<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 30, 1999
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. 7
and
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 /X/
AMENDMENT NO. 8
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) 676-1000
MARK NAGLE
C/O SEI INVESTMENTS COMPANY
OAKS, PENNSYLVANIA 19456
(Name and Address of Agent for Service)
Copies to:
RICHARD W. GRANT, ESQ. JOHN H. GRADY, JR., ESQ.
MORGAN, LEWIS & BOCKIUS LLP MORGAN, LEWIS & BOCKIUS LLP
1701 MARKET STREET 1701 MARKET STREET
PHILADELPHIA, PENNSYLVANIA 19103 PHILADELPHIA, PENNSYLVANIA 19103
It is proposed that this filing will become effective (check appropriate box)
X immediately upon filing pursuant to paragraph (b)
- ----
on ______________ 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
- ----
<PAGE>
STI CLASSIC VARIABLE TRUST
PROSPECTUS
MAY 1, 1999
CAPITAL APPRECIATION FUND
INTERNATIONAL EQUITY FUND
INVESTMENT GRADE BOND FUND
MID-CAP EQUITY FUND
SMALL CAP EQUITY FUND
VALUE INCOME STOCK FUND
INVESTMENT ADVISOR
STI CAPITAL MANAGEMENT, N.A.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED ANY FUND SHARES
OR DETERMINED WHETHER THIS PROSPECTUS IS ACCURATE OR COMPLETE.
IT IS A CRIME FOR ANYONE TO TELL YOU OTHERWISE.
Page 1 of 32
<PAGE>
HOW TO READ THIS PROSPECTUS
The STI Classic Variable Trust is a mutual fund family that offers shares in a
number of separate investment portfolios (Funds). The Funds have individual
investment goals and strategies. 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).
This prospectus gives you important information about the Capital Appreciation,
International Equity, Investment Grade Bond, Mid-Cap Equity, Small Cap Equity,
and Value Income Stock Funds that you should know before investing. Please read
this prospectus in conjunction with the Contract prospectus and keep it for
future reference.
This prospectus has been arranged into different sections so that you can easily
review this important information. On the next page, there is some general
information you should know about the Funds.
For more detailed information about each Fund, please see:
PAGE
CAPITAL APPRECIATION FUND XXX
INTERNATIONAL EQUITY FUND XXX
INVESTMENT GRADE BOND FUND XXX
MID-CAP EQUITY FUND XXX
SMALL CAP EQUITY FUND XXX
VALUE INCOME STOCK FUND XXX
MORE INFORMATION ABOUT RISK XXX
EACH FUND'S PRINCIPAL INVESTMENTS XXX
THE INVESTMENT ADVISOR AND PORTFOLIO MANAGERS XXX
PURCHASING AND SELLING FUND SHARES XXX
FINANCIAL HIGHLIGHTS XXX
DIVIDENDS, DISTRIBUTIONS AND TAXES XXX
HOW TO OBTAIN MORE INFORMATION ABOUT THE
STI CLASSIC VARIABLE TRUST BACK COVER
FOR INFORMATION ABOUT KEY TERMS AND CONCEPTS, LOOK FOR OUR "SIMPLY SPEAKING"
EXPLANATIONS.
Page 2 of 32
<PAGE>
INTRODUCTION
Each Fund is a mutual fund. A mutual fund pools shareholders' money and, using
professional investment managers, invests it in securities. Before you invest,
you should know a few things about investing in mutual funds.
The value of your investment in a Fund is based on the market value of the
securities the Fund holds. These prices change daily due to economic and other
events that affect particular companies and other issuers. These price
movements, sometimes called volatility, may be greater or lesser depending on
the types of securities the Fund owns and the markets in which they trade. The
effect on a Fund of a change in the value of a single security will depend on
how widely the Fund diversifies its holdings.
Each Fund has its own investment goal and strategies for reaching that goal.
The Advisor invests Fund assets in a way that the Advisor believes will help the
Fund achieve its goal. Still, investing in the Funds involves risks, and there
is no guarantee that a Fund will achieve its goal. The Advisor's judgments
about the markets, the economy, or companies may not anticipate actual market
movements, economic conditions or company performance, and these judgments may
affect the return on your investment. In fact, no matter how good a job the
Advisor does, you could lose money on your investment in the Fund, just as you
could with other investments. A Fund share is not a bank deposit, and it is not
insured or guaranteed by the FDIC or any government agency.
Page 3 of 32
<PAGE>
CAPITAL APPRECIATION FUND
FUND SUMMARY
Investment Goal Capital appreciation
Investment Focus U.S. common stocks
Share Price Volatility Medium
Principal Investment Strategy Attempts to identify companies with
above average growth potential
Investor Profile Investors who want the value of their
investment to grow, but do not need to
receive income on their investment
TOP 5 HOLDINGS AS OF MARCH 31, 1999*
<TABLE>
<S> <C>
General Electric Company 3.8%
International Business Machines Corporation 2.7%
Microsoft Corporation 2.4%
Lowe's Companies Incorporated 2.2%
Cisco Systems Incorporated 2.1%
</TABLE>
*Holdings may vary
INVESTMENT STRATEGY
The Capital Appreciation Fund invests primarily in U.S. common stocks and other
equity securities that we believe are undervalued by the stock market. In
selecting investments for the Fund, we choose companies that we believe have
above average growth potential. We rotate the Fund's investments among various
market sectors based on our research of business cycles. Our strategy focuses
on large-cap stocks with a strong growth history. Due to its investment
strategy, the Fund may buy and sell securities frequently. This may result in
higher transaction costs.
WHAT ARE THE RISKS OF INVESTING IN THIS FUND?
The Fund invests primarily in U.S. common stocks. As a result, the Fund is
subject to the risk that stock prices will fall over short or extended periods
of time. Stock markets tend to move in cycles, with periods of rising prices
and periods of falling prices. This price volatility is the principal risk of
investing in the Fund.
Page 4 of 32
<PAGE>
PERFORMANCE INFORMATION
The bar chart and the performance table below illustrate the risks and
volatility of an investment in the Fund. Of course, the Fund's past performance
does not necessarily indicate how the Fund will perform in the future.
THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S SHARES FROM YEAR
TO YEAR FOR 3 YEARS. THE BAR CHART DOES NOT REFLECT THE IMPACT OF INSURANCE -
RELATED CHARGES AND EXPENSES IF THESE CHARGES HAD BEEN REFLECTED, RETURNS
WOULD BE LESS THAN SHOWN.
<TABLE>
<S> <C>
1996 23.75%
1997 36.54%
1998 28.97%
BEST QUARTER WORST QUARTER
22.64% -11.91%
(12/31/98) (9/30/98)
</TABLE>
THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR DECEMBER 31,
1998 TO THOSE OF THE S&P 500 INDEX.
<TABLE>
<CAPTION>
1 YEAR SINCE FUND INCEPTION
- -------------------------------------------------------------
<S> <C> <C>
Capital Appreciation Fund 28.97% 29.78%*
S&P 500 Index 28.60% 29.06%**
</TABLE>
* Since 10/2/95
** Since 10/31/95
SIMPLY SPEAKING ...
WHAT IS AN INDEX?
An index measures the market prices of a specific group of securities in a
particular market or securities in a market sector. You cannot invest directly
in an index. Unlike a mutual fund, an index does not have an investment advisor
and does not pay any commissions or expenses. If an index had expenses, its
performance would be lower. The S&P 500 Index is a widely recognized index of
500 stocks designed to mimic the overall equity market's industry weightings.
Page 5 of 32
<PAGE>
FUND EXPENSES
THIS TABLE DESCRIBES THE FUND'S EXPENSES THAT YOU MAY PAY INDIRECTLY IF YOU HOLD
FUND SHARES.
ANNUAL FUND OPERATING EXPENSES
<TABLE>
<S> <C>
Investment Advisory Fees 1.15%
Other Expenses .26%
-----
Total Annual Fund Operating Expenses 1.41%
</TABLE>
SIMPLY SPEAKING...
FUND EXPENSES
Unlike an index, every mutual fund has operating expenses to pay for
professional advisory, shareholder, distribution, administration and custody
services. The Fund's expenses in the table above are shown as a percentage of
the Fund's net assets. These expenses are deducted from the Fund's assets. The
table shows the highest expenses that could be currently charged to the Fund.
Actual expenses are lower because the Advisor is voluntarily waiving a portion
of its fees. ACTUAL INVESTMENT ADVISORY FEES AND TOTAL OPERATING EXPENSES ARE
.89% AND 1.15%, RESPECTIVELY. The Advisor could discontinue this voluntary
waiver at any time. For more information about these fees, see "Investment
Advisors."
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated and that you sell your
shares at the end of the period. The Example also assumes that each year your
investment has a 5% return and Fund expenses remain the same. Although your
actual costs and returns might be different, your approximate costs of investing
$10,000 in the Fund would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------------------------------------------------------
<S> <C> <C> <C>
$144 $446 $771 $1,691
</TABLE>
Page 6 of 32
<PAGE>
INTERNATIONAL EQUITY FUND
FUND SUMMARY
Investment Goal Long-term capital appreciation
Investment Focus Foreign common stocks
Share Price Volatility High
Principal Investment Strategy Attempts to identify undervalued
foreign companies with good
fundamentals
Investor Profile Investors who want an increase in the
value of their investment without
regard to income; are willing to accept
the increased risks of international
investing for the possibility of higher
returns; and want exposure to a
diversified portfolio of international
stocks
TOP 5 HOLDINGS AS OF MARCH 31, 1999*
<TABLE>
<S> <C>
Telecom Italia Spa 4.2%
RWE AG 2.9%
Bank of Ireland 2.5%
Nippon Telegraph & Telephone Corp 2.4%
Allied Zurich 2.0%
</TABLE>
*Holdings may vary
INVESTMENT STRATEGY
The International Equity Fund invests primarily in common stocks and other
equity securities of foreign companies. In selecting investments for the Fund,
we diversify the Fund's investments among at least three foreign countries. The
Fund invests primarily in developed countries, but may invest in countries with
emerging markets. Our "bottom-up" approach to stock selection focuses on
individual stocks and fundamental characteristics of companies. Our goal is to
find companies with top management, quality products and sound financial
positions, that are trading at a discount to their perceived value. Due to its
investment strategy, the Fund may buy and sell securities frequently. This may
result in higher transaction costs.
WHAT ARE THE RISKS OF INVESTING IN THE FUND?
