<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 2, 1996
FILE NO. 33-91476
FILE NO. 811-9032
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM N-1A
---------------
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 /X/
POST-EFFECTIVE AMENDMENT NO. 1
AND
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 /X/
AMENDMENT NO. 2
------------------------
STI CLASSIC VARIABLE TRUST
(Exact Name of Registrant as Specified in Charter)
C/O THE CT CORPORATION SYSTEM
2 Oliver Street
Boston, Massachusetts 02109
(Address of Principal Executive Offices, Zip Code)
Registrant's Telephone Number, including Area Code (610) 254-1000
DAVID G. LEE
C/O SEI CORPORATION
680 E. SWEDESFORD ROAD
WAYNE, PENNSYLVANIA 19087
(Name and Address of Agent for Service)
COPIES TO:
<TABLE>
<S> <C>
RICHARD W. GRANT, ESQUIRE JOHN H. GRADY, JR., ESQUIRE
MORGAN, LEWIS & BOCKIUS LLP MORGAN, LEWIS & BOCKIUS LLP
2000 ONE LOGAN SQUARE 1800 M STREET, N.W.
PHILADELPHIA, PENNSYLVANIA 19103 WASHINGTON, D.C. 20036
</TABLE>
It is proposed that this filing will become effective (check appropriate box)
<TABLE>
<C> <S>
- --------- immediately upon filing pursuant to paragraph (b)
X on April 30, 1996 pursuant to paragraph (b)
- ---------
- --------- 60 days after filing pursuant to paragraph (a)
- --------- on [date] pursuant to paragraph (a); or
- --------- 75 days after filing pursuant to paragraph (a) of Rule 485
</TABLE>
PURSUANT TO THE PROVISIONS OF RULE 24F-2 UNDER THE INVESTMENT COMPANY ACT OF
1940, AN INDEFINITE NUMBER OF UNITS OF BENEFICIAL INTEREST IS BEING REGISTERED
BY THIS REGISTRATION STATEMENT. REGISTRANT'S RULE 24F-2 NOTICE FOR FISCAL YEAR
ENDED DECEMBER 31, 1995 WAS FILED ON FEBRUARY 21, 1996.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
STI CLASSIC VARIABLE TRUST
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
N-1A ITEM NO. LOCATION
- -------------------------------------------------- ----------------------------------------
<S> <C> <C>
PART A
Item 1. Cover Page.............................. Cover Page
Item 2. Synopsis................................ Summary
Item 3. Condensed Financial Information......... *
Item 4. General Description of Registrant....... The Trust; Funds and Investment
Objectives; Investment Policies and
Strategies; General Investment Policies
and Strategies; Investment Risks;
Description of Permitted Investments;
Investment Limitations; STI Classic
Variable Trust Information
Item 5. Management of the Trust................. Board of Trustees; Investment Advisors;
Portfolio Managers; Administration;
Distribution
Item 6. Capital Stock and Other Securities...... Other Information -- Voting Rights;
Other Information -- Shareholder
Inquiries; Performance Information;
Dividends and Distributions; Tax
Information
Item 7. Purchase of Securities Being Offered.... Purchase and Redemption of Fund Shares;
Net Asset Value
Item 8. Redemption or Repurchase................ Purchase and Redemption of Fund Shares;
Net Asset Value
Item 9. Pending Legal Proceedings............... *
PART B
Item 10. Cover Page.............................. Cover Page
Item 11. Table of Contents....................... Table of Contents
Item 12. General Information and History......... The Trust
Item 13. Investment Objectives and Policies...... Description of Permitted Investments;
Investment Limitations; Description of
Shares
Item 14. Management of the Registrant............ Directors and Officers of the Trust; The
Administrator
Item 15. Control Persons and Principal Holders... Trustees and Officers of the Trust; 5%
of Securities and 25% Shareholders
Item 16. Investment Advisory and Other
Services............................... Investment Advisors; The Administrator;
The Distributor
Item 17. Brokerage Allocation.................... Fund Transactions; Trading Practices and
Brokerage
Item 18. Capital Stock and Other Securities...... Description of Shares
Item 19. Purchase, Redemption, and Pricing of
Securities Being Offered............... Purchase and Redemption of Shares;
Determination of Net Asset Value
Item 20. Tax Status.............................. Taxes
Item 21. Underwriters............................ The Distributor
Item 22. Calculation of Yield Quotations......... Computation of Yield; Computation of
Total Return
Item 23. Financial Statements.................... *
</TABLE>
PART C
Information required to be included in Part C is set forth under the appropriate
item, so numbered, in Part C of this Registration Statement.
* Not Applicable
<PAGE>
STI CLASSIC VARIABLE TRUST
INVESTMENT GRADE BOND FUND
CAPITAL GROWTH FUND
VALUE INCOME STOCK FUND
MID-CAP EQUITY FUND
(FORMERLY KNOWN AS AGGRESSIVE GROWTH FUND)
INVESTMENT ADVISOR TO THE FUNDS:
STI CAPITAL MANAGEMENT, N.A.
The STI Classic Variable Trust (the "Trust") is a mutual fund that offers shares
in a number of separate investment portfolios. This Prospectus sets forth
concisely the information about the shares of the above-referenced Funds (each a
"Fund" and, collectively, the "Funds"). The Funds are available to the public
only through the purchase of certain variable annuity and variable life
insurance contracts ("Contracts") issued by various life insurance companies
("Insurers").
A Statement of Additional Information relating to the Funds dated the same date
as this Prospectus has been filed with the Securities and Exchange Commission
and is available without charge by writing to the Trust at 680 East Swedesford
Road, Wayne, Pennsylvania 19087 or by calling 1-800-453-6038. The Statement of
Additional Information is incorporated into this Prospectus by reference.
The purchaser of a Contract should read this Prospectus in conjunction with the
prospectus for his or her Contract.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE TRUST'S SHARES ARE NOT SPONSORED, ENDORSED, OR GUARANTEED BY, AND DO NOT
CONSTITUTE OBLIGATIONS OR DEPOSITS OF, THE ADVISOR OR ANY OF ITS AFFILIATES OR
CORRESPONDENTS INCLUDING SUNTRUST BANKS, INC., ARE NOT GUARANTEED OR INSURED BY
THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY
OTHER GOVERNMENTAL AGENCY, AND INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE
LOSS OF THE PRINCIPAL AMOUNT INVESTED.
APRIL 30, 1996
<PAGE>
2
No person has been authorized to give any information or to make any
representations not contained in this Prospectus, or in the Trust's Statement of
Additional Information relating to the Funds incorporated herein by reference,
in connection with the offering made by this Prospectus and, if given or made,
such information or representations must not be relied upon as having been
authorized by the Trust or SEI Financial Services Company (the "Distributor").
This Prospectus does not constitute an offering by the Trust or by the
Distributor in any jurisdiction in which such offering may not lawfully be made.
Throughout this Prospectus, the Investment Grade Bond Fund, which invests
primarily in bonds and other fixed income instruments, may be referred to as the
"Bond Fund" and the Capital Growth Fund, Value Income Stock Fund and Mid-Cap
Equity Fund may be referred to as the "Equity Funds."
TABLE OF CONTENTS
<TABLE>
<S> <C>
Expense Summary........................................................... 3
The Trust................................................................. 5
Funds and Investment Objectives........................................... 5
Investment Policies and Strategies........................................ 5
General Investment Policies and Strategies................................ 7
Investment Risks.......................................................... 8
Investment Limitations.................................................... 9
Performance Information................................................... 10
Purchase and Redemption of Fund Shares.................................... 10
Net Asset Value........................................................... 10
Dividends and Distributions............................................... 10
Tax Information........................................................... 11
STI Classic Variable Trust Information.................................... 11
Board of Trustees......................................................... 12
Investment Advisor........................................................ 12
Portfolio Managers........................................................ 13
Banking Laws.............................................................. 13
Distribution.............................................................. 13
Administration............................................................ 13
Transfer Agent and Dividend Disbursing Agent.............................. 14
Custodian................................................................. 14
Legal Counsel............................................................. 14
Independent Public Accountants............................................ 14
Other Information......................................................... 14
Voting Rights............................................................. 14
Reporting................................................................. 14
Shareholder Inquiries..................................................... 14
Description of Permitted Investments...................................... 15
Appendix.................................................................. A-1
Addresses................................................................. A-3
</TABLE>
<PAGE>
3
EXPENSE SUMMARY
Below is a summary of the estimated annual operating expenses for each Fund.
Actual expenses may vary.
FUND EXPENSES (AS A PERCENTAGE OF FUND ASSETS)
(NET OF VOLUNTARY REDUCTIONS AND REIMBURSEMENTS)(1)
<TABLE>
<CAPTION>
OTHER TOTAL FUND ANNUAL
PORTFOLIO ADVISORY FEES EXPENSES EXPENSES
- ---------------------------------------- ------------- ------------ -------------------
<S> <C> <C> <C>
Investment Grade Bond................... .0 % .75 % .75%
Capital Growth.......................... .0 % 1.15 % 1.15%
Value Income Stock...................... .0 % .95 % .95%
Mid-Cap Equity.......................... .0 % 1.15 % 1.15%
</TABLE>
- ------------
(1) Absent voluntary reductions and reimbursements, advisory fees, other
expenses and total operating expenses expressed as a percentage of average
net assets of each Fund would be: Investment Grade Bond Fund -- .74%, 3.57%
and 4.31%; Capital Growth Fund -- 1.15%, 2.09% and 3.24%; Value Income Stock
Fund -- .80%, 1.92% and 2.72%; and Mid-Cap Equity Fund -- 1.15%, 2.84% and
3.99%. Fee reductions and reimbursements are voluntary and may be terminated
at any time after October 2, 1996. Other expenses prior to reimbursements
and waivers are based on estimated amounts for the current fiscal year. To
the extent the assets of the Funds increase over time, it is anticipated
that the operating expenses identified in this footnote will be
significantly reduced.
EXAMPLE
An investor would pay the following expenses on a $1,000 investment, assuming
(1) a 5% annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
PORTFOLIO 1 YEAR 3 YEARS
- ---------------------------------------- ----------- -----------
<S> <C> <C>
Investment Grade Bond................... $ 8 $ 24
Capital Growth.......................... $ 12 $ 37
Value Income Stock...................... $ 10 $ 30
Mid-Cap Equity.......................... $ 12 $ 37
</TABLE>
THE EXAMPLE IS BASED UPON THE TOTAL OPERATING EXPENSES OF THE FUNDS AND SHOULD
NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES
MAY BE GREATER OR LESS THAN THOSE SHOWN. The purpose of this table is to assist
the investor in understanding the various costs and expenses that may be
directly or indirectly borne by investors in the Trust.
<PAGE>
4
FINANCIAL HIGHLIGHTS
The following information has been audited by Arthur Andersen LLP, the Trust's
independent public accountants, as indicated in their report dated February 9,
1996, on the Trust's financial statements as of December 31, 1995, included in
the Trust's Statement of Additional Information under "Financial Information."
This table should be read in conjunction with the Trust's financial statements
and notes thereto. Additional performance information regarding each Fund is
contained in the Trust's Annual Report to Shareholders and is available upon
request and without charge by calling 1-800-453-6038.
For a Share Outstanding Throughout the Period
<TABLE>
<CAPTION>
NET REALIZED
NET ASSET AND DISTRIBUTIONS
VALUE NET UNREALIZED FROM NET DISTRIBUTIONS NET ASSET
BEGINNING INVESTMENT GAINS ON INVESTMENT FROM REALIZED VALUE END TOTAL
OF PERIOD INCOME INVESTMENTS INCOME CAPITAL GAINS OF PERIOD RETURN
--------- ---------- ------------ ------------- ------------- --------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
VALUE INCOME STOCK FUND
1995 (1)................. $10.00 $0.06 $0.67 $(0.06) $ -- $10.67 7.31%+
MID-CAP EQUITY FUND**
1995 (1)................. $10.00 $0.05 $0.27 $(0.05) $ -- $10.27 3.19%+
CAPITAL GROWTH FUND
1995 (1)................. $10.00 $0.04 $0.66 $(0.04) $ -- $10.66 6.96%+
INVESTMENT GRADE BOND FUND
1995 (1)................. $10.00 $0.13 $0.25 $(0.13) $ -- $10.25 3.68%+
<CAPTION>
RATIO OF NET
INVESTMENT INCOME
RATIO OF NET RATIO OF EXPENES (LOSS) TO AVERGE
RATIO OF INVESTMENT TO AVERAGE NET NET ASSETS
NET ASSETS EXPENSES TO INCOME TO ASSETS (EXCLUDING (EXCLUDING PORTFOLIO
END OF AVERAGE NET AVERAGE NET WAIVERS AND WAIVERS AND TURNOVER
PERIOD (000) ASSETS ASSETS REIMBURSEMENTS) REIMBURSMENTS) RATE
------------ ----------- ------------ ----------------- ----------------- ---------
<S> <C> <C> <C> <C> <C> <C>
VALUE INCOME STOCK FUND
1995 (1)................. 4,015 0.95%* 2.98%* 5.72%* (1.79)%* 7.17%
MID-CAP EQUITY FUND**
1995 (1)................. 3,409 1.15%* 2.22%* 6.34%* (2.97)%* 13.29%
CAPITAL GROWTH FUND
1995 (1)................. 3,778 1.15%* 1.69%* 6.18%* (3.34)%* 8.05%
INVESTMENT GRADE BOND FUND
1995 (1)................. 3,115 0.75%* 5.04%* 6.05%* (0.26)%* 108.55%
</TABLE>
(1) Commenced operations on October 2, 1995.
* Annualized
** Formerly known as Aggressive Growth Fund
+ Cumulative since inception.
Amounts designated as "--" are either zero or rounded to zero.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
<PAGE>
5
THE TRUST
STI CLASSIC VARIABLE TRUST (the "Trust") is a diversified, open-end management
investment company that provides a convenient and economical means of investing
in several professionally managed portfolios of securities. The Trust currently
offers units of beneficial interest ("shares") in a number of separate Funds.
The Trust is intended exclusively as an investment vehicle for variable annuity
or variable life insurance contracts offered by the separate accounts of various
insurance companies. Each share of each Fund represents an undivided,
proportionate interest in that Fund.
FUNDS AND INVESTMENT OBJECTIVES
BOND FUND:
THE INVESTMENT GRADE BOND FUND seeks to provide as high a level of total return
through current income and capital appreciation as is consistent with the
preservation of capital primarily through investment in investment grade fixed
income securities.
EQUITY FUNDS:
THE CAPITAL GROWTH FUND seeks to provide capital appreciation by investing
primarily in a portfolio of common stocks, warrants and securities convertible
into common stock which in the Advisor's opinion are undervalued in the
marketplace at the time of purchase.
THE VALUE INCOME STOCK FUND seeks to provide current income with the secondary
goal of achieving capital appreciation by investing primarily in equity
securities.
THE MID-CAP EQUITY FUND (formerly known as Aggressive Growth Fund) seeks to
provide capital appreciation by investing primarily in a diversified portfolio
of common stocks, preferred stocks and securities convertible into common stock
of small to mid-size companies with above-average growth of earnings. Current
income will not be an important criterion of investment selection and any such
income should be considered incidental.
There can be no assurance that a Fund will achieve its investment objective. The
investment objectives of each Fund are nonfundamental and may be changed without
investor approval.
INVESTMENT POLICIES AND STRATEGIES
INVESTMENT GRADE BOND FUND
The Investment Grade Bond Fund will invest exclusively in investment grade
obligations rated in one of the four highest rating categories by a nationally
recognized statistical rating organization ("NRSRO") or, if unrated, determined
by the Advisor to be of comparable quality at the time of purchase, including
corporate debt obligations; mortgage-backed securities, collateralized mortgage
obligations ("CMOs") and asset-backed securities; obligations issued or
guaranteed as to principal and interest by the U.S. Government or its agencies
or instrumentalities; custodial receipts involving U.S. Treasury obligations;
securities of the government of Canada and its provincial and local governments;
securities issued or guaranteed by foreign governments, their political
subdivisions, agencies or instrumentalities; obligations of supranational
entities and sponsored American Depositary Receipts ("ADRs") that are traded on
exchanges or listed on NASDAQ. Under normal circumstances, at least 65% of the
Fund's total assets will be invested in corporate and government bonds and
debentures. No more than 25% of the Fund's assets will be invested in securities
rated below the fourth highest rating category by an NRSRO or, if unrated,
determined by the Advisor to be of comparable quality at the time of purchase.
The Fund may purchase mortgage-backed securities issued or guaranteed as to the
payment of principal and interest by the U.S. Government or its agencies or
instrumentalities or, subject to a limit of 25% of the Fund's assets,
mortgage-backed securities issued by private issuers. These mortgage-backed
securities may be backed or collateralized by fixed, adjustable or floating rate
mortgages. The Fund may also invest in asset-
<PAGE>
6
backed securities which consist of securities backed by company receivables,
truck and auto loans, leases, credit card receivables and home equity loans.
In order to reduce interest rate risk, and subject to a general limit of 25% of
the Fund's assets, the Fund may purchase floating or variable rate securities.
Some floating or variable rate securities will be subject to interest rate
"caps" or "floors." It may also buy securities on a when-issued basis, medium
term notes, putable securities and zero coupon securities. The Fund may also
invest up to 10% of its assets in restricted securities. The Fund may also
engage in futures and options transactions.
Under normal market conditions, it is anticipated that the Fund's average
weighted maturity will range from 4 to 10 years. In the case of mortgage-related
securities and asset-backed securities, maturity will be determined based on the
expected average life of the security. The Fund may shorten its average weighted
maturity to as little as 90 days if deemed appropriate for temporary defensive
purposes. By so limiting the maturity of its investments, the Fund expects that
its net asset value will experience less price movement in response to changes
in interest rates than the net asset values of mutual funds investing in similar
credit quality securities with longer maturities. The Fund's portfolio turnover
rate may exceed 100%. This rate of turnover will likely result in higher
brokerage commissions and higher levels of realized capital gains than if the
turnover rate were lower.
CAPITAL GROWTH FUND
The Capital Growth Fund invests primarily in a diversified portfolio of common
stocks, warrants, and securities convertible into common stocks which, in the
Advisor's opinion, are undervalued in the marketplace at the time of purchase.
In selecting securities for the Fund, the Advisor will evaluate factors believed
to affect capital appreciation such as the issuer's background, industry
position, historical returns on equity and experience and qualifications of the
management team. Dividend and interest income is incidental to growth of
capital. The Advisor will rotate the Capital Growth Fund's holdings between
various market sectors based on economic analysis of the overall business cycle.
Under normal conditions, at least 65% of the total assets of the Capital Growth
Fund will be invested in common stocks.
All of the common stocks in which the Fund invests are traded on registered
exchanges or on the over-the-counter market in the United States. Assets of the
Capital Growth Fund not invested in the securities described above may be
invested in U.S. dollar denominated equity securities of foreign issuers
(including sponsored ADRs that are traded on exchanges or listed on NASDAQ),
pay-in-kind securities and bonds. The bonds that the Capital Growth Fund may
purchase may be rated in any rating category or may be unrated, provided that no
more than 10% of the Fund's total assets will be invested in bonds rated below
the fourth highest rating category by an NRSRO or unrated securities of
comparable quality (see "Investment Risks -- High Yield -- Lower Rated Bonds").
In addition, the Fund may invest up to 10% of its assets in restricted
securities.
The Fund's turnover rate may exceed 100%. This rate of turnover will likely
result in higher brokerage commissions and higher levels of realized capital
gains than if the turnover rate were lower.
VALUE INCOME STOCK FUND
The Value Income Stock Fund seeks to provide current income by structuring its
investments in an attempt to maintain the Fund's yield at a level above the
average dividend yield of the securities comprising the S&P 500 Stock Index.
Achieving such a yield will be the Fund's primary consideration when purchasing
securities. A secondary objective of the Fund will be capital appreciation.
The Fund will invest at least 80% of its total assets in equity securities.
Investments will consist primarily of common stocks, and, under normal market
conditions, at least 65% of the Fund's assets will be invested in common stocks
issued by corporations which have a history of paying regular dividends,
although there can be no assurance that such corporations will continue to pay
dividends. Other equity securities in which the Fund may invest are convertible
debt securities, preferred stocks and warrants which are convertible into or
exchangeable for common stocks; and U.S. dollar denominated equity securities of
foreign issuers (including sponsored ADRs that are traded on exchanges or listed
on NASDAQ). All of the common stocks in which the Fund invests are traded on
registered exchanges such as the New York or American Stock Exchange or
<PAGE>
7
on the over-the-counter market in the United States (i.e., NASDAQ). The Fund may
also purchase debt securities (corporate debt obligations and U.S. Treasury
obligations) which may be rated in any rating category or may be unrated,
provided that no more than 10% of the Fund's total assets will be invested in
bonds rated below the fourth highest rating category by an NRSRO or unrated
securities of comparable quality. The Fund may also invest in futures and
options.
The Fund will invest primarily in stocks of companies operating in all aspects
of the U.S. and world economies that have a market capitalization of at least
$500 million or more, that the Advisor believes possess fundamentally favorable
long-term characteristics. However, stocks of companies with smaller market
capitalizations and stocks that are out of favor in the financial community and
in which little opportunity for price appreciation is recognized by the
financial community may also be purchased if the Advisor believes they are
undervalued.
The Fund's turnover rate may exceed 100%. This rate of turnover will likely
result in higher brokerage commissions and higher levels of realized capital
gains than if the turnover rate were lower.
MID-CAP EQUITY FUND
The Mid-Cap Equity Fund (formerly known as Aggressive Growth Fund) invests
primarily in a diversified portfolio of common stocks, preferred stocks, and
securities convertible into common stocks of small to mid-size companies, (i.e.,
$50 million to $1 billion and $500 million to $5 billion, respectively, as
measured by their market capitalization), with above-average growth of earnings.
Under normal conditions, at least 80% of the total assets of the Fund will be
invested in equity securities, and as a matter of non-fundamental policy, the
Fund will invest at least 65% of its assets in mid-size companies. Current
income will not be an important criterion of investment selection and any such
income should be considered incidental. In selecting securities for the Fund,
the Advisor will evaluate factors such as the issuer's background, industry
position, historical returns on equity and experience and qualifications of the
management team.
Most of the common stocks in which the Fund invests are traded on registered
exchanges or in the over-the-counter market in the United States. Assets of the
Fund not invested in the securities described above may be invested in U.S.
dollar denominated equity securities of foreign issuers (including sponsored
ADRs that are traded on exchanges or listed on NASDAQ), securities issued by
mutual funds, repurchase agreements and bonds. The bonds that the Fund may
purchase, including any variable or floating rate instruments, must be rated in
at least the sixth highest rating category by an NRSRO, provided that this
requirement shall not apply to the Fund's purchase of bonds issued by the
government of Canada or by various supranational entities, and provided further
that no more than 10% of the Fund's total assets will be invested in bonds rated
below the fourth highest rating category by an NRSRO. The Fund may invest up to
10% of its assets in restricted securities.
The Fund's turnover rate may exceed 100%. This rate of turnover, if achieved,
will likely result in higher brokerage commissions and higher levels of realized
capital gains than if the turnover rate were lower.
GENERAL INVESTMENT POLICIES AND STRATEGIES
For temporary defensive purposes during periods when its Advisor(s) determines
that market conditions warrant, each Fund may invest up to 100% of its assets in
money market instruments consisting of securities issued or guaranteed as to
principal and interest by the U.S. Government, its agencies or
instrumentalities, custodial receipts involving U.S. Treasury obligations,
repurchase agreements, certificates of deposit, bankers' acceptances, and time
deposits issued by banks or savings and loan associations and commercial paper
rated in the highest rating category, and may hold a portion of its assets in
cash. A Fund may not be pursuing its investment objective when it is engaged in
temporary defensive investing.
In the event that a security owned by a Fund is downgraded below the stated
rating categories, the Advisor will review and take appropriate action with
regard to the security.
Each Fund may purchase securities issued by money market mutual funds. A Fund's
purchase of shares of other investment companies is limited by the Investment
Company Act of 1940 (the "1940 Act") and will ordinarily result in an additional
layer of charges and expenses.
<PAGE>
8
Each of the Funds may engage in securities lending and will limit such practice
to 33 1/3% of its total assets.
Each Fund may borrow money for temporary or emergency purposes in an amount not
to exceed one-third of the value of its total assets. No Fund may purchase
additional securities while its outstanding borrowings exceed 5% of its assets.
It is a non-fundamental policy of each Fund to invest no more than 15% of its
net assets in illiquid securities. An illiquid security is a security which
cannot be disposed of within seven days in the usual course of business at a
price approximating its carrying value.
The Equity Funds may invest in money market instruments for liquidity purposes.
Each Fund intends to comply in all material respects with current insurance laws
and regulations applicable to separate accounts investing in the Fund. This
operating policy is nonfundamental and can be changed by the Trustees at any
time.
For additional information regarding permitted investments, see "Description of
Permitted Investments" in this Prospectus and in the Statement of Additional
Information.
INVESTMENT RISKS
ZERO COUPON OBLIGATIONS
Zero coupon obligations are sold at original issue discount and do not make
periodic payments. Zero coupon obligations may be subject to greater
fluctuations in value due to interest rate changes than interest bearing
obligations. A Fund will be required to include the imputed interest in zero
coupon obligations in its current income. Because each Fund distributes all of
its net investment income to investors, a Fund may have to sell portfolio
securities to distribute the income attributable to these obligations and
securities at a time when the Advisor would not have chosen to sell such
obligations or securities.
FOREIGN SECURITIES
Investing in the securities of foreign companies involves special risks and
considerations not typically associated with investing in U.S. companies. These
risks and considerations include differences in accounting, auditing and
financial reporting standards, generally higher commission rates on foreign
portfolio transactions, the possibility of expropriation or confiscatory
taxation, adverse changes in investment or exchange control regulations,
political instability which could affect U.S. investment in foreign countries
and potential restrictions of the flow of international capital and currencies.
Foreign companies may also be subject to less government regulation than U.S.
companies. Moreover, the dividends payable on the foreign securities may be
subject to foreign withholding taxes, thus reducing the net amount of income
available for distribution to the Fund's investors. Further, foreign securities
often trade with less frequency and volume than domestic securities and,
therefore, may exhibit greater price volatility. Changes in foreign exchange
rates will affect, favorably or unfavorably, the value of those securities which
are denominated or quoted in currencies other than the U.S. dollar.
EQUITY SECURITIES
Investment in equity securities in general are subject to market risks that may
cause their prices to fluctuate over time. The value of convertible equity
securities is also affected by prevailing interest rates, the credit quality of
the issuer and any call provision. Fluctuations in the value of equity
securities in which a Fund invests will cause the net asset value of the Fund to
fluctuate.
MORTGAGE-BACKED SECURITIES
Mortgage-backed securities are subject to prepayment of the underlying
mortgages. During periods of declining interest rates, prepayment of mortgages
underlying these securities can be expected to accelerate. When the
mortgage-backed securities held by a Fund are prepaid, the Fund must reinvest
the proceeds in securities the yield of which reflects prevailing interest
rates, which may be lower than the prepaid security.
<PAGE>
9
FIXED INCOME SECURITIES
The market value of a Fund's fixed income investments will change in response to
interest rate changes and other factors. During periods of falling interest
rates, the values of outstanding fixed income securities generally rise.
Conversely, during periods of rising interest rates, the values of such
securities generally decline. Securities with longer maturities are subject to
greater fluctuations in value than securities with shorter maturities. Changes
by an NRSRO in the rating of any fixed income security and in the ability of an
issuer to make payments of interest and principal also affect the value of these
investments. Changes in the value of a Fund's portfolio securities are not
likely to affect cash income derived from these securities but will affect the
Fund's net asset value.
Guarantees of a Fund's portfolio securities by the U.S. Government or its
agencies or instrumentalities guarantee only the payment of principal and
interest on the guaranteed securities, and do not guarantee the securities'
yield or value or the yield or value of a Fund's shares.
There is a risk that the current interest rate on floating and variable rate
instruments may not accurately reflect existing market interest rates.
HIGH YIELD, LOWER RATED BONDS
A Fund's investments in high yield, lower rated bonds ("junk bonds") involve
greater risk of default or price declines than investments in investment grade
securities (rated in one of the four highest rating categories by an NRSRO) due
to changes in the issuer's creditworthiness. The market for high risk, high
yield securities may be thinner and less active, causing market price volatility
and limited liquidity in the secondary market. This may limit the ability of the
Fund to sell such securities at their fair market value either to meet
redemption requests or in response to changes in the economy or the financial
markets. Market prices for high risk, high yield securities may also be affected
by investors' perception of credit quality and the outlook for economic growth.
Thus, prices for high risk, high yield securities may move independently of
interest rates and the overall bond market. In addition, the market for high
risk, high yield securities may be adversely affected by legislative and
regulatory developments.
INVESTMENT LIMITATIONS
The following investment limitations constitute fundamental policies of each
Fund. Fundamental policies cannot be changed with respect to a Fund without the
consent of the holders of a majority of the Fund's outstanding shares. The term
"majority of the outstanding shares" means the vote of (i) 67% or more of a
Fund's shares present at a meeting, if more than 50% of the outstanding shares
of the Fund are present or represented by proxy, or (ii) more than 50% of a
Fund's outstanding shares, whichever is less.
Each Fund may not:
1. Purchase securities of any issuer if as a result more than 5% of the total
assets of a Fund would be invested in the securities of such issuer; provided,
however, that a Fund may invest up to 25% of its total assets without regard to
this restriction as permitted by applicable law.
2. Purchase any securities which would cause more than 25% of the total assets
of a Fund to be invested in the securities of one or more issuers conducting
their principal business activities in the same industry, provided that this
limitation does not apply to investments in obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities, repurchase agreements
involving such securities or tax-exempt securities issued by governments or
political subdivisions of governments. For purposes of this limitation, (i)
utility companies will be divided according to their services, for example, gas,
gas transmission, electric and telephone will each be considered a separate
industry; (ii) financial service companies will be classified according to the
end users of their services, for example, automobile finance, bank finance and
diversified finance will each be considered a separate industry; and (iii)
supranational entities will be considered to be a separate industry.
<PAGE>
10
The foregoing percentages will apply at the time of the purchase of a security.
Additional investment limitations are set forth in the Statement of Additional
Information.
PERFORMANCE INFORMATION
From time to time, the Funds may advertise yield and total return. These figures
will be based on historical earnings and are not intended to indicate future
performance. The yield of a Fund refers to the annualized income generated by an
investment in that Fund over a specified 30-day period. The yield is calculated
by assuming that the income generated by the investment during that period is
generated over one year and is shown as a percentage of the investment.
The total return of a Fund refers to the average compounded rate of return to a
hypothetical investment, including any sales charge imposed, for designated time
periods (including but not limited to, the period from which a Fund commenced
operations through the specified date), assuming that the entire investment is
redeemed at the end of each period and assuming the reinvestment of all dividend
and capital gains distributions.
Each Fund may periodically compare its performance to other mutual funds tracked
by mutual fund rating services, to broad groups of comparable mutual funds or to
unmanaged indices which may assume reinvestment of dividends but generally do
not reflect deductions for administrative and management costs.
PURCHASE AND REDEMPTION OF FUND SHARES
Shares of the Trust cannot be purchased directly, but only through a Contract
offered through an insurance company separate account. Please refer to the
prospectus for the Contract for information on how to make investments and
redemptions. Shares of the Funds are sold in a continuous offering to separate
accounts of insurance companies to fund Contracts.
The separate accounts purchase and redeem Shares of each Fund based on, among
other things, the amount of net Contract premiums or purchase payments
transferred to the separate accounts, transfers to or from a separate account
investment division, policy loans, loan repayments, and benefit payments to the
terms of the Contracts, at the Fund's net asset value per share calculated as of
that same day.
All redemption requests will be processed and payment with respect thereto will
be made within seven days after tender. The Trust may suspend redemption, if
permitted by the 1940 Act, for any period during which the New York Stock
Exchange ("NYSE") is closed or during which trading is restricted by the
Securities and Exchange Commission ("SEC") or the SEC declares that an emergency
exists. Redemptions may also be suspended during other periods permitted by the
SEC for the protection of the Trust's investors.
NET ASSET VALUE
The net asset value of each Fund's Shares is determined at the close of regular
trading on the NYSE (currently 4:00 p.m., Eastern Time), each business day. Net
asset value per share is calculated for purchases and redemptions of Shares of
each Fund by dividing the value of total Fund assets, less liabilities
(including Trust expenses, which are accrued daily), by the total number of
Shares of that Fund outstanding. Values of assets in each Fund's portfolio are
determined on the basis of market value or by means of valuation methods
approved by the Board of Trustees and described in the Statement of Additional
Information.
DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (exclusive of capital gains) are declared
on each business day and paid monthly by the Bond Fund. Dividends from net
investment income (exclusive of capital gains) are declared and paid quarterly
by the Equity Funds. Each Fund's net realized capital gains (including net
short-term capital gains) are distributed at least annually. Net income for
dividend purposes consists of (i) interest accrued and original issue discount
earned on the Fund's assets, (ii) plus the accrued market discount and minus the
amortization of market premium on such assets, (iii) plus dividend or
distribution income on such
<PAGE>
11
assets, (iv) less accrued expenses directly attributable to the Fund and the
general expenses of the Trust prorated to the Fund on the basis of its relative
net assets.
The net asset value of Shares of the Funds will be reduced by the amount of any
dividend or distribution. Dividends and distributions are paid in the form of
additional Shares of the same Fund.
TAX INFORMATION
For more information about the tax consequences of an investment in a Contract,
see the attached prospectus for that Contract. The following discussion is only
a brief summary of the federal income tax consequences to the Funds and their
insurance company shareholders based on current tax laws and regulations, which
may be changed by subsequent legislative, judicial, or administrative action.
Each Fund intends to qualify separately each year as a "regulated investment
company" ("RIC") as defined under Subchapter M of the Code. The requirements for
qualification may cause a Fund to restrict the extent of its short-term trading
or its transactions in options or futures contracts.
As a RIC, each Fund will not be subject to federal income tax on its net
investment income and net realized capital gains which are timely distributed to
its insurance company shareholders. Accordingly, each Fund intends to distribute
all or substantially all of its net investment income and net realized capital
gains to its shareholders. Very generally, an insurance company which is a
shareholder of a Fund will determine its federal income tax liability with
respect to distributions from that Fund pursuant to the special rules of
Subchapter L of the Code.
Although the Trust intends that it and the Funds will be operated so that they
will have no federal income tax liability, if any such liability is nevertheless
incurred, the investment performance of the Fund or Funds incurring such
liability will be adversely affected. In addition, Funds investing in foreign
securities may be subject to foreign taxes. These taxes would reduce the
investment performance of such Funds.
Each Fund intends to comply with the diversification requirements imposed by
Section 817(h) of the Code and the regulations thereunder. These requirements
are in addition to the diversification requirements imposed on each Fund by
Subchapter M of the Code and the 1940 Act. These requirements place certain
limitations on the assets of each separate account that may be invested in
securities of a single issuer, and, because Section 817(h) and the regulations
thereunder treat a Fund's assets as assets of the related separate account,
these limitations also apply to the Fund's assets that may be invested in
securities of a single issuer. Generally, the regulations provide that, as of
the end of each calendar quarter, or within 30 days thereafter, no more than 55%
of a Fund's total assets may be represented by any one investment, no more than
70% by any two investments, no more than 80% by any three investments, and no
more than 90% by any four investments. Failure of a Fund to satisfy the Section
817(h) requirements could result in adverse tax consequences to the Insurers and
holders of Contracts.
Certain additional tax information appears in the Statement of Additional
Information.
STI CLASSIC VARIABLE TRUST INFORMATION
THE TRUST
The Trust was organized as a Massachusetts Business Trust under a Declaration of
Trust dated April 18, 1995. The Declaration of Trust permits the Trust to offer
separate portfolios of shares. All consideration received by the Trust for
Shares of any Fund and all assets of such Fund belong to that Fund and would be
subject to liabilities related thereto.
The Trust's Board of Trustees will monitor potential conflicts between variable
life insurance policies and variable annuity contracts or among insurance
company shareholders and will determine what, if any, action should be taken to
resolve any conflicts. Such action could include the redemption of shares by one
or more
<PAGE>
12
of the separate accounts, which could have adverse consequences. Material
conflicts could result from, for example: (1) changes in state insurance laws;
(2) changes in federal income tax laws; or (3) differences in voting
instructions between those given by variable life insurance policyowners and
those given by variable annuity contractowners. In such circumstances, the
Trustees of the Trust were to conclude that separate funds should be established
for variable life and variable annuity separate accounts, variable life
insurance policyowners and variable annuity contractowners would no longer have
the economies of scale resulting from a larger combined fund. The Trust pays its
expenses, including fees of its service providers, audit and legal expenses,
expenses of preparing prospectuses, proxy solicitation material and reports to
shareholders, costs of custodial services and registering the Shares under
federal and state securities laws, pricing, insurance expenses, litigation and
other extraordinary expenses, brokerage costs, interest charges, taxes and
organization expenses.
BOARD OF TRUSTEES
The management and affairs of the Trust are supervised by the Trustees under the
laws governing business trusts in the Commonwealth of Massachusetts. The
Trustees have approved contracts under which, as described below, certain
companies provide essential management services to the Trust.
INVESTMENT ADVISOR
STI Capital Management, N.A. ("STI Capital") serves as the Advisor to the Funds.
As of December 31, 1995, STI Capital had discretionary management authority with
respect to assets of approximately $11.0 billion. The principal business address
of STI Capital is P.O. Box 3808, Orlando, Florida 32802.
The Advisor is an indirect wholly-owned subsidiary of SunTrust Banks, Inc.
("SunTrust"), a southeastern regional bank holding company with assets of $46.5
billion as of December 31, 1995. SunTrust ranks among the twenty five largest
U.S. banking companies. Its three principal subsidiaries--operating in Florida,
Georgia, and Tennessee--provide a wide range of personal and corporate banking,
trust, and investment services through more than 600 locations in the
three-state area. Total discretionary assets under management with SunTrust
Banks, Inc. equalled approximately $47.0 billion as of December 31, 1995.
The Trust and the Advisor have entered into an advisory agreement (the "Advisory
Agreement"). Under the Advisory Agreement, the Advisor makes the investment
decisions for the assets of the Funds it advises and continuously reviews,
supervises and administers its Funds' investment program. The Advisor discharges
its responsibilities subject to the supervision of, and policies established by,
the Trustees of the Trust. STI CLASSIC VARIABLE TRUST FUNDS ARE NOT DEPOSITS,
ARE NOT INSURED OR GUARANTEED BY THE FDIC OR ANY OTHER GOVERNMENT AGENCY, AND
ARE NOT ENDORSED OR GUARANTEED BY AND DO NOT CONSTITUTE OBLIGATIONS OF SUNTRUST
BANKS, INC. OR ANY OF ITS AFFILIATES. INVESTMENTS IN THE FUNDS INVOLVE RISK,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. RETURNS AND PRINCIPAL VALUES WILL
FLUCTUATE AND SHARES AT REDEMPTION MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL
COST. THERE IS NO GUARANTEE THAT ANY STI CLASSIC VARIABLE TRUST FUND WILL
ACHIEVE ITS INVESTMENT OBJECTIVE. With respect to all Funds, the Advisor may
execute brokerage or other agency transactions through affiliates of the
Advisor.
For the services provided and expenses incurred pursuant to the Advisory
Agreement, STI Capital is entitled to receive advisory fees computed daily and
paid monthly at the annual rate of .74%, 1.15%, .80% and 1.15% of the average
daily net assets of the Investment Grade Bond Fund, Capital Growth Fund, Value
Income Stock Fund and Mid-Cap Equity Fund, respectively. For the period since
inception to the fiscal year end, the Trust paid no advisory fees.
Although the advisory fees payable under the Advisory Agreement for the Mid-Cap
Equity Fund, Capital Growth Fund, and Value Income Stock Fund are higher than
advisory fees paid by other mutual funds, the Trust believes that the fees are
comparable to the advisory fees paid by many other mutual funds with similar
investment objectives and policies. From time to time, the Advisor may waive
(either voluntarily or pursuant to applicable state limitations) advisory fees
payable by a Fund. Currently, the Advisor has agreed to voluntary reductions in
its fees at the amounts set forth in the Expense Summary contained in the
Prospectus for the Contracts. Voluntary reductions of fees may be terminated at
any time.
<PAGE>
13
PORTFOLIO MANAGERS
Mr. L. Earl Denney has been responsible for the day-to-day management of the
Investment Grade Bond Fund since its inception. Mr. Denney has served as Senior
Vice President of STI Capital since 1983.
Mr. Anthony Gray has been responsible for the day-to-day management of the
Capital Growth Fund since its inception. Mr. Gray has served as Chief Executive
Officer and Chief Investment Officer of STI Capital since 1980.
Mr. Mills Riddick has been responsible for the day-to-day management of the
Value Income Stock Fund since its inception. Mr. Riddick, currently a Senior
Vice President of STI Capital, served as a Vice President of STI Capital from
1989 until 1995.
Mr. Thomas Edgar has been responsible for the day-to-day management of the
Mid-Cap Equity Fund since its inception. Mr. Edgar has served as a Senior Vice
President of STI Capital since 1990 and served as Senior Vice President of First
Union Bank from 1988 to 1990.
