the Funds will purchase. The Funds will not purchase obligations
issued by the Advisors.
B-14
<PAGE>
PAY-IN-KIND SECURITIES
Pay-In-Kind securities are debt obligations or preferred stock, that pay
interest or dividends in the form of additional debt obligations or preferred
stock.
REFUNDING CONTRACTS
A Fund may purchase securities on a when-issued basis in connection with the
refinancing of an issuer's outstanding indebtedness. Refunding contracts
require the issuer to sell and the Fund to buy refunded municipal obligations at
a stated price and yield on a settlement date that may be several months or
several years in the future. A Fund generally will not be obligated to pay the
full purchase price if it fails to perform under a refunding contract. Instead,
refunding contracts generally provide for payment of liquidated damages to the
issuer (currently 15-20% of the purchase price). A Fund may secure its
obligations under a refunding contract by depositing collateral or a letter of
credit equal to the liquidated damages provisions of the refunding contract.
When required by SEC guidelines, a Fund will place liquid assets such as cash,
U.S. Government securities, or other high grade debt securities in a segregated
custodial account equal in amount to its obligations under refunding contracts.
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.
RESOURCE RECOVERY BONDS
The municipal bond funds may purchase resource recovery bonds, which are a type
of revenue bond issued to build facilities such as solid waste incinerators or
waste-to-energy plaints. Typically, a private corporation will be involved, at
least during the construction phase, and the revenue stream will be secured by
fees or rents paid by municipalities for use of the facilities. The viability
of a resource recovery project, environmental protection regulations, and
project operator tax incentives may affect the value and credit quality of
resource recovery bonds. Refunding Contracts. The municipal bond funds may
invest in refunding contracts which require the issuer to sell and a Fund to buy
refunded municipal
B-15
<PAGE>
obligations at a stated price and yield on a settlement date that may be several
months or several years in the future.
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") or an exemption
from registration. Permitted investments for the Funds include restricted
securities, and each such Fund may invest up to 15% of its net assets (10% for
the Money Market Funds) 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.
REVERSE REPURCHASE AGREEMENTS
In a reverse repurchase agreement a Fund sells a portfolio instrument to another
party, such as a bank or broker-dealer, in return for cash and agrees to
repurchase the instrument at a particular price and time. While a reverse
repurchase agreement is outstanding, a Fund will maintain appropriate liquid
assets in a segregated custodial account to cover its obligation under the
agreement. A Fund will enter into reverse repurchase agreements only with
parties whose creditworthiness has been found satisfactory by the Adviser. Such
transactions may increase fluctuations in the market value of a Fund's assets
and may be viewed as a form of leverage.
SECURITIES LENDING
The STI Growth and Income 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.
SHORT-TERM OBLIGATIONS
Short-term obligations are debt obligations maturing (becoming payable) in 397
days or less, including commercial paper and short-term corporate obligations.
Short-term corporate obligations are short-term obligations issued by
corporations.
B-16
<PAGE>
STANDBY COMMITMENTS AND PUTS
The 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 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.
STRIPS
Separately Traded Interest and Principal Securities ("STRIPS") 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.
B-17
<PAGE>
SUPRANATIONAL AGENCY OBLIGATIONS
Supranational agency obligations are obligations of supranational entities
established through the joint participation of several governments, including
the Asian Development Bank, Inter-American Development Bank, International Bank
for Reconstruction and Development (also known as the "World Bank"), African
Development Bank, European Economic Community, European Investment Bank, and the
Nordic Investment Bank.
SWAPS, CAPS, FLOORS, COLLARS
Swaps, caps, floors and collars are hedging tools designed to permit the
purchaser to preserve a return or spread on a particular investment or portion
of its portfolio. They are also used 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." This is done 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. This is 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. Meanwhile, 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 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.
TAX AND REVENUE ANTICIPATION NOTE
Tax and revenue anticipation notes are issued by municipalities in expectation
of future tax or other revenues, and are payable from those specific taxes or
revenues. Bond anticipation notes normally provide interim financing in advance
of an issue of bonds or notes, the proceeds of which are used to repay the
anticipation notes. Tax-exempt commercial paper is issued by municipalities to
help finance short-term capital or operating needs.
TENDER OPTION BONDS
are created by coupling an intermediate or long-term tax-exempt bond (generally
held pursuant to a custodial agreement) with a tender agreement that gives the
holder the option to tender the bond at its face value. As consideration for
providing the tender option, the sponsor (usually a bank, broker-dealer, or
other financial institution) receives periodic fees equal to the difference
between the bond's fixed coupon rate and the rate (determined by a remarketing
or similar agent) that would cause the bond, coupled with the tender option, to
trade at par on the date of such determination. After payment of the tender
option fee, a Fund effectively holds a demand obligation that bears interest at
the prevailing short-term tax-exempt rate. Subject to applicable regulatory
requirements, the money market funds may buy tender
B-18
<PAGE>
option bonds if the agreement gives the Fund the right to tender the bond to its
sponsor no less frequently than once every 397 days. In selecting tender option
bonds for the Funds, the Adviser will, pursuant to procedures established by the
Board of Directors, consider the creditworthiness of the issuer of the
underlying bond, the custodian, and the third party provider of the tender
option. In certain instances, a sponsor may terminate a tender option if, for
example, the issuer of the underlying bond defaults on interest payments.
TIME DEPOSITS
Time deposits are non-negotiable deposits in a banking institution earning a
specified interest rate over a given period of time. Time deposits with a
maturity of seven business days or more are considered illiquid.
U.S. GOVERNMENT AGENCY OBLIGATIONS
U.S. Government agency obligations are obligations issued or guaranteed by
agencies or instrumentalities of the U.S. Government. 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, Fannie Mae 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, 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. 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.
U.S. TREASURY OBLIGATIONS
U.S. Treasury obligations consist of bills, notes and bonds issued by the U.S.
Treasury. They also consist of separately traded interest and principal
component parts of these obligations that are transferable through the Federal
book-entry system known as Separately Traded Registered Interest and Principal
Securities (STRIPS).
VARIABLE AND FLOATING RATE SECURITIES
Variable and floating rate instruments involve certain obligations that 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 set 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.
VARIABLE RATE MASTER DEMAND NOTES
Variable rate master demand 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
B-19
<PAGE>
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. Variable rate master
demand notes may or may not be backed by bank letters of credit.
WARRANTS
Warrants give holders the right, but not the obligation, to buy shares of a
company at a given price, usually higher than the market price, during a
specified period.
WHEN-ISSUED SECURITIES AND MUNICIPAL FORWARDS
When-issued securities are securities that are delivered and paid for normally
within 45 days after the date of commitment to purchase. Municipal forwards
call for delivery of the underlying municipal security normally after 45 days
but before one year after the commitment date.
Although a Fund will only make commitments to purchase when-issued securities
and municipal forwards with the intention of actually acquiring the securities,
a Fund 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.
ZERO COUPON OBLIGATIONS
Zero coupon obligations are debt obligations that do not bear any interest, but
instead are issued at a deep discount from face value or par. The value of a
zero coupon obligation increases over time to reflect the interest accumulated.
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
face value or par and pay interest periodically.
Investors will receive written notification at least thirty days prior to any
change in a Fund's investment objective. The phrase "principally invests" as
used in the prospectus means that the Fund invests at least 65% of its assets in
the securities as described in the sentence. Each tax-exempt fund invests at
least 80% of its total assets in securities with income exempt from federal
income and alternative minimum taxes.
B-20
<PAGE>
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. 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.
A 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 including 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. 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.
3. 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 STI Growth and Income Fund
may engage in securities lending as permitted by applicable law.
4. 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.
5. 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. However, subject to their permitted investment
spectrum, any Fund may invest in companies which invest in real estate,
commodities or commodities contracts.
B-21
<PAGE>
6. 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.
7. 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
and, with respect to only Tax-Free Money Market Fund, U.S. Treasury
Money Market Fund, Maryland Municipal Bond Fund, Virginia Intermediate
Municipal Bond Fund and Virginia Municipal Bond Fund, tax-exempt securities
issued by governments or political subdivisions of governments. For
purposes of this limitation, (i) utility companies will be divided to
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.
NON-FUNDAMENTAL POLICIES
No Fund may purchase or hold illiquid securities (i.e., securities that cannot
be disposed of for their approximate carrying value in seven days or less (which
term includes repurchase agreements and time deposits maturing in more than
seven days) if, in the aggregate, more than 15% of its net assets (10% for the
1. No Fund may 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.
2. No Fund may act as an underwriter of securities of other issuers except
as it may be deemed an underwriter in selling a security.
3. No Fund may purchase securities of other investment companies as
permitted by the Investment Company Act of 1940 (the "1940 Act") and
the rules and regulations thereunder.
B-22
<PAGE>
STI Tax-Free Money Market Fund) would be invested in illiquid securities.
Each Fund does not currently intend to purchase or sell futures contracts or put
or call options. This limitation does not apply to options attached to, or
acquired or traded together with, their underlying securities, and does not
apply to securities that incorporate features similar to options or futures
contracts.
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.
B-23
<PAGE>
INVESTMENT ADVISOR
The Trust and Trusco Capital Management, Inc. (the "Advisor") have entered
into an advisory agreement (the "Advisory Agreement"). The Advisor is an
indirect wholly-owned subsidiary of SunTrust Banks, Inc. ("SunTrust").
SunTrust is a southeastern regional bank holding company with assets of $ __
billion as of x/xx/xx. The Advisory Agreement provides that the 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.
The 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 the 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. The 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 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.
B-24
<PAGE>
The Advisor has agreed to waive its fees or reimburse expenses in order to
limit Fund expenses.
BANKING LAWS
Current interpretations of federal banking laws and regulations:
- - prohibit SunTrust and the Advisor from sponsoring, organizing,
controlling, or distributing the Funds' shares; but
- - do not prohibit SunTrust or the Advisor generally from acting as an
investment advisor, transfer agent, or custodian to the Funds or from
purchasing Fund shares as agent for and upon the order of a customer.
The Advisor believe that they may perform advisory and related services for the
Trust without violating applicable banking laws or regulations. However, the
legal requirements and interpretations about the permissible activities of banks
and their affiliates may change in the future. These changes could prevent the
Advisors from continuing to perform services for the Trust. If this happens,
the Board of Trustees would consider selecting other qualified firms.
Shareholders would approve any new investment advisory agreements would be
subject to Shareholder approval.
If current restrictions on bank activities with mutual funds were relaxed, the
Advisor, or their affiliates, would consider performing additional services for
the Trust. We cannot predict whether these changes will be enacted. We also
cannot predict the terms that the Advisor, or their affiliates, might offer to
provide additional services.
THE ADMINISTRATOR
The Trust and SEI Investments Mutual Funds Services (the "Administrator") are
parties to the Administration Agreement. 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 Oaks, Pennsylvania 19456. SEI Investments Management Corporation
("SIMC"), a wholly-owned subsidiary of SEI Investments Company ("SEI
Investments"), is the owner of all beneficial interest in the Administrator.
SEI Investments and its subsidiaries and affiliates, including 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 or sub-administrator to the
following other mutual funds: The Achievement Funds Trust, The Advisors'
Inner Circle Fund, The Arbor Fund, ARK Funds, Armada Funds, Bishop Street
Funds, Boston 1784 Funds-Registered Trademark-, CUFUND, The Expedition Funds,
First American Funds, Inc., First American Investment Funds, Inc., First
American Strategy Funds, Inc., HighMark Funds, Monitor Funds, The Nevis Fund,
Inc., Oak Associates Funds, The PBHG Funds, Inc., PBHG Advisor Funds, Inc.,
PBHG Insurance Series Fund, Inc., The Pillar Funds, SEI Asset Allocation
Trust, SEI Daily Income Trust, SEI Index Funds, SEI Institutional
International Trust, SEI Institutional International Investments Trust, SEI
Institutional Managed Trust, SEI Liquid Asset Trust, SEI Tax Exempt Trust,
STI Classic Variable Trust, TIP Funds and Alpha Select Funds.
B-25
<PAGE>
For its administrative services, the Administrator is entitled to a fee, which
is calculated daily and paid monthly, at an annual rate of: [.12% of the first
$1 billion of average aggregate net assets, .09% on the next $4 billion of
average aggregate net assets, .07% of the next $3 billion of average aggregate
net assets, .065% of the next $2 billion of average aggregate net assets, and
.06% thereafter.]
THE DISTRIBUTOR
SEI Investments Distribution Co. (the "Distributor"), a wholly-owned subsidiary
of SEI, and the Trust have entered into a distribution agreement (the
"Distribution Agreement") dated May 29, 1992. Under the Distribution Agreement,
the Distributor must use all reasonable efforts, consistent with its other
business, in connection with the continuous offering of Shares of the Trust.
The Distributor will receive no compensation for distribution of Trust Shares.
B-26
<PAGE>
THE TRANSFER AGENT
Federated Services Company, Federated Investors Tower, Pittsburgh, PA
15222-3779 serves as the Trust's transfer agent.
B-27
<PAGE>
THE CUSTODIAN
SunTrust Bank, Atlanta, 303 Peachtree Street N.E., 14th Floor, Atlanta, GA
30308 serves as the custodian for all of the Funds.
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen, LLP serves as independent public accountants for the Trust.
LEGAL COUNSEL
Morgan, Lewis & Bockius LLP serves as legal counsel to the Trust.
TRUSTEES AND OFFICERS OF THE TRUST
The Trustees supervise the management and affairs of the Trust. The Trustees
have approved contracts with certain companies that provide the Trust with
essential management services. The Trustees and Executive Officers of the
Trust, their respective dates of birth, and their principal occupations for the
last five years are set forth below. Each may have held other positions with
the named companies during that period. The business address of each Trustee
and each Executive Officer is SEI Investments Company, Oaks, Pennsylvania 19456.
Certain officers of the Trust also serve as officers of some or all of the
following: The Achievement Funds Trust, The Advisors' Inner Circle Fund, The
Arbor Fund, ARK Funds, Armada Funds, Bishop Street Funds, Boston
1784 Funds-Registered Trademark-, CrestFunds, Inc., CUFUND, The Expedition
Funds, First American Funds, Inc., First American Investment Funds, Inc., First
American Strategy Funds, Inc., HighMark Funds, Monitor Funds, Oak Associates
Funds, The Parkstone Group of Funds, The PBHG Funds, Inc., PBHG Advisor Funds,
Inc., PBHG Insurance Series Fund, Inc., The Pillar Funds, SEI Asset Allocation
Trust, SEI Daily Income Trust, SEI Index Funds, SEI Institutional International
Trust, SEI Institutional Investments Trust, SEI Institutional Managed Trust, SEI
Liquid Asset Trust, SEI Tax Exempt Trust, STI Classic Variable Trust, TIP Funds
and Alpha Select Funds, each of which is an open-end management investment
company managed by SEI Investments Fund Management or its affiliates and, except
for PBHG Advisor Funds, Inc., are distributed by SEI Investments Distribution
Co.
DANIEL S. GOODRUM (7/11/26) - Trustee* - 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* - 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.
CHAMPNEY A. MCNAIR (10/30/24) - Trustee* - Director and Chairman of Investment
Committee and member of Executive Committee, Cotton States Life and Health
Insurance Company; Director and Chairman of
B-28
<PAGE>
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 - Retired. President, Orange County
Publishing Co., Inc., 1981-1997, publisher of the Paoli News and the Paoli
Republican and Editor of the Paoli Republican, 1981-1997, President, H & W
Distribution, Inc., 1984-1997. 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 - 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 - Director, Stavros Center for
Economic Education, Florida State University, 1991-present. 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* - Executive Vice President, SunTrust Banks,
Inc., 1985-1994; Director of Crawford & Company since 1979; Member, Atlanta
Estate Planning Council, 1988-1993.
JONATHAN T. WALTON (3/28/30) - Trustee - Retired. Executive Vice President, NBD
Bank, N.A. and NBD Bancorp, October 1956 to March 1995. Trustee, W.K. Kellogg
Trust.
WILLIAM H. CAMMACK (11/24/29) - Trustee* - Chairman & Director, SunTrust
Equitable Securities Corporation, January, 1998-present. Chairman and CEO,
Equitable Asset Management, Inc., December 1993-present. Chairman & CEO,
Equitable Trust Company, June 1991-present. Chairman, Equitable Securities
Corporation, July 1972 - January 1998.
MARK NAGLE (10/20/59) - President and Chief Executive Officer - Vice President
and Controller, Funds Accounting since 1996. Vice President of the Administrator
and Distributor since 1996. Vice President of Fund Accounting - BISYS Fund
Services 1995-1996. Senior Vice President - Fidelity Investments 1981-1995.
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.
LYDIA A. GAVALIS (6/5/64) - Vice President and Assistant Secretary - Vice
President and Assistant Secretary of the Administrator and the Distributor since
1998. Assistant General Counsel and Director of Arbitration, Philadelphia Stock
Exchange, 1989-1998.
KATHY HEILIG (12/21/58) - Vice President and Assistant Secretary - Treasurer of
SEI Investments Company since 1997. Assistant Controller of SEI Investments
Company since 1995. Vice President of SEI Investments Company since 1991.
Director of Taxes of SEI Investments Company, 1987-1991.
B-29
<PAGE>
JOSEPH M. O'DONNELL (11/13/54) - Vice President and Assistant Secretary - Vice
President and Assistant Secretary of the Administrator and the Distributor since
1998. Vice President and General Counsel, FPS Services, Inc., 1993-1997.
SANDRA K. ORLOW (10/18/53) - Vice President, Assistant Secretary - Vice
President and Assistant Secretary of the Administrator and Distributor since
1983.