The Fund invests primarily in common stocks of foreign companies. As a result,
the Fund is subject to the risk that stock prices will fall over short or
extended periods of time. Stock markets tend to move in cycles, with periods of
rising prices and periods of falling prices. This price volatility is the
principal risk of investing in the Fund. In addition, investments in foreign
markets may be more volatile than investments in U.S. markets. Diplomatic,
political or economic developments may cause foreign
Page 7 of 32
<PAGE>
investments to lose money. The value of the U.S. dollar may rise, causing
reduced returns for U.S. persons investing abroad. A foreign country may not
have the same accounting and financial reporting standards as the U.S. Foreign
stock markets, brokers and companies are generally subject to less supervision
and regulation than their U.S. counterparts. Emerging markets securities may be
even more susceptible to these risks.
PERFORMANCE INFORMATION
The bar chart and the performance table below illustrate the risks and
volatility of an investment in the Fund. Of course, the Fund's past performance
does not necessarily indicate how the Fund will perform in the future.
THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S SHARES FROM
YEAR TO YEAR FOR 2 YEARS. THE BAR CHART DOES NOT REFLECT THE IMPACT OF
INSURANCE-RELATED CHARGES AND EXPENSES. IF THESE CHARGES HAD BEEN REFLECTED,
RETURNS WOULD BE LESS THAN SHOWN.
<TABLE>
<S> <C>
1997 16.84%
1998 10.80%
BEST QUARTER WORST QUARTER
16.62% -17.68%
(12/31/98) (9/30/98)
</TABLE>
THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS
ENDING DECEMBER 31, 1998 TO THOSE OF THE MORGAN STANLEY CAPITAL INTERNATIONAL
EUROPE, AUSTRALASIA, AND FAR EAST (MSCI EAFE) INDEX.
<TABLE>
<CAPTION>
1 YEAR SINCE FUND INCEPTION
- --------------------------------------------------------------
<S> <C> <C>
International Equity Fund 10.80% 13.66%*
MSCI EAFE Index 20.00% 9.39%**
</TABLE>
* Since 11/7/96
** Since 11/30/96
SIMPLY SPEAKING...
WHAT IS AN INDEX?
An index measures the market prices of a specific group of securities in a
particular market or securities in a market sector. You cannot invest directly
in an index. Unlike a mutual fund, an index does not have an investment advisor
and does not pay any commissions or expenses. If an index had expenses, its
performance would be lower. The MSCI EAFE Index is a widely recognized index of
over 900 securities listed on the stock exchanges in Europe, Australia, and the
Far East.
Page 8 of 32
<PAGE>
FUND EXPENSES
THIS TABLE DESCRIBES THE FUND'S EXPENSES THAT YOU MAY PAY INDIRECTLY IF YOU HOLD
FUND SHARES.
ANNUAL FUND OPERATING EXPENSES
<TABLE>
<S> <C>
Investment Advisory Fees 1.25%
Other Expenses .82%
-----
Total Annual Fund Operating Expenses 2.07%
</TABLE>
SIMPLY SPEAKING ...
FUND EXPENSES
Unlike an index, every mutual fund has operating expenses to pay for
professional advisory, shareholder, distribution, administration and custody
services. The Fund's expenses in the table above are shown as a percentage of
the Fund's net assets. These expenses are deducted from the Fund's assets. The
table shows the highest expenses that could be currently charged to the Fund.
Actual expenses are lower because the Advisor is voluntarily waiving a portion
of its fees. ACTUAL INVESTMENT ADVISORY FEES AND TOTAL OPERATING EXPENSES ARE
.78% AND 1.60%, RESPECTIVELY. The Advisor could discontinue this voluntary
waiver at any time. For more information about these fees, see "Investment
Advisors."
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated and that you sell your
shares at the end of the period. The Example also assumes that each year your
investment has a 5% return and Fund expenses remain the same. Although your
actual costs and returns might be different, your approximate costs of investing
$10,000 in the Fund would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------------------------------------------------------
<S> <C> <C> <C>
$210 $649 $1,114 $2,400
</TABLE>
Page 9 of 32
<PAGE>
INVESTMENT GRADE BOND FUND
FUND SUMMARY
Investment Goal High total return through current
income and capital appreciation, while
preserving the principal amount
invested
Investment Focus Investment grade U.S. government and
corporate debt securities
Share Price Volatility Medium
Principal Investment Strategy Attempts to identify relatively
inexpensive securities in a selected
market index
Investor Profile Investors who want to receive income
from their investment, as well as an
increase in the value of the
investment
TOP 5 HOLDINGS AS OF MARCH 31, 1999*
<TABLE>
<S> <C>
United States Treasury Bond 12.7%
Government National Mortgage Association 10.5%
Government National Mortgage Association 10.1%
Government National Mortgage Association 8.3%
United States Treasury Bond 4.4%
</TABLE>
*Holdings may vary
INVESTMENT STRATEGY
The Investment Grade Bond Fund invests primarily in investment grade corporate
debt securities, U.S. Treasury obligations, securities of the U.S. government or
its agencies, and mortgage-backed securities. In selecting investments for the
Fund, we try to minimize risk while attempting to outperform selected market
indices. Currently, our selected index is the Lehman Brothers
Government/Corporate Bond Index, a widely recognized, unmanaged index of
investment grade government and corporate debt securities. We seek to invest
more in portions of the index that seem relatively inexpensive, and less in
those that seem expensive. We allocate the Fund's investments among various
market sectors based on our analysis of historical data, yield information, and
credit ratings. We anticipate that the Fund's average weighted maturity will
range from 4 to 10 years. Due to its investment strategy, the Fund may buy and
sell securities frequently. This may result in higher transaction costs.
WHAT ARE THE RISKS OF INVESTING IN THIS FUND?
The Fund invests primarily in investment grade debt securities. As a result,
the Fund is subject to the risk that the prices of debt securities will decline
due to rising interest rates or changes in credit quality. This risk is greater
for long-term debt securities than for short-term debt securities. In addition,
an issuer may be unable to make timely payments of principal or interest to the
Fund. Some investment grade debt
Page 10 of 32
<PAGE>
securities have speculative characteristics. In addition, the Fund is subject
to the risk of investing in mortgage-backed securities. See "Mortgage-Backed
Securities" below.
SIMPLY SPEAKING ...
MORTGAGED-BACKED SECURITIES
A mortgaged-backed security pools all interest and principal payments from the
underlying mortgages and pays it to the security's owner. The mortgages
underlying mortgaged-backed securities may mature or be paid off before the
stated maturity date. This has four drawbacks. First, the Fund may lose
interest income on its investment. Second, the monthly income payments to the
Fund may fluctuate. Third, we cannot predict the maturity of the Fund's
investment with certainty. Fourth, we would invest any resulting proceeds
elsewhere, generally at lower interest rates.
PERFORMANCE INFORMATION
The bar chart and the performance table below illustrate the risks and
volatility of an investment in the Fund. Of course, the Fund's past performance
does not necessarily indicate how the Fund will perform in the future.
THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S SHARES FROM
YEAR TO YEAR FOR 3 YEARS. THE BAR CHART DOES NOT REFLECT THE IMPACT OF
INSURANCE-RELATED CHARGES AND EXPENSES. IF THESE CHARGES HAD BEEN REFLECTED,
RETURNS WOULD BE LESS THAN SHOWN.
<TABLE>
<S> <C>
1996 2.29%
1997 8.84%
1998 9.38%
BEST QUARTER WORST QUARTER
5.32% -2.02%
(9/30/98) (3/31/96)
</TABLE>
THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS
ENDING DECEMBER 31, 1998 TO THOSE OF THE LEHMAN BROTHERS GOVERNMENT/CORPORATE
BOND INDEX.
<TABLE>
1 YEAR SINCE FUND INCEPTION
- --------------------------------------------------------------------------------
<S> <C> <C>
Investment Grade Bond Fund 9.38% 7.45%*
Lehman Brothers Government/Corporate Bond Index 9.47% 7.98%**
</TABLE>
* Since 10/2/95
** Since 10/31/95
SIMPLY SPEAKING ...
WHAT IS AN INDEX?
An index measures the market prices of a specific group of securities in a
particular market or securities in a market sector. You cannot invest directly
in an index. Unlike a mutual fund, an index does not have an investment advisor
and does not pay any commissions or expenses. If an index had expenses, its
performance would be lower. The Lehman Brothers Government/Corporate Bond Index
is a widely recognized index of government and corporate debt securities rated
investment grade or better, with maturities of at least 1 year.
FUND EXPENSES
Page 11 of 32
<PAGE>
THIS TABLE DESCRIBES THE FUND'S EXPENSES THAT YOU MAY PAY INDIRECTLY IF YOU HOLD
FUND SHARES.
ANNUAL FUND OPERATING EXPENSES
<TABLE>
<S> <C>
Investment Advisory Fees .74%
Other Expenses .60%
-----
Total Annual Fund Operating Expenses 1.34%
</TABLE>
SIMPLY SPEAKING ...
FUND EXPENSES
Unlike an index, every mutual fund has operating expenses to pay for
professional advisory, shareholder, distribution, administration and custody
services. The Fund's expenses in the table are shown as a percentage of the
Fund's net assets. These expenses are deducted from the Fund's assets. The
table shows the highest expenses that could be currently charged to the Fund.
Actual expenses are lower because the Advisor is voluntarily waiving a portion
of its fees. ACTUAL INVESTMENT ADVISORY FEES AND TOTAL OPERATING EXPENSES ARE
.15% AND .75%, RESPECTIVELY. The Advisor could discontinue this voluntary
waiver at any time. For more information about these fees, see "Investment
Advisors".
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated and that you sell your
shares at the end of the period. The Example also assumes that each year your
investment has a 5% return and Fund expenses remain the same. Although your
actual costs and returns might be different, your approximate costs of investing
$10,000 in the Fund would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------------------------------------------------------
<S> <C> <C> <C>
$136 $425 $734 $1,613
</TABLE>
Page 12 of 32
<PAGE>
MID-CAP EQUITY FUND
FUND SUMMARY
Investment Goal Capital appreciation
Investment Focus U.S. mid-cap common stocks
Share Price Volatility Moderate to high
Principal Investment Strategy Attempts to identify companies with
above average growth potential at an
attractive price
Investor Profile Investors who want the value of their
investment to grow and who are willing
to accept more volatility for the
possibility of higher returns
TOP 5 HOLDINGS AS OF MARCH 31, 1999*
<TABLE>
<S> <C>
Teradyne Incorporated 3.8%
ADC Telecommunications 3.3%
Family Dollar Stores 3.1%
Avis Rent A Car Incorporated 2.9%
Immunex Corporation-New 2.9%
</TABLE>
*Holdings may vary
INVESTMENT STRATEGY
The Mid-Cap Equity Fund invests primarily in a diversified portfolio of common
stocks and other equity securities of U.S. companies. In selecting investments
for the Fund, we choose companies that have small- to mid-sized market
capitalizations (i.e., companies with market capitalizations of $500 million to
$7 billion) and that offer above average growth potential at attractive prices.
