<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 1, 1999
FILE NO. 33-45671
FILE NO. 811-6557
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 / /
POST-EFFECTIVE AMENDMENT NO. 33 /X/
AND
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 / /
AMENDMENT NO. 35 /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 DRIVE
OAKS, PENNSYLVANIA 19456
(NAME AND ADDRESS OF AGENT FOR SERVICE)
Copies to:
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
Title of Securities Being Registered. . . . . . . Units of Beneficial Interest
It is proposed that this filing will become effective (check appropriate box)
Immediately upon filing pursuant to paragraph (b), or
---
On ____________ 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 _______ pursuant to paragraph (a) of Rule 485.
---
<PAGE>
STI CLASSIC FUNDS
FLEX SHARES
PROSPECTUS
_________, 1999
HIGH INCOME FUND
INVESTMENT ADVISER
TRUSCO CAPITAL MANAGEMENT, INC.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR
DISAPPROVED THESE SECURITIES OR PASSED UPON THE ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Page 1 of 17
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HOW TO READ THIS PROSPECTUS
FLEX SHARES
The STI Classic Funds is a mutual fund family that offers shares in separate
investment portfolios (Funds). The Funds have individual investment goals and
strategies. This prospectus gives you important information about the Flex
Shares of the High Income Fund that you should know before investing. Please
read this prospectus and keep it for future reference.
THIS PROSPECTUS HAS BEEN ARRANGED INTO DIFFERENT SECTIONS SO THAT YOU CAN EASILY
REVIEW THIS IMPORTANT INFORMATION. ON THE NEXT PAGE, THERE IS SOME GENERAL
INFORMATION YOU SHOULD KNOW ABOUT RISK AND RETURN. FOR MORE DETAILED INFORMATION
ABOUT THE FUND, PLEASE SEE:
<TABLE>
<CAPTION>
PAGE
<S> <C>
PRINCIPAL INVESTMENT STRATEGIES, RISKS AND EXPENSES..........XXX
MORE INFORMATION ABOUT RISK..................................XXX
THE FUND'S OTHER INVESTMENTS.................................XXX
THE INVESTMENT ADVISER AND PORTFOLIO MANAGER.................XXX
PURCHASING, SELLING AND EXCHANGING FUND SHARES...............XXX
DIVIDENDS AND DISTRIBUTIONS..................................XXX
TAXES........................................................XXX
HOW TO OBTAIN MORE INFORMATION ABOUT THE
STI CLASSIC FUNDS........................................Back Cover
</TABLE>
Page 2 of 17
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RISK/RETURN INFORMATION
The Fund is a mutual fund. A mutual fund pools shareholders' money and, using
professional investment managers, invests it in securities.
The Fund has its own investment goal and strategies for reaching that goal. The
investment manager invests Fund assets in a way that [he/she] believes will help
the Fund achieve its goal. Still, investing in the Fund involves risk and there
is no guarantee that the Fund will achieve its goal. An investment manager's
judgments about the markets, the economy, or companies may not anticipate actual
market movements, economic conditions or company performance, and these
judgments may affect the return on your investment. In fact, no matter how good
a job an investment manager does, you could lose money on your investment in the
Fund, just as you could with other investments. A Fund share is not a bank
deposit and it is not insured or guaranteed by the FDIC or any government
agency.
The value of your investment in the Fund is based on the market value of the
securities the 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, may be greater or lesser depending on
the types of securities the Fund owns and the markets in which they trade. The
effect on the Fund of a change in the value of a single security will depend on
how widely the Fund diversifies its holdings.
Page 3 of 17
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HIGH INCOME FUND
FUND SUMMARY
INVESTMENT GOAL High current income
Total return
INVESTMENT FOCUS High yield corporate, government, and
other debt instruments of U.S. and non
U.S. issuers
SHARE PRICE VOLATILITY High
PRINCIPAL INVESTMENT STRATEGY Attempts to identify lower-rated
securities offering high current
income of issuers generating
adequate cash flow to meet their
obligations
INVESTOR PROFILE Investors who seek high current income
and who are willing to accept greater
share price volatility through
investment in high yield, below
investment grade debt instruments
INVESTMENT STRATEGY
The High Income Fund invests primarily in a diversified portfolio of higher
yielding, lower rated income producing securities of U.S. and non-U.S.
issuers. The Fund may invest up to 100% of its assets in securities rated as
"non-investment grade" by Moody's Investor Services, Inc. or by Standard &
Poor's. Such securities are commonly known as "junk bonds" and offer greater
risks than investment grade bonds (i.e. rated BBB- or above by S&P or Baa3 or
above by Moody's). The primary basis for security selection is the potential
income offered by the security relative to the Advisor's assessment of the
issuers ability to generate the cash flow required to meet its obligation.
The Adviser employs a "bottom-up" approach, identifying investment
opportunities based on the underlying financial and economic fundamentals of
the specific issuer.
Due to its investment strategy, the Fund may buy and sell securities frequently.
This may result in higher transaction costs and additional capital gains tax
liabilities.
WHAT ARE THE RISKS OF INVESTING IN THIS FUND?
The prices of the Fund's fixed income securities respond to economic
developments, particularly interest rate changes, as well as to perceptions
about the creditworthiness of individual issuers, including governments.
Generally, the Fund's fixed income securities will decrease in value if interest
rates rise and vice versa, and the volatility of lower rated securities is even
greater than that of higher rated securities. Also, longer-term securities are
generally more volatile, so the average maturity or duration of these securities
affects risk.
High yield securities involve greater risks of default or downgrade and are more
volatile than investment grade securities. Junk bonds involve greater risk of
default or price declines than investment grade securities due to actual or
perceived changes in an issuer's creditworthiness. In addition,
Page 4 of 17
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issuers of junk bonds may be more susceptible than other issuers to economic
downturns. Junk bonds are subject to the risk that the issuer may not be able to
pay interest or dividends and ultimately to repay principal upon maturity.
Discontinuation of these payments could substantially adversely affect the
market value of the security.
Investing in foreign countries poses additional risks since political and
economic events unique to a country or region will affect those markets and
their issuers. These events will not necessarily affect the U.S. economy or
similar issuers located in the United States. In addition, investments in
foreign countries are generally denominated in a foreign currency. As a result,
changes in the value of those currencies compared to the U.S. dollar may affect
(positively or negatively) the value of a Fund's investments. These currency
movements may happen separately from and in response to events that do not
otherwise affect the value of the security in the issuer's home country. These
various risks will be even greater for investments in emerging market countries
since political turmoil and rapid changes in economic conditions are more likely
to occur in these countries.
PERFORMANCE INFORMATION
As of November 30, 1999, the High Income Fund had not commenced operations, and
did not have a performance history.
FUND FEES AND EXPENSES
THIS TABLE DESCRIBES THE FUND'S FEES AND EXPENSES THAT YOU MAY PAY IF YOU BUY
AND HOLD FUND SHARES.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<TABLE>
<CAPTION>
FLEX SHARES
- ------------------------------------------------------------------------------------ ----------------
<S> <C>
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) None
Maximum Deferred Sales Charge (Load) (as a percentage of net asset value)* 2.00%
</TABLE>
* This sales charge is imposed if you sell Flex Shares within 1 year of your
purchase. See "Selling Fund Shares."
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)*
<TABLE>
<CAPTION>
FLEX SHARES
- --------------------------------------------------------------------- -------------------------
<S> <C>
Investment Advisory Fees 0.80%
Distribution and Service (12b-1) Fees 1.00%
Other Expenses 0.35%
-----
Total Annual Fund Operating Expenses 2.15%
</TABLE>
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.
Page 5 of 17
<PAGE>
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:
IF YOU SELL YOUR SHARES AT THE END OF THE PERIOD:
1 YEAR 3 YEARS
$424 $673
IF YOU DO NOT SELL YOUR SHARES AT THE END OF THE PERIOD:
1 YEAR 3 YEARS
$218 $673
FUND EXPENSES
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 Adviser and Distributor are voluntarily waiving a portion of their
fees. ACTUAL INVESTMENT ADVISORY FEES, DISTRIBUTION FEES AND TOTAL OPERATING
EXPENSES ARE 0.65%, 0.40% AND 1.40%, RESPECTIVELY. The Adviser and Distributor
could discontinue these voluntary waivers at any time. For more information
about these fees, see "Investment Adviser" and "Distribution of Fund Shares."
Page 6 of 17
<PAGE>
MORE INFORMATION ABOUT RISK
FIXED INCOME RISK -- The market value of fixed income investments change in
response to interest rate changes and other factors. During periods of falling
interest rates, the values of outstanding fixed income securities generally
rise. Moreover, while securities with longer maturities tend to produce higher
yields, the prices of longer maturity securities are also subject to greater
market fluctuations as a result of changes in interest rates.
FOREIGN SECURITY RISKS -- Investments in securities of foreign companies or
governments can be more volatile than investments in U.S. companies or
governments. Diplomatic, political, or economic developments, including
nationalization or appropriation, could affect investments in foreign countries.
