<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 21, 1999
File No. 333-_______
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 /X/
STI CLASSIC FUNDS
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
2 OLIVER STREET
BOSTON, MASSACHUSETTS 02109
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE (800) 342-5734
MARK NAGLE
C/O SEI INVESTMENTS COMPANY
ONE FREEDOM VALLEY ROAD
OAKS, PENNSYLVANIA 19456
(NAME AND ADDRESS OF AGENT FOR SERVICE)
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
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It is proposed that this filing will become effective on December ___, 1999
pursuant to Rule 488.
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No filing fee is required because an indefinite number of shares have previously
been registered pursuant to Rule 24f-2 under the Investment Company Act of 1940.
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<PAGE>
STI CLASSIC FUNDS
Cross Reference Sheet
ITEMS REQUIRED BY FORM N-14
Part A. INFORMATION REQUIRED IN REGISTRATION STATEMENT HEADING
PROSPECTUS
Item 1. Beginning of Registration Cover Page of Registration
Statement and outside Front Statement
Cover Page of Prospectus
Item 2. Beginning and Outside Back Table of Contents
Cover Page of Prospectus
Item 3. Synopsis and Risk Factors Synopsis; Risks
Item 4. Information About the Synopsis; Reasons for the
Transaction Reorganization; Information
Relating to the Reorganization;
Agreement and Plan of
Reorganization
Item 5. Information About the Prospectus Cover Page;
Registrant Synopsis; Shareholder Rights
Item 6. Information About the Company Prospectus Cover Page; Synopsis;
Being Acquired Reasons for the Reorganization;
Information Relating to the
Reorganization; Information About
the Funds; Shareholder Rights
Item 7. Voting Information Prospectus Cover Page; Notice of
Special Meeting of Shareholders;
Synopsis; Form of Agreement and
Plan of Reorganization
Item 8. Interest of Certain Persons Voting Matters
and Experts
Item 9. Additional Information Not applicable.
Required for Reoffering
by Persons Deemed to be
Underwriters
Part B. INFORMATION REQUIRED IN A
STATEMENT OF ADDITIONAL
INFORMATION
Item 10. Cover Page Cover Page
Item 11. Table of Contents Table of Contents
Item 12. Additional Information Incorporated by Reference to the
About the Registrant STI Classic Funds' Prospectus
and SAI
Item 13. Additional Information Incorporated by Reference to the
About the Company Being CrestFunds' Prospectus and SAI
Acquired
<PAGE>
Item 14. Financial Statements Financial Statements
Part C. OTHER INFORMATION
Item 15. Indemnification Indemnification
Item 16. Exhibits Exhibits
Item 17. Undertakings Undertakings
3
<PAGE>
[ESC Logo appears here]
To ESC Strategic Funds' Shareholders:
Enclosed with this letter is a proxy ballot, an N-14 combined
proxy/prospectus statement and related information concerning a special
meeting of ESC Strategic Funds' shareholders.
The purpose of this proxy package is to announce that a
Shareholder Meeting for the ESC Strategic Funds has been scheduled for
March __, 2000. The purpose of the meeting is to submit the Agreement
and Plan of Reorganization between the ESC Strategic Funds and the STI
Classic Funds to the shareholders for a vote.
The Directors of the ESC Strategic Funds unanimously approved
the Agreement and Plan of Reorganization at a meeting held on December
9, 1999. In coming to this conclusion, the Directors considered a
variety of factors including:
* the compatibility of the funds' objectives and policies
* the expense ratios of the combined fund family
* the potential economies of scale to be gained by the merger
* the advantages of increased investment opportunities for ESC Strategic
Funds' shareholders; and
* the fact that the merger will be free from Federal income taxes.
The details of the proposed Agreement and Plan of
Reorganization are set forth in the combined prospectus and proxy
statement that accompanies this letter. We encourage you to read them
thoroughly. In addition, we have included a list of commonly asked
questions and answers on the next page.
If you and the other shareholders of your fund approve the
proposed reorganization of your fund and certain other conditions are
satisfied, you will be able to continue your investment program through
ownership in a STI Classic Funds portfolio with similar objectives and
policies. As a shareholder of a STI Classic Funds portfolio, you will
enjoy access, through the exchange privilege, to a much larger family
of funds, including types of funds that the ESC Strategic Funds
currently do not offer. This will provide you with a convenient way to
diversify your investments.
Most shareholders cast their votes by filling out and signing
the enclosed proxy card. In order to conduct the Shareholder Meeting, a
majority of shares must be represented. YOUR VOTE IS VERY IMPORTANT.
PLEASE MARK, SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN IT
PROMPTLY IN THE ENCLOSED, POSTAGE-PAID ENVELOPE.
We thank you for your continued confidence and support.
Sincerely,
W. Howard Cammack, Jr.
IMPORTANT PROXY INFORMATION ENCLOSED
-IMMEDIATE ACTION REQUIRED-
<PAGE>
QUESTIONS & ANSWERS
FOR THE
ESC STRATEGIC FUNDS
SHAREHOLDER MEETING
Q. WHY IS THE BOARD OF DIRECTORS PROPOSING TO REORGANIZE THE ESC STRATEGIC
FUNDS AND THE STI CLASSIC FUNDS?
A. After conducting due diligence regarding a reorganization
transaction between the STI Classic Funds and the ESC
Strategic Funds, the Board of Directors voted to approve the
transaction. Before approving the integration of the ESC
Strategic Funds into the STI Classic Funds, the ESC Strategic
Funds' Board of Directors evaluated the expanded range of
investment alternatives that would be available to
shareholders, the opportunities for increased economies of
scale, and the potential for improved shareholder service.
After careful consideration, they determined that the
Agreement and Plan of Reorganization is in the best interests
of the ESC Strategic Funds shareholders. Through this proxy,
they are submitting the proposal for reorganization to you -
the ESC Strategic Funds' shareholders - for a vote.
Q. HOW WILL THIS AFFECT ME AS AN ESC STRATEGIC FUNDS' SHAREHOLDER?
A. You will become a shareholder of a STI Classic Fund portfolio
with similar investment objectives and policies as the ESC
Strategic Funds you currently hold. As a STI Classic Fund
shareholder, you will have access to the wider array of fund
portfolios offered by the STI Classic family of funds.
The reorganization provides for the transfer of all of the
assets of each of the ESC Strategic Funds into its
corresponding STI Classic Fund in exchange for shares of
the STI Classic Fund. There are NO SALES CHARGES on this
transaction. Each ESC Strategic Funds shareholder will
receive shares of STI Classic Funds equal in value to
their ESC Strategic Funds shares. In certain cases, the
NAV of your fund may change. However, in these cases the
number of shares that you own will be adjusted so that
there will be NO CHANGE in the market value of your
account as a result of the merger.
Q. WILL THE REORGANIZATION RESULT IN ANY TAXES?
<PAGE>
A. Neither the ESC Strategic Funds nor their shareholders will
incur any Federal income tax as a result of the
reorganizations.
Q. WHAT FUND(S) WILL I HOLD FOLLOWING THE REORGANIZATIONS?
A. ESC Strategic Funds shareholders will receive shares of the following
corresponding STI Classic Funds' portfolios. Please refer to the
enclosed STI Classic Funds' prospectus for more details. Listed below
are the ESC Strategic Funds and the corresponding STI Classic Funds'
portfolio:
ESC STRATEGIC FUNDS STI CLASSIC FUNDS
------------------- -----------------
ESC SMALL CAP STI CLASSIC SMALL CAP GROWTH STOCK
Class A Investor Class
Class D Flex Class
ESC SMALL CAP II STI CLASSIC SMALL CAP GROWTH STOCK
Class A Investor Class
Class D Flex Class
ESC INTERNATIONAL EQUITY STI CLASSIC INTERNATIONAL EQUITY
Class A Investor Class
Class D Flex Class
ESC APPRECIATION STI CLASSIC GROWTH AND INCOME
Class A Investor Class
Class D Flex Class
ESC INCOME STI CLASSIC HIGH INCOME
Class A Flex Class
Class D Flex Class
Q. HOW DOES THE ESC STRATEGIC FUNDS' BOARD OF DIRECTORS RECOMMEND THAT I
VOTE?
A. After careful consideration, the ESC Strategic Funds'
Directors unanimously recommend that you vote "FOR" the
proposed reorganizations. The Board also wishes to remind you
to vote and return ALL the proxy ballot cards you receive.
This means that if you receive multiple proxies and ballot
cards because you are invested in more than one ESC Strategic
Funds portfolio, please fill out and return each and every
ballot card you receive.
Q. WHO SHOULD I CALL WITH QUESTIONS ABOUT THIS PROXY?
A. If you have any questions regarding this proxy, please contact
your Financial Consultant, or the ESC Strategic Funds directly
at _________________.
PLEASE VOTE THE ENCLOSED PROXY BALLOT CARD.
YOUR VOTE IS IMPORTANT!
<PAGE>
TWO NEW WAYS TO VOTE YOUR ESC STRATEGIC FUND SHARES...
VOTE BY TELEPHONE
It's fast, convenient, and your vote
is immediately confirmed and
posted.
Using a touch tone phone
call the toll-free number shown below or, if you prefer,
send back your signed proxy in the postage paid envelope provided.
Just follow these 4 easy steps:
1. Read the accompanying Proxy Statement and ballot.
2. Call 1-800-690-6903.
3. Enter your 12 digit Control Number located on your ballot.
4. Follow the simple recorded instructions.
VOTE BY INTERNET
It's fast, convenient, and your vote is immediately
confirmed and posted and you can get all future
materials by internet.
WWW.PROXYVOTE.COM
Just follow these 4 easy steps:
1. Read the accompanying Proxy Statement and ballot.
2. Go to website WWW.PROXYVOTE.COM.
3. Enter your 12 digit Control Number located on your ballot.
4. Follow the simple recorded instructions.
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BENEFITS OF TOUCH TONE AND INTERNET VOTING:
* Immediate voting results.
* Voting six days a week, between 8am and midnight
(except day of meeting).
* The call takes as little as one minute.
DO NOT RETURN VOTING FORM IF YOU ARE VOTING BY TELEPHONE OR INTERNET
<PAGE>
ESC STRATEGIC FUNDS, INC.
3435 STELZER ROAD
COLUMBUS, OH 43219
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON MARCH 22, 2000
Notice is hereby given that a Special Meeting of Shareholders of the ESC
Strategic Funds, Inc. (the "Corporation"), with respect to its five series (each
an "ESC Strategic Fund" and collectively, the "ESC Strategic Funds"), will be
held at the offices of SEI Investments Company, One Freedom Valley Drive, Oaks,
PA 19456, on March 22, 2000 at 3:00 p.m. (Eastern Time) for the purposes of
considering the proposals set forth below. Collectively, the proposals, if
approved, will result in the transfer of the assets and stated liabilities of
each ESC Strategic Fund to a corresponding series of the STI Classic Funds (the
"Trust") in return for shares of such series (each an "STI Fund") (the
"Reorganization").
Proposal 1: Approval of the Reorganization as it relates to (i) the
transfer of all of the assets and certain stated liabilities
of the ESC Strategic Small Cap Fund to the STI Small Cap
Growth Stock Fund, in exchange for shares of the STI Fund;
(ii) the distribution of the STI Fund's shares so received
to shareholders of the corresponding ESC Strategic Fund; and
(iii) the termination under state law of the ESC Strategic
Fund.
Proposal 2: Approval of the Reorganization as it relates to (i) the
transfer of all of the assets and certain stated liabilities
of the ESC Strategic Small Cap II Fund to the STI Small Cap
Growth Stock Fund, in exchange for shares of the STI Fund;
(ii) the distribution of the STI Fund's shares so received
to shareholders of the corresponding ESC Strategic Fund; and
(iii) the termination under state law of the ESC Strategic
Fund.
Proposal 3: Approval of the Reorganization as it relates to (i) the
transfer of all of the assets and certain stated liabilities
of the ESC Strategic International Equity Fund to the STI
International Equity Fund, in exchange for shares of the STI
Fund; (ii) the distribution of the STI Fund's shares so
received to shareholders of the corresponding ESC Strategic
Fund; and (iii) the termination under state law of the ESC
Strategic Fund.
Proposal 4: Approval of the Reorganization as it relates to (i) the
transfer of all of the assets and certain stated liabilities
of the ESC Strategic Appreciation Fund to the STI Growth and
Income Fund in exchange for shares of the STI Fund; (ii) the
distribution of the STI Fund's shares so received to
shareholders of the corresponding ESC Strategic Fund; and
(iii) the termination under state law of the ESC Strategic
Fund.
<PAGE>
Proposal 5: Approval of the Reorganization as it relates to
(i) the transfer of all of the assets and certain stated
liabilities of the ESC Strategic Income Fund to the STI High
Income Fund, in exchange for shares of the STI Fund; (ii)
the distribution of the STI Fund's shares so received to
shareholders of the corresponding ESC Strategic Fund; and
(iii) the termination under state law of the ESC Strategic
Fund.
Proposal 6: The transaction of such other business as may properly be
brought before the meeting.
Shareholders of record as of the close of business on January 18, 2000 are
entitled to notice of, and to vote at this meeting, or any adjournment of this
meeting. Shareholders of the respective ESC Strategic Funds will vote
separately, and the proposed Reorganization will be effected as to a particular
ESC Strategic Fund only if that Fund's shareholders approve the proposal.
SHAREHOLDERS ARE REQUESTED TO EXECUTE AND RETURN PROMPTLY THE ACCOMPANYING
PROXY CARD WHICH IS BEING SOLICITED BY THE BOARD OF DIRECTORS OF ESC STRATEGIC
FUNDS, INC. YOU MAY EXECUTE THE PROXY CARD IN ONE OF THE [FOUR] METHODS
DESCRIBED IN THE PROXY CARD. RETURNING THE PROXY CARD IS IMPORTANT TO ENSURE A
QUORUM AT THE MEETING. PROXIES MAY BE REVOKED AT ANY TIME BEFORE THEY ARE
EXERCISED BY SUBMITTING A WRITTEN NOTICE OF REVOCATION OR A SUBSEQUENTLY
EXECUTED PROXY OR BY ATTENDING THE MEETING AND VOTING IN PERSON.
R. Jeffrey Young
President
_______________, 1999
<PAGE>
PROXY STATEMENT/PROSPECTUS
DATED , 1999
RELATING TO THE ACQUISITION OF THE ASSETS OF SERIES OF
ESC STRATEGIC FUNDS, INC.
3435 STELZER ROAD
COLUMBUS, OH 43219
1-800-261-FUND (3863)
BY AND IN EXCHANGE FOR SHARES OF CERTAIN SERIES OF
STI CLASSIC FUNDS
2 OLIVER STREET
BOSTON, MA 02109
1-800-874-4770
This Proxy Statement/Prospectus is furnished in connection with the
solicitation of proxies by the Board of Directors of ESC Strategic Funds, Inc.
(the "Corporation") in connection with the Special Meeting of Shareholders (the
"Meeting") of each series of the Corporation (the ESC Strategic Small Cap Fund,
ESC Strategic Small Cap II Fund, ESC Strategic International Equity Fund, ESC
Strategic Appreciation Fund, and ESC Strategic Income Fund) (each an "ESC
Strategic Fund" and collectively, the "ESC Strategic Funds"), to be held on
March 22, 2000 at 3:00 p.m. (Eastern Time) at the offices of SEI Investments
Company, One Freedom Valley Drive, Oaks, PA 19456. At the meeting, shareholders
of each ESC Strategic Fund, voting separately, will be asked to consider and
approve a proposed Agreement and Plan of Reorganization dated (the
"Reorganization Agreement"), by and between the Corporation and STI Classic
Funds (the "Trust") on behalf of three of its existing series (the STI Classic
Small Cap Growth Stock Fund, STI Classic International Equity Fund and STI
Classic Growth and Income Fund) (collectively, the "Existing STI Funds") and one
new series, the STI Classic High Income Fund (the "New STI Fund" and, with the
Existing STI Funds, the "STI Funds"). The Corporation and the Trust are referred
to collectively as the "Companies" and the participating series of the Companies
are referred to collectively as the "Funds." A copy of the Reorganization
Agreement is attached as Exhibit A.
Proposal 1: Approval of the Reorganization as it relates to (i) the
transfer of all of the assets and certain stated liabilities
of the ESC Strategic Small Cap Fund to the STI Small Cap
Growth Stock Fund, in exchange for shares of the STI Fund;
(ii) the distribution of the STI Fund's shares so received
to shareholders of the corresponding ESC Strategic Fund; and
(iii) the termination under state law of the ESC Strategic
Fund.
Proposal 2: Approval of the Reorganization as it relates to (i) the
transfer of all of the assets and certain stated liabilities
of the ESC Strategic Small Cap II Fund to the STI Small Cap
Growth Stock Fund, in exchange for shares of the
<PAGE>
STI Fund; (ii) the distribution of the STI Fund's shares so
received to shareholders of the corresponding ESC Strategic
Fund; and (iii) the termination under state law of the ESC
Strategic Fund.
Proposal 3: Approval of the Reorganization as it relates to (i) the
transfer of all of the assets and certain stated liabilities
of the ESC Strategic International Equity Fund to the STI
International Equity Fund, in exchange for shares of the STI
Fund; (ii) the distribution of the STI Fund's shares so
received to shareholders of the corresponding ESC Strategic
Fund; and (iii) the termination under state law of the ESC
Strategic Fund.
Proposal 4: Approval of the Reorganization as it relates to (i) the
transfer of all of the assets and certain stated liabilities
of the ESC Strategic Appreciation Fund to the STI Growth and
Income Fund in exchange for shares of the STI Fund; (ii) the
distribution of the STI Fund's shares so received to
shareholders of the corresponding ESC Strategic Fund; and
(iii) the termination under state law of the ESC Strategic
Fund.
Proposal 5: Approval of the Reorganization as it relates to (i) the
transfer of all of the assets and certain stated liabilities
of the ESC Strategic Income Fund to the STI High Income
Fund, in exchange for shares of the STI Fund; (ii) the
distribution of the STI Fund's shares so received to
shareholders of the corresponding ESC Strategic Fund; and
(iii) the termination under state law of the ESC Strategic
Fund.
Proposal 6: The transaction of such other business as may properly be
brought before the meeting.
-2-
<PAGE>
The Reorganization Agreement provides that each ESC Strategic Fund will
transfer all of its assets and certain stated liabilities to the corresponding
STI Fund listed opposite its name in the following chart:
<TABLE>
<CAPTION>
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- --------------------------------------------------------------------------------
ESC STRATEGIC FUND (SELLING FUND) STI FUND (ACQUIRING FUND)
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<S> <C>
Small Cap Fund Small Cap Growth Stock Fund
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Small Cap II Fund Small Cap Growth Stock Fund
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International Equity Fund International Equity Fund
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Appreciation Fund Growth and Income Fund
- --------------------------------------------------------------------------------
Income Fund High Income Fund(1)
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</TABLE>
In exchange for the transfers of these assets and liabilities, each STI
Fund will simultaneously issue shares to the corresponding ESC Strategic Fund
as listed above, in an amount equal in value to the net asset value of the ESC
Strategic Fund's shares. These transfers are expected to occur in two steps, on
or about March 27, and March 28, 2000 (each an "Effective Time" and
collectively, the "Effective Times").
Immediately after the transfer of the ESC Strategic Funds' assets and
liabilities, the ESC Strategic Funds will make a liquidating distribution to
their shareholders of the STI Funds' shares received, so that a holder of shares
in an ESC Strategic Fund at the applicable Effective Time of the Reorganization
will receive a number of shares of the applicable class of the corresponding STI
Fund with the same aggregate value as the shareholder had in the ESC Strategic
Fund immediately before the Reorganization. At the applicable Effective Time of
the Reorganization, shareholders of each ESC Strategic Fund will become
shareholders of the corresponding STI Fund, and the ESC Strategic Funds will be
terminated under state law.
Each ESC Strategic Fund offers two classes of shares (Class A and Class D)
and each participating STI Fund offers up to three classes of shares (Investor
Shares, Flex Shares and Trust Shares(2)). Holders of Class A shares of each ESC
Strategic Fund, with the exception of the ESC Strategic Income Fund, will
receive an amount of Investor Shares of the corresponding STI Fund equal in
value to their ESC Strategic Fund shares. Holders of Class D shares of the ESC
Strategic Funds and holders of Class A shares of the ESC Strategic Income Fund
will receive an amount of Flex Shares of the corresponding STI Fund equal in
value to their ESC Strategic Fund shares. Holders of Class A shares and Class D
shares, respectively, of the ESC Strategic Small Cap Fund and the ESC Strategic
Small Cap II Fund will receive an amount of Investor Shares
- --------------------
1 The STI Classic High Income Fund is a newly created series of the STI
Funds.
2 Trust Shares of the participating STI Funds are not involved in the
Reorganization. The STI High Income Fund will not initially offer Investor
Shares or Trust Shares.
-3-
<PAGE>
and Flex Shares, respectively, of the STI Classic Small Cap Growth Stock Fund
equal in value to their ESC Strategic Fund shares.
Each Company is an open-end, management investment company registered under
the Investment Company Act of 1940 (the "1940 Act"). STI Capital Management,
N.A. ("STI Capital") and Trusco Capital Management, Inc. ("Trusco") are the
investment advisers to the STI Funds (individually an "Adviser" and
collectively, the "Advisers") and are each indirect wholly-owned subsidiaries of
SunTrust Banks, Inc., a Georgia corporation and a bank holding company
("SunTrust"). Trusco is registered as an investment adviser under the Investment
Advisers Act of 1940 (the "Advisers Act"). STI Capital is a bank and is,
therefore, not required to register as an investment adviser by virtue of
Section 202(a)(11)(A) of the Advisers Act. SEI Investments Distribution Co.
("SEI Distributors") is the principal underwriter of the STI Funds and SEI
Investments Mutual Funds Services serves as administrator to the STI Funds.
SunTrust Equitable Securities ("STES"), a wholly-owned subsidiary of
SunTrust, and a registered investment adviser, is the investment adviser to the
ESC Strategic Funds. Equitable Asset Management, Inc., an affiliate of STES, is
the sub-adviser to both the ESC Strategic Small Cap Fund and the ESC Strategic
Small Cap II Fund. Westcap Investors, LLC, Brandes Investment Partners, L.P. and
Atlantic Capital Management, LLC are each a sub-adviser for the ESC Strategic
Appreciation Fund. Murray Johnstone International Limited is the sub-adviser and
is primarily responsible for the daily management of the ESC Strategic
International Equity Fund. Cincinnati Asset Management, Inc. is the sub-adviser
and is responsible for the daily management of the ESC Strategic Income Fund.
BISYS Fund Services, Limited Partnership ("BISYS") serves as the ESC Funds'
distributor and administrator.
This Proxy Statement/Prospectus sets forth concisely the information that a
shareholder of each of the ESC Strategic Funds should know before voting on the
Reorganization, and should be retained for future reference. Certain additional
relevant documents listed below, which have been filed with the Securities and
Exchange Commission ("SEC"), are incorporated in whole or in part by reference.
A Statement of Additional Information dated , 1999, relating to this Proxy
Statement/Prospectus and the Reorganization and including certain financial
information about the ESC Strategic Funds and the STI Funds, has been filed with
the SEC and is incorporated in its entirety into this Proxy
Statement/Prospectus. A copy of such Statement of Additional Information is
available upon request and without charge by writing to SEI Investments
Distribution Co., One Freedom Valley Drive, Oaks, PA 19456 or by calling
toll-free 1-800-874-4770.
For a more detailed discussion of the investment objectives, policies,
risks and restrictions of the ESC Strategic Funds, see the prospectus contained
in the registration statement for the ESC Strategic Funds, dated July 30, 1999,
which has been filed with the SEC and is incorporated by reference into this
Proxy Statement/Prospectus. A Statement of Additional Information for the ESC
Strategic Funds dated July 29, 1999, has been filed with the SEC, and is
incorporated by reference into this Proxy Statement/Prospectus. Copies of the
prospectus and Statement of Additional Information for the ESC Strategic Funds
are available upon request and without charge by calling 1-800-261-FUND (3863).
-4-
<PAGE>
For a more detailed discussion of the investment objectives, policies,
risks and restrictions of the participating STI Funds, see the registration
statement or prospectus relating to the Existing STI Funds and the New STI
Fund, which has been filed with the SEC and is incorporated by reference into
this Proxy Statement/Prospectus. Copies of the prospectuses for the STI Funds
accompany this Proxy Statement/Prospectus. Statements of Additional
Information for the Existing STI Funds dated October 1, 1999, and for the New
STI Fund dated __________, 1999, have been filed with the SEC, and are
incorporated by reference into this Proxy Statement/Prospectus. Copies are
available upon request and without charge by calling 1-800-874-4770.
This Proxy Statement/Prospectus constitutes the proxy statement of ESC
Strategic Funds for the Meeting and is expected to be sent to shareholders on or
about [JANUARY 28, 2000].
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED
THESE SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-5-
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
Synopsis..........................................................................
The Reorganization...........................................................
The Funds....................................................................
Fees and Expenses............................................................
Investment Objectives, Policies and Restrictions.............................
The Funds' Purchase, Exchange and Redemption Procedures......................
Risks.............................................................................
Information Relating to the Reorganization........................................
Description of the Reorganization............................................
Federal Income Taxes.........................................................
Capitalization...............................................................
Reasons for the Reorganization....................................................
Shareholder Rights................................................................
Information About the STI Funds and ESC Strategic Funds...........................
Voting Matters....................................................................
Other Business....................................................................
Shareholder Inquiries.............................................................
Exhibit A - Form of Agreement and Plan of Reorganization..........................
Exhibit B - Management's Discussion of Fund Performance...........................
</TABLE>
-6-
<PAGE>
SYNOPSIS
This Synopsis is designed to allow you to compare the current fees,
investment objectives, policies and restrictions, and distribution, purchase,
exchange and redemption procedures of each ESC Strategic Fund with those of its
corresponding STI Fund. It is a summary of certain information contained
elsewhere in this Proxy Statement/Prospectus, or incorporated by reference into
this Proxy Statement/Prospectus. Shareholders should read this entire Proxy
Statement/Prospectus carefully. For more complete information, please read the
prospectus for each Fund.
THE REORGANIZATION
BACKGROUND. Pursuant to the Reorganization Agreement (attached hereto as
Exhibit A), each of the ESC Strategic Funds will transfer all of its assets and
certain stated liabilities to its corresponding STI Fund in exchange solely for
shares of that STI Fund. Each of the ESC Strategic Funds will distribute the STI
Fund shares that it receives to its shareholders in liquidation. Each of the ESC
Strategic Funds will then be terminated under state law. The result of the
Reorganization is that shareholders of each ESC Strategic Fund will become
shareholders of the corresponding STI Fund. No front-end sales charges or
contingent deferred sales charges will be imposed in connection with these
transactions.
The Board of Directors of the Corporation, including the Directors who are
not "interested persons" within the meaning of Section 2(a)(19) of the 1940 Act,
has concluded that the Reorganization would be in the best interests of each of
the ESC Strategic Funds and their shareholders, and that the interests of
existing shareholders in the ESC Strategic Funds would not be diluted as a
result of the transactions contemplated by the Reorganization. The Board of
Directors of the Corporation recommends that you vote for approval of the
Reorganization.
TAX CONSEQUENCES. The Reorganization is intended to qualify for federal
income tax purposes as a tax-free reorganization. If the Reorganization so
qualifies, shareholders of the ESC Strategic Funds will not recognize gain or
loss in the transaction. Nevertheless, the sale of securities by the ESC
Strategic Funds prior to the Reorganization, whether in the ordinary course of
business or in anticipation of the Reorganization, could result in a taxable
capital gains distribution prior to the Reorganization.
SPECIAL CONSIDERATIONS AND RISK FACTORS. Although the investment objectives
and policies of the participating STI Funds and the corresponding ESC Strategic
Funds are generally similar, there are certain differences, especially for the
ESC Strategic Funds that are combining with an Existing STI Fund. Therefore, an
investment in an STI Fund may involve investment risks that are, in some
respects, different from those of its corresponding ESC Strategic Fund. For a
more complete discussion of the risks associated with the respective Funds, see
"RISKS," below.
THE FUNDS
-7-
<PAGE>
BUSINESS OF THE FUNDS. The Corporation is an open-end management investment
company, which offers redeemable shares in different series. It was organized as
a Maryland corporation on November 24, 1993. The ESC Strategic Funds offer two
classes of shares, Class A and Class D shares. The two classes differ with
respect to distribution and shareholder servicing costs and front-end sales
charges, as set forth in the ESC Strategic Funds' prospectus.
The Trust is an open-end, management investment company, which offers
redeemable shares in different series of investment portfolios. It was organized
as a Massachusetts business trust on January 15, 1992. The participating STI
Funds offer three classes of shares, Trust Shares, Investor Shares, and Flex
Shares, although Trust shares are not involved in the Reorganization. The
classes differ with respect to minimum investment requirements, distribution and
shareholder servicing costs, front-end sales charges and contingent deferred
sales charges, as set forth in the STI Funds' prospectuses.
FEES AND EXPENSES
Under the Reorganization Agreement, each ESC Strategic Fund will
transfer all of its assets and the corresponding stated liabilities to
certain Existing STI Funds or the New STI Fund. The following comparative fee
tables show the fees for each Existing STI Fund and its corresponding ESC
Strategic Fund. The Pro forma tables show the fees you would pay if the
Reorganization is approved. Both sets of tables show fees and expenses
without any waivers. The footnotes following the tables show what the actual
fees and expenses will be after waivers, if any.
If the Reorganization is approved, Total Expenses after waivers will
decrease for shareholders of the ESC Strategic Funds by the following
percentages: ESC Strategic Small Cap Fund, Class A (0.24%) and Class D (0.04%);
ESC Strategic Small Cap II Fund, Class A (0.45%) and Class D (0.25%); ESC
Strategic International Equity Fund, Class A (0.67%) and Class D (0.47%); ESC
Strategic Appreciation Fund, Class A (0.79%) and Class D (0.54%); and ESC
Strategic Income Fund, Class A (0.60%) and Class D (0.90%);
ESC STRATEGIC SMALL CAP FUND - STI SMALL CAP GROWTH STOCK FUND
COMPARISON OF SHAREHOLDER FEES
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
MAXIMUM SALES CHARGE (LOAD) MAXIMUM DEFERRED SALES CHARGE
IMPOSED ON PURCHASE (AS A (LOAD) (AS A PERCENTAGE OF NET
FUND PERCENTAGE OF OFFERING PRICE) ASSET VALUE)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ESC STRATEGIC SMALL CAP FUND 4.50% None
(Class A)
- -----------------------------------------------------------------------------------------------------------------
STI SMALL CAP GROWTH STOCK 3.75% None
FUND (Investor Shares)
- -----------------------------------------------------------------------------------------------------------------
ESC STRATEGIC SMALL CAP FUND 1.50% None
(Class D)
- -----------------------------------------------------------------------------------------------------------------
-8-
<PAGE>
- -----------------------------------------------------------------------------------------------------------------
STI SMALL CAP GROWTH STOCK None 2.00%*
FUND (Flex Shares)
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
* The CDSC will be waived for Flex Shares issued to shareholders of the ESC
Strategic Funds as a result of the Reorganization. This waiver does not
apply to shares of the STI Funds purchased following the Effective Times of
the Reorganization.
COMPARISON OF ANNUAL OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
INVESTMENT ADVISORY DISTRIBUTION OTHER TOTAL OPERATING
FUND FEES (12b-1) FEES EXPENSES EXPENSES
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ESC STRATEGIC SMALL CAP 1.00% 0.25% 0.54% 1.79%
FUND (Class A)*
- -----------------------------------------------------------------------------------------------------------------
STI SMALL CAP GROWTH 1.15% 0.50% 0.25% 1.90%
STOCK FUND (Investor
Shares)+
- -----------------------------------------------------------------------------------------------------------------
ESC STRATEGIC SMALL CAP 1.00% 0.75% 0.54% 2.29%
FUND (Class D)*
- -----------------------------------------------------------------------------------------------------------------
STI SMALL CAP GROWTH 1.15% 1.00% 1.04% 3.19%
STOCK FUND (Flex
Shares)+
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
* STES has contractually agreed to waive a portion of its fees and/or
reimburse the ESC Strategic Small Cap Fund to limit Net Annual Operating
Expenses to 2.00% for Class A and 2.50% for Class D, until March 31, 2000.
+ The table shows the highest expenses that could be currently charged to the
STI Small Cap Growth Stock Fund. Actual expenses are lower because Trusco and
STI Distributors are voluntarily waiving a portion of their fees. Actual
Investment Advisory Fees, Distribution Fees and Total Operating Expenses for
Investor Shares are 0.86%, 0.44% and 1.55%, respectively. Actual Investment
Advisory Fees, Distribution Fees and Total Operating Expenses for Flex Shares
are 0.86%, 0.35% and 2.25%, respectively. Trusco and STI Distributors could
discontinue these voluntary waivers at any time.
PRO FORMA SHAREHOLDER FEES
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
MAXIMUM SALES CHARGE (LOAD) MAXIMUM DEFERRED SALES CHARGE
IMPOSED ON PURCHASE (AS A (LOAD) (AS A PERCENTAGE OF NET
FUND PERCENTAGE OF OFFERING PRICE) ASSET VALUE)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
STI SMALL CAP GROWTH STOCK 3.75% None
FUND (Investor Shares)
- -----------------------------------------------------------------------------------------------------------------
STI SMALL CAP GROWTH STOCK None 2.00%
FUND (Flex Shares)
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
PRO FORMA ANNUAL OPERATING EXPENSES+
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
-9-
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
INVESTMENT ADVISORY DISTRIBUTION OTHER TOTAL OPERATING
FUND FEES (12b-1) FEES EXPENSES EXPENSES
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
STI SMALL CAP GROWTH 1.15% 0.50% 0.25% 1.90%
STOCK FUND (Investor
Shares)
- -----------------------------------------------------------------------------------------------------------------
STI SMALL CAP GROWTH 1.15% 1.00% 1.04% 3.19%
STOCK FUND (Flex Shares)
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
+ The table shows the highest expenses that could be currently charged to
the STI Small Cap Growth Stock Fund, following the Reorganization. Actual
expenses will be lower because Trusco and STI Distributors will continue to
voluntarily waive a portion of their fees. Actual Investment Advisory Fees,
Distribution Fees and Total Operating Expenses for Investor Shares will be
0.86%, 0.44% and 1.55%, respectively. Actual Investment Advisory Fees,
Distribution Fees and Total Operating Expenses for Flex Shares will be 0.86%,
0.95% and 2.25%, respectively. Trusco and STI Distributors could discontinue
these voluntary waivers at any time.
EXAMPLES
These examples are intended to help you compare the cost of investing in each
Fund with the cost of investing in other mutual funds.
The examples assume that you invest $10,000 in each Fund for the time periods
indicated, that your investment has a 5% return each year and that each Fund's
operating expenses remain the same. Although your actual costs may be higher or
lower, based on these assumptions you would pay the following expenses if you
redeem all of your shares at the end of the time periods indicated:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ESC STRATEGIC SMALL CAP FUND (Class $624 $988 $1,376 $2,461
A)
- -------------------------------------------------------------------------------------------------------------
STI SMALL CAP GROWTH STOCK FUND $561 $950 $1,363 $2,514
(Investor Shares)
- -------------------------------------------------------------------------------------------------------------
ESC STRATEGIC SMALL CAP FUND (Class $379 $855 $1,357 $2,736
D)
- -------------------------------------------------------------------------------------------------------------
STI SMALL CAP GROWTH STOCK FUND $522 $983 $1,669 $3,494
(Flex Shares)
- -------------------------------------------------------------------------------------------------------------
</TABLE>
PRO FORMA EXAMPLE
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
STI SMALL CAP GROWTH STOCK FUND $561 $950 $1,363 $2,514
(Investor Shares)
- -------------------------------------------------------------------------------------------------------------
STI SMALL CAP GROWTH STOCK FUND $522 $983 $1,669 $3,494
(Flex Shares)
- -------------------------------------------------------------------------------------------------------------
</TABLE>
The Examples above should not be considered a representation of future expenses
of the Fund. Actual expenses may be greater or less than those shown.
-10-
<PAGE>
ESC STRATEGIC SMALL CAP II FUND - STI SMALL CAP GROWTH STOCK FUND
COMPARISON OF SHAREHOLDER FEES
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
MAXIMUM SALES CHARGE (LOAD) MAXIMUM DEFERRED SALES CHARGE
IMPOSED ON PURCHASE (AS A (LOAD) (AS A PERCENTAGE OF NET
FUND PERCENTAGE OF OFFERING PRICE) ASSET VALUE)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ESC STRATEGIC SMALL CAP II FUND 4.50% None
(Class A)
- -----------------------------------------------------------------------------------------------------------------
STI SMALL CAP GROWTH STOCK 3.75% None
FUND (Investor Shares)
- -----------------------------------------------------------------------------------------------------------------
ESC STRATEGIC SMALL CAP II FUND 1.50% None
(Class D)
- -----------------------------------------------------------------------------------------------------------------
STI SMALL CAP GROWTH STOCK None 2.00%*
FUND (Flex Shares)
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
* The CDSC will be waived for Flex Shares issued to shareholders of the ESC
Strategic Funds as a result of the Reorganization. This waiver does not
apply to shares of the STI Funds purchased following the Effective Times of
the Reorganization.
COMPARISON OF ANNUAL OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
INVESTMENT ADVISORY DISTRIBUTION OTHER TOTAL OPERATING
FUND FEES (12b-1) FEES EXPENSES EXPENSES
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ESC STRATEGIC SMALL CAP 1.25% 0.25% 0.77% 2.27%
II FUND (Class A)*
- -----------------------------------------------------------------------------------------------------------------
STI SMALL CAP GROWTH 1.15% 0.50% 0.25% 1.90%
STOCK FUND (Investor
Shares)+
- -----------------------------------------------------------------------------------------------------------------
ESC STRATEGIC SMALL CAP 1.25% 0.75% 0.77% 2.77%
II FUND (Class D)*
- -----------------------------------------------------------------------------------------------------------------
STI SMALL CAP GROWTH 1.15% 1.00% 1.04% 3.19%
STOCK FUND (Flex
Shares)+
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
* STES has contractually agreed to waive a portion of its fees and/or
reimburse the ESC Strategic Small Cap II Fund to limit Net Annual Operating
Expenses to 2.00% for Class A and 2.50% for Class D, until March 31, 2000.
+ The table shows the highest expenses that could be currently charged to the
STI Small Cap Growth Stock Fund. Actual expenses are lower because Trusco and
STI Distributors are voluntarily waiving a portion of their fees. Actual
Investment Advisory Fees, Distribution Fees and Total Operating Expenses for
Investor Shares are 0.86%, 0.44% and 1.55%, respectively. Actual Investment
Advisory Fees, Distribution Fees and Total Operating Expenses for Flex Shares
are 0.86%, 0.35% and 2.25%, respectively. Trusco and STI Distributors could
discontinue these voluntary waivers at any time.
-11-
<PAGE>
PRO FORMA SHAREHOLDER FEES
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
MAXIMUM SALES CHARGE (LOAD) MAXIMUM DEFERRED SALES CHARGE
IMPOSED ON PURCHASE (AS A (LOAD) (AS A PERCENTAGE OF NET
FUND PERCENTAGE OF OFFERING PRICE) ASSET VALUE)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
STI SMALL CAP GROWTH STOCK 3.75% None
FUND (Investor Shares)
- -----------------------------------------------------------------------------------------------------------------
STI SMALL CAP GROWTH STOCK None 2.00%
FUND (Flex Shares)
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
PRO FORMA ANNUAL OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)+
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
INVESTMENT ADVISORY DISTRIBUTION OTHER TOTAL OPERATING
FUND FEES (12b-1) FEES EXPENSES EXPENSES
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
STI SMALL CAP GROWTH 1.15% 0.50% 0.25% 1.90%
STOCK FUND (Investor
Shares)
- -----------------------------------------------------------------------------------------------------------------
STI SMALL CAP GROWTH 1.15% 1.00% 1.04% 3.19%
STOCK FUND (Flex Shares)
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
+ The table shows the highest expenses that could be currently charged to
the STI Small Cap Growth Stock Fund, following the Reorganization. Actual
expenses will be lower because Trusco and STI Distributors will continue to
voluntarily waive a portion of their fees. Actual Investment Advisory Fees,
Distribution Fees and Total Operating Expenses for Investor Shares will be
0.86%, 0.44% and 1.55%, respectively. Actual Investment Advisory Fees,
Distribution Fees and Total Operating Expenses for Flex Shares will be 0.86%,
0.35% and 2.25%, respectively. Trusco and STI Distributors could discontinue
these voluntary waivers at any time.
EXAMPLES
These examples are intended to help you compare the cost of investing in each
Fund with the cost of investing in other mutual funds.
The examples assume that you invest $10,000 in each Fund for the time periods
indicated, that your investment has a 5% return each year and that each Fund's
operating expenses remain the same. Although your actual costs may be higher or
lower, based on these assumptions you would pay the following expenses if you
redeem all of your shares at the end of the time periods indicated:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ESC STRATEGIC SMALL CAP II FUND $644 $1,103 $1,587 $2,918
(Class A)
- -------------------------------------------------------------------------------------------------------------
STI SMALL CAP GROWTH STOCK FUND $561 $950 $1,363 $2,514
(Investor Shares)
- -------------------------------------------------------------------------------------------------------------
ESC STRATEGIC SMALL CAP II FUND $399 $971 $1,569 $3,184
(Class D)
- -------------------------------------------------------------------------------------------------------------
</TABLE>
-12-
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
STI SMALL CAP GROWTH STOCK FUND $522 $983 $1,669 $3,494
(Flex Shares)
- -------------------------------------------------------------------------------------------------------------
</TABLE>
PRO FORMA EXAMPLE
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
STI SMALL CAP GROWTH STOCK FUND $561 $950 $1,363 $2,514
(Investor Shares)
- -------------------------------------------------------------------------------------------------------------
STI SMALL CAP GROWTH STOCK FUND $522 $983 $1,669 $3,494
(Flex Shares)
- -------------------------------------------------------------------------------------------------------------
</TABLE>
The Examples above should not be considered a representation of future expenses
of the Fund. Actual expenses may be greater or less than those shown.
ESC STRATEGIC INTERNATIONAL EQUITY FUND - STI INTERNATIONAL EQUITY FUND
COMPARISON OF SHAREHOLDER FEES
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
MAXIMUM SALES CHARGE (LOAD) MAXIMUM DEFERRED SALES CHARGE
IMPOSED ON PURCHASE (AS A (LOAD) (AS A PERCENTAGE OF NET
FUND PERCENTAGE OF OFFERING PRICE) ASSET VALUE)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ESC STRATEGIC INTERNATIONAL 4.50% None
EQUITY FUND (Class A)
- -------------------------------------------------------------------------------------------------------------
STI INTERNATIONAL EQUITY FUND 3.75% None
(Investor Shares)
- -------------------------------------------------------------------------------------------------------------
ESC STRATEGIC INTERNATIONAL 1.50% None
EQUITY FUND (Class D)
- -------------------------------------------------------------------------------------------------------------
STI INTERNATIONAL EQUITY FUND None 2.00%*
(Flex Shares)
- -------------------------------------------------------------------------------------------------------------
</TABLE>
* The CDSC will be waived for Flex Shares issued to shareholders of the ESC
Strategic Funds as a result of the Reorganization. This waiver does not
apply to shares of the STI Funds purchased following the Effective Times of
the Reorganization.
-13-
<PAGE>
COMPARISON OF ANNUAL OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
INVESTMENT ADVISORY DISTRIBUTION OTHER TOTAL OPERATING
FUND FEES (12b-1) FEES EXPENSES EXPENSES
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ESC STRATEGIC 1.00% 0.25% 1.30% 2.55%
INTERNATIONAL EQUITY
FUND (Class A)*
- -----------------------------------------------------------------------------------------------------------------
STI INTERNATIONAL EQUITY 1.25% 0.33% 0.35% 1.93%
FUND (Investor Shares)+
- -----------------------------------------------------------------------------------------------------------------
ESC STRATEGIC 1.00% 0.75% 1.30% 3.05%
INTERNATIONAL EQUITY
FUND (Class D)*
- -----------------------------------------------------------------------------------------------------------------
STI INTERNATIONAL EQUITY 1.25% 1.00% 0.59% 2.84%
FUND (Flex Shares)+
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
* STES has contractually agreed to waive a portion of its fees and/or
reimburse the ESC International Equity Fund to limit Net Annual Operating
Expenses to 2.50% for Class A and 3.00% for Class D, until March 31, 2000.
+ The table shows the highest expenses that could be currently charged to the
STI International Equity Fund. Actual expenses are lower because STI Capital and
STI Distributors are voluntarily waiving a portion of their fees. Actual
Investment Advisory Fees, Distribution Fees and Total Operating Expenses for
Investor Shares are 1.20%, 0.28% and 1.83%, respectively. Actual Investment
Advisory Fees, Distribution Fees and Total Operating Expenses for Flex Shares
are 1.20%, 0.74% and 2.53%, respectively. STI Capital and STI Distributors could
discontinue these voluntary waivers at any time.
PRO FORMA SHAREHOLDER FEES
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
MAXIMUM SALES CHARGE (LOAD) MAXIMUM DEFERRED SALES CHARGE
IMPOSED ON PURCHASE (AS A (LOAD) (AS A PERCENTAGE OF NET
FUND PERCENTAGE OF OFFERING PRICE) ASSET VALUE)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
STI INTERNATIONAL EQUITY FUND 3.75% None
(Investor Shares)
- -----------------------------------------------------------------------------------------------------------------
STI INTERNATIONAL EQUITY FUND None 2.00%
(Flex Shares)
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
-14-
<PAGE>
PRO FORMA ANNUAL OPERATING EXPENSES +
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
INVESTMENT ADVISORY DISTRIBUTION OTHER TOTAL OPERATING
FUND FEES (12b-1) FEES EXPENSES EXPENSES
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
STI INTERNATIONAL EQUITY 1.25% 0.33% 0.35% 1.93%
FUND (Investor Shares)
- -----------------------------------------------------------------------------------------------------------------
STI INTERNATIONAL EQUITY 1.25% 1.00% 0.59% 2.84%
FUND (Flex Shares)
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
+ The table shows the highest expenses that could be currently charged to
the STI International Equity Fund, following the Reorganization. Actual
expenses will be lower because STI Capital and STI Distributors will continue
to voluntarily waive a portion of their fees. Actual Investment Advisory
Fees, Distribution Fees and Total Operating Expenses for Investor Shares will
be 1.20%, 0.28% and 1.83%, respectively. Actual Investment Advisory Fees,
Distribution Fees and Total Operating Expenses for Flex Shares will be 1.20%,
0.74% and 2.53%, respectively. STI Capital and STI Distributors could
discontinue these voluntary waivers at any time.
EXAMPLES
These examples are intended to help you compare the cost of investing in each
Fund with the cost of investing in other mutual funds.
The examples assume that you invest $10,000 in each Fund for the time periods
indicated, that your investment has a 5% return each year and that each Fund's
operating expenses remain the same. Although your actual costs may be higher or
lower, based on these assumptions you would pay the following expenses if you
redeem all of your shares at the end of the time periods indicated:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ESC STRATEGIC INTERNATIONAL EQUITY $692 $1,203 $1,740 $3,202
FUND (Class A)
- -------------------------------------------------------------------------------------------------------------
STI INTERNATIONAL EQUITY FUND $564 $958 $1,378 $2,544
(Investor Shares)
- -------------------------------------------------------------------------------------------------------------
ESC STRATEGIC INTERNATIONAL EQUITY $448 $1,073 $1,723 $3,461
FUND (Class D)
- -------------------------------------------------------------------------------------------------------------
STI INTERNATIONAL EQUITY FUND (Flex $487 $880 $1,499 $3,166
Shares)
- -------------------------------------------------------------------------------------------------------------
</TABLE>
PRO FORMA EXAMPLE
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
STI INTERNATIONAL EQUITY FUND $564 $958 $1,378 $2,544
(Investor Shares)
- -------------------------------------------------------------------------------------------------------------
STI INTERNATIONAL EQUITY FUND (Flex $487 $880 $1,499 $3,166
Shares)
- -------------------------------------------------------------------------------------------------------------
</TABLE>
-15-
<PAGE>
The Examples above should not be considered a representation of future expenses
of the Fund. Actual expenses may be greater or less than those shown.