We evaluate companies based on their industry sectors and the market in general.
The Fund maintains large holdings in the industries that appear to perform best
during a given business cycle. We analyze companies that are in favored
industries based on their fundamental characteristics, such as growth rates and
earnings. We do not consider current income in selecting investments for the
Fund. Due to its investment strategy, the Fund may buy and sell securities
frequently. This may result in higher transaction costs.
WHAT ARE THE RISKS OF INVESTING IN THIS FUND?
The Fund invests primarily in mid-cap common stocks. As a result, the Fund is
subject to the risk that stock prices will fall over short or extended periods
of time. Stock markets tend to move in cycles, with periods of rising prices
and periods of falling prices. This price volatility is the principal risk of
investing in the Fund. In addition, small- to mid-sized companies may be more
vulnerable to adverse business or economic events than larger, more established
companies. In particular, these companies may have somewhat limited product
lines, markets and financial resources, and may depend upon a relatively small-
to medium-sized management group.
Page 13 of 32
<PAGE>
PERFORMANCE INFORMATION
The bar chart and the performance table below illustrate the risks and
volatility of an investment in the Fund. Of course, the Fund's past performance
does not necessarily indicate how the Fund will perform in the future.
THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S SHARES FROM
YEAR TO YEAR FOR 3 YEARS. THE BAR CHART DOES NOT REFLECT THE IMPACT OF
INSURANCE-RELATED CHARGES AND EXPENSES. IF THESE CHARGES HAD BEEN REFLECTED,
RETURNS WOULD BE LESS THAN SHOWN.
<TABLE>
<S> <C>
1996 16.05%
1997 22.23%
1998 7.16%
BEST QUARTER WORST QUARTER
24.40% -19.56%
(12/31/98) (9/30/98)
</TABLE>
THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS
ENDING DECEMBER 31, 1998 TO THOSE OF THE S&P MIDCAP 400 INDEX.
<TABLE>
<CAPTION>
1 YEAR SINCE FUND INCEPTION
---------------------------------------------------------
<S> <C> <C>
Mid-Cap Equity Fund 7.16% 14.86%*
S&P MidCap 400 Index 19.12% 23.57%**
</TABLE>
* SINCE 10/2/95
** SINCE 10/31/95
SIMPLY SPEAKING...
WHAT IS AN INDEX?
An index measures the market prices of a specific group of securities in a
particular market or securities in a market sector. You cannot invest directly
in an index. Unlike a mutual fund, an index does not have an investment advisor
and does not pay any commissions or expenses. If an index had expenses, its
performance would be lower. The S&P MidCap 400 Index is a widely recognized
index of 400 U.S. mid-cap common stocks chosen for market size, liquidity, and
industry group representation.
Page 14 of 32
<PAGE>
FUND EXPENSES
THIS TABLE DESCRIBES THE FUND'S EXPENSES THAT YOU MAY PAY INDIRECTLY IF YOU HOLD
FUND SHARES.
ANNUAL FUND OPERATING EXPENSES
<TABLE>
<S> <C>
Investment Advisory Fees 1.15%
Other Expenses .38%
-----
Total Annual Fund Operating Expenses 1.53%
</TABLE>
SIMPLY SPEAKING ...
FUND EXPENSES
Unlike an index, every mutual fund has operating expenses to pay for
professional advisory, shareholder, distribution, administration and custody
services. The Fund's expenses in the table are shown as a percentage of the
Fund's net assets. These expenses are deducted from the Fund's assets. The
table shows the highest expenses that could be currently charged to the Fund.
Actual expenses are lower because the Advisor is voluntarily waiving a portion
of its fees. ACTUAL INVESTMENT ADVISORY FEES AND TOTAL OPERATING EXPENSES ARE
.77% AND 1.15%, RESPECTIVELY. The Advisor could discontinue this voluntary
waiver at any time. For more information about these fees, see "Investment
Advisors"."
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated and that you sell your
shares at the end of the period. The Example also assumes that each year your
investment has a 5% return and Fund expenses remain the same. Although your
actual costs and returns might be different, your approximate costs of investing
$10,000 in the Fund would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------------------------------------------------------
<S> <C> <C> <C>
$156 $483 $834 $1,824
</TABLE>
Page 15 of 32
<PAGE>
SMALL CAP EQUITY FUND
FUND SUMMARY
Investment Goal
Primary Goal Capital appreciation
Secondary Goal Current income
Investment Focus U.S. small-cap common stocks
Share Price Volatility Moderate
Principal Investment Strategy Attempts to identify undervalued
small-cap stocks
Investor Profile Investors who primarily want the value
of their investment to grow, but want
to receive some income from their
investment
TOP 5 HOLDINGS AS OF MARCH 31, 1999*
<TABLE>
<S> <C>
Interface Incorporated, Class A 4.4%
Polaroid Corporation 4.3%
Norrell Corporation 4.3%
Mentor Corporation/Minn 3.6%
SEA Containers LTD. 2.8%
</TABLE>
*Holdings may vary
INVESTMENT STRATEGY
The Small Cap Equity Fund primarily invests in common stocks of U.S. companies.
In selecting investments for the Fund, we choose common stocks of small-sized
companies (i.e., companies with market capitalizations under $1 billion) that we
believe are undervalued in the market. The Fund is diversified as to issuers
and industries.
WHAT ARE THE RISKS OF INVESTING IN THIS FUND?
The Fund invests primarily in small-cap common stocks. As a result, the Fund is
subject to the risk that stock prices will fall over short or extended periods
of time. Stock markets tend to move in cycles, with periods of rising prices
and periods of falling prices. This price volatility is the principal risk of
investing in the Fund. In addition, small-sized companies may be more
vulnerable to adverse business or economic events than larger, more established
companies. In particular, small-sized companies may have limited product lines,
markets and financial resources, and may depend upon a relatively small
management group.
Page 16 of 32
<PAGE>
PERFORMANCE INFORMATION
The bar chart and the performance table below illustrate the risks and
volatility of an investment in the Fund. Of course, the Fund's past performance
does not necessarily indicate how the Fund will perform in the future.
THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S SHARES FOR 1
YEAR. THE BAR CHART DOES NOT REFLECT THE IMPACT OF INSURANCE-RELATED CHARGES
AND EXPENSES. IF THESE CHARGES HAD BEEN REFLECTED, RETURNS WOULD BE LESS
THAN SHOWN.
<TABLE>
<S> <C>
1998 -12.18%
BEST QUARTER WORST QUARTER
11.16% -20.97
(12/31/98) (9/30/98)
</TABLE>
THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS
ENDING DECEMBER 31, 1998 TO THOSE OF THE RUSSELL 2000 INDEX.
<TABLE>
<CAPTION>
1 YEAR SINCE FUND INCEPTION
- ----------------------------------------------------------
<S> <C> <C>
Small Cap Equity Fund -12.18% -11.85%*
Russell 2000 Index -2.55% -1.27%**
</TABLE>
* Since 10/22/97
** Since 10/31/97
SIMPLY SPEAKING...
WHAT IS AN INDEX?
An index measures the market prices of a specific group of securities in a
particular market or securities in a market sector. You cannot invest directly
in an index. Unlike a mutual fund, an index does not have an investment advisor
and does not pay any commissions or expenses. If an index had expenses, its
performance would be lower. The Russell 2000 Index is a widely recognized index
of the 2,000 smallest U.S. companies out of the 3,000 largest companies.
Page 17 of 32
<PAGE>
FUND EXPENSES
THIS TABLE DESCRIBES THE FUND'S EXPENSES THAT YOU MAY PAY INDIRECTLY IF YOU HOLD
FUND SHARES.
ANNUAL FUND OPERATING EXPENSES
<TABLE>
<S> <C>
Investment Advisory Fees 1.15%
Other Expenses .75%
-----
Total Annual Fund Operating Expenses 1.90%
</TABLE>
SIMPLY SPEAKING ...
FUND EXPENSES
Unlike an index, every mutual fund has operating expenses to pay for
professional advisory, shareholder, distribution, administration and custody
services. The Fund's expenses in the table above are shown as a percentage of
the Fund's net assets. These expenses are deducted from the Fund's assets. The
table shows the highest expenses that could be currently charged to the Fund.
Actual expenses are lower because the Advisor is voluntarily waiving a portion
of its fees. ACTUAL INVESTMENT ADVISORY FEES AND TOTAL OPERATING EXPENSES ARE
.45% AND 1.20%, RESPECTIVELY. The Advisor could discontinue this voluntary
waiver at any time. For more information about these fees, see "Investment
Advisors".
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated and that you sell your
shares at the end of the period. The Example also assumes that each year your
investment has a 5% return and Fund expenses remain the same. Although your
actual costs and returns might be different, your approximate costs of investing
$10,000 in the Fund would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------
<S> <C> <C> <C>
$193 $597 $1,026 $2,222
</TABLE>
Page 18 of 32
<PAGE>
VALUE INCOME STOCK FUND
FUND SUMMARY
Investment Goal
Primary Goal Current income
Secondary Goal Capital appreciation
Investment Focus U.S. common stocks
Share Price Volatility Moderate
Principal Investment Strategy Attempts to identify high dividend-
paying, undervalued stocks
Investor Profile Investors who are looking for current
income and capital appreciation with
less volatility than the average stock
fund
TOP 5 HOLDINGS AS OF MARCH 31, 1999*
<TABLE>
<S> <C>
GTE Corporation 2.6%
Baxter International Incorporated 2.5%
Atlantic Richfield Company 2.4%
Bank One Corporation 2.3%
Block H&R, Incorporated 2.2%
</TABLE>
*Holdings may vary
INVESTMENT STRATEGY
The Value Income Stock Fund invests primarily in common stocks and other equity
securities of U.S. companies. In selecting investments for the Fund, we
primarily choose companies that have a market capitalization of at least $500
million and that have a history of paying regular dividends. We focus on high
dividend-paying stocks that trade below their historical value. Our "bottom-up"
approach to stock selection emphasizes individual stocks over economic trends.
WHAT ARE THE RISKS OF INVESTING IN THIS FUND?