LYNDA J. STRIEGEL (10/30/48) - Vice President and Assistant Secretary - Vice
President and Assistant Secretary of the Administrator and the Distributor since
1998. Senior Asset Management Counsel, Barnett Banks, Inc., 1997-1998.
Partner, Groom and Nordberg, Chartered, 1996-1997. Associate General Counsel,
Riggs Bank, N.A., 1991-1995.
KEVIN P. ROBINS (4/15/61) - Vice President, Assistant Secretary - Senior Vice
President & General Counsel of SEI Investments, the Administrator and the
Distributor since 1994. Vice President of SEI, the Administrator and the
Distributor, 1992-1994.
KATHRYN L. STANTON (11/19/58) - Vice President, Assistant Secretary - Vice
President, Assistant Secretary of SEI Investments, the Administrator and
Distributor since 1994. Associate, Morgan, Lewis & Bockius LLP (law firm),
1989-1994.
CAROL ROONEY (5/8/64) - Controller, Chief Financial Officer - A Director of SEI
Investments Mutual Funds Services since 1992.
RICHARD W. GRANT (10/25/45) - Secretary - 1701 Market Street, Philadelphia,
Pennsylvania 19103. Partner, Morgan, Lewis & Bockius LLP (law firm), counsel
to the Trust, Administrator and Distributor, since 1989.
JOHN H. GRADY, JR. (6/1/61) - Assistant Secretary - 1701 Market Street,
Philadelphia, Pennsylvania 19103. Partner, Morgan, Lewis & Bockius LLP (law
firm) since 1995, counsel to the Trust, Administrator and Distributor.
Associate, Morgan, Lewis & Bockius LLP, 1993-1995.
- --------------------
* Messrs. Looney, Goodrum, McNair, Hall and Cammack may be deemed to be
"interested persons" 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 x/xx/xx, the Trust paid the following amounts to
Trustees and Officers of the Trust:
B-30
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
ESTIMATED
PENSION OR ANNUAL TOTAL COMPENSATION
AGGREGATE RETIREMENT BENEFITS FROM FUND AND FUND
COMPENSATION BENEFITS UPON COMPLEX PAID TO
NAME OF PERSON, POSITION FROM FUND ACCRUED AS PART RETIREMENT TRUSTEES
OF FUND
EXPENSES
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Daniel S. Goodrum, Trustee $ N/A N/A $ for service on two
boards
- -----------------------------------------------------------------------------------------------------------------------------------
Wilton Looney, Trustee $ N/A N/A $ for service on two
boards
- -----------------------------------------------------------------------------------------------------------------------------------
Champney A. McNair, Trustee $ N/A N/A $ for service on two
boards
- -----------------------------------------------------------------------------------------------------------------------------------
F. Wendell Gooch, Trustee $ N/A N/A $ for service on two
boards
- -----------------------------------------------------------------------------------------------------------------------------------
T. Gordy Germany, Trustee $ N/A N/A $ for service on two
boards
- -----------------------------------------------------------------------------------------------------------------------------------
Dr. Bernard F. Sliger, Trustee $ N/A N/A $ for service on two
boards
- -----------------------------------------------------------------------------------------------------------------------------------
Jesse S. Hall, Trustee $ N/A N/A $ for service on two
boards
- -----------------------------------------------------------------------------------------------------------------------------------
Jonathan T. Walton, Trustee* $ N/A N/A $ for service on two
boards
- -----------------------------------------------------------------------------------------------------------------------------------
William H. Cammack, Trustee N/A N/A N/A $ 0 for service on two
boards
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Messr. Walton's compensation reflects a starting date of June 19, 1998.
PERFORMANCE INFORMATION
From time to time a Fund may advertise its performance. Performance figures are
based on historical earnings and are not intended to indicate future
performance.
CLASSES OF SHARES AND PERFORMANCE
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 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.
B-31
<PAGE>
PERFORMANCE COMPARISONS
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. These comparisons may assume reinvestment of dividends
but generally do not reflect deductions for administrative and management costs.
B-32
<PAGE>
COMPUTATION OF YIELD
SEVEN-DAY YIELD
The current yield of the STI Tax-Free Money Market Fund will be calculated
daily based upon the seven days ending on the date of calculation (the "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 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 Fund 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) TO THE POWER OF 365/7] - 1. The current
and the effective yields reflect the reinvestment of net income earned daily
on portfolio assets.
The STI Tax-Free Money Market Fund's "tax equivalent yield" and "tax equivalent
effective yield" are calculated by determining the rate of return that would
have to be achieved on a fully taxable 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 E
equals the 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 = the portion of the yield which is tax-exempt
P = stated income tax rate
T = the portion of the yield which is taxable
B-33
<PAGE>
The yields of this Fund 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 the Fund invests
in, changes in interest rates on money market instruments, changes in the
expenses of the Fund and other factors.
THIRTY-DAY YIELD
The 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) TO THE POWER OF 6 - 1) where a = dividends and
interest earned during the period; b = expenses accrued for the period (net
of reimbursement); c = the average 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.
B-34
<PAGE>
The Tax-Exempt Bond Funds "tax equivalent yield" and "tax equivalent effective
yield" are calculated by determining the rate of return that would have to be
achieved on a fully taxable 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 E equals the
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 = the portion of the yield which is tax-exempt
P = stated income tax rate
T = the portion of the yield which is taxable
Tax equivalent yields assume the payment of federal income taxes at a rate of
39.6% and, for the Maryland Municipal Bond Fund, Maryland income taxes at a
rate of 7.92% and for the STI Virginia Municipal Bond Fund, and STI Virginia
Intermediate Municipal Bond Fund, Virginia income taxes at a rate of 5.75%.
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.
CALCULATION OF TOTAL RETURN
From time to time, the Bond and Equity Funds may advertise total return. In
particular, total return will be calculated according to the following
formula: P (1 + T) TO THE POWER OF 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
B-35
<PAGE>
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 Investment's database includes research data on over 1,000
investment managers responsible for over $450 billion in assets.
B-36
<PAGE>
PURCHASING 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: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.
REDEEMING SHARES
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.
A number of Fund shareholders are institutions with significant share holdings
that may be redeemed at any time. If a substantial number or amount of
redemptions should occur within a relatively short period of time, a Fund may
have to sell portfolio securities it would otherwise hold and incur the
additional transaction costs. The sale of portfolio securities may result in
the recognition of capital gains, which will be distributed annually and
generally will be taxable to shareholders as ordinary income or capital gains.
Shareholders are notified annually regarding the federal tax status of
distributions they receive (see "Taxes").
B-37
<PAGE>
DETERMINATION OF NET ASSET VALUE
The net asset value per share of the Money Market Funds are 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. 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 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 of the Bond and Equity Funds may differ because of
variations in the distribution and service fees and transfer agent fees charged
to Investor Shares.
B-38
<PAGE>
TAXES
The following is a summary of certain Federal income tax considerations
generally affecting the Funds and their shareholders that are not described in
the Funds' prospectus. No attempt is made to present a detailed explanation of
the Federal tax treatment of the funds or their Shareholders, and the discussion
here and in the Funds' prospectus is not intended as a substitute for careful
tax planning.
This discussion of Federal income tax consequences is based on the Internal
Revenue Code of 1986, as amended (the "Code"), and the regulations issued
thereunder, in effect on the date of this Statement of Additional Information.
New legislation, as well as administrative changes or court decisions, may
change the conclusions expressed herein, and may have a retroactive effect with
respect to the transactions contemplated herein.
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
investment 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 securities loans, and gains from the sale or other
disposition of stock or securities, or certain other income; (ii) 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 of 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 (iii) 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.
In addition, each Fund will 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. 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.
If, at the close of each quarter of its taxable year, at least 50% of the value
of a Fund's total assets consists of obligations the interest on which is
excludable from gross income, a Fund may pay "exempt-interest dividends," as
defined in Section 852(b)(5) of the Code, to its shareholders.
As noted in the Prospectus, 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 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 Alternative Minimum 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
B-39
<PAGE>
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.
Distributions of exempt-interest dividends may result in additional Federal
income tax consequences to shareholders in Tax-Exempt Funds. For example,
interest on indebtedness incurred by Shareholders to purchase or carry shares of
a Tax-Exempt 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% 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-exempt 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 in a trade or business a facility financed
from the proceeds of industrial development bonds or private activity bonds.
Such entities or persons should consult their tax advisors before purchasing
shares of a Tax-Exempt Fund.
Issuers of bonds purchased by a tax-exempt 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 of issuance of the bonds to
which such dividends are attributable 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.
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
long-term capital gain or loss if the shares have been held for more than one
year and short-term if for a year or less. Any loss realized on a sale or
exchange will be disallowed to the extent the shares disposed of are replaced
within the 61-day period beginning 30 days before and ending 30 days after
the shares are disposed of. Any loss realized by a shareholder on the
disposition of shares held 6 months or less is treated as a long-term
capital loss to the extent of any distributions of net long-term capital
gains received by the shareholder with respect to such shares or any
inclusion of undistributed capital gain with respect to such shares.
The Funds will make annual reports to Shareholders of the Federal income tax
status of all distributions.
B-40
<PAGE>
STATE AND LOCAL TAXES
In addition to federal taxes, shareholders may be subject to state or local
taxes on their investment, depending on state law.
STATE OF MARYLAND. To the extent the Maryland Municipal Bond Fund qualifies as
a regulated investment company under the Code, it will be subject to tax only on
(1) that portion of its income on which tax is imposed for federal income tax
purposes under Section 852(b)(1) of the Code and (2) that portion of its income
which consists of federally tax exempt interest on obligations other than
Maryland Exempt Obligations (hereinafter defined) to the extent such interest is
not paid to Maryland Municipal Bond Fund shareholders in the form of
exempt-interest dividends. To the extent dividends paid by the Maryland
Municipal Bond Fund represent interest excludable from gross income for federal
income tax purposes, that portion of exempt-interest dividends that represents
interest received by the Maryland Municipal Bond Fund on obligations issued by
the State of Maryland, its political subdivisions, Puerto Rico, the U.S. Virgin
Islands, or Guam and their respective authorities or municipalities ("Maryland
Exempt Obligations"), will be exempt from Maryland state and local income taxes
when allocated or distributed to a shareholder of the Maryland Municipal Bond
Fund except in the case of a shareholder that is a financial institution.
Except as noted below, all other dividend distributions will be subject to
Maryland state and local income taxes.
Capital gains distributed by the Maryland Municipal Bond Fund to a shareholder
or any gains realized by a shareholder from a redemption or sale of shares must
be recognized for Maryland state and local income tax purposes to the extent
recognized for federal income tax purposes. However, capital gains
distributions included in the gross income of shareholders for federal income
tax purposes are subtracted from capital gains income for Maryland income tax
purposes to the extent such distributions are derived from the disposition by
the Maryland Municipal Bond Fund of debt obligations issued by the State of
Maryland, its political subdivisions and authorities.
Except in the case of a shareholder that is a financial institution, dividends
received by a shareholder from the Maryland Municipal Bond Fund that are derived
from interest on U.S. Government obligations will be exempt from Maryland state
and local income taxes.
In the case of individuals, Maryland presently imposes an income tax on certain
items of tax preference with reference to such items as defined in the Code for
purposes of calculating the federal alternative minimum tax. Interest paid on
certain private activity bonds ("AMT Bonds") is a preference item for purposes
of calculating the federal alternative minimum tax. Accordingly, if the
Maryland Municipal Bond Fund holds AMT Bonds of an issuer other than the State
of Maryland or one of its political subdivisions, agencies or authorities
("Non-Maryland AMT Bonds"), the excess of 50% of that portion of exempt interest
dividends which is attributable to interest on Non-Maryland AMT Bonds over a
threshold amount is subject to Maryland income tax. Interest on indebtedness
incurred or continued (directly or indirectly) by a shareholder in order to
purchase or carry shares of the Maryland Municipal Bond Fund will not be
deductible for Maryland state and local income tax purposes. Individuals will
not be subject to personal property tax on their shares of the Maryland
Municipal Bond Fund. Shares of the Maryland Municipal Bond Fund held by a
Maryland resident at death may be subject to Maryland inheritance and estate
taxes.
COMMONWEALTH OF VIRGINIA. Under existing Virginia law, distributions from
Virginia Intermediate Municipal Bond Fund and Virginia Municipal Bond Fund will
not be subject to Virginia individual, trust, estate, or corporate income
taxation to the extent that such distributions are either (i) excludable from
federal gross income and attributable to interest on obligations of Virginia,
its political subdivisions, or its
B-41
<PAGE>
instrumentalities, or Puerto Rico, United States Virgin Islands, or Guam or (ii)
attributable to interest on direct obligations of the United States. These
Virginia income tax exemptions will be available only if a Fund (i) qualifies as
a separate "regulated investment company" under the Internal Revenue Code and
(ii) complies with the requirement of the Internal Revenue Code that at least
50% of the value of its assets at the close of each quarter of its taxable year
is invested in state, municipal, or other obligations described in Section
103(a) of the Internal Revenue Code. These Funds intend to comply with those
requirements.
Other distributions from these Funds, including capital gains, generally will
not be exempt from Virginia income taxation.
Interest on indebtedness incurred (or continued) by a shareholder of Virginia
Intermediate Municipal Bond Fund or Virginia Municipal Bond Fund to purchase or
carry shares of these Funds will not be deductible for Virginia income tax
purposes to the extent such interest expense relates to the portions of
distributions exempt from Virginia income taxation. These Funds will not be
subject to any Virginia intangible personal property tax on any obligations in a
Fund. In addition, shares of a Fund held for investment purposes will not be
subject to any Virginia intangible personal property tax.
To be entitled to the exemption described above for distributions attributable
to certain interest on Virginia obligations, obligations of certain United
States possessions or direct United States obligations, a shareholder must be
able to substantiate the exempt portions of each distribution with reasonable
certainty. The determination of exempt portions must be made on a monthly
(rather than annual or quarterly) basis if, as planned, Virginia Intermediate
Municipal Bond Fund and Virginia Municipal Bond Fund each makes monthly
distributions. Accordingly, shareholders should retain their statements from
these Funds, which are to be issued at least annually, showing the percentages
of each monthly distribution attributable to interest on Virginia obligations,
possessions obligations and United States obligations.
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 stock or 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.
B-42
<PAGE>
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-43
<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 Conduct Rules 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.
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.
B-44
<PAGE>
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
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.
B-45
<PAGE>
YEAR 2000
The Trust depends on the smooth functioning of computer systems in almost every
aspect of its business. Like other mutual funds, businesses and individuals
around the world, the Trust could be adversely affected if the computer systems
used by its service providers do not properly process dates on and after January
1, 2000 and distinguish between the year 2000 and the year 1900. The Trust has
asked its service providers whether they expect to have their computer systems
adjusted for the year 2000 transition, and received assurances from each from
each that its system is expected to accommodate the year 2000 without material
adverse consequences to the Trust. The Trust and its shareholders may
experience losses if these assurances prove to be incorrect or as a result of
year 2000 computer difficulties experienced by issuers of portfolio securities
or third parties, such as custodians, banks, broker-dealers or others with which
the Trust does business.
B-46
<PAGE>
PROSPECTUS
HOW TO READ
THIS PROSPECTUS
The STI Classic Funds (the "Trust") is a mutual fund family that offers
different classes of shares in separate investment portfolios (Funds or
Portfolios). This Prospectus relates to the Balanced Portfolio, Growth and
Income Portfolio and Maximum Growth Portfolio (the "Portfolios"), each of which
invests in certain underlying investment portfolios of the Trust (the "Funds")
pursuant to an asset allocation strategy. Each Portfolio has its own
investment goal which it seeks to achieve by investing in Trust Class shares
of selected Funds which have their own individual investment goals and
strategies. This prospectus gives you important information about the Trust
Shares of the Portfolios that you should know before investing. Please read
this prospectus and keep it for future reference.
We arranged the prospectus into different sections so that you can easily review
this important information. On the next page, we discuss general information you
should know about investing in the Portfolios.
<TABLE>
<C> <S>
IF YOU WOULD LIKE MORE DETAILED INFORMATION
ABOUT EACH PORTFOLIO, PLEASE SEE:
2 BALANCED PORTFOLIO
5 GROWTH AND INCOME PORTFOLIO
8 MAXIMUM GROWTH PORTFOLIO
IF YOU WOULD LIKE MORE INFORMATION ABOUT THE
FOLLOWING TOPICS, PLEASE SEE:
11 EACH PORTFOLIO'S PRINCIPAL INVESTMENTS
11 THE ADVISORS AND THEIR PORTFOLIO MANAGERS
12 PURCHASING, SELLING AND EXCHANGING PORTFOLIO SHARES
14 DISTRIBUTIONS OF DIVIDENDS AND CAPITAL GAINS
14 TAXES
TO OBTAIN MORE INFORMATION ABOUT THE STI CLASSIC
FUNDS PLEASE REFER TO THE BACK COVER OF THE
PROSPECTUS
</TABLE>
FOR INFORMATION ABOUT KEY TERMS AND CONCEPTS, LOOK FOR OUR "SIMPLY SPEAKING"
EXPLANATIONS.