ESC STRATEGIC APPRECIATION FUND - STI GROWTH AND INCOME FUND
COMPARISON OF SHAREHOLDER FEES
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
MAXIMUM SALES CHARGE (LOAD) MAXIMUM DEFERRED SALES CHARGE
IMPOSED ON PURCHASE (AS A (LOAD) (AS A PERCENTAGE OF NET
FUND PERCENTAGE OF OFFERING PRICE) ASSET VALUE)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ESC STRATEGIC APPRECIATION FUND 4.50% None
(Class A)
- -----------------------------------------------------------------------------------------------------------------
STI GROWTH AND INCOME FUND 3.75% None
(Investor Shares)
- -----------------------------------------------------------------------------------------------------------------
ESC STRATEGIC APPRECIATION FUND 1.50% None
(Class D)
- -----------------------------------------------------------------------------------------------------------------
STI GROWTH AND INCOME FUND None 2.00%*
(Flex Shares)
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
* The CDSC will be waived for Flex Shares issued to shareholders of the ESC
Strategic Funds as a result of the Reorganization. This waiver does not
apply to shares of the STI Funds purchased following the Effective Times of
the Reorganization.
COMPARISON OF ANNUAL OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
INVESTMENT ADVISORY DISTRIBUTION OTHER TOTAL OPERATING
FUND FEES (12b-1) FEES EXPENSES EXPENSES
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ESC STRATEGIC 1.00% 0.25% 0.72% 1.97%
APPRECIATION FUND (Class
A)*
- -----------------------------------------------------------------------------------------------------------------
STI GROWTH AND INCOME 0.90% 0.25% 0.20% 1.35%
FUND (Investor Shares)+
- -----------------------------------------------------------------------------------------------------------------
ESC STRATEGIC 1.00% 0.75% 0.72% 2.47%
APPRECIATION FUND (Class
D)*
- -----------------------------------------------------------------------------------------------------------------
STI GROWTH AND INCOME 0.90% 1.00% 0.22% 2.12%
FUND (Flex Shares)+
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
* STES has contractually agreed to waive a portion of its fees and/or
reimburse the ESC Strategic Appreciation Fund to limit Net Annual Operating
Expenses to 2.00% for Class A and 2.50% for Class D, until March 31, 2000.
+ The table shows the highest expenses that could be currently charged to the
STI Growth and Income Fund. Actual expenses are lower because the Trusco and STI
Distributors are voluntarily waiving a portion of their fees. Actual Investment
Advisory Fees, Distribution Fees and Total Operating Expenses for Investor
Shares are 0.90%, 0.08% and 1.18%, respectively. Actual Investment Advisory
Fees, Distribution Fees and Total Operating Expenses for Flex Shares are 0.90%,
0.81% and 1.93%, respectively. Trusco and STI Distributors could discontinue
these voluntary
-16-
<PAGE>
waivers at any time. Net waiver fees for the STI Growth and Income Fund have
been restated to reflect anticipated fees for the fiscal year ending May 31,
2000.
PRO FORMA SHAREHOLDER FEES
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
MAXIMUM SALES CHARGE (LOAD) MAXIMUM DEFERRED SALES CHARGE
IMPOSED ON PURCHASE (AS A (LOAD) (AS A PERCENTAGE OF NET
FUND PERCENTAGE OF OFFERING PRICE) ASSET VALUE)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
STI GROWTH AND INCOME FUND 3.75% None
(Investor Shares)
- -----------------------------------------------------------------------------------------------------------------
STI GROWTH AND INCOME FUND None 2.00%
(Flex Shares)
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
PRO FORMA ANNUAL OPERATING EXPENSES +
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
INVESTMENT ADVISORY DISTRIBUTION OTHER TOTAL OPERATING
FUND FEES (12b-1) FEES EXPENSES EXPENSES
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
STI GROWTH AND INCOME 0.90% 0.25% 0.20% 1.35%
FUND (Investor Shares)
- -----------------------------------------------------------------------------------------------------------------
STI GROWTH AND INCOME 0.90% 1.00% 0.22% 2.12%
FUND (Flex Shares)
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
+ The table shows the highest expenses that could be currently charged to
the STI Growth and Income Fund, following the Reorganization. Actual expenses
will be lower because the Trusco and STI Distributors will continue to
voluntarily waive a portion of their fees. Actual Investment Advisory Fees,
Distribution Fees and Total Operating Expenses for Investor Shares will be
0.90%, 0.08% and 1.18%, respectively. Actual Investment Advisory Fees,
Distribution Fees and Total Operating Expenses for Flex Shares will be 0.90%,
0.81% and 1.93%, respectively. Trusco and STI Distributors could discontinue
these voluntary waivers at any time.
EXAMPLES
These examples are intended to help you compare the cost of investing in each
Fund with the cost of investing in other mutual funds.
The examples assume that you invest $10,000 in each Fund for the time periods
indicated, that your investment has a 5% return each year and that each Fund's
operating expenses remain the same. Although your actual costs may be higher or
lower, based on these assumptions you would pay the following expenses if you
redeem all of your shares at the end of the time periods indicated:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ESC STRATEGIC APPRECIATION FUND $641 $1,040 $1,465 $2,642
(Class A)
- -------------------------------------------------------------------------------------------------------------
STI GROWTH AND INCOME FUND $507 $787 $1,087 $1,938
(Investor Shares)
- -------------------------------------------------------------------------------------------------------------
ESC STRATEGIC APPRECIATION FUND $396 $908 $1,446 $2,914
(Class D)
- -------------------------------------------------------------------------------------------------------------
</TABLE>
-17-
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
STI GROWTH AND INCOME FUND (Flex $415 $664 $1,139 $2,452
Shares)
- -------------------------------------------------------------------------------------------------------------
</TABLE>
PRO FORMA EXAMPLE
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
STI GROWTH AND INCOME FUND $507 $787 $1,087 $1,938
(Investor Shares)
- -------------------------------------------------------------------------------------------------------------
STI GROWTH AND INCOME FUND (Flex $415 $664 $1,139 $2,452
Shares)
- -------------------------------------------------------------------------------------------------------------
</TABLE>
The Examples above should not be considered a representation of future expenses
of the Fund. Actual expenses may be greater or less than those shown.
-----------------------------------------------
Under the Reorganization Agreement, the ESC Strategic Income Fund will
transfer all its assets and stated liabilities to the New STI Fund. The
following comparative fee table shows the current fees and expenses for the
ESC Strategic Fund. Because the New STI Fund was not yet operational as of
the date of this Prospectus/Proxy statement, current fees and expenses are
not available for that Fund. The Pro forma tables show the fees you would pay
if the Reorganization is approved. Both sets of tables show fees and expenses
without any waivers. The footnotes following the tables show what the actual
fees and expenses will be after waivers, if any.
ESC STRATEGIC INCOME FUND - STI HIGH INCOME FUND
COMPARISON OF SHAREHOLDER FEES
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
MAXIMUM SALES CHARGE (LOAD) MAXIMUM DEFERRED SALES CHARGE
IMPOSED ON PURCHASE (AS A (LOAD) (AS A PERCENTAGE OF NET
FUND PERCENTAGE OF OFFERING PRICE) ASSET VALUE)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ESC STRATEGIC INCOME FUND 4.50% None
(Class A)
- -----------------------------------------------------------------------------------------------------------------
STI HIGH INCOME FUND (Flex None 2.00%
Shares)
- -----------------------------------------------------------------------------------------------------------------
ESC STRATEGIC INCOME FUND 1.50% None
(Class D)
- -----------------------------------------------------------------------------------------------------------------
STI HIGH INCOME FUND (Flex None 2.00%*
Shares)
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
* The CDSC will be waived for Flex Shares issued to shareholders of the ESC
Strategic Funds as a result of the Reorganization. This waiver does not
apply to shares of the STI Funds purchased following the Effective Times of
the Reorganization.
COMPARISON OF ANNUAL OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
-18-
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
INVESTMENT ADVISORY DISTRIBUTION OTHER TOTAL OPERATING
FUND FEES (12b-1) FEES EXPENSES EXPENSES
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ESC STRATEGIC INCOME 1.00% 0.25% 0.97% 2.22%
FUND (Class A)*
- -----------------------------------------------------------------------------------------------------------------
STI HIGH INCOME FUND+ 0.80% 1.00% 0.35% 2.15%
(Flex Shares)
- -----------------------------------------------------------------------------------------------------------------
ESC STRATEGIC INCOME 1.00% 0.75% 0.97% 2.72%
FUND (Class D)*
- -----------------------------------------------------------------------------------------------------------------
STI HIGH INCOME FUND+ 0.80% 1.00% 0.35% 2.15%
(Flex Shares)
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
* STES has contractually agreed to waive a portion of its fees and/or
reimburse the ESC Strategic Income Fund to limit Net Annual Operating
Expenses to 2.00% for Class A and 2.50% for Class D, until March 31, 2000.
+ The table shows the highest expenses that could be currently charged to
the STI High Income Fund, following the Reorganization. Actual expenses will
be lower because Trusco and STI Distributors will continue to voluntarily
waive a portion of their fees. Actual Investment Advisory Fees, Distribution
Fees and Total Operating Expenses for Flex Shares will be 0.65%, 0.40% and
1.40%, respectively. Because the STI High Income Fund was not yet operational
as of the date of this Prospectus/Proxy Statement, Other Expenses are
estimated. Trusco and STI Distributors could discontinue these voluntary
waivers at any time.
PRO FORMA SHAREHOLDER FEES
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
MAXIMUM SALES CHARGE (LOAD) MAXIMUM DEFERRED SALES CHARGE
IMPOSED ON PURCHASE (AS A (LOAD) (AS A PERCENTAGE OF NET
FUND PERCENTAGE OF OFFERING PRICE) ASSET VALUE)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
STI HIGH INCOME FUND (Flex None 2.00%
Shares)
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
PRO FORMA ANNUAL OPERATING EXPENSES+
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
INVESTMENT ADVISORY DISTRIBUTION OTHER TOTAL OPERATING
FUND FEES (12b-1) FEES EXPENSES EXPENSES
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
STI HIGH INCOME FUND 0.80% 1.00% 0.35% 2.15%
(Flex Shares)
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
+ The table shows the highest expenses that could be currently charged to the
STI Small Cap Growth Stock Fund, following the Reorganization. Actual expenses
are lower because Trusco and STI Distributors are voluntarily waiving a portion
of their fees. Actual Investment Advisory Fees, Distribution Fees and Total
Operating Expenses for Flex Shares are 0.65%, 0.40% and 1.40%, respectively.
Because the STI High Income Fund was not yet operational as of the date of this
Prospectus/Proxy Statement, Other Expenses are estimated. Trusco and STI
Distributors could discontinue these voluntary waivers at any time.
EXAMPLES
These examples are intended to help you compare the cost of investing in each
Fund with the cost of investing in other mutual funds.
-19-
<PAGE>
The examples assume that you invest $10,000 in each Fund for the time periods
indicated, that your investment has a 5% return each year and that each Fund's
operating expenses remain the same. Although your actual costs may be higher or
lower, based on these assumptions you would pay the following expenses if you
redeem all of your shares at the end of the time periods indicated:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ESC STRATEGIC INCOME FUND (Class A) $644 $1,093 $1,567 $2,873
- -------------------------------------------------------------------------------------------------------------
STI HIGH INCOME FUND (Flex Shares) NA NA NA NA
- -------------------------------------------------------------------------------------------------------------
ESC STRATEGIC INCOME FUND (Class D) $399 $961 $1,549 $3,140
- -------------------------------------------------------------------------------------------------------------
STI HIGH INCOME FUND (Flex Shares) NA NA NA NA
- -------------------------------------------------------------------------------------------------------------
</TABLE>
PRO FORMA EXAMPLE
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
STI HIGH INCOME FUND (Flex Shares) $418 $673 $1,154 $2,483
- -------------------------------------------------------------------------------------------------------------
</TABLE>
The Examples above should not be considered a representation of future expenses
of the Fund. Actual expenses may be greater or less than those shown.
INVESTMENT ADVISERS. STI Capital and Trusco are each indirect
wholly-owned subsidiaries of SunTrust and the investment advisers to the STI
Funds. Trusco is registered as an investment adviser under the Advisers Act.
Trusco, located at 50 Hurt Plaza, Suite 1400, Atlanta, GA 30303, had
approximately $30 billion of assets under management as of July 1, 1999.
Trusco serves as the investment adviser to the STI Growth and Income Fund and
Small Cap Growth Stock Fund and will serve as investment adviser to High
Income Fund. STI Capital is a bank and is, therefore, not required to
register as an investment adviser. STI Capital had approximately $14.5
billion of assets under management as of July 1, 1999 and its address is P.O.
Box 3808, Orlando, FL 32802. STI Capital serves as the investment adviser to
the STI International Equity Fund.
STES, a wholly-owned subsidiary of SunTrust and a registered investment
adviser, is the investment adviser to the ESC Strategic Funds. STES had
approximately $_____ billion of assets under management as of _____________, and
its address is 800 Nashville City Center, Nashville, TN 37219.
Equitable Asset Management, Inc., an affiliate of STES, is the sub-adviser
to the ESC Strategic Small Cap Fund and the ESC Strategic Small Cap II Fund.
Westcap Investors, LLC, Brandes Investment Partners, L.P. and Atlantic Capital
Management, LLC are each a sub-adviser for the ESC Strategic Appreciation Fund.
Murray Johnstone International Limited is the sub-adviser and is primarily
responsible for the daily management of the ESC Strategic International Equity
Fund. Cincinnati Asset Management, Inc. is the sub-adviser and is responsible
for the daily management of the ESC Strategic Income Fund.
INVESTMENT ADVISORY FEES. The following table compares management fees paid
to STES for each ESC Strategic Fund and to the Adviser(s) for the corresponding
STI Fund, respectively. The table shows advisory fees before any waivers or
reimbursements ("Contractual") and advisory
-20-
<PAGE>
fees after any waivers or reimbursements ("Net of Waivers"). The fees listed are
as of the dates stated in the footnotes following the table.
<TABLE>
<CAPTION>
ESC STRATEGIC FUNDS FEE* STI FUNDS FEE
<S> <C> <C> <C>
Small Cap Fund Small Cap Growth Stock Fund**
Contractual.............................. 1.00% Contractual................................. 1.15%
Net of Waivers........................... 1.00% Net of Waivers.............................. 0.86%
Small Cap II Fund Small Cap Growth Stock Fund **
Contractual.............................. 1.25% Contractual................................. 1.15%
Net of Waivers........................... 0.98% Net of Waivers.............................. 0.86%
International Equity Fund International Equity Fund**
Contractual.............................. 1.00% Contractual................................. 1.25%
Net of Waivers........................... 0.95% Net of Waivers.............................. 1.20%
Appreciation Fund Growth and Income Fund +
Contractual.............................. 1.00% Contractual................................. 0.90%
Net of Waivers........................... 1.00% Net of Waivers.............................. 0.90%
Income Fund High Income Fund ++
Contractual.............................. 1.00% Contractual.................................... 0.80%
Net of Waivers........................... 0.78% Net of Waivers................................. 0.65%
</TABLE>
* Net of Waiver fees for the ESC Strategic Funds are based on STES
contractually agreeing to waive a portion of its fee or reimburse expenses
until at least March 31, 2000.
** Net of Waiver fees for the Existing STI Funds are based on the Adviser(s)
voluntarily agreeing to waive a portion of advisory fees for the fiscal
year ending May 31, 1999.
+ Net of Waiver fees for the STI Growth and Income Fund have been restated to
reflect anticipated fees for the fiscal year ending May 31, 2000.
++ Because the STI High Income Fund was not yet operational as of the date of
this Prospectus/Proxy Statement, Net of Waiver fees are based on Trusco's
anticipated voluntary fee waivers.
SALES LOADS AND CONTINGENT DEFERRED SALES CHARGES. The following chart
compares front-end sales loads and contingent deferred sales charges ("CDSC")
for certain of the ESC Strategic Funds and their corresponding STI Funds, only
for those classes that are subject to such charges.
<TABLE>
<CAPTION>
ESC STRATEGIC FUNDS CHARGE STI FUNDS CHARGE
<S> <C> <C> <C>
Small Cap Fund Small Cap Growth Stock Fund
Class A - Front-End Load.................. 4.50% Investor Shares - Front-End Load......... 3.75%
Class D - Front-End Load.................. 1.50% Flex Shares - Front-End Load............. None
Class D - CDSC............................ None Flex Shares - CDSC....................... 2.00%
-21-
<PAGE>
<CAPTION>
ESC STRATEGIC FUNDS CHARGE STI FUNDS CHARGE
<S> <C> <C> <C>
Small Cap II Fund Small Cap Growth Stock Fund
Class A - Front-End Load.................. 4.50% Investor Shares - Front-End Load......... 3.75%
Class D - Front-End Load.................. 1.50% Flex Shares - Front-End Load............. None
Class D - CDSC............................ None Flex Shares - CDSC....................... 2.00%
International Equity Fund International Equity Fund
Class A - Front-End Load.................. 4.50% Investor Shares - Front-End Load......... 3.75%
Class D - Front-End Load.................. 1.50% Flex Shares - Front-End Load............. None
Class D - CDSC............................ None Flex Shares - CDSC....................... 2.00%
Appreciation Fund Growth and Income Fund
Class A - Front-End Load.................. 4.50% Investor Shares - Front-End Load......... 3.75%
Class D - Front-End Load.................. 1.50% Flex Shares - Front-End Load............. None
Class D - CDSC............................ None Flex Shares - CDSC....................... 2.00%
Income Fund High Income Fund
Class A - Front-End Load.................. 4.50% Flex Shares - Front-End Load............. None
Class D - Front-End Load.................. 1.50% Flex Shares - CDSC....................... 2.00%
Class D - CDSC............................ None
</TABLE>
CONTINGENT DEFERRED SALES CHARGES. The ESC Strategic Funds are not subject
to a CDSC. Flex Shares of the participating STI Funds are subject to a 2.0% CDSC
that decreases to 0% after the first year. Shareholders of Class D shares of the
ESC Strategic Funds will not be charged a CDSC for any redemptions of Flex
Shares of the STI Funds they receive as a result of the Reorganization.
INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS.
THIS SECTION WILL HELP YOU COMPARE THE INVESTMENT OBJECTIVES AND POLICIES
OF EACH ESC STRATEGIC FUND WITH ITS CORRESPONDING STI FUND. PLEASE BE AWARE THAT
THIS IS ONLY A BRIEF DISCUSSION. MORE COMPLETE INFORMATION MAY BE FOUND IN THE
ESC STRATEGIC FUNDS' AND STI FUNDS' PROSPECTUSES.
ESC STRATEGIC SMALL CAP FUND : STI SMALL CAP GROWTH STOCK FUND
The investment objective of the ESC STRATEGIC SMALL CAP FUND is to provide
investors with a high level of capital appreciation. The Fund pursues its
objectives by investing, under normal market conditions, primarily in companies
with market capitalizations under $800 million. The Fund's investment adviser
selects equity securities of companies it believes show prospects for growth
due, for example, to promising new products, new distribution strategies, new
manufacturing technologies or new management teams or management philosophy, as
well as fundamental factors. The Fund is classified as a "non-diversified"
investment company.
The investment objective of the STI SMALL CAP GROWTH STOCK FUND is to
provide long-term capital appreciation. It invests primarily in small U.S.
companies with market capitalizations between $50 million and $3 billion. The
Adviser selects companies that demonstrate above average
-22-
<PAGE>
earnings and sales growth potential. The selected companies tend to have an
established operating history and a solid balance sheet. The Fund is classified
as a "diversified" investment company.
DIFFERENCES: As a "non-diversified" fund, the ESC Strategic Small Cap Fund
may invest a greater portion of its assets in a more limited number of issuers
than the STI Small Cap Growth Stock Fund (see "RISKS," below, for a discussion
of the differences between "diversified" and "non-diversified" funds). The STI
Small Cap Growth Stock Fund invests in companies with market capitalizations of
up to $3 billion whereas the ESC Strategic Small Cap Fund invests in companies
with market capitalizations under $800 million. The STI Small Cap Growth Stock
Fund may not acquire more than 10% of any one issuer, while the ESC Strategic
Small Cap Fund has no such restriction. The STI Small Cap Growth Stock Fund has
a fundamental policy which restricts it from pledging, mortgaging or
hypothecating assets in excess of 10% of its total assets whereas the ESC
Strategic Small Cap Fund has a similar non-fundamental policy that limits such
activities to 15% or less of its assets. Unlike the ESC Strategic Small Cap
Fund, the STI Small Cap Growth Stock Fund may not may make short sales of
securities and maintain short positions or lend its portfolio securities. The
STI Small Cap Growth Stock Fund may only purchase investment company securities
of money market funds and CMOs and REMICs deemed to be investment companies (and
then, only as permitted by the 1940 Act). As a non-fundamental policy, the ESC
Strategic Small Cap Fund may purchase securities of any investment company
provided the purchase does not violate the 1940 Act.
ESC STRATEGIC SMALL CAP II FUND : STI SMALL CAP GROWTH STOCK FUND
The investment objective of the ESC STRATEGIC SMALL CAP II FUND is to
provide a high level of capital appreciation. The Fund is a diversified fund
which seeks to achieve its objective by investment, under normal market
conditions, primarily in equity securities of companies with market
capitalizations under $800 million. In selecting securities for the Fund, the
Fund's investment adviser employs fundamental analysis of traditional small
capitalization companies it believes have prospects for rapid growth. The Fund's
management style is generally comparable to that of the ESC Strategic Small Cap
Fund, stated above.
The investment objective of the STI SMALL CAP GROWTH STOCK FUND is to
provide long-term capital appreciation. It is a diversified fund which invests
primarily in small U.S. companies with market capitalizations between $50
million and $3 billion. The Adviser selects companies that demonstrate above
average earnings and sales growth potential. The selected companies tend to have
an established operating history and a solid balance sheet.
DIFFERENCES: The STI Small Cap Growth Stock Fund invests in companies with
market capitalizations of up to $3 billion whereas the ESC Strategic Small Cap
II Fund invests in companies with market capitalizations under $800 million. The
STI Small Cap Growth Stock Fund may not acquire more than 10% of the voting
securities of any one issuer, while the ESC Strategic Small Cap II Fund has the
same restriction, although only with respect to 75% of its assets. The STI
Small Cap Growth Stock Fund has a fundamental policy which restricts it from
pledging, mortgaging or hypothecating assets in excess of 10% of its total
assets whereas the ESC Strategic Small Cap II Fund has a similar non-fundamental
policy that limits such activities to 15% or less of its assets. As a
fundamental policy, the STI Small Cap Growth Stock Fund may not invest in
companies for the purpose of exercising control. The ESC Strategic Small Cap II
Fund is also subject to this restriction, however, it is a non-fundamental
policy of the fund. Unlike the ESC Strategic Small Cap II Fund,
-23-
<PAGE>
the STI Small Cap Growth Stock Fund may not may make short sales of securities
and maintain short positions or lend its portfolio securities. Both the STI
Small Cap Growth Stock Fund and the ESC Strategic Small Cap II Fund may not
purchase securities on margin, however, this is a fundamental policy for the STI
Fund and a non-fundamental policy for the ESC Fund. The STI Small Cap Growth
Stock Fund may only purchase investment company securities of money market funds
and CMOs and REMICs deemed to be investment companies (and then, only as
permitted by the 1940 Act). As a non-fundamental policy, the ESC Strategic Small
Cap II Fund may purchase securities of any investment company provided the
purchase does not violate the 1940 Act.
ESC STRATEGIC INTERNATIONAL EQUITY FUND : STI INTERNATIONAL EQUITY FUND
The investment objective of the ESC STRATEGIC INTERNATIONAL EQUITY FUND is to
provide long-term capital appreciation. The Fund is a diversified fund which
normally invests primarily in a diversified portfolio of publicly traded
common stocks and securities convertible into or exchangeable for common
stock of non-U.S. based companies. The Fund diversifies its investments among
various non-U.S. countries. Investments are made in countries deemed to offer
favorable operating environments and companies for investment are selected
within those countries based on analysis of various fundamental factors.
Anticipated currency movements are a factor in both country and stock
selection. The Fund also follows the Emerging Markets Strategy which means
that its investment adviser may seek to enhance investment return for the
Fund through investing in emerging markets that are exhibiting, or are in the
early stages of exhibiting, very high economic growth rates relative to
countries in the organization for European Community Development.
The investment objective of the STI INTERNATIONAL EQUITY FUND is to provide
long-term capital appreciation. It is a diversified fund which invests primarily
in common stocks and other equity securities of foreign companies. In selecting
investments for the Fund, the Adviser diversifies the Fund's investments among
at least three foreign countries. The Fund invests primarily in developed
countries, but may invest in countries with emerging markets.
DIFFERENCES: The STI International Equity Fund has a fundamental policy
which restricts it from pledging, mortgaging or hypothecating assets in excess
of 10% of its total assets whereas the ESC International Equity Fund has a
similar non-fundamental policy that limits such activities to 15% or less of its
assets. The STI International Equity Fund may not acquire more than 10% of the
voting securities of any one issuer, while the ESC Strategic International
Equity Fund has the same restriction, although only with respect to 75% of its
assets. As a fundamental policy, the STI International Equity Fund may not
invest in companies for the purpose of exercising control. The ESC Strategic
International Equity Fund is also subject to this restriction, however, it is a
non- fundamental policy of the Fund. Unlike the ESC Strategic International
Equity Fund, the STI International Equity Fund may not may make short sales of
securities and maintain short positions or lend its portfolio securities. Both
the STI International Equity Fund and the ESC International Equity Fund may not
purchase securities on margin, however, this is a fundamental policy for the STI
Fund and a non-fundamental policy for the ESC Fund.
ESC STRATEGIC APPRECIATION FUND : STI GROWTH AND INCOME FUND
The investment objective of the ESC STRATEGIC APPRECIATION FUND is to
provide long-term capital appreciation. The Fund is a diversified fund which
pursues its objective by investing, under normal market conditions, primarily in
a diversified portfolio of common stocks and securities convertible into common
stock issued by U.S. based companies. The Fund's rebalancing procedures require
the Fund to sell securities in sectors that become overweighted (and presumably
overvalued) and to purchase securities in underweighted (and presumably
undervalued) sectors. The Fund uses
-24-
<PAGE>
a multiple manager strategy (see "Investment Advisers," above, for a list of the
multiple manager investment advisers to the Fund).
The primary investment objective of the STI GROWTH AND INCOME FUND is to
provide long-term capital appreciation. It is a diversified fund which invests
primarily in equity securities, including common stock and listed American
Depository Receipts ("ADRs") of domestic and foreign companies with market
capitalizations of at least $1 billion. However, the average market
capitalization can vary throughout a full market cycle and will be flexible to
allow the Adviser to capture market opportunities. The Adviser uses a
quantitative screening process to identify companies with an attractive
fundamental profile. The portfolio management team selects stocks of companies
with strong financial quality and above average earnings momentum to secure the
best relative values in each economic sector.
DIFFERENCES: The STI Growth and Income Fund invests in companies with
market capitalizations of at least $1 billion whereas the ESC Strategic
Appreciation Fund has no minimum market capitalization requirement. The STI
Growth and Income Fund may not acquire more than 10% of the voting securities of
any one issuer, while the ESC Strategic Appreciation Fund has the same
restriction, although, only with respect to 75% of its assets. The STI Growth
and Income Fund has a fundamental policy which restricts it from pledging,
mortgaging or hypothecating assets in excess of 10% of total assets whereas the
ESC Strategic Appreciation Fund has a non-fundamental policy subject to a
limitation of 15% or less. As a fundamental policy, the STI Growth and Income
Fund may not invest in companies for the purpose of exercising control. The ESC
Strategic Appreciation Fund is also subject to this restriction, however, it is
a non-fundamental policy of the Fund. The ESC Strategic Appreciation Fund may
make short sales of securities and maintain short positions whereas the STI
Growth and Income Fund may not. The STI Growth and Income Fund may not lend its
portfolio securities. Both the STI Growth and Income Fund and the ESC Strategic
Appreciation Fund may not purchase securities on margin, however this is a
fundamental policy for the STI Fund and a non-fundamental policy for the ESC
Fund. The STI Growth and Income Fund may only purchase investment company
securities of money market funds and CMOs and REMICs deemed to be investment
companies (and then, only as permitted by the 1940 Act). As a non- fundamental
policy, the ESC Strategic Appreciation Fund may purchase securities of any
investment company provided the purchase does not violate the 1940 Act.
THE FOLLOWING ESC STRATEGIC FUND WOULD TRANSFER ITS ASSETS AND CERTAIN
STATED LIABILITIES INTO ITS CORRESPONDING NEW STI FUND THAT WAS NOT YET
OPERATIONAL AS OF THE DATE OF THIS PROSPECTUS/PROXY STATEMENT. THE INVESTMENT
OBJECTIVES AND POLICIES OF THE NEW STI FUND WILL BE SUBSTANTIALLY SIMILAR TO ITS
CORRESPONDING ESC STRATEGIC FUND. THERE ARE NO MATERIAL DIFFERENCES IN THE
INVESTMENT RESTRICTIONS OF THE ESC STRATEGIC INCOME FUND AND THE STI HIGH INCOME
FUND.
ESC STRATEGIC INCOME FUND : STI HIGH INCOME FUND
The investment objective of the ESC STRATEGIC INCOME FUND is to provide a
high level of current income with a secondary objective of total return. The
Fund is a diversified fund which invests primarily in a diversified portfolio of
high yielding, lower rated corporate, government and other debt instruments of
U.S. issuers, although up to 35% of its assets may be invested in debt
instruments of non-U.S. issuers. The Fund may invest up to 100% of its assets in
debt securities rated below investment grade. Such debt securities are commonly
known as "junk bonds." The Fund's investment adviser seeks out companies with
good fundamentals and performing prospects
-25-
<PAGE>
that are currently out of favor with investors. The investment adviser prefers
securities that produce current income. The Fund also follows the Emerging
Markets Strategy which means that its investment adviser may seek to enhance
investment return for the Fund through investing in emerging markets that are
exhibiting, or are in the early stages of exhibiting, very high economic growth
rates relative to countries in the Organization for European Community
Development.
The investment objective of the STI HIGH INCOME FUND will be substantially
similar to the investment objective of the ESC Strategic Income Fund.
DIFFERENCES: The STI High Income Fund may not acquire more than 10% of the
voting securities of any one issuer, while the ESC Strategic Income has the same
restriction, although only with respect to 75% of its assets.
THE FUNDS' PURCHASE, EXCHANGE AND REDEMPTION PROCEDURES
PURCHASE PROCEDURES.
STI FUNDS. Once a brokerage account is opened with SunTrust Securities,
shares of the STI Funds, other than Trust Shares, may be purchased by mail,
telephone, wire, or through Automated Clearing House ("ACH"). Investor Shares
and Flex Shares may also be purchased through investment representatives of
certain correspondent banks of SunTrust and other financial institutions that
are authorized to place transactions in Fund shares for their customers.
Trust Shares are offered only to financial institutions or intermediaries,
including subsidiaries of SunTrust on behalf of accounts for which they act
as fiduciary, agent, investment adviser, or custodian. As a result, customers
of financial institutions may purchase Trust Shares through accounts made
with financial institutions and potentially through a Preferred Portfolio
Account (an asset allocation account available through SunTrust Securities,
Inc.). The minimum initial purchase requirement for Investor Shares is
$2,000, and for Flex Shares is $5,000 ($2,000 for retirement plans).
Additional Investor or Flex Shares may be purchased for a minimum of $1,000.
The net asset value ("NAV") of the STI Funds is calculated once each day
the New York Stock Exchange ("NYSE") is open for business (a "Business Day"), at
the regularly scheduled close of normal trading on the NYSE (normally, 4:00 p.m.
Eastern time). The NAV per share is calculated by dividing the total market
value of each Fund's investments and other assets, less any liabilities, by the
total outstanding shares of that Fund.
STI Funds may suspend a shareholder's right to sell shares if the NYSE
restricts trading, the SEC declares an emergency or for other reasons. More
information about this is in the STI Funds Statement of Additional Information,
incorporated herein by reference.
ESC STRATEGIC FUNDS. Shares of ESC Strategic Funds may be purchased through
the Funds' distributor or through banks, brokers and other investment
representatives, which may charge additional fees and may require higher minimum
investments or impose other limitations on buying and selling shares. If shares
are purchased through an investment representative, that party is responsible
for transmitting orders by close of business and may have an earlier cut-off
time for purchase and sale requests. Shares of the Funds may also be purchases
by mail, wire, through an Automatic Investment Plan, or electronically through
ACH. The minimum initial purchase requirement for both classes of the Funds is
$1,000 for regular, non-retirement accounts, $1,000 for the Automatic Investment
Plan, and $250 for individual retirement accounts ("IRA"). The minimum
subsequent investment for all shareholders is $50. A Fund may waive its minimum
purchase
-26-
<PAGE>
requirement and the Fund's distributor may reject a purchase order if it
considers it in the best interest of the Fund and its shareholders.
The NAV for each Fund is determined and its shares are priced at the close
of regular trading on the NYSE, normally at 4:00 p.m., Eastern time, on days the
NYSE is open. Some of the Funds invest in securities that are primarily listed
on foreign exchanges and trade on weekends or other days when the Fund does not
price its shares. As a result, a Fund's NAV may change on days when shareholders
will be unable to purchase or redeem the Fund's shares. Each Fund's securities
are generally valued at current market prices. If market quotations are not
available, prices will be based on fair value as determined by methods approved
by the Funds' Directors. After the pricing of a foreign security has been
established, if an event occurs which would likely cause the value to change,
the value of the foreign security may be priced at fair value as determined in
good faith by or at the direction of the Funds' Directors.
EXCHANGE PRIVILEGES.
STI FUNDS. For Investor Shares and Flex Shares, exchange requests must be
for an amount of at least $1,000. For each shareholder, exchanges are allowed up
to four times during a calendar year. This exchange privilege may be changed or
canceled at any time upon 60 days' notice. Investor Shares of any Fund
(including Funds not participating in the Reorganization) may be exchanged for
Investor Shares of any other Fund. If shares are exchanged that were purchased
without a sales charge or with a lower sales charge into a Fund with a sales
charge or with a higher sales charge, the exchange is subject to an incremental
sales charge (e.g., the difference between the lower and higher applicable sales
charges). If shares are exchanged into a Fund with the same, lower or no sales
charge there is no incremental sales charge for the exchange. Flex Shares of any
Fund may be exchanged for Flex Shares of any other Fund.
ESC STRATEGIC FUNDS. ESC Strategic Fund shares may be exchanged in one Fund
for shares of the same class of another ESC Strategic Fund, usually without
paying additional sales charges. No transaction fees are charged for exchanges.
The minimum amount for an initial exchange is $2,000. Shares of a class of one
Fund or shares of the same class of another Fund may not be exchanged if that
Fund is not qualified for sale in the shareholder's state of residence. The
exchange privilege (including automatic exchanges) may be changed or eliminated
at any time without notice to shareholders.
REDEMPTION PROCEDURES.
STI FUNDS. Investor Shares and Flex Shares held through a brokerage
account with SunTrust Securities may be redeemed on any Business Day by
contacting SunTrust Securities directly by mail or telephone. The minimum
amount for telephone redemptions is $1,000. If shares are held through an
account with a broker or other financial institution, shareholders should
contact that broker or institution to sell shares. For redemptions of $25,000
or more, STI Funds must be notified in writing and a signature guarantee must
be included (a notarized signature is not sufficient). Holders of Trust
Shares may redeem their shares on any Business Day by contacting SunTrust or
the shareholder's financial institution and by following the procedures
established when they opened their account or accounts with the Funds or with
their financial institution or intermediary. The sale price of each share
will be the next NAV determined after a request is received less, in the case
of Flex Shares, any applicable deferred sales charge. Shareholders with at
least $10,000 or more in their account may use the systematic withdrawal
plan. Under the plan, shareholders may arrange monthly, quarterly,
semi-annual or annual automatic withdrawals of at least $50 from any Fund.
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<PAGE>
ESC STRATEGIC FUNDS. Shareholders may redeem shares at any time. The sales
price will be the next NAV after the sell order is received by the Fund, its
transfer agent, or a shareholder's investment representative. Shareholders
selling shares through a financial adviser or broker may have alternative
redemption procedures. In addition, an adviser and/or broker may have
transaction minimums and/or transaction times which will affect the redemption.
Shares may also be redeemed by mail, wire, electronically through ACH, or
through a Systematic Withdrawal Plan. The Systematic Withdrawal Plan requires
that a shareholder's account have a value of $12,000 or more to start
withdrawals. If the value of such account falls below $500 due to withdrawals,
the shareholder may be asked to add sufficient funds to bring the account back
to $500, or the Fund may close the account and mail the proceeds to the
shareholder.
REDEMPTIONS IN KIND
STI FUNDS. The Funds generally pay sale (redemption) proceeds in cash.
However, under unusual conditions that make the payment of cash unwise (and for
the protection of the Fund's remaining shareholders) a Fund may pay all or part
of a shareholder's redemption proceeds in liquid securities with a market value
equal to the redemption price (redemption in kind). In the unlikely event that
shares were ever redeemed in kind, shareholders would have to pay brokerage
costs to sell the securities distributed to them, as well as taxes on any
capital gains from the sale, as with any redemption.
ESC STRATEGIC FUNDS. The Funds reserve the right to make redemptions in
kind with payment in securities rather than cash. This could occur under
extraordinary circumstances, such as a very large redemption that could affect
the Funds' operations (for example, more than 1% of a Fund's net assets). If the
Fund deems it advisable for the benefit of all shareholders, redemption in kind
will consist of securities equal in market value to a shareholder's shares. When
a shareholder converts these securities to cash, shareholder will pay brokerage
charges.
DIVIDEND POLICIES.
STI FUNDS. The Small Cap Growth Stock Fund and Growth and Income Fund
distribute income dividends quarterly. The International Equity Fund distributes
income dividends annually. The High Income Fund will distribute income dividends
monthly.
ESC STRATEGIC FUNDS. Income dividends on the Appreciation Fund,
International Equity Fund, Small Cap Fund and Strategic Small Cap II Fund are
paid at least annually. Dividends on the Income Fund are paid monthly.
For both the STI Funds and ESC Strategic Funds, capital gains, if any, are
distributed at least annually.
RISKS
ESC STRATEGIC SMALL CAP FUND : STI SMALL CAP GROWTH STOCK FUND
The ESC STRATEGIC SMALL CAP FUND invests, under normal market conditions,
primarily in companies with market capitalization under $800 million. The
principal risks of investing in this
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<PAGE>
Fund are "Market Risk," which is the risk that the value of a Fund's investments
will fluctuate as the stock or bond markets fluctuate and that prices overall
will decline over short or longer-term periods; "Management Risk," which means
the possibility that a Fund's manager(s) may make poor choices in selecting
securities and that the Fund will not perform as well as other funds; "Equity
Risk," which is the risk that stocks (equity securities) have no guaranteed
value and their market prices can fluctuate, at times dramatically, in response
to factors including market conditions, political and other events and
developments affecting the particular issuer or its industry or market segments;
and "Small Capitalization Risk," which is the risk that investments in
small-capitalization companies tend to be more volatile and less easily traded
than investments in large-capitalization companies. In addition,
small-capitalization companies may have more risk because they often have
limited product lines, markets or financial resources. Furthermore, investing in
companies that are undergoing internal change may involve special risks due to
the unknown effects of change. Additionally, the Fund is not a "diversified"
investment company and therefore may invest a substantial portion of its assets
in securities of particular issuers. This exposes the Fund to greater risk of
negative developments affecting such an issuer than would be the case for a
diversified investment company. The Fund does intend, however, to meet the
regulated investment company diversification requirements under the Internal
Revenue Code of 1986.
The STI SMALL CAP GROWTH STOCK FUND invests primarily in U.S. companies
that demonstrate above-average growth potential. The Fund invests in companies
with an established operating history, a solid balance sheet and market
capitalizations of up to about $3 billion. Due to its investment strategy, the
Fund may buy and sell securities frequently. This may result in higher
transactions costs and additional capital gains taxes. Because the Fund invests
primarily in common stocks of smaller U.S. companies, the Fund is subject to the
risk that stock prices will fall over short or extended periods of time. Stock
markets tend to move in cycles, with periods of rising prices and periods of
falling prices. This price volatility is the principal risk of investing in the
Fund. In addition, investments in small-or mid-cap companies involve greater
risk than investments in larger, more established companies because of the
greater business risks of small size, limited markets and financial resources,
smaller product lines and lack of depth of management. These securities are
often traded over-the-counter and may not be traded in high volumes.
Consequently, the prices of these securities could be less stable than those of
large, more established companies.
RISK DIFFERENCES: The ESC Strategic Small Cap Fund is a "non-diversified"
investment company which means it may invest substantial portions of its assets
in securities of particular issuers and, therefore, be exposed to a greater risk
of negative developments affecting such issuers than would be the case for the
STI Small Cap Growth Stock Fund, which is a "diversified" investment company.
Although both Funds invest in securities of companies with small
capitalizations, the ESC Strategic Small Cap Fund invests in securities of
companies that generally have smaller capitalization levels than securities of
companies held by the STI Small Cap Growth Fund. As a result, the risks
associated with investments in small-cap companies may be greater for the ESC
Strategic Small Cap Fund.
ESC STRATEGIC SMALL CAP II FUND : STI SMALL CAP GROWTH STOCK FUND
The ESC STRATEGIC SMALL CAP II FUND has all the same risks as the ESC
Strategic Small Cap Fund except, unlike the ESC Strategic Small Cap Fund, the
ESC Strategic Small Cap II Fund is a "diversified" investment company and would,
therefore, not invest substantial portions of its
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<PAGE>
assets in securities of particular issuers which could expose the Fund to a
greater risk of negative developments affecting these issuers.
The STI SMALL CAP GROWTH STOCK FUND risks are listed above.
RISK DIFFERENCES: Although both Funds invest in securities of companies
with small capitalizations, the ESC Strategic Small Cap II Fund invests in
securities of companies that generally have smaller capitalization levels than
securities of companies held by the STI Small Cap Growth Fund. As a result, the
risks associated with investments in small-cap companies may be greater for the
ESC Strategic Small Cap II Fund.
ESC STRATEGIC INTERNATIONAL EQUITY FUND : STI INTERNATIONAL EQUITY FUND
The ESC STRATEGIC INTERNATIONAL EQUITY FUND invests primarily in a
diversified portfolio of publicly traded common stocks and securities
convertible into or exchangeable for common stock of non-U.S. based companies.
The Fund diversifies its investments among various non-U.S. countries. Because
the Fund invests in foreign countries, it is subject to "Foreign Risk," which is
the risk that investments in issuers located in foreign countries may have
greater price volatility and less liquidity. Investments in foreign securities
also are subject to political, regulatory and diplomatic risks. Changes in
currency rates are an additional risk of investments in foreign securities and
investments in emerging markets involve additional risks. The Fund is also
subject to Equity Risk, Market Risk and Management Risk, as defined above.
The STI INTERNATIONAL EQUITY FUND invests primarily in common stocks and
other equity securities of foreign companies. The Fund's investments are
diversified among at least three foreign countries. The Fund invests primarily
in developed countries, but may invest in countries with emerging markets. Since
it purchases equity securities, the Fund is subject to the risk that stock
prices will fall over short or extended periods of time. Historically, the
equity markets have moved in cycles, and the value of the Fund's equity
securities may fluctuate drastically from day-to-day. Individual companies may
report poor results or be negatively affected by industry and/or economic trends
and developments. The prices of securities issued by such companies may suffer a
decline in response. These factors contribute to price volatility, which is the
principal risk of investing in the Fund. The Fund is also subject to the risk
that its market segment, foreign common stocks, may underperform other equity
market segments or the equity markets as a whole. 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 U.S. 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 the 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.
Emerging market countries are countries that the World Bank or the United
Nations considers to be emerging or developing. Emerging markets may be more
likely to experience political turmoil or rapid changes in market or economic
conditions than more developed countries. In addition, the financial stability
of issuers (including governments) in emerging market countries may be more
precarious than in other countries. As a result, there will tend to be an
increased risk of price
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<PAGE>
volatility associated with the Fund's investments in emerging market countries,
which may be magnified by currency fluctuations relative to the U.S. dollar.
RISK DIFFERENCES: No significant differences
ESC STRATEGIC APPRECIATION FUND : STI GROWTH AND INCOME FUND
The ESC STRATEGIC APPRECIATION FUND invests primarily in a diversified
portfolio of common stocks and securities convertible into common stock
issued by U.S. based companies. The Fund's rebalancing procedures require the
Fund to sell securities in sectors that become overweighted (and presumably
overvalued) and to purchase securities in underweighted (and presumably
undervalued) sectors. The principal risks of investing in the Fund are Equity
Risk, Market Risk and Management Risk, as defined above. However, other
important risks are Foreign Risk, also defined above, "Interest Rate Risk"
and "Credit Risk," including risks related to investment in securities rated
Baa by Moody's Investors Service, Inc. ("Moody's") or BBB by Standard &
Poor's Rating Service ("S&P), which may be deemed to have speculative
characteristics. "Interest Rate Risk" is the risk that the value of the
Fund's investments in income-producing or fixed-income or debt securities
will decline as interest rates rise. "Credit Risk" is the risk that the
issuer of a security will be unable or unwilling to make timely payments of
interest or principal, or to otherwise honor its obligations. This risk is
greater for lower rated securities.
The STI GROWTH AND INCOME FUND invests primarily in equity securities,
including common stock and listed ADRs of domestic and foreign companies with
market capitalizations of at least $1 billion. However, the average market
capitalization can vary throughout a full market cycle and will be flexible to
allow the Adviser to capture market opportunities. Since it purchases equity
securities, the Fund is subject to the risk that stock prices will fall over
short or extended periods of time. Historically, the equity markets have moved
in cycles, and the value of the Fund's securities may fluctuate drastically from
day-to-day. Individual companies may report poor results or be negatively
affected by industry and/or economic trends and developments. The prices of
securities issued by such companies may suffer a decline in response. These
factors contribute to price volatility, which is the principal risk of investing
in the Fund. 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.
RISK DIFFERENCES: No significant differences.
ESC STRATEGIC INCOME FUND : STI HIGH INCOME FUND
The ESC STRATEGIC INCOME FUND invests primarily in a diversified portfolio
of high yielding, lower rated corporate, government and other debt instruments
of U.S. issuers, although up to 35% of its assets may be invested in debt
instruments of non-U.S. issuers. The Fund may invest up to 100% of its assets in
debt securities rated below investment grade. Such debt securities are commonly
known as "junk bonds." The principal risks of investing in the Fund include
Market Risk, Management Risk, Foreign Risk, Interest Rate Risk and Credit Risk,
as defined above. Because
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<PAGE>
Credit Risk is greater for lower rated securities, securities rated Baa by
Moody's or BBB by S&P may have speculative characteristics. Junk bond
investments typically have higher yields than higher rated securities. However,
junk bond investments also have greater risk of untimely payment of principal
and interest, as well as greater default and other risks, than higher rated
securities.
The STI High Income Fund will have essentially the same risks as the ESC
Strategic High Income Fund.
RISK DIFFERENCES: No significant differences.
INFORMATION RELATING TO THE REORGANIZATION
DESCRIPTION OF THE REORGANIZATION. The following summary is qualified in
its entirety by reference to the Reorganization Agreement found in Exhibit A.
The Reorganization Agreement provides that all of the assets and stated
liabilities of each ESC Strategic Fund will be transferred to the corresponding
STI Fund at the applicable Effective Time of the Reorganization. In exchange for
the transfer of these assets, STI will simultaneously issue at the applicable
Effective Time of the Reorganization a number of full and fractional shares of
each STI Fund to its corresponding ESC Strategic Fund equal in value to the
respective net asset values of that ESC Strategic Fund immediately prior to the
applicable Effective Time of the Reorganization.
Following the transfer of assets and liabilities in exchange for STI Fund
shares, each ESC Strategic Fund will distribute, in complete liquidation PRO
RATA to its shareholders of record, all the shares of the corresponding STI
Funds so received to its shareholders. Shareholders of each ESC Strategic Fund
owning shares at the Effective Times of the Reorganization will receive a number
of shares of the applicable class of the corresponding STI Fund with the same
aggregate value as the shareholder had in the ESC Strategic Fund immediately
before the Reorganization. Such distribution will be accomplished by the
establishment of accounts in the names of the shareholders of the ESC Strategic
Funds' shareholders on the share records of STI Funds' transfer agent. Each
account will represent the respective PRO RATA number of full and fractional
shares of the STI Funds due to the shareholders of the corresponding ESC
Strategic Funds. The STI Funds do not issue share certificates to shareholders.