The Fund invests primarily in U.S. common stocks. As a result, the Fund is
subject to the risk that stock prices will fall over short or extended periods
of time. Stock markets tend to move in cycles, with periods of rising prices
and periods of falling prices. This price volatility is the principal risk of
investing in the Fund. In addition, common stocks held by the Fund may stop
paying dividends or pay less in dividends than we expected.
PERFORMANCE INFORMATION
Page 19 of 32
<PAGE>
The bar chart and the performance table below illustrate the risks and
volatility of an investment in the Fund. Of course, the Fund's past performance
does not necessarily indicate how the Fund will perform in the future.
THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S SHARES FROM YEAR
TO YEAR FOR 3 YEARS. THE BAR CHART DOES NOT REFLECT THE IMPACT OF
INSURANCE-RELATED CHARGES AND EXPENSES. IF THESE CHARGES HAD BEEN REFLECTED,
RETURNS WOULD BE LESS THAN SHOWN.
<TABLE>
<S> <C>
1996 18.64%
1997 26.82%
1998 9.69%
BEST QUARTER WORST QUARTER
13.04% -9.78%
(12/31/98) (9/30/98)
</TABLE>
THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS
ENDING DECEMBER 31, 1998 TO THOSE OF THE S&P/BARRA VALUE 500 INDEX.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS SINCE FUND INCEPTION
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Value Income Stock Fund 9.69% 18.18% 19.25%*
S&P/Barra Value 500 Index 14.68% 22.06% 23.81%**
</TABLE>
*Since 10/2/95
**Since 10/31/95
SIMPLY SPEAKING ...
WHAT IS AN INDEX?
An index measures the market prices of a specific group of securities in a
particular market or securities in a market sector. You cannot invest directly
in an index. Unlike a mutual fund, an index does not have an investment advisor
and does not pay any commissions or expenses. If an index had expenses, its
performance would be lower. The S&P/Barra Value 500 Index is a widely
recognized index of the stocks in the S&P 500 Index that have lower
price-to-book ratios.
FUND EXPENSES
THIS TABLE DESCRIBES THE FUND'S EXPENSES THAT YOU MAY PAY INDIRECTLY IF YOU HOLD
FUND SHARES.
ANNUAL FUND OPERATING EXPENSES
<TABLE>
<S> <C>
Investment Advisory Fees .80%
Other Expenses .31%
-----
Total Annual Fund Operating Expenses 1.11%
</TABLE>
SIMPLY SPEAKING ...
FUND EXPENSES
Unlike an index, every mutual fund has operating expenses to pay for
professional advisory, shareholder, distribution, administration and custody
services. The Fund's expenses in the table are shown as a percentage of the
Fund's net assets. These expenses are deducted from the Fund's assets. The
table shows the highest expenses that could be currently charged to the Fund.
Actual expenses are lower because the Advisor is voluntarily waiving a portion
of its fees. ACTUAL INVESTMENT ADVISORY FEES AND
Page 20 of 32
<PAGE>
TOTAL OPERATING EXPENSES ARE .64% AND .95%, RESPECTIVELY. The Advisor could
discontinue this voluntary waiver at any time. For more information about these
fees, see "Investment Advisors".
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated and that you sell your
shares at the end of the period. The Example also assumes that each year your
investment has a 5% return and Fund expenses remain the same. Although your
actual costs and returns might be different, your approximate costs of investing
$10,000 in the Fund would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------------------------------------------------------
<S> <C> <C> <C>
$113 $353 $612 $1,352
</TABLE>
Page 21 of 32
<PAGE>
MORE INFORMATION ABOUT RISK
EQUITY RISK - Equity securities include public Capital Appreciation Fund
and privately issued equity securities, common
and preferred stocks, warrants, rights to Mid-Cap Equity Fund
subscribe to common stock and convertible
securities, as well as instruments that Small Cap Equity Fund
attempt to track the price movement of equity
indices. Investments in equity securities and Value Income Stock Fund
equity derivatives in general are subject to
market risks that may cause their prices to
fluctuate over time. The value of securities
convertible into equity securities, such as
warrants or convertible debt, 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 mutual fund invests will cause a
fund's net asset value to fluctuate. An
investment in a portfolio of equity securities
may be more suitable for long-term investors
who can bear the risk of these share price
fluctuations.
FIXED INCOME RISK - The market value of fixed Investment Grade Bond Fund
income investments change in response to
interest rate changes and other factors.
During periods of falling interest rates, the
values of outstanding fixed income securities
generally rise. Moreover, while securities
with longer maturities tend to produce higher
yields, the prices of longer maturity
securities are also subject to greater market
fluctuations as a result of changes in
interest rates.
MORTGAGE-BACKED SECURITIES -Mortgage- Investment Grade Bond Fund
backed securities are fixed income
securities representing an interest in a
pool of underlying mortgage loans. They
are sensitive to changes in interest
rates, but may respond to these changes
differently from other fixed income
securities due to the possibility of
prepayment of the underlying mortgage
loans. As a result, it may not be
possible to determine in advance the
actual maturity date or average life of a
mortgage-backed security and the Fund may
lose interest income on its investment.
Rising interest rates tend to discourage
refinancings, with the result that the
average life and volatility of the
security will increase exacerbating its
decrease in market price. When interest
rates fall, however, mortgage-backed
securities may not gain as much in market
value because of the expectation of
additional mortgage prepayments that must
be reinvested at lower interest rates.
Prepayment risk may make it difficult to
calculate the average
Page 22 of 32
<PAGE>
maturity of a portfolio of mortgage-backed
securities and, therefore, to assess the
volatility risk of that portfolio.
FOREIGN SECURITY RISKS - Investments in International Equity Fund
securities of foreign companies or governments
can be more volatile than investments in U.S.
companies or governments. Diplomatic,
political, or economic developments, including
nationalization or appropriation, could affect
investments in foreign countries. Foreign
securities markets generally have less trading
volume and less liquidity than U.S. markets.
In addition, the value of securities
denominated in foreign currencies, and of
dividends from such securities, can change
significantly when foreign currencies
strengthen or weaken relative to the U.S.
dollar. Foreign companies or governments
generally are not subject to uniform
accounting, auditing, and financial reporting
standards comparable to those applicable to
domestic U.S. companies or governments.
Transaction costs are generally higher than
those in the U.S. and expenses for custodial
arrangements of foreign securities may be
somewhat greater than typical expenses for
custodial arrangements of similar U.S.
securities. Some foreign governments levy
withholding taxes against dividend and
interest income. Although in some countries a
portion of these taxes are recoverable, the
non-recovered portion will reduce the income
received from the securities comprising the
portfolio.
In addition to these risks, certain foreign
securities may be subject to the following
additional risk factors:
CURRENCY RISK - Investments in foreign International Equity Fund
securities denominated in foreign
currencies involve additional risks,
including:
- The value of a Fund's assets
measured in U.S. dollars may
be affected by changes in
currency rates and in
exchange control
regulations.
- A Fund may incur substantial
costs in connection with
conversions between various
currencies.
- A Fund may be unable to
hedge against possible
variations in foreign
exchange rates or to hedge a
specific security
transaction or portfolio
position.
- Only a limited market
currently exists for hedging
transactions relating to
currencies in certain
Page 23 of 32
<PAGE>
emerging markets.
YEAR 2000 RISK -The Funds depend on the smooth All Funds
functioning of computer systems in almost
every aspect of their business. Like other
mutual funds, businesses and individuals
around the world, the Funds could be adversely
affected if the computer systems used by its
service providers do not properly process
dates on and after January 1, 2000, and
distinguish between the year 2000 and the year
1900. The Funds have asked their service
providers whether they expect to have their
computer systems adjusted for the year 2000
transition, and is seeking assurances from
each service provider that they are devoting
significant resources to prevent material
adverse consequences to the Funds. While it
is likely that such assurances will be
obtained, the Funds and their shareholders may
experience losses if these assurances prove to
be incorrect or as a result of year 2000
computer difficulties experienced by issuers
of portfolio securities or third parties, such
as custodians, banks, broker-dealers or others
with which the Funds do business.
Furthermore, many foreign countries are not
as prepared as the U.S. for the year 2000
transitions. As a result, computer
difficulties in foreign markets and with
foreign institutions as a result of the
year 2000 may add to the possibility of
losses to the Funds and their shareholders.
Page 24 of 32
<PAGE>
FUND INVESTMENTS
THE TABLE BELOW SHOWS EACH FUND'S PRINCIPAL INVESTMENTS. IN OTHER WORDS, THE
TABLE DESCRIBES THE TYPE OR TYPES OF INVESTMENTS THAT WE BELIEVE WILL MOST
LIKELY HELP EACH FUND ACHIEVE ITS INVESTMENT GOAL.
<TABLE>
<CAPTION>
CAPITAL INVESTMENT MID-CAP VALUE
APPRECIATION INTERNATIONAL GRADE BOND EQUITY SMALL CAP INCOME
FUND EQUITY FUND FUND FUND EQUITY FUND STOCK FUND
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
U.S. STOCKS X X X X
- ---------------------------------------------------------------------------------------------------------
FOREIGN STOCKS X
- ---------------------------------------------------------------------------------------------------------
CORPORATE DEBT X
SECURITIES
- ---------------------------------------------------------------------------------------------------------
MORTGAGE-BACKED X
SECURITIES
- ---------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT X
SECURITIES
</TABLE>
In addition to the investments and strategies described in this prospectus, each
Fund also may invest in other securities, use other strategies and engage in
other investment practices, which are described in detail in our Statement of
Additional Information (SAI). Of course, we cannot guarantee that any Fund will
achieve its investment goal.
The investments and strategies described in this prospectus are those that we
use under normal conditions. During unusual economic or market conditions,
or for temporary defensive or liquidity purposes, each Fund may invest up to
100% of its assets in cash, money market instruments, repurchase agreements,
and short-term obligations. In addition, the Investment Grade Bond Fund may
shorten its average weighted maturity to as little as 90 days. The Small Cap
Equity Fund also may invest in investment grade fixed income securities and
mid- to large-cap common stocks. When a Fund is investing for temporary
defensive purposes, it is not pursuing its investment goal.
Page 25 of 32
<PAGE>
INVESTMENT ADVISOR
The Investment Advisor makes investment decisions for the Funds and continuously
reviews, supervises and administers each Fund's respective investment program.
The Board of Trustees supervises the Advisor and establishes policies that the
Advisor must follow in its management activities.