- --------------------------------------------------------------------------------
[GRAPHIC] PORTFOLIO SUMMARY [GRAPHIC] PORTFOLIO EXPENSES
[GRAPHIC] INVESTMENT STRATEGY [GRAPHIC] PORTFOLIO INVESTMENTS
[GRAPHIC] WHAT ARE THE RISKS OF INVESTING? [GRAPHIC] INVESTMENT ADVISOR
[GRAPHIC] WHAT IS AN INDEX? [GRAPHIC] PURCHASING PORTFOLIO SHARES
- --------------------------------------------------------------------------------
- --------, 1999
<PAGE>
PROSPECTUS 1
INTRODUCTION
Each Portfolio, and each underlying Fund in which it invests is a mutual
fund. A mutual fund pools shareholders' money and, using professional
investment managers, invests it in securities like stocks and bonds. Before
you invest, you should know a few things about investing in mutual funds.
The value of your investment in a Portfolio is based on the market prices of
the securities the underlying Fund holds. These prices change daily due to
economic and other events that affect particular companies and other issuers.
These price movements, sometimes called volatility, will vary depending on
the types of securities the underlying Fund owns and the markets where these
securities trade. The effect on a Portfolio of a change in the value of a
single security will depend on how widely the Portfolio and the underlying
Funds diversify their holdings.
Like other investments, you could lose money on your investment in a Fund. Your
investment in a Fund is not a bank deposit. It is not insured or guaranteed by
the FDIC or any government agency.
The Portfolios provide investors with the opportunity to purchase three
distinct asset allocations strategies implemented through investments in Trust
Class Shares of selected Funds. By investing in the Portfolios, investors
have the opportunity to diversify and allocate their assets among the broad
range of Funds in STI Classic Funds.
The assets of each Portfolio will be allocated among underlying Funds in
accordance with its investment objective, the Advisor's outlook for the economy,
the financial markets and the relative market valuations of the underlying
Funds. Each Portfolio has the ability to invest its assets allocated to a
particular asset class in one or more of the underlying Funds, which have
different investment objectives, policies and risk characteristics. Although
the Portfolios currently expect to invest in one or more of the underlying
Funds, the Advisor has the discretion to change the particular Funds used as
underlying investments for the Portfolios. If determined to be in the best
interest of the Portfolios, the Advisor reserves the right to substitute or
include other underlying Funds, including Funds that do not currently exist. A
Portfolio's goal may be changed without shareholder approval. Before investing,
make sure that the Portfolio's goal matches your own.
SUNTRUST BANK, ATLANTA SERVES AS CUSTODIAN OF THE ASSETS OF THE TRUST. SUNTRUST
BANK, ATLANTA AND THE ADVISOR ARE OWNED BY SUNTRUST BANKS, INC. THE FEES PAID
FOR CUSTODIAN SERVICES ARE INCLUDED IN THE "OTHER EXPENSES" FIGURE OF THE "FUND
EXPENSES" TABLE ON THE FOLLOWING PAGES. LAST FISCAL YEAR, THE TRUST PAID
SUNTRUST BANK, ATLANTA $1.3 MILLION FOR SERVING AS CUSTODIAN.
<PAGE>
2 PROSPECTUS
BALANCED PORTFOLIO
PORTFOLIO SUMMARY
Investment Goal Capital appreciation and current
income
Investment Focus Equity and bond funds
Share Price Volatility Low
Principal Investment Strategy Investing pursuant to an asset
allocation strategy in a combination
of STI Classic Equity and Bond Funds
Investor Profile Investors who want income from their
investment, as well as an increase in
its value, and are willing to be
subject to the risks of equity
securities
INVESTMENT STRATEGY
The Balanced Portfolio principally invests in STI Classic Funds that invest
primarily in equity securities, but invests at least 25% of the Portfolio's
total assets in STI Classic Funds that invest primarily in fixed income
securities. The Portfolio's remaining assets may be invested in shares of
underlying STI Classic Funds that are money market funds, securities issued
by the U.S. Government, its agencies or instrumentalities, repurchase
agreements and short-term paper. In selecting a diversified portfolio of
underlying STI Classic Funds, the Advisor analyzes many factors, including
the underlying STI Classic Funds' investment objectives, total return,
volatility and expenses.
The Portfolio currently plans to invest in shares of the following underlying
STI Classic Funds within the percentage ranges indicated:
<TABLE>
<CAPTION>
Asset Class: Investment Range (Percentage of the
Maximum Growth Portfolio's Assets)
- --------------------------------------------------------------------------------
<S> <C>
Equity Funds 40-70%
Value Fund
<PAGE>
PROSPECTUS 3
BALANCED PORTFOLIO
<S> <C>
Capital Growth Fund
Small Cap Growth Stock Fund
Bond Funds 30-60%
Short-Term Bond Fund
Intermediate Grade Bond Fund
U.S. Government Securities Fund
Money Market Funds 0-20%
Prime Quality Money Market Fund
</TABLE>
Due to its investment strategy, the Portfolio holds STI Classic Funds that buy
and sell securities frequently. This may result in higher transaction costs and
additional capital gains taxes.
WHAT ARE THE RISKS OF INVESTING IN THIS PORTFOLIO?
The Portfolio invests in Funds that invest in common stocks and bonds. As a
result, the Portfolio is subject to the risk that stock prices will fall over
short or extended periods of time. Stock markets tend to move in cycles, with
periods of rising prices and periods of falling prices. This price volatility
is the principal risk of investing in the Portfolio. In addition, the value of
bonds held by the underlying Bond Funds may decline due to rising interest
rates. An issuer may be unable to make timely payments of principal or
interest. The Portfolio may have more assets than usual invested in Bond Funds
during periods of rising interest rates or less assets than usual invested in
Bond Funds during falling interest rates. Some investment grade bonds may have
speculative characteristics. Fixed income securities, regardless of credit
quality, also experience price volatility, especially in response to interest
rate changes. Of course, the risks associated with investing in the Portfolio
will vary depending upon how the assets are allocated among the underlying STI
Classic Funds.
PORTFOLIO EXPENSES
This table describes the Portfolio's expenses that you may pay indirectly if you
hold Portfolio shares. The table does not reflect any of the operating costs
and investment advisory fees of the underlying STI Classic Funds. The Portfolio
and its shareholders will indirectly bear a pro-rata share of the expenses of
the underlying STI Classic Funds.
<PAGE>
4 PROSPECTUS
BALANCED PORTFOLIO
ANNUAL PORTFOLIO OPERATING EXPENSES
<TABLE>
---------------------------------------------------------------------------
<S> <C>
Investment Advisory Fees .XX%
Other Expenses .XX%
----
Total Annual Portfolio Operating Expenses X.XX%
</TABLE>
SIMPLY SPEAKING...
PORTFOLIO EXPENSES
Unlike an index, every mutual fund has operating expenses to pay for
professional advisory, shareholder, distribution, administration and custody
services. The Portfolio's expenses in the table above are shown as a
percentage of the Portfolio's net assets. These expenses are deducted from
Portfolio assets. The table shows the highest expenses that could be
currently charged to the Portfolio. Actual expenses are lower because the
Advisor is voluntarily waiving a portion of its fees. ACTUAL INVESTMENT
ADVISORY FEES AND ESTIMATED TOTAL OPERATING EXPENSES ARE [ %] AND [ %],
RESPECTIVELY. The Advisor could discontinue this voluntary waiver at any
time. For more information about these fees, see "Investment Advisors."
EXAMPLE
This Example is intended to help you compare the cost of investing in the
Portfolio with the cost of investing in other Portfolios. The Example assumes
that you invest $10,000 in the Portfolio for the time periods indicated and that
you sell your shares at the end of the period. The Example also assumes that
each year your investment has a 5% return and Portfolio expenses remain the
same. Although your actual costs and returns might be different, your
approximate costs of investing $10,000 in the Portfolio would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
----------------------------------------------------
<S> <C>
$XXX $XXX
</TABLE>
<PAGE>
PROSPECTUS 5
GROWTH AND INCOME PORTFOLIO
PORTFOLIO SUMMARY
Investment Goal Long-term capital appreciation
Investment Focus Equity and bond funds
Share Price Volatility Moderate
Principal Investment Strategy Investing pursuant to an asset
allocation strategy in a combination of
STI Classic Equity and, to a lesser
extent, Bond Funds
Investor Profile Investors who want their assets to
grow, but who want to moderate the
risks of equity securities through
investment of a portion of their assets
in bonds
INVESTMENT STRATEGY
The Growth and Income Portfolio invests at least 80% of the Portfolio's total
assets in STI Classic Funds that invest primarily in either equity securities or
fixed income securities. The Portfolio's remaining assets may be invested in
shares of underlying STI Classic Money Market Funds, securities issued by the
U.S. Government, its agencies or instrumentalities, repurchase agreements and
short-term paper. In selecting a diversified portfolio of underlying STI
Classic Funds, the Advisor analyzes many factors, including the underlying STI
Classic Funds' investment objectives, total return, volatility and expenses.
The Portfolio currently plans to invest in shares of the following underlying
STI Classic Funds within the percentage ranges indicated:
<TABLE>
<CAPTION>
Asset Class Investment Range (Percentage of the
Maximum Growth Portfolio's Assets)
- ---------------------------------------------------------------------------
<S> <C>
Equity Funds 60-80%
Value Fund
Capital Growth Fund
Small Cap Growth Stock Funds
Bond Funds 20-40%
Short-Term Bond Fund
Investment Grade Bond Fund
<PAGE>
6 PROSPECTUS
GROWTH AND INCOME PORTFOLIO
U.S. Government Securities Fund
Money Market Funds 0-20%
Prime Quality Money Market Fund
</TABLE>
Due to its investment strategy, the Portfolio holds STI Classic Funds that buy
and sell securities frequently. This may result in higher transaction costs and
additional capital gains taxes.
WHAT ARE THE RISKS OF INVESTING IN THIS PORTFOLIO?
The Portfolio invests in Funds that invest in common stocks and bonds. As a
result, the Portfolio is subject to the risk that stock prices will fall over
short or extended periods of time. Stock markets tend to move in cycles, with
periods of rising prices and periods of falling prices. This price volatility
is the principal risk of investing in the Portfolio. In addition, the value of
bonds held by the underlying Bond Funds may decline due to rising interest
rates. An issuer may be unable to make timely payments of principal or
interest. The Portfolio may have more assets than usual invested in Bond Funds
during periods of rising interest rates or less assets than usual invested in
Bond Funds during falling interest rates. Some investment grade bonds may have
speculative characteristics. Fixed income securities, regardless of credit
quality, also experience price volatility, especially in response to interest
rate changes. Of course, the risks associated with investing in the Portfolio
will vary depending upon how the assets are allocated among the underlying STI
Classic Funds.
PORTFOLIO EXPENSES
This table describes the Portfolio's expenses that you may pay indirectly if you
hold Portfolio shares. The table does not reflect any of the operating costs
and investment advisory fees of the underlying STI Classic Funds. The Portfolio
and its shareholders will indirectly bear a pro-rata share of the expenses of
the underlying STI Classic Funds.
ANNUAL PORTFOLIO OPERATING EXPENSES
<TABLE>
---------------------------------------------------------------------------
<S> <C>
Investment Advisory Fees .XX%
Other Expenses .XX%
----
Total Annual Portfolio Operating Expenses X.XX%
</TABLE>
SIMPLY SPEAKING...
PORTFOLIO EXPENSES
Unlike an index, every mutual fund has operating expenses to pay for
professional advisory, shareholder, distribution, administration and custody
services. The Portfolio's expenses in the table above are shown as a
percentage of the Portfolio's net assets. These expenses are deducted from
Portfolio assets. The table shows the
<PAGE>
PROSPECTUS 7
GROWTH AND INCOME PORTOFOLIO
highest expenses that could be currently charged to the Portfolio. Actual
expenses are lower because the Advisor is voluntarily waiving a portion of
its fees. ACTUAL INVESTMENT ADVISORY FEES AND ESTIMATED TOTAL OPERATING
EXPENSES ARE [ %] AND [ %], RESPECTIVELY. The Advisor could
discontinue this voluntary waiver at any time. For more information about
these fees, see "Investment Advisors."
EXAMPLE
This Example is intended to help you compare the cost of investing in the
Portfolio with the cost of investing in other Portfolios. The Example assumes
that you invest $10,000 in the Portfolio for the time periods indicated and that
you sell your shares at the end of the period. The Example also assumes that
each year your investment has a 5% return and Portfolio expenses remain the
same. Although your actual costs and returns might be different, your
approximate costs of investing $10,000 in the Portfolio would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
--------------------------------------------
<S> <C>
$XXX $XXX
</TABLE>
<PAGE>
8 PROSPECTUS
MAXIMUM GROWTH PORTFOLIO
PORTFOLIO SUMMARY
Investment Goal High capital appreciation
Investment Focus Equity and money market Funds
Share Price Volatility High
Principal Investment Strategy Investing pursuant to an asset
allocation strategy in a combination of
STI Classic Equity Funds
Investor Profile Investors who want the value of their
investment to grow, and are willing to
be subject to the risks of equity
securities
INVESTMENT STRATEGY
The Portfolio invests at least 80% of the Portfolio's total assets in STI
Classic Funds that invest primarily in equity securities. The Portfolio's
remaining assets may be invested in STI Classic Funds that invest primarily
in fixed income securities, STI Classic Funds that are money market funds,
securities issued by the U.S. Government, its agencies or instrumentalities,
repurchase agreements and short-term paper. In selecting a diversified
portfolio of underlying STI Classic Funds, the Advisor analyzes many factors,
including the underlying STI Classic Funds' investment objectives, total
return, volatility and expenses.
The Portfolio currently plans to invest in shares of the following underlying
STI Classic Funds within the percentage ranges indicated:
<TABLE>
<CAPTION>
Asset Class Investment Range (Percentage of the
Maximum Growth Portfolio's Assets)
- ---------------------------------------------------------------------------
<S> <C>
Equity Funds 80-100%
Value Fund
Capital Growth Fund
Small Cap Growth Stock Fund
<PAGE>
PROSPECTUS 9
MAXIMUM GROWTH PORTFOLIO
Money Market Funds 0-20%
Prime Quality Money Market Fund
</TABLE>
Due to its investment strategy, the Portfolio holds STI Classic Funds that buy
and sell securities frequently. This may result in higher transaction costs and
additional capital gains taxes.
WHAT ARE THE RISKS OF INVESTING IN THIS PORTFOLIO?
The Portfolio invests in Funds that invest in U.S. common stocks. As a
result, the portfolio is subject to the risk that stock prices will fall over
short or extended periods of time. Stock markets tend to move in cycles,
with periods of rising prices and periods of falling prices. This price
volatility is the principal risk of investing in the Portfolio. Of course,
the risks associated with investing in the Portfolio will vary depending upon
how the assets are allocated among the underlying STI Classic Funds.
PORTFOLIO EXPENSES
This table describes the Portfolio's expenses that you may pay indirectly if
you own Portfolio shares. The table does not reflect any of the operating
costs and investment advisory fees of the underlying STI Classic Funds. The
Portfolio and its shareholders will indirectly bear a pro-rata share of the
expenses of the underlying STI Classic Funds.
ANNUAL PORTFOLIO OPERATING EXPENSES
<TABLE>
---------------------------------------------------------------------------
<S> <C>
Investment Advisory Fees .XX%
Other Expenses .XX%
----
Total Annual Portfolio Operating Expenses X.XX%
</TABLE>
SIMPLY SPEAKING...
PORTFOLIO EXPENSES
Unlike an index, every mutual fund has operating expenses to pay for
professional advisory, shareholder, distribution, administration and custody
services. The Portfolio's expenses in the table above are shown as a
percentage of the Portfolio's net assets. These expenses are deducted from
Portfolio assets. The table shows the highest expenses that could be
currently charged to the Portfolio. Actual expenses are lower because the
Advisor is voluntarily waiving a portion of its fees. ACTUAL INVESTMENT
ADVISORY FEES AND ESTIMATED TOTAL OPERATING EXPENSES ARE [ %] AND [ %],
RESPECTIVELY. The Advisor could discontinue this voluntary waiver at any
time. For more information about these fees, see "Investment Advisors."
<PAGE>
10 PROSPECTUS
MAXIMUM GROWTH PORTFOLIO
EXAMPLE
This Example is intended to help you compare the cost of investing in the
Portfolio with the cost of investing in other Portfolios. The Example
assumes that you invest $10,000 in the Portfolio for the time periods
indicated and that you sell your shares at the end of the period. The
Example also assumes that each year your investment has a 5% return and
Portfolio expenses remain the same. Although your actual costs and returns
might be different, your approximate costs of investing $10,000 in the
Portfolio would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
-------------------------------
<S> <C>
$XXX $XXX
</TABLE>
<PAGE>
PROSPECTUS 11
EACH PORTFOLIO'S PRINCIPAL INVESTMENTS
[GRAPHIC] PORTFOLIO INVESTMENTS
The table below shows each Portfolio's principal investments. In other
words, the table describes the type or types of investments that we
believe will most likely help each Portfolio achieve its investment
goal.
<TABLE>
<CAPTION>
BALANCED GROWTH AND MAXIMUM
PORTFOLIO INCOME GROWTH
PORTFOLIO PORTFOLIO
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Bond Funds X X
- --------------------------------------------------------------------------------
Equity Funds X X X
- --------------------------------------------------------------------------------
Money Market Funds X X X
- --------------------------------------------------------------------------------
</TABLE>
Each Portfolio also may invest in other securities, use other strategies and
engage in other investment practices, which are described in detail in our
Statement of Additional Information. Of course, we cannot guarantee that any
Fund will achieve its investment goal.
The investments listed above and the investments and strategies described
throughout this prospectus are those that we use under normal conditions.