Shares of the STI Funds to be issued will have no preemptive or conversion
rights. No front-end sales loads or contingent deferred sales charges will be
imposed in connection with the receipt of such shares by the ESC Strategic
Funds' shareholders. The ESC Strategic Funds then will be terminated under state
law.
The Reorganization Agreement provides for the Reorganization to occur in
two steps. For ESC Strategic Funds combining with Existing STI Funds, the
Closing Date is March 27, 2000. For the ESC Strategic Fund transferring its
assets to the New STI Fund, the Closing Date is March 28, 2000. The
Reorganization Agreement provides that the ESC Strategic Funds will pay a
portion of the Reorganization expenses up to the amount each Fund would have
paid during the fiscal year ending March 31, 2000 under the expense caps that
are currently in place for each ESC Strategic Fund. All remaining expenses will
be borne by STES and/or SunTrust.
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<PAGE>
The Reorganization Agreement contains customary representations, warranties
and conditions designed to ensure that the Reorganization is fair to both
parties. The Reorganization Agreement provides that the consummation of the
Reorganization is contingent upon, among other things: (i) approval of the
Reorganization Agreement by ESC Strategic Funds' shareholders; (ii) the receipt
by the ESC Strategic Funds and the STI Funds of a tax opinion to the effect that
the Reorganization will be tax-free to the ESC Strategic Funds and the STI Funds
and their shareholders; and (iii) receipt by the ESC Strategic Funds and the STI
Funds of an order from the SEC permitting the Reorganization. The Reorganization
Agreement may be terminated if, on the applicable Closing Date, any of the
required conditions have not been met or if the representations and warranties
are not true or, if at any time prior to the Effective Time of the
Reorganization, the Board of Directors of the Corporation or the Board of
Trustees of the Trust determines that the consummation of the transactions
contemplated by the Reorganization Agreement is not in the best interest of the
shareholders of the ESC Strategic Funds or the STI Funds, respectively.
COSTS OF REORGANIZATION. The ESC Strategic Funds will pay a portion of the
Reorganization expenses up to the amount each Fund would have paid during the
fiscal year ending March 31, 2000 under the expense caps that are currently in
place for each ESC Strategic Fund. All remaining expenses will be borne by STES
and/or SunTrust. Reorganization expenses include, without limitation: (a)
expenses associated with the preparation and filing of this Prospectus/Proxy
Statement; (b) postage; (c) printing; (d) accounting fees; (e) legal fees
incurred by each of the ESC Strategic Funds; and (f) solicitation costs of the
transaction.
FEDERAL INCOME TAXES. Each combination of an ESC Strategic Fund and a
corresponding STI Fund in the Reorganization is intended to qualify for federal
income tax purposes as a separate tax-free reorganization under Section 368(a)
of the Internal Revenue Code of 1986, as amended. If so, neither the ESC
Strategic Funds nor their shareholders will recognize gain or loss as a result
of the Reorganization; the tax basis of the STI Funds shares received will be
the same as the basis of the ESC Strategic Funds shares exchanged; and the
holding period of the STI Funds shares received will include the holding period
of the ESC Strategic Funds shares exchanged, provided that the shares exchanged
were held as capital assets at the time of the Reorganization. As a condition to
the closing of the Reorganization, the Companies will receive an opinion from
counsel to the ESC Strategic Funds to that effect. No tax ruling from the
Internal Revenue Service regarding the Reorganization has been requested. The
opinion of counsel is not binding on the Internal Revenue Service and does not
preclude the Internal Revenue Service from adopting a contrary position.
Nevertheless, the sale of securities by the ESC Strategic Funds prior to the
Reorganization, whether in the ordinary course of business or in anticipation of
the Reorganization, could result in a taxable capital gains distribution prior
to the Reorganization. Shareholders should consult their own tax advisers
concerning the potential tax consequences of the Reorganization to them,
including foreign, state and local tax consequences.
CAPITALIZATION. The following table sets forth as of November 30, 1999: (i)
the unaudited capitalization of each of the STI Funds; (ii) the unaudited
capitalization of each of the ESC Strategic Funds; and (iii) the unaudited pro
forma combined capitalization of the Funds assuming the Reorganization has been
approved. If the Reorganization is consummated, the capitalizations are likely
to be different on the Closing Dates as a result of daily share purchase and
redemption activity in the Funds.
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<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
FUND NET ASSETS NET ASSET VALUE PER SHARE SHARES OUTSTANDING (000)
---- ---------- ------------------------- ------------------
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
STI Small Cap Growth Stock
Trust Shares 206,080,503 16.23 12,700,058
Investor Shares(3) 12,481,849 16.52 755,473
Flex Shares 6,926,039 16.04 431,730
Total 225,489,391 13,887,261
- ----------------------------------------------------------------------------------------------------------------
ESC Strategic Small Cap
Class A 45,102,729 16.95 2,660,246
Class D 14,397,619 16.56 869,339
Total 59,500,348 3,529,586
- ----------------------------------------------------------------------------------------------------------------
Combined Funds
Trust Shares 206,080,503 16.23 12,700,058
Investor Shares 51,584,578 16.52 3,485,662
Flex Shares 21,323,658 16.04 1,329,338
Total 284,988,739 17,515,058
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
STI Small Cap Growth Stock
Trust Shares 206,080,503 16.23 12,700,058
Investor Shares(4) 12,481,849 16.52 755,473
Flex Shares 6,926,039 16.04 431,730
Total 225,488,391 13,887,261
- ----------------------------------------------------------------------------------------------------------------
ESC Strategic Small Cap II
Class A 10,581,997 10.21 1,036,008
Class D 5,262,760 10.09 521,754
Total 15,844,757 1,557,762
- ----------------------------------------------------------------------------------------------------------------
Combined Funds
Trust Shares 206,080,503 16.23 12,700,058
Investor Shares 23,063,826 16.23 1,396,029
Flex Shares 12,188,799 16.04 759,833
Total 41,331,128 14,855,920
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
STI International Equity
Trust Shares 563,543,423 13.30 42,362,691
Investor Shares 13,209,257 13.19 1,001,173
Flex Shares 15,294,295 12.81 1,193,659
Total 592,046,975 44,557,523
- ----------------------------------------------------------------------------------------------------------------
ESC Strategic International
Equity 6,020,136 9.25 650,674
Class A 1,497,878 8.87 168,965
Class D 7,518,014 819,639
Total
- ----------------------------------------------------------------------------------------------------------------
Combined Funds
Trust Shares 563,543,423 13.30 42,362,691
Investor Shares 19,229,393 13.19 1,457,590
Flex Shares 16,792,173 12.81 1,310,589
Total 599,564,989 45,130,870
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
STI Growth and Income
Trust Shares 679,408,422 15.36 44,243,039
Investor Shares 38,878,160 15.47 2,512,324
Flex Shares 49,931,771 15.33 3,256,380
Total 768,218,353 50,011,743
- ----------------------------------------------------------------------------------------------------------------
- --------------------
(3) Investor Shares of the STI Small Cap Growth Stock Fund were first issued on
December 13, 1999. Capitalization figures for the Fund are as of that date.
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<PAGE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
FUND NET ASSETS NET ASSET VALUE PER SHARE SHARES OUTSTANDING (000)
---- ---------- ------------------------- ------------------
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ESC Strategic Appreciation
Class A 13,084,430 10.45 1,252,499
Class D 3,574,626 10.09 354,329
Total 16,659,056 1,606,828
- ----------------------------------------------------------------------------------------------------------------
Combined Funds
Trust Shares 679,408,422 15.36 44,243,039
Investor Shares 51,962,590 15.47 3,358,118
Flex Shares 53,506,397 15.33 3,489,559
Total 784,877,409 51,090,716
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
STI High Income
Flex Shares N/A N/A N/A
Total N/A N/A N/A
- ----------------------------------------------------------------------------------------------------------------
ESC Income
Class A 5,672,094 8.98 631,248
Class D 432,829 9.05 47,813
Total 6,104,923 679,111
- ----------------------------------------------------------------------------------------------------------------
Combined Funds
Flex Shares 6,104,923 8.98 679,497
Total 6,104,923 679,497
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
REASONS FOR THE REORGANIZATION
The ESC Strategic Funds consist of five Funds, having in the aggregate
approximately $___ million in assets. The STI Funds currently consist of 37
Funds, having in the aggregate approximately $___ billion in assets. For the
most part, the net expenses of the STI Funds are lower than the corresponding
ESC Strategic Funds and the performance of the Existing STI Funds is better than
the ESC Strategic Funds' performance. In the case of the New STI Fund, the
anticipated net expense ratios are expected to be the same or lower than the
expense ratios of its corresponding ESC Strategic Fund. Management of ESC
Strategic Funds believes that the shareholders of the ESC Strategic Funds would
benefit from the generally lower net expenses, better performance, larger asset
base, increased product array and anticipated economies of scale that are
expected to result from the Reorganization.
At a meeting held on December 9, 1999, the Corporation's Board of
Directors determined that the proposed Reorganization would be in the best
interests of each ESC Strategic Fund and its shareholders and that the
interests of the shareholders would not be diluted. Before approving the
Reorganization, the Board examined all factors that it considered relevant,
including information regarding comparative expense ratios. The Board noted
that, in the case of each STI Fund, expense ratios, taking into account
voluntary waivers, will be lower than the corresponding ESC Strategic Fund.
The Board also compared other aspects of the ESC Strategic Funds and the STI
Funds, including relative performance information, the compatibility of the
Funds' investment objectives, the continuing viability of each class and
Fund, the potential for improved economies of scale, and the Funds' service
features, including the fact that ESC Strategic Fund shareholders will be
able to use exchange privileges as part of a larger and more diverse family
of mutual funds. The Board examined the terms of the Reorganization,
including the costs that will be incurred by the ESC Strategic Funds and the
tax consequences of the Reorganization. The Boards also considered other
alternatives to the Reorganization and concluded that, taking into account
these other alternatives, the Reorganization was the course of action that is
in the best interests of the ESC Strategic Funds' shareholders. Based on this
information, the Board recommends that the shareholders of each ESC Strategic
Fund approve the Reorganization.
SHAREHOLDER RIGHTS
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<PAGE>
STI FUNDS
GENERAL. The Trust was established as a business trust under Massachusetts
law by a Declaration of Trust dated January 15, 1992. The Trust is also governed
by its By-laws and by applicable Massachusetts law.
SHARES. STI Funds is authorized to issue an unlimited number of shares of
beneficial interest, without par value, from an unlimited number of series of
shares. Currently, STI Funds consists of 37 separate investment series offering
up to four classes of shares, Trust Shares, Investor Shares, Flex Shares and
Institutional Shares (the STI Funds participating in the Reorganization do not
offer Institutional Shares). The four classes differ with respect to minimum
investment requirements, Fund expenses, distribution and shareholder servicing
costs, front-end sales loads and contingent deferred sales charges, as set forth
in the STI Funds prospectuses. The shares of each STI Fund have no preference as
to conversion, exchange, dividends, retirement or other features, and have no
preemptive rights.
VOTING REQUIREMENTS. Holders of shares of the STI Funds are entitled to
one vote for each full share held and fractional votes for fractional shares.
On any matter submitted to a vote of shareholders, all shares of the Trust
entitled to vote shall be voted on by individual series or class, except
that: (i) when so required by the 1940 Act, then shares shall be voted in the
aggregate and not by individual series or class; and (ii) when the trustees
of the Trust (the "Trustees") have determined that the matter only affects
the interest of one or more series or class, then only shareholders of such
series or class(es) shall be entitled to vote.
SHAREHOLDER MEETINGS. Annual meetings of shareholders will not be held, but
special meetings of shareholders may be held under certain circumstances. A
special meeting of the shareholders may be called at any time by the Trustees,
by the president or, if the Trustees and the president shall fail to call any
meeting of shareholders for a period of 30 days after written application of one
or more shareholders who hold at least 10% of all shares issued and outstanding
and entitled to vote at the meeting, then such shareholders may call the
meeting.
ELECTION AND TERM OF TRUSTEES. The STI Funds' affairs are supervised by the
Trustees under the laws governing business trusts in the state of Massachusetts.
Trustees of the Trust are elected by shareholders holding a majority of shares
entitled to vote. Trustees hold office until their successors are duly elected
and qualified or until their death, removal or resignation. Shareholders may
remove a Trustee by vote of a majority of the votes entitled to vote, with or
without cause. A Trustee elected thereby serves for the balance of the term of
the removed Trustee.
SHAREHOLDER LIABILITY. Pursuant to the Trust's Declaration of Trust,
shareholders of the STI Funds generally are not personally liable for the acts,
omissions or obligations of the Trustees or the Trust.
LIABILITY OF TRUSTEES. The Trustees shall not be personally liable for any
obligation of the Trust. The Trust will indemnify its Trustees and officers
against all liabilities and expenses except for liabilities arising from such
person's willful misfeasance, bad faith, gross negligence or reckless disregard
of that person's duties.
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<PAGE>
ESC STRATEGIC FUNDS
GENERAL. The Corporation was organized as a Maryland corporation on
November 24, 1993. The Corporation is governed by its Articles of Incorporation
dated November 24, 1993 (as supplemented on December 7, 1993 and October 13,
1995), its By-Laws, and applicable Maryland law.
SHARES. The Corporation is authorized to issue up to 650 million shares of
capital stock, with a par value per share of $.001, all of which are designated
Common Stock. The Board of Directors may classify or reclassify any unissued
shares of capital stock into one or more additional or other classes or series
as may be established from time to time by setting or changing in any one or
more respects the designations, preferences, conversion or other rights, voting
powers, restrictions, limitations as to dividends, qualifications or terms of
such shares of stock and pursuant to such classification or reclassification to
increase or decrease the number of authorized shares of stock, or shares of any
existing class or series of stock. The shares of Common Stock of each of the ESC
Strategic Funds are currently classified into two classes, Class A and Class D
shares. The two classes differ from each other with respect to Fund expenses,
distribution costs, and front-end sales loads, as set forth in the ESC Strategic
Funds prospectuses incorporated herein by reference. The shares have no
preference as to conversion, exchange, dividends, retirement or other features
and have no preemptive rights.
VOTING REQUIREMENTS. Shareholders of the ESC Strategic Funds are
entitled to one vote for each full share held and fractional votes for
fractional shares. At meetings of shareholders, the holders of one-third of a
the shares of stock of the Corporation entitled to vote at the meeting,
present in person or by proxy, constitute a quorum unless voting by separate
class is required, in which case the presence of one-third of the shares of
stock of such class shall constitute a quorum. All shares of all classes and
series shall vote together as a single class, provided that (a) when the
Maryland General Corporation Law or the Investment Company Act of 1940
requires that a class or series vote separately with respect to a given
matter, the separate voting requirements of the applicable law shall govern
with respect to the affected class(es) and/or series and other classes and
series shall vote as a single class and (b) unless otherwise required by
those laws, no class or series shall vote on any matter which does not affect
the interest of that class or series.
SHAREHOLDER MEETINGS. An annual meeting of stockholders for the election of
Directors and the transaction of such other business as may properly come before
the meeting will be held at such time and place as the Board of Directors
selects. The Corporation is not be required to hold an annual meeting of its
stockholders in any year in which the election of directors is not required to
be acted upon under the 1940 Act. Special meetings of shareholders of a Fund or
class of stockholders may be called at any time by the President, the Secretary
or by a majority of the Board of Directors and will be held at such time and
place as may be stated in the notice of the meeting. The Secretary may call a
special meeting of shareholders upon written request by shareholders entitled to
cast no less than 10% of the votes entitled to be cast at the meeting. Before a
notice of a special meeting called by shareholders will be sent out by the
Secretary, such shareholders must pay the estimated costs of preparing and
mailing the notice.
ELECTION AND TERM OF DIRECTORS. Directors are elected annually, by written
ballot at the annual meeting of stockholders or a special meeting held for that
purpose. If no annual meeting of the stockholders of the Corporation is required
to be held in a particular year pursuant to the By-Laws,
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Directors will be elected at the next annual meeting held. The term of office of
each Director shall be from the time of his or her election and qualification
until the election of Directors next succeeding his or her election and until
his or her successor shall have been elected and shall have qualified. Any
Director may be removed by a majority vote of the votes entitled to be cast for
the election of Directors. If any vacancy occurs in the Board of Directors by
reason of death, resignation, removal or otherwise, the remaining Directors
shall continue to act and, subject to the provisions of the 1940 Act, the
vacancy may be filled by a majority of the remaining Directors, although less
than a quorum (if not previously filled by the stockholders). Vacancies created
by reason of an increase in the authorized number of Directors (if not
previously filled by the stockholders) may be filled only by a majority vote of
the entire Board of Directors.
SHAREHOLDER LIABILITY. The shareholders of the ESC Strategic Funds have no
personal liability for acts or obligations of the Corporation.
LIABILITY OF DIRECTORS. To the fullest extent permitted by the Maryland
General Corporation Law and the 1940 Act, no Director or officer of the
Corporation shall be liable to the Corporation or to its stockholders for money
damages provided such Director or officer is performing his or her duties in
accordance with the standards of Maryland Law. The Articles of Incorporation
provide that the Corporation will indemnify its directors and officers to the
fullest extent permitted under Maryland Law and the 1940 Act.
LIQUIDATION OR DISSOLUTION. At any time there are no shares outstanding for
a particular class or series, the Board of Directors may liquidate such class or
series in accordance with applicable law. In the event of the liquidation or
dissolution of the Corporation, or of a class or series, when there are shares
outstanding of the Corporation or of the class or series, the stockholders the
Corporation or of each class or series, are entitled to receive, as declared by
the Board of Directors, the excess of the assets attributable to that class or
series over the liabilities of that class or series. The excess amounts will be
distributed to each stockholder of the class or series in proportion to the
number of outstanding shares of that class or series held by that stockholder.
The foregoing is only a summary of certain rights of shareholders of the
STI Funds and the ESC Strategic Funds under their governing charter documents
and By-Laws, state law and the 1940 Act and is not a complete description of
provisions contained in those sources. Shareholders should refer to the
provisions of state law, the 1940 Act and rules thereunder directly for a more
thorough description.
INFORMATION ABOUT THE STI FUNDS AND ESC STRATEGIC FUNDS
Information concerning the operation and management of the STI Funds is
incorporated herein by reference to the current prospectus relating to the
Existing STI Funds and the New STI Fund, which is incorporated by reference
and a copy of which accompany this Proxy Statement/Prospectus. Additional
information about the STI Funds is included in the Statements of Additional
Information for the Existing STI Funds dated October 1, 1999, and for the New
STI Fund dated __________, 1999, which are available upon request and without
charge by calling 1-800-874-4770.
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Information about the ESC Strategic Funds is included in the current
prospectus relating to those Funds dated July 30, 1999, which is incorporated
by reference herein. Additional information is included in the Statement of
Additional Information of ESC Strategic Funds dated July 29, 1999, which is
available upon request and without charge by calling 1-800-261-FUND (3863).
The current Prospectus and Statement of Additional Information have been
filed with the SEC.
The STI Funds and ESC Strategic Funds are each subject to the informational
requirements of the Securities Exchange Act of 1934 and the 1940 Act, and in
accordance therewith file reports and other information, including proxy
material and charter documents, with the SEC. These items may be inspected and
copied at the Public Reference Facilities maintained by the SEC at 450 Fifth
Street, N.W., Washington, D.C. 20549.
INTEREST OF CERTAIN PERSONS IN THE TRANSACTIONS. SunTrust may be deemed to
have an interest in the Reorganization because certain of its subsidiaries
provide investment advisory services to the STI Funds and the ESC Strategic
Funds pursuant to advisory agreements with the Funds. Future growth of the STI
Funds can be expected to increase the total amount of fees payable to these
subsidiaries and to reduce the number of fees required to be waived to maintain
total fees of the Funds at agreed upon levels.
FINANCIAL STATEMENTS. The financial statements of the Existing STI Funds
contained in the STI Funds annual report to shareholders for the fiscal year
ended May 31, 1999 have been audited by Arthur Andersen, LLP, its independent
accountants. These financial statements, as well as interim financial statements
for the Existing STI Funds dated as of November 30, 1999 and pro forma financial
statements for the STI Small Cap Growth Stock Fund and STI High Income Fund
reflecting those Funds after the Reorganization (as of __________, 1999, the ESC
Strategic International Equity Fund and ESC Strategic Appreciation Fund each had
a net asset value which was not more than 10 percent of its corresponding STI
Fund's net asset value), are incorporated by reference into this Proxy
Statement/Prospectus insofar as such financial statements relate to the
participating STI Funds, and not to any other Funds that are part of the STI
Fund families and described therein.
The financial statements of the ESC Strategic Funds contained in ESC
Strategic Funds' Annual Report to shareholders for the fiscal year ended March
31, 1999 have been audited by PricewaterhouseCoopers LLP, its independent
accountants. These financial statements are incorporated by reference into this
Proxy Statement/Prospectus. The STI Funds and ESC Strategic Funds each will
furnish, without charge, a copy of its most recent Semi-Annual Report succeeding
such Annual Report, if any, on request. Requests should be directed to the STI
Funds at SEI Investments Distribution Co., Oaks, PA 19456 or by calling
1-800-874-4770 and to ESC Strategic Funds at P.O. Box 182487, Columbus, OH
43218-2487 or by calling 1-800-261-FUND (3863).
PENDING LITIGATION. On May 19, 1999, a class action complaint was filed
in the State of Tennessee Circuit Court for Davidson County at Nashville
against the Corporation and STES by Allison Hines, on behalf of herself and
all others similarly situated who invested in the ESC Strategic Value Fund
(the "Value Fund"), a series of the Corporation that voluntarily liquidated
in March 1999. On June 17, 1999, defendants removed the case to the United
States District Court for the Middle District of Tennessee (Nashville
Division). On June 23, 1999, plaintiff filed an amended complaint
("Complaint") alleging claims under Section 12(2) of the Securities Act of
1933 and Section 10(b) of the Securities and Exchange Act of 1934 and Rule
10b-5 promulgated thereunder, as well as state law claims for securities
fraud, common law fraud, breach of fiduciary duty, and breach of implied
contract. The crux of the Complaint is that the prospectus and other filings
related to Value Fund failed to disclose the circumstances and risks under
which the fund might liquidate and that Value Fund made misrepresentations
about seeking investors for the long term. The Complaint seeks rescission
and/or damages in an amount to be proved at trial, punitive damages and
attorney's fees. On September 17, 1999, the state securities fraud claim, as
well as the common law fraud and breach of implied contract claims were
dismissed with prejudice. The federal securities and breach of fiduciary duty
claims remain pending.
THE BOARD OF DIRECTORS OF THE ESC STRATEGIC FUNDS, INC. RECOMMENDS
THAT YOU VOTE FOR APPROVAL OF THE REORGANIZATION AGREEMENT.
VOTING MATTERS
GENERAL INFORMATION. This Proxy Statement/Prospectus is being furnished in
connection with the solicitation of proxies by the Board of Directors of the ESC
Strategic Funds in connection
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with the Meeting. It is expected that the solicitation of proxies will be
primarily by mail. Officers and service contractors of the STI Funds and ESC
Strategic Funds may also solicit proxies by telephone, facsimile, Internet or in
person. The cost of solicitation will be borne by STES.
VOTING RIGHTS AND REQUIRED VOTE. Shareholders of the ESC Strategic Funds
are entitled to one vote for each full share held and fractional votes for
fractional shares. The holders of one-third of the shares of stock of the
Corporation and entitled to vote at the Meeting, present in person or by proxy,
constitute a quorum. Approval of the Reorganization with respect to each ESC
Strategic Fund requires the affirmative vote of a majority of the aggregate
number of votes entitled to be cast. Any shareholder giving a proxy may revoke
it at any time before it is exercised by submitting to ESC Strategic Funds a
written notice of revocation or a subsequently executed proxy or by attending
the Meeting and voting in person. The proposed Reorganization of the ESC
Strategic Funds will be voted upon separately by the shareholders of the
respective Funds. The consummation of each Fund's Reorganization is not
conditioned on the approval of any other Fund.
Shares represented by a properly executed proxy will be voted in accordance
with the instructions thereon, or if no specification is made, the shares will
be voted "FOR" the approval of the Reorganization. It is not anticipated that
any matters other than the approval of the Reorganization will be brought before
the Meeting. Should other business properly be brought before the Meeting, it is
intended that the accompanying proxies will be voted in accordance with the
judgment of the persons named as such proxies. For the purposes of determining
the presence of a quorum for transacting business at the Meeting, abstentions
and broker "non-votes" (that is, proxies from brokers or nominees indicating
that such persons have not received instructions from the beneficial owners or
other persons entitled to vote shares on a particular matter with respect to
which the brokers or nominees do not have discretionary power) will be treated
as shares that are present but which have not been voted. For this reason,
abstentions and broker non-votes will have the effect of a "no" vote for
purposes of obtaining the requisite approval of the Reorganization.
If sufficient votes in favor of the proposals set forth in the Notice of
the Special Meeting are not received by the time scheduled for the Meeting, the
holders of a majority of shares present in person or by proxy at the meeting and
entitled to vote at the Meeting, whether or not sufficient to constitute a
quorum, or any officer present entitled to preside or act as Secretary of such
meeting, may adjourn the meeting without determining the date of the new meeting
or from time to time without further notice to a date not more than 120 days
after the original record date. Any business that might have been transacted at
the meeting originally called may be transacted at any such adjourned meeting at
which a quorum is present. The costs of any additional solicitation and of any
adjourned session will be borne by STES.
RECORD DATE AND OUTSTANDING SHARES. Only shareholders of record of the ESC
Strategic Funds at the close of business on January 18, 2000 (the "Record Date")
are entitled to notice of and to vote at the Meeting and any postponement or
adjournment thereof. At the close of business on the Record Date there were
outstanding and entitled to vote:
<TABLE>
<CAPTION>
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ESC STRATEGIC FUNDS SHARES OF COMMON STOCK
- --------------------------------------------------------------------
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<S> <C>
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Small Cap Fund
Class A............................
Class D............................
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Small Cap II Fund
Class A............................
Class D............................
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International Equity Fund
Class A............................
Class D............................
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Appreciation Fund
Class A............................
Class D............................
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Income Fund
Class A............................
Class D............................
- --------------------------------------------------------------------
</TABLE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
ESC STRATEGIC FUNDS. As of the Record Date, the officers and Directors of
the ESC Strategic Funds as a group, beneficially owned less than 1% of the
outstanding Class A and Class D shares of the ESC Strategic Funds. As of the
Record Date, to the best of the knowledge of the ESC Strategic Funds, the
following persons owned of record or beneficially 5% or more of the outstanding
shares of each of the three classes of the following ESC Strategic Funds:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
PERCENTAGE TYPE OF
NAME AND ADDRESS FUND/CLASS OWNERSHIP OWNERSHIP
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
</TABLE>
* Record and Beneficial Ownership.
** Record Ownership Only.
+ Beneficial Owner Only.
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<PAGE>
STI FUNDS. As of the Record Date, the officers and Trustees of the
participating STI Funds as a group, beneficially owned less than 1% of the
outstanding Trust Shares, Investor Shares and Flex Shares of the participating
STI Funds. As of the Record Date, to the best of the knowledge of the STI Funds,
the following persons owned of record or beneficially 5% or more of the
outstanding shares of each of the three classes of the following STI Funds:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
PERCENTAGE TYPE OF
NAME AND ADDRESS FUND/CLASS OWNERSHIP OWNERSHIP
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
</TABLE>
* Record and Beneficial Ownership.
** Record Ownership Only.
+ Beneficial Owner Only.
EXPENSES. In order to obtain the necessary quorum at the Meeting,
additional solicitations may be made by mail, telephone, telegraph, facsimile or
personal interview by representatives of the Trust or the Advisers at an
estimated cost of approximately $______. All costs of solicitation (including
the printing and mailing of this proxy statement, meeting notice and form of
proxy, as well as any necessary supplementary solicitations) will be paid by the
ESC Strategic Funds and STES and/or SunTrust. Persons holding shares as nominees
will, upon request, be reimbursed for their reasonable expenses in sending
soliciting material to their principals.
OTHER BUSINESS
The Board of Directors of the Corporation knows of no other business to be
brought before the Meeting. However, if any other matters come before the
Meeting, it is the intention that proxies which do not contain specific
restrictions to the contrary will be voted on such matters in accordance with
the judgment of the persons named in the enclosed form of proxy.
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SHAREHOLDER INQUIRIES
ESC STRATEGIC FUNDS. Shareholder inquiries may be addressed to ESC
Strategic Funds in writing at the address on the cover page of this Proxy
Statement/Prospectus or by telephoning 1-800-261-FUND (3863).
STI FUNDS. Shareholder inquiries may be addressed to STI Funds in writing
at SEI Investments Distribution Co. or by calling 1-800-874-4770.
SHAREHOLDERS WHO DO NOT EXPECT TO BE PRESENT AT THE MEETING ARE REQUESTED
TO VOTE BY MAIL, [PHONE, FAX, THE INTERNET], OR IN PERSON AT THE MEETING.
INFORMATION ON THE VARIOUS MANNERS OF VOTING ARE SET FORTH IN THE ENCLOSED
PROXY.
By the Order of the Board of Directors,
R. Jeffrey Young
President
ESC Strategic Funds, Inc.
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<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
______________, 1999
STI CLASSIC FUNDS
2 OLIVER STREET
BOSTON, MA 02109
1-800-874-4770
This Statement of Additional Information is not a prospectus but should be
read in conjunction with the Combined Proxy Statement/Prospectus dated
______________, 1999 for the Special Meeting of Shareholders of ESC Strategic
Funds, Inc. ("ESC Strategic Funds"), to be held on Wednesday, March 22, 2000.
Copies of the Combined Proxy Statement/Prospectus may be obtained at no charge
by calling ESC Strategic Funds at 1- 800-261-FUND (3863). Unless otherwise
indicated, capitalized terms used herein and not otherwise defined have the same
meanings as are given to them in the Combined Proxy Statement/Prospectus.
Further information about the participating STI Classic Funds (the "STI
Funds") is contained in and incorporated by reference to the STI Funds'
Statements of Additional Information dated October 1, 1999 for the STI Growth
and Income Fund, Small Cap Growth Stock Fund, and International Equity Fund, and
dated October 1, 1999 (as supplemented on ________, 1999) for the STI High
Income Fund. The audited financial statements and related independent auditor's
report for the participating STI Funds contained in the Annual Report(s) for the
fiscal year ending May 31, 1999 are hereby incorporated herein by reference
insofar as they relate to the STI Funds. No other parts of the Annual Report are
incorporated by reference herein.
Further information about the ESC Strategic Funds is contained in and
incorporated by reference to the ESC Strategic Funds Statements of Additional
Information dated July 29, 1999. The audited financial statements and related
independent accountant's report for the ESC Strategic Funds contained in the
1999 Annual Report to Shareholders for the fiscal year ending March 31, 1999,
are incorporated herein by reference. No other parts of the Annual Report or the
subsequent Semi-Annual Report (if any) are incorporated by reference herein.
The date of this Statement of Additional Information is ____________, 1999.
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EXHIBIT A
FORM OF AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as of
this _____day of February, 2000, by and between STI Classic Funds, a
Massachusetts business trust, with its principal place of business at 2 Oliver
Street, Boston, MA 02109 (the "Trust"), with respect to its Small Cap Growth
Stock Fund, International Equity Fund, Growth and Income Fund and High Income
Fund, each a separate investment portfolio of the Trust (each an "Acquiring
Fund" and, together, the "Acquiring Funds"), and ESC Strategic Funds, Inc., a
Maryland corporation, with its principal place of business at 3435 Stelzer Road,
Columbus, OH 43219 ("ESC Strategic Funds"), with respect to its Small Cap Fund,
Small Cap II Fund, International Equity Fund, Appreciation Fund and Income Fund,
each a separate investment portfolio of ESC Strategic Funds (each a "Selling
Fund" and, together the "Selling Funds" and, collectively with the Acquiring
Funds, the "Funds").
This Agreement is intended to be, and is adopted as, a plan of
reorganization within the meaning of Section 368(a) of the United States
Internal Revenue Code of 1986, as amended (the "Code"). The reorganization will
consist of: (i) the transfer of all of the assets of each Selling Fund in
exchange for, as applicable, Investor Shares and Flex Shares of beneficial
interest, no par value per share, of its respective Acquiring Fund ("Acquiring
Fund Shares") as set forth on Schedule A attached hereto; (ii) the assumption by
each Acquiring Fund of the identified liabilities of each Selling Fund; and
(iii) the distribution, after the Closing Dates hereinafter referred to, of the
Acquiring Fund Shares to the shareholders of each Selling Fund and the
liquidation of each Selling Fund as provided herein, all upon the terms and
conditions set forth in this Agreement (the "Reorganization").
WHEREAS, each Acquiring Fund and each Selling Fund is a separate
investment series of the Trust and ESC Strategic Funds, respectively, and the
Trust and ESC Strategic Funds are open-end, registered management investment
companies and each Selling Fund owns securities that generally are assets of the
character in which its respective Acquiring Fund is permitted to invest;
WHEREAS, each Fund is authorized to issue its shares of beneficial
interest or shares of common stock, as the case may be;
WHEREAS, the Trustees of the Trust have determined that the
Reorganization, with respect to each Acquiring Fund, is in the best interests of
each Acquiring Fund's shareholders and that the interests of the existing
shareholders of the Acquiring Fund will not be diluted as a result of the
Reorganization;
WHEREAS, the Directors of ESC Strategic Funds have determined that the
<PAGE>
Reorganization, with respect to each Selling Fund, is in the best interests of
the Selling Fund's shareholders and that the interests of the existing
shareholders of the Selling Fund will not be diluted as a result of the
Reorganization;
NOW, THEREFORE, in consideration of the premises and of the covenants and
agreements hereinafter set forth, the parties hereto covenant and agree as
follows;
ARTICLE I
TRANSFER OF ASSETS OF THE SELLING FUNDS IN EXCHANGE FOR ACQUIRING
FUND SHARES AND THE ASSUMPTION OF SELLING FUNDS' LIABILITIES AND
LIQUIDATION OF THE SELLING FUNDS
1.1 THE EXCHANGE. Subject to the terms and conditions contained herein
and on the basis of the representations and warranties contained herein, each
Selling Fund agrees to transfer all of its assets and stated liabilities, as set
forth in paragraph 1.2, to its respective Acquiring Fund. In exchange, each
Acquiring Fund agrees: (i) to deliver to its respective Selling Fund the number
of full and fractional shares of the Acquiring Fund Shares, determined by (a)
multiplying the shares outstanding of each class of the Selling Fund by (b) the
ratio computed by dividing (x) the net asset value per share of each such class
of the Selling Fund by (y) the net asset value per share of the corresponding
class of Acquiring Fund Shares computed in the manner and as of the time and
date set forth in paragraph 2.2; and (ii) to assume the identified liabilities
of the Selling Fund, as set forth in paragraph 1.3. Such transactions shall take
place at the closing provided for in paragraph 3.1.
1.2 ASSETS TO BE ACQUIRED. The assets of each Selling Fund to be
acquired by its respective Acquiring Fund shall consist of all property,
including, without limitation, all cash, securities, commodities, interests in
futures and dividends or interest receivables, owned by the Selling Fund and any
deferred or prepaid expenses shown as an asset on the books of such Selling Fund
on its respective Closing Date.
Each Selling Fund has provided its respective Acquiring Fund with its
most recent audited financial statements, which contain a list of all of the
Selling Fund's assets as of the date of such statements. Each Selling Fund
hereby represents that as of the date of the execution of this Agreement, there
have been no changes in its financial position as reflected in such financial
statements other than those occurring in the ordinary course of business in
connection with the purchase and sale of securities and the payment of normal
operating expenses and the payment of dividends, capital gains distributions and
redemption proceeds to shareholders.
Each Selling Fund will, within a reasonable period of time prior to its
respective Closing Date, furnish each Acquiring Fund with a list of the Selling
Fund's portfolio securities and other investments. Each Acquiring Fund will,
within a reasonable time prior to its respective Closing Date, furnish its
respective Selling Fund with a list of the securities, if any, on the Selling
Fund's list referred to above that do not conform to the Acquiring Fund's
investment objectives,
<PAGE>
policies, and restrictions. A Selling Fund, if requested by its Acquiring Funds,
will dispose of securities on the Acquiring Fund's list prior to its respective
Closing Date. In addition, if it is determined that the portfolios of a Selling
Fund and its Acquiring Fund, when aggregated, would contain investments
exceeding certain percentage limitations imposed upon the Acquiring Fund with
respect to such investments, the Selling Fund, if requested by the Acquiring
Fund, will dispose of a sufficient amount of such investments as may be
necessary to avoid violating such limitations as of its respective Closing Date.
Notwithstanding the foregoing, nothing herein will require a Selling Fund to
dispose of any investments or securities if, in the reasonable judgment of the
Selling Fund's directors or adviser, such disposition would adversely affect the
tax-free nature of the Reorganization or would violate their fiduciary duties to
the Selling Fund's shareholders.
1.3 LIABILITIES TO BE ASSUMED. Each Selling Fund will endeavor to
discharge all of its known liabilities and obligations to the extent possible
prior to its respective Closing Date. Each Acquiring Fund shall assume only
those liabilities, expenses, costs, charges and reserves reflected on a
Statement of Assets and Liabilities of its respective Selling Fund prepared
on behalf of the Selling Fund, as of the Valuation Date (as defined in
paragraph 2.1), in accordance with generally accepted accounting principles
consistently applied from the prior audited period. Each Acquiring Fund shall
assume only those liabilities of its respective Selling Fund reflected in its
Statement of Assets and Liabilities and shall not assume any other
liabilities, whether absolute or contingent, known or unknown, accrued or
unaccrued, all of which shall remain the obligation of the Selling Fund.
In addition, upon completion of the Reorganization, for purposes of
calculating the maximum amount of sales charges (including asset based sales
charges) permitted to be imposed by an Acquiring Fund under the National
Association of Securities Dealers, Inc. ("NASD") Conduct Rule 2830 (the "Maximum
Amount"), each Acquiring Fund will add to the Maximum Amount immediately prior
to the Reorganization, the Maximum Amount of each Selling Fund immediately prior
to the Reorganization, calculated in accordance with NASD Conduct Rule 2830.
1.4 Prior to each Closing Date, the Trust and ESC Strategic Funds
shall file appropriate Articles of Transfer pursuant to the laws of the State of
Maryland, effective as of each respective Closing Date.
1.5 LIQUIDATION AND DISTRIBUTION. On or as soon after its Closing Date
as is conveniently practicable (the "Liquidation Date"): (a) each Selling Fund
will distribute in complete liquidation of the Selling Fund, pro rata to its
shareholders of record, determined as of the close of business on the Valuation
Date (the "Selling Fund Shareholders"), all of the Acquiring Fund Shares
received by the Selling Fund pursuant to paragraph 1.1; and (b) the Selling Fund
will thereupon proceed to dissolve and terminate as set forth in paragraph 1.9
below. Such distribution will be accomplished by the transfer of Acquiring Fund
Shares credited to the account of the Selling Fund on the books of the Acquiring
Fund to open accounts on the
<PAGE>
share records of the Acquiring Fund in the name of the Selling Fund
Shareholders, and representing the respective PRO RATA number of Acquiring Fund
Shares due such shareholders. All issued and outstanding shares of the Selling
Fund will simultaneously be canceled on the books of the Selling Fund. The
Acquiring Fund shall not issue certificates representing Acquiring Fund Shares
in connection with such transfer. Each Selling Fund Shareholder shall have the
right to receive any unpaid dividends or other distributions that were declared
by the Selling Fund before the Effective Time with respect to Selling Fund
shares that are held of record by a Selling Fund Shareholder at the Effective
Time on its respective Closing Date.
1.6 OWNERSHIP OF SHARES. Ownership of Acquiring Fund Shares will be
shown on the books of each Acquiring Fund's transfer agent. Shares of each
Acquiring Fund will be issued simultaneously to its corresponding Selling Fund,
in an amount equal in value to the net asset value of each Selling Fund's
shares, to be distributed to shareholders of each Selling Fund.
1.7 TRANSFER TAXES. Any transfer taxes payable upon the issuance of
Acquiring Fund Shares in a name other than the registered holder of the Selling
Fund shares on the books of the Selling Fund as of that time shall, as a
condition of such issuance and transfer, be paid by the person to whom such
Acquiring Fund Shares are to be issued and transferred.
1.8 REPORTING RESPONSIBILITY. Any reporting responsibility of each
Selling Fund is and shall remain the responsibility of the Selling Fund, up to
and including its respective Closing Date, and such later date on which the
Selling Fund is terminated.
1.9 TERMINATION. Each Selling Fund shall be terminated promptly
following its respective Closing Date and the making of all distributions
pursuant to paragraph 1.5.
1.10 Subject to the conditions set forth in this Agreement, the failure
of one of the Selling Funds to consummate the transactions contemplated hereby
shall not affect the consummation or validity of the Reorganization with respect
to any other Selling Fund, and the provisions of this Agreement shall be
construed to effect this intent, including, without limitation, as the context
requires, construing the terms "Acquiring Fund" and "Selling Fund" as meaning
only those series of the Trust and ESC Strategic Funds, respectively, which are
involved in the Reorganization as of the Closing Dates.
ARTICLE II
VALUATION
2.1 VALUATION OF ASSETS. The value of a Selling Fund's assets to be
acquired by its respective Acquiring Fund hereunder shall be the value of such
assets computed as of the close of regular trading on the New York Stock
Exchange ("NYSE") on the business day immediately prior to each respective
Closing Date (such time and date being hereinafter called a "Valuation Date"),
using the valuation procedures set forth in the Trust's Declaration of Trust and
<PAGE>
each Acquiring Fund's then current prospectuses and statements of additional
information or such other valuation procedures as shall be mutually agreed upon
by the parties. Each Acquiring Fund and Selling Fund agrees, however, to use all
commercially reasonable efforts to resolve any material pricing differences
between the prices of portfolio securities determined in accordance with the
pricing policies and procedures of a Selling Fund and those determined in
accordance with the pricing policies and procedures of its respective Acquiring
Fund.
2.2 VALUATION OF SHARES. The net asset value per share of Acquiring
Fund Shares shall be the net asset value per share computed as of the close of
normal trading on the NYSE on the Valuation Date, using the valuation procedures
set forth in the Trust's Declaration of Trust and each Acquiring Fund's then
current prospectuses and statements of additional information.
2.3 SHARES TO BE ISSUED. The number of each Acquiring Fund's shares of
each class to be issued (including fractional shares, if any) in exchange for
its respective Selling Fund's assets, shall be determined by (a) multiplying the
shares outstanding of each class of the Selling Fund by (b) the ratio computed
by (x) dividing the net asset value per share of the Selling Fund of each of its
classes by (y) the net asset value per share of the corresponding classes of the
Acquiring Fund determined in accordance with paragraph 2.2 [(a) x (b), where
(b)=(x)/(y)]. Holders of Class A shares of the Selling Funds, with the exception
of the ESC Strategic Income Fund, will receive Investor Shares of the
corresponding Acquiring Funds. Holders of Class D shares of the Selling Funds
and holders of Class A shares of the ESC Strategic Income Fund will receive Flex
Shares of the corresponding Acquiring Funds. Holders of Class A shares and Class
D shares, respectively, of the ESC Strategic Small Cap Fund and the ESC
Strategic Small Cap II Fund will receive Investor Shares and Flex Shares,
respectively, of the STI Classic Small Cap Growth Stock Fund.
2.4 DETERMINATION OF VALUE. All computations of value shall be made by
SunTrust Bank, Atlanta in accordance with its regular practice in pricing the
shares and assets of each Acquiring Fund.
ARTICLE III
CLOSINGS AND CLOSING DATES
3.1 CLOSING DATES. The closing (each a "Closing" and collectively, the
"Closings") shall occur in two steps. There will be a separate closing on or
about March 27, 2000 for the ESC Strategic Funds' Small Cap Fund, Small Cap II
Fund, International Equity Fund and Appreciation Fund and a separate closing on
March 28, 2000 for the ESC Income Fund or such other date(s) as the parties may
agree to in writing (each a "Closing Date" and collectively, the "Closing
Dates"). All acts taking place at the Closings shall be deemed to take place
immediately prior to the Closing Dates unless otherwise provided. The Closings
shall be held as of 9:00 a.m.
<PAGE>
(the "Effective Time") at the offices of the SEI Investments, One Freedom Valley
Drive, Oaks, PA 19456, or at such other time and/or place as the parties may
agree.
3.2 CUSTODIAN'S CERTIFICATE. Union Bank of California, as custodian
for each Selling Fund (the "Custodian"), shall deliver at the Closing a
certificate of an authorized officer stating that: (a) each Selling Fund's
portfolio securities, cash, and any other assets shall have been delivered in
proper form to its respective Acquiring Fund on the Closing Dates; and (b) all
necessary taxes including all applicable federal and state stock transfer
stamps, if any, shall have been paid, or provision for payment shall have been
made, in conjunction with the delivery of portfolio securities by the Selling
Fund.
3.3 EFFECT OF SUSPENSION IN TRADING. In the event that on the
Valuation Date, either: (a) the NYSE or another primary exchange on which the
portfolio securities of an Acquiring Fund or a Selling Fund are purchased or
sold, shall be closed to trading or trading on such exchange shall be
restricted; or (b) trading or the reporting of trading on the NYSE or elsewhere
shall be disrupted so that accurate appraisal of the value of the net assets of
an Acquiring Fund or a Selling Fund is impracticable, the Valuation Date shall
be postponed until the first business day after the day when trading is fully
resumed and reporting is restored.
3.4 TRANSFER AGENT'S CERTIFICATE. BISYS Fund Services, Inc, as
transfer agent for each Selling Fund as of the Closing Dates, shall deliver at
the Closings a certificate of an authorized officer stating that its records
contain the names and addresses of Selling Fund Shareholders, and the number and
percentage ownership of outstanding shares owned by each such shareholder
immediately prior to the Closings. Each Acquiring Fund shall issue and deliver
or cause Federated Services Company, its transfer agent, to issue and deliver a
confirmation evidencing Acquiring Fund Shares to be credited on the Closing
Dates to the Secretary of ESC Strategic Funds or provide evidence satisfactory
to the Selling Fund that such Acquiring Fund Shares have been credited to the
Selling Fund's account on the books of the Acquiring Fund. At the Closings, each
party shall deliver to the other such bills of sale, checks, assignments, share
certificates, receipts and other documents, if any, as such other party or its
counsel may reasonably request.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 REPRESENTATIONS OF THE SELLING FUNDS. Each Selling Fund represents
and warrants to its respective Acquiring Fund as follows:
(a) The Selling Fund is a separate investment series of a
corporation duly organized, validly existing, and in good standing under the
laws of the State of Maryland.
(b) The Selling Fund is a separate investment series of a
Maryland corporation
<PAGE>
that is registered as an open-end management investment company, and its
registration with the Securities and Exchange Commission (the "Commission") as
an investment company under the Investment Company Act of 1940 (the "1940 Act"),
is in full force and effect.
(c) The current prospectus and statement of additional
information of the Selling Fund conform in all material respects to the
applicable requirements of the Securities Act of 1933 (the "1933 Act") and
the 1940 Act, and the rules and regulations thereunder, and do not include
any untrue statement of a material fact or omit to state any material fact
required to be stated or necessary to make the statements therein, in light
of the circumstances under which they were made, not misleading.
(d) The Selling Fund is not, and the execution, delivery, and
performance of this Agreement (subject to shareholder approval) will not result
in the violation of any provision of ESC Strategic Funds' Articles of
Incorporation or By-Laws or of any material agreement, indenture, instrument,
contract, lease, or other undertaking to which the Selling Fund is a party or by
which it is bound.
(e) The Selling Fund has no material contracts or other
commitments (other than this Agreement) that will be terminated with liability
to it prior to the Closing Date, except for liabilities, if any, to be
discharged or reflected in the Statement of Assets and Liabilities as provided
in paragraph 1.3 hereof.