STI Capital Management, N.A. (STI), P.O. Box 3808, Orlando, Florida 32802,
serves as the Advisor to the Funds. As of December 31, 1998, STI Capital
Management, N.A. had approximately $14.7 billion in assets under management.
For the period ended December 31, 1998, STI Capital Management, N.A. received
advisory fees of:
<TABLE>
<S> <C>
CAPITAL APPRECIATION FUND .89%
INTERNATIONAL EQUITY FUND .78%
INVESTMENT GRADE BOND FUND .15%
MID-CAP EQUITY FUND .77%
SMALL CAP EQUITY FUND .45%
VALUE INCOME STOCK FUND .64%
</TABLE>
PORTFOLIO MANAGERS
Mr. Anthony R. Gray has served as Chairman and Chief Investment Officer of STI
since 1979. He has managed the Capital Appreciation Fund since it began
operating in October 1995. He has more than 30 years of investment experience.
Mr. L. Earl Denney, CFA has served as Senior Vice President of STI since 1983.
He has managed the Investment Grade Bond Fund since it began operating in
October 1995. He has more than 20 years of investment experience in fixed income
investment management. Prior to joining STI, he served as fixed income
portfolio manager with American National Bank.
Mr. Ned Dau has served as Managing Director of STI since 1997. He has managed
the International Equity Fund since May 1997. He has more than six years of
investment experience. Prior to joining STI, he served as senior international
equity analyst for American Express Financial Advisors from 1996 to 1997 and for
the Principal Financial Group from 1992 to 1995.
Mr. John Hamlin joined STI as a portfolio manager in March 1999. Mr. Hamlin has
managed the Mid-Cap Equity Fund since April 1999. Prior to joining STI, he had
more than 19 years of investment experience as a portfolio manager at Phoenix
Investment Counsel, Inc.
Mr. Brett Barner, CFA, has served as Vice President of STI since 1994. He has
managed the Small Cap Equity Fund since it began operating in October 1997. He
has more than 10 years of investment experience and has been a portfolio manager
with STI since 1990. Prior to joining STI, he served as a consultant with
Drexel Burnham Lambert and Shearson Lehman Brothers.
Mr. Mills Riddick, CFA, has been a portfolio manager with STI since 1989 and has
served as a Managing Director since 1994. He has managed the Value Income Stock
Fund since it began operating in October 1995. Mr. Riddick has more than 15
years of investment experience. Prior to joining STI, he served as a broker
with Drexel Burnham Lambert.
Page 26 of 32
<PAGE>
PURCHASING AND SELLING FUND SHARES
HOW TO PURCHASE FUND SHARES
Generally, you may not purchase Fund shares directly. Rather, fund shares are
sold to insurance companies for their separate accounts. Separate accounts are
used by insurance companies to fund variable annuity and variable life insurance
contracts. As a result, you as a customer of an insurance company may purchase
Fund shares through these contracts. An insurance company purchases and redeems
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, repayments and
benefit payments to the terms of the Contract at the Fund's net asset value per
share calculated as of that same day. Please refer to the Contract prospectus
for information on how to make investments and redemptions.
SIMPLY SPEAKING ...
WHEN CAN YOU PURCHASE SHARES?
Shares are offered continuously and may be purchased on any day that the New
York Stock Exchange is open for business (a Business Day).
The price per share (the offering price) will be the net asset value per share
(NAV) next determined after we receive your purchase order. We calculate each
Fund's NAV once each Business Day at the regularly scheduled close of normal
trading on the New York Stock Exchange (normally, 4:00 p.m. Eastern time). So,
to receive the current Business Day's NAV, generally we must receive your
purchase order (from your insurance company) before 4:00 p.m. Eastern time.
HOW WE CALCULATE NAV
In calculating NAV for the Fund, we generally value a Fund's portfolio at
market price. If market prices are unavailable or we think that they are
unreliable, fair value prices may be determined in good faith using methods
approved by the Board of Trustees. Some Funds hold portfolio securities that
are listed on foreign exchanges. These securities may trade on weekends or
other days when the Funds do not calculate NAV. As a result, the market
value of these Funds' investments may change on days when you cannot purchase
or sell Fund shares.
SIMPLY SPEAKING ...
NET ASSET VALUE
NAV for one Fund share is the value of that share's portion of all of the assets
in the Fund.
HOW TO SELL FUND SHARES
You may sell (sometimes called "redeem") your shares on any Business Day by
contacting your insurance company. All redemption requests will be processed
and payments will be made within seven days after tender. Your insurance
company will give you information about how to sell your shares. The sale price
of each share will be the next NAV determined after we receive your request from
your insurance company. Your insurance company or retirement plan sponsor may
have different cutoff times for determining NAV. Please refer to the Contract
prospectus for information on how to make investments and redemptions.
SUSPENSION OF YOUR RIGHT TO SELL YOUR SHARES
Page 27 of 32
<PAGE>
The Trust may suspend your right to sell your shares if the NYSE restricts
trading, the SEC declares an emergency or for other reasons. More information
about this is in our SAI.
OTHER INFORMATION
Page 28 of 32
<PAGE>
FINANCIAL HIGHLIGHTS
The tables that follow present performance information about shares of each
Fund. This information is intended to help you understand each Fund's
financial performance for the past five years, or, if shorter, the period of
the Fund's operations. Some of this information reflects financial
information for a single Fund share. The total returns in the table represent
the rate that you would have earned (or lost) on an investment in a Fund,
assuming you reinvested all of your dividends and distributions.
This information has been audited by Arthur Andersen, LLP, independent public
accountants. Their report, along with each Fund's financial statements, appears
in the annual report that accompanies our SAI. You can obtain the annual
report, which contains more performance information, at no charge by calling
1-800-874-4700.
SIMPLY SPEAKING...
FINANCIAL HIGHLIGHTS
Study these tables to see how each Fund performed since it began investment
operations.
Page 29 of 32
<PAGE>
FINANCIAL HIGHLIGHTS
STI CLASSIC VARIABLE TRUST FUNDS For the Periods Ended through December 31, 1998
For a Share Outstanding Throughout the Period
<TABLE>
<CAPTION>
Net Realized and
Unrealized Gains Distributions
Net Asset Value Net Investment (Losses) on from Net
Beginning of Period Income (Loss) Investments Investment Income
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Capital Appreciation Fund
1998 $17.27 $0.07 $4.54 $(0.08)
1997 13.06 0.10 4.63 (0.10)
1996 10.66 0.12 2.40 (0.12)
1995 (1) 10.00 0.04 0.66 (0.04)
International Equity Fund
1998 $11.87 $0.10 $1.17 $(0.01)
1997 10.16 0.03 1.68 --
1996 (3) 10.00 0.01 0.16 (0.01)
Investment Grade Bond Fund
1998 $10.19 $0.54 $0.39 $(0.54)
1997 9.92 0.58 0.27 (0.58)
1996 10.25 0.54 (0.33) (0.54)
1995 (1) 10.00 0.13 0.25 (0.13)
Mid-Cap Equity Fund (A)
1998 $13.97 $0.00 $0.70 --
1997 11.86 (0.01) 2.64 (0.01)
1996 10.27 0.06 1.59 (0.06)
1995 (1) 10.00 0.05 0.27 (0.05)
Small Cap Equity Fund
1998 $9.77 $0.12 $(1.30) $(0.11)
1997 (2) 10.00 0.03 (0.23) (0.03)
Value Income Stock Fund
1998 $15.21 $0.27 $1.02 $(0.28)
1997 12.41 0.28 3.02 (0.28)
1996 10.67 0.23 1.74 (0.23)
1995 (1) 10.00 0.06 0.67 (0.06)
</TABLE>
<TABLE>
<CAPTION>
Distributions from Net Asset Value Net Assets End of
Realized Capital Gains End of Period Total Return Period (000)
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Capital Appreciation Fund
1998 $(1.76) $20.04 28.97% $105,560
1997 (0.42) 17.27 36.54 61,877
1996 -- 13.06 23.75 25,189
1995 (1) -- 10.66 6.96* 3,778
International Equity Fund
1998 $(0.08) $13.05 10.80% $18,926
1997 -- 11.87 16.84 13,847
1996 (3) -- 10.16 1.70* 995
Investment Grade Bond Fund
1998 $-- $10.58 9.38% $19,236
1997 -- 10.19 8.84 9,902
1996 -- 9.92 2.29 8,039
1995 (1) -- 10.25 3.68* 3,115
Mid-Cap Equity Fund (A)
1998 $(1.11) $13.56 7.16% $31,075
1997 (0.51) 13.97 22.23 23,913
1996 -- 11.86 16.05 14,294
1995 (1) -- 10.27 3.19* 3,409
Small Cap Equity Fund
1998 $-- $8.48 (12.18)% $13,145
1997 (2) -- 9.77 (2.05)* 7,563
Value Income Stock Fund
1998 $(1.14) $15.08 9.69% $98,759
1997 (0.22) 15.21 26.82 72,747
1996 -- 12.41 18.64 31,216
1995 (1) -- 10.67 7.31* 4,015
</TABLE>
<TABLE>
<CAPTION>
Ratio of Net
Investment Income
Ratio of Net Ratio of Expenses to (Loss) to Average
Ratio of Expenses Investment Income Average Net Assets Net Assets
to Average Net (Loss) to Average (Excluding Waivers (Excluding Waivers Portfolio
Assets Net Assets and Reimbursements) and Reimbursements) Turnover Rate
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Capital Appreciation Fund
1998 1.15% 0.43% 1.41% 0.17% 219.17%
1997 1.15 0.70 1.60 0.25 195.86
1996 1.15 1.15 2.43 (0.13) 148.48
1995 (1) 1.15 1.69 6.18 (3.34) 8.05
International Equity Fund
1998 1.60% 0.63% 2.07% 0.16% 128.93%
1997 1.60 0.41 2.93 (0.92) 99.14
1996 (3) 1.60 1.83 31.39 (27.96) --
Investment Grade Bond Fund
1998 0.75% 5.19% 1.34% 4.60% 183.13%
1997 0.75 5.81 1.58 4.98 219.22
1996 0.75 5.54 2.78 3.51 303.30
1995 (1) 0.75 5.04 6.05 (0.26) 108.55
Mid-Cap Equity Fund (A)
1998 1.15% (0.29)% 1.53% (0.67)% 92.27%
1997 1.15 (0.07) 1.77 (0.69) 138.98
1996 1.15 0.58 2.79 (1.06) 139.60
1995 (1) 1.15 2.22 6.34 (2.97) 13.29
Small Cap Equity Fund
1998 1.20% 1.23% 1.89% 0.54% 49.10%
1997 (2) 1.20 1.62 2.66 0.16 4.11
Value Income Stock Fund
1998 0.95% 1.90% 1.11% 1.74% 76.36%
1997 0.95 2.09 1.23 1.81 104.84
1996 0.95 2.45 1.95 1.45 79.80
1995 (1) 0.95 2.98 5.72 (1.79) 7.17
</TABLE>
(1) Commenced operations on October 2, 1995. All ratios for the period have
been annualized.