BANKING LAWS
Banking laws and regulations, including the Glass-Steagall Act as presently
interpreted by the Board of Governors of the Federal Reserve System, presently
(a) prohibit a bank holding company registered under the Federal Bank Holding
Company Act of 1956 or its affiliates from sponsoring, organizing, controlling,
or distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and generally prohibit banks
from underwriting securities, but (b) do not prohibit such a bank holding
company or affiliate or banks generally from acting as an investment advisor,
transfer agent, or custodian to such an investment company or from purchasing
shares of such a company as agent for and upon the order of a customer. The
Advisors believe that each may perform the services for the STI Classic Variable
Trust contemplated by their agreements described in this Prospectus without
violation of applicable banking laws or regulations. However, future changes in
legal requirements relating to the permissible activities of banks and their
affiliates, as well as future interpretations of present requirements, could
prevent the Advisors from continuing to perform services for the STI Classic
Variable Trust. If the Advisors were prohibited from providing services to the
STI Classic Variable Trust, the Board of Trustees would consider selecting other
qualified firms. Any new investment advisory agreements would be subject to
investor approval.
If current restrictions preventing a bank or its affiliates from legally
sponsoring, organizing, controlling, or distributing shares of an investment
company were relaxed, the Advisor, or its affiliates, would consider the
possibility of offering to perform additional services for the STI Classic
Variable Trust. It is not possible, of course, to predict whether or in what
form such legislation might be enacted or the terms upon which the Advisor, or
such affiliates, might offer to provide such services.
DISTRIBUTION
SEI Financial Services Company (the "Distributor"), a wholly-owned subsidiary of
SEI Corporation ("SEI") distributes the Funds' Shares to the separate accounts,
which purchase and redeem these shares at net asset value without sales or
redemption charges.
The Trust reserves the right to reject a purchase order when the Fund determines
that it is not in the best interest of the Trust to accept such order.
ADMINISTRATION
SEI Financial Management Corporation (the "Administrator"), a wholly-owned
subsidiary of SEI, and the Trust are parties to an Administration Agreement (the
"Administration Agreement"). Under the terms of the Administration Agreement,
the Administrator provides the Trust with certain administrative services, other
than investment advisory services, including regulatory reporting, all necessary
office space, equipment, personnel, and facilities.
<PAGE>
14
The Administrator is entitled to a fee, which is calculated daily and paid
monthly, at an annual rate of .10% of the Trust's average aggregate daily net
assets on the first $1 billion, .07% of the assets in excess of $1 billion but
less than $5 billion, .05% of the assets in excess of $5 billion but less than
$8 billion, .045% of the assets in excess of $8 billion but less than $10
billion, and .04% of the assets in excess of $10 billion. From time to time, the
Administrator may waive (either voluntarily or pursuant to applicable state
limitations) all or a portion of the administration fee payable with respect to
the Trust.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, Pittsburgh, Pennsylvania, is the Transfer Agent for
the shares of the Trust and dividend disbursing agent for the Trust.
CUSTODIAN
SunTrust Bank, Atlanta, Atlanta, Georgia, serves as Custodian of the assets of
each Fund of the Trust. The Custodian holds cash, securities and other assets of
the Trust as required by the 1940 Act.
LEGAL COUNSEL
Morgan, Lewis & Bockius LLP, Philadelphia, Pennsylvania, serves as legal counsel
to the Trust.
INDEPENDENT PUBLIC ACCOUNTANTS
The independent public accountants to the Trust are Arthur Andersen LLP,
Philadelphia, Pennsylvania.
OTHER INFORMATION
VOTING RIGHTS
Each Share held entitles the investor of record to one vote. Each Fund will vote
separately on matters relating solely to that Fund. As a Massachusetts Business
Trust, the Trust is not required to hold annual meetings of investors but
approval will be sought for certain changes in the operation of the Trust and
for the election of Trustees under certain circumstances. In addition, a Trustee
may be removed by the remaining Trustees or by investors at a special meeting
called upon written request of investors owning at least 10% of the outstanding
shares of the Trust. In the event that such a meeting is requested the Trust
will provide appropriate assistance and information to the investors requesting
the meeting.
The Insurers have advised the Trust that, whenever an investor vote is taken,
the Insurer will give Contract owners and annuitants the opportunity to instruct
them how to vote the number of Shares attributable to such Contracts. The
Insurers have also stated that they will vote any Shares that they are entitled
to vote directly, because of their attributable interests in the Trust, and any
Shares attributable to Contracts for which instructions are not received, in the
same proportion that Contract owners vote.
REPORTING
The Trust issues unaudited financial information semi-annually and audited
financial statements annually. The Trust furnishes proxy statements and other
reports to investors of record.
SHAREHOLDER INQUIRIES
Investors may contact the respective Insurers in order to obtain information on
account statements, procedures and other related information.
<PAGE>
15
DESCRIPTION OF PERMITTED INVESTMENTS
AMERICAN DEPOSITARY RECEIPTS ("ADRs") -- ADRs are securities, typically issued
by a U.S. financial institution (a "depositary"), that evidence ownership
interests in a security or a pool of securities issued by a foreign issuer and
deposited with the depositary. ADRs may be available through "sponsored" or
"unsponsored" facilities. A sponsored facility is established jointly by the
issuer of the security underlying the receipt and a depositary, whereas an
unsponsored facility may be established by a depositary without participation by
the issuer of the underlying security. Holders of unsponsored depositary
receipts generally bear all the costs of the unsponsored facility. The
depositary of an unsponsored facility frequently is under no obligation to
distribute shareholder communications received from the issuer of the deposited
security or to pass through, to the holders of the receipts, voting rights with
respect to the deposited securities.
ASSET-BACKED SECURITIES -- Asset-backed securities are securities secured by
non-mortgage assets such as company receivables, truck and auto loans, leases
and credit card receivables. Such securities are generally issued as
pass-through certificates, which represent undivided fractional ownership
interests in the underlying pools of assets. Such securities also may be debt
instruments, which are also known as collateralized obligations and are
generally issued as the debt of a special purpose entity, such as a trust,
organized solely for the purpose of owning such assets and issuing such debt.
Asset-backed securities are not issued or guaranteed by the U.S. Government or
its agencies or instrumentalities; however, the payment of principal and
interest on such obligations may be guaranteed up to certain amounts and for a
certain period by a letter of credit issued by a financial institution (such as
a bank or insurance company) unaffiliated with the issuers of such securities.
The purchase of asset-backed securities raises risk considerations peculiar to
the financing of the instruments underlying such securities. For example, there
is a risk that another party could acquire an interest in the obligations
superior to that of the holders of the asset-backed securities. There also is
the possibility that recoveries on repossessed collateral may not, in some
cases, be available to support payments on those securities. Asset-backed
securities entail prepayment risk, which may vary depending on the type of
asset, but is generally less than the prepayment risk associated with
mortgage-backed securities. In addition, credit card receivables are unsecured
obligations of the card holder.
The market for asset-backed securities is at a relatively early stage of
development. Accordingly, there may be a limited secondary market for such
securities.
BANKERS' ACCEPTANCES -- Bankers' acceptances are bills of exchange or time
drafts drawn on and accepted by a commercial bank. Bankers' acceptances are used
by corporations to finance the shipment and storage of goods. Maturities are
generally six months or less.
CERTIFICATES OF DEPOSIT -- Certificates of deposit are interest bearing
instruments with a specific maturity. They are issued by banks and savings and
loan institutions in exchange for the deposit of funds and normally can be
traded in the secondary market prior to maturity. Certificates of deposit with
penalties for early withdrawal will be considered illiquid.
COMMERCIAL PAPER -- Commercial paper is a term used to describe unsecured
short-term promissory notes issued by banks, municipalities, corporations and
other entities. Maturities on these issues vary from a few to 270 days.
CONVERTIBLE SECURITIES -- Convertible securities are corporate securities that
are exchangeable for a set number of another security at a prestated price.
Convertible securities typically have characteristics similar to both fixed
income and equity securities. Because of the conversion feature, the market
value of a convertible security tends to move with the market value of the
underlying stock. The value of a convertible security is also affected by
prevailing interest rates, the credit quality of the issuer, and any call
provisions.
CORPORATE DEBT OBLIGATIONS -- Debt instruments issued by corporations with
maturities exceeding 270 days. Such instruments may include putable corporate
bonds and zero coupon bonds.
<PAGE>
16
CUSTODIAL RECEIPTS -- Interests in separately traded interest and principal
component parts of U.S. Treasury obligations that are issued by banks or
brokerage firms and are created by depositing U.S. Treasury obligations into a
special account at a custodian bank. The custodian holds the interest and
principal payments for the benefit of the registered owners of the certificates
or receipts. The custodian arranges for the issuance of the certificates or
receipts evidencing ownership and maintains the register. Receipts include
Treasury Receipts ("TRs"), Treasury Investment Growth Receipts ("TIGRs"), and
Certificates of Accrual on Treasury Securities ("CATS").
Receipts are sold as zero coupon securities which means that they are sold at a
substantial discount and redeemed at face value at their maturity date without
interim cash payments of interest or principal. This discount is accreted over
the life of the security, and such accretion will constitute the income earned
on the security for both accounting and tax purposes. Because of these features,
such securities may be subject to greater interest rate volatility than interest
paying investments. See "Zero Coupon Obligations."
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS -- Futures contracts provide
for the future sale by one party and purchase by another party of a specified
amount of a specific security at a specified future time and at a specified
price. An option on a futures contract gives the purchaser the right, in
exchange for a premium, to assume a position in a futures contract at a
specified exercise price during the term of the option. A Fund may use futures
contracts and related options for bona fide hedging purposes, to offset changes
in the value of securities held or expected to be acquired, to minimize
fluctuations in foreign currencies, or to gain exposure to a particular market
or instrument. A Fund will minimize the risk that it will be unable to close out
a futures contract by only entering into futures contracts which are traded on
national futures exchanges.
Stock index futures are futures contracts for various stock indices that are
traded on registered securities exchanges. A stock index futures contract
obligates the seller to deliver (and the purchaser to take) an amount of cash
equal to a specific dollar amount times the difference between the value of a
specific stock index at the close of the last trading day of the contract and
the price at which the agreement is made.
There are risks associated with these activities, including the following: (1)
the success of a hedging strategy may depend on an ability to predict movements
in the prices of individual securities, fluctuations in markets and movements in
interest rates, (2) there may be an imperfect or no correlation between the
changes in market value of the securities held by the Fund and the prices of
futures and options on futures, (3) there may not be a liquid secondary market
for a futures contract or option, (4) trading restrictions or limitations may be
imposed by an exchange, and (5) government regulations may restrict trading in
futures contracts and futures options.
ILLIQUID SECURITIES -- Illiquid securities are securities that cannot be
disposed of within seven business days at approximately the price at which they
are being carried on the Fund's books. An illiquid security includes a demand
instrument with a demand notice period exceeding seven days, where there is no
secondary market for such security, and repurchase agreements with durations (or
maturities) over seven days in length.
MEDIUM TERM NOTES -- Periodically or continuously offered corporate or agency
debt that differs from traditionally underwritten corporate bonds only in the
process by which they are issued.
MORTGAGE-BACKED SECURITIES -- Mortgage-backed securities are instruments that
entitle the holder to a share of all interest and principal payments from
mortgages underlying the security. The mortgages backing these securities
include conventional thirty-year fixed rate mortgages, graduated payment
mortgages, and adjustable rate mortgages. During periods of declining interest
rates, prepayment of mortgages underlying mortgage-backed securities can be
expected to accelerate. Prepayment of mortgages which underlie securities
purchased at a premium often results in capital losses, while prepayment of
mortgages purchased at a discount often results in capital gains. Because of
these unpredictable prepayment characteristics, it is often not possible to
predict accurately the average life or realized yield of a particular issue.
<PAGE>
17
GOVERNMENT PASS-THROUGH SECURITIES: These are securities that are issued or
guaranteed by a U.S. Government agency representing an interest in a pool of
mortgage loans. The primary issuers or guarantors of these mortgage-backed
securities are GNMA, FNMA and FHLMC. FNMA and FHLMC obligations are not backed
by the full faith and credit of the U.S. Government as GNMA certificates are,
but FNMA securities are supported only by the credit of the instrumentality and
FHLMC securities are supported by the instrumentalities' right to borrow from
the U.S. Treasury. GNMA, FNMA and FHLMC each guarantees timely distributions of
interest to certificate holders. GNMA and FNMA also each guarantees timely
distributions of scheduled principal. FHLMC has in the past guaranteed only the
ultimate collection of principal of the underlying mortgage loan; however, FHLMC
now issues mortgage-backed securities (FHLMC Gold PCs) which also guarantee
timely payment of monthly principal reductions. Government and private
guarantees do not extend to the securities' value, which is likely to vary
inversely with fluctuations in interest rates.
PRIVATE PASS-THROUGH SECURITIES: These are mortgage-backed securities issued by
a non-governmental entity, such as a trust. These securities include
collateralized mortgage obligations ("CMOs") and real estate mortgage investment
conduits ("REMICs") that are rated in one of the top two rating categories.
While they are generally structured with one or more types of credit
enhancement, private pass-through securities typically lack a guarantee by an
entity having the credit status of a governmental agency or instrumentality.
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS"): CMOs are debt obligations or
multiclass pass-through certificates issued by agencies or instrumentalities of
the U.S. Government or by private originators or investors in mortgage loans. In
a CMO, series of bonds or certificates are usually issued in multiple classes.
Principal and interest paid on the underlying mortgage assets may be allocated
among the several classes of a series of a CMO in a variety of ways. Each class
of a CMO, often referred to as a "tranche," is issued with a specific fixed or
floating coupon rate and has a stated maturity or final distribution date.
Principal payments on the underlying mortgage assets may cause CMOs to be
retired substantially earlier then their stated maturities or final distribution
dates, resulting in a loss of all or part of any premium paid.
REMICS: A REMIC is a CMO that qualifies for special tax treatment under the
Internal Revenue Code and invests in certain mortgages principally secured by
interests in real property. Investors may purchase beneficial interests in
REMICs, which are known as "regular" interests, or "residual" interests.
Guaranteed REMIC pass-through certificates ("REMIC Certificates") issued by FNMA
or FHLMC represent beneficial ownership interests in a REMIC trust consisting
principally of mortgage loans or FNMA, FHLMC or GNMA-guaranteed mortgage
pass-through certificates. For FHLMC REMIC Certificates, FHLMC guarantees the
timely payment of interest, and also guarantees the payment of principal as
payments are required to be made on the underlying mortgage participation
certificates. FNMA REMIC Certificates are issued and guaranteed as to timely
distribution of principal and interest by FNMA.
STRIPPED MORTGAGE-BACKED SECURITIES ("SMBS"): SMBs are usually structured with
two classes that receive specified proportions of the monthly interest and
principal payments from a pool of mortgage securities. One class may receive all
of the interest payments and is thus termed an interest-only class ("IO"), while
the other class may receive all of the principal payments and thus is termed the
principal-only class ("PO"). The value of IOs tends to increase as rates rise
and decrease as rates fall; the opposite is true of POs. SMBs are extremely
sensitive to changes in interest rates because of the impact thereon of
prepayment of principal on the underlying mortgage securities. The market for
SMBs is not as fully developed as other markets; SMBs therefore may be illiquid.
RISK FACTORS: Due to the possibility of prepayments of the underlying mortgage
instruments, mortgage-backed securities generally do not have a known maturity.
In the absence of a known maturity, market participants generally refer to an
estimated average life. An average life estimate is a function of an assumption
regarding anticipated prepayment patterns, based upon current interest rates,
current conditions in the relevant housing markets and other factors. The
assumption is necessarily subjective, and thus different market participants can
produce different average life estimates with regard to the same security. There
can be no assurance that estimated average life will be a security's actual
average life.
OBLIGATIONS OF SUPRANATIONAL ENTITIES -- Supranational entities are entities
established through the joint participation of several governments, and include
the Asian Development Bank, the Inter-
<PAGE>
18
American Development Bank, International Bank for Reconstruction and Development
(World Bank), African Development Bank, European Economic Community, European
Investment Bank and the Nordic Investment Bank.
PAY-IN-KIND SECURITIES -- Pay-in-Kind securities are bonds or preferred stock
that pay interest or dividends in the form of additional bonds or preferred
stock.
REPURCHASE AGREEMENTS -- Repurchase agreements are agreements by which a Fund
obtains a security and simultaneously commits to return the security to the
seller at an agreed upon price on an agreed upon date within a number of days
from the date of purchase. The custodian will hold the security as collateral
for the repurchase agreement. A Fund bears a risk of loss in the event the other
party defaults on its obligations and the Fund is delayed or prevented from
exercising its right to dispose of the collateral or if the Fund realizes a loss
on the sale of the collateral. A Fund will enter into repurchase agreements only
with financial institutions deemed to present minimal risk of bankruptcy during
the term of the agreement based on established guidelines. Repurchase agreements
are considered loans under the Investment Company Act of 1940.
RESTRICTED SECURITIES -- Restricted securities are securities that may not be
sold freely to the public absent registration under the Securities Act of 1933
or an exemption from registration. Rule 144A securities are securities that have
not been registered under the Securities Act of 1933 but which may be traded
between certain institutional investors including investment companies. The
Trust's Board of Trustees is responsible for developing guidelines and
procedures for determining the liquidity of restricted securities, and for
monitoring the Advisor's implementation of the guidelines and procedures.
SECURITIES LENDING -- In order to generate additional income, a Fund may lend
securities which it owns pursuant to agreements requiring that the loan be
continuously secured by collateral consisting of cash, securities of the U.S.
Government or its agencies equal to at least 100% of the market value of the
securities lent. A Fund continues to receive interest on the securities lent
while simultaneously earning interest on the investment of cash collateral.
Collateral is marked to market daily. There may be risks of delay in recovery of
the securities or even loss of rights in the collateral should the borrower of
the securities fail financially or become insolvent.
STANDBY COMMITMENTS AND PUTS -- Securities subject to standby commitments or
puts permit the holder thereof to sell the securities at a fixed price prior to
maturity. Securities subject to a standby commitment or put may be sold at any
time at the current market price. However, unless the standby commitment or put
was an integral part of the security as originally issued, it may not be
marketable or assignable; therefore, the standby commitment or put would only
have value to the Fund owning the security to which it relates. In certain
cases, a premium may be paid for a standby commitment or put, which premium will
have the effect of reducing the yield otherwise payable on the underlying
security. The Fund will limit standby commitment or put transactions to
institutions believed to present minimal credit risk.
TIME DEPOSITS -- Time deposits are non-negotiable receipts issued by a bank in
exchange for the deposit of funds. Like a certificate of deposit, it earns a
specified rate of interest over a definite period of time; however, it cannot be
traded in the secondary market. Time deposits are considered to be illiquid
securities.
U.S. GOVERNMENT AGENCIES -- Obligations issued or guaranteed by agencies of the
U.S. Government, including, among others, the Federal Farm Credit Bank, the
Federal Housing Administration and the Small Business Administration, and
obligations issued or guaranteed by instrumentalities of the U.S. Government,
including, among others, the Federal Home Loan Mortgage Corporation, the Federal
Land Banks and the U.S. Postal Service. Some of these securities are supported
by the full faith and credit of the U.S. Treasury (e.g., Government National
Mortgage Association), others are supported by the right of the issuer to borrow
from the Treasury (e.g., Federal Farm Credit Bank), while still others are
supported only by the credit of the instrumentality (e.g., Federal National
Mortgage Association). Guarantees of principal by agencies or instrumentalities
of the U.S. Government may be a guarantee of payment at the maturity of the
obligation so that in the event of a default prior to maturity there might not
be a market and thus no means of realizing on the obligation prior to maturity.
Guarantees as to the timely payment of principal and interest do not extend to
the value or yield of these securities nor to the value of the Fund's shares.
<PAGE>
19
U.S. GOVERNMENT SUBSIDIARY CORPORATIONS -- Securities of wholly-owned
corporations of the U.S. Government (within the Department of Housing and Urban
Development) which are secured by the full faith and credit of the U.S.
Government (e.g., GNMA).
U.S. TREASURY OBLIGATIONS -- U.S. Treasury obligations consist of bills, notes
and bonds issued by the U.S. Treasury and separately traded interest and
principal component parts of such obligations that are transferable through the
Federal book-entry system known as Separately Traded Registered Interest and
Principal Securities ("STRIPS") and Coupon Under Book Entry Safekeeping
("CUBES").
VARIABLE AND FLOATING RATE INSTRUMENTS -- Certain obligations may carry variable
or floating rates of interest, and may involve a conditional or unconditional
demand feature. Such instruments bear interest at rates which are not fixed, but
which vary with changes in specified market rates or indices. The interest rates
on these securities may be reset daily, weekly, quarterly or some other reset
period, and may have a floor or ceiling on interest rate changes. There is a
risk that the current interest rate on such obligations may not accurately
reflect existing market interest rates. A demand instrument with a demand notice
exceeding seven days may be considered illiquid if there is no secondary market
for such security.
WARRANTS -- Instruments giving holders the right, but not the obligation, to buy
shares of a company at a given price during a specified period.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES -- When-issued or delayed delivery
basis transactions involve the purchase of an instrument with payment and
delivery taking place in the future. Delivery of and payment for these
securities may occur a month or more after the date of the purchase commitment.
The Fund will maintain with the custodian a separate account with liquid high
grade debt securities or cash in an amount at least equal to these commitments.
The interest rate realized on these securities is fixed as of the purchase date
and no interest accrues to the Fund before settlement. These securities are
subject to market fluctuation due to changes in market interest rates and it is
possible that the market value at the time of settlement could be higher or
lower than the purchase price if the general level of interest rates has
changed. Although a Fund generally purchases securities on a when-issued or
forward commitment basis with the intention of actually acquiring securities for
its portfolio, a Fund may dispose of a when-issued security or forward
commitment prior to settlement if it deems appropriate.
ZERO COUPON OBLIGATIONS -- Zero coupon obligations are debt securities that do
not bear any interest, but instead are issued at a deep discount from par. The
value of a zero coupon obligation increases over time to reflect the interest
accreted. Such obligations will not result in the payment of interest until
maturity, and will have greater price volatility than similar securities that
are issued at par and pay interest periodically.
<PAGE>
A-1
APPENDIX
I. BOND RATINGS
*CORPORATE BONDS
The following are descriptions of Standard & Poor's Corporation ("S&P") and
Moody's Investors Service, Inc. ("Moody's") corporate bond ratings.
Bonds rated AAA have the highest rating S&P assigns to a debt obligation. Such a
rating indicates an extremely strong capacity to pay principal and interest.
Bonds rated AA also qualify as high-quality debt obligations. Capacity to pay
principal and interest is very strong, and in the majority of instances they
differ from AAA issues only in small degree. Debt rated A has a strong capacity
to pay interest and repay principal although it is somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions than
debt in higher rated categories.
Bonds which are rated BBB are considered to be medium-grade obligations (i.e.,
they are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Debt rated BB, B, CCC, CC and C is regarded as having predominately speculative
characteristics with respect to capacity to pay interest and repay principal. BB
indicates the least degree of speculation and C the highest degree of
speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposure to adverse conditions.
Bonds which are rated Aaa by Moody's are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large, or an exceptionally
stable, margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues. Bonds rated Aa by
Moody's are judged by Moody's to be of high quality by all standards. Together
with bonds rated Aaa, they comprise what are generally known as high-grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
Bonds which are rated A possess many favorable investment attributes and are to
be considered as upper-medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Debt rated Baa is regarded as having an adequate capacity to pay interest and
repay principal. Whereas it normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay interest and repay principal for debt in this
category than in higher rated categories.
Bonds which are rated Ba are judged to have speculative elements; their future
cannot be considered as well-assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class. Bonds which are rated B generally lack characteristics of
the desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small. Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal and
interest. Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings. Bonds which are rated C are the lowest rated class of bonds and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
<PAGE>
A-2
II. COMMERCIAL PAPER AND SHORT-TERM RATINGS
The following descriptions of commercial paper ratings have been published by
S&P, Moody's, Fitch Investors Service, Inc. ("Fitch"), Duff and Phelps ("Duff")
and IBCA Limited ("IBCA"), respectively.
Commercial paper rated A by S&P is regarded by S&P as having the greatest
capacity for timely payment. Issues rated A are further refined by use of the
numbers 1+ and 1. Issues rated A-1+ are those with an "overwhelming degree" of
credit protection. Those rated A-1 reflect a "very strong" degree of safety
regarding timely payment. Those rated A-2 reflect a safety regarding timely
payment but not as high as A-1.
Commercial paper issues rated Prime-1 and Prime-2 by Moody's are judged by
Moody's to have superior ability and strong ability for repayment, respectively.
The rating Fitch-1+ (Exceptionally Strong Credit Quality) is the highest
commercial rating assigned by Fitch. Paper rated Fitch-1+ is regarded as having
the strongest degree of assurance for timely payment. The rating Fitch-1 (Very
Strong Credit Quality) is the second highest commercial paper rating assigned by
Fitch which reflects an assurance of timely payment only slightly less in degree
than issues rated F-1+.
The rating Duff-1 is the highest commercial paper rating assigned by Duff. Paper
rated Duff-1 is regarded as having very high certainty of timely payment with
excellent liquidity factors which are supported by ample asset protection. Risk
factors are minor. Paper rated Duff-2 is regarded as having good certainty of
timely payment, good access to capital markets and sound liquidity factors and
company fundamentals. Risk factors are small.
The designation A1 by IBCA indicates that the obligation is supported by a very
strong capacity for timely repayment. Those obligations rated A1+ are supported
by the highest capacity for timely repayment. Obligations rated A2 are supported
by a strong capacity for timely repayment, although such capacity may be
susceptible to adverse changes in business, economic or financial conditions.
<PAGE>
A-3
<TABLE>
<S> <C> <C>
STI CLASSIC VARIABLE TRUST ORGANIZATIONAL OVERVIEW
* INVESTMENT ADVISOR
STI Capital Management, N.A. P.O. Box 3808
Orlando, FL 32802
* DISTRIBUTOR
SEI Financial Services Company 680 E. Swedesford Road
Wayne, PA 19087
* ADMINISTRATOR
SEI Financial Management Corporation 680 E. Swedesford Road
Wayne, PA 19087
* TRANSFER AGENT
Federated Services Company Federated Investors Tower
Pittsburgh, PA 15222-3779
* CUSTODIAN
SunTrust Bank, Atlanta Park Place
P.O. Box 105504
Atlanta, GA 30348
* LEGAL COUNSEL
Morgan, Lewis & Bockius LLP 2000 One Logan Square
Philadelphia, PA 19103
* INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP 1601 Market Street
Philadelphia, PA 19103
</TABLE>
<PAGE>
STI CLASSIC VARIABLE TRUST
Investment Advisor:
STI CAPITAL MANAGEMENT, N.A.
This Statement of Additional Information is not a prospectus. It is intended to
provide additional information regarding the activities and operations of the
Trust and should be read in conjunction with the Trust's prospectus dated April
30, 1996. Prospectuses may be obtained by calling or writing the Trust at 680
East Swedesford Road, Wayne, Pennsylvania 19087 or by calling 1-800-453-6038.
TABLE OF CONTENTS
<TABLE>
<S> <C>
The Trust........................... B-2
Description of Permitted
Investments....................... B-2
Investment Limitations.............. B-9
The Investment Advisor.............. B-10
The Distributor..................... B-11
Trustees and Officers of the
Trust............................. B-12
Computation of Yield................ B-14
Calculation of Total Return......... B-14
Purchase and Redemption of Shares... B-15
Determination of Net Asset Value.... B-15
Taxes............................... B-15
Fund Transactions................... B-16
Trading Practices and Brokerage..... B-17
Description of Shares............... B-19
Shareholder Liability............... B-19
5% and 25% Shareholders............. B-19
Limitation of Trustees' Liability... B-20
Experts............................. B-20
Financial Statements................ F-1
</TABLE>
April 30, 1996
<PAGE>
B-2
THE TRUST
STI CLASSIC VARIABLE TRUST is an open-end management investment company
established under Massachusetts law as a Massachusetts Business Trust under a
Declaration of Trust dated April 18, 1995. The Declaration of Trust permits the
Trust to offer separate series ("Funds") of units of beneficial interest
("shares"). Each share of each Fund represents an equal proportionate interest
in that portfolio. Shares of the Trust are issued and redeemed only in
connection with investments in and payments under variable annuity contracts and
variable life insurance policies of various life insurance companies. This
Statement of Additional Information relates to the Investment Grade Bond Fund,
Capital Growth Fund, Value Income Stock Fund and Mid-Cap Equity Fund. These
various series are collectively referred to herein as the "Funds."
DESCRIPTION OF PERMITTED INVESTMENTS
VARIABLE RATE MASTER DEMAND NOTES
The Value Income Stock Fund may invest in variable rate master demand notes
which may or may not be backed by bank letters of credit. These notes permit the
investment of fluctuating amounts at varying market rates of interest pursuant
to direct arrangements between the Fund, as lender, and the borrower. Such notes
provide that the interest rate on the amount outstanding varies on a daily,
weekly or monthly basis depending upon a stated short-term interest rate index.
Both the lender and the borrower have the right to reduce the amount of
outstanding indebtedness at any time. There is no secondary market for the notes
and it is not generally contemplated that such instruments will be traded. The
quality of the note or the underlying credit must, in the opinion of the
Advisor, be equivalent to the ratings applicable to permitted investments for
each Fund. The Advisor will monitor on an ongoing basis the earning power, cash
flow and liquidity ratios of the issuers of such instruments and will similarly
monitor the ability of an issuer of a demand instrument to pay principal and
interest on demand.
STRIPS
Each Fund may invest in Separately Traded Interest and Principal Securities
("STRIPS"), which are component parts of U.S. Treasury Securities traded through
the Federal Book-Entry System. The Advisor will purchase only STRIPS that it
determines are liquid or, if illiquid, do not violate the Fund's investment
policy concerning investments in illiquid securities.
U.S. GOVERNMENT AGENCY SECURITIES
Certain investments of each of the Funds may include U.S. Government Agency
Securities. Agencies of the United States Government which issue obligations
consist of, among others, the Export Import Bank of the United States, Farmers
Home Administration, Federal Farm Credit Bank, Federal Housing Administration,
Government National Mortgage Association ("GNMA"), Maritime Administration,
Small Business Administration, and The Tennessee Valley Authority. Obligations
of instrumentalities of the United States Government include securities issued
by, among others, Federal Home Loan Banks, Federal Home Loan Mortgage
Corporation ("FHLMC"), Federal Intermediate Credit Banks, Federal Land Banks,
Federal National Mortgage Association ("FNMA") and the United States Postal
Service as well as government trust certificates. Some of these securities are
supported by the full faith and credit of the United States Treasury (E.G.,
GNMA), others are supported by the right of the issuer to borrow from the
Treasury and still others are supported only by the credit of the
instrumentality (E.G., FNMA). Guarantees of principal by agencies or
instrumentalities of the U.S. Government may be a guarantee of payment at the
maturity of the obligation so that in the event of a default prior to maturity
there might not be a market and thus no means of realizing the value of the
obligation prior to maturity.
MORTGAGE-BACKED SECURITIES
Each of the Funds, except the Mid-Cap Equity Fund, may invest in mortgage-backed
securities issued or guaranteed by U.S. Government agencies or instrumentalities
such as GNMA, FNMA, and FHLMC. Obligations of GNMA are backed by the full faith
and credit of the United States Government. Obligations
<PAGE>
B-3
of FNMA and FHLMC are not backed by the full faith and credit of the United
States Government but are considered to be of high quality since they are
considered to be instrumentalities of the United States. The market value and
interest yield of these mortgage-backed securities can vary due to market
interest rate fluctuations and early prepayments of underlying mortgages. These
securities represent ownership in a pool of federally insured mortgage loans
with a maximum maturity of 30 years. However, due to scheduled and unscheduled
principal payments on the underlying loans, these securities have a shorter
average maturity and, therefore, less principal volatility than a comparable
30-year bond. Since prepayment rates vary widely, it is not possible to
accurately predict the average maturity of a particular mortgage-backed
security. The scheduled monthly interest and principal payments relating to
mortgages in the pool will be "passed through" to investors. Government
mortgage-backed securities differ from conventional bonds in that principal is
paid back to the certificate holders over the life of the loan rather than at
maturity. As a result, there will be monthly scheduled payments of principal and
interest. In addition, there may be unscheduled principal payments representing
prepayments on the underlying mortgages. Although these securities may offer
yields higher than those available from other types of U.S. Government
securities, mortgage-backed securities may be less effective than other types of
securities as a means of "locking in" attractive long-term rates because of the
prepayment feature. For instance, when interest rates decline, the value of
these securities likely will not rise as much as comparable debt securities due
to the prepayment feature. In addition, these prepayments can cause the price of
a mortgage-backed security originally purchased at a premium to decline in price
to its par value, which may result in a loss.
The Investment Grade Bond Fund may also invest in privately issued
mortgage-backed securities. Two principal types of mortgage-backed securities
are collateralized mortgage obligations ("CMOs") and real estate mortgage
investment conduits ("REMICs"), which are rated in one of the two highest
categories by Standard & Poor's Corporation ("S&P") or Moody's Investors
Service, Inc. ("Moody's"). CMOs are securities collateralized by mortgages,
mortgage pass-throughs, mortgage pay-through bonds (bonds representing an
interest in a pool of mortgages where the cash flow generated from the mortgage
collateral pool is dedicated to bond repayment), and mortgage-backed bonds
(general obligations of the issuers payable out of the issuers' general funds
and additionally secured by a first lien on a pool of single family detached
properties). Many CMOs are issued with a number of classes or series which have
different expected maturities. Investors purchasing such CMOs are credited with
their portion of the scheduled payments of interest and principal on the
underlying mortgages plus all unscheduled prepayments of principal based on a
predetermined priority schedule. Accordingly, the CMOs in the longer maturity
series are less likely than other mortgage pass-throughs to be prepaid prior to
their stated maturity. Although some of the mortgages underlying CMOs may be
supported by various types of insurance, and some CMOs may be backed by GNMA
certificates or other mortgage pass-throughs issued or guaranteed by U.S.
Government agencies or instrumentalities, the CMOs themselves are not generally
guaranteed.
REMICs, which were authorized under the Tax Reform Act of 1986, are private
entities formed for the purpose of holding a fixed pool of mortgages secured by
an interest in real property. REMICs are similar to CMOs in that they issue
multiple classes of securities.
DETERMINING MATURITIES OF MORTGAGE-BACKED SECURITIES
Due to prepayments of the underlying mortgage instruments, mortgage-backed
securities do not have a known actual maturity. In the absence of a known
maturity, market participants generally refer to an estimated average life. The
Advisor believes that the estimated average life is the most appropriate measure
of the maturity of a mortgage-backed security. Accordingly, in order to
determine whether such security is a permissible investment for the Funds, it
will be deemed to have a remaining maturity equal to its average life as
estimated by the Advisor. An average life estimate is a function of an
assumption regarding anticipated prepayment patterns. The assumption is based
upon current interest rates, current conditions in the relevant housing markets
and other factors. The assumption is necessarily subjective, and thus different
market participants could produce somewhat different average life estimates with
regard to the same security. There can be no assurance that the average life as
estimated by the Advisor will be the actual average life.
<PAGE>
B-4
ASSET-BACKED SECURITIES
In addition to mortgage-backed securities, the Investment Grade Bond Fund may
invest in other asset-backed securities rated in one of the two highest rating
categories by S&P or Moody's, including company receivables, truck and auto
loans, leases, and credit card receivables. The Investment Grade Bond Fund may
invest in other asset-backed securities that may be created in the future if the
Advisor determines they are suitable. These issues may be traded
over-the-counter and typically have a short-intermediate maturity structure
depending on the paydown characteristics of the underlying financial assets
which are passed through to the security holder.
REPURCHASE AGREEMENTS
Each of the Funds may enter into repurchase agreements. Repurchase agreements
are agreements by which a person (E.G., a Fund) obtains a security and
simultaneously commits to return the security to the seller (a primary
securities dealer as recognized by the Federal Reserve Bank of New York or a
national member bank as defined in Section 3(d)(1) of the Federal Deposit
Insurance Act, as amended) at an agreed upon price (including principal and
interest) on an agreed upon date within a number of days (usually not more than
seven) from the date of purchase. The resale price reflects the purchase price
plus an agreed upon market rate of interest which is unrelated to the coupon
rate or maturity of the underlying security. A repurchase agreement involves the
obligation of the seller to pay the agreed upon price, which obligation is in
effect secured by the value of the underlying security.
Repurchase agreements are considered to be loans by a Fund for purposes of its
investment limitations. The repurchase agreements entered into by a Fund will
provide that the underlying security at all times shall have a value at least
equal to 102% of the resale price stated in the agreement (the Advisor monitors
compliance with this requirement). Under all repurchase agreements entered into
by a Fund, the Custodian or its agent must take possession of the underlying
collateral. However, if the seller defaults, a Fund could realize a loss on the
sale of the underlying security to the extent that the proceeds of the sale
including accrued interest are less than the resale price provided in the
agreement including interest. In addition, even though the Bankruptcy Code
provides protection for most repurchase agreements, if the seller should be
involved in bankruptcy or insolvency proceedings, a Fund may incur delay and
costs in selling the underlying security or may suffer a loss of principal and
interest if a Fund is treated as an unsecured creditor and required to return
the underlying security to the seller's estate.
STANDBY COMMITMENTS AND PUTS
The Investment Grade Bond Fund may purchase securities at a price which would
result in a yield to maturity lower than that generally offered by the seller at
the time of purchase when they can simultaneously acquire the right to sell the
securities back to the seller, the issuer, or a third party (the "writer") at an
agreed-upon price at any time during a stated period or on a certain date. Such
a right is generally denoted as a "standby commitment" or a "put." The purpose
of engaging in transactions involving puts is to maintain flexibility and
liquidity to permit the Investment Grade Bond Fund to meet redemptions and
remain as fully invested as possible in debt securities. The Investment Grade
Bond Fund reserves the right to engage in put transactions. The right to put the
securities depends on the writer's ability to pay for the securities at the time
the put is exercised. The Investment Grade Bond Fund would limit its put
transactions to institutions which the Advisor believes present minimal credit
risks, and the Advisor would use its best efforts to initially determine and
continue to monitor the financial strength of the sellers of the options by
evaluating their financial statements and such other information as is available
in the marketplace. It may, however be difficult to monitor the financial
strength of the writers because adequate current financial information may not
be available. In the event that any writer is unable to honor a put for
financial reasons, the Fund would be a general creditor (I.E., on a parity with
all other unsecured creditors) of the writer. Furthermore, particular provisions
of the contract between the Fund and the writer may excuse the writer from
repurchasing the securities; for example, a change in the published rating of
the underlying securities or any similar event that has an adverse effect on the
issuer's credit or a provision in the contract that the put will not be
exercised except in certain special cases, for example, to maintain portfolio
liquidity. The Fund could, however, at any
<PAGE>
B-5
time sell the underlying portfolio security in the open market or wait until the
portfolio security matures, at which time it should realize the full par value
of the security.
The securities purchased subject to a put, may be sold to third persons at any
time, even though the put is outstanding, but the put itself, unless it is an
integral part of the security as originally issued, may not be marketable or
otherwise assignable. Therefore, the put would have value only to the Fund. Sale
of the securities to third parties or lapse of time with the put unexercised may
terminate the right to put the securities. Prior to the expiration of any put
option, the Fund could seek to negotiate terms for the extension of such an
option. If such a renewal cannot be negotiated on terms satisfactory to the
Fund, the Fund could, of course, sell the portfolio security. The maturity of
the underlying security will generally be different from that of the put. There
will be no limit to the percentage of portfolio securities that the Fund may
purchase subject to a standby commitment or put, but the amount paid directly or
indirectly for all standby commitments or puts which are not integral parts of
the security as originally issued held in the Fund will not exceed 1/2 of 1% of
the value of the total assets of such Fund calculated immediately after any such
put is acquired.
OBLIGATIONS OF SUPRANATIONAL AGENCIES
The Investment Grade Bond Fund may purchase obligations of supranational
agencies. Currently the Investment Grade Bond Fund intends to invest only in
obligations issued or guaranteed by the Asian Development Bank, Inter-American
Development Bank, International Bank for Reconstruction and Development (World
Bank), African Development Bank, European Coal and Steel Community, European
Economic Community, European Investment Bank and Nordic Investment Bank.
WHEN-ISSUED SECURITIES
The Investment Grade Bond Fund and Value Income Stock Fund may purchase
securities on a when-issued basis, in which case delivery and payment normally
take place within 45 days after the date of commitment to purchase. These Funds
will only make commitments to purchase obligations on a when-issued basis with
the intention of actually acquiring the securities, but may sell them before the
settlement date. The when-issued securities are subject to market fluctuation,
and no interest accrues on the security to the purchaser during this period. The
payment obligation and the interest rate that will be received on the securities
are each fixed at the time the purchaser enters into the commitment. Purchasing
obligations on a when-issued basis is a form of leveraging and can involve a
risk that the yields available in the market when the delivery takes place may
actually be higher than those obtained in the transaction itself. In that case
there could be an unrealized loss at the time of delivery.
Segregated accounts will be established with the Custodian, and the Funds will
maintain high quality, liquid assets in an amount at least equal in value to the
Funds' commitments to purchase when-issued securities. If the value of these
assets declines, the Funds will place additional liquid assets in the account on
a daily basis so that the value of the assets in the account is equal to the
amount of such commitments.
RESTRICTED SECURITIES
Restricted securities are securities that may not be sold to the public without
registration under the Securities Act of 1933 (the "1933 Act") absent an
exemption from registration. Each Fund may invest in restricted securities and
may invest up to 15% of its total assets in restricted securities that are
illiquid, subject to each Fund's investment limitations on the purchase of
illiquid securities. Restricted securities, including securities eligible for
re-sale under 1933 Act Rule 144A, that are determined to be liquid are not
subject to this limitation. This determination is to be made by a Fund's Advisor
pursuant to guidelines adopted by the Board of Trustees. Under these guidelines,
the Advisor will consider the frequency of trades and quotes for the security,
the number of dealers in, and potential purchasers for, the securities, dealer
undertakings to make a market in the security, and the nature of the security
and of the marketplace trades. In purchasing such restricted securities, the
Advisor intends to purchase securities that are exempt from registration under
Rule 144A under the 1933 Act.