(f) Except as otherwise disclosed in writing to and accepted by
the Acquiring Fund, no litigation, administrative proceeding, or investigation
of or before any court or governmental body is presently pending or to its
knowledge threatened against the Selling Fund or any of its properties or
assets, which, if adversely determined, would materially and adversely affect
its financial condition, the conduct of its business, or the ability of the
Selling Fund to carry out the transactions contemplated by this Agreement. The
Selling Fund knows of no facts that might form the basis for the institution of
such proceedings and are not a party to or subject to the provisions of any
order, decree, or judgment of any court or governmental body that materially and
adversely affects the Selling Fund's business or its ability to consummate the
transactions contemplated herein.
(g) The financial statements of the Selling Fund are in
accordance with generally accepted accounting principles, and such statements
(copies of which have been furnished to the Acquiring Funds) fairly reflect
the financial condition of the Selling Fund as of September 30, 1999, and
there are no known contingent liabilities of the Selling Fund as of that date
not disclosed in such statements.
(h) Since September 30, 1999, there have been no material
adverse changes in the Selling Fund's financial condition, assets,
liabilities for business (other than changes occurring in the ordinary course
of business), or any incurrence by the Selling Fund of indebtedness maturing
more than one year from the date such indebtedness was incurred, except
<PAGE>
as otherwise disclosed to and accepted by the Acquiring Fund. For the purposes
of this subparagraph (h), a decline in the net asset value of the Selling Fund
shall not constitute a material adverse change.
(i) At the Closing Date, all federal and other tax returns and
reports of the Selling Fund required by law to be filed by such date, shall have
been filed, and all federal and other taxes shown due on such returns and
reports shall have been paid, or provision shall have been made for the payment
thereof. To the best of the Selling Fund's knowledge, no such return is
currently under audit, and no assessment has been asserted with respect to such
returns.
(j) All issued and outstanding shares of the Selling Fund are,
and at the Closing Date, will be duly and validly issued and outstanding, fully
paid and non-assessable by the Selling Fund. All of the issued and outstanding
shares of the Selling Fund will, at the time of the Closing Date, be held by the
persons and in the amounts set forth in the records of the Selling Fund's
transfer agent as provided in paragraph 3.4. The Selling Fund has no outstanding
options, warrants, or other rights to subscribe for or purchase any of the
Selling Fund shares, and has no outstanding securities convertible into any of
the Selling Fund shares.
(k) At the Closing Date, the Selling Fund will have good and
marketable title to the Selling Fund's assets to be transferred to the Acquiring
Fund pursuant to paragraph 1.2, and full right, power, and authority to sell,
assign, transfer, and deliver such assets hereunder, and, upon delivery and
payment for such assets, and the filing of Articles of Transfer pursuant to the
laws of the State of Maryland, the Acquiring Fund will acquire good and
marketable title, subject to no restrictions on the full transfer of such
assets, including such restrictions as might arise under the 1933 Act, other
than as disclosed to and accepted by the Acquiring Fund.
(l) The execution, delivery, and performance of this Agreement
have been duly authorized by all necessary action on the part of the Selling
Fund. Subject to approval by the Selling Fund Shareholders, this Agreement
constitutes a valid and binding obligation of the Selling Fund, enforceable in
accordance with its terms, subject as to enforcement, to bankruptcy, insolvency,
reorganization, moratorium, and other laws relating to or affecting creditors'
rights and to general equity principles.
(m) The information to be furnished by the Selling Fund for use
in no-action letters, applications for orders, registration statements, proxy
materials, and other documents that may be necessary in connection with the
transactions contemplated herein shall be accurate and complete in all material
respects and shall comply in all material respects with federal securities and
other laws and regulations.
(n) From the effective date of the Registration Statement (as
defined in paragraph 5.7), through the time of the meeting of the Selling Fund
Shareholders and on the Closing Date, any written information furnished by the
Selling Fund with respect to the Selling Fund for use in the Prospectus/Proxy
Statement (as defined in paragraph 5.7), the Registration
<PAGE>
Statement or any other materials provided in connection with the Reorganization,
does not and will not contain any untrue statement of a material fact or omit to
state a material fact required to be stated or necessary to make the statements,
in light of the circumstances under which such statements were made, not
misleading.
(o) The Selling Fund has elected to qualify and has qualified
as a "regulated investment company" under the Code (a "RIC"), as of and since
its first taxable year; has been a RIC under the Code at all times since the end
of its first taxable year when it so qualified; and qualifies and shall continue
to qualify as a RIC under the Code for its taxable year ending upon its
liquidation.
(p) No governmental consents, approvals, authorizations or
filings are required under the 1933 Act, the Securities Exchange Act of 1934
(the "1934 Act"), the 1940 Act or Maryland law for the execution of this
Agreement by ESC Strategic Funds, for itself and on behalf of each Selling Fund,
except for the effectiveness of the Registration Statement, the necessary
exemptive relief requested from the Commission or its staff with respect to
Sections 17(a) and 17(b) of the 1940 Act, and the filing of Articles of Transfer
pursuant to Maryland law, and except for such other consents, approvals,
authorizations and filings as have been made or received, and such consents,
approvals, authorizations and filings as may be required subsequent to the
Closing Date, it being understood, however, that this Agreement and the
transactions contemplated herein must be approved by the shareholders of the
Selling Fund as described in paragraph 5.2.
4.2 REPRESENTATIONS OF THE ACQUIRING FUNDS. Each Acquiring Fund
represents and warrants to its respective Selling Fund as follows:
(a) The Acquiring Fund is a separate investment series of a
Massachusetts business trust, duly organized, validly existing and in good
standing under the laws of the Commonwealth of Massachusetts.
(b) The Acquiring Fund is a separate investment series of a
Massachusetts business trust that is registered as open-end management
investment company, and its registration with the Commission as an investment
company under the 1940 Act is in full force and effect.
(c) The current prospectuses and statements of additional
information of the Acquiring Fund conform in all material respects to the
applicable requirements of the 1933 Act and the 1940 Act and the rules and
regulations thereunder, and do not include any untrue statement of a material
fact or omit to state any material fact required to be stated or necessary to
make such statements therein, in light of the circumstances under which they
were made, not misleading.
(d) The Acquiring Fund is not, and the execution, delivery and
performance of
<PAGE>
this Agreement will not result, in a violation of the Trust's Declaration of
Trust or By-Laws or of any material agreement, indenture, instrument, contract,
lease, or other undertaking to which the Acquiring Fund is a party or by which
it is bound.
(e) Except as otherwise disclosed in writing to the Selling
Fund and accepted by the Selling Fund, no litigation, administrative proceeding
or investigation of or before any court or governmental body is presently
pending, or to its knowledge, threatened against the Acquiring Fund or any of
its properties or assets, which, if adversely determined, would materially and
adversely affect its financial condition and the conduct of its business or the
ability of the Acquiring Fund to carry out the transactions contemplated by this
Agreement. The Acquiring Fund knows of no facts that might form the basis for
the institution of such proceedings and it is not a party to or subject to the
provisions of any order, decree, or judgment of any court or governmental body
that materially and adversely affects its business or its ability to consummate
the transaction contemplated herein.
(f) The financial statements of the Acquiring Fund are in
accordance with generally accepted accounting principles, and such statements
(copies of which have been furnished to the Selling Funds) fairly reflect the
financial condition of the Acquiring Fund as of _____________, and there are no
known contingent liabilities of the Acquiring Fund as of such date which are not
disclosed in such statements.
(g) Since ________________, there have been no material adverse
changes in the Acquiring Fund's financial condition, assets, liabilities, or
business (other than changes occurring in the ordinary course of business), or
any incurrence by the Acquiring Fund of indebtedness maturing more than one year
from the date such indebtedness was incurred, except as otherwise disclosed to
and accepted by the Selling Fund. For the purposes of this subparagraph (g), a
decline in the net asset value of the Acquiring Fund shall not constitute a
material adverse change.
(h) At the Closing Date, all federal and other tax returns and
reports of the Acquiring Fund required by law to be filed by such date shall
have been filed. All federal and other taxes shown due on such returns and
reports shall have been paid or provision shall have been made for their
payment. To the best of the Acquiring Fund's knowledge, no such return is
currently under audit, and no assessment has been asserted with respect to such
returns.
(i) All issued and outstanding Acquiring Fund Shares are, and
at the Closing Date will be, duly and validly issued and outstanding, fully paid
and non-assessable by the Acquiring Fund. The Acquiring Fund has no outstanding
options, warrants, or other rights to subscribe for or purchase any Acquiring
Fund Shares, and there are no outstanding securities convertible into any
Acquiring Fund Shares.
(j) The execution, delivery, and performance of this Agreement
have been duly authorized by all necessary action on the part of the Acquiring
Fund, and this Agreement constitutes a valid and binding obligation of the
Acquiring Fund, enforceable in accordance with its terms, subject as to
enforcement, to bankruptcy, insolvency, reorganization, moratorium, and other
laws
<PAGE>
relating to or affecting creditors' rights and to general equity principles.
(k) Acquiring Fund Shares to be issued and delivered to the
Selling Fund for the account of the Selling Fund Shareholders pursuant to the
terms of this Agreement will, at the Closing Date, have been duly authorized.
When so issued and delivered, such shares will be duly and validly issued
Acquiring Fund Shares, and will be fully paid and non-assessable.
(l) The information to be furnished by the Acquiring Fund for
use in no-action letters, applications for orders, registration statements,
proxy materials, and other documents that may be necessary in connection with
the transactions contemplated herein shall be accurate and complete in all
material respects and shall comply in all material respects with federal
securities and other laws and regulations.
(m) From the effective date of the Registration Statement (as
defined in paragraph 5.7), through the time of the meeting of the Selling Fund
shareholders and on the Closing Date, any written information furnished by the
Trust with respect to the Acquiring Fund for use in the Prospectus/Proxy
Statement (as defined paragraph 5.7), the Registration Statement or any other
materials provided in connection with the Reorganization, does not and will not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated or necessary to make the statements, in light of the
circumstances under which such statements were made, not misleading.
(n) The Acquiring Fund agrees to use all reasonable efforts to
obtain the approvals and authorizations required by the 1933 Act, the 1940 Act,
and any state Blue Sky or securities laws as it may deem appropriate in order to
continue its operations after the Closing Date.
(o) No governmental consents, approvals, authorizations or
filings are required under the 1933 Act, the 1934 Act, the 1940 Act or
Massachusetts law for the execution of this Agreement by the Trust, for itself
and on behalf of the Acquiring Fund, or the performance of the Agreement by the
Trust, for itself and on behalf of the Acquiring Fund, except for the
effectiveness of the Registration Statement, the necessary exemptive relief
requested from the Commission or its staff with respect to Sections 17(a) and
17(b) of the 1940 Act, and such other consents, approvals, authorizations and
filings as have been made or received, and except for such consents, approvals,
authorizations and filings as may be required subsequent to the Closing Date.
(p) The Acquiring Fund intends to qualify as a RIC under the
Code, and with respect to each Acquiring Fund that has conducted material
investment operations prior to the Closing Date, the Acquiring Fund has elected
to qualify and has qualified as a RIC under the Code as of and since its first
taxable year; has been a RIC under the Code at all times since the end of its
first taxable year when it so qualified; and qualifies and shall continue to
qualify as a RIC under the Code for its current taxable year.
ARTICLE V
COVENANTS OF EACH ACQUIRING FUND AND EACH SELLING FUND
<PAGE>
5.1 OPERATION IN ORDINARY COURSE. Subject to paragraph 8.5 each
Acquiring Fund and Selling Fund will operate its respective business in the
ordinary course between the date of this Agreement and the respective Closing
Date, it being understood that such ordinary course of business will include
customary dividends and distributions and shareholder redemptions.
5.2 APPROVAL OF SHAREHOLDERS. ESC Strategic Funds will call meetings
of Selling Fund Shareholders to consider and act upon this Agreement and to take
all other action necessary to obtain approval of the transactions contemplated
herein.
5.3 INVESTMENT REPRESENTATION. Each Selling Fund covenants that the
Acquiring Fund Shares to be issued pursuant to this Agreement are not being
acquired for the purpose of making any distribution, other than in connection
with the Reorganization and in accordance with the terms of this Agreement.
5.4 ADDITIONAL INFORMATION. Each Selling Fund will assist its
respective Acquiring Fund in obtaining such information as the Acquiring Fund
reasonably requests concerning the beneficial ownership of the Selling Fund's
shares.
5.5 FURTHER ACTION. Subject to the provisions of this Agreement, each
Acquiring Fund and its respective Selling Fund will each take or cause to be
taken, all action, and do or cause to be done, all things reasonably necessary,
proper or advisable to consummate and make effective the transactions
contemplated by this Agreement, including any actions required to be taken after
the applicable Closing Date.
5.6 STATEMENT OF EARNINGS AND PROFITS. As promptly as practicable, but
in any case within sixty days after the applicable Closing Date, each Selling
Fund shall furnish its respective Acquiring Fund, in such form as is reasonably
satisfactory to the Acquiring Fund, a statement of the earnings and profits of
the Selling Fund for federal income tax purposes that will be carried over by
the Acquiring Fund as a result of Section 381 of the Code, and which will be
reviewed by PricewaterhouseCoopers LLP and certified by ESC Strategic Funds'
Treasurer.
5.7 PREPARATION OF FORM N-14 REGISTRATION STATEMENT. The Trust will
prepare and file with the Commission a registration statement on Form N-14 under
the 1933 Act (the "Registration Statement"), relating to the Acquiring Fund
Shares, which, without limitation, shall include a proxy statement of each
Selling Fund and the prospectus of each Acquiring Fund relating to the
transaction contemplated by this Agreement (the "Prospectus/Proxy Statement").
The Registration Statement shall be in compliance with the 1933 Act, the 1934
Act and the 1940 Act. Each Selling Fund will provide its respective Acquiring
Funds with the materials and information necessary to prepare the
Prospectus/Proxy Statement for inclusion in the Registration Statement, in
connection with the meetings of the Selling Funds Shareholders to consider the
approval of this Agreement and the transactions contemplated herein.
<PAGE>
5.8 INDEMNIFICATION OF DIRECTORS. The Trust will assume certain
liabilities and obligations of ESC Strategic Funds relating to any obligation of
ESC Strategic Funds to indemnify its current and former Directors and officers,
acting in their capacities as such, to the fullest extent permitted by law and
the ESC Strategic Funds' Articles of Incorporation, as in effect as of the date
of this Agreement. Without limiting the foregoing, the Trust agrees that all
rights to indemnification and all limitations of liability existing in favor of
the current and former Directors and officers, acting in their capacities as
such, under the ESC Strategic Funds' Articles of Incorporation as in effect as
of the date of this Agreement shall survive the Reorganization and shall
continue in full force and effect, without any amendment thereto, and shall
constitute rights which may be asserted against the Trust, its successors or
assigns.
ARTICLE VI
CONDITIONS PRECEDENT TO OBLIGATIONS OF EACH SELLING FUND
The obligations of each Selling Fund to consummate the transactions
provided for herein shall be subject, at its election, to the performance by its
respective Acquiring Fund of all the obligations to be performed by it pursuant
to this Agreement on or before the applicable Closing Date, and, in addition
subject to the following conditions:
6.1 All representations, covenants, and warranties of the Acquiring
Fund contained in this Agreement shall be true and correct as of the date hereof
and as of the Closing Date, with the same force and effect as if made on and as
of that Closing Date. Each Acquiring Fund shall have delivered to its respective
Selling Fund a certificate executed in the Acquiring Fund's name by the Trust's
President or Vice President and its Treasurer or Assistant Treasurer, in form
and substance satisfactory to the Selling Fund and dated as of the Closing Date,
to such effect and as to such other matters as the Selling Fund shall reasonably
request.
6.2 The Selling Funds shall have received on the Closing Date an
opinion from Morgan, Lewis & Bockius LLP, counsel to the Trust, dated as of such
Closing Date, in a form reasonably satisfactory to the Selling Fund, covering
the following points:
(a) Each Acquiring Fund is a separate investment series of a
Massachusetts business trust duly organized, validly existing and in good
standing under the laws of the Commonwealth of Massachusetts, and has the power
to own all of its properties and assets and to carry on its business as
presently conducted.
(b) Each Acquiring Fund is a separate investment series of a
Massachusetts business trust registered as an investment company under the 1940
Act, and, to such counsel's knowledge, such registration with the Commission is
in full force and effect.
(c) This Agreement has been duly authorized, executed, and
delivered by the
<PAGE>
Trust on behalf of each Acquiring Fund and, assuming due authorization,
execution and delivery of this Agreement by the Selling Funds, is a valid and
binding obligation of the Acquiring Funds enforceable against each Acquiring
Funds in accordance with its terms, subject as to enforcement, to bankruptcy,
insolvency, reorganization, moratorium, and other laws relating to or affecting
creditors' rights generally and to general equity principles.
(d) Assuming that a consideration of not less than the net
asset value of Acquiring Fund Shares has been paid, Acquiring Fund Shares to be
issued and delivered to each Selling Fund on behalf of the Selling Fund
Shareholders, as provided by this Agreement, are duly authorized and upon such
delivery will be legally issued and outstanding and fully paid and
non-assessable, and no shareholder of an Acquiring Fund has any preemptive
rights with respect to Acquiring Fund Shares.
(e) The Registration Statement, has been declared effective by
the Commission and to such counsel's knowledge, no stop order under the 1933 Act
pertaining thereto has been issued, and to the knowledge of such counsel, no
consent, approval, authorization or order of any court or governmental authority
of the United States or the Commonwealth of Massachusetts is required for
consummation by the Acquiring Funds of the transactions contemplated herein,
except as have been obtained under the 1933 Act, the 1934 Act and the 1940 Act,
and as may be required under state securities laws.
(f) The execution and delivery of this Agreement did not, and
the consummation of the transactions contemplated herein will not result in a
violation of the Trust's Declaration of Trust or By-Laws or any provision of any
material agreement, indenture, instrument, contract, lease or other undertaking
(in each case known to such counsel) to which an Acquiring Fund is a party or by
which an Acquiring Fund or any of its properties may be bound or, to the
knowledge of such counsel, result in the acceleration of any obligation or the
imposition of any penalty, under any agreement, judgment, or decree to which an
Acquiring Fund is a party or by which it is bound.
(g) The descriptions in the Prospectus/Proxy Statement of
statutes, legal and governmental proceedings and material contracts, if any
(only insofar as they relate to an Acquiring Fund), are accurate and fairly
present the information required to be shown.
(h) Such counsel does not know of any legal or governmental
proceedings (only insofar as they relate to an Acquiring Fund) existing on or
before the effective date of the Registration Statement or the Closing Date
which are required to be described in the Registration Statement or to be filed
as exhibits to the Registration Statement which are not described or filed as
required.
(i) To the knowledge of such counsel, no litigation or
administrative proceeding or investigation of or before any court or
governmental body is presently pending or threatened as to an Acquiring Fund or
any of its properties or assets. The Acquiring Funds are
<PAGE>
not a party to or subject to the provisions of any order, decree or judgment of
any court or governmental body, which materially and adversely affects the
Acquiring Funds' business, other than as previously disclosed in the
Registration Statement.
Such counsel shall also state that they have participated in conferences
with officers and other representatives of each Acquiring Fund at which the
contents of the Prospectus/Proxy Statement and related matters were discussed.
Although such counsel are not passing upon and do not assume any responsibility
for the accuracy, completeness or fairness of the statements contained in the
Prospectus/Proxy Statement (except to the extent indicated in their opinion in
paragraph (g), above), on the basis of the foregoing (relying as to materiality
to a large extent upon the opinions of the Trust's officers and other
representatives of each Acquiring Fund), no facts have come to their attention
that lead them to believe that the Prospectus/Proxy Statement as of its date, as
of the date of each Selling Fund Shareholders' meeting, and as of the Closing
Date, contained an untrue statement of a material fact or omitted to state a
material fact required to be stated regarding an Acquiring Fund or necessary, in
the light of the circumstances under which they were made, to make the such
statements regarding an Acquiring Fund not misleading. Such opinion may state
that such counsel does not express any opinion or belief as to the financial
statements or any financial or statistical data, or as to the information
relating to each Selling Fund, contained in the Prospectus/Proxy Statement or
the Registration Statement, and that such opinion is solely for the benefit of
ESC Strategic Funds and each Selling Fund. Such opinion shall contain such other
assumptions and limitations as shall be in the opinion of Morgan, Lewis &
Bockius LLP appropriate to render the opinions expressed therein.
In this paragraph 6.2, references to the Prospectus/Proxy Statement
include and relate to only the text of such Prospectus/Proxy Statement and not
to any exhibits or attachments thereto or to any documents incorporated by
reference therein.
6.3 As of the Closing Date with respect to the Reorganization of the
Selling Fund, there shall have been no material change in the investment
objective, policies and restrictions nor any material change in the investment
management fees, fee levels payable pursuant to the 12b-1 plan of distribution,
other fees payable for services provided to each Acquiring Fund, fee waiver or
expense reimbursement undertakings, or sales loads of the Acquiring Funds from
those fee amounts, undertakings and sales load amounts of the Acquiring Fund
described in the Prospectus/Proxy Statement.
6.4 For the period beginning at the Closing Date and ending not less
than six years thereafter, the Trust, its successor or assigns shall provide, or
cause to be provided, liability coverage at least as comparable to the liability
coverage currently applicable to both former and current Directors and officers
of ESC Strategic Funds, covering the actions of such Directors and officers of
ESC Strategic Funds for the period they served as such.
ARTICLE VII
<PAGE>
CONDITIONS PRECEDENT TO OBLIGATIONS OF EACH ACQUIRING FUND
The obligations of each Acquiring Fund to consummate the transactions
provided for herein shall be subject, at their election, to the performance by
each cooresponding Selling Fund of all the obligations to be performed by the
Selling Fund pursuant to this Agreement, on or before the applicable Closing
Date and, in addition, shall be subject to the following conditions:
7.1 All representations, covenants, and warranties of a Selling Fund
contained in this Agreement shall be true and correct as of the date hereof and
as of the Closing Date, with the same force and effect as if made on and as of
such Closing Date. Each Selling Fund shall have delivered to its respective
Acquiring Funds on such Closing Date a certificate executed in the Selling
Fund's name by ESC Strategic Funds' President or Vice President and the
Treasurer or Assistant Treasurer, in form and substance satisfactory to the
Acquiring Fund and dated as of such Closing Date, to such effect and as to such
other matters as the Acquiring Fund shall reasonably request.
7.2 The Selling Fund shall have delivered to its respective Acquiring
Fund a statement of the Selling Fund's assets and liabilities, together with a
list of the selling Fund's portfolio securities showing the tax costs of such
securities by lot and the holding periods of such securities, as of the Closing
Dates, certified by the Treasurer of ESC Strategic Funds.
7.3 The Acquiring Fund shall have received on the applicable Closing
Date an opinion of Dechert Price & Rhoads, counsel to each Selling Fund, dated
as of such Closing Date in a form satisfactory to the Acquiring Fund covering
the following points:
(a) The Selling Fund is a separate investment series of a
corporation duly organized, validly existing and in good standing under the laws
of the State of Maryland and each has the power to own all of its properties and
assets and to carry on its business as presently conducted.
(b) The Selling Fund is a separate investment series of a
Maryland corporation registered as an investment company under the 1940 Act,
and, to such counsel's knowledge, such registration with the Commission is in
full force and effect.
(c) This Agreement has been duly authorized, executed and
delivered by ESC Strategic Funds on behalf of each Selling Fund and, assuming
due authorization, execution and delivery of this Agreement by the Trust on
behalf of each Acquiring Fund is a valid and binding obligation of the Selling
Fund enforceable against the Selling Fund in accordance with its terms, subject
as to enforcement, to bankruptcy, insolvency, reorganization, moratorium and
other laws relating to or affecting creditors' rights generally and to general
equity principles.
(d) To the knowledge of such counsel, except for the filing of
Articles of Transfer pursuant to Maryland law, no consent, approval,
authorization or order of any court or
<PAGE>
governmental authority of the United States or the State of Maryland is required
for consummation by a Selling Fund of the transactions contemplated herein,
except as have been obtained under the 1933 Act, the 1934 Act and the 1940 Act,
and as may be required under state securities laws.
(e) The execution and delivery of this Agreement did not, and
the consummation of the transactions contemplated hereby will not result in a
violation of ESC Strategic Funds' Articles of Incorporation or By-laws, or any
provision of any material agreement, indenture, instrument, contract, lease or
other undertaking (in each case known to such counsel) to which a Selling Fund
is a party or by which it or any of its properties may be bound or, to the
knowledge of such counsel, result in the acceleration of any obligation or the
imposition of any penalty, under any agreement, judgment, or decree to which the
Selling Fund is a party or by which it is bound.
(f) The descriptions in the Prospectus/Proxy Statement of
statutes, legal and government proceedings and material contracts, if any (only
insofar as they relate to a Selling Fund), are accurate and fairly present the
information required to be shown.
(g) Such counsel does not know of any legal or governmental
proceedings (insofar as they relate to a Selling Fund) existing on or before the
date of mailing of the Prospectus/Proxy Statement and the Closing Date, which
are required to be described in the Prospectus/Proxy Statement or to be filed as
an exhibit to the Registration Statement which are not described or filed as
required.
(h) To the knowledge of such counsel, no litigation or
administrative proceeding or investigation of or before any court or
governmental body is presently pending or threatened as to a Selling Fund or any
of its respective properties or assets. To the knowledge of such counsel, no
Selling Fund is a party to or subject to the provisions of any order, decree or
judgment of any court or governmental body, which materially and adversely
affects the Selling Fund's business other than as previously disclosed in the
Prospectus/Proxy Statement.
(i) Assuming that a consideration of not less than the net
asset value of Selling Fund Shares has been paid, and assuming that such shares
were issued in accordance with the terms of each Selling Fund's registration
statement, or any amendment thereto, in effect at the time of such issuance, all
issued and outstanding shares of the Selling Fund are legally issued and fully
paid and non-assessable.
Such counsel shall also state that they have participated in conferences
with officers and other representatives of each Selling Fund at which the
contents of the Prospectus/Proxy Statement and related matters were discussed.
Although such counsel are not passing upon and do not assume any responsibility
for the accuracy, completeness or fairness of the statements contained in the
Prospectus/Proxy Statement (except to the extent indicated in their opinion at
paragraph (f), above), on the basis of the foregoing (relying as to materiality
to a large extent
<PAGE>
upon the opinions of ESC Strategic Funds' officers and other representatives of
each Selling Fund), no facts have come to their attention that lead them to
believe that the Prospectus/Proxy Statement as of its date, as of the date of
each Selling Fund Shareholders' meeting, and as of the Closing Date, contained
an untrue statement of a material fact or omitted to state a material fact
required to be stated therein regarding a Selling Fund or necessary, in the
light of the circumstances under which they were made, to make the statements
therein regarding the Selling Fund not misleading. Such opinion may state that
such counsel do not express any opinion or belief as to the financial statements
or any financial or statistical data, or as to the information relating to each
Acquiring Fund contained in the Prospectus/Proxy Statement or Registration
Statement, and that such opinion is solely for the benefit of the Trust and each
Acquiring Fund. Such opinion shall contain such other assumptions and
limitations as shall be in the opinion of Dechert Price & Rhoads appropriate to
render the opinions expressed therein, and shall indicate, with respect to
matters of Maryland law, that such opinions are based either upon the review of
published statutes, cases and rules and regulations of the State of Maryland or
upon an opinion of Maryland counsel.
In this paragraph 7.3, references to the Prospectus/Proxy Statement
include and relate to only the text of such Prospectus/Proxy Statement and not
to any exhibits or attachments thereto or to any documents incorporated by
reference therein.
ARTICLE VIII
FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF EACH
ACQUIRING FUND AND SELLING FUND
If any of the conditions set forth below do not exist on or before the
applicable Closing Date with respect to each Selling Fund or its respective
Acquiring Fund, the other party to this Agreement shall, at its option, not be
required to consummate the transactions contemplated by this Agreement:
8.1 This Agreement and the transactions contemplated herein, with
respect to each Selling Fund, shall have been approved by the requisite vote of
the holders of the outstanding shares of the respective Selling Fund in
accordance with Maryland law and the provisions of ESC Strategic Funds' Articles
of Incorporation and By-Laws. Certified copies of the resolutions evidencing
such approval shall have been delivered to the respective Acquiring Fund.
Notwithstanding anything herein to the contrary, neither an Acquiring Fund nor a
Selling Fund may waive the conditions set forth in this paragraph 8.1.
8.2 On each Closing Date, the Commission shall not have issued an
unfavorable report under Section 25(b) of the 1940 Act, or instituted any
proceeding seeking to enjoin the consummation of the transactions contemplated
by this Agreement under Section 25(c) of the 1940 Act. Furthermore, no action,
suit or other proceeding shall be threatened or pending before any court or
governmental agency in which it is sought to restrain or prohibit, or obtain
damages
<PAGE>
or other relief in connection with this Agreement or the transactions
contemplated herein.
8.3 All required consents of other parties and all other consents,
orders, and permits of federal, state and local regulatory authorities
(including those of the Commission and of State Blue Sky securities authorities,
including any necessary "no-action" positions and exemptive orders from such
federal and state authorities) to permit consummation of the transactions
contemplated herein shall have been obtained, except where failure to obtain any
such consent, order, or permit would not involve a risk of a material adverse
effect on the assets or properties of an Acquiring Fund or a Selling Fund,
provided that either party hereto may waive any such conditions for itself.
8.4 The Registration Statement shall have become effective under the
1933 Act, and no stop orders suspending the effectiveness thereof shall have
been issued. To the best knowledge of the parties to this Agreement, no
investigation or proceeding for that purpose shall have been instituted or be
pending, threatened or contemplated under the 1933 Act.
8.5 Each Selling Fund shall have declared and paid a dividend or
dividends which, together with all previous such dividends, shall have the
effect of distributing to its shareholders all of the Selling Fund's net
investment company taxable income for all taxable periods ending on or prior to
the applicable Closing Dates (computed without regard to any deduction for
dividends paid) and all of its net capital gains realized in all taxable periods
ending on or prior to such Closing Dates (after reduction for any capital loss
carry forward).
8.6 The parties shall have received a favorable opinion of Morgan,
Lewis & Bockius LLP addressed to each Acquiring Fund and Selling Fund
substantially to the effect that for federal income tax purposes with respect to
each Selling Fund:
(a) The transfer of all of the Selling Fund's assets in
exchange for Acquiring Fund Shares and the assumption by the Acquiring Fund of
the identified liabilities of the Selling Fund (followed by the distribution of
Acquiring Fund Shares to the Selling Fund shareholders in dissolution and
liquidation of the Selling Fund) will constitute a "reorganization" within the
meaning of Section 368(a) of the Code and the Acquiring Fund and the Selling
Fund will each be a "party to a reorganization" within the meaning of Section
368(b) of the Code.
(b) No gain or loss will be recognized by the Acquiring Fund
upon the receipt of the assets of the Selling Fund solely in exchange for
Acquiring Funds Share and the assumption by the Acquiring Fund of the identified
liabilities of the Selling Fund.
(c) No gain or loss will be recognized by the Selling Fund upon
the transfer of the Selling Fund's assets to the Acquiring Fund in exchange for
Acquiring Fund Shares and the assumption by the Acquiring Fund of the identified
liabilities of the Selling Fund or upon the distribution (whether actual or
constructive) of Acquiring Fund Shares to Selling Fund Shareholders in exchange
for such shareholders' shares of the Selling Fund.
<PAGE>
(d) No gain or loss will be recognized by the Selling Fund
Shareholders upon the exchange of their Selling Fund shares for Acquiring Fund
Shares in the Reorganization.
(e) The aggregate tax basis for Acquiring Fund Shares received
by each Selling Fund Shareholder pursuant to the Reorganization will be the same
as the aggregate tax basis of the Selling Fund shares exchanged therefor by such
shareholder. The holding period of Acquiring Funds Share to be received by each
Selling Fund Shareholder will include the period during which the Selling Fund
shares exchanged therefore were held by such shareholder, provided the Selling
Fund shares are held as capital assets at the time of the Reorganization.
(f) The tax basis of the Selling Fund's assets acquired by the
Acquiring Fund will be the same as the tax basis of such assets to the Selling
Fund immediately prior to the Reorganization. The holding period of the assets
of the Selling Fund in the hands of the Acquiring Fund will include the period
during which those assets were held by the Selling Fund.
Such opinion shall be based on customary assumptions and such
representations as Morgan, Lewis & Bockius LLP may reasonably request, and each
Selling Fund and Acquiring Fund will cooperate to make and certify the accuracy
of such representations. Notwithstanding anything herein to the contrary,
neither an Acquiring Fund nor a Selling Fund may waive the conditions set forth
in this paragraph 8.6.
ARTICLE IX
EXPENSES
9.1 Except as otherwise provided for herein, expenses related to the
Reorganization that are incurred by the Selling Funds will be paid as follows:
The Selling Funds will pay a portion of the Reorganization expenses up to the
amount each Selling Fund would have paid during the fiscal year ending March 31,
2000 under the expense caps that are currently in place for each Selling Fund.
All remaining expenses will be borne by the investment adviser to the Selling
Funds, SunTrust Equitable Securities, a wholly-owned subsidiary of SunTrust
Banks, Inc. ("SunTrust") and/or SunTrust. Reorganization expenses include,
without limitation: (a) expenses associated with the preparation and filing of
the Registration Statement/Proxy Statement on Form N-14 under the 1933 Act
covering Acquiring Fund Shares to be issued pursuant to the provisions of this
Agreement; (b) postage; (c) printing; (d) accounting fees; (e) legal fees
incurred by each Selling Funds; and (f) solicitation costs of the transaction.
ARTICLE X
ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1 The Trust on behalf of each Acquiring Fund and ESC Strategic Funds
on behalf of each Selling Fund agrees that neither party has made to the other
party any representation,
<PAGE>
warranty and/or covenant not set forth herein, and that this Agreement
constitutes the entire agreement between the parties.
10.2 Except as specified in the next sentence set forth in this section
10.2, the representation, warranties, and covenants contained in this Agreement
or in any document delivered pursuant to or in connection with this Agreement,
shall not survive the consummation of the transactions contemplated hereunder.
The covenants to be performed after each Closing Date, and the obligations of
each of the Acquiring Funds in sections 5.9 and 6.4, shall continue in effect
beyond the consummation of the transactions contemplated hereunder.
ARTICLE XI
TERMINATION
11.1 This Agreement may be terminated by the mutual agreement of the
Trust and ESC Strategic Funds. In addition, either the Trust or ESC Strategic
Funds may at their option terminate this Agreement at or prior to either Closing
Date due to:
(a) a breach by the other of any representation, warranty, or
agreement contained herein to be performed at or prior to each Closing Date, if
not cured within 30 days;
(b) a condition herein expressed to be precedent to the
obligations of the terminating party that has not been met and it reasonably
appears that it will not or cannot be met; or
(c) a determination by the parties' Board of Directors or Board
of Trustees, as appropriate, determine that the consummation of the transactions
contemplated herein are not in the best interest of ESC Strategic Funds or the
Trust, respectively, and give notice to the other party hereto.
11.2 In the event of any such termination, in the absence of willful
default, there shall be no liability for damages on the part of either an
Acquiring Fund, a Selling Fund, the Trust, ESC Strategic Funds, the respective
Trustees, Directors or officers, to the other party or its Trustees, Directors
or officers, but each shall bear the expenses incurred by it incidental to the
preparation and carrying out of this Agreement as provided in paragraph 9.1.
ARTICLE XII
AMENDMENTS
12.1 This Agreement may be amended, modified, or supplemented in such
manner as may be mutually agreed upon in writing by the authorized officers of
each Selling Funds and the Acquiring Fund; provided, however, that following the
meetings of the Selling Fund
<PAGE>
Shareholders called by a Selling Fund pursuant to paragraph 5.2 of this
Agreement, no such amendment may have the effect of changing the provisions for
determining the number of Acquiring Fund Shares to be issued to the Selling Fund
Shareholders under this Agreement to the detriment of such shareholders without
their further approval.
ARTICLE XIII
HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT;
LIMITATION OF LIABILITY
13.1 The Article and paragraph headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
13.2 This Agreement may be executed in any number of counterparts, each
of which shall be deemed an original.
13.3 This Agreement shall be governed by and construed in accordance
with the laws of the Commonwealth of Massachusetts, without giving effect to the
conflicts of laws provisions thereof; provided, however, that the due
authorization, execution and delivery of this Agreement, in the case of each
Selling Fund, shall be governed and construed in accordance with the laws of the
State of Maryland, without giving effect to the conflicts of laws provisions
thereof.
13.4 This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but, except as provided in
this paragraph, no assignment or transfer hereof or of any rights or obligations
hereunder shall be made by any party without the written consent of the other
party. Nothing herein expressed or implied is intended or shall be construed to
confer upon or give any person, firm, or corporation, other than the parties
hereto and their respective successors and assigns, any rights or remedies under
or by reason of this Agreement.
13.5 It is expressly agreed that the obligations of each Acquiring Fund
hereunder shall not be binding upon any of the Trustees, shareholders, nominees,
officers, agents, or employees of the Trust personally, but shall bind only the
trust property of the Acquiring Fund, as provided in the Declaration of Trust of
the Trust. The execution and delivery of this Agreement have been authorized by
the Trustees of the Trust on behalf of each Acquiring Fund and signed by
authorized officers of the Trust, acting as such. Such authorization by such
Trustees nor such execution and delivery by such officers shall not be deemed to
have been made by any of them individually or to impose any liability on any of
them personally, but shall bind only the trust property of each Acquiring Fund
as provided in the Trust's Declaration of Trust.
IN WITNESS WHEREOF, the parties have duly executed this Agreement, all as
of the date first written above.
<PAGE>
STI CLASSIC FUNDS
By: /s/
------------------
Name: Kevin P. Robins
Title: Vice President
ESC STRATEGIC FUNDS, INC.
By: /s/
------------------
Name: R. Jeffrey Young
Title: Vice President
<PAGE>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE EXHIBIT B
STI Classic Growth and Income Fund
----------------------------------
The STI Classic Growth and Income Fund (the "Fund") is the newest equity fund
member of the STI Classic family, as the successor fund to the former CrestFunds
Value Fund. CrestFunds merged into STI on May 24, 1999. The Growth and Income
Fund invests primarily in a diversified mix of domestic and the ADR's of foreign
common stocks of companies with market capitalization of at least $1 billion.
The Fund uses a quantitative screening process to help select stocks of
companies from both the value and growth equity investment styles. The Fund
seeks long term appreciation from large-cap equities while buffering the
volatility of returns.
The past year was turbulent, but gratifying, for the economy and the stock
markets, as policy-makers and investors successfully navigated potential
significant pitfalls. The current economic expansion reached its eighth
anniversary, with continued low inflation, while both the Dow Jones Industrial
Average and the S&P 500 achieved another year of double-digit returns. The Fund
performed well in this changing environment, taking advantage of its positioning
in both select growth and value type issues. The Fund returned 15.58% (Trust
Shares) during the fiscal year ended May 31, 1999.
The beginning of the fiscal year, the second half of 1998, was strongly
influenced by continuing reverberations of the 1997 Asian financial crisis.
Russia and Latin America suffered most from the backlash as investors moved to
higher quality, more liquid financial markets. Diminishing profit expectations
and political scandal here at home only added to investor uncertainty. The S&P
500 fell 10.3% during the third quarter on a price-only basis, though it lost as
much as 19.3% between mid-July and the end of August. Falling commodity prices
across the spectrum hurt stocks in the basic materials and energy sectors, while
rising credit concerns and trading losses pummeled financial stocks. Corporate
profits during this time were increasingly weak, contracting over 3% on a year
over year basis in the third quarter.
The Federal Reserve responded to the crisis last fall by cutting interest rates
three times, and the major indexes completely recovered from the "bear" market
within another six weeks. Stock market sectors that fared well tended to have a
domestic, consumer-oriented focus or were linked to technology and productivity
investment. Healthcare companies and consumer cyclicals represented the former,
while networking, software, and computer-related companies represented the
latter category. Large growth issues performed extremely well while most
value-oriented stocks struggled. The Fund's best performance was realized from
technology holdings such as Cisco Systems, Microsoft, Intel and Sun
Microsystems. Outside of technology, holdings such as Lowe's, Schering-Plough,
Amgen, and CIGNA also contributed strong relative performance.
By the first quarter of 1999, glimmers of economic hope began to appear for
battered economies in the Pacific rim region as well as in Latin America. In
addition, oil prices, which plummeted to under $11/barrel, jumped over 70% on
news that world oil producers were acting together to reduce the global energy
glut. S&P 500 operating profits rose by 10% during the first quarter. Big cap,
growth oriented, technology companies, continued to fare well though vigorous
sector rotation persisted. Along with technology, consumer cyclical, energy and
finance shares rose during the first quarter, a harbinger that the
under-performing value stocks were poised for recovery.
In April, fears of future inflation helped investors dramatically reduce their
exposure to the high price/earnings growth stocks in favor of more cyclically
and inflation sensitive value-oriented companies. During the early part of the
year, the Fund reduced its exposure to healthcare and technology while
increasing its exposure to depressed and economically sensitive areas of the
market. The dramatic under performance of the "value" issues offered an
opportunity to increase the portfolio's "tilt" toward value, which had a
significant positive impact on performance in the closing months of the fiscal
year.
The outlook for the U.S. and world economies remains favorable based on current
reports, improving prospects for corporate earnings growth over the near term.
While tight labor markets remain a concern for the inflation-wary Fed,
structural imbalances and excess inventories appear to be lacking. This suggests
that companies may be able to adjust price and production schedules relatively
quickly in response to future changes demand or Fed policy. The STI Classic
Growth and Income Fund will continue to adjust its mix of value and growth
stocks in this evolving environment in order to maximize returns to our
shareholders while limiting volatility.
/s/ Signature
------------------------------------
Jeffrey E. Markunas, CFA
8
<PAGE>
Trust Shares
[STI Classic Growth and Income Fund Trust Shares Line Graphic Omitted]
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Annualized Annualized Annualized Cumulative
One Year 3 Year 5 Year Inception Inception
Return Return Return to Date to Date
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
15.58% 21.38% 20.70% 17.68% 196.58%
- --------------------------------------------------------------------------------
</TABLE>
STI Classic Growth and Income Fund, Trust Shares
S&P 500 Index
Plot points are as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------
STI Classic S&P
Growth and Income Fund 500
Trust Shares Index
- -----------------------------------------------------------
<S> <C> <C>
9/30/92 10,000 10,000
5/31/93 11,363 10,982
5/31/94 11,462 11,446
5/31/95 13,204 13,753
5/31/96 16,420 17,661
5/31/97 20,070 22,854
5/31/98 25,406 29,863
5/31/99 29,364 36,149
- -----------------------------------------------------------
</TABLE>
Investor Shares
[STI Classic Growth and Income Fund Investor Shares Line Graphic Omitted]
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Annualized Annualized Annualized Cumulative
One Year 3 Year 5 Year Inception Inception
Return Return Return to Date to Date
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
15.66% 21.38% 20.69% 17.49% 165.93% Without Load
11.30% 19.86% 19.77% 16.75% 155.96% With Load
- --------------------------------------------------------------------------------
</TABLE>
STI Classic Growth and Income Fund, Investor Shares
S&P 500 Index
Plot points are as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------
STI Classic S&P
Growth and Income Fund 500
Investor Shares Index
- -----------------------------------------------------------
<S> <C> <C>
5/31/93 9,625 10,000
5/31/94 9,712 10,423
5/31/95 11,190 12,523
5/31/96 13,909 16,082
5/31/97 17,004 20,811
5/31/98 21,506 27,193
5/31/99 24,889 32,917
- -----------------------------------------------------------
</TABLE>
Flex Shares
[STI Classic Growth and Income Fund Flex Shares Line Graphic Omitted]
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Annualized Annualized Cumulative
One Year 3 Year Inception Inception
Return Return to Date to Date
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
14.76% 20.51% 21.70% 125.68% Without Load
12.76% With Load
- --------------------------------------------------------------------------------
</TABLE>
STI Classic Growth and Income Fund, Flex Shares
S&P 500 Index
Plot points are as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------
STI Classic S&P
Growth and Income Fund 500
Flex Shares Index
- -----------------------------------------------------------
<S> <C> <C>
4/30/95 10,000 10,000
5/31/96 12,721 13,354
5/31/97 15,440 17,281
5/31/98 19,403 22,581
5/31/99 22,267 27,334
- -----------------------------------------------------------
</TABLE>
Past performance is no indication of future performance.
The Funds' comparative benchmarks do not include the annual operating expenses
incurred by the Fund.
9
<PAGE>
STI Classic International Equity Fund
-------------------------------------
The STI Classic International Equity Fund ("The Fund") invests in equity
securities of foreign issuers and seeks to provide long term capital
appreciation. We strive to obtain investment results that outperform the
international markets and the average international mutual funds. The Fund
focuses on sector and company fundamentals specifically looking for companies
that exhibit top managements, quality products and sound financial positions.
Our goal is to find companies that fit the above criteria but are still selling
at a discount to their global peers.
The Fund's performance for the year June 1998 to May 1999 was -7.43% (Trust
Shares) vs. MSCI EAFE of 4.36%.
Over the past year, many changes have occurred. Eleven western european
countries combined currencies to create one common currency, the Euro, Asia has
rallied off its bottom, and many markets have seen +50% returns. Brazil and
Latin America experienced a collapse, only to quickly rebound after Brazil
depegged its currency from the dollar. Japan has also rebounded off its lows due
to economic stimulus packages and positive news flow, though earnings are still
lagging. Recent concern over increasing growth has caused economic over-heating
concerns across the European community where the Fund maintains its largest
weighting. Many of the cyclical and commodity oriented companies have rallied on
the back of the expectation of strong growth and inflation. While we do have
exposure to these sectors, we do not believe this outperformance will continue.
Financial companies have been the hardest hit as interest rate concerns have
been a heavy burden on bond prices and fears of slower growth have tempered the
performance of insurance companies and banks. This weakness has provided
opportunities as we believe the markets have over-corrected for such fears.
The Fund added some Brazilian and Mexican equities in February including Tele
Norte, a fixed line telephone operator in Brazil and Telefonos de Mexico,
Mexico's dominant phone company. These investments have experienced tremendous
strength since their addition. We continue to monitor Latin America and Asia for
value opportunities.
Concerning the future outlook for international markets, we continue to see
value across Europe and expect to remain overweighted here. Japan has rallied on
hopes, not fundamentals, and we remain underweighted. We have added names in
Japan such as Takefuji, a consumer finance company and FamilyMart, Japan's
second largest convenient store operator. While we see some fundamentals turning
in Japan, the changes are company specific. In our opinion, the macro picture
remains mired in high unemployment, overvalued assets, and zero growth.
/s/ Signature omitted
-----------------------------------
Ned Dau
Managing Director
10
<PAGE>
Trust Shares
[STI Classic International Equity Fund Trust Shares Line Graphic Omitted]
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
Annualized Annualized Cumulative
One Year 3 Year Inception Inception
Return Return to Date to Date
- -------------------------------------------------------------------
<S> <C> <C> <C>
-7.43% 11.62% 14.12% 58.55%
- -------------------------------------------------------------------
</TABLE>
STI Classic International Equity Fund, Trust Shares
MSCI EAFE Index, in U.S.$
Plot points are as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------
STI Classic MSCI
International Equity Fund Index
Trust Shares in U.S.$
- -----------------------------------------------------------
<S> <C> <C>
1/31/95 10,000 10,000
5/31/95 11,637 10,862
5/31/96 15,179 12,021
5/31/97 18,714 12,928
5/31/98 22,807 14,365
5/31/99 21,112 14,991
- -----------------------------------------------------------
</TABLE>
Investor Shares
[STI Classic International Equity Fund Investor Shares Line Graphic Omitted]
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Annualized Annualized Cumulative
One Year 3 Year Inception Inception
Return Return to Date to Date
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
-7.82% 11.19% 12.62% 49.85% Without Load
- -11.27% 9.79% 11.36% 44.18% With Load
- --------------------------------------------------------------------------------
</TABLE>
STI Classic International Equity Fund, Investor Shares
MSCI EAFE Index, in U.S.$
Plot points are as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------
STI Classic MSCI
International Equity Fund Index
Investor Shares in U.S.$
- -----------------------------------------------------------
<S> <C> <C>
1/31/95 9,625 10,000
5/31/95 11,201 10,862
5/31/96 14,585 12,021
5/31/97 17,918 12,928
5/31/98 21,750 14,365
5/31/99 20,049 14,991
- -----------------------------------------------------------
</TABLE>
Flex Shares
[STI Classic International Equity Fund Flex Shares Line Graphic Omitted]
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Annualized Annualized Cumulative
One Year 3 Year Inception Inception
Return Return to Date to Date
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
-8.48% 10.40% 11.89% 46.56% Without Load
- -10.19% With Load
- --------------------------------------------------------------------------------
</TABLE>
STI Classic International Equity Fund, Flex Shares
MSCI EAFE Index, in U.S.$
Plot points are as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------
STI Classic MSCI
International Equity Fund Index
Flex Shares in U.S.$
- -----------------------------------------------------------
<S> <C> <C>
1/31/95 10,000 10,000
5/31/95 11,637 10,862
5/31/96 15,139 12,021
5/31/97 18,467 12,928
5/31/98 22,260 14,365
5/31/99 20,372 14,991
- -----------------------------------------------------------
</TABLE>
Past performance is no indication of future performance.