(2) Commenced operations on October 22, 1997. All ratios for the period have
been annualized.
(3) Commenced operations on November 7, 1996. All ratios for the period have
been annualized.
* Returns are for the period indicated and have not been annualized.
(A) During the fiscal year ended December 31, 1996, the Aggressive Growth
Fund changed its name to the Mid-Cap Equity Fund.
Amounts designated as "--" are either $0 or rounded to $0.
Page 30 of 32
<PAGE>
DIVIDENDS AND DISTRIBUTIONS
Each Fund distributes its income as follows:
<TABLE>
<S> <C>
Capital Appreciation Fund Quarterly
International Equity Fund Annually
Mid-Cap Equity Fund Quarterly
Small-Cap Equity Fund Quarterly
Value Income Stock Fund Quarterly
Investment Grade Bond Fund Declares dividend income daily/pays dividends
monthly
</TABLE>
Each fund makes distributions of capital gains, if any, at least annually.
Dividends are paid in the form of additional shares.
SIMPLY SPEAKING ...
THE "RECORD DATE"
If you own Fund shares on a Fund's record date, you will be entitled to receive
the distribution.
TAXES
PLEASE CONSULT YOUR TAX ADVISOR REGARDING YOUR SPECIFIC QUESTIONS ABOUT FEDERAL,
STATE AND LOCAL INCOME TAXES. Below we have summarized some important tax
issues that affect the Funds and their insurance company shareholders. This
summary is based on current tax laws, which may change. For more information
about the tax consequences of an investment in an insurance contract, see the
attached Contract prospectus.
The Funds expect that they will not have to pay income taxes if they distribute
all of their income gains. Net income and realized capital gains that the Funds
distribute are not currently taxable when left to accumulate within a variable
annuity or variable life insurance contract. For information on federal income
taxation of a life insurance company with respect to its receipt of
distributions from the Funds and federal income taxation of owners of variable
annuity or variable life insurance contracts, refer to the Contract prospectus.
MORE INFORMATION ABOUT TAXES IS IN OUR SAI.
Page 31 of 32
<PAGE>
STI CLASSIC VARIABLE TRUST
INVESTMENT ADVISOR
STI Capital Management, N.A.
DISTRIBUTOR
SEI Investments Distribution Co.
LEGAL COUNSEL
Morgan, Lewis & Bockius LLP
More information about the Funds is available without charge through the
following:
STATEMENT OF ADDITIONAL INFORMATION (SAI)
Our SAI dated May 1, 1999, includes detailed information about the STI Classic
Variable Trust. The SAI is on file with the SEC and is incorporated by
reference into this prospectus. This means that the SAI, for legal purposes, is
a part of this prospectus.
ANNUAL AND SEMI-ANNUAL REPORTS
These reports list each Fund's holdings and contain information from the Fund's
managers about strategies and recent market conditions and trends. The reports
also contain detailed financial information about the Funds.
TO OBTAIN MORE INFORMATION:
BY TELEPHONE: Call 1-800-874-4770
BY MAIL: Write to us
c/o SEI Investments Distribution Co.
Oaks, Pennsylvania 19456
BY INTERNET: http://www.suntrust.com
FROM THE SEC: You can also obtain documents, and other information about the
STI Classic Variable Trust, from the SEC's website ("http://www.sec.gov"). You
may review and copy documents at the SEC Public Reference Room in Washington, DC
(for information call 1-800-SEC-0330). You may request documents by mail from
the SEC, upon payment of a duplicating fee, by writing to: Securities and
Exchange Commission, Public Reference Section, Washington, DC 20549-6009. The
Fund's Investment Company Act registration number is 811-09032.
Page 32 of 32
<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
May 1, 1999. Prospectuses may be obtained through the Distributor, SEI
Investments Distribution Co., Oaks, Pennsylvania 19456.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
THE TRUST...................................................................B-2
DESCRIPTION OF PERMITTED INVESTMENTS........................................B-2
INVESTMENT LIMITATIONS.....................................................B-12
THE INVESTMENT ADVISOR.....................................................B-14
THE ADMINISTRATOR..........................................................B-15
THE DISTRIBUTOR............................................................B-16
TRUSTEES AND OFFICERS OF THE TRUST.........................................B-16
COMPUTATION OF YIELD.......................................................B-19
CALCULATION OF TOTAL RETURN................................................B-20
PURCHASE AND REDEMPTION OF SHARES..........................................B-21
NET ASSET VALUE--PRICING OF PORTFOLIO SECURITIES...........................B-22
TAXES......................................................................B-22
FUND TRANSACTIONS..........................................................B-24
TRADING PRACTICES AND BROKERAGE............................................B-25
DESCRIPTION OF SHARES......................................................B-28
SHAREHOLDER LIABILITY......................................................B-28
5% AND 25% SHAREHOLDERS....................................................B-29
LIMITATION OF TRUSTEES' LIABILITY..........................................B-30
EXPERTS....................................................................B-30
APPENDIX....................................................................A-1
FINANCIAL STATEMENTS........................................................F-1
</TABLE>
May 1, 1999
<PAGE>
THE TRUST
STI Classic Variable Trust (the "Trust") is a diversified, open-end
management investment company established under Massachusetts law as a
Massachusetts business trust under a Declaration of Trust dated 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 Appreciation
Fund, Value Income Stock Fund, Mid-Cap Equity Fund, International Equity Fund,
and Small Cap Equity Fund. These various series are collectively referred to
herein as the "Funds."
DESCRIPTION OF PERMITTED INVESTMENTS
VARIABLE RATE MASTER DEMAND NOTES
Variable rate master demand notes 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 a 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
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 a Fund's investment policy
concerning investments in illiquid securities. While there is no limitation
on the percentage of a Fund's assets that may be comprised of STRIPS, the
Advisor will monitor the level of such holdings to avoid the risk of
impairing investors' redemption rights and of deviations in the value of the
shares of the Funds.
U.S. GOVERNMENT AGENCY SECURITIES
Agencies of the United States Government which issue U.S. Government Agency
Securities 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
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<PAGE>
("GNMA"), Maritime Administration, Small Business Administration, and The
Tennessee Valley Authority. Obligations of instrumentalities of the United
States Government include securities issued by, among others, Federal Home
Loan Banks, Federal Home Loan Mortgage Corporation ("FHLMC"), Federal
Intermediate Credit Banks, Federal Land Banks, Fannie Mae and the United
States Postal Service as well as government trust certificates. Some of these
securities are supported by the full faith and credit of the United States
Treasury (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., Fannie Mae). 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
Mortgage-backed securities are securities issued or guaranteed by U.S.
Government agencies or instrumentalities such as GNMA, Fannie Mae, and FHLMC.
Obligations of GNMA are backed by the full faith and credit of the United
States Government. Obligations of Fannie Mae and FHLMC are not backed by the
full faith and credit of the United States Government but are considered to
be of high quality since they are considered to be instrumentalities of the
United States. The market value and interest yield of these mortgage-backed
securities can vary due to market interest rate fluctuations and early
prepayments of underlying mortgages. These securities represent ownership in
a pool of federally insured mortgage loans with a maximum maturity of 30
years. However, due to scheduled and unscheduled principal payments on the
underlying loans, these securities have a shorter average maturity and,
therefore, less principal volatility than a comparable 30-year bond. Since
prepayment rates vary widely, it is not possible to accurately predict the
average maturity of a particular mortgage-backed security. The scheduled
monthly interest and principal payments relating to mortgages in the pool
will be "passed through" to investors. Government mortgage-backed securities
differ from conventional bonds in that principal is paid back to the
certificate holders over the life of the loan rather than at maturity. As a
result, there will be monthly scheduled payments of principal and interest.
In addition, there may be unscheduled principal payments representing
prepayments on the underlying mortgages. Although these securities may offer
yields higher than those available from other types of U.S. Government
securities, mortgage-backed securities may be less effective than other types
of securities as a means of "locking in" attractive long-term rates because
of the prepayment feature. For instance, when interest rates decline, the
value of these securities likely will not rise as much as comparable debt
securities due to the prepayment feature. In addition, these prepayments can
cause the price of a mortgage-backed security originally purchased at a
premium to decline in price to its par value, which may result in a loss.
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
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<PAGE>
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.
ASSET-BACKED SECURITIES
Asset-backed securities include company receivables, truck and auto loans,
leases, and credit card receivables. 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
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
B-4
<PAGE>
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 purpose of engaging in transactions involving puts is to maintain
flexibility and liquidity to permit a Fund to meet redemptions and remain as
fully invested as possible in debt securities. The right to put securities
depends on the writer's ability to pay for the securities at the time the put
is exercised. Put transactions by the Funds are generally limited to
institutions which the Advisor believes present minimal credit risks, and the
Advisor would use its best efforts to initially determine and continue to
monitor the financial strength of the sellers of the options by evaluating
their financial statements and such other information as is available in the
marketplace. It may, however be difficult to monitor the financial strength
of the writers because adequate current financial information may not be
available. In the event that any writer is unable to honor a put for
financial reasons, a Fund would be a general creditor (I.E., on a parity with
all other unsecured creditors) of the writer. Furthermore, particular
provisions of the contract between a 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. A Fund could, however, at any time sell the
underlying portfolio security in the open market or wait until the portfolio
security matures, at which time it should realize the full par value of the
security.
The securities purchased subject to a put, may be sold to third persons at
any time, even though the put is outstanding, but the put itself, unless it
is an integral part of the security as originally issued, may not be
marketable or otherwise assignable. Therefore, the put would have value only
to a 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, a Fund could seek to negotiate terms for the
extension of such an option. If such a renewal cannot be negotiated on terms
satisfactory to a Fund, the
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<PAGE>
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 a 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 a 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
Obligations of supranational agencies include those 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
For securities purchased on a when-issued basis, delivery and payment
normally take place within 45 days after the date of commitment to purchase.
A Fund 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 these securities to the
purchaser during this period. The payment obligation and the interest rate
that will be received on these securities are each fixed at the time the
purchaser enters into the commitment. Purchasing when-issued securities
entails leveraging and can involve a risk that the yields available in the
market when the delivery takes place may actually be higher than those
obtained in the transaction itself. In that case there could be an unrealized
loss at the time of delivery.