<PAGE>
B-6
SECURITIES LENDING
Each Fund may lend securities pursuant to agreements requiring that the loans be
continuously secured by cash, securities of the U.S. Government or its agencies,
or any combination of cash and such securities, as collateral equal to 100% of
the market value at all times of the securities lent. Such loans will not be
made if, as a result, the aggregate amount of all outstanding securities loans
for a Fund exceed one-third of the value of the Fund's total assets taken at
fair market value. A Fund will continue to receive interest on the securities
lent while simultaneously earning interest on the investment of the cash
collateral in U.S. Government securities. However, a Fund will normally pay
lending fees to such broker-dealers and related expenses from the interest
earned on invested collateral. There may be risks of delay in receiving
additional collateral or risks of delay in recovery of the securities or even
loss of rights in the collateral should the borrower of the securities fail
financially. However, loans are made only to borrowers deemed by the Advisor to
be of good standing and when, in the judgment of the Advisor, the consideration
which can be earned currently from such securities loans justifies the attendant
risk. Any loan may be terminated by either party upon reasonable notice to the
other party. The Funds may use the Distributor or a broker-dealer affiliate of
the Advisor as a broker in these transactions.
FUTURES CONTRACTS AND OPTIONS ON FUTURES
The Investment Grade Bond Fund and Value Income Stock Fund may invest in futures
contracts and options on futures. Although futures contracts by their terms call
for actual delivery or acceptance of the underlying securities, in most cases
the contracts are closed out before the settlement date without the making or
taking of delivery. Closing out an open futures position is done by taking an
opposite position ("buying" a contract which has previously been "sold" or
"selling" a contract previously "purchased") in an identical contract to
terminate the position. Brokerage commissions are incurred when a futures
contract is bought or sold.
Futures traders are required to make a good faith margin deposit in cash or
government securities with or for the account of a broker or custodian to
initiate and maintain open positions in futures contracts. A margin deposit is
intended to assure completion of the contract (delivery or acceptance of the
underlying security) if it is not terminated prior to the specified delivery
date. Minimal initial margin requirements are established by the futures
exchange and may be changed. Brokers may establish deposit requirements which
are higher than the exchange minimums. Deposit requirements on futures contracts
customarily range upward from less than 5% of the value of the contract being
traded.
After a futures contract position is opened, the value of the contract is marked
to market daily. If the futures contract price changes to the extent that the
margin on deposit does not satisfy the required margin, payment of additional
"variation" margin will be required. Conversely, changes in the contract value
may reduce the required margin, resulting in a repayment of excess margin to the
contract holder. Variation margin payments are made to and from the futures
broker for as long as the contract remains open. The Funds expect to earn
interest income on their margin deposits.
Traders in futures contracts and related options may be broadly classified as
either "hedgers" or "speculators." Hedgers use the futures markets primarily to
offset unfavorable changes in the value of securities otherwise held or expected
to be acquired for investment purposes. Speculators are less inclined to own the
securities underlying the futures contracts which they trade, and use futures
contracts with the expectation of realizing profits from fluctuations in the
prices of underlying securities. The Funds intend to use futures contracts and
related options only for bona fide hedging purposes.
The Funds will only sell futures contracts to protect securities they own
against price declines or purchase contracts to protect against an increase in
the price of securities they intend to purchase. As evidence of this hedging
interest, each Fund expects that approximately 75% of its futures contract
purchases will be "completed," that is, equivalent amounts of related securities
will have been purchased or are being purchased by the Fund upon sale of open
futures contracts.
Although techniques other than the sale and purchase of futures contracts and
options on futures contracts could be used to control the Funds' exposure to
market fluctuations, the use of futures contracts may be a more effective means
of hedging this exposure. While the Funds will incur commission expenses in both
<PAGE>
B-7
opening and closing out futures positions, these costs are lower than
transaction costs incurred in the purchase and sale of the underlying
securities.
RISK FACTORS IN FUTURES TRANSACTIONS
Positions in futures contracts may be closed out only on an exchange which
provides a secondary market for such futures. However, there can be no assurance
that a liquid secondary market will exist for any particular futures contract at
any specific time. Thus, it may not be possible to close a futures position. In
the event of adverse price movements, a Fund would continue to be required to
make daily cash payments to maintain its required margin. In such situations, if
a Fund has insufficient cash, it may have to sell portfolio securities to meet
daily margin requirements at a time when it may be disadvantageous to do so. In
addition, the Funds may be required to make delivery of the instruments
underlying futures contracts they hold. The inability to close options and
futures positions also could have an adverse impact on the ability to
effectively hedge it.
The Funds will minimize the risk that they will be unable to close out a futures
contract by entering into futures contracts only if they are traded on national
futures exchanges and for which there appears to be a liquid secondary market.
The risk of loss in trading futures contracts can be substantial, due both to
the low margin deposits required and the extremely high degree of leverage
involved in futures pricing. As a result, a relatively small price movement in a
futures contract may result in immediate and substantial loss (or gain) to a
Fund. For example, if at the time of purchase, 10% of the value of the futures
contract is deposited as margin, a subsequent 10% decrease in the value of the
futures contract would result in a total loss of the margin deposit, before any
deduction for the transaction costs, if the account were then closed out. A 15%
decrease would result in a loss equal to 150% of the original margin deposit if
the contract were closed out. Thus, a purchase or sale of a futures contract may
result in losses in excess of the amount invested in the contract. However,
because the Funds will be engaged in futures transactions only for hedging
purposes, the Advisor does not believe that the Funds will generally be subject
to the risks of loss frequently associated with futures transactions. The Funds
presumably would have sustained comparable losses if, instead of the futures
contract, they had invested in the underlying financial instrument and sold it
after the decline. The risk of loss from the purchase of options is less as
compared with the purchase or sale of futures contracts because the maximum
amount at risk is the premium paid for the option.
Utilization of futures transactions by the Funds does involve the risk of
imperfect or no correlation where the securities underlying futures contracts
have different maturities than the fund securities being hedged. It is also
possible that the Funds could both lose money on futures contracts and
experience a decline in value of its fund securities. There is also the risk of
loss by the Funds of margin deposits in the event of the bankruptcy of a broker
with whom the Funds have an open position in a futures contract or related
option.
Most futures exchanges limit the amount of fluctuation permitted in futures
contract prices during a single trading day. The daily limit establishes the
maximum amount that the price of a futures contract may vary either up or down
from the previous day's settlement price at the end of a trading session. Once
the daily limit has been reached in a particular type of contract, no trades may
be made on that day at a price beyond that limit. The daily limit governs only
price movement during a particular trading day and therefore does not limit
potential losses because the limit may prevent the liquidation of unfavorable
positions. Futures contract prices have occasionally moved to the daily limit
for several consecutive trading days with little or no trading, thereby
preventing prompt liquidation of future positions and subjecting some futures
traders to substantial losses.
OPTIONS
The Investment Grade Bond Fund and Value Income Stock Fund may write call
options on a covered basis only, and will not engage in option writing
strategies for speculative purposes. A call option gives the purchaser of such
option the right to buy, and the writer, in this case the Fund, the obligation
to sell the underlying security at the exercise price during the option period.
The advantage to the Funds of writing covered calls is that the Funds receive a
premium which is additional income. However, if the security rises in value, the
Funds may not fully participate in the market appreciation.
<PAGE>
B-8
During the option period, a covered call option writer may be assigned an
exercise notice by the broker-dealer through whom such call option was sold
requiring the writer to deliver the underlying security against payment of the
exercise price. This obligation is terminated upon the expiration of the option
period or at such earlier time in which the writer effects a closing purchase
transaction. A closing purchase transaction is one in which the Fund, when
obligated as a writer of an option, terminates its obligation by purchasing an
option of the same series as the option previously written.
A closing purchase transaction cannot be effected with respect to an option once
the option writer has received an exercise notice for such option.
Closing purchase transactions will ordinarily be effected to realize a profit on
an outstanding call option, to prevent an underlying security from being called,
to permit the sale of the underlying security or to enable a Fund to write
another call option on the underlying security with either a different exercise
price or expiration date or both. A Fund may realize a net gain or loss from a
closing purchase transaction depending upon whether the net amount of the
original premium received on the call option is more or less than the cost of
effecting the closing purchase transaction. Any loss incurred in a closing
purchase transaction may be partially or entirely offset by the premium received
from a sale of a different call option on the same underlying security. Such a
loss may also be wholly or partially offset by unrealized appreciation in the
market value of the underlying security. Conversely, a gain resulting from a
decline in the market value of the underlying security.
If a call option expires unexercised, a Fund will realize a short-term capital
gain in the amount of the premium on the option, less the commission paid. Such
a gain, however, may be offset by depreciation in the market value of the
underlying security during the option period. If a call option is exercised, a
Fund will realize a gain or loss from the sale of the underlying security equal
to the difference between the cost of the underlying security, and the proceeds
of the sale of the security plus the amount of the premium on the option, less
the commission paid.
The market value of a call option generally reflects the market price of an
underlying security. Other principal factors affecting market value include
supply and demand, interest rates, the price volatility of the underlying
security and the time remaining until the expiration date.
The Funds will write call options only on a covered basis, which means that a
Fund will own the underlying security subject to a call option at all times
during the option period. Unless a closing purchase transaction is effected, a
Fund would be required to continue to hold a security which it might otherwise
wish to sell, or deliver a security it would want to hold. Options written by
the Funds will normally have expiration dates between one and nine months from
the date written. The exercise price of a call option may be below, equal to or
above the current market value of the underlying security at the time the option
is written.
OTHER INVESTMENTS
The Trust is not prohibited from investing in obligations of banks which are
clients of SEI Corporation ("SEI"), the parent company of the Administrator and
the Distributor. However, the purchase of shares of the Trust by such banks or
by their customers will not be a consideration in determining which bank
obligations the Trust will purchase. The Trust will not purchase obligations
issued by the Advisor.
INVESTMENT LIMITATIONS
The following are fundamental policies of each Fund and cannot be changed with
respect to a Fund without the consent of the holders of a majority of a Fund's
outstanding shares.
A Fund may not:
1. Acquire more than 10% of the voting securities of any one issuer.
2. Invest in companies for the purpose of exercising control.
3. Borrow money except for temporary or emergency purposes and then only in an
amount not exceeding one-third of the value of total assets. Any borrowing will
be done from a bank and, to the extent that such borrowing exceeds 5% of the
value of the Fund's assets, asset coverage of at least 300% is required. In the
<PAGE>
B-9
event that such asset coverage shall at any time fall below 300%, the Fund
shall, within three days thereafter or such longer period as the Securities and
Exchange Commission ("SEC") may prescribe by rules and regulations, reduce the
amount of its borrowings to such an extent that the asset coverage of such
borrowings shall be at least 300%. This borrowing provision is included solely
to facilitate the orderly sale of portfolio securities to accommodate heavy
redemption requests if they should occur and is not for investment purposes. All
borrowings in excess of 5% of the value of a Fund's total assets will be repaid
before making additional investments and any interest paid on such borrowings
will reduce income.
4. Make loans, except that (a) a Fund may purchase or hold debt instruments in
accordance with its investment objective and policies; (b) a Fund may enter into
repurchase agreements; and (c) the Investment Grade Bond Fund and the Value
Income Stock Fund may engage in securities lending as described in the
Prospectus and in this Statement of Additional Information.
5. Pledge, mortgage or hypothecate assets except to secure temporary borrowings
permitted by (3) above in aggregate amounts not to exceed 10% of the Fund's
total assets, taken at current value at the time of the incurrence of such loan,
except as permitted with respect to securities lending.
6. Purchase or sell real estate, real estate limited partnership interests,
commodities or commodities contracts (except for financial futures contracts)
and interests in a pool of securities that are secured by interests in real
estate (except that the Investment Grade Bond Fund may purchase mortgage-backed
and other mortgage-related securities, including collateralized obligations and
REMICs). However, subject to their permitted investment spectrum, any Fund may
invest in companies which invest in real estate, commodities or commodities
contracts.
7. Make short sales of securities, maintain a short position or purchase
securities on margin, except that the Trust may obtain short-term credits as
necessary for the clearance of security transactions.
8. Act as an underwriter of securities of other issuers except as it may be
deemed an underwriter in selling a security.
9. Purchase securities of other investment companies except for money market
funds and CMOs and REMICs deemed to be investment companies and then only as
permitted by the Investment Company Act of 1940 (the "1940 Act") and the rules
and regulations thereunder. Under these rules and regulations, a Fund is
prohibited from acquiring the securities of other investment companies if, as a
result of such acquisition, the Fund owns more than 3% of the total voting stock
of the company; securities issued by any one investment company represent more
than 5% of the total assets of a Fund; or securities (other than treasury stock)
issued by all investment companies represent more than 10% of the total assets
of the Fund.
10. Issue senior securities (as defined in the 1940 Act) except in connection
with permitted borrowings as described above or as permitted by rule, regulation
or order of the SEC.
NON-FUNDAMENTAL POLICIES
No Fund may purchase or retain securities of an issuer if, to the knowledge of
the Trust, an officer, trustee, partner or director of the Trust or any
investment advisor of the Trust owns beneficially more than 1/2 of 1% of the
shares or securities of such issuer and all such officers, trustees, partners
and directors owning more than 1/2 of 1% of such shares or securities together
own more than 5% of such shares or securities.
No Fund may invest in warrants except that the Value Income Stock, Mid-Cap
Equity and Capital Growth Funds may invest in warrants in an amount not
exceeding 5% of the Fund's net assets as valued at the lower of cost or market
value. Included in that amount, but not to exceed 2% of the Fund's net assets,
may be warrants not listed on the New York Stock Exchange or American Stock
Exchange.
No Fund may invest in illiquid securities in an amount exceeding, in the
aggregate, 15% of a Fund's assets. An illiquid security is a security which
cannot be disposed of promptly (within seven days), and in the usual course of
business without a loss, and includes repurchase agreements maturing in excess
of seven days, time deposits with a withdrawal penalty, non-negotiable
instruments and instruments for which no market exists.
No Fund may invest in interests in oil, gas or other mineral exploration or
development programs and oil, gas or mineral leases.
<PAGE>
B-10
No Fund may write or purchase puts, calls, options or combinations thereof,
except that the Investment Grade Bond Fund and Value Income Stock Fund may write
covered call options with respect to any or all parts of their Fund securities
and engage in futures transactions. Funds may sell options previously purchased
and enter into closing transactions with respect to covered call options.
No Fund may invest in securities of issuers which together with predecessors
have a record of less than three years continuous operation or equity securities
of issuers which are not readily marketable if such investments will exceed 5%
of the Fund's total assets.
The foregoing percentages, except with respect to illiquid securities, will
apply at the time of the purchase of a security and shall not be considered
violated unless an excess occurs or exists immediately after and as a result of
a purchase of such security.
THE INVESTMENT ADVISOR
The Trust and STI Capital Management, N.A. (the "Advisor") have entered into an
advisory agreement with the Trust (the "Advisory Agreement"). The Advisory
Agreement provides that the Advisor shall not be protected against any liability
to the Trust or its Shareholders by reason of willful misfeasance, bad faith or
gross negligence on its part in the performance of its duties or from reckless
disregard of its obligations or duties thereunder.
The Advisory Agreement provides that if, for any fiscal year, the ratio of
expenses of any Fund (including amounts payable to the Advisor but excluding
interest, taxes, brokerage, litigation, and other extraordinary expenses)
exceeds limitations established by certain states, the Advisor and/or the
Administrator will bear the amount of such excess. The Advisor will not be
required to bear expenses of the Trust to an extent which would result in a
Fund's inability to qualify as a regulated investment company under provisions
of the Internal Revenue Code.
The continuance of the Advisory Agreement, after the first two years, must be
specifically approved at least annually (i) by the vote of the Trustees, and
(ii) by the vote of a majority of the Trustees who are not parties to the
Agreement or "interested persons" of any party thereto, cast in person at a
meeting called for the purpose of voting on such approval. The Advisory
Agreement will terminate automatically in the event of its assignment, and is
terminable at any time without penalty by the Trustees of the Trust or, with
respect to the Funds, by a majority of the outstanding shares of the Funds, on
not less than 30 days nor more than 60 days written notice to the Advisor, or by
the Advisor on 90 days written notice to the Trust.
For the period from commencement of operations to the fiscal year ended December
31, 1995, the Trust paid the following advisory fees:
<TABLE>
<CAPTION>
FUND FEES PAID FEES WAIVED
- ---------------------------------------------------------------------- ----------- -------------
<S> <C> <C>
Investment Grade Bond Fund............................................ $ 0 $ 5,158(1)
Capital Growth Fund................................................... $ 0 $ 8,469(2)
Value Income Stock Fund............................................... $ 0 $ 6,015(3)
Mid-Cap Equity Fund*.................................................. $ 0 $ 8,203(4)
</TABLE>
- ---------------
* Formerly known as Aggressive Growth Fund.
(1) In addition to waiving the full advisory fee for 1995, the Adviser
reimbursed the Trust $31,786.
(2) In addition to waiving the full advisory fee for 1995, the Adviser
reimbursed the Trust $28,546.
(3) In addition to waiving the full advisory fee for 1995, the Adviser
reimbursed the Trust $29,872.
(4) In addition to waiving the full advisory fee for 1995, the Adviser
reimbursed the Trust $28,811.
THE ADMINISTRATOR
The Trust and SEI Financial Management Corporation (the "Administrator"), a
wholly-owned subsidiary of SEI Corporation ("SEI") have entered into an
Administration Agreement (the "Administration Agreement"). The Administration
Agreement provides that the Administrator shall not be liable for any error of
judgment or mistake of law or for any loss suffered by the Trust in connection
with the matters to which the Administration Agreement relates, except a loss
resulting from willful misfeasance, bad faith or gross
<PAGE>
B-11
negligence on the part of the Administrator in the performance of its duties or
from reckless disregard by it of its duties and obligations thereunder.
The Administrator, a wholly owned subsidiary of SEI was organized as a Delaware
corporation in 1969 and has its principal business offices at 680 East
Swedesford Road, Wayne, PA 19087-1658. Alfred P. West, Jr., Henry H. Greer and
Carmen V. Romeo constitute the Board of Directors of the Administrator. Mr. West
is the Chairman of the Board and Chief Executive Officer of the Administrator,
and of SEI. Mr. Greer is the President and Chief Operating Officer of the
Administrator, and of SEI. SEI and its subsidiaries are leading providers of
funds evaluation services, trust accounting systems, and brokerage and
information services to financial institutions, institutional investors and
money managers. The Administrator also serves as administrator to the following
other mutual funds: The Achievement Funds Trust, The Advisors' Inner Circle
Fund, The Arbor Fund, ARK Funds, Bishop Street Funds, Conestoga Family of Funds,
CoreFunds, Inc., CrestFunds, Inc., CUFUND, First American Funds, Inc., First
American Investment Funds, Inc., Insurance Investment Products Trust, Inventor
Funds, Inc., Marquis Funds-Registered Trademark-, Monitor Funds, Morgan Grenfell
Investment Trust, The PBHG Funds, Inc., The Pillar Funds, Rembrandt
Funds-Registered Trademark-, 1784 Funds, SEI Daily Income Trust, SEI Index
Funds, SEI Institutional Managed Trust, SEI International Trust, SEI Liquid
Asset Trust, SEI Tax Exempt Trust, Stepstone Funds and STI Classic Funds.
For the period from commencement of operations to the fiscal year ended December
31, 1995, the Funds paid the following administrative fees:
<TABLE>
<CAPTION>
FUND FEES PAID FEES WAIVED
- ---------------------------------------------------------------------- ----------- -----------
<S> <C> <C>
Investment Grade Bond Fund............................................ $ 15,625 $ 0
Capital Growth Fund................................................... $ 15,625 $ 0
Value Income Stock Fund............................................... $ 15,625 $ 0
Mid-Cap Equity Fund*.................................................. $ 15,625 $ 0
</TABLE>
- ------------
*Formerly known as Aggressive Growth Fund.
THE DISTRIBUTOR
SEI Financial Services Company (the "Distributor"), a wholly-owned subsidiary of
SEI, and the Trust are parties to a distribution agreement ("Distribution
Agreement").
<PAGE>
B-12
The Distribution Agreement is renewable annually and may be terminated by the
Distributor, the Qualified Trustees, or by a majority vote of the outstanding
securities of the Trust upon not more than 60 days written notice by either
party. No compensation is paid to the Distributor under the Distribution
Agreement.
TRUSTEES AND OFFICERS OF THE TRUST
The management and affairs of the Trust are supervised by the Trustees under the
laws governing business trusts in the Commonwealth of Massachusetts. The
Trustees and executive officers of the Trust and their principal occupations for
the last five years are set forth below.
Unless otherwise noted, the business address of each Trustee and executive
officer is SEI Financial Management Corporation, 680 E. Swedesford Road, Wayne,
PA 19087. Certain trustees and officers of the Trust also serve as trustees
and/or officers for some or all of the following: SEI Liquid Asset Trust; SEI
Tax Exempt Trust; SEI Index Funds; SEI Institutional Managed Trust; SEI Daily
Income Trust; SEI International Trust; Stepstone Funds; STI Classic Funds; The
Advisors' Inner Circle Fund; The Pillar Funds; CUFUND; CoreFunds, Inc.; First
American Funds; First American Investment Funds, Inc.;
Rembrandt-Registered Trademark- Funds; The Arbor Fund; 1784 Funds; Marquis-SM-
Funds; Morgan Grenfell Investment Trust; First American Mutual Funds; The PBHG
Funds, Inc.; Inventor Funds, Inc.; The Achievement Funds Trust; Insurance
Investment Products Trust; Bishop Street Funds; Tax Exempt Housing Reserve Fund,
CrestFunds, Inc. ARK Funds, FMB Funds, and Monitor Funds.
JESSE S. HALL -- Trustee1 -- 968 Winall Down Road, NE, Atlanta, GA 30318.
Executive Vice President, SunTrust Banks, Inc. from 1985-1994; Director of
Crawford & Company since 1979; Member, Atlanta Estate Planning Council from 1988
to 1993.
DANIEL S. GOODRUM -- Trustee -- 3900 Ocean Drive, Apt. 17A, Fort Lauderdale, FL
33308-5904. Chairman & CEO, SunTrust Bank/South Florida, N.A. from 1985 to 1991;
Chairman Audit Committee and Director, Holy Cross Hospital; Executive Committee
Member and Director, Honda Classic Foundation; Director, Broward Community
College Foundation.
WILTON LOONEY -- Trustee -- 2999 Circle 75 Parkway, Atlanta, GA 30339. President
of Genuine Parts Company from 1961-1964; Chairman of the Board 1964-1990;
Honorary Chairman of the Board from 1990 to present.
CHAMPNEY A. MCNAIR -- Trustee -- 4554 Carriage Run Circle, Murell's Inlet, SC
29576. Director and Chairman of Investment Committee and member of Executive
Committee, Cotton States Life and Health Insurance Company; Director and
Chairman of Investment Committee and member of Executive Committee, Cotton
States Mutual Insurance Company; Chairman, SunTrust Banks of Georgia Advisory
Council.
F. WENDELL GOOCH -- Trustee -- P.O. Box 190, Paoli, IN 47454. President, Orange
County Publishing Co., Inc., since October 1981. Publisher of the Paoli News and
the Paoli Republican and Editor of the Paoli Republican since January 1981,
President, H & W Distribution, Inc. since July 1984. Current Trustee on the
Board of Trustees for the SEI Family of Funds and The Capitol Mutual Funds.
Executive Vice President, Trust Department, Harris Trust and Savings Bank and
Chairman of the Board of Directors of The Harris Trust Company of Arizona before
January 1981.
T. GORDY GERMANY -- Trustee -- 17 Windy Point, Alexander City, AL 35010. Retired
President, Chairman, and CEO of Crawford & Company, 1973 to 1987. Member of the
Board of Directors, 1970-1990, joined company in 1948 and spent entire career at
Crawford. Currently serves on Boards of Norrell Corporation and Mercy Health
Services, the latter being the holding company of St. Joseph's Hospitals.
DR. BERNARD F. SLIGER -- Trustee -- Florida State University, The Gus A. Stavros
Center, 250 South Woodward Avenue, Tallahassee, FL 32306-4035. Serves as
President Emeritus and Director, the Stavros Center for the Advancement of Free
Enterprise and Economic Education at Florida State University,
- ------------
1 Jesse S. Hall may be deemed to be an "interested person" of the Trust as
defined in the Investment Company Act of 1940.
<PAGE>
B-13
1993-present. Visiting Professor, the University of New Orleans, 1992-1993.
President, Florida State University, 1976-1991, and Interim President, August,
1993-January, 1994. Executive Vice President and Chief Academic Officer, Florida
State University, 1972-1976. During educational career, taught at Florida State,
Michigan State, Louisiana State, and Southern University. Spent 19 years as
faculty member and administrator at Louisiana State University and served as
Head of Economics Department, member and chairman of the Graduate Council, Dean
of Academic Affairs and Vice Chancellor. Member of Board of Directors of Federal
Reserve Bank of Atlanta, 1983-1988.
DAVID G. LEE -- President, Chief Executive Officer -- Senior Vice President of
the Administrator and Distributor since 1993. Vice President of the
Administrator and Distributor (1991-1993). President, GW Sierra Trust Funds
before 1991.
STEPHEN G. MEYER -- CPA, Controller, Chief Financial Officer -- SEI Corporation,
Director, Internal Audit and Risk Management, SEI Corporation, 1992-March, 1995.
Senior Associate, Coopers & Lybrand, 1990-1992. Internal Audit, Vanguard Group
of Investments prior to 1990.
TODD CIPPERMAN -- Vice President, Assistant Secretary -- Vice President and
Assistant Secretary of the Administrator and the Distributor since 1995.
Associate, Dewey Ballantine (law firm), 1994-1995. Associate, Winston & Strawn
(law firm), 1991-1994.
RICHARD W. GRANT -- Secretary -- 2000 One Logan Square, Philadelphia, PA 19103,
Partner of Morgan, Lewis & Bockius LLP (law firm), Counsel to the Trust,
Administrator and Distributor.
SANDRA K. ORLOW -- Vice President, Assistant Secretary -- Vice President and
Assistant Secretary of the Administrator and Distributor since 1983.
KEVIN P. ROBINS -- Vice President, Assistant Secretary -- Senior Vice President
& General Counsel of SEI, the Administrator and the Distributor since 1994. Vice
President of SEI, the Administrator and the Distributor 1992-1994. Associate,
Morgan, Lewis & Bockius LLP (law firm) prior to 1992.
KATHRYN L. STANTON -- Vice President, Assistant Secretary -- Vice President,
Assistant Secretary of SEI, the Administrator and Distributor since 1994.
Associate, Morgan, Lewis & Bockius LLP (law firm) 1989-1994.
RICHARD SHOCH -- Vice President, Assistant Secretary -- Vice President and
Assistant Secretary of SEI since 1995. Regulatory Manager, SEI, 1990-1995.
The Trustees and officers of the Trust own less than 1% of the outstanding
shares of the Trust.
For the period from the commencement of operations to the fiscal year ended
December 31, 1995, the Trustees received the following compensation from the
Trust:
<TABLE>
<CAPTION>
PENSION OR
RETIREMENT
AGGREGATE BENEFITS ESTIMATED
COMPENSATION ACCRUED AS ANNUAL TOTAL COMPENSATION
FROM REGISTRANT PART OF FUND BENEFITS UPON FROM REGISTRANT AND FUND COMPLEX
NAME OF PERSON AND POSITION FOR FYE 95 EXPENSES RETIREMENT PAID TO DIRECTORS FOR FYE 95
- ------------------------------------ --------------- ------------- ------------- ------------------------------------
<S> <C> <C> <C> <C>
T. Gordy Germany, Trustee........... $ 500 $ 0 $ 0 $ 10,375 for services on 2 boards
F. Wendell Gooch, Trustee........... $ 500 $ 0 $ 0 $ 10,375 for services on 2 boards
Daniel S. Goodrum, Trustee.......... $ 500 $ 0 $ 0 $ 10,375 for services on 2 boards
Jesse S. Hall, Trustee.............. $ 500 $ 0 $ 0 $ 10,375 for services on 2 boards
Wilton Looney, Trustee.............. $ 500 $ 0 $ 0 $ 12,250 for services on 2 boards
Champney McNair, Trustee............ $ 500 $ 0 $ 0 $ 10,375 for services on 2 boards
Bernard F. Sliger, Trustee.......... $ 500 $ 0 $ 0 $ 10,375 for services on 2 boards
</TABLE>
<PAGE>
B-14
COMPUTATION OF YIELD
From time to time, a Fund may advertise yield. These figures will be based on
historical earnings and are not intended to indicate future performance. The
yield of a Fund refers to the annualized income generated by an investment in
such Fund over a specified 30-day period. The yield is calculated by assuming
that the income generated by the investment during that period is generated over
a one year period and is shown as a percentage of the investment. In particular,
yield will be calculated according to the following formula:
Yield = 2[(a-b/cd + 1)6 - 1], where a = dividends and interest earned
during the period; b = expenses accrued for the period (net of
reimbursement); c = the current daily number of shares outstanding
during the period that were entitled to receive dividends; and d = the
maximum offering price per share on the last day of the period.
Actual yield will depend on such variables as asset quality, average asset
maturity, the type of instruments in which a Fund invests, changes in interest
rates on money market instruments, changes in the expenses of the Fund and other
factors.
CALCULATION OF TOTAL RETURN
From time to time, a Fund may advertise total return. The total return of a Fund
refers to the average compounded rate of return to a hypothetical investment for
designated time periods (including, but not limited to, the period from which
the Fund commenced operations through the specified date), assuming that the
entire investment is redeemed at the end of each period. In particular, total
return will be calculated according to the following formula:
P(1 + T)n = ERV, where P = a hypothetical initial payment of $1,000; T =
average annual total return; n = number of years; and ERV = ending
redeemable value of a hypothetical $1,000 payment made at the beginning
of the designated time period as of the end of such period.
From time to time, the Trust may include the names of clients of the Advisor in
advertisements and/or sales literature for the Trust. The SEI Funds Evaluation
database tracks the total return of numerous tax-exempt pension accounts. The
range of returns in these accounts determines the percentile rankings. STI has
been in the top 1% of the SEI Funds Evaluation database for equity managers over
the past ten years. SEI's database includes research data on over 1,000
investment managers responsible for over $450 billion in assets.
For the 30-day period ended December 31, 1995, yields on the Funds were as
follows:
<TABLE>
<CAPTION>
FUND YIELD
- -------------------------------------------------------------------- ---------------
<S> <C>
Investment Grade Bond Fund.......................................... 4.94%
Capital Growth Fund................................................. 1.22%
Value Income Stock Fund............................................. 2.88%
Mid-Cap Equity Fund*................................................ 1.68%
</TABLE>
- ------------
*Formerly known as Aggressive Growth Fund.
Based on the foregoing, the average annual total returns for the Funds from
commencement of operations through December 31, 1995 was as follows:
<TABLE>
<CAPTION>
CUMULATIVE
TOTAL RETURN
FUND SINCE INCEPTION
- -------------------------------------------------------------------- ---------------
<S> <C>
Investment Grade Bond Fund.......................................... 3.68%
Capital Growth Fund................................................. 6.96%
Value Income Stock Fund............................................. 7.31%
Mid-Cap Equity Fund*................................................ 3.19%
</TABLE>
- ------------
*Formerly known as Aggressive Growth Fund.
<PAGE>
B-15
PURCHASE AND REDEMPTION OF SHARES
It is currently the Trust's policy to pay for all redemptions in cash. The Trust
retains the right, however, to alter this policy to provide for redemptions in
whole or in part by a distribution in-kind of readily marketable securities held
by the Funds in lieu of cash. Shareholders may incur brokerage charges on the
sale of any such securities so received in payment of redemptions. A Shareholder
will at all times be entitled to aggregate cash redemptions from all Funds of
the Trust during any 90-day period of up to the lesser of $250,000 or 1% of the
Trust's net assets.
The Trust reserves the right to suspend the right of redemption and/or to
postpone the date of payment upon redemption for any period on which trading on
the New York Stock Exchange ("NYSE") is restricted, or during the existence of
an emergency (as determined by the SEC by rule or regulation) as a result of
disposal or valuation of a Fund's securities is not reasonably practicable, or
for such other periods as the SEC has by order permitted. The Trust also
reserves the right to suspend sales of shares of a Fund for any period during
which the NYSE, the Advisor, the Administrator and/or the Custodian are not open
for business. Investors will receive written notification at least thirty days
prior to any change in a Fund's investment objective.
Certain state securities laws may require those financial institutions providing
certain distribution services to the Trust to register as dealers pursuant to
state law.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of the Funds is determined at the close of regular
trading on the NYSE (currently 4:00 p.m., Eastern Time), each business day the
NYSE is open. Net asset value per share is calculated for purchases and
redemptions of Shares of each Fund by dividing the value of total Fund assets,
less liabilities (including Trust expenses, which are accrued daily), by the
total number of Shares of that Fund outstanding. The net asset value per share
of each Fund is determined each business day at the close of business.
The securities of the Funds are valued by the Administrator pursuant to
valuations provided by an independent pricing service. The pricing service
relies primarily on prices of actual market transactions as well as trader
quotations. However, the service may also use a matrix system to determine
valuations of fixed income securities, which system considers such factors as
security prices, yields, maturities, call features, ratings and developments
relating to specific securities in arriving at valuations. The procedures of the
pricing service and its valuations are reviewed by the officers of the Trust
under the general supervision of the Trustees.
TAXES
FEDERAL INCOME TAX
The following discussion of federal income tax consequences is based on the
Internal Revenue Code of 1986, as amended (the "Code"), and the regulations
issued thereunder as in effect on the date of this Statement of Additional
Information.
Each of the Funds intends to qualify as a "regulated investment company" ("RIC")
under Subchapter M of the Code. A Fund that is a RIC and distributes to its
shareholders at least 90% of its taxable net investment income (including, for
this purpose, its net realized short-term capital gains) and 90% of its
tax-exempt interest income (reduced by certain expenses), will not be liable for
federal income taxes to the extent its taxable net investment income and its net
realized long-term and short-term capital gains, if any, are distributed to its
shareholders.
A number of technical rules are prescribed for computing net investment income
and net capital gains. For example, the Fund is generally treated as receiving
dividends on the ex-dividend date. Also, certain foreign currency losses and
capital losses arising after October 31 of a given year may be treated as if
they arise on the first day of the next taxable year.
<PAGE>
B-16
In order to qualify as a RIC under the Code, in addition to satisfying the
distribution requirement described above, each Fund must (a) derive at least 90%
of its gross income each taxable year from dividends, interest, payments with
respect to securities loans, gains from the sale or other disposition of stock,
securities, or foreign currencies, and certain other related income, including,
generally, certain gains from options, futures, and forward contracts; (b)
derive less than 30% of its gross income each taxable year from the sale or
other disposition of the following items if held for less than three months: (i)
stock or securities, (ii) options or futures (other than options, futures or
forward contracts on foreign currencies), and (iii) foreign currencies (or
options or futures) that are not directly related to the company's business of
investing in stock or securities; and (c) diversify its holdings so that, at the
end of each fiscal quarter of the Fund's taxable year, (i) at least 50% of the
market value of the Fund's assets is represented by cash and cash items, U.S.
Government securities, securities of other RICs, and other securities, with such
other securities limited, in respect of any one issuer, to an amount that does
not exceed 10% of the voting securities of such issuer or 5% of the value of the
Fund's total assets; and (ii) not more than 25% of the value of its assets is
invested in the securities (other than U.S. Government securities and securities
of other RICs) of any one issuer or two or more issuers which the Fund controls
and which are engaged in the same, similar or related trades or businesses.
In addition to qualifying under Subchapter M by meeting the requirements
described above, each Fund intends to qualify as diversified under Subchapter L
so that non-qualified variable annuity contracts funded by the Trust will not
fail to qualify as annuities for tax purposes. In general, for a Fund to meet
the investment diversification requirements of Subchapter L of the Code,
Treasury regulations require that no more than 55% of the total value of the
assets of the Fund be represented by any one investment, no more than 70% by any
two investments, no more than 80% by three investments and no more than 90% by
four investments. Generally, for purposes of the regulations, all securities of
the same issuer are treated as one investment. In the context of U.S. Government
Securities (including any security that is issued, guaranteed or insured by the
United States or an instrumentality of the United States), each U.S. Government
agency or instrumentality is treated as a separate issuer. Compliance with the
Subchapter L regulations is tested on the last day of each calendar year
quarter.
Notwithstanding the distribution requirement described above, which only
requires a Fund to distribute at least 90% of its annual investment company
taxable income and does not require any minimum distribution of net capital
gain, a regulated investment company is generally subject to a nondeductible 4%
excise tax to the extent it fails to distribute by the end of any calendar year
at least 98% of its ordinary income for that year and 98% of its capital gain
net income for the one-year period ending on October 31 of that year, plus
certain other amounts.
The excise tax is inapplicable to any RIC all of the shareholders of which are
either tax-exempt pension trusts or separate accounts of life insurance
companies funding variable contracts. Although each Fund believes that it is not
subject to the excise tax, each Fund intends to make the distributions required
to avoid the imposition of the tax, provided such payments and distributions are
determined to be in the best interest of such Fund's shareholders.
Dividends declared by a Fund in October, November, or December of any year and
payable to shareholders of record on a date in such month will be deemed to have
been paid by the Fund and received by the shareholders on December 31 of that
year if paid by the Fund at any time during the following January.
STATE TAXES
A Fund is not liable for any income or franchise tax in Massachusetts if it
qualifies as a RIC for federal income tax purposes. Distributions by the Funds
to Shareholders and the ownership of shares may be subject to state and local
taxes.
FUND TRANSACTIONS
The Trust has no obligation to deal with any dealer or group of dealers in the
execution of transactions in portfolio securities. Subject to policies
established by the Trustees, the Advisor is responsible for placing the
<PAGE>
B-17
orders to execute transactions for a Fund. In placing orders, it is the policy
of the Trust to seek to obtain the best net results taking into account such
factors as price (including the applicable dealer spread), the size, type and
difficulty of the transaction involved, the firm's general execution and
operational facilities, and the firm's risk in positioning the securities
involved. While the Advisor generally seeks reasonably competitive spreads or
commissions, the Trust will not necessarily be paying the lowest spread or
commission available.
The money market securities in which the Funds invest are traded primarily in
the over-the-counter market. Bonds and debentures are usually traded
over-the-counter, but may be traded on an exchange. Where possible, the Advisor
will deal directly with the dealers who make a market in the securities involved
except in those circumstances where better prices and execution are available
elsewhere. Such dealers usually are acting as principal for their own account.
On occasion, securities may be purchased directly from the issuer. Money market
securities are generally traded on a net basis and do not normally involve
either brokerage commissions or transfer taxes. The cost of executing portfolio
securities transactions of the Trust will primarily consist of dealer spreads
and underwriting commissions.
TRADING PRACTICES AND BROKERAGE
The Trust selects brokers or dealers to execute transactions for the purchase or
sale of portfolio securities on the basis of its judgment of their professional
capability to provide the service. The primary consideration is to have brokers
or dealers execute transactions at best price and execution. Best price and
execution refers to many factors, including the price paid or received for a
security, the commission charged, the promptness and reliability of execution,
the confidentiality and placement accorded the order and other factors affecting
the overall benefit obtained by the account on the transaction. The Trust's
determination of what are reasonably competitive rates is based upon the
professional knowledge of its trading department as to rates paid and charged
for similar transactions throughout the securities industry. In some instances,
the Trust pays a minimal share transaction cost when the transaction presents no
difficulty. Some trades are made on a net basis where the Trust either buys
securities directly from the dealer or sells them to the dealer. In these
instances, there is no direct commission charged but there is a spread (the
difference between the buy and sell price) which is the equivalent of a
commission.
The Trust may allocate out of all commission business generated by all of the
funds and accounts under management by the Advisor, brokerage business to
brokers or dealers who provide brokerage and research services. These research
services include advice, either directly or through publications or writings, as
to the value of securities, the advisability of investing in, purchasing or
selling securities, and the availability of securities or purchasers or sellers
of securities; furnishing of analyses and reports concerning issuers, securities
or industries; providing information on economic factors and trends, assisting
in determining portfolio strategy, providing computer software used in security
analyses, and providing portfolio performance evaluation and technical market
analyses. Such services are used by the Advisor in connection with its
investment decision-making process with respect to one or more funds and
accounts managed by it, and may not be used exclusively with respect to the fund
or account generating the brokerage.
As provided in the Securities Exchange Act of 1934 (the "1934 Act") higher
commissions may be paid to broker-dealers who provide brokerage and research
services than to broker-dealers who do not provide such services if such higher
commissions are deemed reasonable in relation to the value of the brokerage and
research services provided. Although transactions are directed to broker-dealers
who provide such brokerage and research services, the Trust believes that the
commissions paid to such broker-dealers are not, in general, higher than
commissions that would be paid to broker-dealers not providing such services and
that such commissions are reasonable in relation to the value of the brokerage
and research services provided. In addition, portfolio transactions which
generate commissions or their equivalent are directed to broker-dealers who
provide daily portfolio pricing services to the Trust. Subject to best price and
execution, commissions used for pricing may or may not be generated by the funds
receiving the pricing service.