During unusual economic or market conditions, or for temporary defensive or
liquidity purposes, each Portfolio may invest up to 100% of its assets in
cash, money market instruments, repurchase agreements, short-term obligations
and STI Classic Money Market Funds. When a Portfolio is investing for
temporary defensive purposes, it is not pursuing its investment goal.
[GRAPHIC] INVESTMENT ADVISOR
The Investment Advisor makes investment decisions for the Portfolios and
continuously review, supervise and administer their Portfolios' respective
investment program. The Board of Trustees supervises the Advisor and
establishes policies that the Advisor must follow in its management
activities.
Trusco Capital Management, Inc. (Trusco), 50 Hurt Plaza, Suite 1400, Atlanta,
Georgia 30303 serves as the Advisor to the Funds. As of _________, Trusco
had approximately ___________ billion assets under management.
The Advisor may use its affiliates as brokers for Fund transactions.
PORTFOLIO MANAGERS
The Portfolios are managed by a team of investment professionals from
Trusco. No one person is primarily responsible for making investment
recommendations to the team.
<PAGE>
12 PROSPECTUS
PURCHASING, SELLING AND EXCHANGING PORTFOLIO SHARES
[GRAPHIC] PURCHASING PORTFOLIO SHARES
HOW TO PURCHASE PORTFOLIO SHARES
Generally you may not purchase Trust Shares directly. Rather, Trust Shares
are sold to financial institutions or intermediaries, including Crestar Bank
and other subsidiaries of SunTrust Banks, Inc. (SunTrust) on behalf of
accounts for which they act as fiduciary, agent, investment advisor, or
custodian. As a result, you, as a customer of a financial institution, may
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 will be
held of record by (in the name of) your financial institution. Depending upon
the terms of your account, however, you may have, or be given, the right to
vote your Trust Shares. We may reject any purchase order if we determine that
accepting the order would not be in the best interests of the STI Classic
Funds or its shareholders.
SIMPLY SPEAKING . . .
WHEN CAN YOU PURCHASE SHARES?
You may purchase shares on any day that the New York Stock Exchange is open
for business (a Business Day).
The price per share (the offering price) will be the net asset value per
share (NAV) next determined after we receive your purchase order. We
calculate each Portfolio's NAV once each Business Day at the
regularly-scheduled close of normal trading on the New York Stock Exchange
(normally, 4:00 p.m. Eastern time). So, to receive the current Business Day's
NAV,
<PAGE>
PROSPECTUS 13
PURCHASING, SELLING AND EXCHANGING PORTFOLIO SHARES
generally we must receive your purchase order from your financial institution
before 4:00 p.m. Eastern time.
SIMPLY SPEAKING . . .
FOR CUSTOMERS OF OTHER FINANCIAL INSTITUTIONS
You may have to transmit your purchase and sale requests to your financial
institution at an earlier time for your transaction to become effective that
day. This allows the financial institution time to process your request and
transmit it to us. For more information about how to purchase or sell
Portfolio shares through your financial institution, you should contact your
financial institution directly.
HOW WE CALCULATE NAV
In calculating NAV, we generally value a Portfolio's assets at market price. If
market prices are unavailable or we think that they are unreliable, fair value
prices may be determined in good faith using methods approved by the Board of
Trustees. The assets of each Portfolio consist primarily of shares of
underlying STI Classic Funds, which are valued at their respective net asset
values.
SIMPLY SPEAKING . . .
NET ASSET VALUE
NAV for one Fund share is the value of that share's portion of all of the
assets in the Fund.
SELLING FUND SHARES
HOW TO SELL YOUR FUND SHARES
You may sell (sometimes called "redeem") your shares on any Business Day by
contacting your financial institution. Your financial institution will give you
information about how to sell your shares. The sale price of each share will be
the next NAV determined after we receive your request from your financial
institution.
SIMPLY SPEAKING . . .
TELEPHONE TRANSACTIONS
Purchasing and selling Portfolio shares over the telephone is extremely
convenient, but not without risk. Although we have certain safeguards and
procedures to confirm the identity of callers and the authenticity of
instructions, we are not responsible for any losses or costs incurred by
following telephone instructions we reasonably believe to be genuine. If you
or your financial institution transact with us over the telephone, you will
generally bear the risk of any loss.
REDEMPTIONS IN KIND
We generally pay sale (redemption) proceeds in cash.
However, under unusual conditions that make the payment of cash unwise (and
for the protection of the Portfolio's remaining shareholders) we might pay
all or part of your redemption proceeds in shares of the underlying Funds
with a market value equal to the redemption price (redemption in kind).
SUSPENSION OF YOUR RIGHT TO SELL YOUR SHARES
We may suspend your right to sell your shares if the NYSE restricts trading, the
SEC declares an emergency or for other reasons. More information about this is
in our Statement of Additional Information.
<PAGE>
14 PROSPECTUS
OTHER INFORMATION
DIVIDENDS AND DISTRIBUTIONS
Each Portfolio distributes its income monthly. The Funds make distributions of
capital gains, if any, at least annually.
You will receive dividends and distributions in the form of additional Fund
shares unless you elect to receive payment in cash. To elect cash payment, you
must notify us in writing prior to the date of the distribution. Your election
will be effective for dividends and distributions paid after we receive your
written notice. To cancel your election, simply send us written notice.
SIMPLY SPEAKING . . .
THE "RECORD DATE"
If you own Fund shares on a Fund's record date, you will be entitled to
receive the distribution.
TAXES
PLEASE CONSULT YOUR TAX ADVISOR REGARDING YOUR SPECIFIC QUESTIONS ABOUT
FEDERAL, STATE AND LOCAL INCOME TAXES. Below we have summarized some
important tax issues that affect the Portfolios and their shareholders. This
summary is based on current tax laws, which may change.
Each Portfolio will distribute substantially all of its income and capital
gains, if any. The dividends and distributions you receive may be subject to
federal, state and local taxation, depending upon your tax situation. Capital
gains distributions may be taxable at different rates depending on the length
of time a Portfolio holds its portfolio securities. YOU MAY BE TAXED ON EACH
SALE OF PORTFOLIO SHARES.
The Portfolios use a tax management technique known as "highest in, first
out." Using this technique, the portfolio holdings that have experienced the
smallest gain or largest loss are sold first in an effort to minimize capital
gains and enhance after-tax returns.
MORE INFORMATION ABOUT TAXES IS IN OUR STATEMENT OF ADDITIONAL INFORMATION.
SIMPLY SPEAKING . . .
PORTFOLIO DISTRIBUTIONS
Distributions you receive from a Portfolio may be taxable whether or not you
reinvest them.
<PAGE>
HOW TO OBTAIN MORE INFORMATION
INVESTMENT ADVISOR
Trusco Capital Management, Inc.
DISTRIBUTOR
SEI Investments Distribution Co.
LEGAL COUNSEL
Morgan, Lewis & Bockius LLP
More information about the Portfolios is available without charge through the
following:
STATEMENT OF ADDITIONAL INFORMATION (SAI)
More detailed information about the Portfolios and the STI Classic Funds is
included in our SAI. The SAI has been filed with the SEC and is incorporated
by reference into this prospectus. This means that the SAI, for legal
purposes, is a part of this prospectus.
ANNUAL AND SEMIANNUAL REPORTS
These reports list the Portfolios' holdings and contain information from the
Portfolios' managers about investment strategies, and recent market
conditions and trends.
TO OBTAIN MORE INFORMATION:
BY TELEPHONE:
Call 1-800-874-4770
BY MAIL:
Write to us c/o
SEI Investments Distribution Co.
Oaks, Pennsylvania 19456.
FROM THE SEC: You can also obtain these documents, and other information
about the Portfolios, and the STI Classic Funds generally from the SEC's
website ("http://www.sec.gov"). You may review and copy documents at the SEC
Public Reference Room in Washington, DC (for information call
1-800-SEC-0330). You may request documents by mail from the SEC, upon payment
of a duplicating fee, by writing to: Securities and Exchange Commission,
Public Reference Section, Washington, DC 20549-6009. The Fund's Investment
Company Act registration number is 811-06557.
<PAGE>
NOTES
<PAGE>
NOTES
<PAGE>
(THIS PAGE INTENTIONALLY LEFT BLANK)
<PAGE>
STI CLASSIC FUNDS
INVESTMENT ADVISOR:
TRUSCO CAPITAL MANAGEMENT, INC.
This Statement of Additional Information is not a prospectus. It is intended to
provide additional information regarding the activities and operations of the
STI Classic Funds (the "Trust") and should be read in conjunction with the
Trust's prospectuses dated May ___, 1999. Prospectuses may be obtained through
the Distributor, SEI Investments Distribution Co., One Freedom Valley Road,
Oaks, Pennsylvania 19456.
TABLE OF CONTENTS
PAGE
THE TRUST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-2
INVESTMENT OBJECTIVES AND POLICIES. . . . . . . . . . . . . . . . . . . . . B-2
INVESTMENT PRACTICES OF THE UNDERLYING STI CLASSIC FUNDS. . . . . . . . . . B-4
DESCRIPTION OF PERMITTED INVESTMENTS. . . . . . . . . . . . . . . . . . . . B-4
INVESTMENT LIMITATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . B-22
INVESTMENT ADVISOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-23
THE ADMINISTRATOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-24
THE DISTRIBUTOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-25
THE TRANSFER AGENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-25
THE CUSTODIAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-25
INDEPENDENT PUBLIC ACCOUNTANTS. . . . . . . . . . . . . . . . . . . . . . . B-25
LEGAL COUNSEL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-25
TRUSTEES AND OFFICERS OF THE TRUST. . . . . . . . . . . . . . . . . . . . . B-25
PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . B-28
COMPUTATION OF YIELD. . . . . . . . . . . . . . . . . . . . . . . . . . . . B-28
CALCULATION OF TOTAL RETURN . . . . . . . . . . . . . . . . . . . . . . . . B-29
PURCHASING SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-29
REDEEMING SHARES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-29
DETERMINATION OF NET ASSET VALUE. . . . . . . . . . . . . . . . . . . . . . B-29
TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-30
PORTFOLIO TRANSACTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . B-31
TRADING PRACTICES AND BROKERAGE . . . . . . . . . . . . . . . . . . . . . . B-31
DESCRIPTION OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . B-32
SHAREHOLDER LIABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . B-33
LIMITATION OF TRUSTEES' LIABILITY . . . . . . . . . . . . . . . . . . . . . B-33
YEAR 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-33
5% AND 25% SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . B-33
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-34
May ___, 1999
<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 (through financial institutions or intermediaries) Trust
Shares of the Trust's funds. Each Trust Share of each fund represents an equal
proportionate interest in that portfolio. See "Description of Shares." This
Statement of Additional Information relates to the STI Maximum Growth Portfolio,
STI Growth and Income Portfolio and STI Balanced Portfolio. These various
series are collectively referred to herein as the "Portfolios."
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.
INVESTMENT OBJECTIVES AND POLICIES
The Portfolios provide investors with the opportunity to pursue three distinct
asset allocation strategies implemented through investments in shares of
selected STI Classic Funds. By investing in the Portfolios, investors have the
opportunity to diversify and allocate their assets among the broad range of
funds in STI Classic Funds. The Adviser simplifies the diversification and
asset allocation process by reviewing, analyzing, selecting, monitoring,
reallocating and rebalancing each Portfolio's holdings of STI Classic Funds for
investors.
The assets of each Portfolio will be allocated among underlying STI Classic
Funds in accordance with its investment objective, the Adviser's outlook for the
economy, the financial markets and the relative market valuations of the
underlying STI Classic Funds. Each Portfolio has the ability to invest its
assets allocated to a particular asset class in one or more of the underlying
STI Classic Funds, which have differing investment objectives, policies and risk
characteristics (see "Investments in Shares of the Underlying STI Classic
Funds"). The risks associated with investing in a Portfolio will vary depending
upon how the assets within its asset classes are allocated from time to time
among the underlying STI Classic Funds. Although the Portfolios currently
expect to invest in one or more of the underlying STI Classic Funds identified
below, the Adviser has the discretion to change the particular STI Classic Funds
used as underlying investments for the Portfolios. If the Adviser determines in
the future that it is in a Portfolio's best interest, the Adviser may substitute
or include other underlying STI Classic Funds, including STI Classic Funds that
do not currently exist.
STI PRIME QUALITY FUND
STI SHORT-TERM BOND FUND
STI INVESTMENT GRADE BOND FUND
STI U.S. GOVERNMENT SECURITIES FUND
STI CAPITAL GROWTH FUND
STI SMALL CAP GROWTH STOCK FUND
[STI VALUE FUND]
The investment objective of each Portfolio is set forth below. Each Portfolio's
objective, the asset allocation percentage ranges described below, the list of
underlying STI Classic Funds described above, and those policies identified as
non-fundamental may be changed by the Company's Board of Directors without
shareholder approval.
B-2
<PAGE>
A Portfolio's investment policies identified as fundamental may not be changed
except by approval of the majority of the outstanding shares of that Portfolio.
The Adviser will manage each Portfolio consistent with that Portfolio's
investment objective and policies. There is no assurance that a Portfolio will
achieve its investment objective.
STI MAXIMUM GROWTH PORTFOLIO
The STI Maximum Growth Portfolio seeks to provide a high level of capital
appreciation, without regard to current income. Under normal market conditions,
at least 80% of the Portfolio's total assets will be invested in shares of
underlying STI Classic Funds that invest primarily in equity securities that
seek capital appreciation. The Portfolio's remaining assets may be invested in
shares of underlying STI Classic Funds that invest primarily in fixed-income
securities, shares of underlying STI Classic Funds that are money market funds,
securities issued by the U.S. Government, its agencies or instrumentalities,
repurchase agreements and short-term paper.
In general, relative to the other Portfolios, the STI Maximum Growth Portfolio
should offer investors the potential for a high level of capital growth, and the
potential for a lower level of current income, while subjecting investors to a
medium to high level of principal risk.
STI GROWTH AND INCOME PORTFOLIO
The STI Growth and Income Portfolio seeks to provide long-term capital
appreciation, with current income as a secondary objective. Under normal market
conditions, at least 80% of the Portfolio's total assets will be invested in
shares of underlying STI Classic Funds that invest primarily in either equity
securities that seek capital appreciation, or invest primarily in fixed-income
securities that seek income. The Portfolio's remaining assets may be invested
in shares of underlying STI Classic Funds that are money market funds,
securities issued by the U.S. Government, its agencies or instrumentalities,
repurchase agreements and short-term paper.
In general, relative to the other Portfolios, the STI Growth and Income
Portfolio should offer investors the potential for a medium to high level of
capital growth and the potential for a medium level of income, while subjecting
investors to a medium level of principal risk.
STI BALANCED PORTFOLIO
The STI Balanced Portfolio seeks both capital appreciation and current income.
Under normal market conditions, the Portfolio will invest primarily in shares of
underlying STI Classic Funds that invest primarily in equity securities, but at
least 25% of the Portfolio's total assets will be invested in shares of
underlying STI Classic Funds that invest primarily in fixed-income securities.
The Portfolio's remaining assets may be invested in shares of underlying STI
Classic Funds that are money market funds, securities issued by the U.S.
Government, its agencies or instrumentalities, repurchase agreements and
short-term paper.
In general, relative to the other Portfolios, the STI Balanced Portfolio should
offer investors a balanced level of income and capital appreciation, while
subjecting investors to a lower level of principal risk.
GENERAL INVESTMENT POLICIES OF THE PORTFOLIOS
To achieve each Portfolio's investment objective, the Adviser will attempt to
identify and select a diversified portfolio of underlying STI Classic Funds. In
the selection process, the Adviser analyzes many factors, including the
underlying STI Classic Funds' investment objectives, total return, volatility
and expenses. Each Portfolio invests a percentage of its assets, within
percentage ranges the Adviser believes appropriate, in select underlying
B-3
<PAGE>
STI Classic Funds, which are separately-managed series of the Company. The
percentages will reflect the extent to which each Portfolio invests in the
particular market segment represented by each underlying fund in STI Classic
Funds, and the varying degrees of potential investment risk and reward
represented by each Portfolio's investments in those corresponding underlying
funds. These percentage ranges may change when it is appropriate in light of
each Portfolio's investment objective. Each Portfolio may invest up to 100% of
its assets in shares of the underlying STI Classic Funds. In addition, when the
Adviser deems it appropriate, for temporary defensive purposes, each Portfolio
may invest 100% of its assets directly in securities issued by the U.S.
Government or its agencies or instrumentalities, repurchase agreements,
short-term paper and shares of underlying STI Classic Funds that are money
market funds (and shares of unaffiliated money market funds, as permitted by the
SEC). To the extent that a Portfolio is engaged in temporary defensive
investing, it will not be pursuing its investment objective. When the adviser
deems it appropriate, in order to meet liquidity needs, each Portfolio may
invest its assets directly in securities issued by the U.S. Government or its
agencies or instrumentalities, repurchase agreements, short-term paper and
shares of underlying STI Classic Funds that are money market funds (and shares
of unaffiliated money market funds, as permitted by the SEC).
INVESTMENT PRACTICES OF THE UNDERLYING STI CLASSIC FUNDS
The following briefly describes the securities in which the underlying STI
Classic Funds (the "Funds") may invest and the transactions they may make. The
Funds are not limited by this discussion, however, and may purchase other types
of securities and enter into other types of transactions if they meet each
Fund's respective quality, maturity, and liquidity requirements.
Each Fund's investments must be consistent with its investment objective and
policies. Accordingly, not all of the security types and investment techniques
discussed below are eligible investments for each of the Funds.