Segregated accounts will be established with the Custodian, and the Funds
will maintain cash or liquid securities in an amount at least equal in value
to a Fund's commitments to purchase when-issued securities. If the value of
these assets declines, a Fund will place additional liquid securities, in the
account on a daily basis so that the value of the assets in the account is
equal to the amount of such commitments.
ZERO COUPON OBLIGATIONS
Zero coupon obligations are debt obligations that do not bear any interest,
but instead are issued at a deep discount from face value or par. The value
of a zero coupon obligation increases over time to reflect the interest
accumulated. Such obligations will not result in the payment of interest
until maturity, and will have greater price volatility than similar
securities that are issued at face value or par and pay interest periodically.
Investors will receive written notification at least thirty days prior to any
change in a Fund's investment objective. The phrase "principally invests" as
used in the prospectus means that the Fund invests at least 65% of its assets
in the securities as described in the sentence. Each tax-exempt fund invests
at least 80% of its total assets in securities with income exempt from
federal income and alternative minimum taxes.
B-6
<PAGE>
SECURITIES LENDING
Each Fund may lend securities pursuant to agreements which require that the
loans be continuously secured by collateral at all times equal to 100% of the
market value of the loaned securities which consists of: cash, securities of
the U.S. Government or its agencies, or any combination of cash and such
securities. Such loans will not be made if, as a result, the aggregate amount
of all outstanding securities loans for a Fund exceed one-third of the value
of 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
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.
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<PAGE>
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.
Regulations of the Commodity Futures Trading Commission applicable to the
Funds require that the futures transactions and related options constitute
bona fide hedging transactions, except that the International Equity Fund may
enter into such transactions for other than bona fide hedging purposes if the
aggregate initial margin and premiums required to establish such positions do
not exceed five percent of the liquidation value of the Fund's portfolio,
after taking into account unrealized profits and unrealized losses on any
such contracts it has entered into. 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 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
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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
A Fund may write call options on a covered basis only, and will not engage in
option writing strategies for speculative purposes. A call option gives the
purchaser of such option the right to buy, and the writer, in this case the
Fund, the obligation to sell the underlying security at the exercise price
during the option period. The advantage to a Fund of writing covered calls is
that the Fund receives a premium which is additional income. However, if the
security rises in value, the Fund may not fully participate in the market
appreciation.
During the option period, a covered call option writer may be assigned an
exercise notice by the broker-dealer through whom such call option was sold
requiring the writer to deliver the underlying security against payment of
the exercise price. This obligation is terminated upon the expiration of the
option
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period or at such earlier time in which the writer effects a closing purchase
transaction. A closing purchase transaction is one in which a 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 a Fund 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.
FOREIGN INVESTMENTS
Foreign investments include equity securities of foreign entities,
obligations of foreign branches of U.S. banks and of foreign banks,
including, without limitation, European Certificates of Deposit, European
Time Deposits, European Bankers' Acceptances, Canadian Time Deposits and
Yankee Certificates of Deposit, and investments in Canadian Commercial Paper,
foreign securities, and American Depositary
B-10
<PAGE>
Receipts (ADRs). These instruments may subject the Fund to investment risks
that differ in some respects from those related to investments in obligations
of U.S. domestic issuers. Such risks include future adverse political and
economic developments, the possible imposition of withholding taxes on
interest or other income, possible seizure, nationalization, or expropriation
of foreign deposits, the possible establishment of exchange controls or
taxation at the source, greater fluctuations in value due to changes in
exchange rates, or the adoption of other foreign governmental restrictions
which might adversely affect the payment of principal and interest on such
obligations. Such investments may also entail higher custodial fees and sales
commissions than domestic investments. Foreign issuers of securities or
obligations are often subject to accounting treatment and engage in business
practices different from those respecting domestic issuers of similar
securities or obligations. Foreign branches of U.S. banks and foreign banks
may be subject to less stringent reserve requirements than those applicable
to domestic branches of U.S. banks.
By investing in foreign securities, a Fund attempts to take advantage of
differences between both economic trends and the performance of securities
markets in the various countries, regions and geographic areas as prescribed
by the Fund's investment objective and policies. During certain periods the
investment return on securities in some or all countries may exceed the
return on similar investments in the United States, while at other times the
investment return may be less than that on similar U.S. securities. Shares of
a Fund that invests in foreign securities, when included in appropriate
amounts in a portfolio otherwise consisting of domestic securities, may
provide a source of increased diversification. Each Fund seeks increased
diversification by combining securities from various countries and geographic
areas that offer different investment opportunities and are affected by
different economic trends. The international investments of the Fund may
reduce the effect that events in any one country or geographic area will have
on its investment holdings. Of course, negative movement by a Fund's
investments in one foreign market represented in its portfolio may offset
potential gains from a Fund's investments in another country's markets.
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. Permitted investments for the Fund include
Restricted Securities, and the Fund may invest up to 15% of its net assets in
illiquid securities, subject to the Fund's investment limitations on the
purchase of illiquid securities. Restricted Securities, including securities
eligible for re-sale under Rule 144A of the 1933 Act, that are determined to
be liquid are not subject to this limitation. This determination is to be
made by the Fund's Advisor pursuant to guidelines adopted by the Board of
Trustees. Under these guidelines, the Advisor will consider the frequency of
trades and quotes for the security, the number of dealers in, and potential
purchasers for, the securities, dealer undertakings to make a market in the
security, and the nature of the security and of the marketplace trades. In
purchasing such Restricted Securities, the Advisor intends to purchase
securities that are exempt from registration under Rule 144A of the 1933 Act.
B-11
<PAGE>
INVESTMENT COMPANY SHARES
Investment companies typically incur fees that are separate from those fees
incurred directly by a Fund. A Fund's purchase of such investment company
securities results in the layering of expenses, such that Investors would
indirectly bear a proportionate share of the operating expenses of such
investment companies, including advisory fees.
OTHER INVESTMENTS
The Trust is not prohibited from investing in obligations of banks which are
clients of SEI Investments Company ("SEI Investments"), 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.
Investors will receive written notification at least thirty days prior to any
change in a Fund's investment objective.
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 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
B-12
<PAGE>
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
its permitted investment spectrum, a Fund may purchase marketable
securities issued by companies which own or invest in real estate,
commodities or commodities contracts, and commodities contracts relating
to financial instruments, such as financial futures contracts and
options on such 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. 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
unless as permitted by the Investment Company Act of 1940 (the "1940
Act") and the rules and regulations thereunder, except that the
International Equity and Small Cap Equity Funds' purchases are not
limited to money market funds. 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 POLICY
No Fund may purchase or hold illiquid securities, I.E., securities that
cannot be disposed of for their approximate carrying value in seven days or
less (which term includes repurchase agreements and time deposits maturing in
more than seven days) if, in the aggregate, more than 15% of its net assets
would be invested in illiquid securities.
B-13
<PAGE>
With the exception of the limitations on liquidity standards, the foregoing
percentages will apply at the time of the purchase of a security and shall
not be considered violated unless an excess occurs or exists immediately
after and as a result of a purchase of such security.
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") dated August
18, 1995. The Advisory Agreement provides that the Advisor shall not be
protected against any liability to the Trust or its Investors 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 years ended
December 31, 1998, 1997 and 1996, the Trust paid the following advisory fees:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
FUND FEES PAID FEES WAIVED OR REIMBURSED
1998 1997 1996 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment Grade Bond Fund $107,213 $ 0 $ 0 $ 85,323 $ 70,532 $118,806
- -----------------------------------------------------------------------------------------------------------------------------
Capital Appreciation Fund $960,564 $310,665 $ 0 $218,450 $197,598 $154,334
- -----------------------------------------------------------------------------------------------------------------------------
Value Income Stock Fund $715,023 $274,723 $ 0 $144,498 $151,040 $147,092
- -----------------------------------------------------------------------------------------------------------------------------
B-14
<PAGE>
- -----------------------------------------------------------------------------------------------------------------------------
Mid-Cap Equity Fund $316,697 $ 99,442 $ 0 $104,569 $117,453 $133,476
- -----------------------------------------------------------------------------------------------------------------------------
International Equity Fund $213,697 $ 0 * $ 81,229 $106,197 $ 15,528
- -----------------------------------------------------------------------------------------------------------------------------
Small Cap Equity Fund $133,405 $ 0 * $ 80,770 $ 17,485 $ 0
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Not in operation.
THE ADMINISTRATOR
The Trust and SEI Investments Mutual Funds Services (the "Administrator") are
parties to an Administration Agreement (the "Administration Agreement") dated
August 18, 1995. The Administration Agreement provides that the Administrator
shall not be liable for any error of judgment or mistake of law or for any loss
suffered by the Trust in connection with the matters to which the
Administration Agreement relates, except a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of the Administrator
in the performance of its duties or from reckless disregard by it of its
duties and obligations thereunder. The Administration Agreement shall remain
in effect for a period of five years after the date of the Agreement and
shall continue in effect for successive periods of two years subject to
review at least annually by the Trustees of the Trust unless terminated by
either party on not less than 90 days' written notice.
The Administrator, a Delaware business trust, has its principal business
offices at Oaks, Pennsylvania 19456. SEI Investments Management Corporation
("SIMC"), a wholly-owned subsidiary of SEI Investments Company ("SEI"), is
the owner of all beneficial interest in the Administrator. SEI Investments
and its subsidiaries and affiliates, including the Administrator, are leading
providers of funds evaluation services, trust accounting systems, and
brokerage and information services to financial institutions, institutional
investors, and money managers. The Administrator and its affiliates also
serve as administrator to the following other mutual funds: The Achievement
Funds Trust, The Advisors' Inner Circle Fund, The Arbor Fund, ARK Funds,
Armada Funds, Bishop Street Funds, Boston 1784 Funds(R), CrestFunds, Inc.,
CUFUND, The Expedition Funds, First American Funds, Inc., First American
Investment Funds, Inc., First American Strategy Funds, Inc., HighMark Funds,
Huntington Funds, The Nevis Fund, Inc., Oak Associates Funds, The PBHG Funds,
Inc., PBHG Advisor Funds, Inc., PBHG Insurance Series Fund, Inc., The Pillar
Funds, SEI Asset Allocation Trust, SEI Daily Income Trust, SEI Index Funds,
SEI Institutional International Trust, SEI Institutional International
Investments Trust, SEI Institutional Managed Trust, SEI Liquid Asset Trust,
SEI Tax Exempt Trust, STI Classic Funds, TIP Funds and Alpha Select Funds.