The Advisor may place a combined order for two or more accounts or funds engaged
in the purchase or sale of the same security if, in its judgment, joint
execution is in the best interest of each participant and will result in best
price and execution. Transactions involving commingled orders are allocated in a
manner deemed equitable to each account or fund. It is believed that the ability
of the accounts to participate in volume
<PAGE>
B-18
transactions will generally be beneficial to the accounts and funds. Although it
is recognized that, in some cases, the joint execution of orders could adversely
affect the price or volume of the security that a particular account or trust
may obtain, it is the opinion of the Advisor and the Trust's Board of Trustees
that the advantages of combined orders outweigh the possible disadvantages of
separate transactions.
Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc., and subject to seeking best price and execution, the
Funds, at the request of the Distributor, give consideration to sales of shares
of the Trust as a factor in the selection of brokers and dealers to execute
Trust portfolio transactions.
It is expected that the Trust may execute brokerage or other agency transactions
through the Distributor or the affiliate of the Advisor, both of which are
registered broker-dealers, for a commission in conformity with the 1940 Act, the
1934 Act and rules promulgated by the SEC. Under these provisions, the
Distributor or an affiliate of the Advisor is permitted to receive and retain
compensation for effecting portfolio transactions for the Trust on an exchange
if a written contract is in effect between the Distributor and the Trust
expressly permitting the Distributor or an affiliate of the Advisor to receive
and retain such compensation. These rules further require that commissions paid
to the Distributor by the Trust for exchange transactions not exceed "usual and
customary" brokerage commissions. The rules define "usual and customary"
commissions to include amounts which are "reasonable and fair compared to the
commission, fee or other remuneration received or to be received by other
brokers in connection with comparable transactions involving similar securities
being purchased or sold on a securities exchange during a comparable period of
time." In addition, the Trust may direct commission business to one or more
designated broker-dealers in connection with such broker-dealer's provision of
services to the Trust or payment of certain Trust expenses (E.G., custody,
pricing and professional fees). The Trustees, including those who are not
"interested persons" of the Trust, have adopted procedures for evaluating the
reasonableness of commissions paid to the Distributor and will review these
procedures periodically.
For the period from the commencement of operations to the fiscal year ended
December 31, 1995, the Funds paid the following brokerage commissions with
respect to portfolio transactions:
<TABLE>
<CAPTION>
TOTAL
BROKERAGE
COMMISSIONS
% OF TOTAL PAID TO SFS
TOTAL $ BROKERAGE IN CONNECTION
TOTAL $ AMOUNT OF % OF TOTAL TRANSACTIONS WITH TOTAL $
AMOUNT OF BROKERAGE BROKERAGE EFFECTED REPURCHASE AMOUNT OF
BROKERAGE COMMISSIONS COMMISSIONS THROUGH AGREEMENT BROKERAGE
COMMISSIONS PAID TO PAID TO AFFILIATED TRANSACTIONS COMMISSIONS
PAID AFFILIATES IN AFFILIATES IN BROKERS IN FOR PAID FOR
PORTFOLIO FY 95 FY 95 FY 95 FY 95 FY 95 RESEARCH
- ------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Investment Grade Bond Fund..... $ 0 $ 0 $ 0 $ 0 $ 32 $ 0
Capital Growth Fund............ $ 3,745 $ 0 $ 0 $ 0 $ 39 $ 0
Value Income Stock Fund........ $ 5,587 $ 0 $ 0 $ 0 $ 12 $ 0
Mid-Cap Equity Fund*........... $ 3,973 $ 0 $ 0 $ 0 $ 129 $ 0
</TABLE>
- ------------
*Formerly known as Aggressive Growth Fund.
For the period from the commencement of operations to the fiscal year ended
December 31, 1995, the portfolio turnover rate for each of the Funds was as
follows:
<TABLE>
<CAPTION>
TURNOVER RATE
FUND 1995
- -------------------------------------------------------------------- --------------
<S> <C>
Investment Grade Bond Fund.......................................... 108.55%
Capital Growth Fund................................................. 8.05%
Value Income Fund................................................... 7.17%
Mid-Cap Equity Fund1................................................ 13.29%
</TABLE>
- ------------
*Formerly known as Aggressive Growth Fund.
<PAGE>
B-19
DESCRIPTION OF SHARES
The Declaration of Trust authorizes the issuance of an unlimited number of
shares of the Funds each of which represents an equal proportionate interest in
that Fund with each other share. Shares are entitled upon liquidation to a pro
rata share in the net assets of the Funds. Shareholders have no preemptive
rights. The Declaration of Trust provides that the Trustees of the Trust may
create additional series of shares. All consideration received by the Trust for
shares of any additional series and all assets in which such consideration is
invested would belong to that series and would be subject to the liabilities
related thereto. Share certificates representing shares will not be issued.
SHAREHOLDER LIABILITY
The Trust is an entity of the type commonly known as a "Massachusetts Business
Trust." Under Massachusetts law, shareholders of such a trust could, under
certain circumstances, be held personally liable as partners for the obligations
of the trust. Even if, however, the Trust were held to be a partnership, the
possibility of the Shareholders' incurring financial loss for that reason
appears remote because the Trust's Declaration of Trust contains an express
disclaimer of Shareholder liability for obligations of the Trust and requires
that notice of such disclaimer be given in each agreement, obligation or
instrument entered into or executed by or on behalf of the Trust or the
Trustees, and because the Declaration of Trust provides for indemnification out
of the Trust property for any Shareholder held personally liable for the
obligations of the Trust.
5% AND 25% SHAREHOLDERS
As of March 8, 1996, the following persons were the only persons who were record
owners (or to the knowledge of the Trust, beneficial owners) of 5% or 25% or
more of the shares of the Funds. Persons who owned of record or beneficially
more than 25% of a Fund's outstanding shares may be deemed to control the Fund
within the meaning of the 1940 Act. The Trust believes that most of the shares
of the Funds were held for the record owner's fiduciary, agency or custodial
customers.
INVESTMENT GRADE BOND FUND
<TABLE>
<S> <C> <C>
Glenbrook Life and Annuity Company 97.43% 386,180.2660
Attn: Dana Norkus
3100 Sanders Road -- Suite N4A
Northbrook, Illinois 60062-7155
</TABLE>
CAPITAL GROWTH FUND
<TABLE>
<S> <C> <C>
Glenbrook Life and Annuity Company 100.00% 496,297.4350
Attn: Dana Norkus
3100 Sanders Road -- Suite N4A
Northbrook, Illinois 60062-7155
</TABLE>
VALUE INCOME STOCK FUND
<TABLE>
<S> <C> <C>
Glenbrook Life and Annuity Company 100.00% 571,252.5920
Attn: Dana Norkus
3100 Sanders Road -- Suite N4A
Northbrook, Illinois 60062-7155
</TABLE>
<PAGE>
B-20
MID-CAP EQUITY FUND (FORMERLY KNOWN AS AGGRESSIVE GROWTH FUND)
<TABLE>
<S> <C> <C>
Glenbrook Life and Annuity Company 100.00% 426,245.5150
Attn: Dana Norkus
3100 Sanders Road -- Suite N4A
Northbrook, Illinois 60062-7155
</TABLE>
LIMITATION OF TRUSTEES' LIABILITY
The Declaration of Trust provides that a Trustee shall be liable only for his
own willful defaults and, if reasonable care has been exercised in the selection
of officers, agents, employees or investment advisors, shall not be liable for
any neglect or wrongdoing of any such person. The Declaration of Trust also
provides that the Trust will indemnify its Trustees and officers against
liabilities and expenses incurred in connection with actual or threatened
litigation in which they may be involved because of their offices with the Trust
unless it is determined in the manner provided in the Declaration of Trust that
they have not acted in good faith in the reasonable belief that their actions
were in the best interests of the Trust. However, nothing in the Declaration of
Trust shall protect or indemnify a Trustee against any liability for his willful
misfeasance, bad faith, gross negligence or reckless disregard of his duties.
EXPERTS
The financial statements in this Statement of Additional Information have been
audited by Arthur Andersen LLP, independent public accountants to the Trust, as
indicated in their report with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in accounting and auditing.
<PAGE>
- --------------------------------------------------------------------------------
VALUE INCOME STOCK FUND
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
MARKET
SHARES VALUE (000)
--------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK -- 90.2%
AIRCRAFT -- 0.2%
United Technologies 100 $ 9
-----------
AUTOMOTIVE -- 0.8%
Eaton 600 32
-----------
BANKS -- 6.7%
BankAmerica 500 32
Central Fidelity Banks 800 26
Compass Bancshares 800 26
First Virginia Banks 400 17
Fleet Financial Group 800 33
Great Western Financial 700 18
Magna Group 800 19
Nationsbank 500 35
PNC Bank 1,100 35
Summit Bancorporation 900 28
-----------
Total Banks 269
-----------
CHEMICALS -- 4.3%
Crompton & Knowles 800 11
DuPont (E.I.) de Nemours 800 56
Ethyl 4,000 50
Lawter International 1,100 13
Lubrizol 400 11
Nalco Chemical 600 18
Witco Chemical 500 15
-----------
Total Chemicals 174
-----------
COMPUTERS & SERVICES -- 0.8%
Pitney Bowes 700 33
-----------
DRUGS -- 6.1%
American Home Products 600 58
Bristol-Myers Squibb 900 77
Rhone-Poulenc Rorer 400 21
Schering Plough 200 11
Warner Lambert 800 78
-----------
Total Drugs 245
-----------
ELECTRICAL & ELECTRONIC PRODUCTS -- 0.9%
General Electric 500 36
-----------
ELECTRICAL UTILITIES -- 3.1%
Cinergy 1,700 52
General Public Utilities 1,100 37
Northeast Utilities 600 15
Pacificorp 900 19
-----------
Total Electrical Utilities 123
-----------
ENVIRONMENTAL SERVICES -- 0.9%
Browning-Ferris Industries 1,300 38
-----------
<CAPTION>
--------------------------------------------------------------------------
MARKET
SHARES VALUE (000)
--------------------------------------------------------------------------
<S> <C> <C>
FOOD, BEVERAGE & TOBACCO -- 9.5%
General Mills 700 $ 40
Grand Metropolitan PLC 2,700 78
Hanson PLC ADR 4,200 64
Heinz (H.J.) 2,050 68
Lance 800 13
RJR Nabisco 2,000 62
Schweitzer-Mauduit International* 20 1
UST 1,700 56
-----------
Total Food, Beverage & Tobacco 382
-----------
GAS -- 1.1%
El Paso Natural Gas 800 23
Sonat 600 21
-----------
Total Gas/Natural Gas 44
-----------
GLASS PRODUCTS -- 1.5%
Corning 1,900 61
-----------
HOUSEHOLD FURNITURE & FIXTURES -- 0.6%
Masco 700 22
-----------
HOUSEHOLD PRODUCTS -- 3.2%
Dial 1,900 56
Maytag 1,700 35
Snap-on Tools 800 36
-----------
Total Household Products 127
-----------
INSURANCE -- 4.4%
Aetna Life & Casualty 600 41
Lincoln National 1,000 54
Marsh and McLennan 900 80
-----------
Total Insurance 175
-----------
MACHINERY -- 6.8%
Cooper Industries 1,500 55
Dresser Industries 2,300 56
General Signal 1,600 52
Goulds Pumps 800 20
Tenneco 1,800 89
-----------
Total Machinery 272
-----------
MEDICAL PRODUCTS & SERVICES -- 1.1%
Bausch & Lomb 1,100 44
-----------
METALS AND MINING -- 0.8%
Minnesota Mining & Manufacturing 500 33
-----------
MISCELLANEOUS CONSUMER SERVICES -- 1.1%
H & R Block 1,100 45
-----------
</TABLE>
F-1
<PAGE>
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
STI CLASSIC VARIABLE TRUST FUNDS DECEMBER 31, 1995
VALUE INCOME STOCK FUND --CONTINUED
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
MARKET
SHARES VALUE (000)
--------------------------------------------------------------------------
<S> <C> <C>
PAPER & PAPER PRODUCTS -- 2.7%
International Paper 800 $ 30
James River 1,800 43
Kimberly-Clark 200 17
Tambrands 400 19
-----------
Total Paper & Paper Products 109
-----------
PETROLEUM & FUEL PRODUCTS -- 3.5%
Occidental Petroleum 3,200 68
Questar 1,100 37
YPF Sociedad Anonima ADR 1,700 37
-----------
Total Petroleum & Fuel Products 142
-----------
PETROLEUM REFINING -- 7.3%
Ashland 1,100 39
Atlantic Richfield 600 66
Pennzoil 900 38
Phillips Petroleum 1,100 38
Repsol 1,100 36
Texaco 500 39
USX-Marathon Group 1,900 37
-----------
Total Petroleum Refining 293
-----------
PHOTOGRAPHIC EQUIPMENT & SUPPLIES -- 1.4%
Xerox 400 55
-----------
PRINTING & PUBLISHING -- 4.2%
Deluxe 1,700 49
Gannett 800 49
McGraw-Hill 600 52
Time Warner 600 19
-----------
Total Printing & Publishing 169
-----------
PROFESSIONAL SERVICES -- 2.2%
Dun & Bradstreet 800 52
<CAPTION>
--------------------------------------------------------------------------
MARKET
SHARES VALUE (000)
--------------------------------------------------------------------------
<S> <C> <C>
Ogden 1,800 $ 38
-----------
Total Professional Services 90
-----------
RAILROADS -- 0.9%
Conrail 500 35
-----------
RETAIL -- 4.2%
Giant Food, Class A 700 22
Intimate Brands* 1,800 27
Melville 1,000 31
J.C. Penney 1,000 48
Sears Roebuck 1,000 39
-----------
Total Retail 167
-----------
SEMI-CONDUCTORS/INSTRUMENTS -- 1.2%
AMP 1,200 46
-----------
STEEL & STEEL WORKS -- 0.8%
USX-U.S. Steel Group 1,000 31
-----------
TELECOMMUNICATIONS -- 7.9%
Alltel 2,200 65
Bellsouth 600 26
GTE 1,200 53
SBC Telecommunications 300 17
Southern New England Telecom 1,400 56
Sprint 1,900 76
US West 700 25
-----------
Total Telecommunications 318
-----------
Total Common Stock
(Cost $3,421,729) 3,619
-----------
</TABLE>
F-2
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
FACE AMOUNT MARKET
(000) VALUE (000)
--------------------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENTS -- 9.6%
Lehman Brothers Incorporated, 5.54%, dated
12/29/95, matures 01/02/96, repurchase price
$386,086 (collateralized by U.S. Treasury
Note, par value $391,379, 5.625%, maturity
date 10/31/97, market value $397,679) $ 386 $ 386
-----------
Total Repurchase Agreements
(Cost $386,096) 386
-----------
Total Investments -- 99.8%
(Cost $3,807,825) 4,005
-----------
OTHER ASSETS AND LIABILITIES -- 0.2%
Total Other Assets and Liabilities 10
-----------
<CAPTION>
--------------------------------------------------------------------------
MARKET
VALUE (000)
--------------------------------------------------------------------------
<S> <C> <C>
NET ASSETS:
Portfolio Shares (unlimited authorization - no
par value) based on 376,157 outstanding shares
of beneficial interest $ 3,813
Undistributed net realized gain on investments 5
Unrealized appreciation on investments 197
-----------
Total Net Assets: -- 100% $ 4,015
-----------
-----------
Net Asset Value, Offering Price and Redemption
Price Per Share $ 10.67
-----------
-----------
</TABLE>
ADR -- AMERICAN DEPOSITORY RECEIPT
PLC -- PUBLIC LIMITED COMPANY
* NON-INCOME PRODUCING SECURITY
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
F-3
<PAGE>
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
STI CLASSIC VARIABLE TRUST FUNDS DECEMBER 31, 1995
AGGRESSIVE GROWTH FUND
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
MARKET
SHARES VALUE (000)
--------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK -- 84.9%
AEROSPACE & DEFENSE -- 1.3%
Litton Industries* 1,000 $ 45
-----------
AIR TRANSPORTATION -- 0.4%
Atlantic Southeast Airlines 600 13
-----------
AIRCRAFT -- 0.8%
Sundstrand 400 28
-----------
APPAREL/TEXTILES -- 0.6%
Nine West Group* 400 15
Shaw Industries 500 7
-----------
Total Apparel/Textiles 22
-----------
AUTOMOTIVE -- 2.6%
Allen Group 600 13
Federal Signal 600 16
General Motors, Class E 700 36
Magna International, Class A 500 22
-----------
Total Automotive 87
-----------
BANKS -- 12.4%
Bancorp Hawaii 700 25
California Federal Bank, Class A* 1,000 16
Comerica 900 36
Crestar Financial 700 41
First Security 900 35
Great Western Financial 1,700 43
Marshall & Ilsley 600 16
Merchantile Bancorp 1,000 46
Regions Financial Corporation 600 26
Republic New York 700 43
Signet Banking 800 19
Southtrust 900 23
United Jersey Bank Financial 1,500 54
-----------
Total Banks 423
-----------
BROADCASTING, NEWSPAPERS & ADVERTISING -- 0.5%
Interpublic Group 400 17
-----------
CHEMICALS -- 2.2%
Cabot 1,000 54
Praxair 400 13
Witco Chemical 300 9
-----------
Total Chemicals 76
-----------
COMMUNICATIONS EQUIPMENT -- 1.5%
ADC Telecommunications* 800 29
Vishay Intertechnology* 700 22
-----------
Total Communications Equipment 51
-----------
<CAPTION>
--------------------------------------------------------------------------
MARKET
SHARES VALUE (000)
--------------------------------------------------------------------------
<S> <C> <C>
COMPUTERS & SERVICES -- 3.5%
Bay Networks* 950 $ 39
Dell Computer* 600 21
EMC Corporation/Mass* 700 11
Seagate Technology* 400 19
Silicon Graphics* 300 8
Symbol Technologies* 500 20
-----------
Total Computers & Services 118
-----------
DRUGS -- 6.7%
Biogen* 700 43
Chiron* 500 55
Genzyme* 800 50
Ivax 1,000 29
Mylan Laboratories 700 17
Scherer RP* 700 34
-----------
Total Drugs 228
-----------
ELECTRICAL UTILITIES -- 1.2%
Wisconsin Energy 1,400 43
-----------
ENTERTAINMENT -- 1.4%
Mirage Resorts* 1,400 48
FINANCIAL SERVICES -- 3.1%
Bear Stearns 500 10
Franklin Resources 1,000 50
Green Tree Financial 1,000 26
Charles Schwab 1,000 20
-----------
Total Financial Services 106
-----------
FOOD, BEVERAGE & TOBACCO -- 3.2%
Dole Food 700 25
IBP 500 25
McCormick 1,400 34
Tyson Foods 1,000 26
-----------
Total Food, Beverage & Tobacco 110
-----------
HOUSEHOLD PRODUCTS -- 1.9%
American Standard* 1,800 51
Hubbell, Class B 200 13
-----------
INSURANCE -- 2.7%
AFLAC 700 30
Equifax 1,400 30
Mid Atlantic Medical Services* 500 12
Progressive of Ohio 400 20
-----------
Total Insurance 92
-----------
LUMBER & WOOD PRODUCTS -- 0.6%
Clayton Homes 950 20
-----------
</TABLE>
F-4
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
MARKET
SHARES VALUE (000)
--------------------------------------------------------------------------
<S> <C> <C>
MACHINERY -- 0.3%
Goulds Pumps 400 $ 10
-----------
MEDICAL PRODUCTS & SERVICES -- 3.9%
Fisher Scientific International 400 13
Healthsouth Rehabilitation* 1,300 38
Nellcor* 400 23
Pacificare Health Systems, Class B* 300 26
Varian Associates 400 19
Tenet Healthcare * 700 15
-----------
Total Medical Products & Services 134
-----------
METALS & MINING -- 2.3%
Alumax* 500 15
Molten Metal Technology* 800 26
Potash of Saskatchewan, ADR 500 36
-----------
Total Metals & Mining 77
-----------
MISCELLANEOUS BUSINESS SERVICES -- 4.5%
Adobe Systems 200 13
Cadence Design Systems* 600 25
Cuc International* 1,000 34
Informix* 900 27
Mentor Graphics* 700 13
Parametric Technology* 500 33
Symantec* 400 9
-----------
Total Miscellaneous Business Services 154
-----------
MISCELLANEOUS MANUFACTURING -- 1.1%
Stryker 700 37
-----------
PAPER & PAPER PRODUCTS -- 0.6%
Tambrands 400 19
-----------
PETROLEUM & FUEL PRODUCTS -- 2.1%
Apache 1,000 30
Questar 400 13
Weatherford Enterra* 922 27
-----------
Total Petroleum & Fuel Products 70
-----------
PETROLEUM REFINING -- 2.5%
Kerr-McGee 800 51
Valero Energy 1,400 34
-----------
Total Petroleum Refining 85
-----------
PRINTING & PUBLISHING -- 2.2%
American Greetings, Class A 1,100 30
Belo, Class A 700 24
Houghton Mifflin 500 22
-----------
Total Printing & Publishing 76
-----------
<CAPTION>
--------------------------------------------------------------------------
MARKET
SHARES VALUE (000)
--------------------------------------------------------------------------
<S> <C> <C>
RAILROADS -- 1.1%
Illinois Central 1,000 $ 38
-----------
REAL ESTATE -- 0.1%
Castle & Cooke* 233 4
-----------
RETAIL -- 6.5%
Circuit City Stores 300 8
Federated Department Stores* 900 25
Hannaford Brothers 500 12
Kohls* 700 37
Micro Warehouse* 400 17
Outback Steakhouse* 800 29
Price/Costco* 2,000 31
Talbots 800 23
Wendys International 1,900 40
-----------
Total Retail 222
-----------
RUBBER & PLASTIC -- 1.3%
First Brands 900 43
-----------
SEMI-CONDUCTORS/INSTRUMENTS -- 3.0%
Analog Devices* 800 28
Atmel* 500 11
Linear Technology 600 24
LSI Logic* 1,200 39
-----------
Total Semi-Conductors/Instruments 102
-----------
STEEL & STEEL WORKS -- 1.3%
Olin 600 45
-----------
TELEPHONES & TELECOMMUNICATION -- 2.5%
Frontier* 1,000 30
Worldcom* 1,600 56
-----------
Total Telephones & Telecommunication 86
-----------
WHOLESALE -- 3.0%
Arrow Electronics* 300 13
Avnet 400 18
Cardinal Health 600 33
Office Depot 1,000 20
Staples 700 17
-----------
Total Wholesale 101
-----------
Total Common Stock
(Cost $2,827,849) 2,894
-----------
</TABLE>
F-5
<PAGE>
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
STI CLASSIC VARIABLE TRUST FUNDS DECEMBER 31, 1995
AGGRESSIVE GROWTH FUND --CONCLUDED
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
FACE AMOUNT
(000)
--------------------------------------------------------------------------
<S> <C> <C>
U.S. TREASURY OBLIGATIONS -- 8.8%
U.S. Treasury Bill 5.450%,
01/04/96 300 $ 300
-----------
Total U.S. Treasury Obligations
(Cost $299,894) 300
-----------
REPURCHASE AGREEMENTS -- 5.6%
Lehman Brothers Incorporated, 5.54%, dated
12/29/95, matures 01/02/96, repurchase price
$192,307 (collateralized by U.S. Treasury
Note, par value $194,938, 5.625%, maturity
date 10/31/97, market value $198,076) 192 192
-----------
Total Repurchase Agreements
(Cost $192,307) 192
-----------
Total Investments -- 99.3%
(Cost $3,320,050) 3,386
-----------
<CAPTION>
--------------------------------------------------------------------------
FACE AMOUNT
(000)
--------------------------------------------------------------------------
<S> <C> <C>
OTHER ASSETS AND LIABILITIES -- 0.7%
Total Other Assets and Liabilities $ 23
-----------
NET ASSETS:
Portfolio shares (unlimited authorization -- no
par value) based on 331,877 outstanding shares
of beneficial interest 3,334
Accumulated net realized gain on investments 9
Unrealized appreciation on investments 66
-----------
Total Net Asset: -- 100.0% $ 3,409
-----------
-----------
Net Asset Value, Offering Price and Redemption
Price Per Share $ 10.27
-----------
-----------
</TABLE>
ADR -- AMERICAN DEPOSITORY RECEIPT
* NON-INCOME PRODUCING SECURITY
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
F-6
<PAGE>
- --------------------------------------------------------------------------------
CAPITAL GROWTH FUND
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
MARKET
SHARES VALUE (000)
--------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK -- 86.9%
AIRCRAFT -- 3.9%
Allied Signal 1,000 $ 48
Boeing 400 31
Textron 300 20
United Technologies 500 47
-----------
Total Aircraft 146
-----------
AUTOMOTIVE -- 0.8%
General Motors 600 32
-----------
BANKS -- 4.2%
H.F. Ahmanson 600 16
Bank of Boston 600 28
Bank South 400 12
Chase Manhattan 500 30
First Interstate 100 14
Integra Financial 400 25
Signet Banking 700 16
Summit Bancorporation 500 16
-----------
Total Banks 157
-----------
BROADCASTING, NEWSPAPERS & ADVERTISING -- 3.2%
Capital Citites/ABC 400 49
Tele-Communications,
Class A* 1,300 26
Viacom, Class B* 1,000 47
-----------
Total Broadcasting, Newspapers & Advertising
122
-----------
BUILDING & CONSTRUCTION -- 0.8%
Foster Wheeler 300 13
Halliburton 300 15
-----------
Total Building & Construction 28
-----------
CHEMICALS -- 3.0%
Air Products & Chemicals 500 26
Dow Chemical 200 14
DuPont (E.I.) de Nemours 800 56
Praxair 500 17
-----------
Total Chemicals 113
COMMUNICATIONS EQUIPMENT -- 2.4%
ITT* 500 26
ITT Industries* 500 12
Motorola 800 46
Scientific-Atlanta 500 8
-----------
Total Communications Equipment 92
-----------
COMPUTERS & SERVICES -- 5.2%
Cisco Systems 200 15
Computer Sciences* 200 14
<CAPTION>
--------------------------------------------------------------------------
MARKET
SHARES VALUE (000)
--------------------------------------------------------------------------
<S> <C> <C>
Digital Equipment* 300 $ 20
General Motors, Class E 600 31
Hewlett Packard 300 25
International Business Machines 600 55
Microsoft* 400 35
-----------
Total Computers & Services 195
-----------
CONTAINERS & PACKAGING -- 0.4%
Newell 600 16
-----------
DRUGS -- 9.8%
Abbott Labs 700 29
Allergan 500 16
American Home Products 200 19
Amgen* 600 36
Bristol-Myers Squibb 400 34
Bush Boake Allen* 500 14
Johnson & Johnson 400 34
Merck 500 33
Pfizer 400 25
Schering Plough 300 16
SmithKline Beecham 1,200 67
Upjohn 500 19
Warner Lambert 300 29
-----------
Total Drugs 371
-----------
ELECTRICAL & ELECTRONIC PRODUCTS -- 2.6%
Emerson Electric 500 41
General Electric 800 57
-----------
Total Electrical & Electronic Products 98
-----------
ENVIRONMENTAL SERVICES -- 1.0%
Wheelabrator Technologies 700 12
WMX Technologies 800 24
-----------
Total Environmental Services 36
-----------
ENTERTAINMENT -- 1.2%
Carnival 1,900 46
-----------
FINANCIAL SERVICES -- 1.9%
Federal Home Loan Mortgage Corporation 600 50
ITT Hartford Group* 500 24
-----------
Total Financial Services 74
-----------
FOOD, BEVERAGE & TOBACCO -- 7.7%
Campbell Soup 300 18
CPC International 300 21
Coca Cola 400 30
ConAgra 400 17
General Mills 300 17
</TABLE>
F-7
<PAGE>
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
STI CLASSIC VARIABLE TRUST FUNDS DECEMBER 31, 1995
CAPITAL GROWTH FUND --CONTINUED
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
MARKET
SHARES VALUE (000)
--------------------------------------------------------------------------
<S> <C> <C>
Hershey Foods 200 $ 13
Kellogg 200 15
PepsiCo 500 28
Philip Morris 900 81
RJR Nabisco 500 15
Sara Lee 1,100 35
-----------
Total Food, Beverage & Tobacco 290
-----------
HOUSEHOLD PRODUCTS -- 4.0%
American Standard* 900 25
Gillette 800 42
Procter & Gamble 1,000 83
-----------
Total Household Products 150
-----------
INSURANCE -- 4.6%
American International Group 200 18
Chubb 300 29
General Re Corporation 400 62
MGIC Investment 400 22
Travelers 700 44
-----------
Total Insurance 175
-----------
LEISURE PRODUCTS -- 0.8%
Mattel 1,000 31
-----------
MACHINERY -- 3.0%
Deere 400 14
General Signal 1,400 45
Tyco Labs 1,500 54
-----------
Total Machinery 113
-----------
MEDICAL PRODUCTS & SERVICES -- 3.6%
Columbia/HCA Healthcare 1,000 51
Cordis* 200 20
Healthsouth Rehabilitation* 600 17
Medtronic 300 17
Tenet Healthcare* 800 17
Varian Associates 300 14
-----------
Total Medical Products & Services 136
-----------
METALS AND MINING -- 0.8%
Aluminum Company of America 200 10
Molten Metal Technology* 600 20
-----------
Total Metals & Mining 30
-----------
<CAPTION>
--------------------------------------------------------------------------
MARKET
SHARES VALUE (000)
--------------------------------------------------------------------------
<S> <C> <C>
MISCELLANEOUS BUSINESS SERVICES -- 0.6%
First Data 200 $ 13
Oracle Systems* 200 9
-----------
Total Miscellaneous Business Services 22
-----------
PETROLEUM & FUEL PRODUCTS -- 1.9%
Exxon 200 16
Occidental Petroleum 1,000 21
Schlumberger 300 21
Union Texas Petroleum Holdings 600 12
-----------
Total Petroleum & Fuel Products 70
-----------
PETROLEUM REFINING -- 4.6%
Amoco 300 22
Atlantic Richfield 300 33
Chevron 700 37
Kerr-McGee 300 19
Phillips Petroleum 500 17
Texaco 300 24
Unocal 800 23
-----------
Total Petroleum Refining 175
-----------
PHOTOGRAPHIC EQUIPMENT & SUPPLIES -- 2.1%
Eastman Kodak 600 40
Xerox 300 41
-----------
Total Photographic Equipment & Supplies
81
-----------
PRINTING & PUBLISHING -- 0.2%
American Greetings, Class A 300 8
-----------
RAILROADS -- 1.9%
Burlington Northern Santa Fe 200 16
Conrail 300 21
Union Pacific 500 33
-----------
Total Railroads 70
-----------
RETAIL -- 4.6%
Barnes & Noble* 400 12
Federated Department Stores* 500 14
Home Depot 900 43
Kroger* 500 19
Marriott International 800 30
Office Depot* 700 14
</TABLE>
F-8
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
MARKET
SHARES VALUE (000)
--------------------------------------------------------------------------
<S> <C> <C>
Wal-Mart Stores 1,200 $ 27
Wendy's International 700 15
-----------
Total Retail 174
-----------
RUBBER & PLASTIC -- 0.7%
Goodyear Tire & Rubber 600 27
-----------
SEMI-CONDUCTORS/INSTRUMENTS -- 1.6%
AMP 800 31
Intel 500 28
-----------
Total Semi-Conductors/Instruments 59
-----------
STEEL & STEEL WORKS -- 0.5%
Worthington Industries 900 19
-----------
TELEPHONES &
TELECOMMUNICATION -- 2.0%
Alltel 600 18
AT&T 900 58
-----------
Total Telephones & Telecommunication
76
-----------
WHOLESALE -- 1.3%
Arrow Electronics* 600 26
Sysco 800 26
-----------
Total Wholesale 52
-----------
Total Common Stock
(Cost $3,088,684) 3,284
-----------
<CAPTION>
--------------------------------------------------------------------------
SHARES
MARKET
VALUE (000)
--------------------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENT -- 17.7%
Lehman Brothers Incorporated,
5.54%, dated 12/29/95, matures 01/02/96,
repurchase price $666,534 (collateralized by
U.S. Treasury Note, par value $675,655,
5.625%, maturity date 10/31/97, market value
$686,530) $ 667 $ 667
-----------
Total Repurchase Agreements
(Cost $666,534) 667
-----------
Total Investments -- 104.6%
(Cost $3,755,218) 3,951
-----------
OTHER ASSETS AND LIABILITIES -- (4.6%)
Total Other Assets and Liabilities (173)
-----------
NET ASSETS:
Portfolio shares (unlimited authorization - no
par value) based on 354,566 outstanding shares
of beneficial interest 3,595
Accumulated realized loss on investments (13)
Unrealized appreciation on investments 196
Total Net Asset: -- 100% $ 3,778
-----------
-----------
Net Asset Value, Offering Price and Redemption
Price Per Share $ 10.66
-----------
-----------
</TABLE>
* NON-INCOME PRODUCING SECURITY
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
F-9
<PAGE>
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
STI CLASSIC VARIABLE TRUST FUNDS DECEMBER 31, 1995
INVESTMENT GRADE BOND FUND
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
FACE AMOUNT MARKET
(000) VALUE (000)
--------------------------------------------------------------------------
<S> <C> <C>
U.S. TREASURY OBLIGATIONS -- 91.6%
U.S. Treasury Note
8.880%, 02/15/99 $ 1,000 $ 1,102
5.750%, 08/15/03 400 405
7.880%, 11/15/04 1,000 1,157
U.S. Treasury Bond
8.130%, 08/15/19 150 189
-----------
Total U.S. Treasury Obligations
(Cost $2,783,310) 2,853
-----------
REPURCHASE AGREEMENTS -- 3.9%
Lehman Brothers Incorporated,
5.54%, dated 12/29/95, matures 01/02/96,
repurchase price $121,934 (collateralized by
U.S. Treasury Note, par value $123,601,
5.625%, maturity date 10/31/97, market value
$125,592) 123 123
-----------
Total Repurchase Agreements
(Cost $121,934) 123
-----------
<CAPTION>
--------------------------------------------------------------------------
FACE AMOUNT MARKET
(000) VALUE (000)
--------------------------------------------------------------------------
<S> <C> <C>
CASH EQUIVALENT -- 2.6%
SEI Liquid Asset Trust Prime Money Market $ 80 $ 80
-----------
Total Cash Equivalent
(Cost $80,368) 80
-----------
Total Investments -- 98.1%
(Cost $2,985,612) 3,056
-----------
OTHER ASSETS AND LIABILITIES -- 1.9%
Total Other Assets and Liabilities 59
-----------
NET ASSETS:
Portfolio shares (unlimited authorization -- no
par value) based on 304,027 outstanding shares
of beneficial interest 3,045
Unrealized appreciation on investments 70
-----------
Total Net Assets: -- 100% $ 3,115
-----------
-----------
Net Asset Value, Offering Price and Redemption
Price Per Share $ 10.25
-----------
-----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
F-10
<PAGE>
STATEMENT OF OPERATIONS (000)
- --------------------------------------------------------------------------------
STI CLASSIC VARIABLE TRUST FUNDS FOR THE PERIOD FROM INCEPTION THROUGH DECEMBER
31, 1995
<TABLE>
<CAPTION>
VALUE INCOME AGGRESSIVE CAPITAL INVESTMENT
STOCK FUND GROWTH FUND GROWTH FUND BOND FUND
------------ ----------- ------------ ------------
10/02/95-* 10/02/95-* 10/02/95-* 10/02/95-*
12/31/95 12/31/95 12/31/95 12/31/95
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
Investment Income:
Interest Income..................................................... $ 6 $ 20 $ 10 $ 40
Dividend Income..................................................... 24 4 11 --
------------ ----------- ------------ ------------
Total Investment Income......................................... 30 24 21 40
------------ ----------- ------------ ------------
Expenses:
Investment Advisory Fees.............................................. 6 8 8 5
Investment Advisory Fees Waived..................................... (6) (8) (8) (5)
Reimbursement from Advisor.......................................... (30) (29) (29) (32)
Administrator Fees.................................................. 16 16 16 16
Custody Fees........................................................ 1 1 1 1
Transfer Agent Fees................................................. 3 3 3 3
Professional Fees................................................... 10 10 10 10
Trustee Fees........................................................ -- -- -- --
Registration Fees................................................... 1 1 1 1
Printing Expenses................................................... 3 3 3 3
Insurance and Other Fees............................................ 1 1 1 1
Amortization of Deferred Organization Costs......................... 2 2 2 2
------------ ----------- ------------ ------------
Total Expenses.................................................. 7 8 8 5
------------ ----------- ------------ ------------
Net Investment Income (Loss).................................. 23 16 13 35
------------ ----------- ------------ ------------
Net Realized Gain (Loss) on Securities Sold......................... 5 9 (13) --
Net Unrealized Appreciation on Investments:......................... 197 66 196 70
------------ ----------- ------------ ------------
Net Realized and Unrealized Gain on Investments............... 202 75 183 70
------------ ----------- ------------ ------------
Increase in Net Assets from Operations................................ $ 225 $ 91 $ 196 $ 105
------------ ----------- ------------ ------------
------------ ----------- ------------ ------------
</TABLE>
Amounts designated as "-- " are either $0 or have been rounded to $0.
* Commencement of operations.
F-11
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS (000)
- --------------------------------------------------------------------------------
STI CLASSIC VARIABLE TRUST FUNDS FOR THE PERIOD FROM INCEPTION THROUGH DECEMBER
31, 1995
<TABLE>
<CAPTION>
INVESTMENT
VALUE INCOME AGGRESSIVE CAPITAL GRADE
STOCK FUND GROWTH FUND GROWTH FUND BOND FUND
------------- ------------- ------------- -------------
10/02/95-* 10/02/95-* 10/02/95-* 10/02/95-*
12/31/95 12/31/95 12/31/95 12/31/95
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Operations:
Net Investment Income............. $ 23 $ 16 $ 13 $ 35
Net Realized Gain (Loss) on
Investments..................... 5 9 (13) --
Net Change in Unrealized
Appreciation on Investments..... 197 66 196 70
------------- ------------- ------------- -------------
Increase in Net Assets from
Operations................... 225 91 196 105
------------- ------------- ------------- -------------
Distributions to Shareholders:
Net Investment Income:............ (23) (16) (13) (35)
Capital Gains:.................... -- -- -- --
------------- ------------- ------------- -------------
Total Distributions........... (23) (16) (13) (35)
------------- ------------- ------------- -------------
Capital Transactions:
Proceeds from Shares Issued....... 3,790 3,318 3,582 3,010
Reinvestment of Cash
Distributions................... 23 16 13 35
Cost of Shares Repurchased........ -- -- -- --
------------- ------------- ------------- -------------
Increase in Net Assets from Share
Transactions.................... 3,813 3,334 3,595 3,045
------------- ------------- ------------- -------------
Total Increase in Net
Assets....................... 4,015 3,409 3,778 3,115
------------- ------------- ------------- -------------
Net Assets:
Beginning of Period............... -- -- -- --
------------- ------------- ------------- -------------
End of Period..................... $ 4,015 $ 3,409 $ 3,778 $ 3,115
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Shares Issued and Redeemed:
Shares Issued..................... 374 330 354 301
Shares Issued in Lieu of Cash
Distributions................... 2 2 1 3
Shares Redeemed................... -- -- -- --
------------- ------------- ------------- -------------
Net Share Transactions........ 376 332 355 304
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
Amounts designated as "-- " are either $0 or have been rounded to $0.
*Commencement of operations.
F-12
<PAGE>
THIS PAGE INTENTIONALLY LEFT BLANK.
F-13
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
STI CLASSIC VARIABLE TRUST FUNDS FOR THE PERIOD FROM INCEPTION THROUGH DECEMBER
31, 1995
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
<TABLE>
<CAPTION>
NET NET REALIZED AND
NET ASSET VALUE INVESTMENT UNREALIZED GAINS DISTRIBUTIONS FROM DISTRIBUTIONS FROM
BEGINNING OF PERIOD INCOME ON INVESTMENTS NET INVESTMENT INCOME REALIZED CAPITAL GAINS
------------------- ---------- ---------------- --------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
VALUE INCOME STOCK FUND
1995(1) $10.00 $ 0.06 $ 0.67 $(0.06) $ --
AGGRESSIVE GROWTH FUND
1995(1) $10.00 $ 0.05 $ 0.27 $(0.05) $ --
CAPITAL GROWTH FUND
1995(1) $10.00 $ 0.04 $ 0.66 $(0.04) $ --
INVESTMENT GRADE BOND FUND
1995(1) $10.00 $ 0.13 $ 0.25 $(0.13) $ --
</TABLE>
(1) Commenced operations on October 2, 1995.
* Annualized
+ Cumulative since inception.
Amounts designated as "-- " are either zero or rounded to zero.
F-14
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATIO OF
RATIO TO NET INVESTMENT
RATIO OF EXPENSES TO INCOME (LOSS) TO
NET ASSET NET ASSETS RATIO OF NET INVESTMENT AVERAGE NET ASSETS NET ASSETS PORTFOLIO
VALUE END TOTAL END OF EXPENSES TO INCOME TO (EXCLUDING WAIVERS (EXCLUDING WAIVERS TURNOVER
OF PERIOD RETURN PERIOD (000) AVERAGE NET ASSETS AVERAGE NET ASSETS AND REIMBURSEMENTS) AND REIMBURSEMENTS) RATE
- --------- -------- ------------ ------------------ ------------------ ------------------- ------------------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
$10.67 7.31%+ 4,015 0.95%* 2.98%* 5.72%* (1.79)%* 7.17%
$10.27 3.19%+ 3,409 1.15%* 2.22%* 6.34%* (2.97)%* 13.29%
$10.66 6.96%+ 3,778 1.15%* 1.69%* 6.18%* (3.34)%* 8.05%
$10.25 3.68%+ 3,115 0.75%* 5.04%* 6.05%* (0.26)%* 108.55%
</TABLE>
F-15
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STI CLASSIC VARIABLE TRUST FUNDSDECEMBER 31, 1995
1. ORGANIZATION:
The STI Classic Variable Trust (the "Trust") was organized as a
Massachusetts business trust under a Declaration of Trust dated April 18, 1995.