Foreign securities markets generally have less trading volume and less liquidity
than U.S. markets. In addition, the value of securities denominated in foreign
currencies, and of dividends from such securities, can change significantly when
foreign currencies strengthen or weaken relative to the U.S. dollar. Foreign
companies or governments generally are not subject to uniform accounting,
auditing, and financial reporting standards comparable to those applicable to
domestic U.S. companies or governments. Transaction costs are generally higher
than those in the U.S. and expenses for custodial arrangements of foreign
securities may be somewhat greater than typical expenses for custodial
arrangements of similar U.S. securities. Some foreign governments levy
withholding taxes against dividend and interest income. Although in some
countries a portion of these taxes are recoverable, the non-recovered portion
will reduce the income received from the securities comprising the portfolio.
Page 7 of 17
<PAGE>
YEAR 2000 RISK -- The Fund 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 Fund 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 Fund has asked its mission critical service providers whether they
expect to have their computer systems adjusted for the year 2000 transition, and
has sought and received assurances from such service providers that they are
devoting significant resources to prevent material adverse consequences to the
Fund. While such assurances have been received, the Fund 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 Fund does business.
Page 8 of 17
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THE FUND'S OTHER INVESTMENTS
This prospectus describes the Fund's primary strategies, and the Fund will
normally invest in the types of securities described in this prospectus.
However, in addition to the investments and strategies described in this
prospectus, the Fund also may invest in other securities, use other strategies
and engage in other investment practices. These investments and strategies, as
well as those described in this prospectus, are described in detail in the
Statement of Additional Information (SAI).
The investments and strategies described in this prospectus are those that the
Fund uses under normal conditions. During unusual economic or market conditions,
or for temporary defensive or liquidity purposes, the Fund may invest up to 100%
of its assets in cash, money market instruments, repurchase agreements and
short-term obligations that would not ordinarily be consistent with the Fund's
objectives. The Fund will do so only if the Adviser believes that the risk of
loss outweighs the opportunity for higher income. Of course, a Fund cannot
guarantee that it will achieve its investment goal.
INVESTMENT ADVISER
The Investment Adviser makes investment decisions for the Fund and continuously
reviews, supervises and administers the Fund's investment program. The Board of
Trustees supervises the Adviser and establishes policies that the Adviser must
follow in its management activities.
Trusco Capital Management, Inc., (Trusco) 50 Hurt Plaza, Suite 1400, Atlanta,
Georgia 30303, serves as the Adviser to the High Income Fund. As of _____, 1999,
Trusco had approximately $__ billion in assets under management.
The Adviser may use its affiliates as brokers for Fund transactions.
PORTFOLIO MANAGER
Ms. Agnes G. Pampush, First Vice President, has served as a fixed income
portfolio manager at Trusco since 1988. She has managed the High Income Fund
since its inception. She is a Chartered Financial Analyst and has more than
16 years of investment experience.
PURCHASING, SELLING AND EXCHANGING FUND SHARES
This section tells you how to buy, sell (sometimes called "redeem") or exchange
shares of the Fund.
Page 9 of 17
<PAGE>
HOW TO PURCHASE FUND SHARES
A SunTrust Securities Investment Consultant can assist you in opening a
brokerage account which will be used for all transactions regarding the purchase
of STI Classic Funds. Once your account is established, you may buy shares of
the Fund by:
- - Mail
- - Telephone (1-800-874-4770)
- - Wire
- - Automated Clearing House (ACH)
You may also buy shares through investment representatives of certain
correspondent banks of SunTrust Banks, Inc. (SunTrust) and other financial
institutions that are authorized to place transactions in Fund shares for their
customers. Please contact your financial institution directly and follow its
procedures for Fund share transactions. Your institution may charge a fee for
its services, in addition to the fees charged by the Fund. You will also
generally have to address your correspondence or questions regarding the Fund to
your institution. The Fund may reject any purchase order if it is determined
that accepting the order would not be in the best interests of STI Classic Funds
or its shareholders.
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 the Fund receives your purchase order. The Fund
calculates its 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, for you to receive the current Business Day's NAV for the Fund,
generally the Fund must receive your purchase order before 4:00 p.m. Eastern
time.
FOR CUSTOMERS OF SUNTRUST, ITS AFFILIATES, AND OTHER FINANCIAL INSTITUTIONS
YOU MAY HAVE TO TRANSMIT YOUR PURCHASE, SALE AND EXCHANGE REQUESTS TO SUNTRUST
OR OTHER FINANCIAL INSTITUTIONS 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 THE ADMINISTRATOR OR TRANSFER AGENT IN TIME TO
MEET THE ABOVE STATED FUND CUT-OFF TIMES. FOR MORE INFORMATION ABOUT HOW TO
PURCHASE, SELL OR EXCHANGE FUND SHARES, INCLUDING SPECIFIC SUNTRUST OR OTHER
FINANCIAL INSTITUTIONS INTERNAL ORDER ENTRY CUT-OFF TIMES, PLEASE CONTACT YOUR
FINANCIAL INSTITUTION DIRECTLY.
HOW THE FUND CALCULATES NAV
In calculating NAV, the Fund generally values its investment portfolio at market
price. If market prices are unavailable or the Fund thinks that they are
unreliable, fair value prices may be determined in good faith using methods
approved by the Board of Trustees.
Page 10 of 17
<PAGE>
NET ASSET VALUE
NAV for one Fund share is the value of that share's portion of the net assets in
the Fund.
MINIMUM PURCHASES
To purchase shares for the first time, you must invest at least:
CLASS DOLLAR AMOUNT
Flex Shares $5,000 ($2,000 for retirement plans)
Your subsequent investment in the Fund must be made in amounts of at least
$1,000 or, if you pay by a statement coupon, $100. The Fund may accept
investments of smaller amounts for either class of shares at its discretion.
FUNDLINK
FUNDLINK is a telephone activated service that allows you to transfer money
quickly and easily between the STI Classic Funds and your SunTrust bank
account(s). To use FUNDLINK, you must first contact your SunTrust Bank
Investment Consultant and complete the FUNDLINK application and authorization
agreements. Once you have signed up to use FUNDLINK, simply call SunTrust at
1-800-428-6970 to complete all of your purchase and redemption transactions.
SYSTEMATIC INVESTMENT PLAN
If you have a checking or savings account with a SunTrust affiliate bank, you
may purchase Flex Shares automatically through regular deductions from your
account. With a $500 minimum initial investment, you may begin
regularly-scheduled investments from $50 to $100,000 once or twice a month. If
you are buying Flex Shares, you should plan on investing at least $5,000 in the
Fund during the first two years. The Distributor may close your account if you
do not meet this minimum investment requirement at the end of two years.
SALES CHARGES
CONTINGENT DEFERRED SALES CHARGES -- FLEX SHARES
You do not pay a sales charge when you purchase Flex Shares. The offering price
of Flex Shares is simply the next calculated NAV. But if you sell your shares
within the first year after your purchase, you will pay a contingent deferred
sales charge equal to 2.00% for either (1) the NAV of the shares at the time of
purchase, or (2) NAV of the shares next calculated after the Fund receives your
sale request, whichever is less. The sales charge does not apply to shares you
purchase through reinvestment of dividends or distributions. So, you never pay a
deferred sales charge on any increase in your investment above the initial
offering price. This sales charge does not apply to exchanges of Flex Shares of
one Fund for Flex Shares of another Fund.
Page 11 of 17
<PAGE>
The contingent deferred sales charge will be waived if you sell your Flex Shares
for the following reasons:
- - to make certain withdrawals from a retirement plan (not including IRAs);
- - because of death or disability; or
- - for certain payments under the Systematic Withdrawal Plan (which is
discussed later).
OFFERING PRICE OF FUND SHARES
The offering price of Flex Shares is simply the next calculated NAV.
HOW TO SELL YOUR FUND SHARES
If you own your shares through a brokerage account with SunTrust, you may sell
(sometimes called "redeem") your shares on any Business Day by contacting
SunTrust Securities directly by mail or telephone at 1-800-874-4770. The minimum
amount for telephone redemptions is $1,000.
If you own your shares through an account with a broker or other institution,
contact that broker or institution to sell your shares.
If you would like to sell $25,000 or more of your shares, please notify the Fund
in writing and include a signature guarantee by a bank or other financial
institution (a notarized signature is not sufficient).
The sale price of each share will be the next NAV determined after the Fund
receives your request less, any applicable deferred sales charge.
SYSTEMATIC WITHDRAWAL PLAN
If you have at least $10,000 in your account, you may use the systematic
withdrawal plan. Under the plan you may arrange monthly, quarterly, semi-annual
or annual automatic withdrawals of at least $50 from the Fund. The proceeds of
each withdrawal will be mailed to you by check or, if you have a checking or
savings account with a SunTrust affiliates bank, electronically transferred to
your account.