The Funds' comparative benchmarks do not include the annual operating expenses
incurred by the Fund.
11
<PAGE>
STI Classic Small Cap Growth Stock Fund
---------------------------------------
The objective of the STI Classic Small Cap Growth Stock Fund (the "Fund") is to
provide long-term capital appreciation by investing in smaller companies,
domiciled primarily in the U.S., with market capitalizations ranging from $50
million to $3 billion. The philosophy of the Fund is that a portfolio of small
capitalization companies with positive earnings characteristics and reasonable
valuation will provide superior returns over time.
The Fund invests in stocks of companies that are currently demonstrating strong
earnings trends, characterized by solid historical earnings growth, high
earnings and sales growth momentum, and positive earnings estimate revisions and
earnings surprises. However, we try not to pay huge premiums for these
companies. Consequently, we identify those companies that are reasonably valued
relative to their earnings trends and relative to our universe of companies. In
addition, we look for companies that have a history of generating high returns
on invested capital and/or are demonstrating improving returns.
The investment process of the Fund features a two-tiered strategy that includes
a quantitative methodology to identify those companies with the best combination
of the aforementioned characteristics and a qualitative overlay that involves
basic fundamental analysis of each company. Our investment team looks at each
company to understand the company's basic business model and competitive
environment surrounding the company. In addition, we dig into the financials of
each company, analyzing the income statement and balance sheet in order to
identify any accounting irregularities, understand the capital structure of the
company, how the company has grown in the past, and how it intends to fund its
growth in the future.
The Fund features a very disciplined approach for both the buying and selling of
stocks. Furthermore, we exercise portfolio management techniques that are geared
toward risk aversion, unlike most other aggressive small cap growth portfolios.
The Fund equal-weights the portfolio among the top 15% to 20% of stocks in our
investment universe (approximately 150-160 companies). Thus, we maintain a very
diversified portfolio taking on very little company specific risk. In addition,
we maintain controlled sector weightings to keep the portfolio from becoming
over-concentrated in one particular economic sector.
We are confident that our process will provide excellent risk-adjusted returns
over time relative to the S&P Small Cap 600 Index and relative to other small
cap mutual funds. We are very pleased with the Fund's results since inception on
October 8, 1998 and feel very comfortable with how the portfolio is currently
positioned. Since late March 1999, the broadening of the market has brought
about a resurgence in small cap stock returns. Should this trend continue, this
will be an excellent year for the STI Classic Small Cap Growth Stock Fund.
/s/ Signature omitted
------------------------------------
Mark D. Garfinkel, CFA
Vice President and Portfolio Manager
24
<PAGE>
Trust Shares*
[STI Classic Small Cap Growth Stock Fund Trust Shares Line Graphic Omitted]
<TABLE>
<CAPTION>
- -----------
Cumulative
Inception
to Date
- -----------
<S><C>
45.70%
- -----------
</TABLE>
STI Classic Small Cap Growth Stock Fund, Trust Shares
S&P Small Cap 500 Index
Plot points are as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------
STI Classic S&P
Small Cap Growth Stock Small Cap 600
Fund, Trust Shares Index
- -------------------------------------------------------------
<S> <C> <C>
10/31/98 10,000 10,000
5/31/99 12,070 11,168
- -------------------------------------------------------------
</TABLE>
Flex Shares*
[STI Classic Small Cap Growth Stock Fund Flex Shares Line Graphic Omitted]
<TABLE>
<CAPTION>
- -----------------------------
Cumulative
Inception
to Date
- -----------------------------
<S> <C>
44.78% Without Load
42.78% With Load
- -----------------------------
</TABLE>
Plot points are as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------
STI Classic S&P
Small Cap Growth Stock Small Cap 600
Fund, Flex Shares Index
- -------------------------------------------------------------
<S> <C> <C>
10/31/98 10,000 10,000
5/31/99 11,764 11,168
- -------------------------------------------------------------
</TABLE>
*Commenced operations on October 8, 1998.
Past performance is no indication of future performance.
The Funds' comparative benchmarks do not include the annual operating expenses
incurred by the Fund.
<PAGE>
ESC STRATEGIC FUNDS, INC.
SMALL CAP FUND
SPECIAL MEETING OF THE SHAREHOLDERS
PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR
THE SPECIAL MEETING OF SHAREHOLDERS, MARCH 22, 2000
The undersigned, revoking previous proxies with respect to the Shares
(defined below), hereby appoints Jeff Young and Paige Hodgin as proxies and
each of them, each with full power of substitution, to vote at the Special
Meeting of Shareholders of the ESC Strategic Small Cap Fund (the "Fund") of ESC
Strategic Funds, Inc. (the "Corporation") to be held in the offices of SEI
Investments, One Freedom Valley Drive, Oaks, Pennsylvania 19456, on Wednesday,
March 22, 2000, at 3:00 p.m. (Eastern Time), and any adjournments or
postponements thereof (the "Meeting") all shares of beneficial interest of the
Fund that the undersigned would be entitled to vote if personally present at the
Meeting ("Shares") on the proposal set forth below respecting the proposed
Agreement and Plan of Reorganization (the "Reorganization Agreement") between
the Corporation, on behalf of the Fund, and STI Classic Funds (the "Trust"), on
behalf of the corresponding series of the Trust set forth below in the Proposal,
and on any other matters properly brought before the Meeting.
THE BOARD OF DIRECTORS OF THE CORPORATION RECOMMENDS A VOTE "FOR" THE PROPOSAL
TO:
( X Please mark your choices like this on the Proposal )
---
PROPOSAL: APPROVE THE REORGANIZATION AGREEMENT AS IT RELATES TO THE ESC
STRATEGIC SMALL CAP FUND AND THE STI SMALL CAP GROWTH STOCK FUND:
____For ____Against ____Abstain
THIS PROXY WILL, WHEN PROPERLY EXECUTED, BE VOTED AS DIRECTED HEREIN BY THE
SIGNING SHAREHOLDER(S). IF NO CONTRARY DIRECTION IS GIVEN WHEN THE DULY EXECUTED
PROXY IS RETURNED, THIS PROXY WILL BE VOTED FOR THE FOREGOING PROPOSAL AND WILL
BE VOTED IN THE APPOINTED PROXIES' DISCRETION UPON SUCH OTHER BUSINESS AS MAY
PROPERLY COME BEFORE THE MEETING.
<PAGE>
The undersigned acknowledges receipt with this Proxy of a copy of the
Notice of Special Meeting and the Proxy Statement of the Board of Directors.
Your signature(s) on this Proxy should be exactly as your name(s) appear on this
Proxy. If the shares are held jointly, each holder should sign this Proxy.
Attorneys-in-fact, executors, administrators, trustees or guardians should
indicate the full title and capacity in which they are signing.
Dated: , 2000
-----------------------
--------------------------------
Signature of Shareholder
--------------------------------
Signature (Joint owners)
YOU CAN VOTE BY MAIL, PHONE, FAX, INTERNET, OR IN PERSON.
- - TO VOTE BY MAIL, PLEASE DATE, SIGN AND RETURN THIS CARD USING THE ENCLOSED,
POSTAGE-PAID ENVELOPE.
- - YOU MAY FAX YOUR VOTE BY SIGNING AND DATING THIS CARD AND FAXING BOTH SIDES
OF THE CARD TO (XXX) XXX-XXXX.
- - YOU MAY VOTE BY PHONE BY CALLING TOLL-FREE (XXX) XXX-XXXX, ENTERING YOUR 12
DIGIT CONTROL NUMBER LOCATED ON THIS CARD, AND FOLLOWING THE SIMPLE
RECORDED INSTRUCTIONS.
- - YOU MAY ALSO SUBMIT YOUR VOTE OVER THE INTERNET AT WWW.PROXYVOTE.COM.
- - FINALLY, YOU MAY VOTE IN PERSON BY ATTENDING THE MEETING ON MARCH 22, 2000.
<PAGE>
ESC STRATEGIC FUNDS, INC.
SMALL CAP II FUND
SPECIAL MEETING OF THE SHAREHOLDERS
PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR
THE SPECIAL MEETING OF SHAREHOLDERS, MARCH 22, 2000
The undersigned, revoking previous proxies with respect to the Shares
(defined below), hereby appoints Jeff Young and Paige Hodgin as proxies and
each of them, each with full power of substitution, to vote at the Special
Meeting of Shareholders of the ESC Strategic Small Cap II Fund (the "Fund") of
ESC Strategic Funds, Inc. (the "Corporation") to be held in the offices of SEI
Investments, One Freedom Valley Drive, Oaks, Pennsylvania 19456, on Wednesday,
March 22, 2000, at 3:00 p.m. (Eastern Time), and any adjournments or
postponements thereof (the "Meeting") all shares of beneficial interest of the
Fund that the undersigned would be entitled to vote if personally present at the
Meeting ("Shares") on the proposal set forth below respecting the proposed
Agreement and Plan of Reorganization (the "Reorganization Agreement") between
the Corporation, on behalf of the Fund, and STI Classic Funds (the "Trust"), on
behalf of the corresponding series of the Trust set forth below in the Proposal,
and on any other matters properly brought before the Meeting.
THE BOARD OF DIRECTORS OF THE CORPORATION RECOMMENDS A VOTE "FOR" THE PROPOSAL
TO:
( X Please mark your choices like this on the Proposal )
---
PROPOSAL: APPROVE THE REORGANIZATION AGREEMENT AS IT RELATES TO THE ESC
STRATEGIC SMALL CAP II FUND AND THE STI SMALL CAP GROWTH STOCK
FUND:
____For ____Against ____Abstain
THIS PROXY WILL, WHEN PROPERLY EXECUTED, BE VOTED AS DIRECTED HEREIN BY THE
SIGNING SHAREHOLDER(S). IF NO CONTRARY DIRECTION IS GIVEN WHEN THE DULY EXECUTED
PROXY IS RETURNED, THIS PROXY WILL BE VOTED FOR THE FOREGOING PROPOSAL AND WILL
BE VOTED IN THE APPOINTED PROXIES' DISCRETION UPON SUCH OTHER BUSINESS AS MAY
PROPERLY COME BEFORE THE MEETING.
<PAGE>
The undersigned acknowledges receipt with this Proxy of a copy of the
Notice of Special Meeting and the Proxy Statement of the Board of Directors.
Your signature(s) on this Proxy should be exactly as your name(s) appear on this
Proxy. If the shares are held jointly, each holder should sign this Proxy.
Attorneys-in-fact, executors, administrators, trustees or guardians should
indicate the full title and capacity in which they are signing.
Dated: , 2000
-----------------------
--------------------------------
Signature of Shareholder
--------------------------------
Signature (Joint owners)
YOU CAN VOTE BY MAIL, PHONE, FAX, INTERNET, OR IN PERSON.
- - TO VOTE BY MAIL, PLEASE DATE, SIGN AND RETURN THIS CARD USING THE ENCLOSED,
POSTAGE-PAID ENVELOPE.
- - YOU MAY FAX YOUR VOTE BY SIGNING AND DATING THIS CARD AND FAXING BOTH SIDES
OF THE CARD TO (XXX) XXX-XXXX.
- - YOU MAY VOTE BY PHONE BY CALLING TOLL-FREE (XXX) XXX-XXXX, ENTERING YOUR 12
DIGIT CONTROL NUMBER LOCATED ON THIS CARD, AND FOLLOWING THE SIMPLE
RECORDED INSTRUCTIONS.
- - YOU MAY ALSO SUBMIT YOUR VOTE OVER THE INTERNET AT WWW.PROXYVOTE.COM.
- - FINALLY, YOU MAY VOTE IN PERSON BY ATTENDING THE MEETING ON MARCH 22, 2000.
<PAGE>
ESC STRATEGIC FUNDS, INC.
INTERNATIONAL EQUITY FUND
SPECIAL MEETING OF THE SHAREHOLDERS
PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR
THE SPECIAL MEETING OF SHAREHOLDERS, MARCH 22, 2000
The undersigned, revoking previous proxies with respect to the Shares
(defined below), hereby appoints Jeff Young and Paige Hodgin as proxies and
each of them, each with full power of substitution, to vote at the Special
Meeting of Shareholders of the ESC Strategic International Equity Fund (the
"Fund") of ESC Strategic Funds, Inc. (the "Corporation") to be held in the
offices of SEI Investments, One Freedom Valley Drive, Oaks, Pennsylvania 19456,
on Wednesday, March 22, 2000, at 3:00 p.m. (Eastern Time), and any adjournments
or postponements thereof (the "Meeting") all shares of beneficial interest of
the Fund that the undersigned would be entitled to vote if personally present at
the Meeting ("Shares") on the proposal set forth below respecting the proposed
Agreement and Plan of Reorganization (the "Reorganization Agreement") between
the Corporation, on behalf of the Fund, and STI Classic Funds (the "Trust"), on
behalf of the corresponding series of the Trust set forth below in the Proposal,
and on any other matters properly brought before the Meeting.
THE BOARD OF DIRECTORS OF THE CORPORATION RECOMMENDS A VOTE "FOR" THE PROPOSAL
TO:
( X Please mark your choices like this on the Proposal )
---
PROPOSAL: APPROVE THE REORGANIZATION AGREEMENT AS IT RELATES TO THE ESC
INTERNATIONAL EQUITY FUND AND THE STI INTERNATIONAL EQUITY FUND:
____For ____Against ____Abstain
THIS PROXY WILL, WHEN PROPERLY EXECUTED, BE VOTED AS DIRECTED HEREIN BY THE
SIGNING SHAREHOLDER(S). IF NO CONTRARY DIRECTION IS GIVEN WHEN THE DULY EXECUTED
PROXY IS RETURNED, THIS PROXY WILL BE VOTED FOR THE FOREGOING PROPOSAL AND WILL
BE VOTED IN THE APPOINTED PROXIES' DISCRETION UPON SUCH OTHER BUSINESS AS MAY
PROPERLY COME BEFORE THE MEETING.
<PAGE>
The undersigned acknowledges receipt with this Proxy of a copy of the
Notice of Special Meeting and the Proxy Statement of the Board of Directors.
Your signature(s) on this Proxy should be exactly as your name(s) appear on this
Proxy. If the shares are held jointly, each holder should sign this Proxy.
Attorneys-in-fact, executors, administrators, trustees or guardians should
indicate the full title and capacity in which they are signing.
Dated: , 2000
-----------------------
--------------------------------
Signature of Shareholder
--------------------------------
Signature (Joint owners)
YOU CAN VOTE BY MAIL, PHONE, FAX, INTERNET, OR IN PERSON.
- - TO VOTE BY MAIL, PLEASE DATE, SIGN AND RETURN THIS CARD USING THE ENCLOSED,
POSTAGE-PAID ENVELOPE.
- - YOU MAY FAX YOUR VOTE BY SIGNING AND DATING THIS CARD AND FAXING BOTH SIDES
OF THE CARD TO (XXX) XXX-XXXX.
- - YOU MAY VOTE BY PHONE BY CALLING TOLL-FREE (XXX) XXX-XXXX, ENTERING YOUR 12
DIGIT CONTROL NUMBER LOCATED ON THIS CARD, AND FOLLOWING THE SIMPLE
RECORDED INSTRUCTIONS.
- - YOU MAY ALSO SUBMIT YOUR VOTE OVER THE INTERNET AT WWW.PROXYVOTE.COM.
- - FINALLY, YOU MAY VOTE IN PERSON BY ATTENDING THE MEETING ON MARCH 22, 2000.
<PAGE>
ESC STRATEGIC FUNDS, INC.
APPRECIATION FUND
SPECIAL MEETING OF THE SHAREHOLDERS
PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR
THE SPECIAL MEETING OF SHAREHOLDERS, MARCH 22, 2000
The undersigned, revoking previous proxies with respect to the Shares
(defined below), hereby appoints Jeff Young and Paige Hodgin as proxies and
each of them, each with full power of substitution, to vote at the Special
Meeting of Shareholders of the ESC Strategic Appreciation Fund (the "Fund") of
ESC Strategic Funds, Inc. (the "Corporation") to be held in the offices of SEI
Investments, One Freedom Valley Drive, Oaks, Pennsylvania 19456, on Wednesday,
March 22, 2000, at 3:00 p.m. (Eastern Time), and any adjournments or
postponements thereof (the "Meeting") all shares of beneficial interest of the
Fund that the undersigned would be entitled to vote if personally present at the
Meeting ("Shares") on the proposal set forth below respecting the proposed
Agreement and Plan of Reorganization (the "Reorganization Agreement") between
the Corporation, on behalf of the Fund, and STI Classic Funds (the "Trust"), on
behalf of the corresponding series of the Trust set forth below in the Proposal,
and on any other matters properly brought before the Meeting.
THE BOARD OF DIRECTORS OF THE CORPORATION RECOMMENDS A VOTE "FOR" THE PROPOSAL
TO:
( X Please mark your choices like this on the Proposal )
---
PROPOSAL: APPROVE THE REORGANIZATION AGREEMENT AS IT RELATES TO THE ESC
STRATEGIC APPRECIATION FUND AND THE STI GROWTH AND INCOME FUND:
____For ____Against ____Abstain
THIS PROXY WILL, WHEN PROPERLY EXECUTED, BE VOTED AS DIRECTED HEREIN BY THE
SIGNING SHAREHOLDER(S). IF NO CONTRARY DIRECTION IS GIVEN WHEN THE DULY EXECUTED
PROXY IS RETURNED, THIS PROXY WILL BE VOTED FOR THE FOREGOING PROPOSAL AND WILL
BE VOTED IN THE APPOINTED PROXIES' DISCRETION UPON SUCH OTHER BUSINESS AS MAY
PROPERLY COME BEFORE THE MEETING.
<PAGE>
The undersigned acknowledges receipt with this Proxy of a copy of the
Notice of Special Meeting and the Proxy Statement of the Board of Directors.
Your signature(s) on this Proxy should be exactly as your name(s) appear on this
Proxy. If the shares are held jointly, each holder should sign this Proxy.
Attorneys-in-fact, executors, administrators, trustees or guardians should
indicate the full title and capacity in which they are signing.
Dated: , 2000
-----------------------
--------------------------------
Signature of Shareholder
--------------------------------
Signature (Joint owners)
YOU CAN VOTE BY MAIL, PHONE, FAX, INTERNET, OR IN PERSON.
- - TO VOTE BY MAIL, PLEASE DATE, SIGN AND RETURN THIS CARD USING THE ENCLOSED,
POSTAGE-PAID ENVELOPE.
- - YOU MAY FAX YOUR VOTE BY SIGNING AND DATING THIS CARD AND FAXING BOTH SIDES
OF THE CARD TO (XXX) XXX-XXXX.
- - YOU MAY VOTE BY PHONE BY CALLING TOLL-FREE (XXX) XXX-XXXX, ENTERING YOUR 12
DIGIT CONTROL NUMBER LOCATED ON THIS CARD, AND FOLLOWING THE SIMPLE
RECORDED INSTRUCTIONS.
- - YOU MAY ALSO SUBMIT YOUR VOTE OVER THE INTERNET AT WWW.PROXYVOTE.COM.
- - FINALLY, YOU MAY VOTE IN PERSON BY ATTENDING THE MEETING ON MARCH 22, 2000.
<PAGE>
ESC STRATEGIC FUNDS, INC.
INCOME FUND
SPECIAL MEETING OF THE SHAREHOLDERS
PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR
THE SPECIAL MEETING OF SHAREHOLDERS, MARCH 22, 2000
The undersigned, revoking previous proxies with respect to the Shares
(defined below), hereby appoints Jeff Young and Paige Hodgin as proxies and
each of them, each with full power of substitution, to vote at the Special
Meeting of Shareholders of the ESC Strategic Income Fund (the "Fund") of ESC
Strategic Funds, Inc. (the "Corporation") to be held in the offices of SEI
Investments, One Freedom Valley Drive, Oaks, Pennsylvania 19456, on Wednesday,
March 22, 2000, at 3:00 p.m. (Eastern Time), and any adjournments or
postponements thereof (the "Meeting") all shares of beneficial interest of the
Fund that the undersigned would be entitled to vote if personally present at the
Meeting ("Shares") on the proposal set forth below respecting the proposed
Agreement and Plan of Reorganization (the "Reorganization Agreement") between
the Corporation, on behalf of the Fund, and STI Classic Funds (the "Trust"), on
behalf of the corresponding series of the Trust set forth below in the Proposal,
and on any other matters properly brought before the Meeting.
THE BOARD OF DIRECTORS OF THE CORPORATION RECOMMENDS A VOTE "FOR" THE PROPOSAL
TO:
( X Please mark your choices like this on the Proposal )
---
PROPOSAL: APPROVE THE REORGANIZATION AGREEMENT AS IT RELATES TO THE ESC
INCOME FUND AND THE STI HIGH INCOME FUND:
____For ____Against ____Abstain
THIS PROXY WILL, WHEN PROPERLY EXECUTED, BE VOTED AS DIRECTED HEREIN BY THE
SIGNING SHAREHOLDER(S). IF NO CONTRARY DIRECTION IS GIVEN WHEN THE DULY EXECUTED
PROXY IS RETURNED, THIS PROXY WILL BE VOTED FOR THE FOREGOING PROPOSAL AND WILL
BE VOTED IN THE APPOINTED PROXIES' DISCRETION UPON SUCH OTHER BUSINESS AS MAY
PROPERLY COME BEFORE THE MEETING.
<PAGE>
The undersigned acknowledges receipt with this Proxy of a copy of the
Notice of Special Meeting and the Proxy Statement of the Board of Directors.
Your signature(s) on this Proxy should be exactly as your name(s) appear on this
Proxy. If the shares are held jointly, each holder should sign this Proxy.
Attorneys-in-fact, executors, administrators, trustees or guardians should
indicate the full title and capacity in which they are signing.
Dated: , 2000
-----------------------
--------------------------------
Signature of Shareholder
--------------------------------
Signature (Joint owners)
YOU CAN VOTE BY MAIL, PHONE, FAX, INTERNET, OR IN PERSON.
- - TO VOTE BY MAIL, PLEASE DATE, SIGN AND RETURN THIS CARD USING THE ENCLOSED,
POSTAGE-PAID ENVELOPE.
- - YOU MAY FAX YOUR VOTE BY SIGNING AND DATING THIS CARD AND FAXING BOTH SIDES
OF THE CARD TO (XXX) XXX-XXXX.
- - YOU MAY VOTE BY PHONE BY CALLING TOLL-FREE (XXX) XXX-XXXX, ENTERING YOUR 12
DIGIT CONTROL NUMBER LOCATED ON THIS CARD, AND FOLLOWING THE SIMPLE
RECORDED INSTRUCTIONS.
- - YOU MAY ALSO SUBMIT YOUR VOTE OVER THE INTERNET AT WWW.PROXYVOTE.COM.
- - FINALLY, YOU MAY VOTE IN PERSON BY ATTENDING THE MEETING ON MARCH 22, 2000.
<PAGE>
STI CLASSIC FUNDS
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
FORM N-14
PART C
OTHER INFORMATION
Item 15. Indemnification.
Article VIII of the Registrant's Agreement and Declaration of Trust filed as
Exhibit (a) to the Registration Statement is incorporated by reference. Insofar
as indemnification for liabilities arising under the Securities Act of 1933 may
be permitted to trustees, directors, officers and controlling persons of the
Registrant by the Registrant pursuant to the Declaration of Trust or otherwise,
the Registrant is aware that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Act and, therefore, is unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by trustees, directors, officers or
controlling persons of the Registrant in connection with the successful defense
of any act, suit or proceeding) is asserted by such trustees, directors,
officers or controlling persons in connection with the shares being registered,
the Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issues.
Item 16. Exhibits
(1) Agreement and 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 on Form N-1A with the SEC via
EDGAR Accession No. 0000912057-96-015938 on July 31, 1996.
(2)(a) By-Laws - originally filed with Registrant's Pre-Effective
Amendment No. 1 filed on Form N-1A April 23, 1992 and
incorporated by reference to Exhibit 2 of Post-Effective
Amendment No. 15 to the Registrant's Registration Statement
filed on Form N-1A with the SEC via EDGAR Accession No.
0000912057-96-015938 on July 31, 1996.
(2)(b) Amended By-Laws - incorporated by reference to Exhibit
(b)(2) of Post-Effective Amendment No. 23 to the
Registrant's Registration Statement filed on Form N-1A with
the SEC via EDGAR Accession No. 0001047469-98-027407 on July
15, 1998.
(3) Not applicable.
(4) Form of Agreement and Plan of Reorganization is filed
herewith.
(5) Not applicable.
(6)(a) Revised Investment Advisory Agreement with Trusco Capital
Management, Inc. - as originally filed with Registrant's
Post-Effective Amendment No. 5 filed August 2, 1993 on Form
N-1A and incorporated by reference to Exhibit 5(c) of
Post-Effective Amendment No. 15 to the Registrant's
Registration Statement filed on Form N-1A with the SEC via
EDGAR Accession No. 0000912057-96-015938 on July 31, 1996.
4
<PAGE>
(6)(b) Investment Advisory Agreement with American National Bank
and Trust Company - as originally filed with Registrant's
Post-Effective Amendment No. 6 filed on Form N-1A October
22, 1993 and as Exhibit 5(d) of Post-Effective Amendment No.
15 to the Registrant's Registration Statement filed with the
SEC on Form N-1A via EDGAR Accession No.
0000912057-96-015938 on July 31, 1996.
(6)(c) 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 on Form N-1A 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 on Form N-1A via
EDGAR Accession No. 0000912057-96-015938 on July 31, 1996.
(6)(d) Investment Advisory Agreement with Trust Company Bank (now
SunTrust Bank, Atlanta) - as originally filed with
Registrant's Post-Effective Amendment No. 6 on Form N-1A
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.
(6)(e) 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. 32 to the Registrant's
Registration Statement filed the SEC via EDGAR Accession No.
0001047469-99-037088 on September 28, 1999.
(6)(f) Revised Schedule A to the Revised Investment Advisory
Agreement with Trusco Capital Management, Inc. dated October
1, 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.
0000912057-99-007899 on December 1, 1999.
(7)(a) Distribution Agreement - incorporated by reference to
Exhibit 6 of Post-Effective Amendment No. 16 to the
Registrant's Registration Statement on Form N-1A filed with
the SEC via EDGAR Accession No. 0000912057-96-021336 on
September 27, 1996.
(8) Not applicable.
(9)(a) Custodian Agreement with Trust Company Bank dated February
1, 1994 - originally filed with Registrant's Post-Effective
Amendment No. 13 on Form N-1A 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 on Form N-1A with the SEC via EDGAR Accession No.
0000912057-96-015938 on July 31, 1996.
(9)(b) 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 on Form N-1A with the SEC via EDGAR Accession No.
0000912057-96-015938 on July 31, 1996.
(9)(c) 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 on Form N-1A with the SEC via
EDGAR Accession No. 0000912057-97-032207 on September 30,
1997.
(10) Not applicable.
5
<PAGE>
(11) Opinion and Consent of Morgan, Lewis & Bockius LLP that
shares will be validly issued, fully paid and non-assessable
is filed herewith.
(12) Opinion and Consent of Morgan, Lewis & Bockius LLP as to tax
matters and consequences is filed herewith.
(13)(a) Transfer Agent Agreement with Federated Services Company
dated May 14, 1994 - originally filed with Post-Effective
Amendment No. 9 on Form N-1A filed September 22, 1994 and
incorporated by reference to Exhibit 8(c) of Post-Effective
Amendment No. 15 to the Registrant's Registration Statement
on Form N-1A filed with the SEC via EDGAR Accession No.
0000912057-96-015938 on July 31, 1996.
(13)(b) Administration Agreement with SEI Financial Management
Corporation dated May 29, 1995 - incorporated by reference
to the Registrant's Post-Effective Amendment No. 32 to the
Registrant's Registration Statement filed the SEC via EDGAR
Accession No. 0001047469-99-037088 on September 28, 1999.
(13)(c) 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 on Form N-1A with
the SEC via EDGAR Accession No. 0000912057-97-032207 on
September 30, 1997.
(14)(a) Consent of Arthur Andersen LLP is filed herewith.
(14)(b) Consent of PricewaterhouseCoopers LLP is filed herewith.
(15) Not applicable.
(16) Not applicable.
(17)(a) Prospectuses and SAIs for the Trust Shares, Investor Shares,
Flex Shares, and Institutional Shares of STI Classic Funds
dated October 1, 1999- incorporated by reference
Post-Effective Amendment No. 32 to Registrant's Registration
Statement on Form N-1A with the SEC via EDGAR accession
number 0001047469-99-037088 as filed September 28, 1999.
(17)(b) Audited Financial Statements for the STI Classic Funds dated
May 31, 1999 - incorporated by reference to the Registrant's
N-30 D filing with the SEC as filed August 3, 1999.
Item 17. Undertakings.
The registrant agrees that prior to any public reoffering of the securities
registered through the use of a prospectus which is a part of this registration
statement by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c) of the Securities Act, the reoffering prospectus will
contain the information called for by the applicable registration form for
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
The registrant agrees that every prospectus that is filed under paragraph
(1) above will be filed as a part of an amendment to the registration statement
and will not be used until the amendment is effective, and that, in determining
any liability under the 1933 Act, each post-effective amendment shall be deemed
to be a new registration statement for the securities offered therein, and the
offering of the securities at that time shall be deemed to be the initial bona
fide offering of them.
6
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 this Registration Statement has
been signed on behalf of STI Classic Funds in the city of Oaks, and state of,
Pennsylvania on the 17th day of December, 1999.
STI Classic Funds
By: /s/ Mark Nagle
------------------------------
Mark Nagle, President, Chief Financial
Officer and Chief Executive Officer
As required by the Securities Act of 1933, this registration statement has
been signed by the following persons in the capacities and on the dates
indicated:
* Trustee December 17, 1999
----------------------
F. Wendell Gooch
* Trustee December 17, 1999
----------------------
Daniel S. Goodrum
* Trustee December 17, 1999
----------------------
Wilton Looney
* Trustee December 17, 1999
----------------------
Champney A. McNair
* Trustee December 17, 1999
----------------------
T. Gordy Germany
* Trustee December 17, 1999
----------------------
Bernard F. Sliger
* Trustee December 17, 1999
----------------------
Jonathan T. Walton
* Trustee December 17, 1999
----------------------
William H. Cammack
/s/ Mark Nagle President, Chief December 17, 1999
---------------------- Executive Officer &
Mark Nagle Chief Financial Officer
* By: /s/ Mark Nagle
----------------------
Mark Nagle, With Power of Attorney
previously filed
7
<PAGE>
Exhibit Index
(1) Agreement and 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 on to the Registrant's Registration Statement filed
on Form N-1A with the SEC via EDGAR Accession No. 0000912057-96-015938
on July 31, 1996.
(2)(a) By-Laws - originally filed with Registrant's Pre-Effective Amendment
No. 1 on Form N-1A filed April 23, 1992 and incorporated by reference
to Exhibit 2 of Post-Effective Amendment No. 15 to the Registrant's
Registration Statement filed on Form N-1A with the SEC via EDGAR
Accession No. 0000912057-96- 015938 on July 31, 1996.
(2)(b) Amended By-Laws - incorporated by reference to Exhibit (b)(2) of
Post-Effective Amendment No. 23 on Form N-1A to the Registrant's
Registration Statement filed with the SEC via EDGAR Accession No.
0001047469-98-027407 on July 15, 1998.
(3) Not applicable.
(4) Form of Agreement and Plan of Reorganization is filed herewith.
(5) Not applicable.
(6)(a) Revised Investment Advisory Agreement with Trusco Capital Management,
Inc. - as originally filed with Registrant's Post-Effective Amendment
No. 5 on Form N-1A 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 on Form N-1A with the SEC via EDGAR
Accession No. 0000912057-96-015938 on July 31, 1996.
(6)(b) Investment Advisory Agreement with American National Bank and Trust
Company - as originally filed with Registrant's Post-Effective
Amendment No. 6 filed on Form N-1A October 22, 1993 and as Exhibit
5(d) of Post-Effective Amendment No. 15 to the Registrant's
Registration Statement filed on Form N-1A with the SEC via EDGAR
Accession No. 0000912057-96-015938 on July 31, 1996.
(6)(c) 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 on Form N-1A
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 on Form N-1A with the SEC via EDGAR Accession No.
0000912057-96-015938 on July 31, 1996.
(6)(d) Investment Advisory Agreement with Trust Company Bank (now SunTrust
Bank, Atlanta) - as originally filed with Registrant's Post-Effective
Amendment No. 6 on Form N-1A filed October 22, 1993 and incorporated
by reference to Exhibit D(4) of Post-Effective Amendment No. 24 to the
Registrant's Registation Statement on Form N-1A filed with the SEC via
EDGAR Accession No. 0001047469-98-028802 on July 30, 1998.
(6)(e) Revised Schedule A to theRevised Investment Advisory Agreement with
Trusco Capital Management, Inc.dated May 24, 1999 - incorporated by
reference to the Registrant's Post-Effective Amendment No. 32 to the
Registrant's Registration Statement filed the SEC via EDGAR Accession
No. 0001047469-99-037088 on September 28, 1999.
(6)(f) Revised Schedule A to the Revised Investment Advisory Agreement with
Trusco Capital Management, Inc. dated October 1, 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. 0000912057-99-007899 on December 1, 1999.
(7)(a) Distribution Agreement - incorporated by reference to Exhibit 6 of
Post-Effective Amendment No. 16 to the Registrant's Registration
Statement on Form N-1A filed with the SEC via EDGAR Accession No.
0000912057-96-021336 on September 27, 1996.
8
<PAGE>
(8) Not applicable.
(9)(a) Custodian Agreement with Trust Company Bank dated February 1, 1994 -
originally filed with Registrant's Post-Effective Amendment No. 13 on
Form N-1A filed September 28, 1995 and incorporated by reference to
Exhibit 8(b) of Post-Effective Amendment No. 15 to the Registrant's
Registration Statement on Form N-1A filed with the SEC via EDGAR
Accession No. 0000912057-96-015938 on July 31, 1996.
(9)(b) 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 on Form N-1A filed with the SEC
via EDGAR Accession No. 0000912057-96-015938 on July 31, 1996.
(9)(c) 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 on Form
N-1A filed with the SEC via EDGAR Accession No. 0000912057-97-032207
on September 30, 1997.
(10) Not applicable.
(11) Opinion and Consent of Morgan, Lewis & Bockius LLP that shares will be
validly issued, fully paid and non-assessable is filed herewith.
(12) Opinion and Consent of Morgan, Lewis & Bockius LLP as to tax matters
and consequences is filed herewith.
(13)(a) Transfer Agent Agreement with Federated Services Company dated May 14,
1994 - originally filed with Post-Effective Amendment No. 9 on Form
N-1A filed September 22, 1994 and incorporated by reference to Exhibit
8(c) of Post-Effective Amendment No. 15 to the Registrant's
Registration Statement on Form N-1A filed with the SEC via EDGAR
Accession No. 0000912057-96-015938 on July 31, 1996.
(13)(b) Administration Agreement with SEI Financial Management Corporation
dated May 29, 1995 - incorporated by reference to the Registrant's
Post-Effective Amendment No. 32 to the Registrant's Registration
Statement filed the SEC via EDGAR Accession No. 0001047469-99-037088
on September 28, 1999.
(13)(c) 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 on Form N-1A filed
with the SEC via EDGAR Assession No. 0000912057-97-032207 on September
30, 1997.
(14)(a) Consent of Arthur Andersen LLP is filed herewith.
(14)(b) Consent of PricewaterhouseCoopers LLP is filed herewith.
(15) Not applicable.
(16) Not applicable.
(17)(a) Prospectuses and SAIs for the Trust Shares, Investor Shares, Flex
Shares, and Institutional Shares of STI Classic Funds dated October 1,
1999 - incorporated by reference Post-Effective Amendment No. 32 to
Registrant's Registration Statement on Form N-1A with the SEC via
EDGAR accession number 0001047469-99-037088 as filed September 28,
1999.
(17)(b) Audited Financial Statements for the STI Classic Funds dated May 31,
1999 - incorporated by reference to the N-30 D filing with the SEC as
filed August 3, 1999.
9
<PAGE>
FORM OF AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as of
this _____day of February, 2000, by and between STI Classic Funds, a
Massachusetts business trust, with its principal place of business at 2 Oliver
Street, Boston, MA 02109 (the "Trust"), with respect to its Small Cap Growth
Stock Fund, International Equity Fund, Growth and Income Fund and High Income
Fund, each a separate investment portfolio of the Trust (each an "Acquiring
Fund" and, together, the "Acquiring Funds"), and ESC Strategic Funds, Inc., a
Maryland corporation, with its principal place of business at 3435 Stelzer Road,
Columbus, OH 43219 ("ESC Strategic Funds"), with respect to its Small Cap Fund,
Small Cap II Fund, International Equity Fund, Appreciation Fund and Income Fund,
each a separate investment portfolio of ESC Strategic Funds (each a "Selling
Fund" and, together the "Selling Funds" and, collectively with the Acquiring
Funds, the "Funds").
This Agreement is intended to be, and is adopted as, a plan of
reorganization within the meaning of Section 368(a) of the United States
Internal Revenue Code of 1986, as amended (the "Code"). The reorganization will
consist of: (i) the transfer of all of the assets of each Selling Fund in
exchange for, as applicable, Investor Shares and Flex Shares of beneficial
interest, no par value per share, of its respective Acquiring Fund ("Acquiring
Fund Shares") as set forth on Schedule A attached hereto; (ii) the assumption by
each Acquiring Fund of the identified liabilities of each Selling Fund; and
(iii) the distribution, after the Closing Dates hereinafter referred to, of the
Acquiring Fund Shares to the shareholders of each Selling Fund and the
liquidation of each Selling Fund as provided herein, all upon the terms and
conditions set forth in this Agreement (the "Reorganization").
WHEREAS, each Acquiring Fund and each Selling Fund is a separate
investment series of the Trust and ESC Strategic Funds, respectively, and the
Trust and ESC Strategic Funds are open-end, registered management investment
companies and each Selling Fund owns securities that generally are assets of the
character in which its respective Acquiring Fund is permitted to invest;
WHEREAS, each Fund is authorized to issue its shares of beneficial
interest or shares of common stock, as the case may be;
WHEREAS, the Trustees of the Trust have determined that the
Reorganization, with respect to each Acquiring Fund, is in the best interests of
each Acquiring Fund's shareholders and that the interests of the existing
shareholders of the Acquiring Fund will not be diluted as a result of the
Reorganization;
WHEREAS, the Directors of ESC Strategic Funds have determined that the
<PAGE>
Reorganization, with respect to each Selling Fund, is in the best interests of
the Selling Fund's shareholders and that the interests of the existing
shareholders of the Selling Fund will not be diluted as a result of the
Reorganization;
NOW, THEREFORE, in consideration of the premises and of the covenants and
agreements hereinafter set forth, the parties hereto covenant and agree as
follows;
ARTICLE I
TRANSFER OF ASSETS OF THE SELLING FUNDS IN EXCHANGE FOR ACQUIRING
FUND SHARES AND THE ASSUMPTION OF SELLING FUNDS' LIABILITIES AND
LIQUIDATION OF THE SELLING FUNDS
1.1 THE EXCHANGE. Subject to the terms and conditions contained herein
and on the basis of the representations and warranties contained herein, each
Selling Fund agrees to transfer all of its assets and stated liabilities, as set
forth in paragraph 1.2, to its respective Acquiring Fund. In exchange, each
Acquiring Fund agrees: (i) to deliver to its respective Selling Fund the number
of full and fractional shares of the Acquiring Fund Shares, determined by (a)
multiplying the shares outstanding of each class of the Selling Fund by (b) the
ratio computed by dividing (x) the net asset value per share of each such class
of the Selling Fund by (y) the net asset value per share of the corresponding
class of Acquiring Fund Shares computed in the manner and as of the time and
date set forth in paragraph 2.2; and (ii) to assume the identified liabilities
of the Selling Fund, as set forth in paragraph 1.3. Such transactions shall take
place at the closing provided for in paragraph 3.1.
1.2 ASSETS TO BE ACQUIRED. The assets of each Selling Fund to be
acquired by its respective Acquiring Fund shall consist of all property,
including, without limitation, all cash, securities, commodities, interests in
futures and dividends or interest receivables, owned by the Selling Fund and any
deferred or prepaid expenses shown as an asset on the books of such Selling Fund
on its respective Closing Date.
Each Selling Fund has provided its respective Acquiring Fund with its
most recent audited financial statements, which contain a list of all of the
Selling Fund's assets as of the date of such statements. Each Selling Fund
hereby represents that as of the date of the execution of this Agreement, there
have been no changes in its financial position as reflected in such financial
statements other than those occurring in the ordinary course of business in
connection with the purchase and sale of securities and the payment of normal
operating expenses and the payment of dividends, capital gains distributions and
redemption proceeds to shareholders.
Each Selling Fund will, within a reasonable period of time prior to its
respective Closing Date, furnish each Acquiring Fund with a list of the Selling
Fund's portfolio securities and other investments. Each Acquiring Fund will,
within a reasonable time prior to its respective Closing Date, furnish its
respective Selling Fund with a list of the securities, if any, on the Selling
Fund's list referred to above that do not conform to the Acquiring Fund's
investment objectives,
<PAGE>
policies, and restrictions. A Selling Fund, if requested by its Acquiring Funds,
will dispose of securities on the Acquiring Fund's list prior to its respective
Closing Date. In addition, if it is determined that the portfolios of a Selling
Fund and its Acquiring Fund, when aggregated, would contain investments
exceeding certain percentage limitations imposed upon the Acquiring Fund with
respect to such investments, the Selling Fund, if requested by the Acquiring
Fund, will dispose of a sufficient amount of such investments as may be
necessary to avoid violating such limitations as of its respective Closing Date.
Notwithstanding the foregoing, nothing herein will require a Selling Fund to
dispose of any investments or securities if, in the reasonable judgment of the
Selling Fund's directors or adviser, such disposition would adversely affect the
tax-free nature of the Reorganization or would violate their fiduciary duties to
the Selling Fund's shareholders.
1.3 LIABILITIES TO BE ASSUMED. Each Selling Fund will endeavor to
discharge all of its known liabilities and obligations to the extent possible
prior to its respective Closing Date. Each Acquiring Fund shall assume only
those liabilities, expenses, costs, charges and reserves reflected on a
Statement of Assets and Liabilities of its respective Selling Fund prepared
on behalf of the Selling Fund, as of the Valuation Date (as defined in
paragraph 2.1), in accordance with generally accepted accounting principles
consistently applied from the prior audited period. Each Acquiring Fund shall
assume only those liabilities of its respective Selling Fund reflected in its
Statement of Assets and Liabilities and shall not assume any other
liabilities, whether absolute or contingent, known or unknown, accrued or
unaccrued, all of which shall remain the obligation of the Selling Fund.
In addition, upon completion of the Reorganization, for purposes of
calculating the maximum amount of sales charges (including asset based sales
charges) permitted to be imposed by an Acquiring Fund under the National
Association of Securities Dealers, Inc. ("NASD") Conduct Rule 2830 (the
"Maximum Amount"), each Acquiring Fund will add to the Maximum Amount
immediately prior to the Reorganization, the Maximum Amount of each Selling
Fund immediately prior to the Reorganization, calculated in accordance with
NASD Conduct Rule 2830.
1.4 Prior to each Closing Date, the Trust and ESC Strategic Funds
shall file appropriate Articles of Transfer pursuant to the laws of the State of
Maryland, effective as of each respective Closing Date.
1.5 LIQUIDATION AND DISTRIBUTION. On or as soon after its Closing Date
as is conveniently practicable (the "Liquidation Date"): (a) each Selling Fund
will distribute in complete liquidation of the Selling Fund, pro rata to its
shareholders of record, determined as of the close of business on the Valuation
Date (the "Selling Fund Shareholders"), all of the Acquiring Fund Shares
received by the Selling Fund pursuant to paragraph 1.1; and (b) the Selling Fund
will thereupon proceed to dissolve and terminate as set forth in paragraph 1.9
below. Such distribution will be accomplished by the transfer of Acquiring Fund
Shares credited to the account of the Selling Fund on the books of the Acquiring
Fund to open accounts on the
<PAGE>
share records of the Acquiring Fund in the name of the Selling Fund
Shareholders, and representing the respective PRO RATA number of Acquiring Fund
Shares due such shareholders. All issued and outstanding shares of the Selling
Fund will simultaneously be canceled on the books of the Selling Fund. The
Acquiring Fund shall not issue certificates representing Acquiring Fund Shares
in connection with such transfer. Each Selling Fund Shareholder shall have the
right to receive any unpaid dividends or other distributions that were declared
by the Selling Fund before the Effective Time with respect to Selling Fund
shares that are held of record by a Selling Fund Shareholder at the Effective
Time on its respective Closing Date.
1.6 OWNERSHIP OF SHARES. Ownership of Acquiring Fund Shares will be
shown on the books of each Acquiring Fund's transfer agent. Shares of each
Acquiring Fund will be issued simultaneously to its corresponding Selling Fund,
in an amount equal in value to the net asset value of each Selling Fund's
shares, to be distributed to shareholders of each Selling Fund.
1.7 TRANSFER TAXES. Any transfer taxes payable upon the issuance of
Acquiring Fund Shares in a name other than the registered holder of the Selling
Fund shares on the books of the Selling Fund as of that time shall, as a
condition of such issuance and transfer, be paid by the person to whom such
Acquiring Fund Shares are to be issued and transferred.
1.8 REPORTING RESPONSIBILITY. Any reporting responsibility of each
Selling Fund is and shall remain the responsibility of the Selling Fund, up to
and including its respective Closing Date, and such later date on which the
Selling Fund is terminated.
1.9 TERMINATION. Each Selling Fund shall be terminated promptly
following its respective Closing Date and the making of all distributions
pursuant to paragraph 1.5.
1.10 Subject to the conditions set forth in this Agreement, the failure
of one of the Selling Funds to consummate the transactions contemplated hereby
shall not affect the consummation or validity of the Reorganization with respect
to any other Selling Fund, and the provisions of this Agreement shall be
construed to effect this intent, including, without limitation, as the context
requires, construing the terms "Acquiring Fund" and "Selling Fund" as meaning
only those series of the Trust and ESC Strategic Funds, respectively, which are
involved in the Reorganization as of the Closing Dates.
ARTICLE II
VALUATION
2.1 VALUATION OF ASSETS. The value of a Selling Fund's assets to be
acquired by its respective Acquiring Fund hereunder shall be the value of such
assets computed as of the close of regular trading on the New York Stock
Exchange ("NYSE") on the business day immediately prior to each respective
Closing Date (such time and date being hereinafter called a "Valuation Date"),
using the valuation procedures set forth in the Trust's Declaration of Trust and
<PAGE>
each Acquiring Fund's then current prospectuses and statements of additional
information or such other valuation procedures as shall be mutually agreed upon
by the parties. Each Acquiring Fund and Selling Fund agrees, however, to use all
commercially reasonable efforts to resolve any material pricing differences
between the prices of portfolio securities determined in accordance with the
pricing policies and procedures of a Selling Fund and those determined in
accordance with the pricing policies and procedures of its respective Acquiring
Fund.