The Trust is registered under the Investment Trust Act of 1940, as amended, as
an open-end management investment Trust with four funds: the Capital Growth
Fund, the Value Income Stock Fund, the Aggressive Growth Fund (collectively "the
Equity Funds") and the Investment Grade Bond Fund. The assets of each Fund are
segregated, and a shareholder's interest is limited to the Fund in which shares
are held. The Fund's prospectus provides a description of each Fund's investment
objective policies and strategies.
2. SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of significant accounting policies followed by
the Trust. These policies are in conformity with generally accepted accounting
principles.
SECURITY VALUATION--Investments in equity securities which are traded on a
national securities exchange (or reported on the NASDAQ national market
system) are stated at the last quoted sales price if readily available for
such equity securities on each business day. If there is no such reported
sale, these securities, and unlisted securities for which market quotations
are readily available, are valued at the most recently quoted bid price.
Debt obligations exceeding sixty days to maturity for which market
quotations are readily available are valued at the most recently quoted bid
price. Debt obligations with sixty days or less until maturity may be valued
either at the most recently quoted bid price or at their amortized cost.
FEDERAL INCOME TAXES--It is each Fund's intention to qualify as a regulated
investment company by complying with the appropriate provisions of the
Internal Revenue Code of 1986, as amended. Accordingly, no provisions for
Federal income taxes are required.
SECURITY TRANSACTIONS AND INVESTMENT INCOME--Security transactions are
accounted for on the trade date of the security purchase or sale. Dividend
income is recognized on ex-dividend date, and interest income is recognized
on an accrual basis and includes, where applicable, the pro rata
amortization of premium or accretion of discount. The cost used in
determining net realized capital gains and losses on the sale of securities
are those of the specific securities sold, adjusted for the accretion and
amortization of purchase discounts and premiums during the applicable
holding period. Purchase discounts and premiums on securities held by the
Investment Grade Bond and the Equity Funds are accreted and amortized to
maturity using the scientific interest method, which approximates the
effective interest method.
REPURCHASE AGREEMENTS--Securities pledged as collateral for repurchase
agreements are held by the custodian bank until the repurchase agreements
mature. Provisions of the repurchase agreements ensure that the market value
of the collateral, including accrued interest thereon, is sufficient in the
event of default of the counterparty. If the counterparty defaults and the
value of the collateral declines or if the counterparty enters an insolvency
proceeding, realization of the collateral by the Funds may be delayed or
limited.
NET ASSET VALUE PER SHARE--The net asset value per share of each Fund is
calculated on each business day. In general, it is computed by dividing the
assets of each Fund, less its liabilities, by the number of outstanding
shares of the respective class of the Fund. The offering price per share for
the shares of the Investment Grade Bond and Equity Funds is the net asset
value per share.
OTHER--Distributions from net investment income for the Investment Grade
Bond Fund are declared daily and paid monthly to shareholders. Distributions
from net investment income for the Equity Funds are declared and paid
quarterly to shareholders. Any net realized capital gains are distributed to
shareholders at least annually. Expenses related to a specific Fund are
charged to that Fund. Other operating expenses of the Trust are pro-rated to
the Funds on the basis of relative net assets.
USE OF ESTIMATE--The preparation of the financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that effect the reported amount of assets and
liabilities, disclosure of contingent assets and liabilities at the date of
the financial statements, and reported amounts of revenues and expenses
during the reporting period. Actual amounts could differ from these
estimates.
3. ADMINISTRATION AND DISTRIBUTION AGREEMENTS
The Trust and SEI Financial Management Corporation (the "Administrator") are
parties to an administration agreement (the "Administration Agreement") dated
F-16
<PAGE>
3. ADMINISTRATION AND DISTRIBUTION AGREEMENTS (CONTINUED)
May 29, 1995. Under the terms of the Administration Agreement the Administrator
is entitled to a fee, subject to a minimum, (expressed as a percentage of the
combined average daily net assets of the Trust and the STI Classic Trust) of:
.10% up to $1 billion, .07% on the next $4 billion, .05% on the next $3 billion,
.045% on the next $2 billion, and .04% for over $10 billion.
The Trust and Federated Services Company are parties to a Transfer Agency
servicing agreement dated May 29, 1995 under which Federated Services Company
provides transfer agency services to the Trust.
The Trust and SEI Financial Services Company ("the Distributor") are parties to
a Distribution Agreement dated May 29, 1995. The Distributor receives no fees
for its services under this agreement.
4. INVESTMENT ADVISORY AGREEMENT
Investment advisory services are provided to the Trust by STI Capital
Management, N.A. ("STI Capital"). Under the terms of the investment advisory
agreements, STI Capital is entitled to receive a fee from the Fund, computed
daily and paid monthly, at an annual rate of .74%, 1.15%, .80% and 1.15% of the
average daily net assets of the Investment Grade Bond Fund, Capital Growth Fund,
Value Income Stock Fundand Aggressive Growth Fund, respectively.
SunTrust Bank, Atlanta acts as Custodian for all the Funds. Fees of the
Custodian are paid on the basis of net assets. The Custodian plays no role in
determining the investment policies of the Trust or which securities are to be
purchased or sold in the Funds.
5. ORGANIZATIONAL COSTS AND TRANSACTIONS WITH AFFILIATES
Organizational costs have been capitalized by the Trust and are being
amortized on a straight line basis over a maximum of sixty months following
commencement of operations. In the event any of the initial shares of the Trust
are redeemed by any holder thereof during the period that the Trust is
amortizing its organizational costs, the redemption proceeds payable to the
holder thereof by the Trust will be reduced by the unamortized organizational
cost in the same ratio as the number of initial shares being redeemed bears to
the number of initial shares outstanding at the time of redemption.
Certain officers of the Trust are also officers of the Administrator and/or SEI
Financial Services Company (the "Distributor"). Such officers are paid no fees
by the Trust for serving as officers of the Trust.
6. INVESTMENT TRANSACTIONS
The cost of security purchases and the proceeds from security sales,
excluding short-term investments, for the period ended December 31, 1995 were as
follows:
<TABLE>
<CAPTION>
U.S. GOVT. U.S. GOVT.
PURCHASES SALES PURCHASES SALES
(000) (000) (000) (000)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Investment Grade Bond Fund........ $ 2,791 $ -- $ 2,791 $ --
Capital Growth Fund............... 3,323 222 -- --
Value Income Stock Fund........... 3,626 209 -- --
Aggressive Growth Fund............ 3,085 267 -- --
</TABLE>
The aggregate gross unrealized appreciation and depreciation for securities
held by the Investment Grade Bond and Equity Funds at December 31, 1995 was
as follows:
<TABLE>
<CAPTION>
NET UNREALIZED
APPRECIATED DEPRECIATED APPRECIATION --
SECURITIES SECURITIES (DEPRECIATION)
(000) (000) (000)
------------- ------------- ---------------
<S> <C> <C> <C>
Investment Grade Bond
Fund................. $ 70 $ 0 $ 70
Capital Growth Fund... 231 35 196
Value Income Stock
Fund................. 230 33 197
Aggressive Growth
Fund................. 148 82 66
</TABLE>
At December 31, 1995 the Capital Growth Fund had $10,224 available realized
capital losses to offset future net capital gains.
7. CONCENTRATION OF CREDIT RISK:
The Investment Grade Bond Fund invests primarily in investment grade
obligations rated at least BBB or better by S & P or Baa or better by Moody's.
Changes by recognized rating agencies in the ratings of any fixed income
security or in the ability of an issuer to make payments of interest and
principal may affect the value of these investments. The following is a summary
of credit quality ratings for securities held by the Fund at December 31, 1996:
<TABLE>
<CAPTION>
% OF PORTFOLIO
MOODY'S VALUE
- -------------------------------------------- -----------------
<S> <C>
US Government Securities.................... 93.38%
Repurchase Agreements....................... 6.62%
-----------------
100%
-----------------
-----------------
<CAPTION>
% OF PORTFOLIO
S & P VALUE
- -------------------------------------------- -----------------
<S> <C>
US Government Securities.................... 93.38%
Repurchase Agreements....................... 6.62%
-----------------
100%
-----------------
-----------------
</TABLE>
F-17
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Trustees of
STI Classic Variable Trust:
We have audited the accompanying statements of net assets of the Value
Income Stock, Aggressive Growth, Capital Growth, and Investment Grade Bond
Funds of the STI Classic Variable Trust (the "Trust") as of December 31,
1995, and the related statements of operations, changes in net assets and
financial highlights for the period presented. These financial statements
and financial highlights are the responsibility of the Trust's management.
Our responsibility is to express an opinion on these financial statements
and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 1995, by correspondence with the
custodian. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
the Value Income Stock, Aggressive Growth, Capital Growth, and Investment
Grade Bond Funds of the STI Classic Variable Trust as of December 31, 1995,
the results of their operations, changes in their net assets, and financial
highlights for the period presented, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Philadelphia, Pa.
February 9, 1996
F-18
<PAGE>
C-1
PART C: OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS:
(a) Financial Statements
Part A: Financial Highlights
Part B:
Report dated February 9, 1996 of Independent Public Accountants on
financial statements as of December 31, 1995.
Statements of Net Assets, as of December 31, 1995.
Statements of Operations, as of December 31, 1995.
Statements of Changes in Net Assets, as of December 31, 1995.
Financial Highlights, as of December 31, 1995.
Notes to Financial Statements
(b) Additional Exhibits
1 Agreement and Declaration of Trust of the Registrant (1)
2 By-Laws of the Registrant (1)
5 Investment Advisory Agreement between the Registrant and STI
Capital Management, N.A., dated August 18, 1995, filed herewith
6 Distribution Agreement between the Registrant and SEI Financial
Services Company, dated August 18, 1995, filed herewith
8 Custodian Agreement between the Registrant and SunTrust Bank,
Atlanta, dated August 18, 1995, filed herewith
9(a) Administration Agreement between the Registrant and SEI Financial
Management Corporation, dated August 18, 1995, filed herewith
9(b) Form of Participation Agreement among the Registrant, SEI Financial
Services Company, Glenbrook Life and Annuity Company, dated October
2, 1995, filed herewith
9(c) Agreement for Shareholder Recordkeeping between the Registrant and
Federated Services Company, dated August 2, 1995, filed herewith.
10 Opinion of Counsel, filed herewith
11 Opinion and Consent of Independent Public Accountants, filed
herewith
*16 Performance Calculations
27 Financial Data Schedules
- ------------
* To be filed by amendment
(1) Incorporated by reference to Registration Statement (File No. 33-91476)
filed April 21, 1995
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT:
See the Prospectuses and the Statement of Additional Information regarding the
Registrant's control relationships. The Administrator is a subsidiary of SEI
Corporation, which also controls the distributor of the Registrant, SEI
Financial Services Company, other corporations engaged in providing various
financial and recordkeeping services, primarily to bank trust departments,
pension plan sponsors, and investment managers.
<PAGE>
C-2
ITEM 26. NUMBER OF HOLDERS OF SECURITIES:
The number of record holders of each class as of March 8, 1996:
<TABLE>
<CAPTION>
NUMBER OF
FUND RECORD HOLDERS
- ---------------------------------------------------------------- --------------
<S> <C>
Investment Grade Bond Fund...................................... 3
Capital Growth Fund............................................. 3
Value Income Stock Fund......................................... 3
Mid-Cap Equity Fund (formerly known as Aggressive Growth
Fund).......................................................... 3
</TABLE>
ITEM 27. INDEMNIFICATION:
Article VIII of the Agreement of Declaration of Trust filed as Exhibit 1 to the
Registration Statement is incorporated by reference. Insofar as indemnification
liabilities arising under the Securities Act of 1933, as amended, 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 28. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT ADVISERS:
Other business, profession, vocation, or employment of a substantial nature in
which each director or principal executive officer of the Adviser is or has
been, at any time during the last two fiscal years, engaged for his own account
or in the capacity of director, officer, employee, partner or trustee are as
follows:
<TABLE>
<CAPTION>
NAME OF CONNECTION WITH
NAME OTHER COMPANY OTHER COMPANY
- ---------------------------------- ------------------- -----------------------
<S> <C> <C>
SUNBANK CAPITAL MANAGEMENT
Anthony R. Gray -- --
Chairman & Chief Investment
Officer
James Wood -- --
President
Elliott A. Perny -- --
Executive Vice President & Chief
Portfolio Manager
Stuart F. Van Arsdale -- --
Senior Vice President
Jonathan D. Rich -- --
Director
Robert Buhrmann -- --
Senior Vice President
Larry M. Cole -- --
Senior Vice President
L. Earl Denney -- --
Senior Vice President
</TABLE>
<PAGE>
C-3
<TABLE>
<CAPTION>
NAME OF CONNECTION WITH
NAME OTHER COMPANY OTHER COMPANY
- ---------------------------------- ------------------- -----------------------
<S> <C> <C>
Thomas A. Edgar -- --
Senior Vice President
Daniel G. Shannon -- --
Senior Vice President
Ronald Schwartz -- --
Vice President
Ryan R. Burrow Catalina Lighting Director/25% owner
Vice President
Mills A. Riddick -- --
Senior Vice President
Christopher A. Jones -- --
Vice President
Michael R. Scoffone -- --
Vice President
David E. West -- --
Vice President
Dan Jaworski -- --
Vice President
</TABLE>
ITEM 29. PRINCIPAL UNDERWRITERS:
(a) Furnish the name of each investment company (other than the Registrant) for
which each principal underwriter currently distributing securities of the
Registrant also acts as a principal underwriter, distributor or investment
adviser.
Registrant's distributor, SEI Financial Services Company ("SFS"), acts as
distributor for:
<TABLE>
<S> <C>
SEI Daily Income Trust July 15, 1982
SEI Liquid Asset Trust November 29, 1982
SEI Tax Exempt Trust December 3, 1982
SEI Index Funds July 10, 1985
SEI Institutional Managed Trust January 22, 1987
SEI International Trust August 30, 1988
Stepstone Funds January 30, 1991
The Advisors' Inner Circle Fund November 14, 1991
The Pillar Funds February 28, 1992
CUFund May 1, 1992
STI Classic Funds May 29, 1992
CoreFunds, Inc. October 30, 1992
First American Funds, Inc. November 1, 1992
First American Investment Funds, Inc. November 1, 1992
The Arbor Fund January 28, 1993
1784 Funds June 1, 1993
Marquis-SM- Funds August 17, 1993
Morgan Grenfell Investment Trust January 3, 1994
The PBHG Funds, Inc. July 16, 1993
Inventor Funds, Inc. August 1, 1994
The Achievement Funds Trust December 27, 1994
Insurance Investment Products Trust December 30, 1994
Bishop Street Funds January 27, 1995
</TABLE>
<PAGE>
C-4
<TABLE>
<S> <C>
CrestFunds, Inc. March 1, 1995
Conestoga Family of Funds May 1, 1995
ARK Funds November 1, 1995
Monitor Funds January 11, 1996
</TABLE>
SFS provides numerous financial services to investment managers, pension plan
sponsors, and bank trust departments. These services include portfolio
evaluation, performance measurement and consulting services ("Funds Evaluation")
and automated execution, clearing and settlement of securities transactions
("MarketLink").
(b) Furnish the information required by the following table with respect to
each director, officer or partner of each principal underwriter named in the
Statement of Additional Information. Unless otherwise noted, the business
address of each director or officer is 680 East Swedesford Road, Wayne,
Pennsylvania 19087.
<TABLE>
<CAPTION>
POSITIONS AND
OFFICES
NAME POSITION AND OFFICE WITH UNDERWRITER WITH REGISTRANT
- ------------------------- ----------------------------------------- -------------------
<S> <C> <C>
Alfred P. West, Jr. Director, Chairman & Chief Executive --
Officer
Henry H. Greer Director, President & Chief Operating --
Officer
Carmen V. Romeo Director, Executive Vice President & --
Treasurer
Gilbert L. Beebower Executive Vice President --
Richard B. Lieb Executive Vice President --
Charles A. Marsh Executive Vice President -- Capital --
Resources Division
Leo J. Dolan, Jr. Senior Vice President --
Carl A. Guarino Senior Vice President --
Jerome Hickey Senior Vice President --
David G. Lee Senior Vice President President
William Madden Senior Vice President --
A. Keith McDowell Senior Vice President --
Dennis J. McGonigle Senior Vice President --
Hartland J. McKeown Senior Vice President --
James V. Morris Senior Vice President --
Steven Onofrio Senior Vice President --
Kevin P. Robins Senior Vice President, General Counsel & --
Secretary
Robert Wagner Senior Vice President --
Patrick K. Walsh Senior Vice President --
Kenneth Zimmer Senior Vice President --
Robert Crudup Managing Director --
Vic Galef Managing Director --
Kim Kirk Managing Director --
Carolyn McLaurin Managing Director --
Barbara Moore Managing Director --
Donald Pepin Managing Director --
Mark Samuels Managing Director --
Wayne M. Withrow Managing Director --
Mick Duncan Managing Director --
Robert S. Ludwig Team Leader --
Vicki Malloy Team Leader --
Steve Bendinelli Vice President --
Cris Brookmyer Vice President & Controller --
Gordon W. Carpenter Vice President --
</TABLE>
<PAGE>
C-5
<TABLE>
<CAPTION>
POSITIONS AND
OFFICES
NAME POSITION AND OFFICE WITH UNDERWRITER WITH REGISTRANT
- ------------------------- ----------------------------------------- -------------------
<S> <C> <C>
Todd Cipperman Vice President & Assistant Secretary --
Ed Daly Vice President --
Lucinda Duncalfe Vice President --
Kathy Heilig Vice President --
Larry Hutchison Vice President --
Michael Kantor Vice President --
Samuel King Vice President --
Donald H. Korytowski Vice President --
Jack May Vice President --
Sandra K. Orlow Vice President & Assistant Secretary --
Larry Pokora Vice President --
Kim Rainey Vice President --
Paul Sachs Vice President --
Steve Smith Vice President --
Daniel Spaventa Vice President --
Kathryn L. Stanton Vice President & Assistant Secretary --
William Zawaski Vice President --
James Dougherty Director of Brokerage Services --
</TABLE>
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS:
Books or other documents required to be maintained by Section 31(a) of the
Investment Company Act of 1940, and the rules promulgated thereunder, are
maintained as follows:
(a) With respect to Rules 31a-1(a); 31a-1(b)(1); (2)(a) and (b); (3); (6); (8);
(12); and 31a-1(d), the required books and records will be maintained at the
offices of Registrant's Custodian:
SunTrust Bank, Atlanta
P.O. Box 105504
Atlanta, GA 30348
(b)/(c) With respect to Rules 31a-1(a); 31a-1(b)(1),(4); (2)(C) and (D); (4);
(5); (6); (8); (9); (10); (11); and 31a-1(f), the required books and records are
maintained at the offices of Registrant's Administrator:
SEI Financial Management Corporation
680 East Swedesford Road
Wayne, PA 19087
(c) With respect to Rules 31a-1(b)(5), (6), (9) and (10) and 31a-1(f), the
required books and records are maintained at the principal offices of the
Registrant's Advisers:
STI Capital Management, N.A.
P.O. Box 3808
Orlando, FL 32802
ITEM 31. MANAGEMENT SERVICES: NONE
ITEM 32. UNDERTAKINGS:
Registrant hereby undertakes that whenever shareholders meeting the requirements
of Section 16(c) of the Investment Company Act of 1940 inform the Board of
Trustees of their desire to communicate with Shareholders of the Trust, the
Trustees will inform such Shareholders as to the approximate number of
Shareholders of record and the approximate costs of mailing or afford said
Shareholders access to a list of Shareholders.
Registrant hereby undertakes to call a meeting of Shareholders for the purpose
of voting upon the question of removal of a Trustee(s) when requested in writing
to do so by the holders of at least 10% of Registrant's outstanding shares and
in connection with such meetings to comply with the provisions of Section 16(c)
of the Investment Company Act of 1940 relating to Shareholder communications.
<PAGE>
NOTICE
A copy of the Agreement and Declaration of Trust for STI Classic Variable Trust
is on file with the Secretary of State of The Commonwealth of Massachusetts and
notice is hereby given that this Registration Statement has been executed on
behalf of the Trust by an officer of the Trust as an officer and by its Trustees
as trustees and not individually and the obligations of or arising out of this
Registration Statement are not binding upon any of the Trustees, officers, or
Shareholders individually but are binding only upon the assets and property of
the Trust.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, as amended, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
Post-Effective Amendment No. 1 to its Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Wayne,
State of Pennsylvania, on the 29 day of March, 1996.
STI CLASSIC VARIABLE TRUST
By: /s/ DAVID G. LEE
---------------------------------------
David G. Lee, PRESIDENT
ATTEST:
/s/ STEPHEN G. MEYER
- ----------------------------------
Stephen G. Meyer, CONTROLLER
Pursuant to the requirements of the Securities Act of 1933, this Pre-Effective
Amendment to the Registration Statement has been signed below by the following
person in the capacity on the dates indicated.
*
- ---------------------------------------- Trustee March 29, 1996
F. Wendell Gooch
*
- ---------------------------------------- Trustee March 29, 1996
Daniel S. Goodrum
*
- ---------------------------------------- Trustee March 29, 1996
Jesse S. Hall
*
- ---------------------------------------- Trustee March 29, 1996
Wilton Looney
*
- ---------------------------------------- Trustee March 29, 1996
Champney A. McNair
*
- ---------------------------------------- Trustee March 29, 1996
T. Gordy Germany
*
- ---------------------------------------- Trustee March 29, 1996
Dr. Bernard F. Sliger
/s/ STEPHEN G. MEYER
- ---------------------------------------- Controller March 29, 1996
Stephen G. Meyer
/s/ DAVID G. LEE President & Chief
- ---------------------------------------- Executive Officer March 29, 1996
David G. Lee
*By: /s/ DAVID G. LEE
- ----------------------------------------
DAVID G. LEE,
AS POWER OF ATTORNEY
<PAGE>
STI CLASSIC VARIABLE TRUST
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
NAME EXHIBIT PAGE NUMBER
- ---------------------------------------------------------------------- ------------- ------------
<S> <C> <C>
Agreement and Declaration of Trust of the Registrant (1).............. 1 Ex-99.B1
By-Laws of the Registrant (1)......................................... 2 Ex-99.B2
Investment Advisory Agreement between the Registrant and STI Capital
Management, N.A., dated August 18, 1995, filed herewith.............. 5 Ex-99.B5
Distribution Agreement between the Registrant and SEI Financial
Services Company, dated August 18, 1995, filed herewith.............. 6 Ex-99.B6
Custodian Agreement between the Registrant and SunTrust Bank, Atlanta,
dated August 18, 1995, filed herewith................................ 8 Ex-99.B8
Administration Agreement between the Registrant and SEI Financial
Management Corporation, dated August 18, 1995, filed herewith........ 9(a) Ex-99.B9A
Form of Participation Agreement among the Registrant, SEI Financial
Services Company, Glenbrook Life and Annuity Company, dated October
2, 1995, filed herewith.............................................. 9(b) Ex-99.B9B
Agreement for Shareholder Recordkeeping between the Registrant and
Federated Services Company, dated August 2, 1995, filed herewith. 9(c) Ex-99.B9C
Opinion and Consent of Counsel, filed herewith........................ 10 Ex-99.B10
Opinion and Consent of Independent Public Accountants, filed
herewith............................................................. 11 Ex-99.B11
Financial Data Schedule for Capital Growth............................ 27 Ex-27.1
Financial Data Schedule for Value Income.............................. Ex-27.2
Financial Data Schedule for Aggressive Growth......................... Ex-27.3
Financial Data Schedule for Investment Grade Bond Fund................ Ex-27.4
</TABLE>
- ------------
(1) Incorporated by reference to Registrant's Registration Statement (File No.
33-91476) filed April 21, 1995.
<PAGE>
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made this 18th day of August, 1995, by and between STI Classic
Variable Trust, a Massachusetts business trust (the "Trust"), and STI Capital
Management, N.A., (the "Adviser").
WHEREAS, the Trust is an open-end, diversified management investment
company registered under the Investment Company Act of 1940, as amended,
consisting of several series of shares, each having its own investment policies;
and
WHEREAS, the Trust has retained SEI Financial Management Corporation (the
"Administrator") to provide administration of the Trust's operations, subject to
the control of the Board of Trustees;
WHEREAS, the Trust desires to retain the Adviser to render investment
management services with respect to its Investment Grade Bond Fund, Capital
Growth Fund, Value Income Stock Fund, Aggressive Growth Fund and such other
funds as the Trust and the Adviser may agree upon (the "Portfolios"), and the
Adviser is willing to render such services:
NOW, THEREFORE, in consideration of mutual covenants herein contained, the
parties hereto agree as follows:
1. DUTIES OF ADVISER. The Trust employs the Adviser to manage the
investment and reinvestment of the assets, and to continuously review,
supervise, and administer the investment program of the Portfolios, to
determine in its discretion the securities to be purchased or sold, to
provide the Administrator and the Trust with records concerning the
Adviser's activities which the Trust is required to maintain, and to
render regular reports to the Administrator and to the Trust's
Officers and Trustees concerning the Adviser's discharge of the
foregoing responsibilities.
The Adviser shall discharge the foregoing responsibilities subject to
the control of the Board of Trustees of the Trust and in compliance
with such policies as the Trustees may from time to time establish,
and in compliance with the objectives, policies, and limitations for
each such Portfolio set forth in the Trust's prospectus and statement
of additional information as amended from time to time, and applicable
laws and regulations.
1
<PAGE>
The Adviser accepts such employment and agrees, at its own expense, to
render the services and to provide the office space, furnishings and
equipment and the personnel required by it to perform the services on
the terms and for the compensation provided herein.
2. PORTFOLIO TRANSACTIONS. The Adviser is authorized to select the
brokers or dealers that will execute the purchases and sales of
portfolio securities for the Portfolios and is directed to use its
best efforts to obtain the best net results as described in the
Trust's prospectus and statement of additional information from time
to time. The Adviser will promptly communicate to the Administrator
and to the officers and the Trustees of the Trust such information
relating to portfolio transactions as they may reasonably request.
It is understood that the Adviser will not be deemed to have acted
unlawfully, or to have breached a fiduciary duty to the Trust or be in
breach of any obligation owing to the Trust under this Agreement, or
otherwise, solely by reason of its having directed a securities
transaction on behalf of the Trust to a broker-dealer in compliance
with the provisions of Section 28(e) of the Securities Exchange Act of
1934.
3. COMPENSATION OF THE ADVISER. For the services to be rendered by the
Adviser as provided in Sections 1 and 2 of this Agreement, the Trust
shall pay to the Adviser compensation at the rate specified in the
Schedule(s) which are attached hereto and made a part of this
Agreement. Such compensation shall be paid to the Adviser at the end
of each month, and calculated by applying a daily rate, based on the
annual percentage rates as specified in the attached Schedule(s), to
the assets. The fee shall be based on the daily net assets for the
month involved.
All rights of compensation under this Agreement for services performed
as of the termination date shall survive the termination of this
Agreement.
4. OTHER EXPENSES. The Adviser shall pay all expenses of preparing
(including typesetting), printing and mailing reports, prospectuses,
statements of additional information, and sales literature to
prospective clients to the extent these expenses are not borne by the
Trust under a distribution plan adopted pursuant to Rule 12b-1.
5. EXCESS EXPENSES. If the expenses for any Portfolio for any fiscal
year (including fees and other amounts payable to the Adviser, but
excluding interest, taxes, brokerage costs, litigation, and other
extraordinary costs) as calculated every business day would exceed the
expense limitations imposed on investment companies by any applicable
statute or regulatory
2
<PAGE>
authority of any jurisdiction in which Shares are qualified for offer
and sale, the Adviser shall bear such excess cost.
However, the Adviser will not bear expenses of the Trust or any
Portfolio which would result in the Trust's inability to qualify as a
regulated investment company under provisions of the Internal Revenue
Code. Payment of expenses by the Adviser pursuant to this Section 5
shall be settled on a monthly basis (subject to fiscal year end
reconciliation) by a reduction in the fee payable to the Adviser for
such month pursuant to Section 3 and, if such reduction shall be
insufficient to offset such expenses, by reimbursing the Trust.
6. REPORTS. The Trust and the Adviser agree to furnish to each other, if
applicable, current prospectuses, proxy statements, reports to
shareholders, certified copies of their financial statements, and such
other information with regard to their affairs as each may reasonably
request.
7. STATUS OF ADVISER. The services of the Adviser to the Trust are not
to be deemed exclusive, and the Adviser shall be free to render
similar services to others so long as its services to the Trust are
not impaired thereby. The Adviser shall be deemed to be an
independent contractor and shall, unless otherwise expressly provided
or authorized, have no authority to act for or represent the Trust in
any way or otherwise be deemed an agent of the Trust.
8. CERTAIN RECORDS. Any records required to be maintained and preserved
pursuant to the provisions of Rule 31a-1 and Rule 31a-2 promulgated
under the Investment Company Act of 1940 which are prepared or
maintained by the Adviser on behalf of the Trust are the property of
the Trust and will be surrendered promptly to the Trust on request.
9. LIMITATION OF LIABILITY OF ADVISER. The duties of the Adviser shall
be confined to those expressly set forth herein, and no implied duties
are assumed by or may be asserted against the Adviser hereunder. The
Adviser shall not be liable for any error of judgment or mistake of
law or for any loss arising out of any investment or for any act or
omission in carrying out its duties hereunder, except a loss resulting
from willful misfeasance, bad faith or gross negligence in the
performance of its duties, or by reason of reckless disregard of its
obligations and duties hereunder, except as may otherwise be provided
under provisions of applicable state law which cannot be waived or
modified hereby. (As used in this Paragraph 9, the term "Adviser"
shall include directors, officers, employees and other corporate
agents of the Adviser as well as that corporation itself).
3
<PAGE>
10. PERMISSIBLE INTERESTS. Trustees, agents, and shareholders of the
Trust are or may be interested in the Adviser (or any successor
thereof) as directors, partners, officers, or shareholders, or
otherwise; directors, partners, officers, agents, and shareholders of
the Adviser are or may be interested in the Trust as Trustees,
shareholders or otherwise; and the Adviser (or any successor) is or
may be interested in the Trust as a shareholder or otherwise. In
addition, brokerage transactions for the Trust may be effected through
affiliates of the Adviser if approved by the Board of Trustees,
subject to the rules and regulations of the Securities and Exchange
Commission.
11. DURATION AND TERMINATION. This Agreement, unless sooner terminated as
provided herein, shall remain in effect until [two years from date of
execution], and thereafter, for periods of one year so long as such
continuance thereafter is specifically approved at least annually (a)
by the vote of a majority of those Trustees of the Trust who are not
parties to this Agreement or interested persons of any such party,
cast in person at a meeting called for the purpose of voting on such
approval, and (b) by the Trustees of the Trust or by vote of a
majority of the outstanding voting securities of each Portfolio;
provided, however, that if the shareholders of any Portfolio fail to
approve the Agreement as provided herein, the Adviser may continue to
serve hereunder in the manner and to the extent permitted by the
Investment Company Act of 1940 and rules and regulations thereunder.
The foregoing requirement that continuance of this Agreement be
"specifically approved at least annually" shall be construed in a
manner consistent with the Investment Company Act of 1940 and the
rules and regulations thereunder.
This Agreement may be terminated as to any Portfolio at any time,
without the payment of any penalty by vote of a majority of the
Trustees of the Trust or by vote of a majority of the outstanding
voting securities of the Portfolio on not less than 30 days nor more
than 60 days written notice to the Adviser, or by the Adviser at any
time without the payment of any penalty, on 90 days written notice to
the Trust. This Agreement will automatically and immediately
terminate in the event of its assignment. Any notice under this
Agreement shall be given in writing, addressed and delivered, or
mailed postpaid, to the other party at any office of such party.
As used in this Section 11, the terms "assignment", "interested
persons", and a "vote of a majority of the outstanding voting
securities" shall have the respective meanings set forth in the
Investment Company Act of 1940 and the rules and regulations
thereunder; subject to such exemptions as may be granted by the
Securities and Exchange Commission under said Act.
12. NOTICE. Any notice required or permitted to be given by either party
to the
4
<PAGE>
other shall be deemed sufficient if sent by registered or certified
mail, postage prepaid, addressed by the party giving notice to the
other party at the last address furnished by the other party to the
party giving notice: if to the Trust, at 680 East Swedesford Road,
Wayne, PA and if to the Adviser at 200 South Orange Avenue, Orlando,
FL 32802.
13. SEVERABILITY. If any provision of this Agreement shall be held or
made invalid by a court decision, statute, rule or otherwise, the
remainder of this Agreement shall not be affected thereby.
14. GOVERNING LAW. This Agreement shall be governed by the laws of the
Commonwealth of Massachusetts.
A copy of the Declaration of Trust of the Trust is on file with the Secretary of
The Commonwealth of Massachusetts, and notice is hereby given that this
instrument is executed on behalf of the Trustees of the Trust as Trustees, and
is not binding upon any of the Trustees, officers, or shareholders of the Trust
individually but binding only upon the assets and property of the Trust.
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed
as of the day and year first written above.
STI CLASSIC VARIABLE TRUST
BY:
-----------------------
STI CAPITAL MANAGEMENT, N.A.
BY:
-----------------------
5
<PAGE>
SCHEDULE A
TO THE
INVESTMENT ADVISORY AGREEMENT
BETWEEN
STI CLASSIC VARIABLE TRUST
AND
STI CAPITAL MANAGEMENT, N.A.
AUGUST 18, 1995
Pursuant to Article 3, the Trust shall pay the Adviser compensation at an annual
rate as follows:
Portfolio Fee (in basis points)
Investment Grade Bond Fund .74%
Capital Growth Fund 1.15%
Value Income Stock Fund .80%
Aggressive Growth Fund 1.15%
6
<PAGE>
DISTRIBUTION AGREEMENT
STI CLASSIC VARIABLE TRUST
THIS AGREEMENT is made as of this 18th day of August, 1995, between STI
Classic Variable Trust (the "Trust"), a Massachusetts business trust and SEI
Financial Services Company (the "Distributor"), a Pennsylvania corporation.
WHEREAS, the Trust is registered as an investment company with the
Securities and Exchange Commission ("SEC") under the Investment Company Act of
1940, as amended ("1940 Act"), and its Shares are registered with the SEC under
the Securities Act of 1933, as amended ("1933 Act"); and
WHEREAS, the Distributor is registered as a broker-dealer with the SEC
under the Securities Exchange Act of 1934, as amended;
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
contained, the Trust and Distributor hereby agree as follows:
ARTICLE 1. SALE OF SHARES. The Trust grants to the Distributor the
exclusive right to sell Shares of the Trust at the net asset value per Share in
accordance with the current prospectus, as agent and on behalf of the Trust,
during the term of this Agreement and subject to the registration requirements
of the 1933 Act, the rules and regulations of the SEC and the laws governing the
sale of securities in the various states ("Blue Sky Laws").
ARTICLE 2. SOLICITATION OF SALES. In consideration of these rights
granted to the Distributor, the Distributor agrees to use all reasonable
efforts, consistent with its other business, in connection with the distribution
of Shares of the Trust; provided, however, that the Distributor shall not be
prevented from entering into like arrangements with other issuers. The
provisions of this paragraph do not obligate the Distributor to register as a
broker or dealer under the Blue Sky Laws of any jurisdiction when it determines
it would be uneconomical for it to do so or to maintain its registration in any
jurisdiction in which it is now registered nor obligate the Distributor to sell
any particular number of Shares.
ARTICLE 3. AUTHORIZED REPRESENTATIONS. The Distributor is not authorized
by the Trust to give any information or to make any representations other than
those contained in the current registration statements and prospectuses of the
Trust filed with the SEC or contained in Shareholder reports or other material
that may be prepared by or on behalf
1
<PAGE>
of the Trust for the Distributor's use. The Distributor may prepare and
distribute sales literature and other material as it may deem appropriate,
provided that such literature and materials have been approved by the Trust
prior to their use.
ARTICLE 4. REGISTRATION OF SHARES. The Trust agrees that it will take all
action necessary to register Shares under the federal and state securities laws
so that there will be available for sale the number of Shares the Distributor
may reasonably be expected to sell and to pay all fees associated with said
registration. The Trust shall make available to the Distributor such number of
copies of its currently effective prospectus and statement of additional
information as the Distributor may reasonably request. The Trust shall furnish
to the Distributor copies of all information, financial statements and other
papers which the Distributor may reasonably request for use in connection with
the distribution of Shares of the Trust.
ARTICLE 5. COMPENSATION. As compensation for the services performed and
the expenses assumed under this Agreement relative to Investor Shares of the
Trust, and to the extent provided in the Trust's annual budget under its
Investor Shares Distribution Plan adopted in accordance with Rule 12b-1 under
the Investment Company Act of 1940, the Trust shall reimburse the Distributor
for (i) the cost of preparing and printing prospectuses and statements of
additional information, reports to Shareholders, sales literature and other
materials for potential investors, (ii) advertising, (iii) expenses incurred in
connection with the distribution of shares.
ARTICLE 6. INDEMNIFICATION OF DISTRIBUTOR. The Trust agrees to indemnify
and hold harmless the Distributor and each of its directors and officers and
each person, if any, who controls the Distributor within the meaning of Section
15 of the 1933 Act against any loss, liability, claim, damages or expense
(including the reasonable cost of investigating or defending any alleged loss,
liability, claim, damages, or expense and reasonable counsel fees and
disbursements incurred in connection therewith), arising by reason of any person
acquiring any Shares, based upon the ground that the registration statement,
prospectus, Shareholder reports or other information filed or made public by the
Trust (as from time to time amended) included an untrue statement of a material
fact or omitted to state a material fact required to be stated or necessary in
order to make the statements made not misleading. However, the Trust does not
agree to indemnify the Distributor or hold it harmless to the extent that the
statements or omission was made in reliance upon, and in conformity with,
information furnished to the Trust by or on behalf of the Distributor.
In no case (i) is the indemnity of the Trust to be deemed to protect the
Distributor against any liability to the Trust or its Shareholders to which the
Distributor or such person otherwise would be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of its duties or
by reason of its reckless disregard of its obligations and duties under this
Agreement, or (ii) is the Trust to be liable to the Distributor under the
indemnity agreement contained in this paragraph with respect to any claim made
against the Distributor or any person indemnified unless the Distributor or
other person shall have
2
<PAGE>
notified the Trust in writing of the claim within a reasonable time after the
summons or other first written notification giving information of the nature of
the claim shall have been served upon the Distributor or such other person (or
after the Distributor or the person shall have received notice of service on any
designated agent). However, failure to notify the Trust of any claim shall not
relieve the Trust from any liability which it may have to the Distributor or any
person against whom such action is brought otherwise than on account of its
indemnity agreement contained in this paragraph.
The Trust shall be entitled to participate at its own expense in the
defense or, if it so elects, to assume the defense of any suit brought to
enforce any claims subject to this indemnity provision. If the Trust elects to
assume the defense of any such claim, the defense shall be conducted by counsel
chosen by the Trust and satisfactory to the indemnified defendants in the suit
whose approval shall not be unreasonably withheld. In the event that the Trust
elects to assume the defense of any suit and retain counsel, the indemnified
defendants shall bear the fees and expenses of any additional counsel retained
by them. If the Trust does not elect to assume the defense of a suit, it will
reimburse the indemnified defendants for the reasonable fees and expenses of any
counsel retained by the indemnified defendants.
The Trust agrees to notify the Distributor promptly of the commencement of
any litigation or proceedings against it or any of its officers or Trustees in
connection with the issuance or sale of any of its Shares.
ARTICLE 7. INDEMNIFICATION OF TRUST. The Distributor covenants and agrees
that it will indemnify and hold harmless the Trust and each of its Trustees and
officers and each person, if any, who controls the Trust within the meaning of
Section 15 of the Act, against any loss, liability, damages, claim or expense
(including the reasonable cost of investigating or defending any alleged loss,
liability, damages, claim or expense and reasonable counsel fees incurred in
connection therewith) based upon the 1933 Act or any other statute or common law
and arising by reason of any person acquiring any Shares, and alleging a
wrongful act of the Distributor or any of its employees or alleging that the
registration statement, prospectus, Shareholder reports or other information
filed or made public by the Trust (as from time to time amended) included an
untrue statement of a material fact or omitted to state a material fact required
to be stated or necessary in order to make the statements not misleading,
insofar as the statement or omission was made in reliance upon and in conformity
with information furnished to the Trust by or on behalf of the Distributor.
In no case (i) is the indemnity of the Distributor in favor of the Trust or
any other person indemnified to be deemed to protect the Trust or any other
person against any liability to which the Trust or such other person would
otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties or by reason of its reckless
disregard of its obligations and duties under this Agreement, or (ii) is the
Distributor to be liable under its indemnity agreement contained in this
paragraph with respect to any claim made against the Trust or any person
indemnified unless the Trust
3
<PAGE>
or person, as the case may be, shall have notified the Distributor in writing of
the claim within a reasonable time after the summons or other first written
notification giving information of the nature of the claim shall have been
served upon the Trust or upon any person (or after the Trust or such person
shall have received notice of service on any designated agent). However,
failure to notify the Distributor of any claim shall not relieve the Distributor
from any liability which it may have to the Trust or any person against whom the
action is brought otherwise than on account of its indemnity agreement contained
in this paragraph.
The Distributor shall be entitled to participate, at its own expense, in
the defense or, if it so elects, to assume the defense of any suit brought to
enforce the claim, but if the Distributor elects to assume the defense, the
defense shall be conducted by counsel chosen by the Distributor and satisfactory
to the indemnified defendants whose approval shall not be unreasonably withheld.