RECEIVING YOUR MONEY
Normally, the Fund will send your sale proceeds within five Business Days after
the Fund receives your request. Your proceeds can be wired to your bank account
(subject to a $7.00 fee) or sent to you by check. IF YOU RECENTLY PURCHASED YOUR
SHARES BY CHECK OR THROUGH ACH, REDEMPTION PROCEEDS MAY NOT BE AVAILABLE UNTIL
YOUR CHECK HAS CLEARED (WHICH MAY TAKE UP TO 15 DAYS).
REDEMPTIONS IN KIND
The Fund generally pays 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) the Fund might pay all or part of your
redemption proceeds in liquid securities with
Page 12 of 17
<PAGE>
a market value equal to the redemption price (redemption in kind). It is highly
unlikely that your shares would ever be redeemed in kind, but if they were you
would probably have to pay transaction costs to sell the securities distributed
to you, as well as taxes on any capital gains from the sale as with any
redemption.
INVOLUNTARY SALES OF YOUR SHARES
If your account balance drops below the required minimum you may be required to
sell your shares. The account balance minimum is:
CLASS DOLLAR AMOUNT
Flex Shares $5,000
But, the Fund will always give you at least 60 days written notice to give you
time to add to your account and avoid the sale of your shares.
SUSPENSION OF YOUR RIGHT TO SELL YOUR SHARES
The Fund may suspend your right to sell your shares if the New York Stock
Exchange restricts trading, the SEC declares an emergency or for other reasons.
More information about this is in the SAI.
HOW TO EXCHANGE YOUR SHARES
You may exchange your shares on any Business Day by contacting SunTrust
Securities or your financial institution by mail or telephone. Exchange requests
must be for an amount of at least $1,000.
You may exchange your shares up to four times during a calendar year. If you
exchange your shares more than four times during a year, you may be charged a
$10.00 fee for each additional exchange. You will be notified before any fee is
charged.
IF YOU RECENTLY PURCHASED SHARES BY CHECK OR THROUGH ACH, YOU MAY NOT BE ABLE TO
EXCHANGE YOUR SHARES UNTIL YOUR CHECK HAS CLEARED (WHICH MAY TAKE UP TO 15
DAYS). This exchange privilege may be changed or canceled at any time upon 60
days notice.
EXCHANGES
When you exchange shares, you are really selling your shares and buying other
Fund shares. So, your sale price and purchase price will be based on the NAV
next calculated after the Fund receives your exchange request.
FLEX SHARES
You may exchange Flex Shares of the Fund for Flex Shares of any other Fund.
Page 13 of 17
<PAGE>
TELEPHONE TRANSACTIONS
Purchasing, selling and exchanging Fund shares over the telephone is extremely
convenient, but not without risk. Although the Fund has certain safeguards and
procedures to confirm the identity of callers and the authenticity of
instructions, the Fund is not responsible for any losses or costs incurred by
following telephone instructions the Fund reasonably believes to be genuine. If
you or your financial institution transact with the Fund over the telephone, you
will generally bear the risk of any loss.
DISTRIBUTION OF FUND SHARES
The Fund has adopted a distribution plan that allows the Fund to pay
distribution and service fees for the sale and distribution of its shares, and
for services provided to shareholders. Because these fees are paid out of the
Fund's assets continuously, over time these fees will increase the cost of your
investment and may cost you more than paying other types of sales charges.
For Flex Shares, the maximum distribution fee is 1.00% of the average daily net
assets of the Fund.
The Distributor may, from time to time in its sole discretion, institute one or
more promotional incentive programs for dealers, which will be paid for by the
Distributor from any sales charge it receives or from any other source available
to it. Under any such program, the Distributor may provide incentives, in the
form of cash or other compensation, including merchandise, airline vouchers,
trips and vacation packages, to dealers selling shares of the Fund.
DIVIDENDS AND DISTRIBUTIONS
The Fund distributes its income dividends daily and pays these dividends
monthly.
The Fund makes distributions of capital gains, if any, at least annually. If you
own Fund shares on the Fund's record date, you will be entitled to receive the
distribution.
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 the Fund in writing prior to the date of the distribution. Your
election will be effective for dividends and distributions paid after the Fund
receives your written notice. To cancel your election, simply send the Fund
written notice.
Page 14 of 17
<PAGE>
TAXES
PLEASE CONSULT YOUR TAX ADVISER REGARDING YOUR SPECIFIC QUESTIONS ABOUT FEDERAL,
STATE AND LOCAL INCOME TAXES. Below the Fund has summarized some important tax
issues that affect the Fund and its shareholders. This summary is based on
current tax laws, which may change.
The 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. Distributions you
receive from the Fund may be taxable whether or not you reinvest them. Income
distributions are generally taxable at ordinary income tax rates. Capital gains
distributions are generally taxable at the rates applicable to long-term capital
gains. EACH SALE OR EXCHANGE IS A TAXABLE EVENT.
MORE INFORMATION ABOUT TAXES IS IN THE SAI.
Page 15 of 17
<PAGE>
STI CLASSIC FUNDS
INVESTMENT ADVISER
Trusco Capital Management, Inc.
50 Hurt Plaza
Suite 1400
Atlanta, GA 30303
DISTRIBUTOR
SEI Investments Distribution Co.
One Freedom Valley Drive
Oaks, Pennsylvania 19456
LEGAL COUNSEL
Morgan, Lewis & Bockius LLP
More information about the Fund is available without charge through the
following:
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI dated _________, 1999, includes detailed information about the STI
Classic Funds. The SAI is on file 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 SEMI-ANNUAL REPORTS
These reports list the Fund's holdings and contain information from the Fund's
managers about strategies, and recent market conditions and trends. The reports
also contain detailed financial information about the Fund.
TO OBTAIN MORE INFORMATION:
BY TELEPHONE: Call 1-800-874-4770
BY MAIL: Write to the Fund
c/o SEI Investments Distribution Co.
Oaks, PA 19456
Page 16 of 17
<PAGE>
FROM THE SEC: You can also obtain the SAI or the Annual and Semi-Annual
reports, as well as other information about the STI Classic Funds, from the
EDGAR Database on 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 on the operation of the Public Reference Room, call
1-202-942-8090). 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 20549-0102. You may also obtain this
information, upon payment of a duplicating fee, by e-mailing the SEC at the
following address: [email protected]. The STI Classic Funds' Investment
Company Act registration number is 811-06557.
Page 17 of 17
<PAGE>
STI CLASSIC FUNDS
HIGH INCOME FUND
INVESTMENT ADVISER:
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 High Income Fund (the "Fund") prospectus dated ___________ , 1999.
Prospectuses may be obtained through the Distributor, SEI Investments
Distribution Co., One Freedom Valley Drive, Oaks, Pennsylvania 19456.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
THE TRUST...................................................................B-2
ADDITIONAL INFORMATION ABOUT THE FUND.......................................B-2
DESCRIPTION OF PERMITTED INVESTMENTS........................................B-2
INVESTMENT LIMITATIONS.....................................................B-20
INVESTMENT ADVISER.........................................................B-22
THE ADMINISTRATOR..........................................................B-23
THE DISTRIBUTOR............................................................B-24
THE TRANSFER AGENT.........................................................B-25
THE CUSTODIAN..............................................................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-28
PURCHASING SHARES..........................................................B-29
REDEEMING SHARES...........................................................B-29
DETERMINATION OF NET ASSET VALUE...........................................B-29
TAXES .....................................................................B-29
FUND TRANSACTIONS..........................................................B-30
TRADING PRACTICES AND BROKERAGE............................................B-31
DESCRIPTION OF SHARES .....................................................B-32
SHAREHOLDER LIABILITY......................................................B-32
LIMITATION OF TRUSTEES' LIABILITY..........................................B-33
YEAR 2000..................................................................B-33
</TABLE>
_________________, 1999
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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 the Fund. This Statement
of Additional Information relates to the Flex Shares of the STI High Income Fund
(the "Fund"). See "Description of Shares."
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.
ADDITIONAL INFORMATION ABOUT THE FUND
The Fund's investment objective is a high level of current income, with a
secondary objective of total return.
The Fund invests primarily in corporate, government and other debt instruments
of U.S. and non-U.S. issuers. Under normal market conditions, at least 65% of
the Fund's total assets will be invested in income-producing debt securities.
Investments in foreign securities will be limited to 35% of its total assets. Up
to 100% of the Fund's assets may be invested in "junk bonds." Junk bonds are
securities that are rated below investment grade - i.e., that are rated below
BBB by Moody's or below Baa by S&P - or that, if unrated, are deemed of
comparable quality. Junk bonds also include securities that are in default
(rated D by S&P), although such holdings by the Fund are expected to be minimal.