2.2 VALUATION OF SHARES. The net asset value per share of Acquiring
Fund Shares shall be the net asset value per share computed as of the close of
normal trading on the NYSE on the Valuation Date, using the valuation procedures
set forth in the Trust's Declaration of Trust and each Acquiring Fund's then
current prospectuses and statements of additional information.
2.3 SHARES TO BE ISSUED. The number of each Acquiring Fund's shares of
each class to be issued (including fractional shares, if any) in exchange for
its respective Selling Fund's assets, shall be determined by (a) multiplying the
shares outstanding of each class of the Selling Fund by (b) the ratio computed
by (x) dividing the net asset value per share of the Selling Fund of each of its
classes by (y) the net asset value per share of the corresponding classes of the
Acquiring Fund determined in accordance with paragraph 2.2 [(a) x (b), where
(b)=(x)/(y)]. Holders of Class A shares of the Selling Funds, with the exception
of the ESC Strategic Income Fund, will receive Investor Shares of the
corresponding Acquiring Funds. Holders of Class D shares of the Selling Funds
and holders of Class A shares of the ESC Strategic Income Fund will receive Flex
Shares of the corresponding Acquiring Funds. Holders of Class A shares and Class
D shares, respectively, of the ESC Strategic Small Cap Fund and the ESC
Strategic Small Cap II Fund will receive Investor Shares and Flex Shares,
respectively, of the STI Classic Small Cap Growth Stock Fund.
2.4 DETERMINATION OF VALUE. All computations of value shall be made by
SunTrust Bank, Atlanta in accordance with its regular practice in pricing the
shares and assets of each Acquiring Fund.
ARTICLE III
CLOSINGS AND CLOSING DATES
3.1 CLOSING DATES. The closing (each a "Closing" and collectively, the
"Closings") shall occur in two steps. There will be a separate closing on or
about March 27, 2000 for the ESC Strategic Funds' Small Cap Fund, Small Cap II
Fund, International Equity Fund and Appreciation Fund and a separate closing on
March 28, 2000 for the ESC Income Fund or such other date(s) as the parties may
agree to in writing (each a "Closing Date" and collectively, the "Closing
Dates"). All acts taking place at the Closings shall be deemed to take place
immediately prior to the Closing Dates unless otherwise provided. The Closings
shall be held as of 9:00 a.m.
<PAGE>
(the "Effective Time") at the offices of the SEI Investments, One Freedom Valley
Drive, Oaks, PA 19456, or at such other time and/or place as the parties may
agree.
3.2 CUSTODIAN'S CERTIFICATE. Union Bank of California, as custodian
for each Selling Fund (the "Custodian"), shall deliver at the Closing a
certificate of an authorized officer stating that: (a) each Selling Fund's
portfolio securities, cash, and any other assets shall have been delivered in
proper form to its respective Acquiring Fund on the Closing Dates; and (b) all
necessary taxes including all applicable federal and state stock transfer
stamps, if any, shall have been paid, or provision for payment shall have been
made, in conjunction with the delivery of portfolio securities by the Selling
Fund.
3.3 EFFECT OF SUSPENSION IN TRADING. In the event that on the
Valuation Date, either: (a) the NYSE or another primary exchange on which the
portfolio securities of an Acquiring Fund or a Selling Fund are purchased or
sold, shall be closed to trading or trading on such exchange shall be
restricted; or (b) trading or the reporting of trading on the NYSE or elsewhere
shall be disrupted so that accurate appraisal of the value of the net assets of
an Acquiring Fund or a Selling Fund is impracticable, the Valuation Date shall
be postponed until the first business day after the day when trading is fully
resumed and reporting is restored.
3.4 TRANSFER AGENT'S CERTIFICATE. BISYS Fund Services, Inc, as
transfer agent for each Selling Fund as of the Closing Dates, shall deliver at
the Closings a certificate of an authorized officer stating that its records
contain the names and addresses of Selling Fund Shareholders, and the number and
percentage ownership of outstanding shares owned by each such shareholder
immediately prior to the Closings. Each Acquiring Fund shall issue and deliver
or cause Federated Services Company, its transfer agent, to issue and deliver a
confirmation evidencing Acquiring Fund Shares to be credited on the Closing
Dates to the Secretary of ESC Strategic Funds or provide evidence satisfactory
to the Selling Fund that such Acquiring Fund Shares have been credited to the
Selling Fund's account on the books of the Acquiring Fund. At the Closings, each
party shall deliver to the other such bills of sale, checks, assignments, share
certificates, receipts and other documents, if any, as such other party or its
counsel may reasonably request.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 REPRESENTATIONS OF THE SELLING FUNDS. Each Selling Fund represents
and warrants to its respective Acquiring Fund as follows:
(a) The Selling Fund is a separate investment series of a
corporation duly organized, validly existing, and in good standing under the
laws of the State of Maryland.
(b) The Selling Fund is a separate investment series of a
Maryland corporation
<PAGE>
that is registered as an open-end management investment company, and its
registration with the Securities and Exchange Commission (the "Commission") as
an investment company under the Investment Company Act of 1940 (the "1940 Act"),
is in full force and effect.
(c) The current prospectus and statement of additional
information of the Selling Fund conform in all material respects to the
applicable requirements of the Securities Act of 1933 (the "1933 Act") and
the 1940 Act, and the rules and regulations thereunder, and do not include
any untrue statement of a material fact or omit to state any material fact
required to be stated or necessary to make the statements therein, in light
of the circumstances under which they were made, not misleading.
(d) The Selling Fund is not, and the execution, delivery, and
performance of this Agreement (subject to shareholder approval) will not result
in the violation of any provision of ESC Strategic Funds' Articles of
Incorporation or By-Laws or of any material agreement, indenture, instrument,
contract, lease, or other undertaking to which the Selling Fund is a party or by
which it is bound.
(e) The Selling Fund has no material contracts or other
commitments (other than this Agreement) that will be terminated with liability
to it prior to the Closing Date, except for liabilities, if any, to be
discharged or reflected in the Statement of Assets and Liabilities as provided
in paragraph 1.3 hereof.
(f) Except as otherwise disclosed in writing to and accepted by
the Acquiring Fund, no litigation, administrative proceeding, or investigation
of or before any court or governmental body is presently pending or to its
knowledge threatened against the Selling Fund or any of its properties or
assets, which, if adversely determined, would materially and adversely affect
its financial condition, the conduct of its business, or the ability of the
Selling Fund to carry out the transactions contemplated by this Agreement. The
Selling Fund knows of no facts that might form the basis for the institution of
such proceedings and are not a party to or subject to the provisions of any
order, decree, or judgment of any court or governmental body that materially and
adversely affects the Selling Fund's business or its ability to consummate the
transactions contemplated herein.
(g) The financial statements of the Selling Fund are in
accordance with generally accepted accounting principles, and such statements
(copies of which have been furnished to the Acquiring Funds) fairly reflect
the financial condition of the Selling Fund as of September 30, 1999, and
there are no known contingent liabilities of the Selling Fund as of that date
not disclosed in such statements.
(h) Since September 30, 1999, there have been no material
adverse changes in the Selling Fund's financial condition, assets,
liabilities for business (other than changes occurring in the ordinary course
of business), or any incurrence by the Selling Fund of indebtedness maturing
more than one year from the date such indebtedness was incurred, except
<PAGE>
as otherwise disclosed to and accepted by the Acquiring Fund. For the purposes
of this subparagraph (h), a decline in the net asset value of the Selling Fund
shall not constitute a material adverse change.
(i) At the Closing Date, all federal and other tax returns and
reports of the Selling Fund required by law to be filed by such date, shall have
been filed, and all federal and other taxes shown due on such returns and
reports shall have been paid, or provision shall have been made for the payment
thereof. To the best of the Selling Fund's knowledge, no such return is
currently under audit, and no assessment has been asserted with respect to such
returns.
(j) All issued and outstanding shares of the Selling Fund are,
and at the Closing Date, will be duly and validly issued and outstanding, fully
paid and non-assessable by the Selling Fund. All of the issued and outstanding
shares of the Selling Fund will, at the time of the Closing Date, be held by the
persons and in the amounts set forth in the records of the Selling Fund's
transfer agent as provided in paragraph 3.4. The Selling Fund has no outstanding
options, warrants, or other rights to subscribe for or purchase any of the
Selling Fund shares, and has no outstanding securities convertible into any of
the Selling Fund shares.
(k) At the Closing Date, the Selling Fund will have good and
marketable title to the Selling Fund's assets to be transferred to the Acquiring
Fund pursuant to paragraph 1.2, and full right, power, and authority to sell,
assign, transfer, and deliver such assets hereunder, and, upon delivery and
payment for such assets, and the filing of Articles of Transfer pursuant to the
laws of the State of Maryland, the Acquiring Fund will acquire good and
marketable title, subject to no restrictions on the full transfer of such
assets, including such restrictions as might arise under the 1933 Act, other
than as disclosed to and accepted by the Acquiring Fund.
(l) The execution, delivery, and performance of this Agreement
have been duly authorized by all necessary action on the part of the Selling
Fund. Subject to approval by the Selling Fund Shareholders, this Agreement
constitutes a valid and binding obligation of the Selling Fund, enforceable in
accordance with its terms, subject as to enforcement, to bankruptcy, insolvency,
reorganization, moratorium, and other laws relating to or affecting creditors'
rights and to general equity principles.
(m) The information to be furnished by the Selling Fund for use
in no-action letters, applications for orders, registration statements, proxy
materials, and other documents that may be necessary in connection with the
transactions contemplated herein shall be accurate and complete in all material
respects and shall comply in all material respects with federal securities and
other laws and regulations.
(n) From the effective date of the Registration Statement (as
defined in paragraph 5.7), through the time of the meeting of the Selling Fund
Shareholders and on the Closing Date, any written information furnished by the
Selling Fund with respect to the Selling Fund for use in the Prospectus/Proxy
Statement (as defined in paragraph 5.7), the Registration
<PAGE>
Statement or any other materials provided in connection with the Reorganization,
does not and will not contain any untrue statement of a material fact or omit to
state a material fact required to be stated or necessary to make the statements,
in light of the circumstances under which such statements were made, not
misleading.
(o) The Selling Fund has elected to qualify and has qualified
as a "regulated investment company" under the Code (a "RIC"), as of and since
its first taxable year; has been a RIC under the Code at all times since the end
of its first taxable year when it so qualified; and qualifies and shall continue
to qualify as a RIC under the Code for its taxable year ending upon its
liquidation.
(p) No governmental consents, approvals, authorizations or
filings are required under the 1933 Act, the Securities Exchange Act of 1934
(the "1934 Act"), the 1940 Act or Maryland law for the execution of this
Agreement by ESC Strategic Funds, for itself and on behalf of each Selling Fund,
except for the effectiveness of the Registration Statement, the necessary
exemptive relief requested from the Commission or its staff with respect to
Sections 17(a) and 17(b) of the 1940 Act, and the filing of Articles of Transfer
pursuant to Maryland law, and except for such other consents, approvals,
authorizations and filings as have been made or received, and such consents,
approvals, authorizations and filings as may be required subsequent to the
Closing Date, it being understood, however, that this Agreement and the
transactions contemplated herein must be approved by the shareholders of the
Selling Fund as described in paragraph 5.2.
4.2 REPRESENTATIONS OF THE ACQUIRING FUNDS. Each Acquiring Fund
represents and warrants to its respective Selling Fund as follows:
(a) The Acquiring Fund is a separate investment series of a
Massachusetts business trust, duly organized, validly existing and in good
standing under the laws of the Commonwealth of Massachusetts.
(b) The Acquiring Fund is a separate investment series of a
Massachusetts business trust that is registered as open-end management
investment company, and its registration with the Commission as an investment
company under the 1940 Act is in full force and effect.
(c) The current prospectuses and statements of additional
information of the Acquiring Fund conform in all material respects to the
applicable requirements of the 1933 Act and the 1940 Act and the rules and
regulations thereunder, and do not include any untrue statement of a material
fact or omit to state any material fact required to be stated or necessary to
make such statements therein, in light of the circumstances under which they
were made, not misleading.
(d) The Acquiring Fund is not, and the execution, delivery and
performance of
<PAGE>
this Agreement will not result, in a violation of the Trust's Declaration of
Trust or By-Laws or of any material agreement, indenture, instrument, contract,
lease, or other undertaking to which the Acquiring Fund is a party or by which
it is bound.
(e) Except as otherwise disclosed in writing to the Selling
Fund and accepted by the Selling Fund, no litigation, administrative proceeding
or investigation of or before any court or governmental body is presently
pending, or to its knowledge, threatened against the Acquiring Fund or any of
its properties or assets, which, if adversely determined, would materially and
adversely affect its financial condition and the conduct of its business or the
ability of the Acquiring Fund to carry out the transactions contemplated by this
Agreement. The Acquiring Fund knows of no facts that might form the basis for
the institution of such proceedings and it is not a party to or subject to the
provisions of any order, decree, or judgment of any court or governmental body
that materially and adversely affects its business or its ability to consummate
the transaction contemplated herein.
(f) The financial statements of the Acquiring Fund are in
accordance with generally accepted accounting principles, and such statements
(copies of which have been furnished to the Selling Funds) fairly reflect the
financial condition of the Acquiring Fund as of _____________, and there are no
known contingent liabilities of the Acquiring Fund as of such date which are not
disclosed in such statements.
(g) Since ________________, there have been no material adverse
changes in the Acquiring Fund's financial condition, assets, liabilities, or
business (other than changes occurring in the ordinary course of business), or
any incurrence by the Acquiring Fund of indebtedness maturing more than one year
from the date such indebtedness was incurred, except as otherwise disclosed to
and accepted by the Selling Fund. For the purposes of this subparagraph (g), a
decline in the net asset value of the Acquiring Fund shall not constitute a
material adverse change.
(h) At the Closing Date, all federal and other tax returns and
reports of the Acquiring Fund required by law to be filed by such date shall
have been filed. All federal and other taxes shown due on such returns and
reports shall have been paid or provision shall have been made for their
payment. To the best of the Acquiring Fund's knowledge, no such return is
currently under audit, and no assessment has been asserted with respect to such
returns.
(i) All issued and outstanding Acquiring Fund Shares are, and
at the Closing Date will be, duly and validly issued and outstanding, fully paid
and non-assessable by the Acquiring Fund. The Acquiring Fund has no outstanding
options, warrants, or other rights to subscribe for or purchase any Acquiring
Fund Shares, and there are no outstanding securities convertible into any
Acquiring Fund Shares.
(j) The execution, delivery, and performance of this Agreement
have been duly authorized by all necessary action on the part of the Acquiring
Fund, and this Agreement constitutes a valid and binding obligation of the
Acquiring Fund, enforceable in accordance with its terms, subject as to
enforcement, to bankruptcy, insolvency, reorganization, moratorium, and other
laws
<PAGE>
relating to or affecting creditors' rights and to general equity principles.
(k) Acquiring Fund Shares to be issued and delivered to the
Selling Fund for the account of the Selling Fund Shareholders pursuant to the
terms of this Agreement will, at the Closing Date, have been duly authorized.
When so issued and delivered, such shares will be duly and validly issued
Acquiring Fund Shares, and will be fully paid and non-assessable.
(l) The information to be furnished by the Acquiring Fund for
use in no-action letters, applications for orders, registration statements,
proxy materials, and other documents that may be necessary in connection with
the transactions contemplated herein shall be accurate and complete in all
material respects and shall comply in all material respects with federal
securities and other laws and regulations.
(m) From the effective date of the Registration Statement (as
defined in paragraph 5.7), through the time of the meeting of the Selling Fund
shareholders and on the Closing Date, any written information furnished by the
Trust with respect to the Acquiring Fund for use in the Prospectus/Proxy
Statement (as defined paragraph 5.7), the Registration Statement or any other
materials provided in connection with the Reorganization, does not and will not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated or necessary to make the statements, in light of the
circumstances under which such statements were made, not misleading.
(n) The Acquiring Fund agrees to use all reasonable efforts to
obtain the approvals and authorizations required by the 1933 Act, the 1940 Act,
and any state Blue Sky or securities laws as it may deem appropriate in order to
continue its operations after the Closing Date.
(o) No governmental consents, approvals, authorizations or
filings are required under the 1933 Act, the 1934 Act, the 1940 Act or
Massachusetts law for the execution of this Agreement by the Trust, for itself
and on behalf of the Acquiring Fund, or the performance of the Agreement by the
Trust, for itself and on behalf of the Acquiring Fund, except for the
effectiveness of the Registration Statement, the necessary exemptive relief
requested from the Commission or its staff with respect to Sections 17(a) and
17(b) of the 1940 Act, and such other consents, approvals, authorizations and
filings as have been made or received, and except for such consents, approvals,
authorizations and filings as may be required subsequent to the Closing Date.
(p) The Acquiring Fund intends to qualify as a RIC under the
Code, and with respect to each Acquiring Fund that has conducted material
investment operations prior to the Closing Date, the Acquiring Fund has elected
to qualify and has qualified as a RIC under the Code as of and since its first
taxable year; has been a RIC under the Code at all times since the end of its
first taxable year when it so qualified; and qualifies and shall continue to
qualify as a RIC under the Code for its current taxable year.
ARTICLE V
COVENANTS OF EACH ACQUIRING FUND AND EACH SELLING FUND
<PAGE>
5.1 OPERATION IN ORDINARY COURSE. Subject to paragraph 8.5 each
Acquiring Fund and Selling Fund will operate its respective business in the
ordinary course between the date of this Agreement and the respective Closing
Date, it being understood that such ordinary course of business will include
customary dividends and distributions and shareholder redemptions.
5.2 APPROVAL OF SHAREHOLDERS. ESC Strategic Funds will call meetings
of Selling Fund Shareholders to consider and act upon this Agreement and to take
all other action necessary to obtain approval of the transactions contemplated
herein.
5.3 INVESTMENT REPRESENTATION. Each Selling Fund covenants that the
Acquiring Fund Shares to be issued pursuant to this Agreement are not being
acquired for the purpose of making any distribution, other than in connection
with the Reorganization and in accordance with the terms of this Agreement.
5.4 ADDITIONAL INFORMATION. Each Selling Fund will assist its
respective Acquiring Fund in obtaining such information as the Acquiring Fund
reasonably requests concerning the beneficial ownership of the Selling Fund's
shares.
5.5 FURTHER ACTION. Subject to the provisions of this Agreement, each
Acquiring Fund and its respective Selling Fund will each take or cause to be
taken, all action, and do or cause to be done, all things reasonably necessary,
proper or advisable to consummate and make effective the transactions
contemplated by this Agreement, including any actions required to be taken after
the applicable Closing Date.
5.6 STATEMENT OF EARNINGS AND PROFITS. As promptly as practicable, but
in any case within sixty days after the applicable Closing Date, each Selling
Fund shall furnish its respective Acquiring Fund, in such form as is reasonably
satisfactory to the Acquiring Fund, a statement of the earnings and profits of
the Selling Fund for federal income tax purposes that will be carried over by
the Acquiring Fund as a result of Section 381 of the Code, and which will be
reviewed by PricewaterhouseCoopers LLP and certified by ESC Strategic Funds'
Treasurer.
5.7 PREPARATION OF FORM N-14 REGISTRATION STATEMENT. The Trust will
prepare and file with the Commission a registration statement on Form N-14 under
the 1933 Act (the "Registration Statement"), relating to the Acquiring Fund
Shares, which, without limitation, shall include a proxy statement of each
Selling Fund and the prospectus of each Acquiring Fund relating to the
transaction contemplated by this Agreement (the "Prospectus/Proxy Statement").
The Registration Statement shall be in compliance with the 1933 Act, the 1934
Act and the 1940 Act. Each Selling Fund will provide its respective Acquiring
Funds with the materials and information necessary to prepare the
Prospectus/Proxy Statement for inclusion in the Registration Statement, in
connection with the meetings of the Selling Funds Shareholders to consider the
approval of this Agreement and the transactions contemplated herein.
<PAGE>
5.8 INDEMNIFICATION OF DIRECTORS. The Trust will assume certain
liabilities and obligations of ESC Strategic Funds relating to any obligation of
ESC Strategic Funds to indemnify its current and former Directors and officers,
acting in their capacities as such, to the fullest extent permitted by law and
the ESC Strategic Funds' Articles of Incorporation, as in effect as of the date
of this Agreement. Without limiting the foregoing, the Trust agrees that all
rights to indemnification and all limitations of liability existing in favor of
the current and former Directors and officers, acting in their capacities as
such, under the ESC Strategic Funds' Articles of Incorporation as in effect as
of the date of this Agreement shall survive the Reorganization and shall
continue in full force and effect, without any amendment thereto, and shall
constitute rights which may be asserted against the Trust, its successors or
assigns.
ARTICLE VI
CONDITIONS PRECEDENT TO OBLIGATIONS OF EACH SELLING FUND
The obligations of each Selling Fund to consummate the transactions
provided for herein shall be subject, at its election, to the performance by its
respective Acquiring Fund of all the obligations to be performed by it pursuant
to this Agreement on or before the applicable Closing Date, and, in addition
subject to the following conditions:
6.1 All representations, covenants, and warranties of the Acquiring
Fund contained in this Agreement shall be true and correct as of the date hereof
and as of the Closing Date, with the same force and effect as if made on and as
of that Closing Date. Each Acquiring Fund shall have delivered to its respective
Selling Fund a certificate executed in the Acquiring Fund's name by the Trust's
President or Vice President and its Treasurer or Assistant Treasurer, in form
and substance satisfactory to the Selling Fund and dated as of the Closing Date,
to such effect and as to such other matters as the Selling Fund shall reasonably
request.
6.2 The Selling Funds shall have received on the Closing Date an
opinion from Morgan, Lewis & Bockius LLP, counsel to the Trust, dated as of such
Closing Date, in a form reasonably satisfactory to the Selling Fund, covering
the following points:
(a) Each Acquiring Fund is a separate investment series of a
Massachusetts business trust duly organized, validly existing and in good
standing under the laws of the Commonwealth of Massachusetts, and has the power
to own all of its properties and assets and to carry on its business as
presently conducted.
(b) Each Acquiring Fund is a separate investment series of a
Massachusetts business trust registered as an investment company under the 1940
Act, and, to such counsel's knowledge, such registration with the Commission is
in full force and effect.
(c) This Agreement has been duly authorized, executed, and
delivered by the
<PAGE>
Trust on behalf of each Acquiring Fund and, assuming due authorization,
execution and delivery of this Agreement by the Selling Funds, is a valid and
binding obligation of the Acquiring Funds enforceable against each Acquiring
Funds in accordance with its terms, subject as to enforcement, to bankruptcy,
insolvency, reorganization, moratorium, and other laws relating to or affecting
creditors' rights generally and to general equity principles.
(d) Assuming that a consideration of not less than the net
asset value of Acquiring Fund Shares has been paid, Acquiring Fund Shares to be
issued and delivered to each Selling Fund on behalf of the Selling Fund
Shareholders, as provided by this Agreement, are duly authorized and upon such
delivery will be legally issued and outstanding and fully paid and
non-assessable, and no shareholder of an Acquiring Fund has any preemptive
rights with respect to Acquiring Fund Shares.
(e) The Registration Statement, has been declared effective by
the Commission and to such counsel's knowledge, no stop order under the 1933 Act
pertaining thereto has been issued, and to the knowledge of such counsel, no
consent, approval, authorization or order of any court or governmental authority
of the United States or the Commonwealth of Massachusetts is required for
consummation by the Acquiring Funds of the transactions contemplated herein,
except as have been obtained under the 1933 Act, the 1934 Act and the 1940 Act,
and as may be required under state securities laws.
(f) The execution and delivery of this Agreement did not, and
the consummation of the transactions contemplated herein will not result in a
violation of the Trust's Declaration of Trust or By-Laws or any provision of any
material agreement, indenture, instrument, contract, lease or other undertaking
(in each case known to such counsel) to which an Acquiring Fund is a party or by
which an Acquiring Fund or any of its properties may be bound or, to the
knowledge of such counsel, result in the acceleration of any obligation or the
imposition of any penalty, under any agreement, judgment, or decree to which an
Acquiring Fund is a party or by which it is bound.
(g) The descriptions in the Prospectus/Proxy Statement of
statutes, legal and governmental proceedings and material contracts, if any
(only insofar as they relate to an Acquiring Fund), are accurate and fairly
present the information required to be shown.
(h) Such counsel does not know of any legal or governmental
proceedings (only insofar as they relate to an Acquiring Fund) existing on or
before the effective date of the Registration Statement or the Closing Date
which are required to be described in the Registration Statement or to be filed
as exhibits to the Registration Statement which are not described or filed as
required.
(i) To the knowledge of such counsel, no litigation or
administrative proceeding or investigation of or before any court or
governmental body is presently pending or threatened as to an Acquiring Fund or
any of its properties or assets. The Acquiring Funds are
<PAGE>
not a party to or subject to the provisions of any order, decree or judgment of
any court or governmental body, which materially and adversely affects the
Acquiring Funds' business, other than as previously disclosed in the
Registration Statement.
Such counsel shall also state that they have participated in conferences
with officers and other representatives of each Acquiring Fund at which the
contents of the Prospectus/Proxy Statement and related matters were discussed.
Although such counsel are not passing upon and do not assume any responsibility
for the accuracy, completeness or fairness of the statements contained in the
Prospectus/Proxy Statement (except to the extent indicated in their opinion in
paragraph (g), above), on the basis of the foregoing (relying as to materiality
to a large extent upon the opinions of the Trust's officers and other
representatives of each Acquiring Fund), no facts have come to their attention
that lead them to believe that the Prospectus/Proxy Statement as of its date, as
of the date of each Selling Fund Shareholders' meeting, and as of the Closing
Date, contained an untrue statement of a material fact or omitted to state a
material fact required to be stated regarding an Acquiring Fund or necessary, in
the light of the circumstances under which they were made, to make the such
statements regarding an Acquiring Fund not misleading. Such opinion may state
that such counsel does not express any opinion or belief as to the financial
statements or any financial or statistical data, or as to the information
relating to each Selling Fund, contained in the Prospectus/Proxy Statement or
the Registration Statement, and that such opinion is solely for the benefit of
ESC Strategic Funds and each Selling Fund. Such opinion shall contain such other
assumptions and limitations as shall be in the opinion of Morgan, Lewis &
Bockius LLP appropriate to render the opinions expressed therein.
In this paragraph 6.2, references to the Prospectus/Proxy Statement
include and relate to only the text of such Prospectus/Proxy Statement and not
to any exhibits or attachments thereto or to any documents incorporated by
reference therein.
6.3 As of the Closing Date with respect to the Reorganization of the
Selling Fund, there shall have been no material change in the investment
objective, policies and restrictions nor any material change in the investment
management fees, fee levels payable pursuant to the 12b-1 plan of distribution,
other fees payable for services provided to each Acquiring Fund, fee waiver or
expense reimbursement undertakings, or sales loads of the Acquiring Funds from
those fee amounts, undertakings and sales load amounts of the Acquiring Fund
described in the Prospectus/Proxy Statement.
6.4 For the period beginning at the Closing Date and ending not less
than six years thereafter, the Trust, its successor or assigns shall provide, or
cause to be provided, liability coverage at least as comparable to the liability
coverage currently applicable to both former and current Directors and officers
of ESC Strategic Funds, covering the actions of such Directors and officers of
ESC Strategic Funds for the period they served as such.
ARTICLE VII
<PAGE>
CONDITIONS PRECEDENT TO OBLIGATIONS OF EACH ACQUIRING FUND
The obligations of each Acquiring Fund to consummate the transactions
provided for herein shall be subject, at their election, to the performance by
each cooresponding Selling Fund of all the obligations to be performed by the
Selling Fund pursuant to this Agreement, on or before the applicable Closing
Date and, in addition, shall be subject to the following conditions:
7.1 All representations, covenants, and warranties of a Selling Fund
contained in this Agreement shall be true and correct as of the date hereof and
as of the Closing Date, with the same force and effect as if made on and as of
such Closing Date. Each Selling Fund shall have delivered to its respective
Acquiring Funds on such Closing Date a certificate executed in the Selling
Fund's name by ESC Strategic Funds' President or Vice President and the
Treasurer or Assistant Treasurer, in form and substance satisfactory to the
Acquiring Fund and dated as of such Closing Date, to such effect and as to such
other matters as the Acquiring Fund shall reasonably request.
7.2 The Selling Fund shall have delivered to its respective Acquiring
Fund a statement of the Selling Fund's assets and liabilities, together with a
list of the selling Fund's portfolio securities showing the tax costs of such
securities by lot and the holding periods of such securities, as of the Closing
Dates, certified by the Treasurer of ESC Strategic Funds.
7.3 The Acquiring Fund shall have received on the applicable Closing
Date an opinion of Dechert Price & Rhoads, counsel to each Selling Fund, dated
as of such Closing Date in a form satisfactory to the Acquiring Fund covering
the following points:
(a) The Selling Fund is a separate investment series of a
corporation duly organized, validly existing and in good standing under the laws
of the State of Maryland and each has the power to own all of its properties and
assets and to carry on its business as presently conducted.
(b) The Selling Fund is a separate investment series of a
Maryland corporation registered as an investment company under the 1940 Act,
and, to such counsel's knowledge, such registration with the Commission is in
full force and effect.
(c) This Agreement has been duly authorized, executed and
delivered by ESC Strategic Funds on behalf of each Selling Fund and, assuming
due authorization, execution and delivery of this Agreement by the Trust on
behalf of each Acquiring Fund is a valid and binding obligation of the Selling
Fund enforceable against the Selling Fund in accordance with its terms, subject
as to enforcement, to bankruptcy, insolvency, reorganization, moratorium and
other laws relating to or affecting creditors' rights generally and to general
equity principles.
(d) To the knowledge of such counsel, except for the filing of
Articles of Transfer pursuant to Maryland law, no consent, approval,
authorization or order of any court or
<PAGE>
governmental authority of the United States or the State of Maryland is required
for consummation by a Selling Fund of the transactions contemplated herein,
except as have been obtained under the 1933 Act, the 1934 Act and the 1940 Act,
and as may be required under state securities laws.
(e) The execution and delivery of this Agreement did not, and
the consummation of the transactions contemplated hereby will not result in a
violation of ESC Strategic Funds' Articles of Incorporation or By-laws, or any
provision of any material agreement, indenture, instrument, contract, lease or
other undertaking (in each case known to such counsel) to which a Selling Fund
is a party or by which it or any of its properties may be bound or, to the
knowledge of such counsel, result in the acceleration of any obligation or the
imposition of any penalty, under any agreement, judgment, or decree to which the
Selling Fund is a party or by which it is bound.
(f) The descriptions in the Prospectus/Proxy Statement of
statutes, legal and government proceedings and material contracts, if any (only
insofar as they relate to a Selling Fund), are accurate and fairly present the
information required to be shown.
(g) Such counsel does not know of any legal or governmental
proceedings (insofar as they relate to a Selling Fund) existing on or before the
date of mailing of the Prospectus/Proxy Statement and the Closing Date, which
are required to be described in the Prospectus/Proxy Statement or to be filed as
an exhibit to the Registration Statement which are not described or filed as
required.
(h) To the knowledge of such counsel, no litigation or
administrative proceeding or investigation of or before any court or
governmental body is presently pending or threatened as to a Selling Fund or any
of its respective properties or assets. To the knowledge of such counsel, no
Selling Fund is a party to or subject to the provisions of any order, decree or
judgment of any court or governmental body, which materially and adversely
affects the Selling Fund's business other than as previously disclosed in the
Prospectus/Proxy Statement.
(i) Assuming that a consideration of not less than the net
asset value of Selling Fund Shares has been paid, and assuming that such shares
were issued in accordance with the terms of each Selling Fund's registration
statement, or any amendment thereto, in effect at the time of such issuance, all
issued and outstanding shares of the Selling Fund are legally issued and fully
paid and non-assessable.
Such counsel shall also state that they have participated in conferences
with officers and other representatives of each Selling Fund at which the
contents of the Prospectus/Proxy Statement and related matters were discussed.
Although such counsel are not passing upon and do not assume any responsibility
for the accuracy, completeness or fairness of the statements contained in the
Prospectus/Proxy Statement (except to the extent indicated in their opinion at
paragraph (f), above), on the basis of the foregoing (relying as to materiality
to a large extent
<PAGE>
upon the opinions of ESC Strategic Funds' officers and other representatives of
each Selling Fund), no facts have come to their attention that lead them to
believe that the Prospectus/Proxy Statement as of its date, as of the date of
each Selling Fund Shareholders' meeting, and as of the Closing Date, contained
an untrue statement of a material fact or omitted to state a material fact
required to be stated therein regarding a Selling Fund or necessary, in the
light of the circumstances under which they were made, to make the statements
therein regarding the Selling Fund not misleading. Such opinion may state that
such counsel do not express any opinion or belief as to the financial statements
or any financial or statistical data, or as to the information relating to each
Acquiring Fund contained in the Prospectus/Proxy Statement or Registration
Statement, and that such opinion is solely for the benefit of the Trust and each
Acquiring Fund. Such opinion shall contain such other assumptions and
limitations as shall be in the opinion of Dechert Price & Rhoads appropriate to
render the opinions expressed therein, and shall indicate, with respect to
matters of Maryland law, that such opinions are based either upon the review of
published statutes, cases and rules and regulations of the State of Maryland or
upon an opinion of Maryland counsel.
In this paragraph 7.3, references to the Prospectus/Proxy Statement
include and relate to only the text of such Prospectus/Proxy Statement and not
to any exhibits or attachments thereto or to any documents incorporated by
reference therein.
ARTICLE VIII
FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF EACH
ACQUIRING FUND AND SELLING FUND
If any of the conditions set forth below do not exist on or before the
applicable Closing Date with respect to each Selling Fund or its respective
Acquiring Fund, the other party to this Agreement shall, at its option, not be
required to consummate the transactions contemplated by this Agreement:
8.1 This Agreement and the transactions contemplated herein, with
respect to each Selling Fund, shall have been approved by the requisite vote of
the holders of the outstanding shares of the respective Selling Fund in
accordance with Maryland law and the provisions of ESC Strategic Funds' Articles
of Incorporation and By-Laws. Certified copies of the resolutions evidencing
such approval shall have been delivered to the respective Acquiring Fund.
Notwithstanding anything herein to the contrary, neither an Acquiring Fund nor a
Selling Fund may waive the conditions set forth in this paragraph 8.1.
8.2 On each Closing Date, the Commission shall not have issued an
unfavorable report under Section 25(b) of the 1940 Act, or instituted any
proceeding seeking to enjoin the consummation of the transactions contemplated
by this Agreement under Section 25(c) of the 1940 Act. Furthermore, no action,
suit or other proceeding shall be threatened or pending before any court or
governmental agency in which it is sought to restrain or prohibit, or obtain
damages
<PAGE>
or other relief in connection with this Agreement or the transactions
contemplated herein.
8.3 All required consents of other parties and all other consents,
orders, and permits of federal, state and local regulatory authorities
(including those of the Commission and of State Blue Sky securities authorities,
including any necessary "no-action" positions and exemptive orders from such
federal and state authorities) to permit consummation of the transactions
contemplated herein shall have been obtained, except where failure to obtain any
such consent, order, or permit would not involve a risk of a material adverse
effect on the assets or properties of an Acquiring Fund or a Selling Fund,
provided that either party hereto may waive any such conditions for itself.
8.4 The Registration Statement shall have become effective under the
1933 Act, and no stop orders suspending the effectiveness thereof shall have
been issued. To the best knowledge of the parties to this Agreement, no
investigation or proceeding for that purpose shall have been instituted or be
pending, threatened or contemplated under the 1933 Act.
8.5 Each Selling Fund shall have declared and paid a dividend or
dividends which, together with all previous such dividends, shall have the
effect of distributing to its shareholders all of the Selling Fund's net
investment company taxable income for all taxable periods ending on or prior to
the applicable Closing Dates (computed without regard to any deduction for
dividends paid) and all of its net capital gains realized in all taxable periods
ending on or prior to such Closing Dates (after reduction for any capital loss
carry forward).
8.6 The parties shall have received a favorable opinion of Morgan,
Lewis & Bockius LLP addressed to each Acquiring Fund and Selling Fund
substantially to the effect that for federal income tax purposes with respect to
each Selling Fund:
(a) The transfer of all of the Selling Fund's assets in
exchange for Acquiring Fund Shares and the assumption by the Acquiring Fund of
the identified liabilities of the Selling Fund (followed by the distribution of
Acquiring Fund Shares to the Selling Fund shareholders in dissolution and
liquidation of the Selling Fund) will constitute a "reorganization" within the
meaning of Section 368(a) of the Code and the Acquiring Fund and the Selling
Fund will each be a "party to a reorganization" within the meaning of Section
368(b) of the Code.
(b) No gain or loss will be recognized by the Acquiring Fund
upon the receipt of the assets of the Selling Fund solely in exchange for
Acquiring Funds Share and the assumption by the Acquiring Fund of the identified
liabilities of the Selling Fund.
(c) No gain or loss will be recognized by the Selling Fund upon
the transfer of the Selling Fund's assets to the Acquiring Fund in exchange for
Acquiring Fund Shares and the assumption by the Acquiring Fund of the identified
liabilities of the Selling Fund or upon the distribution (whether actual or
constructive) of Acquiring Fund Shares to Selling Fund Shareholders in exchange
for such shareholders' shares of the Selling Fund.
<PAGE>
(d) No gain or loss will be recognized by the Selling Fund
Shareholders upon the exchange of their Selling Fund shares for Acquiring Fund
Shares in the Reorganization.
(e) The aggregate tax basis for Acquiring Fund Shares received
by each Selling Fund Shareholder pursuant to the Reorganization will be the same
as the aggregate tax basis of the Selling Fund shares exchanged therefor by such
shareholder. The holding period of Acquiring Funds Share to be received by each
Selling Fund Shareholder will include the period during which the Selling Fund
shares exchanged therefore were held by such shareholder, provided the Selling
Fund shares are held as capital assets at the time of the Reorganization.
(f) The tax basis of the Selling Fund's assets acquired by the
Acquiring Fund will be the same as the tax basis of such assets to the Selling
Fund immediately prior to the Reorganization. The holding period of the assets
of the Selling Fund in the hands of the Acquiring Fund will include the period
during which those assets were held by the Selling Fund.
Such opinion shall be based on customary assumptions and such
representations as Morgan, Lewis & Bockius LLP may reasonably request, and each
Selling Fund and Acquiring Fund will cooperate to make and certify the accuracy
of such representations. Notwithstanding anything herein to the contrary,
neither an Acquiring Fund nor a Selling Fund may waive the conditions set forth
in this paragraph 8.6.
ARTICLE IX
EXPENSES
9.1 Except as otherwise provided for herein, expenses related to the
Reorganization that are incurred by the Selling Funds will be paid as follows:
The Selling Funds will pay a portion of the Reorganization expenses up to the
amount each Selling Fund would have paid during the fiscal year ending March 31,
2000 under the expense caps that are currently in place for each Selling Fund.
All remaining expenses will be borne by the investment adviser to the Selling
Funds, SunTrust Equitable Securities, a wholly-owned subsidiary of SunTrust
Banks, Inc. ("SunTrust") and/or SunTrust. Reorganization expenses include,
without limitation: (a) expenses associated with the preparation and filing of
the Registration Statement/Proxy Statement on Form N-14 under the 1933 Act
covering Acquiring Fund Shares to be issued pursuant to the provisions of this
Agreement; (b) postage; (c) printing; (d) accounting fees; (e) legal fees
incurred by each Selling Funds; and (f) solicitation costs of the transaction.
ARTICLE X
ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1 The Trust on behalf of each Acquiring Fund and ESC Strategic Funds
on behalf of each Selling Fund agrees that neither party has made to the other
party any representation,
<PAGE>
warranty and/or covenant not set forth herein, and that this Agreement
constitutes the entire agreement between the parties.
10.2 Except as specified in the next sentence set forth in this section
10.2, the representation, warranties, and covenants contained in this Agreement
or in any document delivered pursuant to or in connection with this Agreement,
shall not survive the consummation of the transactions contemplated hereunder.
The covenants to be performed after each Closing Date, and the obligations of
each of the Acquiring Funds in sections 5.9 and 6.4, shall continue in effect
beyond the consummation of the transactions contemplated hereunder.
ARTICLE XI
TERMINATION
11.1 This Agreement may be terminated by the mutual agreement of the
Trust and ESC Strategic Funds. In addition, either the Trust or ESC Strategic
Funds may at their option terminate this Agreement at or prior to either Closing
Date due to:
(a) a breach by the other of any representation, warranty, or
agreement contained herein to be performed at or prior to each Closing Date, if
not cured within 30 days;
(b) a condition herein expressed to be precedent to the
obligations of the terminating party that has not been met and it reasonably
appears that it will not or cannot be met; or
(c) a determination by the parties' Board of Directors or Board
of Trustees, as appropriate, determine that the consummation of the transactions
contemplated herein are not in the best interest of ESC Strategic Funds or the
Trust, respectively, and give notice to the other party hereto.
11.2 In the event of any such termination, in the absence of willful
default, there shall be no liability for damages on the part of either an
Acquiring Fund, a Selling Fund, the Trust, ESC Strategic Funds, the respective
Trustees, Directors or officers, to the other party or its Trustees, Directors
or officers, but each shall bear the expenses incurred by it incidental to the
preparation and carrying out of this Agreement as provided in paragraph 9.1.
ARTICLE XII
AMENDMENTS
12.1 This Agreement may be amended, modified, or supplemented in such
manner as may be mutually agreed upon in writing by the authorized officers of
each Selling Funds and the Acquiring Fund; provided, however, that following the
meetings of the Selling Fund
<PAGE>
Shareholders called by a Selling Fund pursuant to paragraph 5.2 of this
Agreement, no such amendment may have the effect of changing the provisions for
determining the number of Acquiring Fund Shares to be issued to the Selling Fund
Shareholders under this Agreement to the detriment of such shareholders without
their further approval.
ARTICLE XIII
HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT;
LIMITATION OF LIABILITY
13.1 The Article and paragraph headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
13.2 This Agreement may be executed in any number of counterparts, each
of which shall be deemed an original.
13.3 This Agreement shall be governed by and construed in accordance
with the laws of the Commonwealth of Massachusetts, without giving effect to the
conflicts of laws provisions thereof; provided, however, that the due
authorization, execution and delivery of this Agreement, in the case of each
Selling Fund, shall be governed and construed in accordance with the laws of the
State of Maryland, without giving effect to the conflicts of laws provisions
thereof.
13.4 This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but, except as provided in
this paragraph, no assignment or transfer hereof or of any rights or obligations
hereunder shall be made by any party without the written consent of the other
party. Nothing herein expressed or implied is intended or shall be construed to
confer upon or give any person, firm, or corporation, other than the parties
hereto and their respective successors and assigns, any rights or remedies under
or by reason of this Agreement.
13.5 It is expressly agreed that the obligations of each Acquiring Fund
hereunder shall not be binding upon any of the Trustees, shareholders, nominees,
officers, agents, or employees of the Trust personally, but shall bind only the
trust property of the Acquiring Fund, as provided in the Declaration of Trust of
the Trust. The execution and delivery of this Agreement have been authorized by
the Trustees of the Trust on behalf of each Acquiring Fund and signed by
authorized officers of the Trust, acting as such. Such authorization by such
Trustees nor such execution and delivery by such officers shall not be deemed to
have been made by any of them individually or to impose any liability on any of
them personally, but shall bind only the trust property of each Acquiring Fund
as provided in the Trust's Declaration of Trust.
IN WITNESS WHEREOF, the parties have duly executed this Agreement, all as
of the date first written above.
<PAGE>
STI CLASSIC FUNDS
By: /s/
------------------
Name: Kevin P. Robins
Title: Vice President
ESC STRATEGIC FUNDS, INC.
By: /s/
------------------
Name: R. Jeffrey Young
Title: Vice President
<PAGE>
[MORGAN, LEWIS & BOCKIUS LLP LETTERHEAD APPEARS HERE]
December 16, 1999
STI Classic Funds
2 Oliver Street
Boston, Massachusetts 02109
RE: STI CLASSIC FUNDS
Ladies and Gentlemen:
We refer to the Registration Statement on Form N-14 (the "Registration
Statement") of the STI Classic Funds (the "Trust") relating to the transfer of
all the assets and certain stated liabilities of the ESC Strategic Funds, Inc.
(the "Acquired Funds"), in exchange for shares of the Trust's Small Cap Growth
Stock Fund, International Equity Fund, Growth and Income Fund, and High Income
Fund (the "Acquiring Funds"), followed by the distribution of such shares (the
"Acquiring Funds' Shares"), in exchange for such Acquired Funds' shares in
complete liquidation of the Acquired Fund (the "Reorganization"), pursuant to an
Agreement and Plan of Reorganization.
We have been requested by the Trust to furnish this opinion as Exhibit 11 to the
Registration Statement.
We have examined such records, documents, instruments, certificates of public
officials and of the Trust, made such inquiries of the Trust, and examined such
questions of law as we have deemed necessary for the purpose of rendering the
opinion set forth herein. We have assumed the genuineness of all signatures and
the authenticity of all items submitted to us as originals and the conformity
with originals of all items submitted to us as copies.
Based upon and subject to the foregoing, we are of the opinion that:
The issuance of the Acquiring Funds' Shares by the Trust has been duly
and validly authorized by all appropriate action and, upon delivery
thereof and payment therefor in accordance with the Registration
Statement, the Acquiring Funds' Shares, when issued, will be duly
authorized, validly issued, fully paid and nonassessable by the Trust.
<PAGE>
STI Classic Funds
December 16, 1999
Page 2
We have not reviewed the securities laws of any state or territory in connection
with the proposed offering of Acquiring Funds' Shares and we express no opinion
as to the legality of any offer or sale of Acquiring Funds' Shares under any
such state or territorial securities laws.
This opinion is intended only for your use in connection with the offering of
Acquiring Funds' Shares and may not be relied upon by any other person.
We hereby consent to the inclusion of this opinion as an exhibit to the Trust's
Registration Statement to be filed with the Securities and Exchange Commission.
Very truly yours,
/s/ Morgan, Lewis & Bockius LLP
Morgan, Lewis & Bockius LLP
<PAGE>
December 20, 1999
STI Classic Funds
2 Oliver Street
Boston, MA 02109
ESC Strategic Funds, Inc.
3435 Stelzer Road
Columbus, OH 43219
Re: AGREEMENT AND PLAN OF REORGANIZATION BY AND BETWEEN
ESC STRATEGIC FUNDS, INC., ON BEHALF OF ITS SMALL CAP FUND AND
SMALL CAP II FUND, AND STI CLASSIC FUNDS, ON BEHALF OF ITS
SMALL CAP GROWTH STOCK FUND
Ladies and Gentlemen:
We have acted as counsel to STI Classic Funds, in connection with the execution
and delivery of the Agreement and Plan of Reorganization (the "Agreement"),
dated as of February ___, 2000 by and between ESC Strategic Funds, Inc., a
Maryland corporation, on behalf of its Small Cap Fund and Small Cap II Fund (the
"Selling Funds"), and STI Classic Funds, on behalf of its Small Cap Growth Stock
Fund (the "Acquiring Fund"), relating to the transfer of all the assets and
liabilities of the Selling Funds in exchange for shares of the Acquiring Fund,
followed by the distribution of such Shares (the "Acquiring Fund's Shares") to
the holders of shares of the Selling Funds ("Selling Funds' Shares") in exchange
for such Selling Funds' Shares in complete liquidation of the Selling Funds (the
"Reorganization"), pursuant to the Agreement. This opinion letter is delivered
to you pursuant to Section 8.6 of the Agreement. Capitalized terms used but not
defined herein shall have the meanings assigned to them in the Agreement.
In connection with this opinion, we have examined and are familiar with
originals or copies, certified or otherwise identified to our satisfaction, of
(i) the Agreement, and (ii) such other documents as we have deemed necessary or
appropriate in order to enable us to render the opinion below. In our
examination, we have assumed the genuineness of all signatures, the legal
capacity of all natural persons, the authenticity of all documents submitted to
us as originals, the conformity to original documents of all documents submitted
to us as certified, conformed or photostatic copies and the authenticity of the
originals of such copies. Our opinion is based in part on the facts set forth
below. We have not undertaken an independent investigation or
<PAGE>
verification of these facts or of the information set forth either in the
aforementioned documents or in other documents that we have reviewed.
1. The Reorganization will be consummated in compliance with the
material terms of the Agreement, and none of the material
terms and conditions therein have been waived or modified and
neither party has any plan or intention to waive or modify any
such material condition.