In the event that the Distributor elects to assume the defense of any suit and
retain counsel, the defendants in the suit shall bear the fees and expenses of
any additional counsel retained by them. If the Distributor does not elect to
assume the defense of any suit, it will reimburse the indemnified defendants in
the suit for the reasonable fees and expenses of any counsel retained by them.
The Distributor agrees to notify the Trust promptly of the commencement of
any litigation or proceedings against it in connection with the issue and sale
of any of the Trusts' Shares.
ARTICLE 8. EFFECTIVE DATE. This Agreement shall be effective upon its
execution, and unless terminated as provided, shall continue in force for one
year from the effective date and thereafter from year to year, provided that
such annual continuance is approved by (i) either the vote of a majority of the
Trustees of the Trust, or the vote of a majority of the outstanding voting
securities of the Trust, and (ii) the vote of a majority of those Trustees of
the Trust who are not parties to this Agreement or the Trust's Distribution Plan
or interested persons of any such party ("Qualified Trustees"), cast in person
at a meeting called for the purpose of voting on the approval. This Agreement
shall automatically terminate in the event of its assignment. As used in this
paragraph the terms "vote of a majority of the outstanding voting securities",
"assignment" and "interested person" shall have the respective meanings
specified in the 1940 Act. In addition, this Agreement may at any time be
terminated without penalty by SFS, by a vote of a majority of Qualified Trustees
or by vote of a majority of the outstanding voting securities of the Trust upon
not less than sixty days prior written notice to the other party.
ARTICLE 9. NOTICES. Any notice required or permitted to be given by
either party to the other shall be deemed sufficient if sent by registered or
certified mail, postage prepaid, addressed by the party giving notice to the
other party at the last address furnished by the other party to the party giving
notice: if to the Trust, at 680 East Swedesford Road, Wayne, Pennsylvania, and
if to the Distributor, 680 East Swedesford Road, Wayne, Pennsylvania 19087.
4
<PAGE>
ARTICLE 10. LIMITATION OF LIABILITY. A copy of the Declaration of Trust
of the Trust is on file with the Secretary of State of the Commonwealth of
Massachusetts, and notice is hereby given that this Agreement is executed on
behalf of the Trustees of the Trust as Trustees and not individually and that
the obligations of this instrument are not binding upon any of the Trustees,
officers or unitholders of the Trust individually but binding only upon the
assets and property of the Trust.
ARTICLE 11. GOVERNING LAW. This Agreement shall be construed in
accordance with the laws of the Commonwealth of Massachusetts and the applicable
provisions of the 1940 Act. To the extent that the applicable laws of the
Commonwealth of Massachusetts, or any of the provisions herein, conflict with
the applicable provisions of the 1940 Act, the latter shall control.
ARTICLE 12. MULTIPLE ORIGINALS. This Agreement may be executed in two or
more counterparts, each of which when so executed shall be deemed to be an
original, but such counterparts shall together constitute but one and the same
instrument.
IN WITNESS, the Trust and Distributor have each duly executed this
Agreement, as of the day and year above written.
STI CLASSIC VARIABLE TRUST
By:
-----------------------
SEI FINANCIAL SERVICES COMPANY
By:
------------------------
5
<PAGE>
CUSTODIAN AGREEMENT
STI CLASSIC VARIABLE TRUST
This Agreement, dated as of the 18th day of August, 1995 by and between STI
Classic Variable Trust (the "Trust"), a business trust duly organized under the
laws of the Commonwealth of Massachusetts and SunTrust Bank, Atlanta (the
"Bank").
WITNESSETH:
WHEREAS, the Trust desires to appoint the Bank to act as Custodian of its
portfolio securities, cash and other property from time to time deposited with
or collected by the Bank for the Trust;
WHEREAS, the Bank is qualified and authorized to act as Custodian for the
Trust and the separate series thereof (each a "Fund" and, collectively, the
"Funds"), and is willing to act in such capacity upon the terms and conditions
herein set forth;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, the parties hereto, intending to be legally bound,
do hereby agree as follows:
SECTION 1. The terms as defined in this Section wherever used in this
Agreement, or in any amendment or supplement hereto, shall have meanings herein
specified unless the context otherwise requires.
CUSTODIAN: The term Custodian shall mean the Bank in its capacity as Custodian
under this Agreement.
DEPOSITORY: The term Depository means any depository service which acts as a
system for the central handling of securities where all securities of any
particular class or series of an issuer deposited within the system are treated
as fungible and may be transferred by bookkeeping entry without physical
delivery.
PROPER INSTRUCTIONS. For purposes of this Agreement, the Custodian shall be
deemed to have received Proper Instructions upon receipt of written (including
instructions received by means of computer terminals or facsimile
transmissions), telephone or telegraphic instructions from a person or persons
authorized from time to time by the Trustees of the Trust to give the particular
class of instructions. Telephone or telegraphic instructions shall be confirmed
in writing by such person or persons as said Trustees shall have from time to
time authorized to give the particular class of instructions in question. The
Custodian may act upon telephone or telegraphic instructions without awaiting
receipt of written confirmation, and shall not be liable for the Trust's failure
to confirm such instructions in writing.
<PAGE>
SECURITIES: The term Securities means stocks, bonds, rights, warrants and all
other negotiable or non-negotiable paper issued in certificated or book-entry
form commonly known as "securities" in banking custom or practice.
SHAREHOLDERS: The term Shareholders shall mean the registered owners from time
to time of the Shares of the Trust in accordance with the registry records
maintained by the Trust or agents on its behalf.
SHARES: The term Shares of the Trust shall mean the units of beneficial
interest.
SECTION 2. The Trust hereby appoints the Custodian as Custodian of the Trust's
cash, Securities and other property, to be held by the Custodian as provided in
this Agreement. The Custodian hereby accepts such appointment subject to the
terms and conditions hereinafter provided. The Bank shall open a separate
custodial account in the name of the Trust on the books and records of the Bank
to hold the Securities of the Trust deposited with, transferred to or collected
by the Bank for the account of the Trust, and a separate cash account to which
the Bank shall credit monies received by the Bank for the account of or from the
Trust. Such cash shall be segregated from the assets of others and shall be and
remain the sole property of the Trust.
SECTION 3. The Trust shall from time to time file with the Custodian a
certified copy of each resolution of its Board of Trustees authorizing the
person or persons to give Proper Instructions and specifying the class of
instructions that may be given by each person to the Custodian under this
Agreement, together with certified signatures of such persons authorized to
sign, which shall constitute conclusive evidence of the authority of the
officers and signatories designated therein to act, and shall be considered in
full force and effect with the Custodian fully protected in acting in reliance
thereon until it receives written notice to the contrary; provided, however,
that if the certifying officer is authorized to give Proper Instructions, the
certification shall be also signed by a second officer of the Trust.
SECTION 4. The Trust will cause to be deposited with the Custodian hereunder
the applicable net asset value of Shares sold from time to time whether
representing initial issue, other stock or reinvestments of dividends and/or
distributions payable to Shareholders.
SECTION 5. The Bank, acting as agent for the Trust, is authorized, directed and
instructed subject to the further provisions of this Agreement:
(a) to hold Securities issued only in bearer form in bearer form;
(b) to register in the name of the nominee of the Bank, the Bank's
Depositories, or sub-custodians, (i) Securities issued only in
registered
- 2 -
<PAGE>
form, and (ii) Securities issued in both bearer and registered form,
which are freely interchangeable without penalty;
(c) to deposit any Securities which are eligible for deposit (i) with any
domestic or foreign Depository on such terms and conditions as such
Depository may require, including provisions for limitation or
exclusion of liability on the part of the Depository; and (ii) with
any sub-custodian which the Bank uses, including any subsidiary or
affiliate of the Bank;
(d) (i) to credit for the account of the Trust all proceeds received
and payable on or in respect of the assets maintained
hereunder,
(ii) to debit the account of the Trust for the cost of acquiring
Securities the Bank has received for the Trust, against
delivery of such Securities to the Bank,
(iii) to present for payment Securities and other obligations
(including coupons) upon maturity, when called for redemption,
and when income payments are due, and
(iv) to make exchanges of Securities which, in the Bank's opinion,
are purely ministerial as, for example, the exchange of
Securities in temporary form for Securities in definitive form
or the mandatory exchange of certificates;
(e) to forward to the Trust, and/or any other person designated by the
Trust, all proxies and proxy materials received by the Bank in
connection with Securities held in the Trust's account, which have
been registered in the name of the Bank's nominee, or are being held
by any Depository, or sub-custodian, on behalf of the Bank;
(f) to sell any fractional interest of any Securities which the Bank has
received resulting from any stock dividend, stock split, distribution,
exchange, conversion or similar activity;
(g) to release the Trust's name, address and aggregate share position to
the issuers of any domestic Securities in the account of the Trust,
provided, however, the Trust may instruct the Bank not to provide any
such information to any issuer;
(h) to endorse and collect all checks, drafts or other orders for the
payment of money received by the Bank for the account of or from the
Trust;
- 3 -
<PAGE>
(i) at the direction of the Trust, to enroll designated Securities
belonging to the Trust and held hereunder in a program for the
automatic reinvestment of all income and capital gains distributions
on those Securities in new shares (an "Automatic Reinvestment
Program"), or instruct any Depository holding such Securities to
enroll those Securities in an Automatic Reinvestment Program;
(j) at the direction of the Trust, to receive, deliver and transfer
Securities and make payments and collections of monies in connection
therewith, enter purchase and sale orders and perform any other acts
incidental or necessary to the performance of the above acts with
brokers, dealers or similar agents selected by the Trust, including
any broker, dealer or similar agent affiliated with the Bank, for the
account and risk of the Trust in accordance with accepted industry
practice in the relevant market, provided, however, if it is
determined that any certificated Securities transferred to a
Depository or sub-custodian, the Bank, or the Bank's nominee, the
Bank's sole responsibility for such Securities under this Agreement
shall be to safekeep the Securities in accordance with Section 11
hereof; and
(k) to notify the Trust and/or any other person designated by the Trust
upon receipt of notice by the Bank of any call for redemption, tender
offer, subscription rights, merger, consolidation, reorganization or
recapitalization which (i) appears in The Wall Street Journal (Eastern
edition), XCitek, The Kenny Services, any official notifications from
The Depository Trust Company and such other publications or services
to which the Bank may from time to time subscribe, (ii) requires the
Bank to act in response thereto, and (iii) pertain to Securities
belonging to the Trust and held hereunder which have been registered
in the name of the Bank's nominee or are being held by a Depository or
sub-custodian on behalf of the Bank. Notwithstanding anything
contained herein to the contrary, the Trust shall have the sole
responsibility for monitoring the applicable dates on which Securities
with put option features must be exercised. All solicitation fees
payable to the Bank as agent in connection herewith will be retained
by the Bank unless expressly agreed to the contrary in writing by the
Bank.
Notwithstanding anything in this Section to the contrary, the Bank is authorized
to hold Securities for the Trust which have transfer limitations imposed upon
them by the Securities Act of 1933, as amended, or represent shares of mutual
funds (i) in the name of the Trust, (ii) in the name of the Bank's nominee, or
(iii) with any Depository or sub-custodian.
SECTION 6. The Custodian's compensation shall be as set forth in Schedule A
hereto attached, or as shall be set forth in amendments to such schedule
approved by the Trust
- 4 -
<PAGE>
and the Custodian. The Bank is authorized to charge the Trust's account for
such compensation. All expenses and taxes payable with respect to the
Securities in the account of the Trust including, without limitation, commission
charges on purchases and sales and the amount of any loss or liability for
stockholders' assessments or otherwise, claimed or asserted against the bank or
against the Bank's nominee by reason of any registration hereunder shall be
charged to the Trust.
SECTION 7. In connection with its functions under this Agreement, the Custodian
shall:
(a) render to the Trust a daily report of all monies received or paid on
behalf of the Trust; and
(b) create, maintain and retain all records relating to its activities and
obligations under this Agreement in such manner as will meet the
obligations of the Trust with respect to said Custodian's activities
in accordance with generally accepted accounting principles. All
records maintained by the Custodian in connection with the performance
of its duties under this Agreement will remain the property of the
Trust and in the event of termination of this Agreement will be
relinquished to the Trust.
SECTION 8. Any Securities deposited with any Depository or with any sub-
custodian will be represented in accounts in the name of the Bank which include
only property held by the Bank as Custodian for customers in which the Bank acts
in a fiduciary or agency capacity.
Should any Securities which are forwarded to the Bank by the Trust, and which
are subsequently deposited to the Bank's account in any Depository or with any
sub-custodian, or which the Trust may arrange to deposit in the Bank's account
in any Depository or with any sub-custodian, not be deemed acceptable for
deposit by such Depository or sub-custodian, for any reason, and as a result
thereof there is a short position in the account of the Bank with the Depository
for such Security, the Trust agrees to furnish the Bank immediately with like
Securities in acceptable form.
SECTION 9. The Trust represents and warrants that: (i) it has the legal right,
power and authority to execute, deliver and perform this Agreement and to carry
out all of the transactions contemplated hereby; (ii) it has obtained all
necessary authorizations; (iii) the execution, delivery and performance of this
Agreement and the carrying out of any of the transactions contemplated hereby
will not be in conflict with, result in a breach of or constitute a default
under any agreement or other instrument to which the Trust is a party or which
is otherwise known to the Trust; (iv) it does not require the consent or
approval of any governmental agency or instrumentality, except any such consents
and approvals which the Trust has obtained; (v) the execution and delivery of
this Agreement by the Trust will not violate any law, regulation, charter, by-
law, order of any court or
- 5 -
<PAGE>
governmental agency or judgment applicable to the Trust; and (vi) all persons
executing this Agreement on behalf of the Trust and carrying out the
transactions contemplated hereby on behalf of the Trust are duly authorized to
do so.
In the event any of the foregoing representations should become untrue,
incorrect or misleading, the Trust agrees to notify the Bank immediately in
writing thereof.
SECTION 10. The Bank represents and warrants that: (i) it has the legal right,
power and authority to execute, deliver and perform this Agreement and to carry
out all of the transactions contemplated hereby; (ii) it has obtained all
necessary authorizations; (iii) the execution, delivery and performance of this
Agreement and the carrying out of any of the transactions contemplated hereby
will not be in conflict with, result in a breach of or constitute a default
under any agreement or other instrument to which the Bank is a party or which is
otherwise known to the Bank; (iv) it does not require the consent or approval of
any governmental agency or instrumentality, except any such consents and
approvals which the Bank has obtained; (v) the execution and delivery of this
Agreement by the Bank will not violate any law, regulation, charter, by-law,
order of any court or governmental agency or judgment applicable to the Bank;
and (vi) all persons executing this Agreement on behalf of the Bank and carrying
out the transactions contemplated hereby on behalf of the Bank are duly
authorized to do so. In the event that any of the foregoing representations
should become untrue, incorrect or misleading, the Bank agrees to notify the
Trust immediately in writing thereof.
SECTION 11. All cash and Securities held by the Bank hereunder shall be kept
with the care exercised as to the Bank's own similar property. The Bank may at
its option insure itself against loss from any cause but shall be under no
obligation to insure for the benefit of the Trust.
SECTION 12. No liability of any kind shall be attached to or incurred by the
Custodian by reason of its custody of the Trust's assets held by it from time to
time under this Agreement, or otherwise by reason of its position as Custodian
hereunder except only for its own negligence, bad faith, or willful misconduct
in the performance of its duties as specifically set forth in the Custodian
Agreement. Without limiting the generality of the foregoing sentence, the
Custodian:
(a) may rely upon the advice of counsel for the Trust; and for any action
taken or suffered in good faith based upon such advice or statements
the Custodian shall not be liable to anyone;
(b) shall not be liable for anything done or suffered to be done in good
faith in accordance with any request or advice of, or based upon
information furnished by, the Trust or its authorized officers or
agents;
- 6 -
<PAGE>
(c) is authorized to accept a certificate of the Secretary or Assistant
Secretary of the Trust, or Proper Instructions, to the effect that a
resolution in the form submitted has been duly adopted by its Board of
Trustees or by the Shareholders, as conclusive evidence that such
resolution has been duly adopted and is in full force and effect; and
(d) may rely and shall be protected in acting upon any signature, written
(including telegraph or other mechanical) instructions, request,
letter of transmittal, certificate, opinion of counsel, statement,
instrument, report, notice, consent, order, or other paper or document
reasonably believed by it to be genuine and to have been signed,
forwarded or presented by the purchaser, Trust or other proper party
or parties.
SECTION 13. The Trust, its successors and assigns do hereby fully indemnify and
hold harmless the Custodian its successors and assigns, from any and all loss,
liability, claims, demand, actions, suits and expenses of any nature as the same
may arise from the failure of the Trust to comply with any law, rule, regulation
or order of the United States, any state or any other jurisdiction, governmental
authority, body, or board relating to the sale, registration, qualification of
units of beneficial interest in the Trust, or from the failure of the Trust to
perform any duty or obligation under this Agreement.
Upon written request of the Custodian, the Trust shall assume the entire defense
of any claim subject to the foregoing indemnity, or the joint defense with the
Custodian of such claim, as the Custodian shall request. The indemnities and
defense provisions of this Section 13 shall indefinitely survive termination of
this Agreement.
SECTION 14. This Agreement may be amended from time to time without notice to
or approval of the Shareholders by a supplemental agreement executed by the
Trust and the Bank and amending and supplementing this Agreement in the manner
mutually agreed.
SECTION 15. Either the Trust or the Custodian may give one hundred twenty (120)
days' written notice to the other of the termination of this Agreement, such
termination to take effect at the time specified in the notice. In case such
notice of termination is given either by the Trust or by the Custodian, the
Trustees of the Trust shall, by resolution duly adopted, promptly appoint a
successor Custodian (the "Successor Custodian") which Successor Custodian shall
be a bank, trust company, or a bank and trust company in good standing, with
legal capacity to accept custody of the cash and Securities of a mutual fund.
Upon receipt of written notice from the Trust of the appointment of such
Successor Custodian and upon receipt of Proper Instructions, the Custodian shall
deliver such cash and Securities as it may then be holding hereunder directly
and only to the Successor Custodian. Unless or until a Successor Custodian has
been appointed as above provided, the Custodian then acting shall continue to
act as Custodian under this Agreement.
- 7 -
<PAGE>
Every Successor Custodian appointed hereunder shall execute and deliver an
appropriate written acceptance of its appointment and shall thereupon become
vested with the rights, powers, obligations and custody of its predecessor
Custodian. The Custodian ceasing to act shall nevertheless, upon request of the
Trust and the Successor Custodian and upon payment of its charges and
disbursements, execute an instrument in form approved by its counsel
transferring to the Successor Custodian all the predecessor Custodian's rights,
duties, obligations and custody.
Subject to the provisions of Section 21 hereof, in case the Custodian shall
consolidate with or merge into any other corporation, the corporation remaining
after or resulting from such consolidation or merger shall ipso facto without
the execution of filing of any papers or other documents, succeed to and be
substituted for the Custodian with like effect as though originally named as
such, PROVIDED, HOWEVER, in every case that said Successor corporation maintains
the qualifications set out in Section 17(f) of the Investment Company Act of
1940, as amended.
SECTION 16. This Agreement shall take effect when assets of the Trust are first
delivered to the Custodian.
SECTION 17. This Agreement may be executed in two or more counterparts, each of
which when so executed shall be deemed to be an original, but such counterparts
shall together constitute but one and the same instrument.
SECTION 18. A copy of the Declaration of Trust of the Trust is on file with the
Secretary of State of the Commonwealth of Massachusetts, and notice is hereby
given that this instrument is executed on behalf of the Trustees of the Trust as
Trustees and not individually and that the obligations of this instrument are
not binding upon any of the Trustees, officers or Shareholders of the Trust
individually, but binding only upon the assets and property of the Trust. No
Fund of the Trust shall be liable for the obligations of any other Fund of the
Trust.
SECTION 19. The Custodian shall create and maintain all records relating to its
activities and obligations under this Agreement in such manner as will meet the
obligations of the Trust under the Investment Company Act of 1940, as amended,
with particular attention to Section 31 thereof and Rules 31a-1 and 31a-2
thereunder, applicable Federal and state tax laws and any other law or
administrative rules or procedures which may be applicable to the Trust.
Subject to security requirements of the Custodian applicable to its own
employees having access to similar records within the Custodian, the books and
records of the Custodian pertaining to this Agreement shall be open to
inspection and audit at any reasonable times by officers of, attorneys for, and
auditors employed by, the Trust.
- 8 -
<PAGE>
SECTION 20. Nothing contained in this Agreement is intended to or shall require
the Custodian in any capacity hereunder to perform any functions or duties on
any holiday or other day of special observance on which the Custodian is closed.
Functions or duties normally scheduled to be performed on such days shall be
performed on, and as of, the next business day the Custodian is open.
SECTION 21. This Agreement shall extend to and shall be binding upon the
parties hereto and their respective successors and assigns; provided, however,
that this Agreement shall not be assignable by the Trust without the written
consent of the Custodian, or by the Custodian without the written consent of the
Trust, authorized or approved by a resolution of its Board of Trustees.
SECTION 22. All communications (other than Proper Instructions which are to be
furnished hereunder to either party, or under any amendment hereto, shall be
sent by mail to the address listed below, provided that in the event that the
Bank, in its sole discretion, shall determine that an emergency exists, the Bank
may use such other means of communications as the Bank deems advisable.
To the Trust: Richard J. Shoch
SEI Corporation
680 East Swedesford Road
Wayne, PA 19087
To the Bank: Susan Grider
Sun Trust Bank, Atlanta
c/o STI Trust & Investment Operations, Inc.
P.O. Box 105504, Center 31-33
Atlanta, GA 30348
SECTION 23. This Agreement, and any amendments hereto, shall be governed,
construed and interpreted in accordance with the laws of the Commonwealth of
Massachusetts applicable to agreements made and to be performed entirely within
such Commonwealth.
- 9 -
<PAGE>
IN WITNESS WHEREOF, the Trust and the Custodian have caused this Agreement to be
signed by their respective officers as of the day and year first above written.
STI CLASSIC VARIABLE TRUST
By:
-----------------------------
Name: Kevin P. Robins
Title: Vice President & Assistant Secretary
SUNTRUST BANK, ATLANTA
By:
-----------------------------
Name:
Title:
- 10 -
<PAGE>
STI CLASSIC FUND CUSTODY FEE SCHEDULE
AUGUST 16, 1995
In accordance with our proposal which stated that Trust Company Bank will charge
the Funds based on the actual expenses incurred by Trust Company in providing
custody for Fund assets, the fees charged to Trust Company are to be increased
effective August 1, 1995. The new fees should be billed to the Fund beginning
with August invoice.
Transaction Fees:
$ 2.18 per trade clearing through Depository Trust Company
$ 4.00 per trade clearing book entry through Federal Reserve
$ 31.48 per trade through New York agent
$ 7.26 per corporate action transaction
$ 3.96 per mutual fund trade
$ .39 per sweep trades
$ 50.00 per automated reconciliation transmission
$ 302.28 per account per month
Holdings:
$ .79 Monthly - Each DTC issue
$ 2.81 Monthly - Each New York agent issue
$ 4.44 Monthly - Each Vault issue
$ .34 Monthly - Each CUSIP maintained
Administration:
$ 13,333.00 per month
Extraordinary Out of Pocket:
As incurred (i.e., custodian visits to SEI/Federated)
- 11 -
<PAGE>
ADMINISTRATION AGREEMENT
_________________
THIS AGREEMENT is made as of this 18th day of August 1995, by and between
the STI Classic Variable Trust (the "Trust"), a Massachusetts business trust,
and SEI Financial Management Corporation (the "Administrator"), a Delaware
corporation.
WHEREAS, the Trust is an open-end diversified management investment company
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), consisting of several series of shares; and
WHEREAS, the Trust desires the Administrator to provide, and the
Administrator is willing to provide, management, shareholder services and
administrative services to such portfolios of the Trust as the Trust and the
Administrator may agree on (the "Portfolios") and as listed on Schedule B
attached hereto and made a part of this Agreement, on the terms and conditions
hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter contained, the Trust and the Administrator hereby agree as follows:
ARTICLE 1. RETENTION OF THE ADMINISTRATOR. The Trust hereby retains
the Administrator to act as the administrator of the Portfolios and to furnish
the Portfolios with the management and administrative services as set forth
below. The Administrator hereby accepts such employment to perform the duties
set forth below.
The Administrator shall, for all purposes herein, be deemed to be an
independent contractor and, unless otherwise expressly provided or authorized,
shall have no authority to act for or represent the Trust in any way and shall
not be deemed an agent of the Trust.
ARTICLE 2. OTHER ADMINISTRATIVE SERVICES. The Administrator shall
perform or supervise the performance by others of other administrative services
in connection with the operations of the Portfolios, and, on behalf of the
Trust, will investigate, assist in the selection of and conduct relations with
custodians, depositories, accountants, legal counsel, underwriters, brokers and
dealers, corporate fiduciaries, insurers, banks and persons in any other
capacity deemed to be necessary or desirable for the Portfolios' operations. The
Administrator shall provide the Trustees of the Trust with such reports
regarding investment performance as they may reasonably request but shall have
no responsibility for supervising the performance by any investment adviser or
sub-adviser of its responsibilities.
The Administrator shall provide the Trust with regulatory reporting, fund
accounting and related portfolio accounting services, all necessary office
space, equipment, personnel compensation and facilities (including facilities
for Shareholders' and Trustees' meetings) for handling the affairs of the
Portfolios and such other services as the Administrator shall, from time to
time, determine to be necessary to perform its obligations under this
1
<PAGE>
Agreement.
The Administrator shall make reports to the Trust's Trustees concerning the
performance of its obligations hereunder; furnish advice and recommendations
with respect to other aspects of the business and affairs of the Portfolios as
the Trust and the Administrator shall determine desirable; and shall provide the
Portfolios' Shareholders with the reports described in the Portfolios' then
current prospectuses.
The Administrator shall calculate the daily net asset value of the
Portfolios in accordance with the procedures prescribed in the Trust's
Registration Statement and such other procedures as may be established by the
Trustees of the Trust.
The Administrator will answer such correspondence and inquiries from
Shareholders, securities brokers and others relating to its duties hereunder and
such other correspondence and inquiries as may from time to time on such terms
as may be mutually agreed upon between the Administrator and the Fund.
Also, the Administrator may perform other services for the Trust as agreed
from time to time, including, but not limited to, preparation and mailing of
appropriate Federal income tax forms and returns to the Internal Revenue Service
and other appropriate taxing authorities; mailing the annual reports of the
Portfolios; and mailing notices of Shareholders' meetings, proxies and proxy
statements, for all of which the Trust will pay the Administrator's out-of-
pocket expenses.
ARTICLE 3. ALLOCATION OF CHARGES AND EXPENSES.
(A) THE ADMINISTRATOR. The Administrator shall furnish at its own expense
the executive, supervisory and clerical personnel necessary to perform its
obligations under this Agreement. The Administrator shall also provide the items
which it is obligated to provide under this Agreement, and shall pay all
compensation, if any, of officers of the Trust as well as all Trustees of the
Trust who are affiliated persons of the Administrator or any affiliated
corporation of the Administrator; provided, however, that unless otherwise
specifically provided, the Administrator shall not be obligated to pay the
compensation of any employee of the Trust retained by the Trustees of the Trust
to perform services on behalf of the Trust.
(B) THE TRUST. The Trust assumes and shall pay or cause to be paid all
other expenses of the Trust not otherwise allocated herein, including, without
limitation, organizational costs, taxes, expenses for legal and auditing
services, the expenses of preparing (including typesetting), printing and
mailing reports, prospectuses, statements of additional information, proxy
solicitation material and notices to existing Shareholders, all expenses
incurred in connection with issuing and redeeming Shares, the cost of custodial
services, the cost of pricing services, the cost of initial and ongoing
registration of the Shares under Federal and state securities laws, fees and
out-of-pocket expenses of Trustees who are
2
<PAGE>
not affiliated persons of the Administrator or the investment adviser to the
Trust or any affiliated corporation of the Administrator or the investment
adviser, insurance, interest, brokerage costs, litigation and other
extraordinary or nonrecurring expenses, and all fees and charges of investment
advisers to the Trust.
ARTICLE 4. COMPENSATION OF THE ADMINISTRATOR.
(A) ADMINISTRATION FEE. For the services to be rendered, the facilities
furnished and the expenses assumed by the Administrator pursuant to this
Agreement, the Trust shall pay to the Administrator compensation at an annual
rate specified in Schedule A attached hereto and made a part of this Agreement.
Such compensation shall be calculated and accrued daily, and paid to the
Administrator monthly. The Trust shall also reimburse the Administrator for its
reasonable out of pocket expenses, including the travel and lodging expenses
incurred by officers and employees of the Administrator in connection with
attendance at meetings of the Board of Trustees.
If this Agreement becomes effective subsequent to the first day of a month
or terminates before the last day of a month, the Administrator's compensation
for that part of the month in which this Agreement is in effect shall be
prorated in a manner consistent with the calculation of the fees as set forth
above. Payment of the Administrator's compensation for the preceding month shall
be made promptly.
(B) COMPENSATION FROM TRANSACTIONS. The Trust hereby authorizes any entity
or person associated with the Administrator which is a member of a national
securities exchange to effect any transaction on the exchange for the account of
the Trust which is permitted by Section 11 (a) of the Securities Exchange Act of
1934 and Rule 11a2-2(T) thereunder, and the Trust hereby consents to the
retention of compensation for such transactions in accordance with
Rule 11a2-2(T) (a) (2) (iv).
(C) SURVIVAL OF COMPENSATION RATES. All rights of compensation under this
Agreement for services performed as of the termination date shall survive the
termination of this Agreement.
ARTICLE 5. LIMITATION OF LIABILITY OF THE ADMINISTRATOR. The duties of
the Administrator shall be confined to those expressly set forth herein, and no
implied duties are assumed by or may be asserted against the Administrator
hereunder. The Administrator shall not be liable for any error of judgment or
mistake of law or for any loss arising out of any investment or for any act or
omission in carrying out its duties hereunder, except a loss resulting from
willful misfeasance, bad faith or gross negligence in the performance of its
duties, or by reason of reckless disregard of its obligations and duties
hereunder, except as may otherwise be provided under provisions of applicable
law which cannot be waived or modified hereby. (As used in this Article 5, the
term "Administrator" shall include directors, officers, employees and other
corporate agents of the Administrator as well as that corporation itself.)
3
<PAGE>
So long as the Administrator acts in good faith and with due diligence and
without gross negligence, the Trust assumes full responsibility and shall
indemnify the Administrator and hold it harmless from and against any and all
actions, suits and claims, whether groundless or otherwise, and from and against
any and all losses, damages, costs, charges, reasonable counsel fees and
disbursements, payments, expenses and liabilities (including reasonable
investigation expenses) arising directly or indirectly out of said
administration, transfer agency, and dividend disbursing relationships to the
Trust or any other service rendered to the Trust hereunder. The indemnity and
defense provisions set forth herein shall indefinitely survive the termination
of this Agreement.
The rights hereunder shall include the right to reasonable advances of
defense expenses in the event of any pending or threatened litigation with
respect to which indemnification hereunder may ultimately be merited. In order
that the indemnification provision contained herein shall apply, however, it is
understood that if in any case the Trust may be asked to indemnify or hold the
Administrator harmless, the Trust shall be fully and promptly advised of all
pertinent facts concerning the situation in question, and it is further
understood that the Administrator will use all reasonable care to identify and
notify the Trust promptly concerning any situation which presents or appears
likely to present the probability of such a claim for indemnification against
the Trust, but failure to do so in good faith shall not affect the rights
hereunder.
The Administrator may apply to the Trust at any time for instructions and
may consult counsel for the Trust or its own counsel and with accountants and
other experts with respect to any matter arising in connection with the
Administrator's duties, and the Administrator shall not be liable or accountable
for any action taken or omitted by it in good faith in accordance with such
instruction or with the opinion of such counsel, accountants or other experts.
Also, the Administrator shall be protected in acting upon any document
which it reasonably believes to be genuine and to have been signed or presented
by the proper person or persons. Nor shall the Administrator be held to have
notice of any change of authority of any officers, employee or agent of the
Trust until receipt of written notice thereof from the Trust.
ARTICLE 6. ACTIVITIES OF THE ADMINISTRATOR. The services of the
Administrator rendered to the Trust are not to be deemed to be exclusive. The
Administrator is free to render such services to others and to have other
businesses and interests. It is understood that Trustees, officers, employees
and Shareholders of the Trust are or may be or become interested in the
Administrator, as directors, officers, employees and shareholders or otherwise
and that directors, officers, employees and shareholders of the Administrator
and its counsel are or may be or become similarly interested in the Trust, and
that the Administrator may be or become interested in the Trust as a Shareholder
or otherwise.
4
<PAGE>
ARTICLE 7. DURATION OF THIS AGREEMENT. The Term of this Agreement
shall be as specified in Schedule A attached hereto and made a part of this
Agreement.
This Agreement shall not be assignable by either party without the written
consent of the other party.
ARTICLE 8. AMENDMENTS. This Agreement may be amended by the parties
hereto only if such amendment is specifically approved (i) by the vote of a
majority of the Trustees of the Trust, and (ii) by the vote of a majority of the
Trustees of the Trust who are not parties to this Agreement or interested
persons of any such party, cast in person at a Board of Trustees meeting called
for the purpose of voting on such approval.
For special cases, the parties hereto may amend such procedures set forth
herein as may be appropriate or practical under the circumstances, and the
Administrator may conclusively assume that any special procedure which has been
approved by the Trust does not conflict with or violate any requirements of its
Declaration of Trust, By-Laws or then current prospectuses, or any rule,
regulation or requirement of any regulatory body.
ARTICLE 9. TRUSTEES' LIABILITY. A copy of the Declaration of Trust of
the Trust is on file with the Secretary of State of the Commonwealth of
Massachusetts, and notice is hereby given that this instrument is executed on
behalf of the Trustees of the Trust as Trustees and not individually and that
the obligations of this instrument are not binding upon any of the Trustees,
officers or Shareholders of the Trust individually, but binding only upon the
assets and property of the Trust.
ARTICLE 10. CERTAIN RECORDS. The Administrator shall maintain customary
records in connection with its duties as specified in this Agreement. Any
records required to be maintained and preserved pursuant to Rules 31a-1 and
31a-2 under the 1940 Act which are prepared or maintained by the Administrator
on behalf of the Trust shall be prepared and maintained at the expense of the
Administrator, but shall be the property of the Trust and will be made available
to or surrendered promptly to the Trust on request.
In case of any request or demand for the inspection of such records by
another party, the Administrator shall notify the Trust and follow the Trust's
instructions as to permitting or refusing such inspection; provided that the
Administrator may exhibit such records to any person in any case where it is
advised by its counsel that it may be held liable for failure to do so, unless
(in cases involving potential exposure only to civil liability) the Trust has
agreed to indemnify the Administrator against such liability.
ARTICLE 11. DEFINITIONS OF CERTAIN TERMS. The terms "interested person"
and "affiliated person," when used in this Agreement, shall have the respective
meanings specified in the 1940 Act and the rules and regulations thereunder,
subject to such exemptions as may be granted by the Securities and Exchange
Commission.
5
<PAGE>
ARTICLE 12. NOTICE. Any notice required or permitted to be given by
either party to the other shall be deemed sufficient if sent by registered or
certified mail, postage prepaid, addressed by the party giving notice to the
other party at the last address furnished by the other party to the party giving
notice: if to the Trust, at 680 East Swedesford Road, Wayne, PA 19087-1658, and
if to the Administrator at 680 East Swedesford Road, Wayne, PA 19087-1658.
ARTICLE 13. GOVERNING LAW. This Agreement shall be construed in
accordance with the laws of the Commonwealth of Massachusetts and the applicable
provisions of the 1940 Act. To the extent that the applicable laws of the
Commonwealth of Massachusetts, or any of the provisions herein, conflict with
the applicable provisions of the 1940 Act, the latter shall control.
ARTICLE 14. MULTIPLE ORIGINALS. This Agreement may be executed in two
or more counterparts, each of which when so executed shall be deemed to be an
original, but such counterparts shall together constitute but one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first above written.
STI CLASSIC VARIABLE TRUST
By:
-------------------------------
Attest:
---------------------------
SEI FINANCIAL MANAGEMENT CORPORATION
By:
-------------------------------
Attest:
---------------------------
6
<PAGE>
_____________________
SCHEDULE A
TO THE ADMINISTRATION AGREEMENT
DATED AUGUST 18, 1995
BETWEEN
STI CLASSIC VARIABLE TRUST
AND
SEI FINANCIAL MANAGEMENT CORPORATION
Fees: Pursuant to Article 4, Section A, the Trust shall pay the
Administrator compensation for services rendered to the
Portfolios listed in Schedule B hereto (the "Portfolios") at an
annual rate of the average daily net assets of each such
Portfolio and each Portfolio of the STI Classic Funds, which is
calculated daily and paid monthly, as set forth below:
.10% on first $1 billion
.07% on the next $4 billion
.05% on the next $3 billion
.045% on the next $2 billion
.04% thereafter
Term: Pursuant to Article 7, the term of this Agreement shall commence
on August 18, 1995, and shall remain in effect until October 29,
1997 (the "Initial Term"). In the event of a material breach of
this Agreement by either party, the non-breaching party shall
notify the breaching party in writing of such breach and upon
receipt of such notice, the breaching party shall have 45 days to
remedy the breach or the nonbreaching party may immediately
terminate this Agreement.
7
<PAGE>
SCHEDULE B
TO THE ADMINISTRATION AGREEMENT
DATED AUGUST 18, 1995
BETWEEN
STI CLASSIC VARIABLE TRUST
AND
SEI FINANCIAL MANAGEMENT CORPORATION
The Administrator shall perform services under the Administration Agreement for
the following Portfolios:
*Investment Grade Bond Fund
*Capital Growth Fund
*Value Income Stock Fund
*Aggressive Growth Fund
8
<PAGE>
FORM OF PARTICIPATION AGREEMENT
THIS AGREEMENT, made and entered into this 2nd day of October, 1995 by
and between STI CLASSIC VARIABLE TRUST, an unincorporated business trust formed
under the laws of Massachusetts (the "Trust"), SEI FINANCIAL SERVICES COMPANY, a
Pennsylvania corporation (the "Distributor), and GLENBROOK LIFE AND ANNUITY
COMPANY, an Illinois life insurance company (the "Company"), on its own behalf
and on behalf of each separate account of the Company identified herein.
WHEREAS, the Trust is a series-type mutual fund offering shares of
beneficial interest (the "Trust shares") consisting of one or more classes of
separate series ("Series") of shares ("Series shares"), each such series
representing an interest in a particular managed portfolio of securities and
other assets; and
WHEREAS, the Trust was established for the purpose of serving as an
investment vehicle for insurance company separate accounts supporting variable
annuity contracts and variable life insurance policies to be offered by
insurance companies; and
WHEREAS, the Distributor has the exclusive right to distribute shares
of the Trust to qualifying investors; and
WHEREAS, the Company desires that the Trust serve as an investment
vehicle for a certain separate account(s) of the Company and the Distributor
desires to sell shares of certain Series to such separate account(s);
NOW, THEREFORE, in consideration of their mutual promises, the Trust
and the Company agree as follows:
ARTICLE I. ADDITIONAL DEFINITIONS
1.1. "Account" -- the separate account of the Company described more
specifically in Schedule 1 to this Agreement. If more than one separate account
is so described, the term shall refer to each separate account.
1.2. "Business Day" -- each day that the Trust is open for business
as provided in the Trust Prospectus.
1.3. "Code" -- the Internal Revenue Code of 1986, as amended.
1.4. "Contracts" -- the class or classes of variable annuity
contracts and variable life insurance policies issued by the Company and
described more specifically on Schedule 2 to this Agreement.
-1-
<PAGE>
1.5. "Contract Owners" -- the owners of the Contracts, as
distinguished from all Product Owners.
1.6. "Participating Account" -- a separate account investing all or a
portion of its assets in the Trust, including the Account.
1.7. "Participating Insurance Company" -- any insurance company
investing in the Trust on its behalf or on behalf of a Participating Account,
including the Company.
1.8. "Products" -- variable annuity contracts and variable life
insurance policies supported by Participating Accounts investing assets
attributable thereto in the Trust, including the Contracts.
1.9. "Product Owners" -- owners of Products, including Contract
Owners.
1.10. "Prospectus" -- with respect to the Trust shares or a class of
Contracts, each version of the definitive prospectus or supplement thereto filed
with the SEC pursuant to Rule 497 under the 1933 Act. With respect to any
provision of this Agreement requiring a party to take action in accordance with
a Prospectus, such reference thereto shall be deemed to be to the version last
so filed prior to the taking of such action. For purposes of Article VIII, the
term "Prospectus" shall include any statement of additional information
incorporated therein.
1.11. "Registration Statement" -- with respect to the Trust Shares or
a class of Contracts, the registration statement filed with the SEC to register
the securities issued thereby under the 1933 Act, or the most recently filed
amendment thereto, in either case in the form in which it was declared or became
effective. The Contracts Registration Statement is described more specifically
on Schedule 2 to this Agreement. The Trust Registration Statement was filed on
Form N-1A (File No. 33-80158).
1.12. "1940 Act Registration Statement" -- with respect to the Trust
or the Account, the registration statement filed with the SEC to register such
person as an investment company under the 1940 Act, or the most recently filed
amendment thereto. The Account 1940 Act Registration Statement is described
more specifically on Schedule 2 to this Agreement. The Trust 1940 Act
Registration Statement was filed on Form N-1A (File No. 811-8562).
1.13. "Statement of Additional Information" -- with respect to the
Trust or a class of Contracts, each version of the definitive statement of
additional information or supplement thereto filed with the SEC pursuant to Rule
497 under the 1933 Act.