In choosing the Fund's investments in a value-oriented approach, the Adviser
will seek out companies with good fundamentals and potentially strong future
prospects that are currently out of favor with investors. The Adviser employs a
bottom-up approach of research to identify investment opportunities that
represent the most attractive value and that have strong prospects for
consistent income and growth. Potential and current investments are also subject
to continual research, which includes regular vigorous analysis to identify
issues that are overvalued and those that should be sold to reinvest in better
opportunities. The Adviser strives to preserve capital in attempting to achieve
the Fund's investment objective. The Adviser's investing discipline focuses on
total return over a full market/economic cycle. The Adviser prefers to invest in
full-coupon, interest-paying securities for their cash flow advantage and
usually lower volatility than deferred interest or zero coupon bonds.
DESCRIPTION OF PERMITTED INVESTMENTS
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 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,
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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.
BRADY BONDS
In the event of a default on collateralized Brady Bonds for which obligations
are accelerated, the collateral for the payment of principal will not be
distributed to investors, nor will such obligations be sold and the proceeds
distributed. The collateral will be held by the collateral agent to the
scheduled maturity of the defaulted Brady Bonds, which will continue to be
outstanding, at which time the face amount of the collateral will equal the
principal payments which would have then been due on the Brady Bonds in the
normal course.
COMMERCIAL PAPER
Commercial paper is a term used to describe unsecured short-term promissory
notes issued by banks, municipalities, corporations and other entities.
Maturities on these issues vary from a few to 270 days.
CONVERTIBLE SECURITIES
Convertible securities are 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.
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DEBT SECURITIES
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).
THE EURO
On January 1, 1999, the European Economic and 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 that converted or tied their currencies to the Euro include
Austria, Belgium, France, Germany, Luxembourg, the Netherlands, Ireland,
Finland, Italy, Portugal, and Spain. Financial transactions and market
information, including share quotations and company accounts, in participating
countries are denominated in Euros, although the bank notes used by
participating countries remain legal tender. Approximately 46% of the stock
exchange capitalization of the total European market may now 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 Fund, 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 Adviser 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.
EURODOLLAR AND YANKEE DOLLAR OBLIGATIONS
Eurodollar bank obligations are U.S. dollar denominated certificates of deposit
or time deposits issued outside the United States by foreign branches of U.S.
banks or by foreign banks. Yankee dollar obligations are U.S. dollar denominated
obligations issued in the United States by foreign banks.
FOREIGN CURRENCY OPTIONS
Currency options traded on U.S. or other exchanges may be subject to position
limits which may limit the ability of the Fund to reduce foreign currency risk
using such options. Over-the-counter options differ from traded options in that
they are two-party contracts with price and other terms negotiated between buyer
and seller and generally do not, have as much market liquidity as
exchange-traded options. Employing hedging strategies with options on currencies
does not eliminate fluctuations in the prices of portfolio securities or prevent
losses if the prices of such securities decline. Furthermore, such hedging
transactions reduce or preclude the opportunity for gain if the value of the
hedged currency should change relative to the U.S. dollar. The Fund will not
speculate in options on foreign currencies. There is no assurance that a liquid
secondary market will exist for any particular foreign currency options, or at
any particular time. In the event no liquid secondary market exists, it might
not be possible to effect closing transactions in particular options. If the
Fund cannot close out an option which it holds, it would have to exercise its
option in order to realize any profit and would incur transactional costs on the
sale of the underlying assets.
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EQUITY-LINKED SECURITIES
The Fund may invest in equity-linked securities, including, among others, PERCS,
ELKS or LYONs, which are securities that are convertible into, or the value of
which is based upon the value of, equity securities upon certain terms and
conditions. The amount received by an investor at maturity of such securities is
not fixed but is based on the price of the underlying common stock. It is
impossible to predict whether the price of the underlying common stock will rise
or fall. Trading prices of the underlying common stock will be influenced by the
issuer's operational results, by complex, interrelated political, economic,
financial or other factors affecting the capital markets, the stock exchanges on
which the underlying common stock is traded and the market segment of which the
issuer is a part. In addition, it is not possible to predict how equity-linked
securities will trade in the secondary market. The market for such securities
may be shallow, and high volume trades may be possible only with discounting. In
addition to the foregoing risks, the return on such securities depends on the
creditworthiness of the issuer of the securities, which may be the issuer of the
underlying securities or a third party investment banker or other lender. The
creditworthiness of such third party issuer equity-linked securities may, and
often does, exceed the creditworthiness of the issuer of the underlying
securities. The advantage of using equity-linked securities over traditional
equity and debt securities is that the former are income producing vehicles that
may provide a higher income than the dividend income on the underlying equity
securities while allowing some participation in the capital appreciation of the
underlying equity securities. Another advantage of using equity-linked
securities is that they may be used for hedging to reduce the risk of investing
in the generally more volatile underlying equity securities.
The following are three examples of equity-linked securities. The Fund may
invest in the securities described below or other similar equity-linked
securities.
PERCS
Preferred Equity Redemption Cumulative Stock ("PERCS") technically is
preferred stock with some characteristics of common stock. PERCS are
mandatorily convertible into common stock after a period of time, usually
three years, during which the investors' capital gains are capped, usually
at 30%. Commonly, PERCS may be redeemed by the issuer at any time or if the
issuer's common stock is trading at a specified price level or better. The
redemption price starts at the beginning of the PERCS duration period at a
price that is above the cap by the amount of the extra dividends the PERCS
holder is entitled to receive relative to the common stock over the
duration of the PERCS and declines to the cap price shortly before maturity
of the PERCS. In exchange for having the cap on capital gains and giving
the issuer the option to redeem the PERCS at any time or at the specified
common stock price level, the Fund may be compensated with a substantially
higher dividend yield than that on the underlying common stock.
ELKS
Equity-Linked Securities ("ELKS") differ from ordinary debt securities, in
that the principal amount received at maturity is not fixed but is based on
the price of the issuer's common stock. ELKS are debt securities commonly
issued in fully registered form for a term of three years under an
indenture trust. At maturity, the holder of ELKS will be entitled to
receive a principal amount equal to the lesser of a cap amount, commonly in
the range of 30% to 55% greater than the current price of the issuer's
common stock, or the average closing price per share of the issuer's common
stock, subject to adjustment as a result of certain dilution events, for
the 10 trading days immediately prior to maturity. Unlike PERCS, ELKS are
commonly not subject to redemption prior to maturity. ELKS usually bear
interest during the three-year term at a substantially higher rate than the
dividend yield on the underlying common stock. In exchange for having the
cap on the return that might have been received as capital gains on the
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underlying common stock, the Fund may be compensated with the higher yield,
contingent on how well the underlying common stock does.
LYONS
Liquid Yield Option Notes ("LYONS") differ from ordinary debt securities,
in that the amount received prior to maturity is not fixed but is based on
the price of the issuer's common stock. LYONs are zero-coupon notes that
sell at a large discount from face value. For an investment in LYONs, the
Fund will not receive any interest payments until the notes mature,
typically in 15 to 20 years, when the notes are redeemed at face, or par
value. The yield on LYONs, typically, is lower-than-market rate for debt
securities of the same maturity, due in part to the fact that the LYONs are
convertible into common stock of the issuer at any time at the option of
the holder of the LYONs. Commonly, the LYONs are redeemable by the issuer
at any time after an initial period or if the issuer's common stock is
trading at a specified price level or better, or, at the option of the
holder, upon certain fixed dates. The redemption price typically is the
purchase price of the LYONs plus accrued original issue discount to the
date of redemption, which amounts to the lower-than-market yield. The Fund
will receive only the lower-than-market yield unless the underlying common
stock increases in value at a substantial rate. LYONs are attractive to
investors, like the Fund, when it appears that they will increase in value
due to the rise in value of the underlying common stock.
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 Adviser 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 Adviser 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.
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By investing in foreign securities, the Fund attempts 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
the 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.
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. The 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. The Fund may realize a gain or
loss from currency transactions.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
Futures contracts provide for the future sale by one party and purchase by
another party of a specified amount of a specific security at a specified future
time and at a specified price. An option on a futures contract gives the
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.
The 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. The 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, the Fund would
continue to be required to make daily cash payments to maintain its required
margin. In such situations, if the Fund has insufficient cash, it may have to
sell portfolio securities to
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meet daily margin requirements at a time when it may be disadvantageous to do
so. In addition, the Fund 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 the
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 Fund will be engaged in futures transactions only for hedging
purposes, the Adviser does not believe that the Fund will generally be subject
to the risks of loss frequently associated with futures transactions. The Fund
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 Fund 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 Fund 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
Fund of margin deposits in the event of the bankruptcy of a broker with whom the
Fund has 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.
HIGH YIELD SECURITIES
High yield securities, commonly referred to as junk bonds, are debt obligations
rated below investment grade, I.E., below BBB by S&P or Baa by 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 the 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.
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(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 the 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.
HIGH YIELD FOREIGN SOVEREIGN DEBT SECURITIES
Investing in fixed and floating rate high yield foreign sovereign debt
securities will expose the Fund to the direct or indirect consequences of
political, social or economic changes in countries that issue the securities.