DESCRIPTION OF PERMITTED INVESTMENTS
AMERICAN DEPOSITARY RECEIPTS (ADRs), EUROPEAN DEPOSITARY RECEIPTS (EDRs) AND
GLOBAL DEPOSITARY RECEIPTS (GDRs)
ADRs, EDRs, and GDRs are securities, typically issued by a U.S. financial
institution or a non-U.S. financial institution in the case of an EDR or GDR (a
"depositary"). The institution has ownership interests in a security, or a pool
of securities, issued by a foreign issuer and deposited with the depositary.
ADRs, EDRs and GDRs 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. 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 backed by non-mortgage assets such as
company receivables, truck and auto loans, leases and credit card receivables.
Other asset-backed securities may be created in the future. These securities
may be traded over-the-counter and typically have a short-intermediate maturity
structure depending on the paydown characteristics of the underlying financial
assets which are passed through to the security holder. These securities are
generally issued as pass-through certificates, which represent undivided
fractional ownership interests in the underlying pool of assets. Asset-backed
securities may also be debt obligations, which are known
B-4
<PAGE>
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
these assets and issuing debt obligations.
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.
BANK OBLIGATIONS
Bank obligations are short-term obligations issued by U.S. and foreign banks,
including bankers' acceptances, certificates of deposit, custodial receipts, and
time deposits. Eurodollar and Yankee Bank Obligations are U.S.
dollar-denominated certificates of deposit or time deposits issued outside the
U.S. by foreign branches of U.S. banks or by foreign banks.
COMMON AND PREFERRED STOCKS
Common and preferred stocks represent units of ownership in a corporation.
Owners of common stock typically are entitled to vote on important matters.
Owners of preferred stock ordinarily do not have voting rights, but are entitled
to dividends at a specified rate. Preferred stock has a prior claim to common
stockholders with respect to dividends.
CONVERTIBLE SECURITIES
Convertible securities are securities issued by corporations that are
exchangeable for a set number of another security at a prestated price. 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 option
provisions.
CUSTODIAL 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.
DEBT SECURITIES
B-5
<PAGE>
Debt securities represent money borrowed that obligates the issuer (E.G., a
corporation, municipality, government, government agency) to repay the borrowed
amount at maturity (when the obligation is due and payable) and usually to pay
the holder interest at specific times (E.G., bonds, notes, debentures).
DELAYED DELIVERY TRANSACTIONS
These transactions involve a commitment by a Fund to purchase or sell specific
securities at a predetermined price and/or yield, with payment and delivery
taking place after a period longer than the customary settlement period for that
type of security (and more than seven days in the future). Typically, no
interest accrues to the purchaser until the security is delivered. Each money
market and bond fund may receive fees for entering into delayed delivery
transactions.
When purchasing securities on a delayed delivery basis, a Fund assumes the
rights and risks of ownership, including the risk of price and yield
fluctuations. Because a Fund is not required to pay for securities until the
delivery date, these risks are in addition to the risks associated with the
Fund's other investments. If a Fund remains substantially fully invested at a
time when delayed delivery purchases are outstanding, the delayed delivery
purchases may result in a form of leverage. When delayed delivery purchases are
outstanding, a Fund will set aside cash or other appropriate liquid assets such
as U.S. Government securities, or other high grade debt securities in a
segregated custodial account to cover its purchase obligations. When a Fund has
sold a security on a delayed delivery basis, the Fund does not participate in
further gains or losses with respect to the security. If the other party to a
delayed delivery transaction fails to deliver or pay for the securities, the
Fund could miss a favorable price or yield opportunity, or could suffer a loss.
A Fund may renegotiate delayed delivery transactions after they are entered
into, and may sell underlying securities before they are delivered, which may
result in capital gains or losses.
DOLLAR ROLLS
Dollar rolls are transactions in which securities are sold for delivery in the
current month and the seller contracts to repurchase substantially similar
securities on a specified future date. Any difference between the sale price
and the purchase price (plus interest earned on the cash proceeds of the sale)
is applied against the past interest income on the securities sold to arrive at
an implied borrowing rate.
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.
THE EURO
On January 1, 1999, the European Monetary Union (EMU) implemented a new currency
unit, the Euro, which is expected to reshape financial markets, banking systems
and monetary policies in Europe and other parts of the world. The countries
which initially converted their currencies to the Euro included Austria,
Belgium, France, Germany, Luxembourg, the Netherlands, Ireland, Finland, Italy,
Portugal, and Spain. Implementation of this plan
B-6
<PAGE>
will mean that financial transactions and market information, including share
quotations and company accounts, in participating countries will be denominated
in Euros. Approximately 46% of the stock exchange capitalization of the total
European market may be reflected in Euros, and participating governments will
issue their bonds in Euros. Monetary policy for participating countries will be
uniformly managed by a new central bank, the European Central Bank (ECB).
Although it is not possible to predict the impact of the Euro implementation
plan on the Funds, the transition to the Euro may change the economic
environment and behavior of investors, particularly in European markets. For
example, investors may begin to view those countries participating in the EMU as
a single entity, and the Advisors may need to adapt investment strategies
accordingly. The process of implementing the Euro also may adversely affect
financial markets worldwide and may result in changes in the relative strength
and value of the U.S. dollar or other major currencies, as well as possible
adverse tax consequences. The transition to the Euro is likely to have a
significant impact on fiscal and monetary policy in the participating countries
and may produce unpredictable effects on trade and commerce generally. These
resulting uncertainties could create increased volatility in financial markets
world-wide.
FOREIGN SECURITIES
Foreign securities 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, Europaper and Yankee Certificates
of Deposit, and investments in Canadian Commercial Paper and foreign securities.
These instruments have 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.
In making investment decisions for the Fund, the Advisor evaluates the risks
associated with investing Fund assets in a particular country, including risks
stemming from a country's financial infrastructure and settlement practices; the
likelihood of expropriation, nationalization or confiscation of invested assets;
prevailing or developing custodial practices in the country; the country's laws
and regulations regarding the safekeeping, maintenance and recovery of invested
assets, the likelihood of government-imposed exchange control restrictions which
could impair the liquidity of Fund assets maintained with custodians in that
country, as well as risks from political acts of foreign governments ("country
risks"). Of course, the Advisor cannot assure that the Fund will not suffer
losses resulting from investing in foreign countries.
Holding Fund assets in foreign countries through specific foreign custodians
presents additional risks, including but not limited to the risks that a
particular foreign custodian or depository will not exercise proper care with
respect to Fund assets or will not have the financial strength or adequate
practices and procedures to properly safeguard Fund assets.
B-7
<PAGE>
By investing in foreign securities, the 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, International Equity and Emerging Markets 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, International Equity and Emerging Markets Equity
Funds seek increased diversification by combining securities from various
countries and geographic areas that offer different investment opportunities and
are affected by different economic trends. The international investments of the
International Equity Index, International Equity and Emerging Markets 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.
Emerging countries are all countries that are considered to be developing or
emerging countries by the World Bank or the International Finance Corporation,
as well as countries classified by the United Nations or otherwise regarded by
the international financial community as developing. Currently, the countries
excluded from this category are Ireland, Spain, New Zealand, Australia, the
United Kingdom, Italy, the Netherlands, Belgium, Austria, France, Canada,
Germany, Denmark, the United States, Sweden, Finland, Norway, Japan, and
Switzerland.
FORWARD FOREIGN CURRENCY CONTRACTS
Forward foreign currency contracts involve obligations 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 the foreign currency. A 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
purchase 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. They may also be used 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 and for
which there appears to be a liquid secondary market.
Index futures are futures contracts for various indices that are traded on
registered securities exchanges. An 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 index at the
close of the last trading day of the contract and the price at which the
agreement is made.
B-8
<PAGE>
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 "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 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.
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.
GICS
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
B-9
<PAGE>
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.
HIGH YIELD SECURITIES
High yield securities, commonly referred to as junk bonds, are debt obligations
rated below investment grade, I.E., below BBB by Standard & Poor's Corporation
("S&P") or Baa by Moody's Investors Service, Inc. ("Moody's"), or their unrated
equivalents. The risks associated with investing in high yield securities
include:
(1) High yield, lower rated 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.
(2) 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 these
securities at their fair market values either to meet redemption requests,
or in response to changes in the economy or the financial markets.
(3) 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.
(4) The market for high risk, high yield securities may be adversely
affected by legislative and regulatory developments.
HEDGING TECHNIQUES
Hedging in an investment strategy designed to offset investment risks. Hedging
activities include, among other things, the use of options and futures. There
are risks associated with hedging activities, including: (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 a Fund and the prices of futures and option on
futures; (3) there may not be a liquid secondary market for a futures contract
or option; and (4) trading restrictions or limitations may be imposed by an
exchange, and government regulations may restrict trading in futures contracts
and options.
INDEXED SECURITIES
A Fund may purchase securities whose prices are indexed to the prices of other
securities, securities indices, currencies, precious metals or other
commodities, or other financial indicators. Indexed securities typically, but
not always, are debt securities or deposits whose value at maturity or coupon
rate is determined by reference to a specific instrument or statistic.
Gold-indexed securities, for example, typically provide for a maturity value
that depends on the price of gold, resulting in a security whose price tends to
rise and fall together with gold prices.
The performance of indexed securities depends to a great extent on the
performance of the security or other instrument to which they are indexed, and
may also be influenced by interest rate changes. At the same time, indexed
securities are subject to the credit risks associated with the issuer of the
security, and their values may decline substantially if the issuer's
creditworthiness deteriorates. Recent issuers of indexed securities have
included banks, corporations, and certain U.S. Government agencies. Indexed
securities may be more volatile than the underlying instruments.
B-10
<PAGE>
ILLIQUID SECURITIES
Illiquid securities are securities that cannot be disposed of within seven days
at approximately the price at which they are being carried on a Fund's books.
INVESTMENT COMPANY SHARES
The Funds may purchase shares of other mutual funds to the extent consistent
with applicable law. Investment companies typically incur fees that are
separate from those fees incurred directly by the Funds. A Fund's purchase of
such investment company securities results in the layering of expenses, such
that you would indirectly bear a proportionate share of investment company
operating expenses, such as advisory fees.
INVESTMENT GRADE OBLIGATIONS
Investment grade obligations are debt obligations rated BBB by S&P or Baa by
Moody's, or their unrated equivalents. These securities are deemed to have
speculative characteristics.
LOAN PARTICIPATIONS
Loan participations are interest in loans to U.S. corporations which are
administered by the lending bank or agent for a syndicate of lending banks.
In a loan participation, the borrower corporation is 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 the
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 the 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.
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, adjustable rate mortgages, and floating
mortgages.
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"), Fannie Mae, and the Federal Home Loan Mortgage
Corporation ("FHLMC"). Fannie Mae and FHLMC obligations are not backed by the
full faith and credit of the U.S.
B-11
<PAGE>
Government as GNMA certificates are, but Fannie Mae and FHLMC securities are
supported by the instrumentalities' right to borrow from the U.S. Treasury.
GNMA, Fannie Mae, and FHLMC each guarantees timely distributions of interest
to certificate holders. GNMA and Fannie Mae also guarantee timely
distributions of scheduled principal. In the past, FHLMC has only guaranteed
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.
Obligations of GNMA are backed by the full faith and credit of the United States
Government. Obligations of Fannie Mae and FHLMC are not backed by the full
faith and credit of the United States Government but are considered to 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.
PRIVATE PASS-THROUGH SECURITIES
Private pass-through securities are mortgage-backed securities issued by a
non-governmental agency, such as a trust. While they are generally structured
with one or more types of credit enhancement, private pass-through securities
generally lack a guarantee by an entity having the credit status of a
governmental agency or instrumentality. The two principal types of private
mortgage-backed securities are collateralized mortgage obligations ("CMOs") and
real estate mortgage investment conduits ("REMICs").
CMOS
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). CMOs are rated
in one of the two highest categories by S&P or Moody's. 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
B-12
<PAGE>
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.
REMICS
REMICs 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 and are rated in one of the
two highest categories by S&P or Moody's.
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 Fannie Mae or FHLMC represent
beneficial ownership interests in a REMIC trust consisting principally of
mortgage loans or Fannie Mae, FHLMC or GNMA-guaranteed mortgage pass-through
certificates. For FHLMC REMIC Certificates, FHLMC guarantees the timely payment
of interest. GNMA REMIC Certificates are backed by the full faith and credit of
the U.S. Government.
STRIPPED MORTGAGE-BACKED SECURITIES
Stripped mortgage-backed securities 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.
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.
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 (see "When-Issued Securities and
Municipal Forwards" for more information).
B-13
<PAGE>
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
make take the form of a lease, an installment purchase contract, an conditional
sales contract, or a participation interest in any of the above.
MUNICIPAL SECURITIES
MUNICIPAL BONDS
Municipal bonds include general obligation bonds, revenue or special obligation
bonds, private activity and industrial development bonds and participation
interests in municipal bonds. 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 (for example, tolls from a bridge). 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 totally dependent 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 the payment.
MUNICIPAL NOTES
Municipal notes 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 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 Funds 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 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
B-14
<PAGE>
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 issuance. Neither the Funds nor an Advisor
will review the proceedings relating to the issuance of municipal securities or
the basis for such opinions.
OPTIONS
A 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.
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.
B-15
<PAGE>
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 Fund 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.
OTHER INVESTMENTS
The Funds are not prohibited from investing in bank obligations issued by
clients of SEI Investments Company ("SEI Investments"), the parent company of
the Administrator and the Distributor. The purchase of Fund shares by these
banks or their customers will not be a consideration in deciding which bank
obligations the Fund will purchase. The Funds will not purchase obligations
issued by the Advisors.
PAY-IN-KIND SECURITIES
Pay-In-Kind securities are debt obligations or preferred stock, that pay
interest or dividends in the form of additional debt obligations or preferred
stock.
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.
B-16
<PAGE>
RESTRAINTS ON INVESTMENTS BY MONEY MARKET FUNDS
Investments by a money market fund are subject to limitations imposed under
regulations adopted by the SEC. 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) not
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 a 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 to the public without
registration under the Securities Act of 1933 (the "1933 Act") or an exemption
from registration. Permitted investments for the Funds include restricted
securities, and each such Fund may invest up to 15% of its net assets (10% for
the Money Market Funds) 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.
REVERSE REPURCHASE AGREEMENTS
In a reverse repurchase agreement a Fund sells a portfolio instrument to
another party, such as a bank or broker-dealer, in return for cash and agrees to
repurchase the instrument at a particular price and time. While a reverse
repurchase agreement is outstanding, a Fund will maintain appropriate liquid
assets in a segregated custodial account to cover its obligation under the
agreement. A Fund will enter into reverse repurchase agreements only with
parties whose creditworthiness has been found satisfactory by the Adviser. Such
transactions may increase fluctuations in the market value of a Fund's assets
and may be viewed as a form of leverage.
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 a Fund,
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,the
Fund will normally pay lending fees to such broker-dealers and related expenses
from the interest
B-17
<PAGE>
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.
SHORT-TERM OBLIGATIONS
Short-term obligations are debt obligations maturing (becoming payable) in 397
days or less, including commercial paper and short-term corporate obligations.
Short-term corporate obligations are short-term obligations issued by
corporations.
STANDBY COMMITMENTS AND PUTS
The 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 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.
B-18
<PAGE>
STRIPS
Separately Traded Interest and Principal Securities ("STRIPS") 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 Funds.
SUPRANATIONAL AGENCY OBLIGATIONS
Supranational agency obligations are obligations of supranational entities
established through the joint participation of several governments, including
the Asian Development Bank, Inter-American Development Bank, International Bank
for Reconstruction and Development (also known as the "World Bank"), African
Development Bank, European Economic Community, European Investment Bank, and the
Nordic Investment Bank.
SWAPS, CAPS, FLOORS, COLLARS
Swaps, caps, floors and collars are hedging tools designed to permit the
purchaser to preserve a return or spread on a particular investment or portion
of its portfolio. They are also used 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." This is done 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. This is 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. Meanwhile, 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 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.
TENDER OPTION BONDS
Tender Option Bonds are created by coupling an intermediate or long-term
tax-exempt bond (generally held pursuant to a custodial agreement) with a tender
agreement that gives the holder the option to tender the bond at its face value.
As consideration for providing the tender option, the sponsor (usually a bank,
broker-dealer, or other financial institution) receives periodic fees equal to
the difference between the bond's fixed coupon rate and the rate (determined by
a remarketing or similar agent) that would cause the bond, coupled with the
tender option, to
B-19
<PAGE>
trade at par on the date of such determination. After payment of the tender
option fee, a Fund effectively holds a demand obligation that bears interest at
the prevailing short-term tax-exempt rate. Subject to applicable regulatory
requirements, the money market Funds may buy tender option bonds if the
agreement gives a Fund the right to tender the bond to its sponsor no less
frequently than once every 397 days. In selecting tender option bonds for the
Funds, the Adviser will, pursuant to procedures established by the Board of
Directors, consider the creditworthiness of the issuer of the underlying bond,
the custodian, and the third party provider of the tender option. In certain
instances, a sponsor may terminate a tender option if, for example, the issuer
of the underlying bond defaults on interest payments.
TIME DEPOSITS
Time deposits are non-negotiable deposits in a banking institution earning a
specified interest rate over a given period of time. Time deposits with a
maturity of seven business days or more are considered illiquid.
U.S. GOVERNMENT AGENCY OBLIGATIONS
U.S. Government agency obligations are obligations issued or guaranteed by
agencies or instrumentalities of the U.S. Government. 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, Fannie Mae 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, 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. 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.
U.S. TREASURY OBLIGATIONS
U.S. Treasury obligations consist of bills, notes and bonds issued by the U.S.