1.14. "SEC" -- the Securities and Exchange Commission.
1.15. "1933 Act" -- the Securities Act of 1933, as amended.
-2-
<PAGE>
1.16. "1940 Act" -- the Investment Company Act of 1940, as amended.
ARTICLE II. SALE OF TRUST SHARES
2.1. The Trust has granted to the Distributor exclusive authority to
distribute the Trust's shares, and has agreed to instruct, and has so
instructed, the Distributor to make available to the Company for purchase on
behalf of the Account Trust shares of those Series so selected by the
Distributor. Pursuant to such authority and instructions, and subject to
Article X hereof, the Distributor agrees to make available to the Company for
purchase on behalf of the Account, shares of those Series listed on Schedule 3
to this Agreement, such purchases to be effected at net asset value in
accordance with Section 2.3 of this Agreement. Notwithstanding the foregoing,
(i) Trust Series (other than those listed on Schedule 3) in existence now or
that may be established in the future will be made available to the Company only
as the Distributor may so provide, and (ii) the Board of Directors of the Trust
(the "Trust Board") may suspend or terminate the offering of Trust shares of any
Series or class thereof, if such action is required by law or by regulatory
authorities having jurisdiction or if, in the sole discretion of the Trust Board
acting in good faith and in light of its fiduciary duties under Federal and any
applicable state laws, suspension or termination is necessary in the best
interests of the shareholders of any Series (it being understood that
"shareholders" for this purpose shall mean Product Owners).
2.2. The Trust shall redeem, at the Company's request, any full or
fractional Series shares held by the Company on behalf of the Account, such
redemptions to be effected at net asset value in accordance with Section 2.3 of
this Agreement. Notwithstanding the foregoing, (i) the Company shall not redeem
Trust shares attributable to Contract Owners except in the circumstances
permitted in Section 2.7 of this Agreement, and (ii) the Trust may delay
redemption of Trust shares of any Series to the extent permitted by the 1940
Act, any rules, regulations or orders thereunder, or the Trust Prospectus.
2.3. PURCHASE AND REDEMPTION PROCEDURES
(a) The Trust hereby appoints the Company as an agent of the
Trust for the limited purpose of receiving purchase and redemption requests
on behalf of the Account (but not with respect to any Trust shares that may
be held in the general account of the Company) for shares of those Series
made available hereunder, based on allocations of amounts to the Account or
subaccounts thereof under the Contracts and other transactions relating to
the Contracts or the Account. Receipt of any such request (or relevant
transactional information therefor) on any Business Day by the Company as
such limited agent of the Trust prior to the Trust's close of business as
defined from time to time in the Trust Prospectus (which as of the date of
execution of this Agreement is 4 p.m. Eastern Time) shall constitute
receipt by the Trust on that same Business Day, provided that the Trust
receives notice of such request by 10 a.m. Eastern Time on the next
following Business Day.
-3-
<PAGE>
(b) The Company shall pay for shares of each Series on the same
day that it notifies the Trust of a purchase request for such shares.
Payment for Series shares shall be made in Federal funds transmitted to the
Trust by wire to be received by the Trust by 4 p.m. Eastern Time on the day
the Trust is notified of the purchase request for Series shares (unless the
Trust determines and so advises the Company that sufficient proceeds are
available from redemption of shares of other Series effected pursuant to
redemption requests tendered by the Company on behalf of the Account). If
Federal funds are not received on time, such funds will be invested, and
Series shares purchased thereby will be issued, as soon as practicable.
Upon receipt of Federal funds so wired, such funds shall cease to be the
responsibility of the Company and shall become the responsibility of the
Trust.
(c) Payment for Series shares redeemed by the Account or the
Company shall be made in Federal funds transmitted by wire to the Company
or any other designated person on the next Business Day after the Trust is
properly notified of the redemption order of Series shares (unless
redemption proceeds are to be applied to the purchase of Trust shares of
other Series in accordance with Section 2.3(b) of this Agreement), except
that the Trust reserves the right to redeem Series shares in assets other
than cash and to delay payment of redemption proceeds to the extent
permitted under Section 22(e) of the 1940 Act. The Trust shall not bear
any responsibility whatsoever for the proper disbursement or crediting of
redemption proceeds by the Company; the Company alone shall be responsible
for such action.
(d) Any purchase or redemption request for Series shares held or
to be held in the Company's general account shall be effected at the net
asset value per share next determined after the Trust's receipt of such
request, provided that, in the case of a purchase request, payment for
Trust shares so requested is received by the Trust in Federal funds prior
to close of business for determination of such value, as defined from time
to time in the Trust Prospectus.
2.4. The Trust shall use its best efforts to make the net asset value
per share for each Series available to the Company by 6:30 p.m. Eastern Time
each Business Day, and in any event, as soon as reasonably practicable after the
net asset value per share for such Series is calculated, and shall calculate
such net asset value in accordance with the Trust Prospectus. Neither the
Trust, any Series, the Distributor, nor any of their affiliates shall be liable
for any information provided to the Company pursuant to this Agreement which
information is based on incorrect information supplied by the Company or any
other Participating Company to the Trust or the Distributor.
Subject to the foregoing, in the event of an error in the calculation of the net
asset value of any Series, which error is deemed to be material according to the
Trust's established standards of materiality for calculating Series net asset
value and which results in a loss to the Company, the Trust shall make a
reasonable, good-faith effort to obtain indemnification, on
-4-
<PAGE>
behalf of the Company, from any service provider to the Trust whose provision of
incorrect information caused such error.
2.5. The Trust shall furnish notice to the Company as soon as
reasonably practicable of any income dividends or capital gain distributions
payable on any Series shares. The Company, on its behalf and on behalf of the
Account, hereby elects to receive all such dividends and distributions as are
payable on any Series shares in the form of additional shares of that Series.
The Company reserves the right, on its behalf and on behalf of the Account, to
revoke this election and to receive all such dividends and capital gain
distributions in cash. The Trust shall notify the Company promptly of the
number of Series shares so issued as payment of such dividends and
distributions.
2.6. Issuance and transfer of Trust shares shall be by book entry
only. Stock certificates will not be issued to the Company or the Account.
Purchase and redemption orders for Trust shares shall be recorded in an
appropriate ledger for the Account or the appropriate subaccount of the Account.
2.7.(a) The parties hereto acknowledge that the arrangement
contemplated by this Agreement is not exclusive; the Trust's shares may be
sold to other insurance companies (subject to Section 2.8 hereof) and the
cash value of the Contracts may be invested in other investment companies,
provided, however, that until this Agreement is terminated pursuant to
Article X, the Company shall promote the Trust Series on the same basis as
other funding vehicles available under the Contracts and with respect to
the availability of any funding vehicles other than those listed on
Schedule 3 to this Agreement: (i) any such vehicle or series thereof, has
investment objectives or policies that are substantially different from the
investment objectives and policies of the Trust Series available hereunder;
or (ii) the Company gives the Trust and the Distributor 45 days written
notice of its intention to make such other investment vehicle available as
a funding vehicle for the Contracts; or (iii) the Trust or Distributor
consents in writing to the use of such other vehicle, such consent not to
be unreasonably withheld.
(b) The Company shall not, without prior notice to the Distributor
(unless otherwise required by applicable law) take any action to operate
the Account as a management investment company under the 1940 Act.
(c) The Company shall not, without the prior written consent of the
Distributor (unless otherwise required by applicable law), solicit, induce
or encourage Contract Owners to change or modify the Trust or change the
Trust's distributor, manager or investment adviser.
2.8. The Distributor and the Trust shall sell Trust shares only to
Participating Insurance Companies and their separate accounts and to persons or
plans ("Qualified Persons") that qualify to purchase shares of the Trust under
Section 817(h) of the Code and the regulations thereunder without impairing the
ability of the Account to consider the portfolio
-5-
<PAGE>
investments of the Trust as constituting investments of the Account for the
purpose of satisfying the diversification requirements of Section 817(h). The
Distributor and the Trust shall not sell Trust shares to any insurance company
or separate account unless an agreement complying with Article VII of this
Agreement is in effect to govern such sales. The Company hereby represents and
warrants that it and the Account are Qualified Persons.
ARTICLE III. REPRESENTATIONS AND WARRANTIES
3.1. The Company represents and warrants that: (i) the Company is an
insurance company duly organized and in good standing under Illinois insurance
law; (ii) the Account is a validly existing separate account, duly established
and maintained in accordance with applicable law; (iii) the Account 1940 Act
Registration Statement has been filed with the SEC in accordance with the
provisions of the 1940 Act and the Account is duly registered as a unit
investment trust thereunder; (iv) the Contracts Registration Statement has been
declared effective by the SEC; (v) the Contracts will be issued in compliance in
all material respects with all applicable Federal and state laws; (vi) the
Account will maintain its registration under the 1940 and will comply in all
material respects with the 1940 Act; and (vii) the Contracts currently are, and
at the time of issuance will be, treated as annuity contracts or life insurance
policies, whichever is appropriate, under applicable provisions of the Code.
3.2. The Trust represents and warrants that: (i) the Trust is an
unincorporated business trust duly formed and validly existing under the
Massachusetts law; (ii) the Trust 1940 Act Registration Statement has been filed
with the SEC in accordance with the provisions of the 1940 Act and the Trust is
duly registered as an open-end management investment company thereunder; (iii)
the Trust Registration Statement has been declared effective by the SEC; (iv)
the Trust shares will be issued in compliance in all material respects with all
applicable federal laws; (v) the Trust will remain registered under and will
comply in all material respects with the 1940 Act; (vi) the Trust currently
qualifies as a "regulated investment company" under Subchapter M of the Code and
is in compliance with the diversification standards prescribed in Section 817(h)
of the Code and the regulations thereunder; and (vii) the Trust's investment
policies are in material compliance with any investment restrictions set forth
on Schedule 4 to this Agreement. The Trust, however, makes no representation as
to whether any aspect of its operations (including, but not limited to, fees and
expenses and investment policies) otherwise complies with the insurance laws or
regulations of any state. Further, the Trust shall register and qualify its
shares for sale in accordance with the securities laws of the various states
only if and to the extent deemed advisable by the Trust.
3.3. The Distributor represents and warrants that: (i) the
Distributor is a corporation duly organized and in good standing under
Pennsylvania law; and (ii) the Distributor is registered as a broker-dealer
under federal and applicable state securities laws and is a member of the
National Association of Securities Dealers, Inc.
-6-
<PAGE>
3.4. Each party represents and warrants that the execution and
delivery of this Agreement and the consummation of the transactions contemplated
herein have been duly authorized by all necessary corporate or trust action, as
applicable, by such party, and, when so executed and delivered, this Agreement
will be the valid and binding obligation of such party enforceable in accordance
with its terms.
3.5. Each party represents and warrants that all of its directors,
officers, employees, investment advisers and other individuals/entities dealing
with the money and/or securities of the Trust are and shall continue to be at
all times covered by a blanket fidelity bond or similar coverage for the benefit
of the Trust in an amount not less than the amount required by the applicable
rules of the NASD and the federal securities laws. The aforesaid bond shall
include coverage for larceny and embezzlement and shall be issued by a reputable
bonding company. All parties agree to make all reasonable efforts to see that
this bond or another bond containing these provisions is always in effect, and
each agrees to notify the other parties promptly in the event that such coverage
no longer applies.
ARTICLE IV. FILINGS, INFORMATION AND EXPENSES
4.1. The Trust shall amend the Trust Registration Statement and the
Trust 1940 Act Registration Statement from time to time as required in order to
effect the continuous offering of Trust shares and to maintain the Trust's
registration under the 1940 Act for so long as Trust shares are sold.
4.2. Unless other arrangements are made, the Trust shall provide the
Company with a copy, in camera-ready form or otherwise suitable for printing or
duplication, of (i) each Trust prospectus and any supplement thereto; (ii) each
Statement of Additional Information and any supplement thereto; (ii) any Trust
proxy soliciting material; and (iv) any Trust periodic shareholder reports.
4.3. The Company shall amend the Contracts Registration Statement and
the Account 1940 Act Registration Statement from time to time as required in
order to effect the continuous offering of the Contracts or as may otherwise be
required by applicable law, but in any event shall maintain a current effective
Contracts Registration Statement and the Account's registration under the 1940
Act for so long as the Contracts are outstanding unless the Company has supplied
the Trust with an SEC no-action letter or opinion of counsel satisfactory to the
Trust's counsel to the effect that maintaining such Registration Statement on a
current basis is no longer required. The Company shall assure that any
Contracts Prospectus for a life insurance contract, where it is reasonably
probable that such Contract would be a "modified endowment contract," as that
term is defined in Section 7702A of the Code, will identify such Contract as a
modified endowment contract (or policy). The Company shall file, register,
qualify and obtain approval of the Contracts for sale to the extent required by
applicable insurance and securities laws of the various states.
-7-
<PAGE>
4.4. The Company shall inform the Trust of any investment
restrictions imposed by state insurance law that may become applicable to the
Trust from time to time as a result of the Account's investment therein
(including, but not limited to, restrictions with respect to fees and expenses
and investment policies), other than those set forth on Schedule 4 to this
Agreement. Upon receipt of any such information from the Company, the Trust
shall determine whether it is in the best interests of shareholders to comply
with any such restrictions. If the Trust determines that it is not in the best
interests of shareholders (it being understood that "shareholders" for this
purpose shall mean Product Owners), the Trust shall so inform the Company, and
the Trust and the Company shall discuss alternative accommodations in the
circumstances. If the Trust determines that it is in the best interests of
shareholders to comply with such restrictions, the Trust and the Company shall
amend Schedule 4 to this Agreement to reflect such restrictions.
4.5. Each party shall promptly inform the others when such party
becomes aware of the commencement of any litigation or proceeding against such
party or a person affiliated with such party in connection with the issuance or
sale of Trust shares or the Contracts.
4.6. The Company shall provide Contracts, Contracts and Trust
Prospectuses, Contracts and Trust Statements of Additional Information, reports,
solicitations for voting instructions including any related Trust proxy
solicitation materials, and all amendments or supplements to any of the
foregoing to Contract Owners and prospective Contract Owners, all in accordance
with the federal securities laws.
4.7. All expenses incident to each party's performance under this
Agreement (including expenses expressly assumed by such party pursuant to this
Agreement) shall be paid by such party to the extent permitted by law.
(a) Expenses assumed by the Trust include, but are not limited to,
the costs of: registration and qualification of the Trust shares under the
federal securities laws; text preparation and filing with the SEC of the
Trust Prospectus and and any supplements thereto, Trust Statement of
Additional Information and any supplements thereto, Trust Registration
Statement, Trust proxy materials and shareholder reports, and preparation
of a camera-ready copy thereof; preparation of all statements and notices
required by any Federal or state securities law; printing and mailing of
all materials and reports required to be provided by the Trust to its
shareholders (subject to sections (c) and (d) hereof); all taxes on the
issuance or transfer of Trust shares; payment of all applicable fees,
including, without limitation, all fees due under Rule 24f-2 relating to
the Trust; and any expenses permitted to be paid or assumed by the Trust
pursuant to a plan, if any, under Rule 12b-1 under the 1940 Act. The Trust
otherwise shall pay no fee or other compensation to the Company under this
Agreement, unless the parties otherwise agree, except that if the Trust or
any Series adopts and implements a plan pursuant to Rule 12b-1 under the
1940 Act to finance distribution expenses, then payments may be made to the
Company in accordance with such plan. The Trust currently does not
-8-
<PAGE>
intend to make any payments to finance distribution expenses pursuant to
Rule 12b-1 under the 1940 Act or in contravention of such rule, although it
may make payments pursuant to Rule 12b-1 in the future. To the extent that
it decides to finance distribution expenses pursuant to Rule 12b-1, the
Trust undertakes to have a Board of Directors, a majority of whom are not
interested persons of the Trust, formulate and approve any plan under Rule
12b-1 to finance distribution expenses.
(b) Expenses assumed by the Company include, but are not limited to,
the costs of: registration and qualification of the Contracts under the
federal securities laws; text preparation and filing with the SEC of the
Contracts Prospectus and any supplements thereto, Contracts Statement of
Additional Information and any supplements thereto and Contracts
Registration Statement; payment of all applicable fees, including, without
limitation, all fees due under Rule 24f-2 relating to the Contracts; and
preparation and dissemination of all statements and notices to Contract
Owners required by any Federal or state insurance law other than those paid
for by the Trust.
(c) All costs and expenses incurred in printing, mailing and
distributing the Contract and Trust Prospectuses and Statements of
Additional Information and any supplements thereto to any prospective
Contract purchaser or existing Contract owner as required by Federal
securities law shall be apportioned equally between the Trust and the
Company.
(d) All costs and expenses incurred in text preparation, printing,
mailing and distributing Trust proxy materials and shareholder reports to
all contract holders of record and any other statement or notice required
of the Trust by any Federal or state law, and not previously discussed
herein, shall be the exclusive responsibility of the Trust.
4.8. No piece of advertising or sales literature or other promotional
material in which the Trust is named shall be used, except with the prior
written consent of the Trust. Any such piece shall be furnished to the Trust
for such consent prior to its use. The Trust shall respond to any request for
written consent on a prompt and timely basis, but failure to respond shall not
relieve the Company of the obligation to obtain the prior written consent of the
Trust. The Trust may at any time in its sole discretion revoke such written
consent, and upon notification of such revocation, the Company shall no longer
use the material subject to such revocation. Until further notice to the
Company, the Trust has delegated its rights and responsibilities under this
provision to the Distributor.
4.9. No piece of advertising or sales literature or other promotional
material in which the Company is named shall be used, except with the prior
written consent of the Company. Any such piece shall be furnished to the
Company for such consent prior to its use. The Company shall respond to any
request for written consent on a prompt and timely basis, but failure to respond
shall not relieve the Company of the obligation to obtain the prior
-9-
<PAGE>
written consent of the Company. The Company may at any time in its sole
discretion revoke any written consent, and upon notification of such revocation,
neither the Trust nor the Distributor shall use the materials subject to such
revocation. The Company, upon prior written notice to the Trust, may delegate
its rights and responsibilities under this provision to the principal
underwriter for the Contracts.
4.10. The Company shall not give any information or make any
representations or statements on behalf of the Trust or concerning the Trust
other than the information or representations contained in the Trust
Registration Statement or Trust Prospectus or in reports or proxy statements for
the Trust, or in sales literature or other promotional material approved in
accordance with Article IV of this Agreement, or in published reports or
statements of the Trust in the public domain, except with the prior written
consent of the Trust.
4.11. The Trust shall not give any information or make any
representations on behalf of the Company or concerning the Company, the Account
or the Contracts other than the information or representations contained in the
Contracts Registration Statement or Contracts Prospectus or in published reports
of the Account which are in the public domain or approved in writing by the
Company for distribution to Contract Owners, or in sales literature or other
promotional material approved in writing by the Company, except with the prior
written consent of the Company.
4.12. The Trust and the Company shall provide to each other upon
request at least one complete copy of all Registration Statements, Prospectuses,
Statements of Additional Information, periodic and other shareholder or Contract
Owner reports, proxy statements, solicitations of voting instructions, sales
literature and other promotional materials, applications for exemptions,
requests for no-action letters, and all amendments or supplements to any of the
above, that relate to the Trust, the Contracts or the Account, as the case may
be, promptly after the filing by or on behalf of such party of such document
with the SEC or other regulatory authorities. The Company shall provide to the
Trust and the Distributor any complaints received from Contract Owners
pertaining to the Trust or Trust Series, and the Trust and Distributor shall
provide to the Company any complaints received from Contract Owners relating to
the Contracts.
4.13. The Trust and the Company shall provide to each other upon
request copies of draft versions of any Registration Statements, Prospectuses,
Statements of Additional Information, periodic and other shareholder or Contract
Owner reports, proxy statements, solicitations for voting instructions, sales
literature and other promotional materials, applications for exemptions,
requests for no-action letters, and all amendments or supplements to any of the
above, to the extent that the other party reasonably needs such information for
purposes of preparing a report or other filing to be filed with or submitted to
a regulatory agency. If a party requests any such information before it has
been filed, the other party will provide the requested information if then
available and in the version then available at the time of such request.
-10-
<PAGE>
4.14. Each party hereto shall cooperate with the other parties and
all appropriate governmental authorities (including without limitation the SEC,
the NASD and state insurance regulators) and shall permit each other and such
authorities reasonable access to its books and records in connection with any
investigation or inquiry relating to this Agreement or the transactions
contemplated hereby. However, such access shall not extend to attorney-client
privileged information.
4.15. For purposes of this Article IV, the phrase "sales literature
or other promotional material" includes, but is not limited to, any material
constituting sales literature or advertising under the NASD rules, the 1940 Act
or the 1933 Act.
4.16. No party shall use any other party's names, logos, trademarks
or service marks, whether registered or unregistered, without the prior written
consent of such other party.
ARTICLE V. VOTING OF TRUST SHARES
With respect to any matter put to vote by the holders of Trust shares
or Series shares ("Voting Shares"), the Company shall:
(a) solicit voting instructions from Contract Owners to which Voting
Shares are attributable;
(b) vote Voting Shares of each Series attributable to Contract Owners
in accordance with instructions or proxies timely received from such
Contract Owners;
(c) vote Voting Shares of each Series attributable to Contract Owners
for which no instructions have been received in the same proportion
as Voting Shares of such Series for which instructions have been timely
received; and
(d) vote Voting Shares of each Series held by the Company on its own
behalf or on behalf of the Account that are not attributable to Contract
Owners in the same proportion as Voting Shares of such Series for which
instructions have been timely received.
The Company shall be responsible for assuring that voting privileges for the
Account are calculated in a manner consistent with the provisions set forth
above and with other Participating Insurance Companies.
-11-
<PAGE>
ARTICLE VI. COMPLIANCE WITH CODE
6.1. The Trust shall comply with Section 817(h) of the Code and the
regulations issued thereunder to the extent applicable to the Trust as a fund
underlying the Account, and shall notify the Company immediately upon having a
reasonable basis for believing that it has ceased to so qualify or that it might
not so qualify in the future.
6.2. The Trust shall maintain its qualification as a registered
investment company (under Subchapter M or any successor or similar provision),
and shall notify the Company immediately upon having a reasonable basis for
believing that it has ceased to so qualify or that it might not so qualify in
the future.
6.3. The Company shall ensure the continued treatment of the
Contracts as annuity contracts or life insurance policies, whichever is
appropriate, under applicable provisions of the Code and shall notify the Trust
and the Distributor immediately upon having a reasonable basis for believing
that the Contracts have ceased to be so treated or that they might not be so
treated in the future.
ARTICLE VII. POTENTIAL CONFLICTS
7.1. The parties to this Agreement acknowledge that the Trust intends
to file an application with the SEC to request an order (the "Exemptive Order")
granting relief from various provisions of the 1940 Act and the rules thereunder
to the extent necessary to permit Trust shares to be sold to and held by
variable annuity and variable life insurance separate accounts of both
affiliated and unaffiliated Participating Insurance Companies and other
Qualified Persons (as defined in Section 2.8). It is anticipated that the
Exemptive Order, when and if issued, shall require the Trust and each
Participating Insurance Company to comply with conditions and undertakings
substantially as provided in this Article VII. The Trust will not enter into a
participation agreement with any other Participating Insurance Company unless it
imposes the same conditions and undertakings as are imposed on the Company
hereby.
7.2. The Company agrees to report any potential or existing conflicts
promptly to the Trust Board, and in particular whenever Contract Owner voting
instructions are disregarded, and recognizes that it shall be responsible for
assisting the Trust Board in carrying out its responsibilities in connection
with the Exemptive Order. The Company agrees to carry out such responsibilities
with a view to the interests of Contract Owners.
7.3. If a majority of the Trust Board, or a majority of Disinterested
Trustees, determines that a material irreconcilable conflict exists with regard
to Contract Owner investments in the Trust, the Trust Board shall give prompt
notice to all Participating
-12-
<PAGE>
Insurance Companies. If the Trust Board determines that the Company is
responsible for causing or creating said conflict, the Company shall at no cost
and expense to the Trust, and to the extent reasonably practicable (as
determined by a majority of the Disinterested Trustees), take such action as is
necessary to remedy or eliminate the irreconcilable material conflict. Such
necessary action may include, but shall not be limited to:
(a) Withdrawing the assets allocable to the Account from the Trust
and reinvesting such assets in a different investment medium or submitting
the question of whether such segregation should be implemented to a vote of
all affected Contract Owners;
(b) Establishing a new registered management investment company.
7.4. If a material irreconcilable conflict arises as a result of a
decision by the Company to disregard Contract Owner voting instructions and said
decision represents a minority position or would preclude a majority vote by all
Contract Owners having an interest in the Trust, the Company may be required, at
the Trust Board's election, to withdraw the Account's investment in the Trust.
7.5. For purposes of this Article, a majority of the Disinterested
Trustees shall determine whether or not any proposed action adequately remedies
any irreconcilable material conflict, but in no event shall the Trust be
required to bear the expense of establishing a new funding medium for any
Contract. The Company shall not be required by this Article to establish a new
funding medium for any Contract if an offer to do so has been declined by vote
of a majority of the Contract Owners materially adversely affected by the
irreconcilable material conflict.
7.6. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are
amended, or Rule 6e-3 is adopted, to provide exemptive relief from any
provisions of the 1940 Act or the rules promulgated thereunder with respect to
mixed and shared funding on terms and conditions materially different from those
contained in the Exemptive Order, then (a) the Trust and/or the Company, as
appropriate, shall take such steps as may be necessary to comply with Rules 6e-2
and 6e-3(T), as amended, or Rule 6e-3, as adopted, as applicable, to the extent
such rules are applicable, and (b) Sections 7.2 through 7.5 of this Agreement
shall continue in effect only to the extent that terms and conditions
substantially identical to such Sections are contained in such Rule(s) as so
amended or adopted.
-13-
<PAGE>
ARTICLE VIII. INDEMNIFICATION
8.1. INDEMNIFICATION BY THE COMPANY. The Company shall indemnify and
hold harmless the Trust, the Distributor and each person who controls or is
affiliated with the Trust or the Distributor within the meaning of such terms
under the 1933 Act or 1940 Act (but not any Participating Insurance Companies or
Qualified Plans) and any officer, trustee, director, employee or agent of the
foregoing, against any and all losses, claims, damages or liabilities, joint or
several (including any investigative, legal and other expenses reasonably
incurred in connection with, and any amounts paid in settlement of, any action,
suit or proceeding or any claim asserted), to which they or any of them may
become subject under any statute or regulation, at common law or otherwise,
insofar as such losses, claims, damages or liabilities:
(a) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Contracts
Registration Statement, Contracts Prospectus, sales literature or other
promotional material for the Contracts or the Contracts themselves (or any
amendment or supplement to any of the foregoing), or arise out of or are
based upon the omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances in which they were
made; provided that this obligation to indemnify shall not apply if such
statement or omission or such alleged statement or alleged omission was
made in reliance upon and in conformity with information furnished in
writing to the Company by the Trust or the Distributor for use in the
Contracts Registration Statement, Contracts Prospectus or in the Contracts
or sales literature or promotional material for the Contracts (or any
amendment or supplement to any of the foregoing) or otherwise for use in
connection with the sale of the Contracts or Trust shares; or
(b) arise out of any untrue statement or alleged untrue statement of
a material fact contained in the Trust Registration Statement, Trust
Prospectus or sales literature or other promotional material of the Trust
(or any amendment or supplement to any of the foregoing), or the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading in light
of the circumstances in which they were made, if such statement or omission
was made in reliance upon and in conformity with information furnished to
the Trust in writing by or on behalf of the Company; or
(c) arise out of or are based upon any wrongful conduct of the
Company or persons under its control (or subject to its authorization) with
respect to the sale or distribution of the Contracts or Trust shares; or
-14-
<PAGE>
(d) arise as a result of any failure by the Company or persons under
its control (or subject to its authorization) to provide services, furnish
materials or make payments as required under this Agreement; or
(e) arise out of any material breach by the Company or persons under
its control (or subject to its authorization) of this Agreement, including
but not limited to any breach of any warranties contained in Article III
hereof and any failure to transmit a request for redemption or purchase of
Trust shares on a timely basis in accordance with the procedures set forth
in Article II.
This indemnification will be in addition to any liability that the Company may
otherwise have; provided, however, that no party shall be entitled to
indemnification if such loss, claim, damage or liability is due to the wilful
misfeasance, bad faith, gross negligence or reckless disregard of duty by the
party seeking indemnification.
8.2. INDEMNIFICATION BY THE TRUST. The Trust shall indemnify and
hold harmless the Company and each person who controls or is affiliated with the
Company within the meaning of such terms under the 1933 Act or 1940 Act and any
officer, director, employee or agent of the foregoing, against any and all
losses, claims, damages or liabilities, joint or several (including any
investigative, legal and other expenses reasonably incurred in connection with,
and any amounts paid in settlement of, any action, suit or proceeding or any
claim asserted), to which they or any of them may become subject under any
statute or regulation, at common law or otherwise, insofar as such losses,
claims, damages or liabilities:
(a) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Trust Registration
Statement, Trust Prospectus or sales literature or other promotional
material of the Trust (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances in which they were made; provided that this obligation to
indemnify shall not apply if such statement or omission or alleged
statement or alleged omission was made in reliance upon and in conformity
with information furnished in writing by the Company to the Trust for use
in the Trust Registration Statement, Trust Prospectus or sales literature
or promotional material for the Trust (or any amendment or supplement to
any of the foregoing) or otherwise for use in connection with the sale of
the Contracts or Trust shares; or
(b) arise out of any untrue statement or alleged untrue statement of
a material fact contained in the Contracts Registration Statement,
Contracts Prospectus or sales literature or other promotional material for
the Contracts (or any amendment or supplement to any of the foregoing), or
the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances in which they were made, if such
-15-
<PAGE>
statement or omission was made in reliance upon information furnished in
writing by the Trust to the Company; or
(c) arise out of or are based upon wrongful conduct of the Trust or
persons under its control (or subject to its authorization) with respect to
the sale of Trust shares; or
(d) arise as a result of any failure by the Trust or persons under
its control (or subject to its authorization) to provide services, furnish
materials or make payments as required under the terms of this Agreement;
or
(e) arise out of any material breach by the Trust or persons under
its control (or subject to its authorization) of this Agreement (including
any breach of Section 6.1 of this Agreement and any warranties contained in
Article III hereof).
This indemnification will be in addition to any liability that the Trust may
otherwise have; provided, however, that no party shall be entitled to
indemnification if such loss, claim, damage or liability is due to the wilful
misfeasance, bad faith, gross negligence or reckless disregard of duty by the
party seeking indemnification.
8.3. INDEMNIFICATION BY THE DISTRIBUTOR. The Distributor shall
indemnify and hold harmless the Company and each person who controls or is
affiliated with the Company within the meaning of such terms under the 1933 Act
or 1940 Act and any officer, director, employee or agent of the foregoing,
against any and all losses, claims, damages or liabilities, joint or several
(including any investigative, legal and other expenses reasonably incurred in
connection with, and any amounts paid in settlement of, any action, suit or
proceeding or any claim asserted), to which they or any of them may become
subject under any statute or regulation, at common law or otherwise, insofar as
such losses, claims, damages or liabilities:
(a) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Trust Registration
Statement, Trust Prospectus or sales literature or other promotional
material of the Trust (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances in which they were made; provided that this obligation to
indemnify shall not apply if such statement or omission or alleged
statement or alleged omission was made in reliance upon and in conformity
with information furnished in writing by the Company to the Trust for use
in the Trust Registration Statement, Trust Prospectus or sales literature
or promotional material for the Trust (or any amendment or supplement to
any of the foregoing) or otherwise for use in connection with the sale of
the Contracts or Trust shares; or
-16-
<PAGE>
(b) arise out of any untrue statement or alleged untrue statement of
a material fact contained in the Contracts Registration Statement,
Contracts Prospectus or sales literature or other promotional material for
the Contracts (or any amendment or supplement to any of the foregoing), or
the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances in which they were made, if such
statement or omission was made in reliance upon information furnished in
writing by the Distributor to the Company; or
(c) arise out of or are based upon wrongful conduct of the
Distributor or persons under its control (or subject to its authorization)
with respect to the sale of Trust shares; or
(d) arise as a result of any failure by the Distributor or persons
under its control (or subject to its authorization) to provide services,
furnish materials or make payments as required under the terms of this
Agreement; or
(e) arise out of any material breach by the Trust or persons under
its control (or subject to its authorization) of this Agreement (including
any breach of Section 6.1 of this Agreement and any warranties contained in
Article III hereof).
This indemnification will be in addition to any liability that the Distributor
may otherwise have; provided, however, that no party shall be entitled to
indemnification if such loss, claim, damage or liability is due to the wilful
misfeasance, bad faith, gross negligence or reckless disregard of duty by the
party seeking indemnification.
8.4. INDEMNIFICATION PROCEDURES. After receipt by a party entitled
to indemnification ("indemnified party") under this Article VIII of notice of
the commencement of any action, if a claim in respect thereof is to be made by
the indemnified party against any person obligated to provide indemnification
under this Article VIII ("indemnifying party"), such indemnified party will
notify the indemnifying party in writing of the commencement thereof as soon as
practicable thereafter, provided that the omission to so notify the indemnifying
party will not relieve it from any liability under this Article VIII, except to
the extent that the omission results in a failure of actual notice to the
indemnifying party and such indemnifying party is damaged solely as a result of
the failure to give such notice. The indemnifying party, upon the request of
the indemnified party, shall retain counsel reasonably satisfactory to the
indemnified party to represent the indemnified party and any others the
indemnifying party may designate in such proceeding and shall pay the fees and
disbursements of such counsel related to such proceeding. In any such
proceeding, any indemnified party shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such indemnified party unless (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the indemnifying party and the indemnified party and representation of both
parties by the same counsel would be
-17-
<PAGE>
inappropriate due to actual or potential differing interests between
them. The indemnifying party shall not be liable for any settlement of any
proceeding effected without its written consent but if settled with such consent
or if there be a final judgment for the plaintiff, the indemnifying party agrees
to indemnify the indemnified party from and against any loss or liability by
reason of such settlement or judgment.
A successor by law of the parties to this Agreement shall be entitled
to the benefits of the indemnification contained in this Article VIII. The
indemnification provisions contained in this Article VIII shall survive any
termination of this Agreement.
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the Commonwealth of
Pennsylvania, without giving effect to the principles of conflicts of laws.
9.2. This Agreement shall be subject to the provisions of the 1933
Act, 1940 Act and Securities Exchange Act of 1934, as amended, and the rules and
regulations and rulings thereunder, including such exemptions from those
statutes, rules and regulations as the SEC may grant, and the terms hereof shall
be limited, interpreted and construed in accordance therewith.
ARTICLE X. TERMINATION
10.1 TERMINATION OF AGREEMENT. This Agreement shall not terminate
until the Trust is dissolved, liquidated, or merged into another entity, or, as
to any Series of the Trust, the Account no longer invests in that Series and the
Company has confirmed in writing to the Trust that it no longer intends to
invest in such Series. However, certain obligations of, or restrictions on, the
parties to this Agreement may terminate as provided in Sections 10.2 and 10.4
and the Company may be required to redeem shares pursuant to Section 10.3 or in
the circumstances contemplated by Article VII.
10.2. TERMINATION OF OFFERING OF TRUST SHARES. The obligation of the
Trust to make Series shares available through the Distributor to the Company for
purchase pursuant to Article II of this Agreement shall terminate at the option
of the Trust upon written notice to the Company as provided below:
(a) upon institution of formal proceedings against the Company by
the NASD, the SEC, the insurance commission of any state or any other
regulatory body regarding the Company's duties under this Agreement or
related to the sale of the Contracts, the operation of the Account, the
administration of the Contracts or the purchase of Trust shares, or an
expected or anticipated ruling, judgment or outcome which would, in the
-18-
<PAGE>
Trust's reasonable judgment exercised in good faith, materially impair the
Company's ability to meet and perform the Company's obligations and duties
hereunder, such termination effective upon 30 days prior written notice;
(b) in the event any of the Contracts are not registered, issued or
sold in accordance with applicable Federal and/or state law, such
termination effective upon 15 days prior written notice;
(c) if the Trust or the Distributor shall determine, in their sole
judgment exercised in good faith, that either (1) the Company shall have
suffered a material adverse change in its business or financial condition
or (2) the Company shall have been the subject of material adverse
publicity which is likely to have a material adverse impact upon the
business and operations of either the Trust or the Distributor, such
termination effective upon 30 days prior written notice;
(d) upon the Company's assignment of this Agreement (including,
without limitation, any transfer of the Contracts or the Account to another
insurance company pursuant to an assumption reinsurance agreement) unless
the Trust consents thereto, such termination effective upon 30 days prior
written notice;
(e) if the Company is in material breach of any provision of this
Agreement, which breach has not been cured to the satisfaction of the Trust
within 10 days after written notice of such breach has been delivered to
the Company; or
(f) upon termination pursuant to Section 10.1 or notice from the
Company pursuant to Section 10.3, such termination hereunder effective upon
5 days prior written notice.
Notwithstanding an exercise of its option to terminate its obligation to make
Shares available through the Distributor to the Company, the Trust shall
continue to make Trust shares available through the Distributor to the extent
necessary to permit owners of Contracts in effect on the effective date of such
termination (hereinafter referred to as "Existing Contracts") to reallocate
investments in the Trust, redeem investments in the Trust and/or invest in the
Trust upon the making of additional purchase payments under the Existing
Contracts, UNLESS the Trust exercised its option to terminate because of
circumstances involving the Existing Contracts (or a class thereof). In that
case, the Trust shall promptly notify the Company whether the Trust is electing
to make Trust shares available through the Distributor after termination for the
Noncomplying Contracts (or a class thereof) responsible for such termination
(the "Noncomplying Contracts"). In determining whether to make Shares available
through the Distributor for the Noncomplying Contracts (or a class thereof), the
Trust shall act in good faith giving due consideration to the interests of
owners of the Noncomplying Contracts (or a class thereof).
-19-
<PAGE>
10.3. AS TO THE COMPANY. The Company may elect to cease investing in
the Trust, promoting the Trust as an investment option under the Contracts, or
withdraw its investment in the Trust, subject to compliance with applicable law,
upon written notice to the Trust within 30 days of the occurrence of any of the
following events:
(a) if shares of any Series are not reasonably available to meet the
requirements of the Contracts as determined by the Company, and the Trust,
after receiving written notice from the Company of such non-availability,
fails to make available a sufficient number of Trust shares to meet the
requirements of the Contracts within 10 days after receipt thereof;
(b) upon institution of formal proceedings against the Trust, the
Distributor or the Adviser by the NASD, the SEC or any state securities or
insurance commission or any other regulatory body;
(c) if, with respect to the Trust or a Series, the Trust or the
Series ceases to qualify as a Regulated Investment Company under Subchapter
M of the Code, or under any successor or similar provision, or if the
Company reasonably believes that the Trust may fail to so qualify, and the
Trust, upon written request, fails to provide reasonable assurance that it
will take action to cure or correct such failure;
(d) if any Series of the Trust in which the Account invests fails to
meet the diversification requirements specified in Section 817(h) of the
Code and any regulations thereunder and the Trust, upon written request,
fails to provide reasonable assurance that it will take action to cure or
correct such failure;
(e) if the Trust informs the Company pursuant to Section 4.4 that the
Trust will not comply with investment restrictions as requested by the
Company and the Trust and the Company are unable to agree upon any
reasonable alternative accommodations;
(f) if the Trust or Distributor is in material breach of a provision
of this Agreement, which breach has not been cured to the satisfaction of
the Company within 10 days after written notice of such breach has been
delivered to the Trust or the Distributor, as the case may be; or
(g) if, at any time more than three years after the date of this
Agreement, the Company in its sole discretion determines that investment by
the Account in Trust shares is no longer appropriate in view of the
purposes of the Contracts, and then only upon at least 60 days prior
written notice to the Trust and the Distributor.
10.4. COMPANY REQUIRED TO REDEEM. The parties understand and
acknowledge that it is essential for compliance with Section 817(h) of the Code
that the Contracts qualify as annuity contracts or life insurance policies, as
applicable, under the Code. Accordingly, if
-20-
<PAGE>
any of the Contracts cease to qualify as annuity contracts or life insurance
policies, as applicable, under the Code, or if the Trust reasonably believes
that any such Contracts may fail to so qualify, the Trust shall have the right
to require the Company to redeem Shares attributable to such Contracts upon
notice to the Company and the Company shall so redeem such Shares in order to
ensure that the Trust complies with the provisions of Section 817(h) of the code
applicable to ownership of Trust Shares. Notice to the Company shall specify
the period of time the Company has to redeem the Shares or to make other
arrangements satisfactory to the Trust and its counsel, such period of time to
be determined with reference to the requirements of Section 817(h) of the Code.
In addition, the Company may be required to redeem Shares pursuant to action
taken or request made by the Trust Board in accordance with the Exemptive Order
described in Article VII or any conditions or undertakings set forth or
referenced therein, or other SEC rule, regulation or order that may be adopted
after the date hereof. The Company agrees to redeem Shares in the circumstances
described herein and to comply with applicable terms and provisions.
ARTICLE XI. APPLICABILITY TO NEW ACCOUNTS AND NEW CONTRACTS
The parties to this Agreement may amend the schedules to this
Agreement from time to time to reflect, as appropriate, changes in or relating
to the Contracts, or Series or funding vehicles thereof, additions of new
classes of Contracts to be issued by the Company and separate accounts therefor
investing in the Trust. The provisions of this Agreement shall be equally
applicable to each such class of Contracts, Series and Accounts, effective as of
the date of amendment of such Schedule, unless the context otherwise requires.