The ability of a foreign sovereign obligor to make timely payments on its
external debt obligations will also be strongly influenced by the obligor's
balance of payments, including export performance, its access to international
credits and investments, fluctuations in interest rates and the extent of its
foreign reserves. A country whose exports are concentrated in a few commodities
or whose economy depends on certain strategic imports could be vulnerable to
fluctuations in international prices of these commodities or imports. To the
extent that a country receives payment for its exports in currencies other than
dollars, its ability to make debt payments denominated in dollars could be
adversely affected. If a foreign sovereign obligor cannot generate sufficient
earnings from foreign trade to service its external debt, it may need to depend
on continuing loans and aid from foreign governments, commercial banks and
multilateral organizations, and inflows of foreign investment. The commitment on
the part of these foreign governments, multilateral organizations and others to
make such disbursements may be conditioned on the government's implementation of
economic reforms and/or economic performance and the timely service of its
obligations. Failure to implement such reforms, achieve such levels of economic
performance or repay principal or interest when due may result in the
cancellation of such third parties' commitments to lend funds, which may further
impair the obligor's ability or willingness to timely service its debts.
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 the Fund's books.
INVESTMENT COMPANY SHARES
The Fund 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 Fund. The 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.
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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.
LEVERAGED BUYOUTS
The Fund may invest in leveraged buyout limited partnerships and funds that, in
turn, invest in leveraged buyout transactions ("LBOs"). An LBO, generally, is an
acquisition of an existing business by a newly formed corporation financed
largely with debt assumed by such newly formed corporation to be later repaid
with funds generated from the acquired company. Since most LBOs are by nature
highly leveraged (typically with debt to equity ratios of approximately 9 to 1),
equity investments in LBOs may appreciate substantially in value given only
modest growth in the earnings or cash flow of the acquired business. Investments
in LBO partnerships and funds, however, present a number of risks. Investments
in LBO limited partnerships and funds will normally lack liquidity and may be
subject to intense competition from other LBO limited partnerships and funds.
Additionally, if the cash flow of the acquired company is insufficient to
service the debt assumed in the LBO, the LBO limited partnership or fund could
lose all or part of its investment in such acquired company.
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
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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
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.
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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 Adviser believes 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 the Fund, it will be deemed to have a remaining maturity
equal to its average life as estimated by the Fund's Adviser. 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 the Adviser will be the actual average life.
MORTGAGE-BACKED SECURITY ROLLS
The Fund may enter into "forward roll" transactions with respect to
mortgage-backed securities issued by GNMA, FNMA or FHLMC. In a forward roll
transaction, that is considered to be a borrowing by the Fund, the Fund
will sell a mortgage security to a bank or other permitted entity and
simultaneously agree to repurchase a similar security from the institution
at a later date at an agreed upon price. The mortgage securities that are
repurchased will bear the same interest rate as those sold, but generally
will be collateralized by different pools of mortgages with different
prepayment histories than those sold. Risks of mortgage-backed security
rolls include: (i) the risk of prepayment prior to maturity, (ii) the
possibility that the proceeds of the sale may have to be invested in money
market instruments (typically repurchase agreements) maturing not later
than the expiration of the and (iii) the possibility that the market value
of
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the securities sold by the Fund may decline below the price at which the
Fund is obligated to purchase the securities. Upon entering into a
mortgage-backed security roll, the Fund will be required to place cash,
U.S. Government Securities or other high-grade debt securities in a
segregated account with its Custodian in an amount equal to its obligation
under the roll.
Assumptions generally accepted by the industry concerning the probability
of early payment may be used in the calculation of maturities for debt
securities that contain put or call provisions, sometimes resulting in a
calculated maturity different from the stated maturity of the security.
It is anticipated that governmental, government-related or private entities
may create mortgage loan pools and other mortgage-related securities
offering mortgage pass-through and mortgage-collateralized investments in
addition to those described above.
As new types of mortgage-related securities are developed and offered to
investors, the manager will, consistent with the Fund's investment
objectives, policies and quality standards, consider making investments in
such new types of mortgage-related securities.
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.
NON-PUBLICLY TRADED SECURITIES; RULE 144A SECURITIES
The Fund may purchase securities that are not registered under the Securities
Act of 1933, as amended (the "1933 Act"), but that can be sold to "qualified
institutional buyers" in accordance with Rule 144A under the 1933 Act ("Rule
144A Securities"). An investment in Rule 144A Securities will be considered
illiquid and therefore subject to the Fund's limitation on the purchase of
illiquid securities, unless the Fund's governing Board of Trustees determines on
an ongoing basis that an adequate trading market exists for the security. In
addition to an adequate trading market, the Board of Trustees will also consider
factors such as trading activity, availability of reliable price information and
other relevant information in determining whether a Rule 144A Security is
liquid. This investment practice could have the effect of increasing the level
of illiquidity in the Fund to the extent that qualified institutional buyers
become uninterested for a time in purchasing Rule 144A Securities. The Board of
Trustees will carefully monitor any investments by the Fund in Rule 144A
Securities. The Board of Trustees may adopt guidelines and delegate to the
Adviser the daily function of determining and monitoring the liquidity of Rule
144A Securities, although the Board of Trustees will retain ultimate
responsibility for any determination regarding liquidity.
Non-publicly traded securities (including Rule 144A Securities) may involve a
high degree of business and financial risk and may result in substantial losses.
These securities may be less liquid than publicly traded securities, and the
Fund may take longer to liquidate these positions than would be the case for
publicly traded
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securities. Although these securities may be resold in privately negotiated
transactions, the prices realized on such sales could be less than those
originally paid by the Fund. Further, companies whose securities are not
publicly traded may not be subject to the disclosure and other investor
protection requirements applicable to companies whose securities are publicly
traded. The Fund's investments in illiquid securities are subject to the risk
that should the Fund desire to sell any of these securities when a ready buyer
is not available at a price that is deemed to be representative of their value,
the value of the Fund's net assets could be adversely affected.
OPTIONS
The 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 Fund of writing covered calls is
that the Fund receives a premium which is additional income. However, if the
security rises in value, the Fund 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 the Fund to write
another call option on the underlying security with either a different exercise
price or expiration date or both. The 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, the 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, the
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 Fund will write call options only on a covered basis, which means that the
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, the
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 Fund will normally have expiration dates
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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 Fund is 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 Fund will not purchase obligations issued by the
Adviser.
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.
PARALLEL PAY SECURITIES; PAC BONDS
Parallel pay CMOs and REMICs are structured to provide payments of principal on
each payment date to more than one class. These simultaneous payments are taken
into account in calculating the stated maturity date or final distribution date
of each class, which must be retired by its stated maturity date or final
distribution date, but may be retired earlier. Planned Amortization Class CMOs
("PAC Bonds") generally require payments of a specified amount of principal on
each payment date. PAC Bonds are always parallel pay CMOs with the required
principal payment on such securities having the highest priority after interest
has been paid to all classes.
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 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 Adviser monitors
compliance with this requirement). Under all repurchase agreements entered into
by the Fund, the appropriate 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.
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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 Fund 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 the 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 the Fund's Adviser pursuant to guidelines adopted by the Board
of Trustees. Under these guidelines, the particular Adviser 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 Adviser 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. The 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 appropriate
Adviser to be of good standing and when, in the judgment of that Adviser, 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 Fund may use the Distributor or a broker-dealer
affiliate of an Adviser 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 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 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 Adviser believes present minimal credit
risks, and the Adviser 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
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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.
STRUCTURED INVESTMENTS
Structured Investments are derivatives in the form of a unit or units
representing an undivided interest(s) in assets held in a trust that is not an
investment company as defined in the Investment Company Act of 1940. A trust
unit pays a return based on the total return of securities and other investments
held by the trust and the trust may enter into one or more swaps to achieve its
objective. For example, a trust may purchase a basket of securities and agree to
exchange the return generated by those securities for the return generated by
another basket or index of securities. The Fund will purchase structured
investments in trusts that engage in such swaps only where the counterparties
are approved by the Adviser in accordance with credit-risk guidelines
established by the Board of Trustees.
STRUCTURED NOTES
Notes are derivatives where the amount of principal repayment and or interest
payments is based upon the movement of one or more factors. These factors
include, but are not limited to, currency exchange rates, interest rates (such
as the prime lending rate and LIBOR) and stock indices such as the S&P 500
Index. In some cases, the impact of the movements of these factors may increase
or decrease through the use of multipliers or deflators. The use of structured
notes allows the Fund to tailor its investments to the specific risks and
returns the Adviser wishes to accept while avoiding or reducing certain other
risks.
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,
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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.
TRADE CLAIMS
The Fund may invest in trade claims. Trade claims are interest in amounts owed
to suppliers of goods or services and are purchased from creditors of companies
in financial difficulty. For purchasers such as the Fund, trade claims offer the
potential for profits since they are often purchased at a significant discount
from face value and consequently, may generate capital appreciation in the event
that the market value of the claim increases as the debtor's financial position
improves or the claim is paid.