2. The Acquiring Fund and the Selling Funds each is treated as a
corporation for federal income tax purposes.
3. The fair market value of the Acquiring Fund's Shares to be
received by the Selling Funds' shareholders in the
Reorganization will be approximately equal to the fair market
value of the shares in the Selling Funds surrendered and
exchanged therefor.
4. No consideration other than the Acquiring Fund's Shares and
the assumption by the Acquiring Fund of the stated liabilities
of the Selling Funds will be issued in exchange for the assets
of the Selling Funds in the Reorganization.
5. The Acquiring Fund has no plan or intention to sell additional
shares of beneficial interest in the Acquiring Fund or to
redeem or otherwise reacquire any of the Acquiring Fund's
Shares issued in the Reorganization other than in the ordinary
course of its business as a regulated investment company.
6. The Acquiring Fund has no plan or intention to sell or
otherwise dispose of any of the Selling Funds' assets to be
acquired by it in the Reorganization except for dispositions
made in the ordinary course of its business as a regulated
investment company.
7. Following the Reorganization, the Acquiring Fund will continue
the historic business of the Selling Funds or use a
significant portion of the Selling Funds' assets in its
business.
8. Immediately following consummation of the Reorganization, the
Acquiring Fund will possess the same liabilities as those
possessed by the Selling Funds immediately prior to the
Reorganization. The fair market value of the assets of each
Selling Fund acquired by the Acquiring Fund will exceed the
liabilities of each Selling Fund assumed by the Acquiring Fund
plus the amount of liabilities, if any, to which the acquired
assets are subject.
9. There is no intercorporate indebtedness existing between the
Acquiring Fund and the Selling Funds that was issued,
acquired, or will be settled at a discount.
<PAGE>
10. The Acquiring Fund will meet the requirements of Subchapter M
of the Internal Revenue Code of 1986, as amended (the "Code"),
for qualification and treatment as a regulated investment
company.
11. The Acquiring Fund does not own nor will it acquire prior to
the consummation of the Reorganization any shares of
beneficial interest in the Selling Funds.
12. Not more than 25 percent of the value of the total assets of
both the Selling Funds and the Acquiring Fund is invested in
the stock and securities of any one issuer and not more than
50 percent of the value of those total assets is invested in
the stock and securities of five or fewer issuers.
Our opinion summarizes certain Federal income tax consequences of the
Reorganization to holders of shares in the Selling Funds (individually, a
"Shareholder" and, collectively, the "Shareholders"). Our opinion does not
address all aspects of Federal income taxation that may be relevant to
particular Shareholders and may not be applicable to Shareholders who are not
citizens or residents of the United States. Further, our opinion does not
address the effect of any applicable foreign, state, local or other tax laws.
In rendering our opinion, we have considered the applicable provisions of the
Code, Treasury Regulations, pertinent judicial authorities, interpretive rulings
of the Internal Revenue Service and such other authorities as we have considered
relevant.
Based upon and subject to the foregoing, we are of the opinion that the
Reorganization will, under current law, constitute a tax-free reorganization
under Section 368(a) of the Code, and that the Selling Funds and Acquiring Fund
will each be a party to the reorganization within the meaning of Section 368(b)
of the Code.
The Reorganization, as a tax-free reorganization, will have the following
Federal income tax consequences for the Shareholders, the Selling Funds and the
Acquiring Fund:
1. No gain or loss will be recognized by either Selling Fund upon
the transfer of its assets in exchange solely for the
Acquiring Fund's Shares and the assumption by the Acquiring
Fund of the Selling Fund's stated liabilities;
2. No gain or loss will be recognized by the Acquiring Fund on
its receipt of the Selling Funds' assets in exchange for the
Acquiring Fund's Shares and the assumption by the Acquiring
Fund of the Selling Funds' liabilities;
3. The basis of the Selling Funds' assets in the Acquiring Fund's
hands will be the same as the basis of those assets in the
Selling Funds' hands immediately before the Reorganization;
4. The Acquiring Fund's holding period for the assets transferred
to the Acquiring Fund by the Selling Funds will include the
holding period of
<PAGE>
those assets in the Selling Funds' hands immediately before
the Reorganization;
5. No gain or loss will be recognized by the Selling Funds on the
distribution of the Acquiring Fund's Shares to the
Shareholders in exchange for Selling Funds' Shares;
6. No gain or loss will be recognized by the Shareholders as a
result of the Selling Funds' distribution of Acquiring Fund's
Shares to the Shareholders in exchange for the Shareholders'
Selling Funds' Shares;
7. The basis of the Acquiring Fund's Shares received by the
Shareholders will be the same as the adjusted basis of the
Shareholders' Selling Funds' Shares surrendered in exchange
therefor; and
8. The holding period of the Acquiring Fund's Shares received by
the Shareholders will include the Shareholders' holding period
for the Shareholders' Selling Funds' Shares surrendered in
exchange therefor, provided that said Selling Funds' Shares
were held as capital assets on the date of the Reorganization.
Except as set forth above, we express no opinion as to the tax consequences to
any party, whether Federal, state, local or foreign, of the Reorganization or
the Agreement or of any transactions related to the Reorganization or the
Agreement or contemplated by the Reorganization or the Agreement. This opinion
is being furnished to you on behalf of the Selling Funds and the Acquiring Fund
in connection with the Reorganization and the Agreement and solely for your
benefit in connection therewith and may not be used or relied upon for any other
purpose and may not be circulated, quoted or otherwise referred to for any other
purpose without our express written consent.
Very truly yours,
Morgan, Lewis & Bockius LLP
<PAGE>
December 20, 1999
STI Classic Funds
2 Oliver Street
Boston, MA 02109
ESC Strategic Funds, Inc.
3435 Stelzer Road
Columbus, OH 43219
Re: AGREEMENT AND PLAN OF REORGANIZATION BY AND BETWEEN
ESC STRATEGIC FUNDS, INC., ON BEHALF OF ITS APPRECIATION FUND,
AND STI CLASSIC FUNDS, ON BEHALF OF ITS GROWTH AND INCOME FUND
Ladies and Gentlemen:
We have acted as counsel to STI Classic Funds, in connection with the
execution and delivery of the Agreement and Plan of Reorganization (the
"Agreement"), dated as of February ___, 2000 by and between ESC Strategic
Funds, Inc., a Maryland corporation, on behalf of its Appreciation Fund (the
"Selling Fund"), and STI Classic Funds, on behalf of its Growth and Income
Fund (the "Acquiring Fund"), relating to the transfer of all the assets and
liabilities of the Selling Fund in exchange for shares of the Acquiring Fund,
followed by the distribution of such Shares (the "Acquiring Fund's Shares")
to the holders of shares of the Selling Fund ("Selling Fund's Shares") in
exchange for such Selling Fund's Shares in complete liquidation of the
Selling Fund (the "Reorganization"), pursuant to the Agreement. This opinion
letter is delivered to you pursuant to Section 8.6 of the Agreement.
Capitalized terms used but not defined herein shall have the meanings
assigned to them in the Agreement.
In connection with this opinion, we have examined and are familiar with
originals or copies, certified or otherwise identified to our satisfaction, of
(i) the Agreement, and (ii) such other documents as we have deemed necessary or
appropriate in order to enable us to render the opinion below. In our
examination, we have assumed the genuineness of all signatures, the legal
capacity of all natural persons, the authenticity of all documents submitted to
us as originals, the conformity to original documents of all documents submitted
to us as certified, conformed or photostatic copies and the authenticity of the
originals of such copies. Our opinion is based in part on the facts set forth
below. We have not undertaken an independent investigation or verification of
these facts or of the information set forth either in the aforementioned
documents or in other documents that we have reviewed.
<PAGE>
1. The Reorganization will be consummated in compliance with the
material terms of the Agreement, and none of the material
terms and conditions therein have been waived or modified and
neither party has any plan or intention to waive or modify any
such material condition.
2. The Acquiring Fund and the Selling Fund each is treated as a
corporation for federal income tax purposes.
3. The fair market value of the Acquiring Fund's Shares to be
received by the Selling Fund's shareholders in the
Reorganization will be approximately equal to the fair market
value of the shares in the Selling Fund surrendered and
exchanged therefor.
4. No consideration other than the Acquiring Fund's Shares and
the assumption by the Acquiring Fund of the stated liabilities
of the Selling Fund will be issued in exchange for the assets
of the Selling Fund in the Reorganization.
5. The Acquiring Fund has no plan or intention to sell additional
shares of beneficial interest in the Acquiring Fund or to
redeem or otherwise reacquire any of the Acquiring Fund's
Shares issued in the Reorganization other than in the ordinary
course of its business as a regulated investment company.
6. The Acquiring Fund has no plan or intention to sell or
otherwise dispose of any of the Selling Fund's assets to be
acquired by it in the Reorganization except for dispositions
made in the ordinary course of its business as a regulated
investment company.
7. Following the Reorganization, the Acquiring Fund will continue
the historic business of the Selling Fund or use a significant
portion of the Selling Fund's assets in its business.
8. Immediately following consummation of the Reorganization, the
Acquiring Fund will possess the same liabilities as those
possessed by the Selling Fund immediately prior to the
Reorganization. The fair market value of the assets of the
Selling Fund acquired by the Acquiring Fund will exceed the
liabilities of the Selling Fund assumed by the Acquiring Fund
plus the amount of liabilities, if any, to which the acquired
assets are subject.
9. There is no intercorporate indebtedness existing between the
Acquiring Fund and the Selling Fund that was issued, acquired,
or will be settled at a discount.
10. The Acquiring Fund will meet the requirements of Subchapter M
of the Internal Revenue Code of 1986, as amended (the "Code"),
for qualification and treatment as a regulated investment
company.
<PAGE>
11. The Acquiring Fund does not own nor will it acquire prior to
the consummation of the Reorganization any shares of
beneficial interest in the Selling Fund.
12. Not more than 25 percent of the value of the total assets of
both the Selling Fund and the Acquiring Fund is invested in
the stock and securities of any one issuer and not more than
50 percent of the value of those total assets is invested in
the stock and securities of five or fewer issuers.
Our opinion summarizes certain Federal income tax consequences of the
Reorganization to holders of shares in the Selling Fund (individually, a
"Shareholder" and, collectively, the "Shareholders"). Our opinion does not
address all aspects of Federal income taxation that may be relevant to
particular Shareholders and may not be applicable to Shareholders who are not
citizens or residents of the United States. Further, our opinion does not
address the effect of any applicable foreign, state, local or other tax laws.
In rendering our opinion, we have considered the applicable provisions of the
Code, Treasury Regulations, pertinent judicial authorities, interpretive rulings
of the Internal Revenue Service and such other authorities as we have considered
relevant.
Based upon and subject to the foregoing, we are of the opinion that the
Reorganization will, under current law, constitute a tax-free reorganization
under Section 368(a) of the Code, and that the Selling Fund and Acquiring Fund
will each be a party to the reorganization within the meaning of Section 368(b)
of the Code.
The Reorganization, as a tax-free reorganization, will have the following
Federal income tax consequences for the Shareholders, the Selling Fund and the
Acquiring Fund:
1. No gain or loss will be recognized by the Selling Fund upon
the transfer of its assets in exchange solely for the
Acquiring Fund's Shares and the assumption by the Acquiring
Fund of the Selling Fund's stated liabilities;
2. No gain or loss will be recognized by the Acquiring Fund on
its receipt of the Selling Fund's assets in exchange for the
Acquiring Fund's Shares and the assumption by the Acquiring
Fund of the Selling Fund's liabilities;
3. The basis of the Selling Fund's assets in the Acquiring Fund's
hands will be the same as the basis of those assets in the
Selling Fund's hands immediately before the Reorganization;
4. The Acquiring Fund's holding period for the assets transferred
to the Acquiring Fund by the Selling Fund will include the
holding period of those assets in the Selling Fund's hands
immediately before the Reorganization;
<PAGE>
5. No gain or loss will be recognized by the Selling Fund on the
distribution of the Acquiring Fund's Shares to the
Shareholders in exchange for Selling Fund's Shares;
6. No gain or loss will be recognized by the Shareholders as a
result of the Selling Fund's distribution of Acquiring Fund's
Shares to the Shareholders in exchange for the Shareholders'
Selling Fund's Shares;
7. The basis of the Acquiring Fund's Shares received by the
Shareholders will be the same as the adjusted basis of the
Shareholders' Selling Fund's Shares surrendered in exchange
therefor; and
8. The holding period of the Acquiring Fund's Shares received by
the Shareholders will include the Shareholders' holding period
for the Shareholders' Selling Fund's Shares surrendered in
exchange therefor, provided that said Selling Fund's Shares
were held as capital assets on the date of the Reorganization.
Except as set forth above, we express no opinion as to the tax consequences to
any party, whether Federal, state, local or foreign, of the Reorganization or
the Agreement or of any transactions related to the Reorganization or the
Agreement or contemplated by the Reorganization or the Agreement. This opinion
is being furnished to you on behalf of the Selling Fund and the Acquiring Fund
in connection with the Reorganization and the Agreement and solely for your
benefit in connection therewith and may not be used or relied upon for any other
purpose and may not be circulated, quoted or otherwise referred to for any other
purpose without our express written consent.
Very truly yours,
Morgan, Lewis & Bockius LLP
<PAGE>
December 20, 1999
STI Classic Funds
2 Oliver Street
Boston, MA 02109
ESC Strategic Funds, Inc.
3435 Stelzer Road
Columbus, OH 43219
Re: AGREEMENT AND PLAN OF REORGANIZATION BY AND BETWEEN
ESC STRATEGIC FUNDS, INC., ON BEHALF OF ITS INCOME FUND,
AND STI CLASSIC FUNDS, ON BEHALF OF ITS HIGH INCOME FUND
Ladies and Gentlemen:
We have acted as counsel to STI Classic Funds, in connection with the execution
and delivery of the Agreement and Plan of Reorganization (the "Agreement"),
dated as of February ___, 2000 by and between ESC Strategic Funds, Inc., a
Maryland corporation, on behalf of its Income Fund Fund (the "Selling Fund"),
and STI Classic Funds, on behalf of its High Income Fund (the "Acquiring Fund"),
relating to the transfer of all the assets and liabilities of the Selling Fund
in exchange for shares of the Acquiring Fund, followed by the distribution of
such Shares (the "Acquiring Fund's Shares") to the holders of shares of the
Selling Fund ("Selling Fund's Shares") in exchange for such Selling Fund's
Shares in complete liquidation of the Selling Fund (the "Reorganization"),
pursuant to the Agreement. This opinion letter is delivered to you pursuant to
Section 8.6 of the Agreement. Capitalized terms used but not defined herein
shall have the meanings assigned to them in the Agreement.
In connection with this opinion, we have examined and are familiar with
originals or copies, certified or otherwise identified to our satisfaction, of
(i) the Agreement, and (ii) such other documents as we have deemed necessary or
appropriate in order to enable us to render the opinion below. In our
examination, we have assumed the genuineness of all signatures, the legal
capacity of all natural persons, the authenticity of all documents submitted to
us as originals, the conformity to original documents of all documents submitted
to us as certified, conformed or photostatic copies and the authenticity of the
originals of such copies. Our opinion is based in part on the facts set forth
below. We have not undertaken an independent investigation or verification of
these facts or of the information set forth either in the aforementioned
documents or in other documents that we have reviewed.
<PAGE>
1. The Reorganization will be consummated in compliance with the
material terms of the Agreement, and none of the material
terms and conditions therein have been waived or modified and
neither party has any plan or intention to waive or modify any
such material condition.
2. The Acquiring Fund and the Selling Fund each is treated as a
corporation for federal income tax purposes.
3. The fair market value of the Acquiring Fund's Shares to be
received by the Selling Fund's shareholders in the
Reorganization will be approximately equal to the fair market
value of the shares in the Selling Fund surrendered and
exchanged therefor.
4. No consideration other than the Acquiring Fund's Shares and
the assumption by the Acquiring Fund of the stated liabilities
of the Selling Fund will be issued in exchange for the assets
of the Selling Fund in the Reorganization.
5. The Acquiring Fund has no plan or intention to sell additional
shares of beneficial interest in the Acquiring Fund or to
redeem or otherwise reacquire any of the Acquiring Fund's
Shares issued in the Reorganization other than in the ordinary
course of its business as a regulated investment company.
6. The Acquiring Fund has no plan or intention to sell or
otherwise dispose of any of the Selling Fund's assets to be
acquired by it in the Reorganization except for dispositions
made in the ordinary course of its business as a regulated
investment company.
7. Following the Reorganization, the Acquiring Fund will continue
the historic business of the Selling Fund or use a significant
portion of the Selling Fund's assets in its business.
8. Immediately following consummation of the Reorganization, the
Acquiring Fund will possess the same liabilities as those
possessed by the Selling Fund immediately prior to the
Reorganization. The fair market value of the assets of the
Selling Fund acquired by the Acquiring Fund will exceed the
liabilities of the Selling Fund assumed by the Acquiring Fund
plus the amount of liabilities, if any, to which the acquired
assets are subject.
9. There is no intercorporate indebtedness existing between the
Acquiring Fund and the Selling Fund that was issued, acquired,
or will be settled at a discount.
10. The Acquiring Fund will meet the requirements of Subchapter M
of the Internal Revenue Code of 1986, as amended (the "Code"),
for qualification and treatment as a regulated investment
company.
<PAGE>
11. The Acquiring Fund does not own nor will it acquire prior to
the consummation of the Reorganization any shares of
beneficial interest in the Selling Fund.
12. Not more than 25 percent of the value of the total assets of
both the Selling Fund and the Acquiring Fund is invested in
the stock and securities of any one issuer and not more than
50 percent of the value of those total assets is invested in
the stock and securities of five or fewer issuers.
Our opinion summarizes certain Federal income tax consequences of the
Reorganization to holders of shares in the Selling Fund (individually, a
"Shareholder" and, collectively, the "Shareholders"). Our opinion does not
address all aspects of Federal income taxation that may be relevant to
particular Shareholders and may not be applicable to Shareholders who are not
citizens or residents of the United States. Further, our opinion does not
address the effect of any applicable foreign, state, local or other tax laws.
In rendering our opinion, we have considered the applicable provisions of the
Code, Treasury Regulations, pertinent judicial authorities, interpretive rulings
of the Internal Revenue Service and such other authorities as we have considered
relevant.
Based upon and subject to the foregoing, we are of the opinion that the
Reorganization will, under current law, constitute a tax-free reorganization
under Section 368(a) of the Code, and that the Selling Fund and Acquiring Fund
will each be a party to the reorganization within the meaning of Section 368(b)
of the Code.
The Reorganization, as a tax-free reorganization, will have the following
Federal income tax consequences for the Shareholders, the Selling Fund and the
Acquiring Fund:
1. No gain or loss will be recognized by the Selling Fund upon
the transfer of its assets in exchange solely for the
Acquiring Fund's Shares and the assumption by the Acquiring
Fund of the Selling Fund's stated liabilities;
2. No gain or loss will be recognized by the Acquiring Fund on
its receipt of the Selling Fund's assets in exchange for the
Acquiring Fund's Shares and the assumption by the Acquiring
Fund of the Selling Fund's liabilities;
3. The basis of the Selling Fund's assets in the Acquiring Fund's
hands will be the same as the basis of those assets in the
Selling Fund's hands immediately before the Reorganization;
4. The Acquiring Fund's holding period for the assets transferred
to the Acquiring Fund by the Selling Fund will include the
holding period of those assets in the Selling Fund's hands
immediately before the Reorganization;
<PAGE>
5. No gain or loss will be recognized by the Selling Fund on the
distribution of the Acquiring Fund's Shares to the
Shareholders in exchange for Selling Fund's Shares;
6. No gain or loss will be recognized by the Shareholders as a
result of the Selling Fund's distribution of Acquiring Fund's
Shares to the Shareholders in exchange for the Shareholders'
Selling Fund's Shares;
7. The basis of the Acquiring Fund's Shares received by the
Shareholders will be the same as the adjusted basis of the
Shareholders' Selling Fund's Shares surrendered in exchange
therefor; and
8. The holding period of the Acquiring Fund's Shares received by
the Shareholders will include the Shareholders' holding period
for the Shareholders' Selling Fund's Shares surrendered in
exchange therefor, provided that said Selling Fund's Shares
were held as capital assets on the date of the Reorganization.
Except as set forth above, we express no opinion as to the tax consequences to
any party, whether Federal, state, local or foreign, of the Reorganization or
the Agreement or of any transactions related to the Reorganization or the
Agreement or contemplated by the Reorganization or the Agreement. This opinion
is being furnished to you on behalf of the Selling Fund and the Acquiring Fund
in connection with the Reorganization and the Agreement and solely for your
benefit in connection therewith and may not be used or relied upon for any other
purpose and may not be circulated, quoted or otherwise referred to for any other
purpose without our express written consent.
Very truly yours,
Morgan, Lewis & Bockius LLP
<PAGE>
December 20, 1999
STI Classic Funds
2 Oliver Street
Boston, MA 02109
ESC Strategic Funds, Inc.
3435 Stelzer Road
Columbus, OH 43219
Re: AGREEMENT AND PLAN OF REORGANIZATION BY AND BETWEEN
ESC STRATEGIC FUNDS, INC., ON BEHALF OF ITS SMALL CAP FUND AND
SMALL CAP II FUND, AND STI CLASSIC FUNDS, ON BEHALF OF ITS
SMALL CAP GROWTH STOCK FUND
Ladies and Gentlemen:
We have acted as counsel to STI Classic Funds, in connection with the execution
and delivery of the Agreement and Plan of Reorganization (the "Agreement"),
dated as of February ___, 2000 by and between ESC Strategic Funds, Inc., a
Maryland corporation, on behalf of its Small Cap Fund and Small Cap II Fund (the
"Selling Funds"), and STI Classic Funds, on behalf of its Small Cap Growth Stock
Fund (the "Acquiring Fund"), relating to the transfer of all the assets and
liabilities of the Selling Funds in exchange for shares of the Acquiring Fund,
followed by the distribution of such Shares (the "Acquiring Fund's Shares") to
the holders of shares of the Selling Funds ("Selling Funds' Shares") in exchange
for such Selling Funds' Shares in complete liquidation of the Selling Funds (the
"Reorganization"), pursuant to the Agreement. This opinion letter is delivered
to you pursuant to Section 8.6 of the Agreement. Capitalized terms used but not
defined herein shall have the meanings assigned to them in the Agreement.
In connection with this opinion, we have examined and are familiar with
originals or copies, certified or otherwise identified to our satisfaction, of
(i) the Agreement, and (ii) such other documents as we have deemed necessary or
appropriate in order to enable us to render the opinion below. In our
examination, we have assumed the genuineness of all signatures, the legal
capacity of all natural persons, the authenticity of all documents submitted to
us as originals, the conformity to original documents of all documents submitted
to us as certified, conformed or photostatic copies and the authenticity of the
originals of such copies. Our opinion is based in part on the facts set forth
below. We have not undertaken an independent investigation or
<PAGE>
verification of these facts or of the information set forth either in the
aforementioned documents or in other documents that we have reviewed.
1. The Reorganization will be consummated in compliance with the
material terms of the Agreement, and none of the material
terms and conditions therein have been waived or modified and
neither party has any plan or intention to waive or modify any
such material condition.
2. The Acquiring Fund and the Selling Funds each is treated as a
corporation for federal income tax purposes.
3. The fair market value of the Acquiring Fund's Shares to be
received by the Selling Funds' shareholders in the
Reorganization will be approximately equal to the fair market
value of the shares in the Selling Funds surrendered and
exchanged therefor.
4. No consideration other than the Acquiring Fund's Shares and
the assumption by the Acquiring Fund of the stated liabilities
of the Selling Funds will be issued in exchange for the assets
of the Selling Funds in the Reorganization.
5. The Acquiring Fund has no plan or intention to sell additional
shares of beneficial interest in the Acquiring Fund or to
redeem or otherwise reacquire any of the Acquiring Fund's
Shares issued in the Reorganization other than in the ordinary
course of its business as a regulated investment company.
6. The Acquiring Fund has no plan or intention to sell or
otherwise dispose of any of the Selling Funds' assets to be
acquired by it in the Reorganization except for dispositions
made in the ordinary course of its business as a regulated
investment company.
7. Following the Reorganization, the Acquiring Fund will continue
the historic business of the Selling Funds or use a
significant portion of the Selling Funds' assets in its
business.
8. Immediately following consummation of the Reorganization, the
Acquiring Fund will possess the same liabilities as those
possessed by the Selling Funds immediately prior to the
Reorganization. The fair market value of the assets of each
Selling Fund acquired by the Acquiring Fund will exceed the
liabilities of each Selling Fund assumed by the Acquiring Fund
plus the amount of liabilities, if any, to which the acquired
assets are subject.
9. There is no intercorporate indebtedness existing between the
Acquiring Fund and the Selling Funds that was issued,
acquired, or will be settled at a discount.
<PAGE>
10. The Acquiring Fund will meet the requirements of Subchapter M
of the Internal Revenue Code of 1986, as amended (the "Code"),
for qualification and treatment as a regulated investment
company.
11. The Acquiring Fund does not own nor will it acquire prior to
the consummation of the Reorganization any shares of
beneficial interest in the Selling Funds.
12. Not more than 25 percent of the value of the total assets of
both the Selling Funds and the Acquiring Fund is invested in
the stock and securities of any one issuer and not more than
50 percent of the value of those total assets is invested in
the stock and securities of five or fewer issuers.
Our opinion summarizes certain Federal income tax consequences of the
Reorganization to holders of shares in the Selling Funds (individually, a
"Shareholder" and, collectively, the "Shareholders"). Our opinion does not
address all aspects of Federal income taxation that may be relevant to
particular Shareholders and may not be applicable to Shareholders who are not
citizens or residents of the United States. Further, our opinion does not
address the effect of any applicable foreign, state, local or other tax laws.
In rendering our opinion, we have considered the applicable provisions of the
Code, Treasury Regulations, pertinent judicial authorities, interpretive rulings
of the Internal Revenue Service and such other authorities as we have considered
relevant.
Based upon and subject to the foregoing, we are of the opinion that the
Reorganization will, under current law, constitute a tax-free reorganization
under Section 368(a) of the Code, and that the Selling Funds and Acquiring Fund
will each be a party to the reorganization within the meaning of Section 368(b)
of the Code.
The Reorganization, as a tax-free reorganization, will have the following
Federal income tax consequences for the Shareholders, the Selling Funds and the
Acquiring Fund:
1. No gain or loss will be recognized by either Selling Fund upon
the transfer of its assets in exchange solely for the
Acquiring Fund's Shares and the assumption by the Acquiring
Fund of the Selling Fund's stated liabilities;
2. No gain or loss will be recognized by the Acquiring Fund on
its receipt of the Selling Funds' assets in exchange for the
Acquiring Fund's Shares and the assumption by the Acquiring
Fund of the Selling Funds' liabilities;
3. The basis of the Selling Funds' assets in the Acquiring Fund's
hands will be the same as the basis of those assets in the
Selling Funds' hands immediately before the Reorganization;
4. The Acquiring Fund's holding period for the assets transferred
to the Acquiring Fund by the Selling Funds will include the
holding period of
<PAGE>
those assets in the Selling Funds' hands immediately before
the Reorganization;
5. No gain or loss will be recognized by the Selling Funds on the
distribution of the Acquiring Fund's Shares to the
Shareholders in exchange for Selling Funds' Shares;
6. No gain or loss will be recognized by the Shareholders as a
result of the Selling Funds' distribution of Acquiring Fund's
Shares to the Shareholders in exchange for the Shareholders'
Selling Funds' Shares;
7. The basis of the Acquiring Fund's Shares received by the
Shareholders will be the same as the adjusted basis of the
Shareholders' Selling Funds' Shares surrendered in exchange
therefor; and
8. The holding period of the Acquiring Fund's Shares received by
the Shareholders will include the Shareholders' holding period
for the Shareholders' Selling Funds' Shares surrendered in
exchange therefor, provided that said Selling Funds' Shares
were held as capital assets on the date of the Reorganization.
Except as set forth above, we express no opinion as to the tax consequences to
any party, whether Federal, state, local or foreign, of the Reorganization or
the Agreement or of any transactions related to the Reorganization or the
Agreement or contemplated by the Reorganization or the Agreement. This opinion
is being furnished to you on behalf of the Selling Funds and the Acquiring Fund
in connection with the Reorganization and the Agreement and solely for your
benefit in connection therewith and may not be used or relied upon for any other
purpose and may not be circulated, quoted or otherwise referred to for any other
purpose without our express written consent.
Very truly yours,
Morgan, Lewis & Bockius LLP
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our report dated July 23, 1999 on
the May 31, 1999 financial statements of STI Classic Funds, included in
Post-Effective Amendment No. 32 to the Registration Statement on Form N-1A dated
September 27, 1999, and to all references to our firm included in this Form N-14
Registration Statement.
/s/ Arthur Andersen LLP
Philadelphia, PA
December 20, 1999
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Registration Statement on
Form N-14 of STI Classic Funds, of our report dated May 14, 1999 on our audits
of the financial statements and financial highlights of ESC Strategic Income
Fund, ESC Strategic International Equity Fund, ESC Strategic Small Cap Fund, ESC
Strategic Appreciation Fund and ESC Strategic Small Cap II Fund (separate
portfolios constituting ESC Strategic Funds, Inc.) which report is included in
the Annual Report to Shareholders for the year ended March 31, 1999. We also
consent to the reference to our Firm under the caption "Financial Statements"
relating to ESC Strategic Funds, Inc. in the Registration Statement on Form
N-14.
/s/ PricewaterhouseCoopers LLP
Columbus, Ohio
December 20, 1999
<PAGE>
Introduction to Pro Forma Combining Statements
March 24, 2000
The accompanying unaudited Pro Forma Combining Statements of Assets and
Liabilities, Pro Forma Combining Statements of Operations and Pro Forma
Combining Schedule of Investments reflect the accounts of the ESC Strategic
Small Cap Fund and ESC Strategic Income Fund (the "Acquired Funds") and the STI
Classic Small Cap Growth Stock Fund and STI Classic High Income Fund (the
"Acquiring Funds").
These statements have been derived from the underlying accounting records of the
Acquired Funds and Acquiring Funds that were used in calculating net assets for
the twelve-month period ended May 31, 1999 for the STI Funds and March 31, 1999
for the ESC Funds. The Pro Forma Combining Statements of Operations have been
prepared based upon the fee and expense structure of the Acquired Funds.
Under the proposed agreement and plan of reorganization, all outstanding shares
of the Acquired Funds will be issued in exchange for shares of the Acquiring
Funds.
<PAGE>
PRO FORMA COMBINING STATEMENT OF OPERATIONS
PERIOD ENDING MAY 31, 1999
<TABLE>
<CAPTION>
STI Small Cap Esc Strategic
Growth Stock Fund Small Cap Fund Combined
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest income $ 119 $ 763 $ 882
Dividend income 77 741 818
Income from securities lending activities 77 63 140
- ----------------------------------------------------------------------------------------------------------------------------------
Total investment income 273 1,567 1,840
- ----------------------------------------------------------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees 314 1,253 1,567
Trustees' fees - 22 22
Administrative personnel and services fees 21 223 244
Custodian and recordkeeping fees and expenses 7 17 24
Transfer Agent Fees-ESC 197 197
Transfer Agent Fees-Trust Shares 11 11
Transfer Agent Fees-Investor Shares -
Transfer Agent Fees-Flex Shares 9 9
Transfer Agent Out of Pocket Fees 15 15
Fund share registration costs 16 16
Auditing fees 4 15 19
Legal fees 4 42 46
Printing and postage 10 10
Insurance premiums - -
Distribution services fees-Investor Shares - 242 242
Distribution services fees-Flex Shares 12 214 226
Amortization of deferred organizational costs - 11 11
Miscellaneous 1 149 150
- ----------------------------------------------------------------------------------------------------------------------------------
Total expenses 424 2,385 2,809
- ----------------------------------------------------------------------------------------------------------------------------------
Deduct-
Waiver of investment advisory fees (79) - (79)
Waiver of distribution services fees-Investor Shares - - -
Waiver of distribution services fees-Flex Shares (8) - (8)
- ----------------------------------------------------------------------------------------------------------------------------------
NET EXPENSES 337 2,385 2,722
- ----------------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) (64) (818) (882)
- ----------------------------------------------------------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments:
Net realized gain (loss) on investments (identified cost basis) 2,335 2,509 4,844
Net change in unrealized appreciation (depreciation) on investments 4,550 (42,489) (37,939)
- ----------------------------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS 6,885 (39,980) (33,095)
- ----------------------------------------------------------------------------------------------------------------------------------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS $ 6,821 $ (40,798) (33,977)
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Pro Forma Combined
STI Small Cap
Adjustments Growth Stock Fund
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME:
Interest income $ 882
Dividend income 818
Income from securities lending activities 140
- ------------------------------------------------------------------------------------------------------------------
Total investment income 1,840
- ------------------------------------------------------------------------------------------------------------------
EXPENSES: -
Investment advisory fees 186 1,753
Trustees' fees 22
Administrative personnel and services fees (135) 109
Custodian and recordkeeping fees and expenses -5 19
Transfer Agent Fees-ESC -197 -
Transfer Agent Fees-Trust Shares 11
Transfer Agent Fees-Investor Shares 48 48
Transfer Agent Fees-Flex Shares 12 21
Transfer Agent Out of Pocket Fees 15
Fund share registration costs 16
Auditing fees 19
Legal fees 46
Printing and postage 10
Insurance premiums -
Distribution services fees-Investor Shares 241 483
Distribution services fees-Flex Shares 71 297
Amortization of deferred organizational costs 11
Miscellaneous 150
- ------------------------------------------------------------------------------------------------------------------
Total expenses 221 3,030
- ------------------------------------------------------------------------------------------------------------------
Deduct- 0
Waiver of investment advisory fees (88) (167)
Waiver of distribution services fees-Investor Shares (188) (188)
Waiver of distribution services fees-Flex Shares 3 (5)
- ------------------------------------------------------------------------------------------------------------------
NET EXPENSES 2,670
- ------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) (830)
- ------------------------------------------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments: 0
Net realized gain (loss) on investments (identified cost basis) 4,844
Net change in unrealized appreciation (depreciation) on investments (37,939)
- ------------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (33,095)
- ------------------------------------------------------------------------------------------------------------------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS (33,925)
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 1
<PAGE>
Pro Forma Statement of Assets and Liabilities (Unaudited)
STI Classic Funds Small Cap Growth Stock Fund
May 31, 1999
(000)
<TABLE>
<CAPTION>
Pro Forma Combined
STI Classic Funds ESC STI Classic Funds
Small Cap Growth Strategic Small Pro Forma Small Cap Growth
Stock Fund Cap Fund Adjustments Stock Fund
<S> <C> <C> <C> <C>
ASSETS
Total Investments at Market Value (Cost $148,958,
$113,771 and $262,729) $162,338 $110,281 $272,619
Cash (333) 0 (333)
Accrued Income 28 34 62
Receivables for Investment Securities Sold 3,919 205 4,124
Receivables for Capital Shares Sold 27 13 40
Other Receivables 22 0 22
Other Assets 13 1 14
------------- ------------- ---------------
Total Assets 166,014 110,534 276,548
------------- ------------- ---------------
LIABILITIES
Accrued Expenses (198) (177) (375)
Payable for Investment Securities Purchased (7,317) (727) (8,044)
Payable for Capital Shares Redeemed (51) (347) (398)
Payable for return of collateral received (51) (12,468) (12,519)
------------- ------------- ---------------
Total Liabilities (7,617) (13,719) (21,336)
------------- ------------- ---------------
158,397 96,815 255,212
NET ASSETS
Portfolio shares of the Trust Class (unlimited
authorization - no par value) based on (10,464,063,
0, 10,464,063) outstanding shares of beneficial interest 137,985 75,756 213,741
Portfolio shares of the Investor Class (unlimited
authorization - no par value) based on (0, 4,504,805,
5,136,734) outstanding shares of beneficial
interest 0 22,040 22,040
Portfolio shares of the Flex Class (unlimited
authorization - no par value) based on (425,752,
1,357,437, 1,952,407) outstanding shares of beneficial
interest 6,037 0 6,037
Undistributed net investment income 0 0 0
Accumulated net realized gain (loss) on investments 1,046 2,509 3,555
Net unrealized appreciation on investments 13,380 (3,490) 9,890
------------- ------------- ---------------
Total Net Assets $158,448 $96,815 $255,263
------------- ------------- ----------- ---------------
------------- ------------- ----------- ---------------
Net Asset Value, Offering and Redemption Price Per
Share - Trust Shares $14.55 $14.55
------------- ------------- ---------------
------------- ------------- ---------------
Net Asset Value and Redemption Price Per
Share - Investor Shares $16.59
------------- ---------------
------------- ---------------
Maximum Offering Price Per Share - Investor Shares $17.37
------------- ---------------
------------- ---------------
Net Asset Value, Offering and Redemption Price
Per Share - Investor Shares $14.55
------------- ------------- ---------------
------------- ------------- ---------------
Net Asset Value and Redemption Price Per
Share - Flex Shares $14.46 $16.26
------------- ------------- ---------------
------------- ------------- ---------------
Maximum Offering Price Per Share - Flex Shares $16.51
------------- ------------- ---------------
------------- ------------- ---------------
Net Asset Value, Offering and Redemption
Price Per Share -Flex Shares $14.46
------------- ------------- ---------------
------------- ------------- ---------------
$158,397 $96,815 $255,212
------------- ------------- ---------------
------------- ------------- ---------------
</TABLE>
Page 2
<PAGE>
ADJUSTMENTS TO FINANCIALS
FUNDSHARE
<TABLE>
<CAPTION>
Esc Small Cap NA Small Cap NAV Adjusted Shares STI Shares Combined
<S> <C> <C> <C> <C> <C>
Trust 0.00 14.55 0 10,464,063 10,464,063
Investor 74,739,484.00 14.55 5,136,734 0 5,136,734
Flex 22,075,437.00 14.46 1,526,655 425,752 1,952,407
</TABLE>
ADVISORY FEE
<TABLE>
<CAPTION>
ESC Small Cap
Avg Net Assets Small Cap BPS ESC Small Cap Fee Small Cap Fee Difference
----------------------- ---------------------- -------------------------------------------------------------------
<S> <C> <C> <C> <C>
125,111,776.00 1.15% 1,252,991.00 1,438,785.42 185,794.42
----------------
185,794.42
----------------
----------------
</TABLE>
DISTRIBUTION
<TABLE>
<CAPTION>
ESC Small Cap
Avg Net Assets Small Cap BPS ESC Small Cap Fee Small Cap Fee Difference
----------------------- ---------------------- -------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investor* 96,628,553.00 0.50% 241,928.00 483,142.77 241,214.77
Flex 28,483,222.00 1.00% 213,957.00 284,832.22 70,875.22
Total
----------------
312,089.99
----------------
----------------
</TABLE>
T/A FEES
ADMINISTRATION
<TABLE>
<CAPTION>
ESC Small Cap
Avg Net Assets Small Cap BPS ESC Small Cap Fee Small Cap Fee Difference
----------------------- ---------------------- -------------------------------------------------------------------
----------------------- ---------------------- -------------------------------------------------------------------
<S> <C> <C> <C> <C>
125,111,776.00 0.07% 222,498.00 87,578.24 -134,919.76
----------------
-134,919.76
----------------
----------------
</TABLE>
and allocated pro-rata amongst the funds.
ADVISORY & 12B-1 WAIVERS
<TABLE>
<CAPTION>
Advisory 12b-1 INVESTOR 12b-1 FLEX
<S> <C> <C> <C>
Total Expenses 3,030,000 Adj Total Exp Bps 1.294% 1.294%
Less Class Specific -864,000 T/A Fee 48000 21000
Fund Expenses 2,166,000 T/A Bps 0.050% 0.071%
Avg Net Assets 167,326,000 12b-1 Fee Bps 0.500% 1.000%
Fund Expenses BPS 1.294% Advisory Waiver 0.099% 0.099%
Trust Class T/A Fee BPS 0.005% Net Exp Before W 1.745% 2.266%
Adj Total Expenses BPS 1.299% Base Cap 1.550% 2.250%
Less Base Cap -1.200% 12b-1 Waiver Bps 0.195% 0.016%
Advisory Waiver BPS 0.099% 12b-1 Waiver 188,401.29 4,743.76
Advisory Waiver 165,952
</TABLE>
Avg Net Assets
<TABLE>
<CAPTION>
TOTAL TRUST INVESTOR FLEX
<S> <C> <C> <C> <C>
Trust Sunbelt 0 0
Investor ESC 96,628,553.00 96,628,553
Flex ESC 28,483,222.00 28,483,222
Trust Small Cap 25,835,862 25,835,862
Flex Small Cap 1,235,687 1,235,687
-------------------- ------------------------------------------------------------------
152,183,324 25,835,862 96,628,553 29,718,909
-------------------- ------------------------------------------------------------------
-------------------- ------------------------------------------------------------------
</TABLE>
Page 3
<PAGE>
Exp Proj
<TABLE>
<CAPTION>
Fee Table Year
<S> <C> <C>
Fund: 1 507
A= Sales Load 2
B= Total fund operating expenses 3 787
C= Redemption fee 4
D= Years CDSC is applicable 5 1087
Actuals 6
A= 3.75% 7
B= 1.35% 8
C= 0.00% 9
D= - 10 1938
</TABLE>
<TABLE>
<CAPTION>
5%
less
Amount Sales Beginning Expense Ending Average Expense Annual
Year Invested - Load = Value + Ratio = Value Value x Ratio = Expenses
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 10000 375 9625 351.31 9976.31 9800.656 1.35% 132.31
2 9976.313 364.14 10340.45 10158.38 1.35% 137.14
3 10340.45 377.43 10717.87 10529.16 1.35% 142.14
4 10717.87 391.20 11109.08 10913.48 1.35% 147.33
5 11109.08 405.48 11514.56 11311.82 1.35% 152.71
6 11514.56 420.28 11934.84 11724.7 1.35% 158.28
7 11934.84 435.62 12370.46 12152.65 1.35% 164.06
8 12370.46 451.52 12821.98 12596.22 1.35% 170.05
9 12821.98 468.00 13289.99 13055.98 1.35% 176.26
10 13289.99 485.08 13775.07 13532.53 1.35% 182.69
Exp Proj
<CAPTION>
Total
Amounts
Aggregate Redemption for Fee
Year Expenses + Fee = Table
<S> <C> <C> <C>
1 507.31 0.00 507.31
2 137.14 0.00 644.45
3 142.14 0.00 786.59
4 147.33 0.00 933.92
5 152.71 0.00 1086.63
6 158.28 0.00 1244.92
7 164.06 0.00 1408.98
8 170.05 0.00 1579.03
9 176.26 0.00 1755.28
10 182.69 0.00 1937.97
</TABLE>
Page 4
<PAGE>
STI FUNDS
<TABLE>
<CAPTION>
FUND NET ASSETS (000'S) NAV SHARES (000'S)
- -------------------------------- ------------------ --- --------------
<S> <C> <C> <C> <C>
STI SMALL CAP GROWTH EQUITY
Trust Class 206,080,503 16.23 12,700,058 16.226738
Investor Shares* 12,481,849 16.52 755,473 16.521900
Flex Shares 6,926,039 16.04 431,730 16.042510
Total 225,488,391 13,887,261
- ----------------------------------------------------------------------------------------------
ESC STRATEGIC SMALL CAP
Class A 45,102,729 16.95 2,660,246 16.954344
Class D 14,397,619 16.56 869,339 16.561562
Total 59,500,348 3,529,586
- ----------------------------------------------------------------------------------------------
COMBINED FUNDS
Trust Shares 206,080,503 16.23 12,700,057.54 16.226738
Investor Shares* 57,584,578 16.52 3,485,662.43 16.520412
Flex Shares 21,323,658 16.04 1,329,337.57 16.040815
Total 284,988,739 17,515,058
- ----------------------------------------------------------------------------------------------
</TABLE>
*This includes Investor class numbers from 12/13/99 (the date the class opened).
<TABLE>
<CAPTION>
FUND NET ASSETS (000'S) NAV SHARES (000'S)
- -------------------------------- ------------------ --- --------------
<S> <C> <C> <C> <C>
STI SMALL CAP GROWTH EQUITY
Trust Class 206,080,503 16.23 12,700,058 16.226738
Investor Shares* 12,481,849 16.52 755,473 16.521900
Flex Shares 6,926,039 16.04 431,730 16.042510
Total 225,488,391 13,887,261
- ----------------------------------------------------------------------------------------------
ESC STRATEGIC SMALL CAP II
Class A 10,581,977 10.21 1,036,008 10.214186
Class D 5,262,760 10.09 521,754 10.086677
Total 15,844,737 1,557,761
- ----------------------------------------------------------------------------------------------
COMBINED FUNDS
Trust Shares 206,080,503 16.23 12,700,057.54 16.226738
Investor Shares* 23,063,826 16.52 1,396,028.52 16.521028
Flex Shares 12,188,799 16.04 759,832.65 16.041426
Total 241,333,128 14,855,919
- ----------------------------------------------------------------------------------------------
</TABLE>
*This includes Investor class numbers from 12/13/99 (the date the class opened).