Treasury. They also consist of separately traded interest and principal
component parts of these obligations that are transferable through the Federal
book-entry system known as Separately Traded Registered Interest and Principal
Securities (STRIPS).
VARIABLE AND FLOATING RATE SECURITIES
Variable and floating rate instruments involve certain obligations that 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 set 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.
B-20
<PAGE>
VARIABLE RATE MASTER DEMAND NOTES
Variable rate master demand 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. Variable rate master demand notes may or may not be backed
by bank letters of credit.
WARRANTS
Warrants give holders the right, but not the obligation, to buy shares of a
company at a given price, usually higher than the market price, during a
specified period.
WHEN-ISSUED SECURITIES AND MUNICIPAL FORWARDS
When-issued securities are securities that are delivered and paid for normally
within 45 days after the date of commitment to purchase. Municipal forwards
call for delivery of the underlying municipal security normally after 45 days
but before one year after the commitment date.
Although a Fund will only make commitments to purchase when-issued securities
and municipal forwards with the intention of actually acquiring the securities,
a Fund 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.
ZERO COUPON OBLIGATIONS
Zero coupon obligations are debt obligations that do not bear any interest, but
instead are issued at a deep discount from face value or par. The value of a
zero coupon obligation increases over time to reflect the interest accumulated.
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
face value or par and pay interest periodically.
Investors will receive written notification at least thirty days prior to any
change in a Fund's investment objective. The phrase "principally invests" as
used in the prospectus means that the Fund invests at least 65% of its assets in
B-21
<PAGE>
the securities as described in the sentence. Each tax-exempt fund invests at
least 80% of its total assets in securities with income exempt from federal
income and alternative minimum taxes.
INVESTMENT LIMITATIONS
The following are fundamental policies of each Portfolio and cannot be changed
with respect to a Portfolio without the consent of the holders of a majority of
that Portfolio's outstanding shares. The term "majority of the outstanding
shares" means the vote of (i) 67% or more of a Portfolio'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 Portfolio's outstanding shares,
whichever is less.
A 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 including 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. Borrow money, except that a Portfolio (a) may borrow money for temporary or
emergency purposes in an amount not exceeding 5% of the Portfolio's total
assets determined at the time of the borrowing and (b) may borrow money
from banks or by engaging in reverse repurchase agreements. Asset coverage
of at least 300% is required for all borrowings, except where a Portfolio
has borrowed money for temporary purposes in amounts not exceeding 5% of
its total assets;
3. Underwrite securities issued by others, except to the extent that the
Portfolio may be considered an underwriter within the meaning of the
Securities Act of 1933 (the "Securities Act") in the disposition of
restricted securities;
4. Issue senior securities (as defined in the 1940 Act), except as permitted
by rule, regulation or order of the Securities and Exchange Commission (the
"SEC");
5. Purchase the securities of any issuer (other than securities issued or
guaranteed by the U.S. Government or any of its agencies or
instrumentalities or securities issued by investment companies) if, as a
result, more than 25% of the Portfolio's total assets would be invested in
the securities of companies whose principal business activities are in the
same industry. In addition, each Portfolio may not invest more than 25% of
its assets in underlying STI Classic Funds that, as a matter of policy,
concentrate their assets in any one industry. However, a Portfolio may
indirectly invest more than 25% of its total assets in one industry through
its investments in the underlying STI Classic Funds. Each Portfolio may
invest up to 100% of its assets in securities issued by investment
companies;
6. Purchase or sell real estate, unless acquired as a result of ownership of
securities or other instruments (but this shall not prevent a Portfolio
from investing in securities or other instruments either issued by
companies that invest in real estate, backed by real estate or securities
of companies engaged in the real estate business);
7. Purchase or sell physical commodities, unless acquired as a result of
ownership of securities or other instruments; and
B-22
<PAGE>
8. Lend any security or make any other loan, except as permitted by the 1940
Act.
NON-FUNDAMENTAL POLICIES
No Portfolio may purchase or hold illiquid securities, i.e., securities that
cannot be disposed of for their approximate carrying value in seven days or less
(which term includes repurchase agreements and time deposits maturing in more
than seven days) if, in the aggregate, more than 15% of its net assets would be
invested in illiquid securities.
Each Portfolio does not currently intend to purchase securities on margin,
except that a Portfolio may obtain such short-term credits as are necessary for
the clearance of transactions.
Each Portfolio does not currently intend to sell securities short.
Each fund does not currently intend to purchase or sell futures contracts or put
or call options.
Each Portfolio may not invest in shares of unaffiliated money market funds,
except as permitted by the SEC.
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.
INVESTMENT ADVISOR
The Trust and Trusco Capital Management, Inc. (the "Advisor") have entered
into an advisory agreement with the Trust (the "Advisory Agreement"). The
Advisor is an indirect wholly-owned subsidiary of SunTrust Banks, Inc.
("SunTrust"). SunTrust is a southeastern regional bank holding company with
assets of $ 76 billion as of June 30, 1998. The Advisory Agreement provides
that the 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.
The 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
Portfolio's inability to qualify as a regulated investment company under
provisions of the Internal Revenue Code.
The continuance of the 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 Portfolios, by a majority of the outstanding shares of the
Portfolios, 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.
BANKING LAWS
B-23
<PAGE>
Current interpretations of federal banking laws and regulations:
- - prohibit SunTrust and the Advisor from sponsoring, organizing,
controlling, or distributing the Portfolios' shares; but
- - do not prohibit SunTrust or the Advisor generally from acting as an
investment advisor, transfer agent, or custodian to the Portfolios or
from purchasing Fund shares as agent for and upon the order of a customer.
The Advisor believes that they may perform advisory and related services for the
Trust without violating applicable banking laws or regulations. However, the
legal requirements and interpretations about the permissible activities of banks
and their affiliates may change in the future. These changes could prevent the
Advisor from continuing to perform services for the Trust. If this happens,
the Board of Trustees would consider selecting other qualified firms.
Shareholders would approve any new investment advisory agreements would be
subject to Shareholder approval.
If current restrictions on bank activities with mutual funds were relaxed, the
Advisors, or their affiliates, would consider performing additional services for
the Trust. We cannot predict whether these changes will be enacted. We also
cannot predict the terms that the Advisor, or its affiliates, might offer to
provide additional services.
THE ADMINISTRATOR
The Trust and SEI Investments Mutual Funds Services (the "Administrator") are
parties to the Administration Agreement. 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 Oaks, Pennsylvania 19456. SEI Investments Management Corporation ("SIMC"), a
wholly-owned subsidiary of SEI Investments Company ("SEI Investments"), is the
owner of all beneficial interest in the Administrator. SEI Investments and its
subsidiaries and affiliates, including 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 or sub-administrator to the following other mutual funds: The
Achievement Funds Trust, The Advisors' Inner Circle Fund, The Arbor Fund, ARK
Funds, Armada Funds, Bishop Street Funds, Boston 1784 Funds-Registered
Trademark-, CUFUND, The Expedition Funds, First American Funds, Inc., First
American Investment Funds, Inc., First American Strategy Funds, Inc., HighMark
Funds, Monitor Funds, The Nevis Fund, Inc., Oak Associates Funds, The PBHG
Funds, Inc., PBHG Advisor Funds, Inc., PBHG Insurance Series Fund, Inc., The
Pillar Funds, SEI Asset Allocation Trust, SEI Daily Income Trust, SEI Index
Funds, SEI Institutional International Trust, SEI Institutional International
Investments Trust, SEI Institutional Managed Trust, SEI Liquid Asset Trust, SEI
Tax Exempt Trust, STI Classic Variable Trust, TIP Funds and Alpha Select Funds.
For its administrative services, the Administrator is entitled to a fee, which
is calculated daily and paid monthly, at an annual rate of: ____% of the first
$____ billion of average aggregate net assets, ____% on the next $___ billion of
average aggregate net assets, ___% of the next $___ billion of average aggregate
net assets, ___% of the next $___ billion of average aggregate net assets, and
___% thereafter.
B-24
<PAGE>
THE DISTRIBUTOR
SEI Investments Distribution Co. (the "Distributor"), a wholly-owned subsidiary
of SEI, and the Trust have entered into a distribution agreement (the
"Distribution Agreement") dated May 29, 1992. Under the Distribution Agreement,
the Distributor must use all reasonable efforts, consistent with its other
business, in connection with the continuous offering of Shares of the Trust.
The Distributor will receive no compensation for distribution of Trust Shares.
THE TRANSFER AGENT
Federated Services Company, Federated Investors Tower, Pittsburgh, PA
15222-3779 serves as the Trust's transfer agent.
THE CUSTODIAN
SunTrust Bank, Atlanta, 303 Peachtree Street N.E., 14th Floor, Atlanta, GA
30308 serves as the custodian for the all of the Portfolios.
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen, LLP, serves as independent public accountants for the Trust.
LEGAL COUNSEL
Morgan, Lewis & Bockius LLP, serves as legal counsel to the Trust.
TRUSTEES AND OFFICERS OF THE TRUST
The Trustees supervise the management and affairs of the Trust. The Trustees
have approved contracts with certain companies that provide the Trust with
essential management services. The Trustees and Executive Officers of the
Trust, their respective dates of birth, and their principal occupations for the
last five years are set forth below. Each may have held other positions with
the named companies during that period. The business address of each Trustee
and each Executive Officer is SEI Investments Company, Oaks, Pennsylvania 19456.
Certain officers of the Trust also serve as officers of some or all of the
following: The Achievement Funds Trust, The Advisors' Inner Circle Fund, The
Arbor Fund, ARK Funds, Armada Funds, Bishop Street Funds, Boston
1784 Funds-Registered Trademark-, CUFUND, The Expedition Funds, First American
Funds, Inc., First American Investment Funds, Inc., First American Strategy
Funds, Inc., HighMark Funds, Monitor Funds, Morgan Grenfell Investment Trust,
The Nevis Fund, Inc., Oak Associates Funds, The PBHG Funds, Inc., PBHG Advisor
Funds, Inc., PBHG Insurance Series Fund, Inc., The Pillar Funds, SEI Asset
Allocation Trust, SEI Daily Income Trust, SEI Index Funds, SEI Institutional
International Trust, SEI Institutional Investments Trust, SEI Institutional
Managed Trust, SEI Liquid Asset Trust, SEI Tax Exempt Trust, STI Classic
Variable Trust, TIP Funds and Alpha Select Funds, each of which is an open-end
management investment company managed by SEI Fund Management or its affiliates
and, except for PBHG Advisor Funds, Inc., are distributed by SEI Investments
Distribution Co.
DANIEL S. GOODRUM (7/11/26) - Trustee* - 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.
B-25
<PAGE>
WILTON LOONEY (4/18/19) - Trustee* - 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.
CHAMPNEY A. MCNAIR (10/30/24) - Trustee* - 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 - Retired. President, Orange County
Publishing Co., Inc., 1981-1997, publisher of the Paoli News and the Paoli
Republican and Editor of the Paoli Republican, 1981-1997, President, H & W
Distribution, Inc., 1984-1997. 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 - 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 - Director, Stavros Center for
Economic Education, Florida State University, 1991-present. 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* - Executive Vice President, SunTrust Banks,
Inc., 1985-1994; Director of Crawford & Company since 1979; Member, Atlanta
Estate Planning Council, 1988-1993.
JONATHAN T. WALTON (3/28/30) - Trustee - Retired. Executive Vice President, NBD
Bank, N.A. and NBD Bancorp, October 1956 to March 1995. Trustee, W.K. Kellogg
Trust.
WILLIAM H. CAMMACK (11/24/29) - Trustee* - Chairman & Director, SunTrust
Equitable Securities Corporation, January, 1998-present. Chairman and CEO,
Equitable Asset Management, Inc., December 1993-present. Chairman & CEO,
Equitable Trust Company, June 1991-present. Chairman, Equitable Securities
Corporation, July 1972 - January 1998.
MARK NAGLE (10/20/59) - President and Chief Executive Officer - Vice President
and Controller, Funds Accounting since 1996. Vice President of the Administrator
and Distributor since 1996. Vice President of Fund Accounting - BISYS Fund
Services 1995-1996. Senior Vice President - Fidelity Investments 1981-1995.
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.
B-26
<PAGE>
LYDIA A. GAVALIS (6/5/64) - Vice President and Assistant Secretary - Vice
President and Assistant Secretary of the Administrator and the Distributor since
1998. Assistant General Counsel and Director of Arbitration, Philadelphia Stock
Exchange, 1989-1998.
KATHY HEILIG (12/21/58) - Vice President and Assistant Secretary - Treasurer of
SEI Investments Company since 1997. Assistant Controller of SEI Investments
Company since 1995. Vice President of SEI Investments Company since 1991.
JOSEPH M. O'DONNELL (11/13/54) - Vice President and Assistant Secretary - Vice
President and Assistant Secretary of the Administrator and the Distributor since
1998. Vice President and General Counsel, FPS Services, Inc., 1993-1997.
SANDRA K. ORLOW (10/18/53) - Vice President, Assistant Secretary - Vice
President and Assistant Secretary of the Administrator and Distributor since
1983.
LYNDA J. STRIEGEL (10/30/48) - Vice President and Assistant Secretary - Vice
President and Assistant Secretary of the Administrator and the Distributor since
1998. Senior Asset Management Counsel, Barnett Banks, Inc., 1997-1998.
Partner, Groom and Nordberg, Chartered, 1996-1997. Associate General Counsel,
Riggs Bank, N.A., 1991-1995.
KEVIN P. ROBINS (4/15/61) - Vice President, Assistant Secretary - Senior Vice
President & General Counsel of SEI Investments, the Administrator and the
Distributor since 1994. Vice President of SEI, the Administrator and the
Distributor, 1992-1994.
KATHRYN L. STANTON (11/19/58) - Vice President, Assistant Secretary - Vice
President, Assistant Secretary of SEI Investments, the Administrator and
Distributor since 1994. Associate, Morgan, Lewis & Bockius LLP (law firm),
1989-1994.
CAROL ROONEY (5/8/64) - Controller, Chief Financial Officer - A Director of SEI
Investments Mutual Funds Services since 1992.
RICHARD W. GRANT (10/25/45) - Secretary - 1701 Market Street, Philadelphia,
Pennsylvania 19103. Partner, Morgan, Lewis & Bockius LLP (law firm), counsel
to the Trust, Administrator and Distributor, since 1989.
JOHN H. GRADY, JR. (6/1/61) - Assistant Secretary - 1701 Market Street,
Philadelphia, Pennsylvania 19103. Partner, Morgan, Lewis & Bockius LLP (law
firm) since 1995, counsel to the Trust, Administrator and Distributor.
Associate, Morgan, Lewis & Bockius LLP, 1993-1995.
- -------------------------
* Messrs. Looney, Goodrum, McNair, Hall and Cammack may be deemed to be
"interested persons" 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 x/xx/xx, the Trust paid the following amounts to
Trustees and Officers of the Trust:
B-27
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
ESTIMATED
PENSION OR ANNUAL TOTAL COMPENSATION
AGGREGATE RETIREMENT BENEFITS FROM FUND AND FUND
COMPENSATION BENEFITS UPON COMPLEX PAID TO
NAME OF PERSON, FROM FUND ACCRUED AS PART RETIREMENT TRUSTEES
POSITION OF FUND
EXPENSES
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Daniel S. $ N/A N/A $ for service on two
Goodrum, Trustee boards
- ----------------------------------------------------------------------------------------------------
Wilton Looney, Trustee $ N/A N/A $ for service on two
boards
- ----------------------------------------------------------------------------------------------------
Champney A. McNair, $ N/A N/A $ for service on two
Trustee boards
- ----------------------------------------------------------------------------------------------------
F. Wendell Gooch, Trustee $ N/A N/A $ for service on two
boards
- ----------------------------------------------------------------------------------------------------
T. Gordy Germany, $ N/A N/A $ for service on two
Trustee boards
- ----------------------------------------------------------------------------------------------------
Dr. Bernard F. Sliger, $ N/A N/A $ for service on two
Trustee boards
- ----------------------------------------------------------------------------------------------------
Jesse S. Hall, Trustee $ N/A N/A $ for service on two
boards
- ----------------------------------------------------------------------------------------------------
Jonathan T. Walton, $ N/A N/A $ for service on two
Trustee* boards
- ----------------------------------------------------------------------------------------------------
William H. Cammack, $ N/A N/A $ for service on two
Trustee boards
- ----------------------------------------------------------------------------------------------------
</TABLE>
*Messr. Walton's compensation reflects a starting date of June 19, 1998.
PERFORMANCE INFORMATION
From time to time a Fund may advertise its performance. Performance figures are
based on historical earnings and are not intended to indicate future
performance.
PERFORMANCE COMPARISONS
Each Portfolio 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. These comparisons may assume reinvestment of
dividends but generally do not reflect deductions for administrative and
management costs.
COMPUTATION OF YIELD
B-28
<PAGE>
THIRTY-DAY YIELD
The Portfolios may advertise a 30-day yield. In particular, yield will be
calculated according to the following formula:
6
Yield = (2 (a-b/cd + 1) - 1) where a = dividends and interest earned during the
period; b = expenses accrued for the period (net of reimbursement); c = the
average 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.
CALCULATION OF TOTAL RETURN
From time to time, the Portfolios may advertise total return. In particular,
n
total return will be calculated according to the following formula: P (1 + T)
= 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 Investment's database includes
research data on over 1,000 investment managers responsible for over $450
billion in assets.
PURCHASING SHARES
Purchases and redemptions of shares of the Portfolios may be made on any day the
New York Stock Exchange ("NYSE") is open for business. Currently, the NYSE is
closed on: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.