An investment in trade claims is speculative and carries a high degree of risk.
Trade claims are illiquid securities which generally do not pay interest and
there can be no guarantee that the debtor will ever be able to satisfy the
obligation on the trade claim. The markets in trade claims are not regulated by
federal securities laws or the SEC. Because trade claims are unsecured, holders
of trade claims may have a lower priority in terms of payment than certain other
creditors in a bankruptcy proceeding.
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 the
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 Adviser, 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.
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VENTURE CAPITAL
The Fund may invest in venture capital limited partnerships and venture capital
funds that, in turn, invest principally in securities of early stage, developing
companies. Investments in venture capital limited partnerships and venture
capital funds present a number of risks not found in investing in established
enterprises including the facts that such a partnership's or fund's portfolio
will be composed almost entirely of early-stage companies that may lack depth of
management and sufficient resources, that may be marketing a new product for
which there is no established market, and that may be subject to intense
competition from larger companies. Any investment in a venture capital limited
partnership or venture capital fund will lack liquidity, will be difficult to
value, and the Fund will not be entitled to participate in the management of the
partnership or fund. If for any reason the services of the general partners of a
venture capital limited partnership were to become unavailable, such limited
partnership could be adversely affected.
In addition to investing in venture capital limited partnerships and venture
capital funds, the Fund may directly invest in early-stage, developing
companies. The risks associated with investing in these securities are
substantially similar to the risks set forth above. The Fund will typically
purchase equity securities in these early-stage, developing companies; however
from time to time, the Fund may purchase non-investment grade debt securities in
the form of convertible notes.
Such investments involve costs at the venture capital level which are in
addition to those of the Fund.
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 the Fund will only make commitments to purchase when-issued securities
and municipal forwards with the intention of actually acquiring the securities,
the 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 the
Fund will maintain high quality, liquid assets in an amount at least equal in
value to its commitments to purchase when-issued securities and municipal
forwards. If the value of these assets declines, the Fund will place additional
liquid assets in the account on a daily basis so that the value of the assets in
the account is equal to the amount of such commitments.
B-19
<PAGE>
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 the 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.
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 that
Fund's outstanding shares. The term "majority of the outstanding shares" means
the vote of (i) 67% or more of the Fund's shares present at a meeting, if more
than 50% of the outstanding shares of the Fund are present or represented by
proxy, or (ii) more than 50% of the Fund's outstanding shares, whichever is
less.
THE FUND MAY NOT:
1. Acquire more than 10% of the voting securities of any one issuer.
2. Invest in companies for the purpose of exercising control.
3. Borrow money except for temporary or emergency purposes and then only in an
amount not exceeding one-third of the value of total assets. Any borrowing
will be done from a bank and, to the extent that such borrowing exceeds 5%
of the value of the Fund's assets, asset coverage of at least 300% is
required. In the event that such asset coverage shall at any time fall
below 300%, the Fund shall, within three days thereafter or such longer
period as the Securities and Exchange Commission may prescribe by rules and
regulations, reduce the amount of its borrowings to such an extent that the
asset coverage of such borrowings shall be at least 300%. This borrowing
provision is included solely to facilitate the orderly sale of portfolio
securities to accommodate heavy redemption requests if they should occur
and is not for investment purposes. All borrowings in excess of 5% of the
value of the Fund's total assets will be repaid before making additional
investments and any interest paid on such borrowings will reduce income.
4. Make loans, except that (a) 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 described in the Prospectuses and in this Statement of
Additional Information.
5. Pledge, mortgage or hypothecate assets except to secure temporary
borrowings permitted by (3) above in aggregate amounts not to exceed 10% of
the Fund's total assets, taken at current value at the time of the
incurrence of such loan, except as permitted with respect to securities
lending.
6. Purchase or sell real estate, real estate limited partnership interests,
commodities or commodities contracts (except for financial futures
contracts) and interests in a pool of securities that are secured by
B-20
<PAGE>
interests in real estate except that the Fund may purchase mortgage-backed
and other mortgage-related securities, including collateralized mortgage
obligations and REMICs). However, subject to their permitted investment
spectrum, the Fund may invest in companies which invest in real estate,
commodities or commodities contracts.
7. Make short sales of securities, maintain a short position or purchase
securities on margin, except that the Trust may obtain short-term credits
as necessary for the clearance of security transactions.
8. Act as an underwriter of securities of other issuers except as it may be
deemed an underwriter in selling a security.
9. Purchase securities of other investment companies except for money market
funds and CMOs and REMICs deemed to be investment companies and then only
as permitted by the Investment Company Act of 1940 (the "1940 Act") and the
rules and regulations thereunder. 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.
10. Issue senior securities (as defined in the 1940 Act) except in connection
with permitted borrowings as described above or as permitted by rule,
regulation or order of the SEC.
11. Purchase securities of any issuer (except securities issued or guaranteed
by the United States, its agencies or instrumentalities and repurchase
agreements involving such securities) if as a result more than 5% of the
total assets of the Fund would be invested in the securities of such
issuer; provided, however, that the Fund may invest up to 25% of its total
assets without regard to this restriction as permitted by applicable law.
12. Purchase any securities which would cause more than 25% of the total assets
of the Fund to be invested in the securities of one or more issuers
conducting their principal business activities in the same industry,
provided that this limitation does not apply to investments in obligations
issued or guaranteed by the U.S. Government or its agencies and
instrumentalities, repurchase agreements involving such securities or
tax-exempt securities issued by governments or political subdivisions of
governments. For purposes of this limitation, (i) utility companies will be
divided 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.
13. Purchase or sell real estate, unless acquired as a result of ownership of
securities or other instruments (but this shall not prevent the Fund 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).
14. Purchase or sell physical commodities, unless acquired as a result of
ownership of securities or other instruments.
B-21
<PAGE>
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 15% of its net assets would be
invested in illiquid securities.
The Fund does not currently intend to purchase securities on margin, except that
the Fund may obtain such short-term credits as are necessary for the clearance
of transactions.
The Fund does not currently intend to sell securities short.
The Fund does not currently intend to purchase or sell futures contracts or put
or call options.
The Fund 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 ADVISER
The Trust and Trusco Capital Management, Inc. (the "Adviser") have entered into
advisory agreements (the "Advisory Agreement"). The Adviser is an indirect
wholly-owned subsidiaries of SunTrust Banks, Inc. ("SunTrust"). SunTrust is a
southeastern regional bank holding company with assets of $90.7 billion as of
July 1, 1999. The Advisory Agreement provides that the Adviser 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 the Fund (including amounts payable to the Adviser but excluding
interest, taxes, brokerage, litigation, and other extraordinary expenses)
exceeds limitations established by certain states, the Adviser and/or the
Administrator will bear the amount of such excess. The Adviser 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 Adviser, or by
the Adviser on 90 days' written notice to the Trust.
The Adviser has agreed to waive its fees or reimburse expenses in order to limit
Fund expenses.
B-22
<PAGE>
BANKING LAWS
Current interpretations of federal banking laws and regulations:
- - prohibit SunTrust and the Adviser from sponsoring, organizing, controlling,
or distributing the Fund's shares; but
- - do not prohibit SunTrust or the Adviser generally from acting as an
investment adviser, transfer agent, or custodian to the Fund or from
purchasing Fund shares as agent for and upon the order of a customer.
The Adviser 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
Adviser 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
Adviser, 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 Adviser, 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, Alpha Select Funds, Amerindo Funds, Inc., The Arbor Fund,
ARK Funds, Armada Funds, Bishop Street Funds, Boston 1784 Funds (-Registered
Trademark-), CNI Charter Funds, CUFUND, The Expedition Funds, First American
Funds, Inc., First American Investment Funds, Inc., First American Strategy
Funds, Inc., HighMark Funds, Huntington Funds, The Nevis Fund, Inc., Oak
Associates Funds, The Parkstone Advantage Fund, 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 International Investments Trust, SEI Institutional
Managed Trust, SEI Liquid Asset Trust, SEI Tax Exempt Trust, STI Classic
Variable Trust, TIP Funds and UAM Funds, Inc. II.
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
B-23
<PAGE>
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. In
addition, the Flex Shares of the Fund has a distribution and service plan (the
"Flex Plan").
The Distribution Agreement is renewable annually and may be terminated by the
Distributor, the disinterested Trustees, or by a majority vote of the
outstanding securities of the Trust upon not more than 60 days' written notice
by either party.