<TABLE>
<CAPTION>
FUND NET ASSETS (000'S) NAV SHARES (000'S)
- -------------------------------- ------------------ --- --------------
<S> <C> <C> <C> <C>
STI INTERNATIONAL EQUITY
Trust Class 563,543,423 13.30 42,362,691 13.302824
Investor Shares 13,209,257 13.19 1,001,173 13.193777
Flex Shares 15,294,295 12.81 1,193,659 12.812954
Total 592,046,975 44,557,523
- ----------------------------------------------------------------------------------------------
ESC STRATEGIC INTERNATIONAL
Class A 6,020,136 9.25 650,674 9.252152
Class D 1,497,878 8.87 168,965 8.865025
Total 7,518,015 819,639
- ----------------------------------------------------------------------------------------------
COMBINED FUNDS
Trust Shares 563,543,423 13.30 42,362,691 13.302824
Investor Shares 19,229,394 13.19 1,457,590 13.192594
Flex Shares 16,792,173 12.81 1,310,589 12.812690
Total 599,564,990 45,130,870
- ----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FUND NET ASSETS (000'S) NAV SHARES (000'S)
- -------------------------------- ------------------ --- --------------
<S> <C> <C> <C> <C>
STI GROWTH AND INCOME
Trust Class 679,408,422 15.36 44,243,039 15.356279
Investor Shares 38,878,160 15.47 2,512,324 15.474978
Flex Shares 49,931,771 15.33 3,256,380 15.333521
Total 768,218,353 50,011,743
- ----------------------------------------------------------------------------------------------
ESC STRATEGIC APPRECIATION
Class A 13,084,430 10.45 1,252,499 10.446658
Class D 3,574,626 10.09 354,329 10.088435
Total 16,659,056 1,606,828
- ----------------------------------------------------------------------------------------------
COMBINED FUNDS
Trust Shares 679,408,422 15.36 44,243,039 15.356279
Investor Shares 51,962,590 15.47 3,358,118 15.473724
Flex Shares 53,506,397 15.33 3,489,559 15.333286
Total 784,877,409 51,090,715
- ----------------------------------------------------------------------------------------------
</TABLE>
Page 5
<PAGE>
Pro Forma Combining Statement of Operations
Period Ended May 31, 1999
<TABLE>
<CAPTION>
Pro Forma Combined
ESC Strategic STI Classsic
Income Fund Combined Adjustments High Income Fund
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest income $ 1,149 $ 1,149 $ 1,149
Dividend income 25 25 25
- ----------------------------------------------------------------------------------------------------------------------------------
Total investment income 1,174 1,174 1,174
- ----------------------------------------------------------------------------------------------------------------------------------
EXPENSES: -
Investment advisory fees 167 167 (34) 133
Trustees' fees 2 2 2
Administrative personnel and services fees 62 62 (50) 12
Custodian and recordkeeping fees and expenses 6 6 -11 6
Transfer Agent Fees 25 25 14
Transfer Agent Fees-Flex Shares - -
Transfer Agent Out of Pocket Fees - -
Fund share registration costs - -
Auditing fees 16 16 16
Legal fees 6 6 6
Printing and postage - -
Insurance premiums - -
Distribution services fees-Investor Shares 40 40 (40) -
Distribution services fees-Flex Shares 5 5 117 122
Amortization of deferred organizational costs 8 8 8
Miscellaneous 38 38 38
- ----------------------------------------------------------------------------------------------------------------------------------
Total expenses 375 375 (18) 357
- ----------------------------------------------------------------------------------------------------------------------------------
Deduct- 0
Waiver of investment advisory fees (53) (53) (98)
Waiver of distribution services fees-Investor Shares - -
Waiver of distribution services fees-Flex Shares - (25)
- ----------------------------------------------------------------------------------------------------------------------------------
NET EXPENSES 322 322 234
- ----------------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) 852 852 940
- ----------------------------------------------------------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments: 0
Net realized gain (loss) on investments (identified cost basis) 58 58 58
Net change in unrealized appreciation (depreciation) on investments (194) (194) (194)
- ----------------------------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (136) (136) (136)
- ----------------------------------------------------------------------------------------------------------------------------------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS $ 716 716 804
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 6
<PAGE>
Pro Forma Statement of Assets and Liabilities (Unaudited)
STI Classic High Income Fund
March 31, 1999
(000)
<TABLE>
<CAPTION>
Pro Forma Combined
ESC STI Classic Funds
Strategic Pro Forma Small Cap Growth
Income Fund Adjustments Stock Fund
<S> <C> <C> <C>
ASSETS
Total Investments at Market Value (Cost $7,666 and
$7,666) $ 7,665 $7,665
Cash 0
Accrued Income 192 192
Receivables for Investment Securities Sold 0 0
Receivables for Capital Shares Sold 0 0
Other Receivables 0 0
Other Assets 6 6
------------- ------------- ---------------
Total Assets 7,863 7,863
------------- ------------- ---------------
LIABILITIES
Accrued Expenses (32) (32)
Income distribution payable (53) (53)
Payable for Investment Securities Purchased 0
Payable for Capital Shares Redeemed 0
------------- ------------- ---------------
Total Liabilities (85) (85)
------------- ------------- ---------------
7,778 7,778
NET ASSETS
Portfolio shares of the Trust Class (unlimited
authorization - no par value) based on (0,
0, 0) outstanding shares of beneficial interest 0
Portfolio shares of the Investor Class (unlimited
authorization - no par value) based on (0, 740,
072, 0) outstanding shares of beneficial
interest 7,289 (7,289) 0
Portfolio shares of the Flex Class (unlimited
authorization - no par value) based on (55,694,
796,163) outstanding shares of beneficial
interest 543 7,289 7,832
Undistributed net investment income (53) (53)
Accumulated net realized gain (loss) on investments 0 0
Net unrealized appreciation on investments (1) (1)
------------- ------------- ---------------
Total Net Assets $7,778 $7,778
------------- ------------- ---------- ---------------
------------- ------------- ---------- ---------------
Net Asset Value, Offering and Redemption Price Per
Share - Trust Shares
------------- ------------- ---------------
------------- ------------- ---------------
Net Asset Value and Redemption Price Per
Share - Investor Shares $9.77
------------- ---------------
------------- ---------------
Maximum Offering Price Per Share - Investor Shares $10.23
------------- ---------------
------------- ---------------
Net Asset Value and Redemption Price Per
Share - Flex Shares $9.84
------------- ------------- ---------------
------------- ------------- ---------------
Maximum Offering Price Per Share - Flex Shares $9.99
------------- ------------- ---------------
------------- ------------- ---------------
Net Asset Value, Offering and Redemption
Price Per Share -Flex Shares $9.84
------------- ------------- ---------------
------------- ------------- ---------------
$7,778 $7,778
------------- ------------- ---------------
------------- ------------- ---------------
</TABLE>
Page 7
<PAGE>
Adjustments
ADJUSTMENTS TO FINANCIALS
FUNDSHARE
<TABLE>
<CAPTION>
Esc Income NA High Income NAV Adjusted Shares STI Shares Combined
<S> <C> <C> <C> <C> <C>
Trust 0.00 0.00 #DIV/0! 0 #DIV/0!
Investor 7,230,434.00 9.77 740,065 0 740,072
Flex 548,012.00 9.77 56,091 0 56,091
-----------------
796,163
-----------------
-----------------
</TABLE>
ADVISORY FEE
<TABLE>
<CAPTION>
ESC Income Fund
----------------------
Avg Net Assets High Income BPS ESC Income Fund STI High Income Difference
---------------------- ---------------------- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
16,695,685.00 0.80% 167,336.00 133,565.48 -33,770.52
16,695,685.00 0.65% 167,336.00 108,521.95 -58,814.05
----------------------------------------
25,043.53 -33,770.52
----------------------------------------
----------------------------------------
</TABLE>
DISTRIBUTION
<TABLE>
<CAPTION>
ESC Income Fund
----------------------
Avg Net Assets High Income BPS ESC Income Fund STI High Income Difference
---------------------- ---------------------- ----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Flex 16,695,685.00 1.00% 45,452.00 166,956.85 121,504.85
Total
-----------------
121,504.85
-----------------
-----------------
</TABLE>
T/A FEES
ADMINISTRATION
<TABLE>
<CAPTION>
ESC Income Fund
----------------------
Avg Net Assets High Income BPS ESC Income Fund STI High Income Difference
---------------------- ---------------------- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
16,695,685.00 0.07% 62,048.00 11,686.98 -50,361.02
------------------
-50,361.02
------------------
------------------
</TABLE>
and allocated pro-rata amongst the funds.
ADVISORY & 12B-1 WAIVERS
<TABLE>
<CAPTION>
Advisory 12b-1 FLEX
<S> <C> <C> <C>
Total Expenses 357,000 Adj Total Exp Bps 2.138%
Less Class Specific Incremental adv w 25,044
Fund Expenses 357,000
Avg Net Assets 16,695,685 12b-1 Fee Bps 0.000%
Fund Expenses BPS 2.138% Advisory Waiver 0.150%
Trust Class T/A Fee BPS Net Exp Before W 1.988%
Adj Total Expenses BPS 2.138% Base Cap 1.400%
Less Base Cap -1.400% 12b-1 Waiver Bps 0.588%
Advisory Waiver BPS 0.150% 12b-1 Waiver 98,216.88
Advisory Waiver 25,044
ADJ to 65 BPS 25,044
</TABLE>
Avg Net Assets
<TABLE>
<CAPTION>
TOTAL TRUST INVESTOR FLEX
<S> <C> <C> <C> <C>
Flex Income Fund 16,695,685.00 16,695,685
---------------------- ---------------------------------------------------------------------
STI High Income Flex 16,695,685 0 0 16,695,685
---------------------- ---------------------------------------------------------------------
---------------------- ---------------------------------------------------------------------
</TABLE>
Page 8
<PAGE>
<TABLE>
<CAPTION>
Fee Table Year
<S> <C> <C>
Fund: 1 507
A= Sales Load 2
B= Total fund operating expenses 3 787
C= Redemption fee 4
D= Years CDSC is applicable 5 1087
Actuals 6
A= 3.75% 7
B= 1.35% 8
C= 0.00% 9
D= - 10 1938
</TABLE>
<TABLE>
<CAPTION>
5%
less
Amount Sales Beginning Expense Ending Average Expense Annual
Year Invested - Load = Value + Ratio = Value Value x Ratio = Expenses
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 10000 375 9625 351.31 9976.31 9800.656 1.35% 132.31
2 9976.313 364.14 10340.45 10158.38 1.35% 137.14
3 10340.45 377.43 10717.87 10529.16 1.35% 142.14
4 10717.87 391.20 11109.08 10913.48 1.35% 147.33
5 11109.08 405.48 11514.56 11311.82 1.35% 152.71
6 11514.56 420.28 11934.84 11724.7 1.35% 158.28
7 11934.84 435.62 12370.46 12152.65 1.35% 164.06
8 12370.46 451.52 12821.98 12596.22 1.35% 170.05
9 12821.98 468.00 13289.99 13055.98 1.35% 176.26
10 13289.99 485.08 13775.07 13532.53 1.35% 182.69
<CAPTION>
Total
Amounts
Aggregate Redemption for Fee
Year Expenses + Fee = Table
<S> <C> <C> <C>
1 507.31 0.00 507.31
2 137.14 0.00 644.45
3 142.14 0.00 786.59
4 147.33 0.00 933.92
5 152.71 0.00 1086.63
6 158.28 0.00 1244.92
7 164.06 0.00 1408.98
8 170.05 0.00 1579.03
9 176.26 0.00 1755.28
10 182.69 0.00 1937.97
</TABLE>
Page 9
<PAGE>
STI FUNDS
<TABLE>
<CAPTION>
FUND NET ASSETS (000'S) NAV SHARES (000'S)
- --------------------------------- ------------------ --- --------------
<S> <C> <C> <C> <C>
STI SMALL CAP GROWTH EQUITY
Trust Class 206,080,503 16.23 12,700,058 16.226738
Investor Shares - - - #DIV/0!
Flex Shares 6,926,039 16.04 431,730 16.042510
Total 213,006,542 13,131,788
- -------------------------------------------------------------------------------------------
ESC STRATEGIC SMALL CAP
Class A 45,102,729 16.95 2,660,246 16.954344
Class D 14,397,619 16.56 869,339 16.561562
Total 59,500,348 3,529,586
- -------------------------------------------------------------------------------------------
COMBINED FUNDS
Trust Shares 206,080,503 16.23 12,700,057.54 16.226738
Investor Shares 45,102,729 16.23 2,778,972.85 16.230000
Flex Shares 21,323,658 16.04 1,329,337.57 16.040815
Total 272,506,890 16,808,368
- -------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FUND NET ASSETS (000'S) NAV SHARES (000'S)
- --------------------------------- ------------------ --- --------------
STI SMALL CAP GROWTH EQUITY
<S> <C> <C> <C> <C>
Trust Class 206,080,503 16.23 12,700,058 16.226738
Investor Shares - - - #DIV/0!
Flex Shares 6,926,039 16.04 431,730 16.042510
Total 213,006,542 13,131,788
- -------------------------------------------------------------------------------------------
ESC STRATEGIC SMALL CAP II
Class A 10,581,977 10.21 1,036,008 10.214186
Class D 5,262,760 10.09 521,754 10.086677
Total 15,844,737 1,557,761
- -------------------------------------------------------------------------------------------
COMBINED FUNDS
Trust Shares 206,080,503 16.23 12,700,057.54 16.226738
Investor Shares 10,581,977 16.23 652,001.06 16.230000
Flex Shares 12,188,799 16.04 759,832.65 16.041426
Total 228,851,279 14,111,891
- -------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FUND NET ASSETS (000'S) NAV SHARES (000'S)
- --------------------------------- ------------------ --- --------------
<S> <C> <C> <C> <C>
STI INTERNATIONAL EQUITY
Trust Class 563,543,423 13.30 42,362,691 13.302824
Investor Shares 13,209,257 13.19 1,001,173 13.193777
Flex Shares 15,294,295 12.81 1,193,659 12.812954
Total 592,046,975 44,557,523
- -------------------------------------------------------------------------------------------
ESC STRATEGIC INTERNATIONAL
Class A 6,020,136 9.25 650,674 9.252152
Class D 1,497,878 8.87 168,965 8.865025
Total 7,518,015 819,639
- -------------------------------------------------------------------------------------------
COMBINED FUNDS
Trust Shares 563,543,423 13.30 42,362,691 13.302824
Investor Shares 19,229,394 13.19 1,457,590 13.192594
Flex Shares 16,792,173 12.81 1,310,589 12.812690
Total 599,564,990 45,130,870
- -------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FUND NET ASSETS (000'S) NAV SHARES (000'S)
- --------------------------------- ------------------ --- --------------
<S> <C> <C> <C> <C>
STI GROWTH AND INCOME
Trust Class 679,408,422 15.36 44,243,039 15.356279
Investor Shares 38,878,160 15.47 2,512,324 15.474978
Flex Shares 49,931,771 15.33 3,256,380 15.333521
Total 768,218,353 50,011,743
- -------------------------------------------------------------------------------------------
ESC STRATEGIC APPRECIATION
Class A 13,084,430 10.45 1,252,499 10.446658
Class D 3,574,626 10.09 354,329 10.088435
Total 16,659,056 1,606,828
- -------------------------------------------------------------------------------------------
COMBINED FUNDS
Trust Shares 679,408,422 15.36 44,243,039 15.356279
Investor Shares 51,962,590 15.47 3,358,118 15.473724
Flex Shares 53,506,397 15.33 3,489,559 15.333286
Total 784,877,409 51,090,715
- -------------------------------------------------------------------------------------------
</TABLE>
Page 10
<PAGE>
<TABLE>
<CAPTION>
-------------------------------
STI Small Cap
Growth Stock Fund
- -----------------------------------------------------------------------------------------------------------
Shares / Face
Security Amount Value (000)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stocks--98.5%
Basic Materials--8.9%
Alpha Industries* 23,000 801
Astec Industries* 23,660 884
Bel Fuse, Cl A* 25,800 851
Boise Cascade 37,000 1,466
Centex Construction Products 23,020 826
Dal-Tile International, Inc.*
Florida Rock Industries 10,000 399
Granite Construction 24,000 673
International Comfort Products Corp.*
Jacobs Engineering Group* 10,300 383
LTV 45,000 276
NCI Building Systems* 47,570 1,201
Nordson Corp.
Pameco Corp.*
Quanex Corp.
Solutia 35,000 785
Stillwater Mining* 36,500 1,166
US Liquids* 20,900 376
U.S. Plastic Lumber* 90,000 816
Total Basic Materials 10,903
Capital Goods--17.5%
AFC Cable Systems* 37,085 1,275
American Woodmark 18,000 664
Anaren Microwave* 38,400 823
Avondale Industries* 20,000 730
Borg-Warner Automotive 13,000 721
Briggs & Stratton 11,800 737
Compucom Systems, Inc.*
Concord Communications* 21,000 934
Corsair Communications* 20,000 91
Crane 15,000 451
DM Management* 25,000 403
Dycom Industry* 29,475 1,422
Elcor 19,130 772
Elder-Beerman Stores Corp.*
Electro Scientific Industries, Inc.*
Genesis Microchip* 58,100 1,053
Group Maintenance America Corp.*
Intervoice* 93,000 1,035
Kellstrom Industries* 14,000 254
Kulicke & Soffa Industries, Inc.*
Manitowoc 20,723 705
Miami Computer Supply* 39,550 744
Mobile Mini* 68,000 897
Motivepower Industries* 27,150 460
National R.V. Holdings* 31,470 808
Navistar International* 30,000 1,481
Newpark Resources, Inc.*
PCD, Inc.*
Plexus Corp.*
Power-One, Inc.*
Regis Corp.
Safety Kleen Corp.*
Simpson Manufacturing* 19,500 865
Sps Technologies* 12,070 511
Syncor International* 32,000 1,088
Transwitch* 27,500 1,272
UNIFAB International* 49,000 505
United Stationers* 33,000 619
Universal Corp. 15,000 392
USG 7,775 440
Varian Medical Associates* 15,000 282
Varlen 39,176 1,479
Wackenhut Corp., Class B
Whole Foods Market, Inc.*(a)
Total Capital Goods 23,913
Communication Services--1.9%
Broadvision* 20,000 1,040
Flashnet Communications * 11,000 217
Genesys Telecom Labs* 52,000 1,202
Gilat Communications Limited* 54,500 804
Polycom* 61,695 1,581
Total Communication Services 4,844
Consumer Cyclicals--24.1%
Aaron Rents, Inc.
American Eagle Outfitters* 27,000 1,102
Analytical Surveys* 25,500 625
Ann Taylor Stores* 26,500 1,144
Arvin Industries 23,000 903
Benchmark Electronics, Inc.*
Brinker International* 22,985 645
Buckle* 54,865 1,519
Cash America International, Inc.
CDW Computer Centers* 19,000 826
Centex 18,000 667
Chattem, Inc.*
Chicos* 50,000 1,134
Claire's Stores 35,000 1,024
Consolidated Graphics* 16,310 752
Copart, Inc.
Cost Plus * 25,000 934
Craftmade International 46,640 624
Cutter & Buck* 25,760 763
DR Horton 75,800 1,289
Delia's* 19,000 252
Dollar Tree Stores* 29,000 975
Empi* 12,000 294
First Years 24,010 384
Foodmaker* 20,000 540
Fossil* 32,530 1,364
Gentex* 27,000 811
Jakks Pacific * 30,000 831
K-Swiss, Cl A 46,740 2,682
Kroll-O'Gara Co.*
La-Z-Boy 26,800 533
Labor Ready* 29,500 1,051
Liberty Property Trust 25,270 610
Mohawk Industries* 36,115 1,052
Monaco Coach* 37,510 1,125
Movado Group 9,175 221
Oshkosh B'gosh, Cl A 16,655 327
Oshkosh Truck 6,000 238
Pre Paid Legal Services* 10,000 266
Programmer's Paradise * 8,000 86
Quiksilver* 34,000 969
Racing Champions* 64,000 1,096
Rare Hospitality International* 24,000 552
Rexall Sundown, Inc.*
Salton/Maxim Housewares 21,500 919
Sonic Automotive, Inc.*
Southdown 24,900 1,578
Speedway Motorsports, Inc.*
Standard Pacific 54,145 711
Steven Madden Ltd* 81,365 870
Superior Industries International 27,000 673
Tarrant Apparel Group* 33,330 1,010
Triumph Group* 23,395 716
United Natural Foods, Inc.*
Urs* 28,325 697
Wet Seal, Cl A* 17,000 472
Wynn's International, Inc.
Winnebago Industries 54,000 891
Worthington Foods, Inc.
Zale* 28,000 1,080
Total Consumer Cyclicals 39,827
Consumer Staples--3.0%
Canandaigua Wine, Cl A* 13,100 652
Earthgrains 20,000 469
Flowers Industries 44,600 992
Mail-Well* 65,000 963
Papa John's International* 38,900 1,537
Rent-A-Center * 35,000 903
Smithfield Foods* 43,000 1,148
Suiza Foods* 25,000 916
Total Consumer Staples 7,580
Energy--2.3%
Eagle Geophysical * 1,280 4
National-Oilwell, Inc.*
Oceaneering International* 50,000 772
Rowan Cos., Inc.*
Santa Fe Snyder Corp* 80,000 680
Seacor Holdings* 3,000 149
Seitel* 40,000 632
Transocean Offshore 61,800 1,522
Veritas DGC, INC.*
Total Energy 3,759
Financials--7.2%
Allied Capital Corp.
American Heritage 39,300 914
Amerin* 21,057 566
Amresco, Inc.*(a)
Annuity & Life Re Holdings 12,000 309
Bank of Commerce/San Diego 16,000 312
Corporate Executive Board* 17,000 498
Cullen/Frost Bankers 9,550 537
Dime Community Bancorp 35,200 779
Doral Financial 42,000 709
E.W. Blanch Holdings 16,900 1,082
Enhance Financial Services Group 30,000 587
Financial Security Assurance Holdings 7,385 419
Finova Group, Inc.
FPIC Insurance Group, Inc.*
Fremont General 55,000 1,165
Investment Technology Group* 16,881 748
NVR* 13,975 673
PFF Bancorp* 32,000 580
Pilgrim America Cap Corp* 19,600 390
Protective Life 38,000 1,375
Ryland Group 16,165 450
Total Financials 12,093
Health Care--9.0%
Alpharma, Cl A 24,000 640
Barr Laboratories* 18,475 609
Biomatrix* 28,000 857
Capital Senior Living* 70,000 761
Colorado Medtech* 65,340 923
D&K Healthcare Resources* 24,400 576
Dura Pharmaceuticals, Inc.*
Endosonics Corp.*
Interim Services* 35,000 763
Ivax* 40,000 537
Laser Vision Centers* 15,000 855
Liposome* 78,000 1,116
Meditis Pharmaceutical Corp., Class A*
Natrol, Inc.*
Optical Coating Laboratories 3,000 195
Osteotech* 23,917 849
Rehabcare Group* 33,000 710
Res-Care Inc.*
Resmed* 43,000 1,207
Roberts Pharmaceutical* 63,000 1,197
Steris* 25,000 414
Trigon Healthcare* 15,000 572
Twinlab Corp.*
United Payors & United Providers, Inc.*
Varian 15,000 150
Total Health Care 12,931
Real Estate--2.0%
Intrawest Corp.
Prison Realty Corp.
Total Real Estate
Technology--17.9%
Activision, Inc.*
ADE Corp.*
American Management Systems* 25,000 794
Apex PC Solutions, Inc.*
Armor Holdings, Inc. Delaware*
Asyst Technologies, Inc.*
Business Objects ADR* 30,000 862
Checkpoint Software* 20,000 885
Ciber* 52,230 1,120
CMI Corp., Class A
Commscope* 50,000 1,313
Computer Network Technology* 29,000 732
Cordant Technologies 18,000 873
Cybex Computer Products* 61,944 1,405
Datastream Systems, Inc.*
Electronic Arts* 16,000 783
Fair Isaac 5,000 164
FEI CO.*
Flextronics International* 7,000 350
4front Technologies* 60,000 600
Henry (Jack) & Associates 7,000 247
Herley Industries * 52,000 673
Hyperion Telecommunications, Cl A* 60,000 1,013
Insight Enterprises* 38,557 978
Javelin Systems * 60,000 776
Kronos* 29,200 1,081
Landmark Systems* 24,000 231
Mastech* 62,900 1,207
Maxtor Corp.*
Metamor Worldwide* 27,000 739
Micros Systems* 40,000 1,250
Overland Data * 65,000 423
Pinnacle Systems* 19,000 984
Perot Systems, Cl A* 14,800 401
Powerhouse Technologies* 15,000 278
Power Intergrations, Inc.*
Progress Software* 66,930 1,744
Quantum* 20,000 396
Sunquest* 44,000 578
Sybase* 55,000 533
Sykes Enterprises* 10,435 325
T-HQ* 46,290 1,091
Talk.com * 25,000 259
Technomatrix Technologies* 51,000 854
Timberline Software 54,000 918
USWeb* 25,000 634
Varian Semiconductor Equipment* 15,000 187
Xircom* 52,000 1,313
Zebra Technologies Corp.*
Zomax* 41,000 1,081
Total Technology 30,075
Transportation--3.9%
Aeroflex* 61,000 888
Alaska Airgroup* 10,000 415
American Freightways* 82,500 1,444
Amtran Inc* 14,525 341
Atlas Air* 48,000 1,290
Eagle USA Airfreight* 9,000 424
Forward Air* 10,000 274
Frontier Airlines* 62,000 961
Landstar System* 10,000 376
Skywest 38,680 899
Swift Transportation* 45,000 823
USFreightways 43,300 1,706
Total Transportation 9,841
Utilities--0.8%
El Paso Electric* 80,000 685
Kinder Morgan Energy Partners 18,000 671
Public Service of New Mexico 20,000 415
Public Service of North Carolina 5,000 145
Total Utilities 1,916
Total Common Stocks (Cost $241,425) 157,682
Floating Rate Note--1.0%
Merrill Lynch & Co., 5.40%, 2/28/2000, MTN
Total Floating Rate Note (Cost $2,500)
Repurchase Agreements--5.7%
Morgan Stanley 4.80%, dated 05/28/99, matures 06/01/99, repurchase
price $4,658,357 (collateralized by various FNMA obligations: total
market value $4,767,582) 4,656 4,656
Lehman Brothers Triparty Agreement 5.25%, 4/1/1999
Total Repurchase Agreements (Cost $14,624)
CASH SWEEP ACCOUNT-1.6%
Union Bank of California
Total Cash Sweep Account(Cost $4,180)
Total Investments--106.8% (Cost $262,729) 162,338
Other Assets and Liabilities, Net---(6.8%) (3,890)
Total Net Assets--100.0% 158,448
<CAPTION>
--------------------------------
ESC Strategic
Small Cap
- -----------------------------------------------------------------------------------------------------------
Shares / Face
Security Amount Value (000)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stocks--98.5%
Basic Materials--8.9%
Alpha Industries*
ASTEC INDUSTRIES* 150,000 4,631
Bel Fuse, Cl A*
Boise Cascade
Centex Construction Products
Dal-Tile International, Inc.* 204,800 1,856
Florida Rock Industries
Granite Construction
International Comfort Products Corp.* 301,100 2,371
Jacobs Engineering Group*
LTV
NCI Building Systems*
Nordson Corp. 20,000 1,115
Pameco Corp.* 113,700 654
Quanex Corp. 75,000 1,163
Solutia
Stillwater Mining*
US Liquids*
U.S. Plastic Lumber*
Total Basic Materials 11,790
Capital Goods--17.5%
AFC Cable Systems*
American Woodmark
Anaren Microwave*
Avondale Industries*
Borg-Warner Automotive
Briggs & Stratton
Compucom Systems, Inc.* 311,000 914
Concord Communications*
Corsair Communications*
Crane
DM Management*
Dycom Industry*
Elcor
Elder-Beerman Stores Corp.* 55,000 474
Electro Scientific Industries, Inc.* 64,200 2,985
Genesis Microchip*
Group Maintenance America Corp.* 180,000 2,048
Intervoice*
Kellstrom Industries*
Kulicke & Soffa Industries, Inc.* 100,000 2,525
Manitowoc
Miami Computer Supply*
Mobile Mini*
Motivepower Industries*
National R.V. Holdings*
Navistar International*
Newpark Resources, Inc.* 146,200 1,060
PCD, Inc.* 125,300 1,136
Plexus Corp.* 36,100 1,006
Power-One, Inc.* 193,000 1,303
Regis Corp. 90,000 2,396
Safety Kleen Corp.* 100,000 1,325
Simpson Manufacturing*
Sps Technologies*
Syncor International*
Transwitch*
UNIFAB International*
United Stationers*
Universal Corp.
USG
Varian Medical Associates*
Varlen
Wackenhut Corp., Class B 143,600 2,441
Whole Foods Market, Inc.*(a) 37,200 1,279
Total Capital Goods 20,892
Communication Services--1.9%
Broadvision*
Flashnet Communications *
Genesys Telecom Labs*
Gilat Communications Limited*
Polycom*
Total Communication Services
Consumer Cyclicals--24.1%
Aaron Rents, Inc. 111,600 1,744
American Eagle Outfitters*
Analytical Surveys*
Ann Taylor Stores*
Arvin Industries
Benchmark Electronics, Inc.* 83,600 2,508
Brinker International*
Buckle*
Cash America International, Inc. 100,000 1,288
CDW Computer Centers*
Centex
Chattem, Inc.* 29,600 925
Chicos*
Claire's Stores
Consolidated Graphics*
Copart, Inc. 144,400 2,166
Cost Plus *
Craftmade International
Cutter & Buck*
DR Horton
Delia's*
Dollar Tree Stores*
Empi*
First Years
Foodmaker*
Fossil*
Gentex*
Jakks Pacific *
K-Swiss, Cl A
Kroll-O'Gara CU.* 67,800 1,839
La-Z-Boy
Labor Ready*
Liberty Property Trust
Mohawk Industries*
Monaco Coach*
Movado Group
Oshkosh B'gosh, Cl A
Oshkosh Truck
Pre Paid Legal Services*
Programmer's Paradise *
Quiksilver*
Racing Champions*
Rare Hospitality International*
Rexall Sundown, Inc.* 100,000 1,919
Salton/Maxim Housewares*
Sonic Automotive, Inc.* 70,000 1,085
Southdown
Speedway Motorsports, Inc.* 61,700 2,545
Standard Pacific
Steven Madden Ltd*
Superior Industries International
Tarrant Apparel Group*
Triumph Group*
United Natural Foods, Inc.* 100,000 2,338
Urs*
Wet Seal, Cl A*
Wynn's International, Inc. 132,000 2,302
Winnebago Industries
Worthington Foods, Inc. 105,666 1,202
Zale*
Total Consumer Cyclicals 21,861
Consumer Staples--3.0%
Canandaigua Wine, Cl A*
Earthgrains
Flowers Industries
Mail-Well*
Papa John's International*
Rent-A-Center *
Smithfield Foods*
Suiza Foods*
Total Consumer Staples
Energy--2.3%
Eagle Geophysical *
National-Oilwell, Inc.* 90,000 1,041
Oceaneering International*
Rowan Cos., Inc.* 10,000 127
Santa Fe Snyder Corp*
Seacor Holdings*
Seitel*
Transocean Offshore
Veritas DGC, Inc.* 71,500 1,014
Total Energy 2,182
Financials--7.2%
Allied Capital Corp. 139,800 2,569
American Heritage
Amerin*
Amresco, Inc.* 100,000 769
Annuity & Life Re Holdings
Bank of Commerce/San Diego
Corporate Executive Board*
Cullen/Frost Bankers
Dime Community Bancorp
Doral Financial
E.W. Blanch Holdings
Enhance Financial Services Group
Financial Security Assurance Holdings
Finova Group, Inc. 16,340 848
FPIC Insurance Group, Inc.* 50,000 2,075
Fremont General
Investment Technology Group*
NVR*
PFF Bancorp*
Pilgrim America Cap Corp*
Protective Life
Ryland Group 6,261
Total Financials
Health Care--9.0%
Alpharma, Cl A
Barr Laboratories*
Biomatrix*
Capital Senior Living*
Colorado Medtech*
D&K Healthcare Resources*
Dura Pharmaceuticals, Inc.* 140,000 1,978
Endosonics Corp.* 130,000 845
Interim Services*
Ivax*
Laser Vision Centers*
Liposome*
Meditis Pharmaceutical Corp., Class A* 57,300 1,719
Natrol, Inc.* 120,000 728
Optical Coating Laboratories
Osteotech*
Rehabcare Group*
Res-Care Inc.* 100,000 2,256
Resmed*
Roberts Pharmaceutical*
Steris*
Trigon Healthcare*
Twinlab Corp.* 143,800 1,348
United Payors & United Providers, Inc.* 50,000 1,153
Varian
Total Health Care 10,027
Real Estate--2.0%
Intrawest Corp. 183,700 3,099
Prison Realty Corp. 111,750 1,949
Total Real Estate 5,048
Technology--17.9%
Activision, Inc.* 130,000 1,609
ADE Corp.* 150,000 1,425
American Management Systems*
Apex PC Solutions, Inc.* 55,000 767
Armor Holdings, Inc. Delaware* 100,000 1,369
Asyst Technologies, Inc.* 108,100 1,486
Business Objects ADR*
Checkpoint Software*
Ciber*
CMI Corp., Class A 167,600 1,047
Commscope*
Computer Network Technology*
Cordant Technologies
Cybex Computer Products*
Datastream Systems, Inc.* 110,000 949
Electronic Arts*
Fair Isaac
FEI Co.* 192,100 1,608
Flextronics International*
4front Technologies*
Henry (Jack) & Associates
Herley Industries *
Hyperion Telecommunications, Cl A*
Insight Enterprises*
Javelin Systems *
Kronos*
Landmark Systems*
Mastech*
Maxtor Corp.* 125,200 884
Metamor Worldwide*
Micros Systems*
Overland Data *
Pinnacle Systems*
Perot Systems, Cl A*
Powerhouse Technologies*
Power Intergrations, Inc.* 78,500 2,491
Progress Software*
Quantum*
Sunquest*
Sybase*
Sykes Enterprises*
T-HQ*
Talk.com *
Technomatrix Technologies*
Timberline Software
USWeb*
Varian Semiconductor Equipment*
Xircom*
Zebra Technologies Corp.* 81,600 1,937
Zomax*
Total Technology 15,572
Transportation--3.9%
Aeroflex*
Alaska Airgroup*
American Freightways*
Amtran Inc*
Atlas Air*
Eagle USA Airfreight*
Forward Air*
Frontier Airlines*
Landstar System*
Skywest
Swift Transportation*
USFreightways
Total Transportation
Utilities--0.8%
El Paso Electric*
Kinder Morgan Energy Partners
Public Service of New Mexico
Public Service of North Carolina
Total Utilities
Total Common Stocks (Cost $241,425)
Floating Rate Note--1.0%
Merrill Lynch & Co., 5.40%, 2/28/2000, MTN 2,500,000 2,500
Total Floating Rate Note (Cost $2,500)
Repurchase Agreements--5.7%
Morgan Stanley 4.80%, dated 05/28/99, matures 06/01/99, repurchase
price $4,658,357 (collateralized by various FNMA obligations: total
market value $4,767,582)
Lehman Brothers Triparty Agreement 5.25%, 4/1/1999 9,967,809 9,968
Total Repurchase Agreements (Cost $14,624)
Cash Sweep Account-1.6%
Union Bank of California 4,180,116 4,180
Total Cash Sweep Account(Cost $4,180)
Total Investments--106.8% (Cost $262,729)
Other Assets and Liabilities, Net---(6.8%)
Total Net Assets--100.0%
<CAPTION>
-------------------------------
Pro Forma Combined
STI Small Cap
Growth Stock Fund
- ---------------------------------------------------------------------------------------------------------
Shares / Face
Security Amount Value (000)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stocks--98.5%
Basic Materials--8.9%
Alpha Industries* 23,000 801
Astec Industries* 173,660 5,515
Bel Fuse, Cl A* 25,800 851
Boise Cascade 37,000 1,466
Centex Construction Products 23,020 826
Dal-Tile International, Inc.* 204,800 1,856
Florida Rock Industries 10,000 399
Granite Construction 24,000 673
International Comfort Products Corp.* 301,100 2,371
Jacobs Engineering Group* 10,300 383
LTV 45,000 276
NCI Building Systems* 47,570 1,201
Nordson Corp. 20,000 1,115
Pameco Corp.* 113,700 654
Quanex Corp. 75,000 1,163
Solutia 35,000 785
Stillwater Mining* 36,500 1,166
US Liquids* 20,900 376
U.S. Plastic Lumber* 90,000 816
Total Basic Materials 22,693
Capital Goods--17.5%
AFC Cable Systems* 37,085 1,275
American Woodmark 18,000 664
Anaren Microwave* 38,400 823
Avondale Industries* 20,000 730
Borg-Warner Automotive 13,000 721
Briggs & Stratton 11,800 737
Compucom Systems, Inc.* 311,000 914
Concord Communications* 21,000 934
Corsair Communications* 20,000 91
Crane 15,000 451
DM Management* 25,000 403
Dycom Industry* 29,475 1,422
Elcor 19,130 772
Elder-Beerman Stores Corp.* 55,000 474
Electro Scientific Industries, Inc.* 64,200 2,985
Genesis Microchip* 58,100 1,053
Group Maintenance America Corp.* 180,000 2,048
Intervoice* 93,000 1,035
Kellstrom Industries* 14,000 254
Kulicke & Soffa Industries, Inc.* 100,000 2,525
Manitowoc 20,723 705
Miami Computer Supply* 39,550 744
Mobile Mini* 68,000 897
Motivepower Industries* 27,150 460
National R.V. Holdings* 31,470 808
Navistar International* 30,000 1,481
Newpark Resources, Inc.* 146,200 1,060
PCD, Inc.* 125,300 1,136
Plexus Corp.* 36,100 1,006
Power-One, Inc.* 193,000 1,303
Regis Corp. 90,000 2,396
Safety Kleen Corp.* 100,000 1,325
Simpson Manufacturing* 19,500 865
Sps Technologies* 12,070 511
Syncor International* 32,000 1,088
Transwitch* 27,500 1,272
Unifab International* 49,000 505
United Stationers* 33,000 619
Universal Corp. 15,000 392
USG 7,775 440
Varian Medical Associates* 15,000 282
Varlen 39,176 1,479
Wackenhut Corp., Class B 143,600 2,441
Whole Foods Market, Inc.*(a) 37,200 1,279
Total Capital Goods 44,805
Communication Services--1.9%
Broadvision* 20,000 1,040
Flashnet Communications * 11,000 217
Genesys Telecom Labs* 52,000 1,202
Gilat Communications Limited* 54,500 804
Polycom* 61,695 1,581
Total Communication Services 4,844
Consumer Cyclicals--24.1%
Aaron Rents, Inc. 111,600 1,744
American Eagle Outfitters* 27,000 1,102
Analytical Surveys* 25,500 625
Ann Taylor Stores* 26,500 1,144
Arvin Industries 23,000 903
Benchmark Electronics, Inc.* 83,600 2,508
Brinker International* 22,985 645
Buckle* 54,865 1,519
Cash America International, Inc. 100,000 1,288
CDW Computer Centers* 19,000 826
Centex 18,000 667
Chattem, Inc.* 29,600 925
Chicos* 50,000 1,134
Claire's Stores 35,000 1,024
Consolidated Graphics* 16,310 752
Copart, Inc. 144,400 2,166
Cost Plus * 25,000 934
Craftmade International 46,640 624
Cutter & Buck* 25,760 763
DR Horton 75,800 1,289
Delia's* 19,000 252
Dollar Tree Stores* 29,000 975
Empi* 12,000 294
First Years 24,010 384
Foodmaker* 20,000 540
Fossil* 32,530 1,364
Gentex* 27,000 811
Jakks Pacific * 30,000 831
K-Swiss, Cl A 46,740 2,682
Kroll-O'Gara Co.* 67,800 1,839
La-Z-Boy 26,800 533
Labor Ready* 29,500 1,051
Liberty Property Trust 25,270 610
Mohawk Industries* 36,115 1,052
Monaco Coach* 37,510 1,125
Movado Group 9,175 221
Oshkosh B'gosh, Cl A 16,655 327
Oshkosh Truck 6,000 238
Pre Paid Legal Services* 10,000 266
Programmer's Paradise * 8,000 86
Quiksilver* 34,000 969
Racing Champions* 64,000 1,096
Rare Hospitality International* 24,000 552
Rexall Sundown, Inc.* 100,000 1,919
Salton/Maxim Housewares* 21,500 919
Sonic Automotive, Inc.* 70,000 1,085
Southdown 24,900 1,578
Speedway Motorsports, Inc.* 61,700 2,545
Standard Pacific 54,145 711
Steven Madden Ltd* 81,365 870
Superior Industries International 27,000 673
Tarrant Apparel Group* 33,330 1,010
Triumph Group* 23,395 716
United Natural Foods, Inc.* 100,000 2,338
Urs* 28,325 697
Wet Seal, Cl A* 17,000 472
Wynn's International, Inc. 132,000 2,302
Winnebago Industries 54,000 891
Worthington Foods, Inc. 105,666 1,202
Zale* 28,000 1,080
Total Consumer Cyclicals 61,688
Consumer Staples--3.0%
Canandaigua Wine, Cl A* 13,100 652
Earthgrains 20,000 469
Flowers Industries 44,600 992
Mail-Well* 65,000 963
Papa John's International* 38,900 1,537
Rent-A-Center * 35,000 903
Smithfield Foods* 43,000 1,148
Suiza Foods* 25,000 916
Total Consumer Staples 7,580
Energy--2.3%
Eagle Geophysical * 1,280 4
National-Oilwell, INC.* 90,000 1,041
Oceaneering International* 50,000 772
Rowan Cos., Inc.* 10,000 127
Santa Fe Snyder Corp* 80,000 680
Seacor Holdings* 3,000 149
Seitel* 40,000 632
Transocean Offshore 61,800 1,522
Veritas DGC, Inc.* 71,500 1,014
Total Energy 5,941
Financials--7.2%
Allied Capital Corp. 139,800 2,569
American Heritage 39,300 914
Amerin* 21,057 566
Amresco, Inc.* 100,000 769
Annuity & Life Re Holdings 12,000 309
Bank of Commerce/San Diego 16,000 312
Corporate Executive Board* 17,000 498
Cullen/Frost Bankers 9,550 537
Dime Community Bancorp 35,200 779
Doral Financial 42,000 709
E.W. Blanch Holdings 16,900 1,082
Enhance Financial Services Group 30,000 587
Financial Security Assurance Holdings 7,385 419
Finova Group, Inc. 16,340 848
FPIC Insurance Group, Inc.* 50,000 2,075
Fremont General 55,000 1,165
Investment Technology Group* 16,881 748
NVR* 13,975 673
PFF Bancorp* 32,000 580
Pilgrim America Cap Corp* 19,600 390
Protective Life 38,000 1,375
Ryland Group 16,165 450
Total Financials 18,354
Health Care--9.0%
Alpharma, Cl A 24,000 640
Barr Laboratories* 18,475 609
Biomatrix* 28,000 857
Capital Senior Living* 70,000 761
Colorado Medtech* 65,340 923
D&K Healthcare Resources* 24,400 576
Dura Pharmaceuticals, Inc.* 140,000 1,978
Endosonics Corp.* 130,000 845
Interim Services* 35,000 763
Ivax* 40,000 537
Laser Vision Centers* 15,000 855
Liposome* 78,000 1,116
Meditis Pharmaceutical Corp., Class A* 57,300 1,719
Natrol, Inc.* 120,000 728
Optical Coating Laboratories 3,000 195
Osteotech* 23,917 849
Rehabcare Group* 33,000 710
Res-Care Inc.*(a) 100,000 2,256
Resmed* 43,000 1,207
Roberts Pharmaceutical* 63,000 1,197
Steris* 25,000 414
Trigon Healthcare* 15,000 572
Twinlab Corp.* 143,800 1,348
United Payors & United Providers, Inc.* 50,000 1,153
Varian 15,000 150
Total Health Care 22,958
Real Estate--2.0%
Intrawest Corp. 183,700 3,099
Prison Realty Corp. 111,750 1,949
Total Real Estate 5,048
Technology--17.9%
Activision, Inc.* 130,000 1,609
ADE Corp.* 150,000 1,425
American Management Systems* 25,000 794
Apex PC Solutions, Inc.* 55,000 767
Armor Holdings, Inc. Delaware* 100,000 1,369
Asyst Technologies, Inc.* 108,100 1,486
Business Objects ADR* 30,000 862
Checkpoint Software* 20,000 885
Ciber* 52,230 1,120
CMI Corp., Class A 167,600 1,047
Commscope* 50,000 1,313
Computer Network Technology* 29,000 732
Cordant Technologies 18,000 873
Cybex Computer Products* 61,944 1,405
Datastream Systems, Inc.* 110,000 949
Electronic Arts* 16,000 783
Fair Isaac 5,000 164
FEI Co.* 192,100 1,608
Flextronics International* 7,000 350
4front Technologies* 60,000 600
Henry (Jack) & Associates 7,000 247
Herley Industries * 52,000 673
Hyperion Telecommunications, Cl A* 60,000 1,013
Insight Enterprises* 38,557 978
Javelin Systems * 60,000 776
Kronos* 29,200 1,081
Landmark Systems* 24,000 231
Mastech* 62,900 1,207
Maxtor Corp.* 125,200 884
Metamor Worldwide* 27,000 739
Micros Systems* 40,000 1,250
Overland Data * 65,000 423
Pinnacle Systems* 19,000 984
Perot Systems, Cl A* 14,800 401
Powerhouse Technologies* 15,000 278
Power Intergrations, Inc.* 78,500 2,491
Progress Software* 66,930 1,744
Quantum* 20,000 396
Sunquest* 44,000 578
Sybase* 55,000 533
Sykes Enterprises* 10,435 325
T-HQ* 46,290 1,091
Talk.com * 25,000 259
Technomatrix Technologies* 51,000 854
Timberline Software 54,000 918
USWeb* 25,000 634
Varian Semiconductor Equipment* 15,000 187
Xircom* 52,000 1,313
Zebra Technologies Corp.* 81,600 1,937
Zomax* 41,000 1,081
Total Technology 45,647
Transportation--3.9%
Aeroflex* 61,000 888
Alaska Airgroup* 10,000 415
American Freightways* 82,500 1,444
Amtran Inc* 14,525 341
Atlas Air* 48,000 1,290
Eagle USA Airfreight* 9,000 424
Forward Air* 10,000 274
Frontier Airlines* 62,000 961
Landstar System* 10,000 376
Skywest 38,680 899
Swift Transportation* 45,000 823
USFreightways 43,300 1,706
Total Transportation 9,841
Utilities--0.8%
El Paso Electric* 80,000 685
Kinder Morgan Energy Partners 18,000 671
Public Service of New Mexico 20,000 415
Public Service of North Carolina 5,000 145
Total Utilities 1,916
Total Common Stocks (Cost $241,425) 93,633 251,315
Floating Rate Note--1.0%
Merrill Lynch & Co., 5.40%, 2/28/2000, MTN 2,500,000 2,500
Total Floating Rate Note (Cost $2,500) 2,500
Repurchase Agreements--5.7%
Morgan Stanley 4.80%, dated 05/28/99, matures 06/01/99, repurchase
price $4,658,357 (collateralized by various FNMA obligations: total
market value $4,767,582) 4,656 4,656
Lehman Brothers Triparty Agreement 5.25%, 4/1/1999 9,967,809 9,968
Total Repurchase Agreements (Cost $14,624) 14,624
Cash Sweep Account-1.6%
Union Bank of California 4,180,116 4,180
Total Cash Sweep Account(Cost $4,180) 4,180
Total Investments--106.8% (Cost $262,729) 110,281 272,619
Other Assets and Liabilities, Net--(6.8%) (13,466) (17,356)
Total Net Assets--100.0% 255,263 255,263
ADR American Depository Receipt
Cl Class
FNMA Federal National Mortgage Association
* Non-income producing security
</TABLE>
Page 11
<PAGE>
STI CLASSIC FUNDS (SMALL CAP GROWTH)
Notes to Pro Forma Financial Statements
March 24, 2000
1. BASIS OF COMBINATION
The unaudited Pro Forma Combining Schedule of Investments, Pro Forma Combining
Statements of Assets and Liabilities and Pro Forma Combining Statements of
Operations give effect to the proposed merger of the ESC Strategic Small Cap
Equity Fund into the STI Small Cap Growth Stock Fund. The proposed merger will
be accounted for by the method of accounting for tax free mergers of investment
companies (sometimes referred to as the pooling without restatement method). The
Merger will be accomplished by an exchange of all outstanding shares of the
Class A and Class D of the ESC Strategic Small Cap Equity Fund in exchange for
shares of the Investor, and Flex shares of the Small Cap Growth Equity Fund.
The pro forma combining statements should be read in conjunction with the
historical financial statements of the constituent funds and the notes thereto
incorporated by reference in the Statement of Additional Information.
The STI Classic Funds is an open-end management investment company registered
under the Investment Company Act of 1940, as amended.
PRO FORMA ADJUSTMENTS:
a) The Pro Forma combining statements of assets and liabilities assume the
issuance of additional shares of the respective STI Classic Fund as if the
reorganization had taken place on May 31, 1999 and are based on the net
asset value of the acquiring fund. In addition, the Small Cap Equity Growth
Stock Fund is the surviving fund for accounting purposes and legal entity
surviving. The performance history of the Small Cap Equity Stock Fund will
be carried forward.
b) The Pro forma adjustments reflect the impact of applying the contractual
fees in place for the legally surviving Small Cap Equity Growth Fund for
Advisor, Administration and Distribution as well as the expected savings in
other expenses due to the combination of the funds.
Page 12
<PAGE>
STI CLASSIC FUNDS (HIGH INCOME)
Notes to Pro Forma Financial Statements
March 24, 2000
1. BASIS OF COMBINATION
The unaudited Pro Forma Combining Statements of Assets and Liabilities and Pro
Forma Combining Statements of Operations give effect to the proposed merger of
the ESC Strategic Income Fund into the shell of the STI High Income Fund. The
proposed merger will be accounted for by the method of accounting for tax free
mergers of investment companies (sometimes referred to as the pooling without
restatement method). The Merger will be accomplished by an exchange of all
outstanding shares of the Class A and Class D of the ESC Strategic Income Fund
in exchange for shares of the Flex shares of the STI High Income Fund.
The pro forma combining statements should be read in conjunction with the
historical financial statements of the constituent funds and the notes thereto
incorporated by reference in the Statement of Additional Information.
The STI Classic Funds is an open-end management investment company registered
under the Investment Company Act of 1940, as amended.
PRO FORMA ADJUSTMENTS:
a) The Pro Forma combining statements of assets and liabilities assume the
issuance of additional shares of the respective STI Classic Fund as if the
reorganization had taken place on March 31, 1999 and are based on the net
asset value of the ESC Strategic Income Fund. In addition, the STI High
Income Fund is the surviving fund for accounting purposes and legal entity
surviving. The performance history of the ESC Strategic Class A Income Fund
will be carried forward.
b) The Pro forma adjustments reflect the impact of applying the contractual
fees in place for the legally surviving STI High Income Fund for Advisor,
Administration and Distribution as well as the expected savings in other
expenses due to the combination of the funds.
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