ARTICLE XII. NOTICE, REQUEST OR CONSENT
Any notice, request or consent to be provided pursuant to this
Agreement is to be made in writing and shall be given:
If to the Trust:
David G. Lee
President
STI Classic Variable Trust
680 East Swedesford Road
Wayne, PA 19087-1658
-21-
<PAGE>
If to the Distributor:
Kevin P. Robins
Senior Vice President & Secretary
SEI Financial Services Company
680 East Swedesford Road
Wayne, PA 19087-1658
If to the Company:
G. Craig Whitehead
Senior Vice President, Assistant Vice President
Glenbrook Life and Annuity Company
3100 Sanders Road, Suite N4A
Northbrook, IL 60062
or at such other address as such party may from time to time specify in writing
to the other party. Each such notice, request or consent to a party shall be
sent by registered or certified United States mail with return receipt requested
or by overnight delivery with a nationally recognized courier, and shall be
effective upon receipt.
ARTICLE XIII. MISCELLANEOUS
13.1. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
13.2. This Agreement may be executed simultaneously in two or more
counterparts, each of which together shall constitute one and the same
instrument.
13.3. If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder of the
Agreement shall not be affected thereby.
13.4. The rights, remedies and obligations contained in this
Agreement are cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are entitled to under
state and federal laws.
13.5. Subject to the requirements of legal process and regulatory
authority, the Trust shall treat as confidential the names and addresses of the
Contract Owners and all information reasonably identified as confidential in
writing by the Company and except as permitted by this Agreement, shall not
disclose, disseminate or utilize such names and addresses and other confidential
information without the express written consent of the
-22-
<PAGE>
Company until such time as it may come into the public domain. The provisions
of this Section 13.5 shall survive any termination of this Agreement.
13.6. This Agreement or any of the rights and obligations hereunder
may not be assigned by the Company, the Distributor or the Trust without the
prior written consent of the other party.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and behalf by its duly authorized officer
on the date specified below.
STI CLASSIC VARIABLE TRUST
(Trust)
Date: By:
----------- --------------------------------------
Name: Kevin P. Robins
Title: Vice President & Assistant Secretary
SEI FINANCIAL SERVICES COMPANY
(Distributor)
Date: By:
----------- --------------------------------------
Name: Kevin P. Robins
Title: Senior Vice President & Secretary
GLENBROOK LIFE AND ANNUITY COMPANY
(Company)
Date: By:
------------ --------------------------------------
Name: G. Craig Whitehead
Title: Senior Vice President, Assistant Vice
President
-23-
<PAGE>
SCHEDULE 1
Accounts of the Company
Investing in the Trust
Effective as of the date the Agreement was executed, the following separate
accounts of the Company are subject to the Agreement:
<TABLE>
<CAPTION>
Name of Account and Date Established by SEC 1940 Act Type of Product
Subaccounts Board of Directors of the Registration Number Supported by Account
Company
- -------------------- -------------------------- -------------------- ---------------------
- -------------------- -------------------------- -------------------- ---------------------
<S> <C> <C> <C>
Glenbrook Life and 12/15/92 33-91914 Flexible Premium
Annuity Company Deferred Variable
Variable Annuity Annuity Contracts
Account
</TABLE>
Effective as of _________________, the following separate accounts of the
Company are hereby added to this Schedule 1 and made subject
to the Agreement:
<TABLE>
<CAPTION>
Name of Account and Date Established by SEC 1940 Act Type of Product
Subaccounts Board of Directors of the Registration Number Supported by Account
Company
- -------------------- -------------------------- -------------------- ---------------------
- -------------------- -------------------------- -------------------- ---------------------
<S><C>
</TABLE>
IN WITNESS WHEREOF, the Trust, the Distributor and the Company hereby amend this
Schedule 1 in accordance with Article XI of the Agreement.
- ------------------------------ ------------------------------
STI Classic Variable Trust Glenbrook Life and Annuity Company
- ------------------------------
SEI Financial Services Company
- 24 -
<PAGE>
SCHEDULE 2
Classes of Contracts
Supported by Separate Accounts
Listed on Schedule 1
Effective as of the date the Agreement was executed, the following classes of
Contracts are subject to the Agreement:
<TABLE>
<CAPTION>
Policy Marketing Name SEC 1933 Act Name of Supporting Annuity or Life
Registration Number Account
- ---------------------- -------------------- ------------------- ----------------
- ---------------------- -------------------- ------------------- ----------------
<S> <C> <C> <C>
STI Classic Variable 33-91916 Glenbrook Life and Annuity
Annuity Annuity Company
Variable Annuity
Account
</TABLE>
Effective as of _______, the following classes of Contracts are hereby added to
this Schedule 2 and made subject to the Agreement:
<TABLE>
<CAPTION>
Policy Marketing Name SEC 1933 Act Name of Supporting Annuity or Life
Registration Number Account
- ---------------------- -------------------- ------------------- ----------------
- ---------------------- -------------------- ------------------- ----------------
<S><C>
</TABLE>
IN WITNESS WHEREOF, the Trust, the Distributor and the Company hereby amend this
Schedule 2 in accordance with Article XI of the Agreement.
- ------------------------------ ------------------------------
STI Classic Variable Trust Glenbrook Life and Annuity Company
- ------------------------------
SEI Financial Services Company
- 25 -
<PAGE>
SCHEDULE 3
Trust Series and Other Funding
Vehicles Available Under
Each Class of Contracts
Effective as of the date the Agreement was executed, the following Trust Series
and other Funding Vehicles are available under the Contracts:
<TABLE>
<CAPTION>
Contracts Marketing Name Trust Series Other Funding Vehicles
- ---------------------------- -------------------------- ------------------------------
<S> <C> <C>
STI Classic Variable Annuity Investment Grade Bond Fund Insurance Management Series -
Capital Growth Fund Prime Money Fund
Value Income Stock Fund
Aggressive Growth Fund
</TABLE>
Effective as of __________________, this Schedule 3 is hereby amended to reflect
the following changes in Trust Series and other funding vehicles:
<TABLE>
<CAPTION>
Contracts Marketing Name Trust Series Other Funding Vehicles
- ------------------------- ------------- -----------------------
- ------------------------- ------------- -----------------------
<S> <C> <C>
None
</TABLE>
IN WITNESS WHEREOF, the Trust, the Distributor and the Company hereby amend this
Schedule 3 in accordance with Article XI of the Agreement.
- ------------------------------ ------------------------------
STI Classic Variable Trust Glenbrook Life and Annuity Company
- ------------------------------
SEI Financial Services Company
- 26 -
<PAGE>
SCHEDULE 4
Investment Restrictions
Applicable to the Trust
Effective as of the date the Agreement was executed, the following investment
restrictions are applicable to the Trust:
*CALIFORNIA DIVERSIFICATION GUIDELINES FOR FOREIGN COUNTRY INVESTMENTS BY A
PORTFOLIO OF A SEPARATE ACCOUNT
* CALIFORNIA BORROWING GUIDELINE LIMITS APPLICABLE TO A PORTFOLIO OF A
SEPARATE ACCOUNT
Effective as of _________________, this Schedule 4 is hereby amended to reflect
the following changes:
IN WITNESS WHEREOF, the Trust, the Distributor and the Company hereby amend this
Schedule 4 in accordance with Article XI of the Agreement.
- ------------------------------ ------------------------------
STI Classic Variable Trust Glenbrook Life and Annuity Company
- ------------------------------
SEI Financial Services Company
- 27 -
<PAGE>
SCHEDULE 5
Initial Capitalization &
Redemption Limitations
Effective as of the date the Agreement was executed, the following agreement as
to initial capitalization of the Portfolios of the Trust and the following
redemption limitations are applicable to the parties hereto:
The Company agrees that it, or its designated affiliated company, will provide
initial capital in the amount of Two Million Five Hundred Thousand Dollars
($2,500,000.00) for each of the following portfolios of the Trust: the
Investment Grade Bond Fund, the Capital Growth Fund, the Value Income Stock Fund
and the Aggressive Growth Fund. The Company agrees to effect such initial
investment through the direct purchase of portfolio shares on or after the date
which the Trust is established and such shares become available, but prior to
the date (hereinafter, "Launch Date") on which the contracts are first offered
for sale to the public. The Company (or its designated affiliate) shall have
the right to redeem its shares in the portfolios subject only to the following
redemption limitations:
A. The Company shall provide the Trust with a written redemption request at
least Fifteen Days (15) prior to any portfolio redemption.
B. The Company shall not redeem any of its initial investment in a portfolio
during the term of this agreement unless and until the aggregate net asset
value of such portfolio equals or exceeds Ten Million Dollars ($10,000,000)
excluding the value of shares attributable to the initial Company
investment in that portfolio.
C. The Company shall not redeem more than Five Hundred Thousand Dollars
($500,000) from any one portfolio within any thirty (30) day period.
D. No Company redemption shall result in a portfolio having less than Ten
Million Dollars ($10,000,000) in total assets.
- 28 -
<PAGE>
AGREEMENT
for
SHAREHOLDER RECORDKEEPING
AGREEMENT made as of the 2nd day of August, 1995, by and between STI
CLASSIC VARIABLE TRUST, a Massachusetts business trust having its principal
office and place of business at 680 East Swedesford Road, Wayne, Pennsylvania
19087, (the "Trust"), on behalf of the portfolios (individually referred to
herein as a "Fund" and collectively as "Funds") of the Trust, and FEDERATED
SERVICES COMPANY, a Delaware business trust, having its principal office and
place of business at Federated Investors Tower, Pittsburgh, Pennsylvania
15222-3779 (the "Company").
WHEREAS, the Trust is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act"),
with authorized and issued shares of capital stock or beneficial interest
("Shares"); and
WHEREAS, the Trust desires to appoint the Company as its transfer agent,
dividend disbursing agent, and agent in connection with certain other
activities, and the Company desires to accept such appointment; and
NOW THEREFORE, in consideration of the premises and mutual covenants herein
contained, and intending to be legally bound hereby, the parties hereto agree as
follows:
SECTION ONE: SHAREHOLDER RECORDKEEPING.
Article 1. TERMS OF APPOINTMENT
Subject to the terms and conditions set forth in this Agreement, the Trust
hereby appoints the Company to act as, and the Company agrees to act as,
transfer agent and dividend disbursing agent for each Fund's Shares, and agent
in connection with any accumulation, open-account or similar plans provided to
the shareholders of any Fund ("Shareholder(s)"), including without limitation
any periodic investment plan or periodic withdrawal program.
As used throughout this Agreement, a "Proper Instruction" means a writing
signed or initialed by one or more person or persons as the Board shall have
from time to time authorized. Each such writing shall set forth the specific
transaction or type of transaction involved. Oral instructions will be deemed
to be Proper Instructions if (a) the Company reasonably believes them to have
been given by a person previously authorized in Proper Instructions to give such
instructions with respect to the transaction involved, and (b) the Trust, or the
Fund, and the Company promptly cause such oral instructions to be confirmed in
writing. Proper Instructions may include communications effected directly
between electro-mechanical or electronic devices provided that the Trust, or the
Fund, and the Company are satisfied that such procedures afford adequate
safeguards for the Fund's assets. Proper Instructions may only be amended in
writing.
<PAGE>
Article 2. DUTIES OF THE COMPANY
The Company shall perform the following services in accordance with Proper
Instructions as may be provided from time to time by the Trust as to any Fund:
A. Purchases
(1) The Company shall receive orders and payment for the purchase of
shares and promptly deliver payment and appropriate documentation
therefor to the custodian of the relevant Fund, (the
"Custodian"). The Company shall notify the Fund the Fund's
administrator and the Custodian on a daily basis of the total
amount of orders and payments so delivered.
(2) Pursuant to purchase orders and in accordance with the Fund's
current Prospectus, the Company shall compute and issue the
appropriate number of Shares of each Fund and/or Class and hold
such Shares in the appropriate Shareholder accounts.
(3) In the event that any check or other order for the purchase of
Shares of the Fund and/or Class is returned unpaid for any
reason, the Company shall debit the Share account of the
Shareholder by the number of Shares that had been credited to its
account upon receipt of the check or other order, promptly mail a
debit advice to the Shareholder, and notify the Fund and/or Class
of its action. In the event that the amount paid for such Shares
exceeds proceeds of the redemption of such Shares plus the amount
of any dividends paid with respect to such Shares, the Fund
and/the Class or its distributor will reimburse the Company on
the amount of such excess.
(4) The Company shall only accept purchase orders from states in
which it has been notified by the Fund that the shares of the
Trust, a Fund or a Class are registered. The Fund shall provide
the Company with a listing of the states where the Trust, a Fund
or a Class are registered on a periodic basis.
B. Distribution
(1) Upon notification by the Funds of the declaration of any
distribution to Shareholders, the Company shall act as Dividend
Disbursing Agent for the Funds in accordance with the provisions
of its governing document and the then-current Prospectus of the
Fund. The Company shall prepare and mail or credit income,
capital gain, or any other payments to Shareholders. As the
Dividend Disbursing Agent, the Company shall, on or before the
payment date of any such distribution, notify the Custodian of
Page 2
<PAGE>
the estimated amount required to pay any portion of said
distribution which is payable in cash and request the Custodian
to make available sufficient funds for the cash amount to be paid
out. The Company shall reconcile the amounts so requested and
the amounts actually received with the Custodian on a daily
basis. If a Shareholder is entitled to receive additional Shares
by virtue of any such distribution or dividend, appropriate
credits shall be made to the Shareholder's account; and
(2) The Company shall maintain records of account for each Fund and
Class and advise the Trust, each Fund and Class and its
Shareholders as to the foregoing.
C. Redemptions and Transfers
(1) The Company shall receive redemption requests and redemption
directions and, if such redemption requests comply with the
procedures as may be described int he Fund Prospectus or set
forth in Proper Instructions, deliver the appropriate
instructions therefor to the Custodian. The Company shall notify
the Funds on a daily basis of the total amount of redemption
requests processed and monies paid to the Company by the
Custodian for redemptions.
(2) At the appropriate time upon receiving redemption proceeds from
the Custodian with respect to any redemption, the Company shall
pay or cause to be paid the redemption proceeds in the manner
instructed by the redeeming Shareholders, pursuant to procedures
described in the then-current Prospectus of the Fund.
(3) The Company shall effect transfers of Shares by the registered
owners thereof.
(4) The Company shall identify and process abandoned accounts and
uncashed checks for state escheat requirements on an annual basis
and report such actions to the Fund.
D. Recordkeeping
(1) The Company shall record the issuance of Shares of each Fund,
and/or Class, and maintain pursuant to applicable rules of the
Securities and Exchange Commission ("SEC") a record of the total
number of Shares of the fund and/or Class which are authorized,
based upon data provided to it by the Fund, and issued and
outstanding. The Company shall also provide the Fund on a
regular basis or upon reasonable request with the total number of
Shares which are authorized and issued and outstanding,
Page 3
<PAGE>
but shall have no obligation when recording the issuance of
Shares, except as otherwise set forth herein, to monitor the
issuance of such Shares or to take cognizance of any laws
relating to the issue or sale of such Shares, which functions
shall be the sole responsibility of the Funds.
(2) The Company shall establish and maintain records pursuant to
applicable rules of the SEC relating to the services to be
performed hereunder in the form and manner as agreed to by the
Trust or the Fund to include a record for each Shareholder's
account of the following:
(a) Name, address and tax identification number (and whether
such number has been certified);
(b) Number of shares held;
(c) Historical information regarding the account, including
dividends paid and date and price for all transactions;
(d) Any stop or restraining order placed against the account
(e) Information with respect to withholding in the case of a
foreign account or an account for which withholding is
required by the Internal Revenue Code;
(f) Any dividend reinvestment order, plan application, dividend
address and correspondence relating to the current
maintenance of the account;
(g) Any information required in order for the Company to perform
the calculations contemplated or required by this Agreement.
(3) The Company shall preserve any such records required to be
maintained pursuant to the rules of the SEC for the periods
prescribe din said rules as specifically noted below. Such
record retention shall be at the expense of the Company, and such
records may be inspected by the Fund at reasonable times. The
Company may, at is option at any time, and shall forthwith upon
the Fund's demand, turn over to the Fund and cease to retain in
the Company's files, records and documents created and maintained
by the Company pursuant to this Agreement, which are no longer
needed by the Company in performance of its services or for its
protection. If not so turned over to the Fund, such records and
documents will be retained by the Company for six years from the
year of creation, during the first two of which such documents
will be in readily accessible form. At the end of the six year
period, such records and documents will
Page 4
<PAGE>
either be turned over to the Fund or destroyed in accordance with
Proper Instructions.
E. Confirmations/Reports
(1) The Company shall furnish to the Fund periodically the following
information:
(a) A copy of the transaction register to the Fund's
distributor;
(b) Dividend and reinvestment blotters;
(c) Shareholder lists and statistical information;
(d) Payments to third parties relating to distribution
agreement, allocations of sales loads, redemption fees, or
other transaction-or sales-related payments;
(e) Such other information as may be agreed upon from time to
time.
(2) The Company shall prepare in the appropriate form, file with the
Internal Revenue Service and appropriate state agencies, and, if
required, mail to Shareholders, such notices for reporting
dividends and distributions paid as are required to be so filed
and mailed and shall withhold such sums as are required to be
withheld under applicable federal and state income tax laws,
rules and regulations.
(3) In addition to and not in lieu of the services set forth above,
the Company perform all of the customary services of a transfer
agent, dividend disbursing agent and, as relevant, agent in
connection with accumulation, open-account or similar plans
(including without limitation any periodic investment plan or
periodic withdrawal program), including but not limited to:
maintaining all Shareholder accounts, withholding taxes on
accounts subject to back-up or other withholding (including non-
resident alien accounts), preparing and filing reports on U.S.
Treasury Department Form 1099 and other appropriate forms
required with respect to dividends and distributions by federal
authorities for all Shareholders, preparing and mailing
confirmation forms and statements of account to Shareholders for
all purchases and redemptions of Shares and other confirmable
transactions in Shareholder accounts, preparing and mailing
activity statements for Shareholders and providing Shareholder
account information; and
Page 5
<PAGE>
F. Other Duties
(1) The Company shall answer correspondence from Shareholders
relating to their Share accounts and such other correspondence as
may from time to time be addressed to the Company;
(2) The Company shall prepare Shareholder meeting lists, mail proxy
cards and other material supplied to it by the Fund in connection
with Shareholder Meetings of each Fund; receive, examine and
tabulate returned proxies, and certify the vote of the
Shareholders;
(3) The Company shall establish and maintain facilities and
procedures for safekeeping of check forms and facsimile signature
imprinting devices, if any; and for the preparation or use, and
for keeping account of, such certificates, forms and devices.
Article 3. DUTIES OF THE TRUST
A. Compliance
The Trust or Fund assume full responsibility for the preparation,
contents and distribution of their own and/or their classes'
Prospectus and for complying with all applicable requirements of the
Securities Act of 1933, as amended (the "1933 Act"), the 1940 Act and
any laws, rules and regulations of government authorities having
jurisdiction.
B. Distributions
The Fund shall promptly inform the Company of the declaration of any
dividend or distribution on account of any Fund's shares.
Article 4. COMPENSATION AND EXPENSES
A. Annual Fee
For performance by the Company pursuant to Section Two of this
Agreement, the Trust and/or the Fund agree to pay the Company an
annual maintenance fee for each Shareholder account as set out in
Schedule A, attached hereto, s may be added or amended from time to
time. Such fees may be changed from time to time subject to written
agreement between the Trust and the Company. Pursuant to information
in the Fund Prospectus or other information or instructions from the
Fund, the Company may sub-divide any Fund into Classes or other sub-
Page 6
<PAGE>
components for recordkeeping purposes. The Company will charge the
Fund the fees set forth on Schedule A for each such Class or sub-
component the same as if each were a Fund.
B. Reimbursements
In addition to the fee paid under Article 4A above, the Trust and/or
Fund agree to reimburse the Company for out-of-pocket expenses or
advances incurred by the Company for the items set out in Schedule D
attached hereto, as may be added or amended from time to time. In
addition, any other expenses incurred by the Company at the request or
with the consent of the Trust and/or the Fund, will be reimbursed by
the appropriate Fund.
C. Payment
The Company shall send an invoice with respect to fees and
reimbursable expenses to the Trust or each of the Funds as soon as
practicable at the end of each month. Each invoice will provide
detailed information about the Compensation and out-of-pocket expenses
in accordance with Schedules A and Schedules B. The Trust or the
Funds will pay to the Company the amount of such invoice within 30
days following the receipt of the invoices
Article 5. ASSIGNMENT OF SHAREHOLDER RECORDKEEPING
Except as provided below, no right or obligation under this Section
Two may be assigned by either party without the written consent of the
other party.
(1) This Agreement shall inure to the benefit of and be binding upon
the parties and their respective permitted successors and
assigns.
(2) The Company may without further consent ont he part of the Trust
subcontract for the performance hereof; provided, however, that
the Company shall be as fully responsible to the Trust for the
acts and omissions of any subcontractor as it is for its own acts
and omissions;
Page 7
<PAGE>
SECTION TWO: GENERAL PROVISIONS.
Article 6. DOCUMENTS
A. In connection with the appointment of the Company under this
Agreement, the Trust shall file with the Company the following
documents:
(1) A copy of the Charter and By-Laws of the Trust and all amendments
thereto;
(2) A copy of the resolution of the Board of the Trust authorizing
this Agreement;
(3) Specimens of all forms of outstanding Share certificates of the
Trust or the Funds in the forms approved by the Board of the
Trust with a certificate of the Secretary of the Trust as to such
approval;
(4) All account application forms and other documents relating to
Shareholders accounts; and
(5) A copy of the current Prospectus for each Fund.
B. The Fund will also furnish from time to time the following documents:
(1) Each resolution of the Board of the Trust authorizing the
original issuance of each Fund's, and/or Class' Shares;
(2) Each Registration Statement filed with the SEC and amendments
thereof and orders relating thereto in effect with respect to the
sale of Shares of any Fund, and/or Class;
(3) A certified copy of each amendment to the governing document and
the By-Laws of the Trust;
(4) Certified copies of each vote of the Board authorizing officers
to give Proper Instructions to the Custodian and agents for fund
accountant, custody services procurement, and shareholder
recordkeeping or transfer agency services;
(5) Specimens of all new Share certificates representing Shares of
any Fund, accompanied by Board resolutions approving such forms;
Page 8
<PAGE>
(6) Such other certificates, documents or opinions which the Company
may, in its discretion, deem necessary or appropriate in the
proper performance of its duties; and
(7) Revisions to the Prospectus of each Fund.
Article 7. REPRESENTATIONS AND WARRANTIES
A. Representations and Warranties of the Company
The Company represents and warrants to the Trust that:
(1) It is a business trust duly organized and existing and in good
standing under the laws of the State of Delaware.
(2) It is duly qualified to carry on its business in the State of
Delaware.
(3) It is empowered under applicable laws and by its charter and
by-laws to enter into and perform this Agreement.
(4) All requisite corporate proceedings have been taken to authorize
it to enter into and perform its obligations under this
Agreement.
(5) It has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and
obligations under this Agreement.
(6) It is in compliance with federal securities law requirements and
in good standing as a transfer agent.
B. Representations and Warranties of the Trust
The Trust represents and warrants to the Company that:
(1) It is an investment company duly organized and existing and in
good standing under the laws of its state of organization;
(2) It is empowered under applicable laws and by its Declaration of
Trust and By-Laws to enter into and perform its obligations under
this Agreement;
(3) All corporate proceedings required by said Declaration of Trust
and By-Laws have been taken to authorize it to enter into and
perform its obligations under this Agreement.
Page 9
<PAGE>
(4) The Trust is an investment company registered under the 1940 Act;
and
(5) A registration statement under the 1933 Act will be effective,
and appropriate state securities law filings have been made and
will continue to be made, with respect to all Shares of each Fund
being offered for sale.
Article 8. INDEMNIFICATION.
A. Indemnification by Trust.
The Company shall not be responsible for and the Trust or Fund shall
indemnify and hold the Company, including its officers, directors,
shareholders and their agents employees and affiliates, harmless against
any and all losses, damages, costs, charges, counsel fees, payments,
expenses and liabilities arising out of or attributable to:
(1) The acts or omissions of any Custodian;
(2) The Trust's or Fund's refusal or failure to comply with the terms
of this Agreement, or which arise out of the Trust's or the
Fund's lack of good faith, negligence or willful misconduct or
which arise out of the breach of any representation or warranty
of the Trust or Fund hereunder or otherwise.
(3) The reliance on or use by the Company or its agents or
subcontractors of information, records and documents in proper
form which
(a) are received by the Company or its agents or subcontractors
and furnished to it by or on behalf of the Fund, its
Shareholders or investors regarding the purchase, redemption
or transfer of Shares and Shareholder account information;
or
(b) have been prepared and/or maintained by the Fund or its
affiliates or any other person or firm on behalf of the
Trust.
(4) The reliance on, or the carrying out by the Company or its agents
or subcontractors of Proper Instructions of the Trust or the
Fund.
(5) The offer or sale of Shares in violation of any requirement under
the federal securities laws or regulations or the securities laws
or regulations of any state that such Shares be registered in
such state, unless Company has been notified that Shares are not
registered in such state, or in violation of any stop order or
other determination or ruling by any federal
Page 10
<PAGE>
agency or any state with respect to the offer or sale of such
Shares in such state.
Provided, however, that the Company shall not be protected by this
Article 8.A. from liability for any act or omission resulting from the
Company's willful misfeasance, bad faith, gross negligence or reckless
disregard of its duties.
B. Indemnification by the Company
The Company shall indemnify and hold the Trust or each Fund harmless
from and against any and all losses, damages, costs, charges, counsel
fees, payments, expenses and liabilities arising out of or
attributable to any action or failure or omission to act by the
Company as a result of the Company's willful misfeasance, bad faith,
gross negligence or reckless disregard of its duties.
C. Reliance
At any time the Company may apply to any officer of the Trust or Fund
for instructions, and may consult with legal counsel with respect to
any matter arising in connection with the services to be performed by
the Company under this Agreement, and the Company and its agents or
subcontractors shall not be liable and shall be indemnified by the
Trust or the appropriate Fund for any action reasonably taken or
omitted by it in reliance upon such instructions or upon the opinion
of such counsel provided such action is not in violation of applicable
federal or state laws or regulations. The Company, its agents and
subcontractors shall be protected and indemnified in recognizing stock
certificates which are reasonably believed to bear the proper manual
or facsimile signatures of the officers of the Trust or the Fund, and
the proper countersignature of any former transfer agent or registrar,
or of a co-transfer agent or co-registrar.
D. Notification
In order that the indemnification provisions contained in this Article
8 shall apply, upon the assertion of a claim for which either party
may be required to indemnify the other, the party seeking
indemnification shall promptly notify the other party of such
assertion, and shall keep the other party advised with respect to all
developments concerning such claim. The party who may be required to
indemnify shall have the option to participate with the party seeking
indemnification in the defense of such claim. The party seeking
indemnification shall in no case confess any claim or make any
compromise in any case in which the other party may be required to
indemnify it except with the other party's prior written consent.
Page 11
<PAGE>
Article 9. TERMINATION OF AGREEMENT.
This Agreement may be terminated by either party upon one hundred twenty
(120) days written notice to the other. Should the rust exercise its rights to
terminate, all out-of-pocket expenses associated with the movement of records
and materials will be borne by the Trust or the appropriate Fund. Additionally,
the Company reserves the right to charge for any other reasonable expenses
associated with such termination. The provisions of Article 15 shall survive
the termination of this Agreement.
Article 10. AMENDMENT.
This Agreement may be amended or modified by a written agreement executed
by both parties.
Article 11. INTERPRETIVE AND ADDITIONAL PROVISIONS.
In connection with the operation of this Agreement, the Company and the
Trust may from time to time agree on such provisions interpretive of or in
addition to the provisions of this Agreement as may in their joint opinion be
consistent with the general tenor of this Agreement. Any such interpretive or
additional provisions shall be in a writing signed by both parties and shall be
annexed hereto, PROVIDED that no such interpretive or additional provisions
shall contravene any applicable federal or state regulations or any provision of
the Charter. No interpretive or additional provisions made as provided in the
preceding sentence shall be deemed to be an amendment of this Agreement.
Article 12. GOVERNING LAW.
This Agreement shall be construed and the provisions hereof interpreted
under and in accordance with the laws of the Commonwealth of Pennsylvania.
Article 13. NOTICES.
Except as otherwise specifically provided herein, Notices and other
writings delivered or mailed postage prepaid to the Trust at 680 East Swedesford
Road, Wayne, Pennsylvania 19087, or to the Company at Federated Investors Tower,
Pittsburgh, Pennsylvania, 15222-3779, or to such other address as the Trust or
the Company may hereafter specify, shall be deemed to have been properly
delivered or given hereunder to the respective address.
Page 12
<PAGE>
Article 14. COUNTERPARTS.
This Agreement may be executed simultaneously in two or more counterparts,
each of which shall be deemed an original.
Article 15. LIMITATIONS OF LIABILITY OF TRUSTEES AND SHAREHOLDERS OF THE TRUST
The execution and delivery of this Agreement have been authorized by the
Trustees of the Trust and signed by an authorized officer of the Trust, acting
as such, and neither such authorization by such Trustees nor such execution and
delivery by such officer shall be deemed to have been made by any of them
individually or to impose any liability on any of them personally, and the
obligations of this Agreement are not binding upon any of the Trustees or
Shareholders of the Trust, but bind only the appropriate property of the Fund,
or Class, as provided in the Declaration of Trust.
Article 16. LIMITATIONS OF LIABILITY OF TRUSTEES AND SHAREHOLDERS OF THE
COMPANY.
The execution and delivery of this Agreement have been authorized by the
Trustees of the Company and signed by an authorized officer of the Company,
acting as such, and neither such authorization by such Trustees nor such
execution and delivery by such officer shall be deemed to have been made by any
of them individually or to impose any liability on any of them personally, and
the obligations of this Agreement are not binding upon any of the Trustees or
Shareholders of the Company, but bind only the property of the Company as
provided in the Declaration of Trust.
Article 17. ASSIGNMENT
This Agreement and the rights and duties hereunder shall not be assignable
with respect to the Trust or the Funds by either of the parties hereto except by
the specific written consent of the other party.
Article 18. MERGER OF AGREEMENT.
This Agreement constitutes the entire agreement between the parties hereto
and supersedes any prior agreement with respect to the subject hereof whether
oral or written.
Page 13
<PAGE>
Article 19. SUCCESSOR AGENT.
If a successor agent for the Trust shall be appointed by the Trust, the
Company shall upon termination of this Agreement deliver to such successor agent
at the office of the Company all properties of the Trust held by it hereunder.
If no such successor agent shall be appointed, the Company shall at its office
upon receipt of Proper Instructions deliver such properties in accordance with
such instructions.
In the event that no written order designating a successor agent or Proper
Instructions shall have been delivered to the Company on or before the date when
such termination shall become effective, then the company shall have the right
to deliver to a bank or trust company, which is a "bank" as defined in the 1940
Act, of its own selection, having an aggregate capital, surplus, and undivided
profits, as shown by its last published report, of not less than $2,000,000, all
properties held by the Company under this Agreement. Thereafter, such bank or
trust company shall be the successor of the Company under this Agreement.
Article 20. FORCE MAJEURE.
The Company shall have no liability for cessation of services hereunder or
any damages resulting therefrom to the Fund as a result of work stoppage, power
or other mechanical failure, natural disaster, governmental action,
communication disruption or other impossibility of performance.
Article 21. ASSIGNMENT SUCCESSORS.
This Agreement shall not be assigned by either party without the prior
written consent of the other party, except that either party may assign to a
successor all of or a substantial portion of its business, or to a party
controlling, controlled by, or under common control with such party. Nothing in
this Article 22 shall prevent the Company from delegating its responsibilities
to another entity to the extent provided herein.
Article 22. SEVERABILITY.
In the event any provision of this Agreement is held illegal, void or
unenforceable, the balance shall remain in effect.
Page 14
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their names and on their behalf under their seals by and through
their duly authorized officers, as of the day and year first above written.
ATTEST: STI CLASSIC VARIABLE TRUST
Signature __________________________ Signature____________________________
Typed Name Typed Name
-------------------------- --------------------------
Title: Assistant Secretary Title: Vice President
ATTEST: FEDERATED SERVICES COMPANY
- ------------------------------------ ------------------------------------
Jeannette Fisher-Garber R. Jeffrey Niss
Secretary Sr. Vice President
Page 15
<PAGE>
Schedule A
STI CLASSIC VARIABLE TRUST
Fees and Expenses
Shareholder Recordkeeping
I. TRANSFER AGENCY SERVICES (includes system access and funds control and
reconcilement)
ACCOUNT FEES(*)
- - Daily dividend fund $16.00
- - Non-Daily dividend fund $10.00
- - Contingent Deferred Sales Charge
(Additional charge for non-daily dividend funds only) $ 5.00
- - Closed Accounts(*) $ 1.32
MINIMUM FEES(*)
The charge for each fund, class or other subdivision will be the actual account
fees or $11,000, whichever is greater.
II. SHAREHOLDER SERVICES (Services or features not covered above)
- - Account Activity Processing
(includes account establishment,
transaction and maintenance processing) $ 3.50
- - Accounting Servicing
(includes shareholder servicing and correspondence) $ 4.50
- -------------------
* ALL FEES ARE ANNUALIZED AND WILL BE PRORATED ON A MONTHLY BASIS FOR BILLING
PURPOSES. OUT-OF-POCKET EXPENSES ARE NOT COVERED BY
THESE FEES.
<PAGE>
SCHEDULE B
STI CLASSIC VARIABLE TRUST
Out-of-Pocket Expenses Schedule
Out-of-Pocket Expenses include, but are not limited to, the following:
-- Postage (including overnight courier service)
-- Statement Stock
-- Envelopes
-- Telecommunication Charges (including FAX and Dedicated Line Charges)
-- Travel
-- Duplicating
-- Forms
-- Supplies
-- Microfiche
-- Computer Access Charges
-- Customized Programming and Reporting
-- Disaster Recovery
-- Other as Incurred
<PAGE>
[Morgan, Lewis & Bockius Letterhead]
April 21, 1995
STI Classic Variable Trust
2 Oliver Street
Boston, MA 02109
Ladies and Gentlemen:
We are furnishing this opinion with respect to the proposed offer and sale
from time to time of an indefinite number of shares, with no par value (the
"Shares"), of STI Classic Variable Trust (the "Trust"), a Massachusetts
business trust, in registration under the Securities Act of 1933 by a
Registration Statement on Form N-1A (File No. 33-91476; 811-9032) as amended
from time to time (the "Registration Statement").
We have acted as counsel to the Trust since its inception, and we are
familiar with the actions taken by its Trustees to authorize the issuance of
the Shares. We have reviewed the By-laws and the minute books of the Trust,
and such other certificates, documents and opinions of counsel as we deem
necessary for the purpose of this opinion.
We have reviewed the Trust's Notification of Registration on Form N-8A under
the Investment Company Act of 1940. We have assisted in the preparation of
the Trust's Registration Statement, including all pre-effective amendments
thereto, filed or to be filed with the Securities and Exchange Commission.
In our review we have assumed the genuineness of all signatures, the
authenticity and completeness of all documents purporting to be orginals
(whether reviewed by us in original or in copy form), and the conformity to
the originals of all doucments purporting to be copies.
We have assumed the appropriate action will be taken to register or qualify
the sale of the Shares under any applicable state and federal laws regulating
sales and offerings of securities.
Based upon the foregoing, we are of the opinion that:
1. The Trust is a business trust validly existing under the laws of
the Commonwealth of Massachusetts. The Trust is authorized under its
Declaration of Trust to issue an unlimited
<PAGE>
April 21, 1995
Page 2
number of Shares in series representing interests in the Investment Grade
Bond Fund, Capital Growth Fund, Value Income Stock Fund, and Mid-Cap Equity
Fund, and in such other series or classes as the Trustees may hereafter duly
authorize.
2. Upon the issuance of any Shares of any of the series or classes of
the Trust for payment therefor as described in, and in accordance with the
Registration Statement and the Declaration of Trust and By-laws of the Trust,
the Shares so issued will be validly issued, fully paid and non-assessable,
except that, as set forth in the Registration Statement, shareholders of the
Shares of the Trust may under certain circumstances be held personally liable
for its obligations.
This opinion is intended only for your use in connection with the offering
of Shares and may not be relied upon by an other person.
We hereby consent to the inclusion of this opinion as Exhibit 10 to the
Trust's Registration Statement to be filed with the Securities and Exchange
Commission and to the reference to our firm under the caption "Counsel and
Independent Accountants" in the Prospectus and Statement of Additional
Information filed as part of such Registration Statement.
Very truly yours,
/s/ Morgan, Lewis & Bockius LLP
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent in the use in this
registration statement of our report dated February 9, 1996 included in
the Post-Effective Amendment No. 1 to the Registration Statement on
Form N-1A of the STI Classic Variable Trust (No. 33-91476), and to all
references to our Firm included in this Registration Statement File No.
33-91476.
Philadelphia, PA,
March 29, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000944487
<NAME> STI CLASSIC VARIABLE ANNUITY TRUST FUND
<SERIES>
<NUMBER> 011
<NAME> CAPITAL GROWTH
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 3755
<INVESTMENTS-AT-VALUE> 3951
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 0
<PAYABLE-FOR-SECURITIES> 99
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 74
<TOTAL-LIABILITIES> 173
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3595
<SHARES-COMMON-STOCK> 355
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (13)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 196
<NET-ASSETS> 3778
<DIVIDEND-INCOME> 11
<INTEREST-INCOME> 10
<OTHER-INCOME> 0
<EXPENSES-NET> (8)
<NET-INVESTMENT-INCOME> 13
<REALIZED-GAINS-CURRENT> (13)
<APPREC-INCREASE-CURRENT> 196
<NET-CHANGE-FROM-OPS> 196
<EQUALIZATION> 3595
<DISTRIBUTIONS-OF-INCOME> (13)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 354
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 1
<NET-CHANGE-IN-ASSETS> 3778
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 8
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 45
<AVERAGE-NET-ASSETS> 2954
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.04
<PER-SHARE-GAIN-APPREC> 0.66
<PER-SHARE-DIVIDEND> (.04)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.66
<EXPENSE-RATIO> 1.15
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000944487
<NAME> STI VARIABLE ANNUITY TRUST FUNDS
<SERIES>
<NUMBER> 021
<NAME> VALUE INCOME
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 3808
<INVESTMENTS-AT-VALUE> 4005
<RECEIVABLES> 79
<ASSETS-OTHER> 17
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 4101
<PAYABLE-FOR-SECURITIES> 40
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 46
<TOTAL-LIABILITIES> 86
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3813
<SHARES-COMMON-STOCK> 376
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 5
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 197
<NET-ASSETS> 4015
<DIVIDEND-INCOME> 24
<INTEREST-INCOME> 6
<OTHER-INCOME> 0
<EXPENSES-NET> (7)
<NET-INVESTMENT-INCOME> 23
<REALIZED-GAINS-CURRENT> 5
<APPREC-INCREASE-CURRENT> 197
<NET-CHANGE-FROM-OPS> 225
<EQUALIZATION> 3813
<DISTRIBUTIONS-OF-INCOME> (23)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 374
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 2
<NET-CHANGE-IN-ASSETS> 4015
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 6
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 43
<AVERAGE-NET-ASSETS> 3016
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.06
<PER-SHARE-GAIN-APPREC> 0.67
<PER-SHARE-DIVIDEND> (0.06)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.67
<EXPENSE-RATIO> 0.95
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000944487
<NAME> STI VARIABLE ANNUITY TRUST FUNDS
<SERIES>
<NUMBER> 031
<NAME> AGGRESSIVE GROWTH
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 3320
<INVESTMENTS-AT-VALUE> 3386
<RECEIVABLES> 45
<ASSETS-OTHER> 18
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3449
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 40
<TOTAL-LIABILITIES> 40
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3334
<SHARES-COMMON-STOCK> 332
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 9
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 66
<NET-ASSETS> 3409
<DIVIDEND-INCOME> 20
<INTEREST-INCOME> 4
<OTHER-INCOME> 0
<EXPENSES-NET> (8)
<NET-INVESTMENT-INCOME> 16
<REALIZED-GAINS-CURRENT> 9
<APPREC-INCREASE-CURRENT> 66
<NET-CHANGE-FROM-OPS> 91
<EQUALIZATION> 3409
<DISTRIBUTIONS-OF-INCOME> (16)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 330
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 2
<NET-CHANGE-IN-ASSETS> 3409
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 8
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 45
<AVERAGE-NET-ASSETS> 2861
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0.27
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.27
<EXPENSE-RATIO> 1.15
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000944487
<NAME> STI VARIABLE ANNUITY TRUST FUNDS
<SERIES>
<NUMBER> 041
<NAME> INVESTMENT GRADE BOND FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 2986
<INVESTMENTS-AT-VALUE> 3056
<RECEIVABLES> 78
<ASSETS-OTHER> 17
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3151
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 36
<TOTAL-LIABILITIES> 36
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3045
<SHARES-COMMON-STOCK> 304
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 70
<NET-ASSETS> 3115
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 40
<OTHER-INCOME> 0
<EXPENSES-NET> (5)
<NET-INVESTMENT-INCOME> 35
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 70
<NET-CHANGE-FROM-OPS> 105
<EQUALIZATION> 3045
<DISTRIBUTIONS-OF-INCOME> (35)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 301
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 3
<NET-CHANGE-IN-ASSETS> 3115
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 5
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 42
<AVERAGE-NET-ASSETS> 2796
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.13
<PER-SHARE-GAIN-APPREC> 0.25
<PER-SHARE-DIVIDEND> (0.13)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.25
<EXPENSE-RATIO> 0.75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