FLEX SHARES DISTRIBUTION PLANS
The Distribution Agreement and the Flex Plan adopted by the Trust provide that
the Flex Shares of the Fund will pay the Distributor a fee of up to .75% of the
average daily net assets of the Fund. The Distributor can use these fees to
compensate broker-dealers and service providers, including SunTrust and its
affiliates, which provide administrative and/or distribution services to Flex
Shares Shareholders or their customers who beneficially own Flex Shares. In
addition, Flex Shares are subject to a service fee of up to .25% of the average
daily net assets of the Flex Shares of the Fund. This service fee will be used
for services provided and expenses incurred in maintaining shareholder accounts,
responding to shareholder inquiries and providing information on their
investments.
Services for which broker-dealers and service providers may be compensated
include establishing and maintaining customer accounts and records; aggregating
and processing purchase and redemption requests from customers; placing net
purchase and redemption orders with the Distributor; automatically investing
customer account cash balances; providing periodic statements to customers;
arranging for wires; answering customer inquiries concerning their investments;
assisting customers in changing dividend options, account designations, and
addresses; performing sub-accounting functions; processing dividend payments
from the Trust on behalf of customers; and forwarding Shareholder communications
from the Trust (such as proxies, Shareholder reports, and dividend distribution
and tax notices) to these customers with respect to investments in the Trust.
Certain state securities laws may require those financial institutions providing
such distribution services to register as dealers pursuant to state law.
Although banking laws and regulations prohibit banks from distributing shares of
open-end investment companies such as the Trust, according to an opinion issued
to the staff of the SEC by the Office of the Comptroller of the Currency,
financial institutions are not prohibited from acting in other capacities for
investment companies, such as providing shareholder services. Should future
legislative, judicial, or administrative action prohibit or restrict the
activities of financial institutions in connection with providing shareholder
services, the Trust may be required to alter materially or discontinue its
arrangements with such financial institutions.
The Trust has adopted the Flex Plan in accordance with the provisions of Rule
12b-1 under the 1940 Act, which Rule regulates circumstances under which an
investment company may directly or indirectly bear expenses relating to the
distribution of its shares. Continuance of the Flex Plan must be approved
annually by a majority of the Trustees of the Trust and by a majority of the
disinterested Trustees. The Flex Plan require that quarterly written reports of
amounts spent under the Flex Plan, respectively, and the purposes of such
expenditures be furnished to and reviewed by the Trustees. The Flex Plan may not
be amended to increase materially the amount
B-24
<PAGE>
which may be spent thereunder without approval by a majority of the outstanding
shares of the affected class of shares of the Trust. All material amendments of
the Plans will require approval by a majority of the Trustees of the Trust and
of the disinterested Trustees.
There is no sales charge on purchases of Flex Shares, but Flex Shares are
subject to a contingent deferred sales charge if they are redeemed within one
year of purchase. Pursuant to the Distribution Agreement and the Flex Plan, Flex
Shares are subject to an ongoing distribution and service fee calculated on each
of the Fund's aggregate average daily net assets attributable to its Flex
Shares.
THE TRANSFER AGENT
Federated Services Company, 1001 Liberty Avenue, 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 Fund.
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-), CNI Charter Funds, CUFUND,
The Expedition Funds, First American Funds, Inc., First American Investment
Funds, Inc., First American Strategy Funds, Inc., HighMark Funds, Huntington
Funds, The Nevis Fund, Inc., Oak Associates Funds, The Parkstone Advantage
Fund, The Pillar Funds, The PBHG Funds, Inc., PBHG Insurance Series Fund,
Inc., 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, and TIP Funds, each of which is an
open-end management investment company managed by SEI Investments Mutual
Funds Services or its affiliates and 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.
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, Controller, Treasurer and Chief Financial
Officer - President of the Administrator and Senior Vice President of SEI
Investments Mutual Funds Services Operations Group since 1998. Vice President of
the Administrator and Vice President of Fund Accounting and Administration of
SEI Investments Mutual Funds Services, 1996-1998. Vice President of the
Distributor since December 1997. Senior Vice President, Fund Administration,
BISYS Fund Services, September 1995-November 1996. Senior Vice President and
Site Manager, Fidelity Investments 1981- September 1995.
JAMES R. FOGGO (DOB 02/14/66) - Vice President and Assistant Secretary - Vice
President and Assistant Secretary of SEI Investments since 1998. Vice President
and Assistant Secretary of the Administrator and the Distributor since May 1999.
Associate, Paul Weiss, Rifkind, Wharton & Garrison (law firm), 1998. Associate,
Baker & McKenzie (law firm), 1995-1998. Associate, Battle Fowler L.L.P.
(law firm), 1993-1995.
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.
B-26
<PAGE>
EDWARD T. SEARLE - Vice President and Assistant Secretary of the Administrator
and Distributor since August 1999. Associate, Drinker Biddle & Reath LLP (law
firm), June 1998 to August 1999. Associate, Ballard Spahr Andrews & Ingersoll
LLP (law firm), September 1995 to June 1998.
TIMOTHY D. BARTO - Vice President and Assistant Secretary. Associate, Dechert
Price & Rhoads (law firm), 1997 to 1999. Associate at Richter, Miller & Finn
(law firm), 1994 to 1997.
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.
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), counsel to the Trust, Administrator and Distributor, since 1993.
- -------------------------
* Messrs. Looney, Goodrum, McNair, 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 May 31, 1999, the Trust paid the following amounts to
Trustees and Officers of the Trust:
<TABLE>
<CAPTION>
================================= ==================== ====================== ================ =============================
PENSION OR ESTIMATED
AGGREGATE RETIREMENT BENEFITS ANNUAL TOTAL COMPENSATION FROM
COMPENSATION FROM ACCRUED AS PART OF BENEFITS UPON FUND AND FUND COMPLEX PAID
NAME OF PERSON, POSITION FUND FUND EXPENSES RETIREMENT TO TRUSTEES
--------------------------------- -------------------- ---------------------- ---------------- -----------------------------
<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
--------------------------------- -------------------- ---------------------- ---------------- -----------------------------
B-27
<PAGE>
<CAPTION>
================================= ==================== ====================== ================ =============================
PENSION OR ESTIMATED
AGGREGATE RETIREMENT BENEFITS ANNUAL TOTAL COMPENSATION FROM
COMPENSATION FROM ACCRUED AS PART OF BENEFITS UPON FUND AND FUND COMPLEX PAID
NAME OF PERSON, POSITION FUND FUND EXPENSES RETIREMENT TO TRUSTEES
--------------------------------- -------------------- ---------------------- ---------------- -----------------------------
<S> <C> <C> <C> <C>
Jonathan T. Walton, Trustee $ N/A N/A $ for service on two boards
--------------------------------- -------------------- ---------------------- ---------------- -----------------------------
William H. Cammack, Trustee* N/A N/A N/A $ for service on two boards
================================= ==================== ====================== ================ =============================
</TABLE>
* Messrs. Goodrum, Looney, McNair and Cammack may each be deemed to be s an
"interested person" of the Trust as defined in the Investment Company Act
of 1940.
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
THIRTY-DAY YIELD
The High Income Fund may advertise a 30-day yield. In particular, yield will be
calculated according to the following formula:
d
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 High Income Fund may advertise total return. In
particular, total return will be calculated according to the following formula:
n
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 Adviser
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
B-28
<PAGE>
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 Fund 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 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 Adviser, 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, the 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").
DETERMINATION OF NET ASSET VALUE
The securities of the High Income Fund 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 Flex Shares of the Fund may differ because of variations in the
distribution and service fees and transfer agent fees charged to Investor
Shares.
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
B-29
<PAGE>
(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
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
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.
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.
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
long-term capital gain or loss if the shares have been held for more than
eighteen months, and short-term if for a year or less. If shares held for six
months or less are sold or redeemed for a loss, two special rules apply: First,
if shares on which a net capital gain distribution has been received are
subsequently sold or redeemed, and such shares have been held for six months or
less, any loss recognized will be treated as long-term capital loss to the
extent of the long-term capital gain distributions.
The Fund will make annual reports to Shareholders of the Federal income tax
status of all distributions.
FOREIGN TAXES
Dividends and interests received by the 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.
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 Adviser 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
B-30
<PAGE>
risk in positioning the securities involved. While the Adviser 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 invests 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 Adviser
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.
The Trust may allocate out of all commission business generated by all of the
funds and accounts under management by the Adviser, 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 the Adviser 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.
The Adviser may place a combined order for two or more accounts or funds engaged
in the purchase or sale of
B-31
<PAGE>
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 the Adviser 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 Fund, at the
request of the Distributor, gives 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 the Adviser, 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 the Adviser 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 Adviser 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.
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.
B-32
<PAGE>
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 advisers, 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 mission critical 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 has sought and
received assurances from each from each that its system is expected to
accommodate the year 2000 without material adverse consequences to the Trust.
While such assurances have been received, 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-33
<PAGE>
STI CLASSIC FUNDS
PART C: OTHER INFORMATION
POST-EFFECTIVE AMENDMENT NO. 33
Item 23. Exhibits:
(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.