REDEEMING SHARES
A Shareholder will at all times be entitled to aggregate cash redemptions from
all Portfolios 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 Portfolio'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.
A number of Fund shareholders are institutions with significant share holdings
that may be redeemed at any time. If a substantial number or amount of
redemptions should occur within a relatively short period of time, a Fund may
have to sell portfolio securities it would otherwise hold and incur the
additional transaction costs. The sale of portfolio securities may result in
the recognition of capital gains, which will be distributed annually and
generally
B-29
<PAGE>
will be taxable to shareholders as ordinary income or capital gains.
Shareholders are notified annually regarding the federal tax status of
distributions they receive (see "Taxes").
TAXES
The following is a summary of certain Federal income tax considerations
generally affecting the Portfolios and their shareholders that are not described
in the Portfolios' prospectus. No attempt is made to present a detailed
explanation of the Federal tax treatment of the Portfolios or their
Shareholders, and the discussion here and in the Portfolios' prospectus is not
intended as a substitute for careful tax planning.
This discussion of Federal income tax consequences is based on the Internal
Revenue Code of 1986, as amended (the "Code"), and the regulations issued
thereunder, in effect on the date of this Statement of Additional Information.
New legislation, as well as administrative changes or court decisions, may
change the conclusions expressed herein, and may have a retroactive effect with
respect to the transactions contemplated herein.
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
investment 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
Portfolio's gross income each taxable year must be derived from dividends,
interest, payments with respect to securities loans, and gains from the sale or
other disposition of stock or securities, or certain other income; (ii) at the
close of each quarter of a Portfolio'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 of any one issuer, to an amount that does not
exceed 5% of the value of a Portfolio's assets and that does not represent more
than 10% of the outstanding voting securities of such issuer; and (iii) at the
close of each quarter of a Portfolio'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.
In addition, each fund will 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. 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.
If, at the close of each quarter of its taxable year, at least 50% of the value
of a Portfolio's total assets consists of obligations the interest on which is
excludable from gross income, a Fund may pay "exempt-interest dividends," as
defined in Section 852(b)(5) of the Code, to its shareholders.
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
long-term capital gain or loss if the shares have been held for more than
eighteen months, mid-term if the shares have been held for over one year but not
for over eighteen months, and short-term if for a year or less. Any loss
realized on a sale or exchange will be disallowed to the extent the shares
disposed of are replaced within the 61-day period beginning 30 days before
and ending 30 days after the shares are disposed of. Any loss realized by a
shareholder on the disposition of shares held 6 months or less is treated as
a long-term capital loss to the extent of any distributions of net long-term
capital gains received by the shareholder with respect to such shares or any
inclusion of undistributed capital gain with respect to such shares.
B-30
<PAGE>
The Portfolios will make annual reports to Shareholders of the Federal income
tax status of all distributions.
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 Portfolio's stock or 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.
PORTFOLIO TRANSACTIONS
The Portfolios will primarily invest in shares of the underlying CrestFunds.
Orders for transactions in these underlying funds will be placed with SEI
Investments Distribution Co., distributor for the underlying CrestFunds and the
Portfolios.
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.
The Trust may allocate out of all commission business generated by all of the
Portfolios 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 Portfolios 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,
B-31
<PAGE>
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 Portfolios receiving the pricing service.
An Advisor may place a combined order for two or more accounts or Portfolios
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 Portfolios. 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 Conduct Rules of the National Association of Securities
Dealers, Inc., and subject to seeking best price and execution, the Portfolios,
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.
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 enumeration 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.
DESCRIPTION OF SHARES
The Declaration of Trust authorizes the issuance of an unlimited number of
shares and classes of shares of the Portfolios 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 Portfolios.
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.
B-32
<PAGE>
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
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.
YEAR 2000
The Trust depends on the smooth functioning of computer systems in almost every
aspect of its business. Like other mutual funds, businesses and individuals
around the world, the Trust could be adversely affected if the computer systems
used by its service providers do not properly process dates on and after January
1, 2000 and distinguish between the year 2000 and the year 1900. The Trust has
asked its service providers whether they expect to have their computer systems
adjusted for the year 2000 transition, and received assurances from each from
each that its system is expected to accommodate the year 2000 without material
adverse consequences to the Trust. The Trust and its shareholders may
experience losses if these assurances prove to be incorrect or as a result of
year 2000 computer difficulties experienced by issuers of portfolio securities
or third parties, such as custodians, banks, broker-dealers or others with which
the Trust does business.
5% AND 25% SHAREHOLDERS
As of _____, 1999, 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 Portfolios. Persons who owned of record or
beneficially more than 25% of a Portfolio'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 Portfolios were held for the record owner's
fiduciary, agency or custodial customers.
B-33
<PAGE>
TRUST SHARES
FUND NAME AND NUMBER OF SHARES % OF CLASS
ADDRESS
STI Maximum Growth
Portfolio
STI Growth and Income
Portfolio
STI Balanced Portfolio
EXPERTS
The financial statements as of x/xx/xx have been audited by _____________,
Independent Public Accountants, as indicated in their report dated ___________,
1999 with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said report.
B-34
<PAGE>
STI CLASSIC FUNDS
PART C: OTHER INFORMATION
POST-EFFECTIVE AMENDMENT NO. 26
ITEM 23. EXHIBITS:
<TABLE>
<S> <C>
(a) Declaration of Trust--originally filed with Registrant's Registration Statement on
Form N-1A filed February 12, 1992 and incorporated by reference to Exhibit 1 of
Post-Effective Amendment No. 15 to the Registrant's Registration Statement filed
with the SEC via EDGAR Accession No. 0000912057-96-015938 on July 31, 1996.
(b)(1) By-Laws--originally filed with Registrant's Pre-Effective Amendment No. 1 filed
April 23, 1992 and incorporated by reference to Exhibit 2 of Post-Effective
Amendment No. 15 to the Registrant's Registration Statement filed with the SEC via
EDGAR Accession No. 0000912057-96-015938 on July 31, 1996.
(b)(2) Amended By-Laws--incorporated by reference to Exhibit (b)(2) of Post-Effective
Amendment No. 23 to the Registrant's Registration Statement filed with the SEC via
EDGAR Accession No. 0001047469-98-027407 on July 15, 1998.
(c) Not applicable.
(d)(1) Revised Investment Advisory Agreement with Trusco Capital Management, Inc.--as
originally filed with Registrant's Post-Effective Amendment No. 5 filed August 2,
1993 and incorporated by reference to Exhibit 5(c) of Post-Effective Amendment No.
15 to the Registrant's Registration Statement filed with the SEC via EDGAR Accession
No. 0000912057-96-015938 on July 31, 1996.
(d)(2) Investment Advisory Agreement with American National Bank and Trust Company--as
originally filed with Registrant's Post-Effective Amendment No. 6 filed October 22,
1993 and as Exhibit 5(d) of Post-Effective Amendment No. 15 to the Registrant's
Registration Statement filed with the SEC via EDGAR Accession No.
0000912057-96-015938 on July 31, 1996.
(d)(3) Investment Advisory Agreement with Sun Bank Capital Management, National Association
(now STI Capital Management, N.A.--as originally filed with Registrant's
Post-Effective Amendment No. 6 filed October 22, 1993 and incorporated by reference
to Exhibit 5(e) of Post-Effective Amendment No. 15 to the Registrant's Registration
Statement filed with the SEC via EDGAR Accession No. 0000912057-96-015938 on July
31, 1996.
(d)(4) Investment Advisory Agreement with Trust Company Bank (now SunTrust Bank,
Atlanta)--as originally filed with Registrant's Post-Effective Amendment No. 6 filed
October 22, 1993 and incorporated by reference to Exhibit D(4) of Post-Effective
Amendment No. 24 to the Registrant's Statement filed with the SEC via EDGAR
Accession No. 0001047469-98-028802 on July 30, 1998.
(e) Distribution Agreement--incorporated by reference to Exhibit 6 of Post-Effective
Amendment No. 16 to the Registrant's Registration Statement filed with the SEC via
EDGAR Accession No. 0000912057-96-021336 on September 27, 1996.
(f) Not applicable.
(g)(1) Custodian Agreement with Trust Company Bank dated February 1, 1994--originally filed
with Registrant's Post-Effective Amendment No. 13 filed September 28, 1995 and
incorporated by reference to Exhibit 8(b) of Post-Effective Amendment No. 15 to the
Registrant's Registration
</TABLE>
C-1
<PAGE>
<TABLE>
<S> <C>
Statement filed with the SEC via EDGAR Accession No. 0000912057-96-015938 on July
31, 1996.
(g)(2) Custodian Agreement with the Bank of California--incorporated by reference to
Exhibit 8(a) of Post-Effective Amendment No. 15 to the Registrant's Registration
Statement filed with the SEC via EDGAR Accession No. 0000912057-96-015938 on July
31, 1996.
(g)(3) Fourth Amendment to Custodian Agreement by and between STI Trust & Investment
Operations, Inc. and The Bank of New York dated May 6, 1997--incorporated by
reference to Exhibit 8(d) of Post-Effective Amendment No. 21 to the Registrant's
Registration Statement filed with the SEC via EDGAR Accession No.
0000912057-97-032207 on September 30, 1997.
(h)(1) Transfer Agent Agreement with Federated Services Company dated May 14,
1994--originally filed with Post-Effective Amendment No. 9 filed September 22, 1994
and incorporated by reference to Exhibit 8(c) of Post-Effective Amendment No. 15 to
the Registrant's Registration Statement filed with the SEC via EDGAR Accession No.
0000912057-96-015938 on July 31, 1996.
(h)(2) Administration Agreement with SEI Financial Management Corporation dated May 29,
1995--originally filed with Post-Effective Amendment No. 12 filed August 17, 1995
and incorporated by reference to Exhibit 9(a) of Post-Effective Amendment No. 15 to
the Registrant's Registration Statement filed with the SEC via EDGAR Accession No.
0000912057-96-015938 on July 31, 1996.
(h)(3) Consent to Assignment and Assumption of the Administration Agreement between STI
Classic Funds and SEI Financial Management Corporation--incorporated by reference to
Exhibit 9(b) of Post-Effective Amendment No. 21 to the Registrant's Registration
Statement filed with the SEC via EDGAR Assession No. 0000912057-97-032207 on
September 30, 1997.
(i) Opinion and Consent of Counsel--originally filed with Pre-Effective Amendment No. 2
to the Registrant's Registration Statement on May 22, 1992 and incorporated by
reference to Exhibit (i) of Post-Effective Amendment No. 23 to the Registrant's
Registration Statement filed with the SEC via EDGAR Accession No.
0001047469-98-027407 on July 15, 1998.
(j) Not applicable.
(k) Not applicable.
(l) Not applicable.
(m)(1) Distribution Plan--Investor Class--incorporated by reference to Exhibit 15 of
Post-Effective Amendment No. 16 to the Registrant's Registration Statement filed
with the SEC via EDGAR Accession No. 0000912057-96-021336 on September 27, 1996.
(m)(2) Distribution and Service Agreement relating to Flex Shares dated May 29,
1995--originally filed with Post-Effective Amendment No. 12 filed August 17, 1995
and incorporated by reference to Exhibit 15(a) of Post-Effective Amendment No. 15 to
the Registrant's Registration Statement filed with the SEC via EDGAR Accession No.
0000912057-96-015938 on July 31, 1996.
(n) Not applicable.
</TABLE>
C-2
<PAGE>
<TABLE>
<S> <C>
(o) Rule 18f-3 Plan--incorporated by reference to Exhibit (o) of Post-Effective
Amendment No. 23 to the Registrant's Registration Statement filed with the SEC via
EDGAR Accession No. 0001047469-98-027407 on July 15, 1998.
(p) Powers of Attorney--incorporated by reference to Exhibit (p) of Post-Effective
Amendment No. 24 to the Registrant's Statement filed with the SEC via EDGAR
Accession No. 0001047469-98-028802 on July 30, 1998.
</TABLE>
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT:
See the Prospectuses and Statement of Additional Information regarding the
Trust's control relationships. The Administrator is a subsidiary of SEI
Investments which also controls the distributor of the Registrant, SEI
Investments Distribution Co., and other corporations engaged in providing
various financial and record keeping services, primarily to bank trust
departments, pension plan sponsors, and investment managers.
ITEM 25. INDEMNIFICATION:
Article VIII of the Agreement of Declaration of Trust filed as Exhibit (a)
to the Registration Statement is incorporated by reference. Insofar as
indemnification for liabilities arising under the Securities Act of 1933 may be
permitted to trustees, directors, officers and controlling persons of the
Registrant by the Registrant pursuant to the Declaration of Trust or otherwise,
the Registrant is aware that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Act and, therefore, is unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by trustees, directors, officers or
controlling persons of the Registrant in connection with the successful defense
of any act, suit or proceeding) is asserted by such trustees, directors,
officers or controlling persons in connection with the shares being registered,
the Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issues.
C-3
<PAGE>
Item 26. Business and Other Connections of Investment Advisors:
Other business, profession, vocation, or employment of a substantial nature
in which each director or principal officer of each Advisor is or has been, at
any time during the last two fiscal years, engaged for his own account or in the
capacity of director, officer, employee, partner or trustee are as follows:
<TABLE>
<CAPTION>
NAME OF CONNECTION WITH
NAME OTHER COMPANY OTHER COMPANY
- ------------------------------------ ------------------------------------ ------------------------------------
<S> <C> <C>
STI CAPITAL MANAGEMENT, N.A.
E. Jenner Wood III SunTrust Banks, Inc. --
Director
Hunting F. Deutsch SunTrust Bank, Orlando --
Director
Anthony R. Gray -- --
Chairman & Chief Investment Officer
James R. Wood -- --
President
Elliott A. Perny -- --
Executive Vice President
Stuart F. Van Arsdale -- --
Senior Vice President
Jonathan D. Rich -- --
Director
Larry M. Cole -- --
Senior Vice President
L. Earl Denney -- --
Executive Vice President
Ronald Schwartz -- --
Senior Vice President
Andre B.Prawato -- --
Senior Vice President
Edward J. Dau -- --
Senior Vice President
James K. Wood -- --
Senior Vice President
Mills A. Riddick -- --
Senior Vice President
Christopher A. Jones -- --
Senior Vice President
David E. West -- --
Vice President
Brett L. Barner -- --
Senior Vice President
</TABLE>
C-4
<PAGE>
<TABLE>
<CAPTION>
NAME OF CONNECTION WITH
NAME OTHER COMPANY OTHER COMPANY
- ------------------------------------ ------------------------------------ ------------------------------------
<S> <C> <C>
TRUSCO CAPITAL MANAGEMENT, INC.
Douglas S. Phillips -- --
President
Paul L. Robertson, III -- --
Secretary/Treasurer
E. Jenner Wood SunTrust Banks, Inc. Director
Director
Donald W. Thurmond SunTrust Bank, Atlanta Director
Director
Bob M. Farmer -- --
Vice President
M. Elizabeth (Beth) Wines -- --
Vice President
Charles Arnold, Jr. -- --
Senior Vice President
James R. Dillon, Jr. -- --
First Vice President
James P. Foster -- --
Vice President
Mark D. Garfinkel -- --
Vice President
Robert (Bob) G. Goggin -- --
Vice President
Joe E. Ransom -- --
Vice President
George D. Smith, Jr. -- --
Vice President
Jonathan Mote -- --
Vice President
Charles B. Leonard -- --
First Vice President
Mary F. Cernilli -- --
Vice President
Garrett P. Smith -- --
Vice President
Gregory L. Watkins -- --
Vice President
David S. Yealy -- --
Vice President
Robert J. Rhoades -- --
Senior Vice President
Kar Ming Leong -- --
Vice President
</TABLE>
C-5
<PAGE>
<TABLE>
<CAPTION>
NAME OF CONNECTION WITH
NAME OTHER COMPANY OTHER COMPANY
- ------------------------------------ ------------------------------------ ------------------------------------
<S> <C> <C>
Stephen M. Yarbrough -- --
Vice President
Celia S. Stanley -- --
Vice President
Rebekah R. Alley -- --
Vice President
SUNTRUST BANK, ATLANTA
Robert R. Long SunTrust Banks of Georgia, Inc. Chairman of the Board
Chairman of the Board and President
Ronald S. Crowding -- Executive Vice President
Executive Vice President
Charles B. Ginden -- --
Executive Vice President
William H. Rogers, Jr. -- --
Executive Vice President
Donald Wayne Thurmond -- --
Executive Vice President
Dr. William M. Chase Emory University President
Director
Gaylord O. Coan Gold Kist, Inc. CEO
Director
A.D. Correll Georgia-Pacific Corporation Chairman & CEO
Director
R.W. Courts, II Atlantic Realty Company President
Director
A.W. Dahlberg The Southern Company President, Chairman & CEO
Director
L. Phillip Humann SunTrust Banks, Inc. President, Chairman & CEO
Director Services Corporation
William B. Johnson The Ritz Carlton Hotel Chairman of the Board
Director
J. Hicks Lanier Oxford Industries, Inc. Chairman of the Board & President
Director Pinehill Development Co. 30% owner
Joseph L. Lanier, Jr. Dan River, Inc. Chairman of the Board Chairman
Director
Larry L. Prince Genuine Parts Company Chairman of the Board
Director
</TABLE>
C-6
<PAGE>
<TABLE>
<CAPTION>
NAME OF CONNECTION WITH
NAME OTHER COMPANY OTHER COMPANY
- ------------------------------------ ------------------------------------ ------------------------------------
<S> <C> <C>
R. Randall Rollins Rollins, Inc. Chairman of the Board
Director Lor, Inc. Director
Maran, Inc. Director
Gutterworld, Inc. Director
Dabora, Inc. Director & Secretary
Simpson, Nance & Graham Director
Auto Parts Wholesale, Inc. Director
Global Expanded Metal, Inc. Director
Rollins Holding Co. Director
Rol, Ltd. Partner
Rollins Investment Fund Partner
Energy Partners Partner
Petro Partnership Partner
The Piedmont Investment Group Director
WRG, Ltd. Partner
Rollins, Inc. Chairman
RPC Energy Services, Inc. Chairman
The Mul Company Partner
Bugvac, Inc. Director
Omnitron Int'l, Inc. Director
MRG, Ltd. Partner
Gerald T. Adams -- --
Senior Vice President
James R. Albach -- --
Group Vice President
Gay Cash -- --
Vice President
Joseph B. Foley, Jr. -- --
Group Vice President
Thomas R. Frisbie -- --
Group Vice President
Mark Stancil -- --
Group Vice President
David E. Thompson -- --
Vice President
Charles C. Watson -- --
Group Vice President
Dr. Mary B. Bullock Agnes Scott College President
Director
Larry L. Gellerstedt, III Beers Construction Co. Chairman
Director
John T. Glover Post Properties, Inc. President
Director
M. Douglas Ivester The Coca-Cola Company Chairman of the Board & CEO
Director
</TABLE>
C-7
<PAGE>
<TABLE>
<CAPTION>
NAME OF CONNECTION WITH
NAME OTHER COMPANY OTHER COMPANY
- ------------------------------------ ------------------------------------ ------------------------------------
<S> <C> <C>
Dennis M. Love Printpack, Inc. President & CEO
Director
Charles H. McTier Robert Woodruff Foundation President
Director
</TABLE>
Item 27. Principal Underwriters:
(a) Furnish the name of each investment company (other than the Registrant) for
which each principal underwriter currently distributing the securities of
the Registrant also acts as a principal underwriter, distributor or
investment adviser.
Registrant's distributor, SEI Investments Distribution Co. (the
"Distributor"), acts as distributor for:
<TABLE>
<S> <C>
SEI Daily Income Trust July 15, 1982
SEI Liquid Asset Trust November 29, 1982
SEI Tax Exempt Trust December 3, 1982
SEI Index Funds July 10, 1985
SEI Institutional Managed Trust January 22, 1987
SEI Institutional International Trust August 30, 1988
The Advisors' Inner Circle Fund November 14, 1991
The Pillar Funds February 28, 1992
CUFUND May 1, 1992
First American Funds, Inc. November 1, 1992
First American Investment Funds, Inc. November 1, 1992
The Arbor Fund January 28, 1993
Boston 1784 Funds-Registered Trademark- June 1, 1993
The PBHG Funds, Inc. July 16, 1993
Morgan Grenfell Investment Trust January 3, 1994
The Achievement Funds Trust December 27, 1994
Bishop Street Funds January 27, 1995
CrestFunds, Inc. March 1, 1995
STI Classic Variable Trust August 18, 1995
ARK Funds November 1, 1995
Huntington Funds January 11, 1996
SEI Asset Allocation Trust April 1, 1996
TIP Funds April 28, 1996
SEI Institutional Investments Trust June 14, 1996
First American Strategy Funds, Inc. October 1, 1996
HighMark Funds February 15, 1997
Armada Funds March 8, 1997
PBHG Insurance Series Fund, Inc. April 1, 1997
The Expedition Funds June 9, 1997
Alpha Select Funds January 1, 1998
</TABLE>
C-8
<PAGE>
<TABLE>
<S> <C>
Oak Associates Funds February 27, 1998
The Nevis Fund, Inc. June 29, 1998
The Parkstone Group of Funds September 14, 1998
</TABLE>
The Distributor provides numerous financial services to investment managers,
pension plan sponsors, and bank trust departments. These services include
portfolio evaluation, performance measurement and consulting services ("Funds
Evaluation") and automated execution, clearing and settlement of securities
transactions ("MarketLink").
(b) Furnish the Information required by the following table with respect to each
director, officer or partner of each principal underwriter named in the
answer to Item 21 of Part B. Unless otherwise noted, the business address of
each director or officer is Oaks, PA 19456.
<TABLE>
<CAPTION>
POSITION AND OFFICE POSITIONS AND OFFICES
NAME WITH UNDERWRITER WITH REGISTRANT
- ------------------------------------ ------------------------------------ ------------------------------------
<S> <C> <C>
Alfred P. West, Jr. Director, Chairman of the Board of --
Directors
Henry H. Greer Director --
Carmen V. Romeo Director --
Mark J. Held President & Chief Operating Officer --
Gilbert L. Beebower Executive Vice President --
Richard B. Lieb Executive Vice President --
Dennis J. McGonigle Executive Vice President --
Robert M. Silvestri Chief Financial Officer & Treasurer --
Leo J. Dolan, Jr. Senior Vice President --
Carl A. Guarino Senior Vice President --
Larry Hutchison Senior Vice President --
Jack May Senior Vice President --
Hartland J. McKeown Senior Vice President --
Barbara J. Moore Senior Vice President --
Kevin P. Robins Senior Vice President & General Vice President & Assistant Secretary
Counsel
Patrick K. Walsh Senior Vice President --
Robert Aller Vice President --
Gordon W. Carpenter Vice President --
Todd Cipperman Vice President & Assistant Secretary Vice President & Assistant Secretary
S. Courtney E. Collier Vice President & Assistant Secretary --
Robert Crudup Vice President & Managing Director --
Barbara Doyne Vice President --
Jeff Drennen Vice President --
</TABLE>
C-9
<PAGE>
<TABLE>
<CAPTION>
POSITION AND OFFICE POSITIONS AND OFFICES
NAME WITH UNDERWRITER WITH REGISTRANT
- ------------------------------------ ------------------------------------ ------------------------------------
<S> <C> <C>
Vic Galef Vice President & Managing Director --
Lydia A. Gavalis Vice President & Assistant Secretary Vice President & Assistant Secretary
Greg Gettinger Vice President & Assistant Secretary --
Kathy Heilig Vice President Vice President & Assistant Secretary
Jeff Jacobs Vice President --
Samuel King Vice President --
Kim Kirk Vice President & Managing Director --
John Krzeminski Vice President & Managing Director --
Carolyn McLaurin Vice President & Managing Director --
W. Kelso Morrill Vice President --
Mark Nagle Vice President President & Chief Executive Officer
Joanne Nelson Vice President --
Joseph M. O'Donnell Vice President & Assistant Secretary Vice President & Assistant Secretary
Sandra K. Orlow Vice President & Secretary Vice President & Assistant Secretary
Cynthia M. Parrish Vice President & Assistant Secretary --
Kim Rainey Vice President --
Rob Redican Vice President --
Maria Rinehart Vice President --
Mark Samuels Vice President & Managing Director --
Steve Smith Vice President --
Daniel Spaventa Vice President --
Kathryn L. Stanton Vice President & Assistant Secretary Vice President & Assistant Secretary
Lynda J. Striegel Vice President & Assistant Secretary Vice President & Assistant Secretary
Lori L. White Vice President & Assistant Secretary --
Wayne M. Withrow Vice President & Managing Director --
</TABLE>
C-10
<PAGE>
Item 28. Location of Accounts and Records:
Books or other documents required to be maintained by Section 31(a) of the
Investment Company Act of 1940, and the rules promulgated thereunder, are
maintained as follows:
(a) With respect to Rules 31a-1(a); 31a-1(b)(1); (2)(a) and (b); (3); (6);
(8); (12); and 31a-1(d), the required books and records are maintained at
the offices of Registrant's Custodians:
Trust Company Bank
Park Place
P.O. Box 105504
Atlanta, Georgia 30348
Bank of New York
One Wall Street
New York, New York
(International Equity Index Fund, International Equity Fund, Emerging
Markets Equity Fund)
(b)/(c)With respect to Rules 31a-1(a); 31a-1(b)(1),(4); (2)(C) and (D); (4);
(5); (6); (8); (9); (10); (11); and 31a-1(f), the required books and
records are maintained at the offices of Registrant's Administrator:
SEI Investments Mutual Funds Services
One Freedom Valley Road
Oaks, Pennsylvania 19456
(c) With respect to Rules 31a-1(b)(5), (6), (9) and (10) and 31a-1(f), the
required books and records are maintained at the principal offices of the
Registrant's Advisors:
STI Capital Management, N.A.
P.O. Box 3808
Orlando, Florida 32802
Trusco Capital Management
50 Hurt Plaza, Suite 1400
Atlanta, Georgia 30303
SunTrust Bank, Atlanta
25 Park Place
Atlanta, Georgia 30303
Item 29. Management Services: None.
Item 30. Undertakings: None.
NOTICE
A copy of the Agreement and Declaration of Trust for STI Classic Funds is on
file with the Secretary of State of The Commonwealth of Massachusetts and notice
is hereby given that this Registration Statement has been executed on behalf of
the Trust by an officer of the Trust as an officer and by its Trustees as
trustees and not individually and the obligations of or arising out of this
Registration Statement are not binding upon any of the Trustees, officers, or
Shareholders individually but are binding only upon the assets and property of
the Trust.
C-11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 (the "Securities
Act") and the Investment Company Act of 1940, as amended and has duly caused
this Post-Effective Amendment No. 26 to Registration Statement No. 33-45671 to
be signed on its behalf by the undersigned, duly authorized, in the City of
Oaks, Commonwealth of Pennsylvania on the 26th day of January, 1999.
<TABLE>
<S> <C> <C>
By: /s/ MARK NAGLE
-----------------------------------------
Mark Nagle, President and Chief Executive
Officer
</TABLE>
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed below by the following persons in the capacity on the
dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
*
- ------------------------------ Trustee January 26, 1999
F. Wendell Gooch
*
- ------------------------------ Trustee January 26, 1999
Daniel S. Goodrum
*
- ------------------------------ Trustee January 26, 1999
Jesse S. Hall
*
- ------------------------------ Trustee January 26, 1999
Wilton Looney
*
- ------------------------------ Trustee January 26, 1999
Champney A. McNair
*
- ------------------------------ Trustee January 26, 1999
T. Gordy Germany
*
- ------------------------------ Trustee January 26, 1999
Bernard F. Sliger
*
- ------------------------------ Trustee January 26, 1999
Jonathan T. Walton
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
*
- ------------------------------ Trustee January 26, 1999
William H. Cammack
/s/ CAROL ROONEY
- ------------------------------ Controller, Treasurer & January 26, 1999
Carol Rooney Chief Financial Officer
/s/ MARK NAGLE
- ------------------------------ President & Chief January 26, 1999
Mark Nagle Executive Officer
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By: /s/ KEVIN P. ROBINS
-------------------------
Kevin P. Robins, With
Power of Attorney
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER EXHIBIT
- ------------ ----------------------------------------------------------------------------------------------------
<S> <C>
EX-99.A Declaration of Trust--originally filed with Registrant's Registration Statement on Form N-1A filed
February 12, 1992 and incorporated by reference to Exhibit 1 of Post-Effective Amendment No. 15 to
the Registrant's Registration Statement filed with the SEC via EDGAR Accession No.
0000912057-96-015938 on July 31, 1996.
EX-99.B1 By-Laws--originally filed with Registrant's Pre-Effective Amendment No. 1 filed April 23, 1992 and
incorporated by reference to Exhibit 2 of Post-Effective Amendment No. 15 to the Registrant's
Registration Statement filed with the SEC via EDGAR Accession No. 0000912057-96-015938 on July 31,
1996.
EX-99.B2 Amended By-Laws--incorporated by reference to Exhibit (b)(2) of Post-Effective Amendment No. 23 to
the Registrant's Registration Statement filed with the SEC via EDGAR Accession No.
0001047469-98-027407 on July 15, 1998.
EX-99.C Not applicable.
EX-99.D1 Revised Investment Advisory Agreement with Trusco Capital Management, Inc.--as originally filed with
Registrant's Post-Effective Amendment No. 5 filed August 2, 1993 and incorporated by reference to
Exhibit 5(c) of Post-Effective Amendment No. 15 to the Registrant's Registration Statement filed
with the SEC via EDGAR Accession No. 0000912057-96-015938 on July 31, 1996.
EX-99.D2 Investment Advisory Agreement with American National Bank and Trust Company--as originally filed
with Registrant's Post-Effective Amendment No. 6 filed October 22, 1993 and as Exhibit 5(d) of
Post-Effective Amendment No. 15 to the Registrant's Registration Statement filed with the SEC via
EDGAR Accession No. 0000912057-96-015938 on July 31, 1996.
EX-99.D3 Investment Advisory Agreement with Sun Bank Capital Management, National Association (now STI
Capital Management, N.A.--as originally filed with Registrant's Post-Effective Amendment No. 6 filed
October 22, 1993 and incorporated by reference to Exhibit 5(e) of Post-Effective Amendment No. 15 to
the Registrant's Registration Statement filed with the SEC via EDGAR Accession No.
0000912057-96-015938 on July 31, 1996.
EX-99.D4 Investment Advisory Agreement with Trust Company Bank (now SunTrust Bank, Atlanta)--as originally
filed with Registrant's Post-Effective Amendment No. 6 filed October 22, 1993 and filed herewith.
EX-99.E Distribution Agreement--incorporated by reference to Exhibit 6 of Post-Effective Amendment No. 16 to
the Registrant's Registration Statement filed with the SEC via EDGAR Accession No.
0000912057-96-021336 on September 27, 1996.
EX-99.F Not applicable.
EX-99.G1 Custodian Agreement with Trust Company Bank dated February 1, 1994--originally filed with
Registrant's Post-Effective Amendment No. 13 filed September 28, 1995 and incorporated by reference
to Exhibit 8(b) of Post-Effective Amendment No. 15 to the Registrant's Registration Statement filed
with the SEC via EDGAR Accession No. 0000912057-96-015938 on July 31, 1996.
EX-99.G2 Custodian Agreement with the Bank of California--incorporated by reference to Exhibit 8(a) of
Post-Effective Amendment No. 15 to the Registrant's Registration Statement filed with the SEC via
EDGAR Accession No. 0000912057-96-015938 on July 31, 1996.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NUMBER EXHIBIT
- ------------ ----------------------------------------------------------------------------------------------------
<S> <C>
EX-99.G3 Fourth Amendment to Custodian Agreement by and between STI Trust & Investment Operations, Inc. and
The Bank of New York dated May 6, 1997--incorporated by reference to Exhibit 8(d) of Post-Effective
Amendment No. 21 to the Registrant's Registration Statement filed with the SEC via EDGAR Accession
No. 0000912057-97-032207 on September 30, 1997.
EX-99.H1 Transfer Agent Agreement with Federated Services Company dated May 14, 1994-- originally filed with
Post-Effective Amendment No. 9 filed September 22, 1994 and incorporated by reference to Exhibit
8(c) of Post-Effective Amendment No. 15 to the Registrant's Registration Statement filed with the
SEC via EDGAR Accession No. 0000912057-96-015938 on July 31, 1996.
EX-99.H2 Administration Agreement with SEI Financial Management Corporation dated May 29, 1995--originally
filed with Post-Effective Amendment No. 12 filed August 17, 1995 and incorporated by reference to
Exhibit 9(a) of Post-Effective Amendment No. 15 to the Registrant's Registration Statement filed
with the SEC via EDGAR Accession No. 0000912057-96-015938 on July 31, 1996.
EX-99.H3 Consent to Assignment and Assumption of the Administration Agreement between STI Classic Funds and
SEI Financial Management Corporation--incorporated by reference to Exhibit 9(b) of Post-Effective
Amendment No. 21 to the Registrant's Registration Statement filed with the SEC via EDGAR Assession
No. 0000912057-97-032207 on September 30, 1997.
EX-99.I Opinion and Consent of Counsel--originally filed with Pre-Effective Amendment No. 2 to the
Registrant's Registration Statement on May 22, 1992 and incorporated by reference to Exhibit (i) of
Post-Effective Amendment No. 23 to the Registrant's Registration Statement filed with the SEC via
EDGAR Accession No. 0001047469-98-027407 on July 15, 1998.
EX-99.J Not applicable.
EX-99.K Not applicable.
EX-99.L Not applicable.
EX-99.M1 Distribution Plan--Investor Class--incorporated by reference to Exhibit 15 of Post-Effective
Amendment No. 16 to the Registrant's Registration Statement filed with the SEC via EDGAR Accession
No. 0000912057-96-021336 on September 27, 1996.
EX-99.M2 Distribution and Service Agreement relating to Flex Shares dated May 29, 1995-- originally filed
with Post-Effective Amendment No. 12 filed August 17, 1995 and incorporated by reference to Exhibit
15(a) of Post-Effective Amendment No. 15 to the Registrant's Registration Statement filed with the
SEC via EDGAR Accession No. 0000912057-96-015938 on July 31, 1996.
EX-99.N Not applicable.
EX-99.O Rule 18f-3 Plan--incorporated by reference to Exhibit (i) of Post-Effective Amendment No. 23 to the
Registrant's Registration Statement filed with the SEC via EDGAR Accession No. 0001047469-98-027407
on July 15, 1998.
EX-99.P Powers of Attorney--incorporated by reference to Exhibit (p) of Post-Effective Amendment No. 24 to
the Registrant's Statement filed with the SEC via EDGAR Accession No. 0001047469-98-028802 on July
30, 1998.
</TABLE>