(d)(5) Revised Schedule A to the Revised Investment Advisory Agreement
with Trusco Capital Management, Inc.dated May 24, 1999 -
incorporated by reference to the Registrant's Post-Effective
Amendment No. 33 to the Registrant's Registration Statement filed
the SEC via EDGAR Accession No. 0001047469-99-037088 on September
28, 1999.
(d)(6) Revised Schedule A to the Revised Investment Advisory Agreement
with Trusco Capital Management, Inc. dated October 1, 1999 is
filed herewith.
(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
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.
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<PAGE>
(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 - incorporated by reference to the Registrant's
Post-Effective Amendment No. 33 to the Registrant's Registration
Statement filed the SEC via EDGAR Accession No. 0001047469-99-037088
on September 28, 1999.
(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 - incorporated by reference to the
Registrant's Post-Effective Amendment No. 33 to the Registrant's
Registration Statement filed the SEC via EDGAR Accession No.
0001047469-99-037088 on September 28, 1999.
(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.
(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.
(o)(1) Certificate of Class Designation - incorporated by reference to
Exhibit (o)(1) of Post-Effective Amendment No. 27 to the
Registrant's Statement filed with the SEC via EDGAR Accession No.
0001047469-99-009731 on April 15, 1999.
(p) Powers of Attorney - incorporated by reference to the Registrant's
Post-Effective Amendment No. 33 to the Registrant's Registration
Statement filed the SEC via EDGAR Accession No. 0001047469-99-037088
on September 28, 1999.
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
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<PAGE>
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.
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
C-3
<PAGE>
<CAPTION>
Name of Connection with
Name Other Company Other Company
---- ------------- -------------
<S> <C> <C>
Mills A. Riddick -- --
Senior Vice President
Christopher A. Jones -- --
Senior Vice President
David E. West -- --
Vice President
Brett L. Barner -- --
Senior Vice President
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
C-4
<PAGE>
<CAPTION>
Name of Connection with
Name Other Company Other Company
---- ------------- -------------
<S> <C> <C>
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
Stephen M. Yarbrough -- --
Vice President
Celia S. Stanley -- --
Vice President
Rebekah R. Alley -- --
Vice President
SUNTRUST BANK, ATLANTA
Robert R. Long SunTrust Banks of Chairman of the Board
Chairman of the Board and Georgia, Inc.
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
C-5
<PAGE>
<CAPTION>
Name of Connection with
Name Other Company Other Company
---- ------------- -------------
<S> <C> <C>
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 &
Director CEO
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
Director & President
Pinehill Development Co. 30% owner
Joseph L. Lanier, Jr. Dan River, Inc. Chairman of the Board
Director Chairman
Larry L. Prince Genuine Parts Company Chairman of the Board
Director
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
C-6
<PAGE>
<CAPTION>
Name of Connection with
Name Other Company Other Company
---- ------------- -------------
<S> <C> <C>
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
Dennis M. Love Printpack, Inc. President & CEO
Director
Charles H. McTier Robert Woodruff Foundation President
Director
</TABLE>
Item 27. Principal Underwriters:
C-7
<PAGE>
(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:
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
STI Classic Funds May 29, 1992
First American Funds, Inc. November 1, 1992
First American Investment Funds, Inc. November 1, 1992
The Arbor Fund January 28, 1993
Boston 1784 Funds7 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
Oak Associates Funds February 27, 1998
The Nevis Fund, Inc. June 29, 1998
The Parkstone Group of Funds September 14, 1998
CNI Charter Funds April 1, 1999
The Parkstone Advantage Fund May 1, 1999
Amerindo Funds, Inc. July 13, 1999
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.
C-8
<PAGE>
<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 Vice President and
Assistant Secretary
Kevin P. Robins Senior Vice President & General Counsel --
Patrick K. Walsh Senior Vice President --
Robert Aller Vice President --
Timothy D. Barto Vice President & Assistant Secretary Vice President &
Assistant Secretary
Gordon W. Carpenter Vice President --
Todd Cipperman 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 --
Vic Galef Vice President & Managing Director --
Lydia A. Gavalis Vice President & Assistant Secretary Vice President & Assistant
Secretary
Greg Gettinger 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, Controller,
Treasurer & Chief Financial
Officer
Joanne Nelson Vice President --
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 --
Edward T. Searle Vice President & Assistant Secretary Vice President &
Assistant Secretary
Steve Smith Vice President --
Daniel Spaventa Vice President --
Kathryn L. Stanton 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-9
<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.
C-10
<PAGE>
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, the Registrant
certifies that it has duly caused this Post-Effective Amendment No. 33 to
Registration Statement No. 33-91476 to be signed on its behalf by the
undersigned, duly authorized, in the City of Oaks, Commonwealth of Pennsylvania
on the 29th day of November, 1999.
By: /s/ Mark Nagle
-----------------------------------------------------
Mark Nagle, President, Chief Financial Officer, and
Chief Executive Officer
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>
<S> <C> <C>
* Trustee November 29, 1999
- ----------------------------
F. Wendell Gooch
* Trustee November 29, 1999
- ----------------------------
Daniel S. Goodrum
* Trustee November 29, 1999
- ----------------------------
Wilton Looney
* Trustee November 29, 1999
- ----------------------------
Champney A. McNair
* Trustee November 29, 1999
- ----------------------------
T. Gordy Germany
* Trustee November 29, 1999
- ----------------------------
Bernard F. Sliger
* Trustee November 29, 1999
- ----------------------------
Jonathan T. Walton
* Trustee November 29, 1999
- ----------------------------
William H. Cammack
/s/ Mark Nagle President, November 29, 1999
- ---------------------------- Chief Financial Officer
Mark Nagle & Chief Executive Officer
* By: /s/ Kevin P. Robins
-----------------------------------------
Kevin P. Robins, With Power of Attorney
</TABLE>
C-12
<PAGE>
EXHIBIT INDEX
NUMBER EXHIBIT
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.D5 Revised Schedule A to the Revised Investment Advisory Agreement with
Trusco Capital Management, Inc. dated May 24, 1999 - incorporated by
reference to the Registrant's Post-Effective Amendment No. 33 to the
Registrant's Registration Statement filed the SEC via EDGAR Accession
No. 0001047469-99-037088 on September 28, 1999.
EX-99.D6 Revised Schedule A to the Revised Investment Advisory Agreement with
Trusco Capital Management, Inc. dated October 1, 1999 is 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.
C-13
<PAGE>
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.
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 - incorporated by reference to the Registrant's
Post-Effective Amendment No. 33 to the Registrant's Registration
Statement filed the SEC via EDGAR Accession No. 0001047469-99-037088
on September 28, 1999.
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 - incorporated by reference to the
Registrant's Post-Effective Amendment No. 33 to the Registrant's
Registration Statement filed the SEC via EDGAR Accession No.
0001047469-99-037088 on September 28, 1999.
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.O1 Certificate of Class Designation - incorporated by reference to
Exhibit (o)(1) of Post-Effective Amendment No. 27 to the Registrant's
Statement filed with the SEC via EDGAR Accession No.
0001047469-99-009731 on April 15, 1999.
EX-99.P Powers of Attorney - incorporated by reference to the Registrant's
Post-Effective Amendment No. 33 to the Registrant's Registration
Statement filed the SEC via EDGAR Accession No. 0001047469-99-037088
on September 28, 1999.
C-14
<PAGE>
REVISED SCHEDULE A
DATED OCTOBER 1, 1999
TO THE
INVESTMENT ADVISORY AGREEMENT
BETWEEN
STI CLASSIC FUNDS
AND
TRUSCO CAPITAL MANAGEMENT
Pursuant to Article 3, the Trust shall pay the Adviser compensation at an annual
rate as follows:
<TABLE>
<CAPTION>
PORTFOLIO FEE
<S> <C>
Prime Quality Money Market Fund .65%
U.S. Government Securities
Money Market Fund .65%
Tax-Exempt
Money Market Fund .55%
Short-Term Bond Fund .65%
Short-Term U.S. Treasury Securities Fund .65%
Sunbelt Equity Fund 1.15%
U.S. Government Securities Fund .74%
International Equity Index Fund .90%
Classic Institutional Cash Management
Money Market Fund .20%
Classic Institutional U.S. Treasury Securities
Money Market Fund .20%
1
<PAGE>
Small Cap Growth Stock Fund 1.15%
Tax Sensitive Growth Stock Fund 1.15%
Maryland Municipal Bond Fund .65%
Virginia Intermediate Municipal Bond Fund .65%
Virginia Municipal Bond Fund .65%
Tax-Free Money Market Fund .40%
U.S. Treasury Money Market Fund .65%
Growth and Income Fund .90%
Life Vision Maximum Growth Portfolio .25%
Life Vision Growth and Income Portfolio .25%
Life Vision Balanced Portfolio .25%
Classic Institutional U.S. Government Securities
Money Market Fund .20%
Core Equity Fund 1.10%
E-Commerce Opportunity Fund 1.10%
</TABLE>
2