For the period from commencement of operations to the fiscal years ended
December 31, 1998, 1997, and 1996, the Funds paid the following
administrative fees:
B-15
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
FUND FEES PAID FEES WAIVED
1998 1997 1996 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment Grade Bond Fund $62,500 $62,500 $62,500 $0 $0 $0
- -----------------------------------------------------------------------------------------------------------------------------------
Capital Appreciation Fund $62,500 $62,500 $62,500 $0 $0 $0
- -----------------------------------------------------------------------------------------------------------------------------------
Value Income Stock Fund $62,500 $62,500 $62,500 $0 $0 $0
- -----------------------------------------------------------------------------------------------------------------------------------
Mid-Cap Equity Fund $62,500 $62,500 $62,500 $0 $0 $0
- -----------------------------------------------------------------------------------------------------------------------------------
International Equity Fund $75,000 $75,000 * $0 $0 $0
- -----------------------------------------------------------------------------------------------------------------------------------
Small Cap Equity Fund $62,500 $11,815 * $0 $0 $0
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Not in operation.
THE DISTRIBUTOR
SEI Investments Distribution Company (the "Distributor"), a wholly-owned
subsidiary of SEI Investments distributes the Trust's Shares to the separate
accounts, which purchase and redeem these shares at the net asset value without
sales or redemption charges.
The Trust reserves the right to reject a purchase order when the Trust
determines that it is not in the best interest of the Trust to accept such
order.
With respect to the Trust, the Distributor may, from time to time and at its
own expense, provide promotional incentives, in the form of cash or other
compensation, to financial institutions whose representatives have sold or
are expected to sell significant amounts of these Funds.
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 dates of birth and
their principal occupations for the last five years are set forth below.
Unless otherwise noted, the principal business address for each officer
listed below is Oaks, Pennsylvania 19456.
DANIEL S. GOODRUM (7/11/26) - Trustee* - Chairman & CEO, SunBank/South
Florida, N.A., 1985- 1991; Chairman, Audit Committee and Director, Holy Cross
Hospital; Executive Committee Member and Director, Honda Classic Foundation;
Director, Broward Community College Foundation.
WILTON LOONEY (4/18/19) - Trustee* - President, Genuine Parts Company,
1961-1964; Chairman of the Board, 1964-1990; Honorary Chairman of the Board,
1990 to present. Director, Rolling, Inc.; Director, RPC Energy Services, Inc.
CHAMPNEY A. MCNAIR (10/30/24) - Trustee* - Director and Chairman of
Investment Committee and member of Executive Committee, Cotton States Life
and Health Insurance Company; Director and Chairman of Investment Committee
B-16
<PAGE>
and member of Executive Committee, Cotton States Mutual Insurance Company;
Chairman, Trust Company of Georgia Advisory Council.
F. WENDELL GOOCH (12/3/32) - Trustee - 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. Trustee, SEI Asset Allocation Trust, SEI Daily Income Trust,
SEI Index Funds, SEI Institutional Investments Trust, SEI Institutional
Managed Trust, SEI International Trust, SEI Liquid Asset Trust, SEI Tax
Exempt Trust and STI Classic Funds.
T. GORDY GERMANY (11/28/25) - Trustee - Retired President, Chairman, and CEO
of Crawford & Company; held these positions, 1973-1987; member of the Board
of Directors, 1970-1990, joined company in 1948; spent entire career at
Crawford, currently serves on Boards of Norrell Corporation and Mercy Health
Services, the latter being the holding company of St. Joseph's Hospitals.
DR. BERNARD F. SLIGER (9/30/24) - Trustee - Currently on sabbatical leave
from Florida State University (1991-92); now serves as visiting professor at
the University of New Orleans. President of Florida State University,
1976-91; previous 4 years EVP and Chief Academic Officer; during educational
career, taught at Florida State, Michigan State, Louisiana State and Southern
University; spent 19 years as faculty member and administrator at Louisiana
State University and served as Head of Economics Department, member and
Chairman of the Graduate Council, Dean of Academic Affairs and Vice
Chancellor. Member of Board of Directors of Federal Reserve Bank of Atlanta,
1983-1988.
JONATHAN T. WALTON (3/28/30) - Trustee - Retired. Executive Vice President,
NBD Bank, N.A. and NBD Bancorp, October 1956 to March 1995. Trustee, W.K.
Kellogg Trust.
WILLIAM H. CAMMACK (11/24/29) - Trustee* - Chairman & Director, SunTrust
Equitable Securities Corporation, January 1998-present. Chairman and CEO,
Equitable Asset Management, Inc., December 1993-present. Chairman and CEO,
Equitable Trust Company, June 1991-present. Chairman, Equitable Securities
Corporation, July 1972-January 1998.
MARK NAGLE (10/20/59) - President and Chief Executive Officer - Vice
President and Controller, Funds Accounting since 1996. Vice President of the
Administrator and Distributor since 1996. Vice President of Fund Accounting -
BISYS Fund Services 1995-1996. Senior Vice President - Fidelity Investments
1981-1995.
TODD CIPPERMAN (2/14/66) - Vice President, Assistant Secretary - Vice
President and Assistant Secretary of SEI, the Administrator and the
Distributor since 1995; Associate, Dewey Ballantine (law firm), 1994-1995.
LINDA GAVALIS (6/5/64) - Vice President and Assistant Secretary - Vice
President and Assistant Secretary of the Administrator and the Distributor
since 1998. Assistant General Counsel and Director of Arbitration,
Philadelphia Stock Exchange, 1989-1998.
KATHY HEILIG (12/21/58) - Vice President and Assistant Secretary - Treasurer
of SEI Investments Company since 1997. Assistant Controller of SEI
Investments Company since 1995. Vice President of SEI Investments Company
since 1991.
JOSEPH M. O'DONNELL (11/13/54) - Vice President and Assistant Secretary -
Vice President and Assistant Secretary of the Administrator and the
Distributor since 1988. Vice President and General Counsel, FPS Services,
Inc., 1993-1997.
B-17
<PAGE>
SANDRA K. ORLOW (10/18/53) - Vice President, Assistant Secretary - Vice
President and Assistant Secretary of SEI, the Administrator and Distributor
since 1983.
LYNDA J. STRIEGEL (10/30/48) - Vice President and Assistant Secretary - Vice
President and Assistant Secretary of the Administrator and the Distributor
since 1998. Senior Asset Management Counsel, Barnett Banks, Inc., 1997-1998.
Partner, Groom and Nordberg, Chartered, 1996-1997. Associate General
Counsel, Riggs Bank, N.A., 1991-1995.
KEVIN P. ROBINS (4/15/61) - Vice President, Assistant Secretary - Senior Vice
President & General Counsel of SEI, the Administrator and the Distributor
since 1994.
KATHRYN L. STANTON (11/19/58) - Vice President, Assistant Secretary - Vice
President, Assistant Secretary of SEI, the Administrator and Distributor
since 1994.
CAROL ROONEY (5/8/64) - Controller, Treasurer, Chief Financial Officer. A
Director of SEI Fund Resources since 1992.
RICHARD W. GRANT (10/25/45) - Secretary -1701 Market Street, Philadelphia,
Pennsylvania 19103. Partner, Morgan, Lewis & Bockius LLP (law firm); Counsel
to the Trust, Administrator and Distributor, since 1989.
JOHN H. GRADY, JR. (6/1/61) - Assistant Secretary - 1701 Market Street,
Philadelphia, Pennsylvania 19103. Partner, Morgan, Lewis & Bockius LLP (law
firm) since 1995, counsel to the Trust, Administrator and Distributor.
- ------------------------
* Messrs. Looney, Goodrum, McNair, and Cammack may be deemed to be
"interested persons" of the Trust as defined in the Investment
Company Act of 1940.
The Trustees and officers of the Trust own, in the aggregate, less than 1% of
the outstanding shares of the Trust.
For the fiscal year ended December 31, 1998, the Trust paid the following
amounts of the Trustees and Officers of the Trust:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
PENSION OR
RETIREMENT
AGGREGATE BENEFITS ESTIMATED TOTAL COMPENSATION FROM
COMPENSATION ACCRUED AS ANNUAL REGISTRANT AND FUND
NAME OF PERSON FROM REGISTRANT PART OF FUND BENEFITS UPON COMPLEX PAID TO DIRECTORS
AND POSITION FOR FYE 98 EXPENSES RETIREMENT FOR FYE 98
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
William H. Cammack, Trustee $0 $0 $0 $ 0 for services on 2 boards
- -----------------------------------------------------------------------------------------------------------------------------------
T. Gordy Germany, Trustee $17,500 $0 $0 $17,500 for services on 2
boards
- -----------------------------------------------------------------------------------------------------------------------------------
F. Wendell Gooch, Trustee $17,500 $0 $0 $17,500 for services on 2
boards
- -----------------------------------------------------------------------------------------------------------------------------------
Daniel S. Goodrum, Trustee $16,000 $0 $0 $16,000 for services on 2
boards
- -----------------------------------------------------------------------------------------------------------------------------------
Wilton Looney, Trustee $19,000 $0 $0 $19,000 for services on 2
boards
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
B-18
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
PENSION OR
RETIREMENT
AGGREGATE BENEFITS ESTIMATED TOTAL COMPENSATION FROM
COMPENSATION ACCRUED AS ANNUAL REGISTRANT AND FUND
NAME OF PERSON FROM REGISTRANT PART OF FUND BENEFITS UPON COMPLEX PAID TO DIRECTORS
AND POSITION FOR FYE 98 EXPENSES RETIREMENT FOR FYE 98
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Champney McNair, Trustee $16,000 $0 $0 $16,000 for services on 2
boards
- -----------------------------------------------------------------------------------------------------------------------------------
Bernard F. Sliger, Trustee $17,500 $0 $0 $17,500 for services on 2
boards
- -----------------------------------------------------------------------------------------------------------------------------------
Jonathan T. Walton, Trustee $10,500 $0 $0 $10,500 for services on 2
boards
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
COMPUTATION OF YIELD
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) TO THE POWER OF 6 - 1], where a = dividends
and interest earned during the period; b = expenses accrued for the
period (net of reimbursement); c = the 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:
B-19
<PAGE>
P(1 + T) TO THE POWER OF n = ERV, where P = a hypothetical initial
payment of $1,000; T = average annual total return; n = number of
years; and ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the designated time period as
of the end of such period.
From time to time, the Trust may include the names of clients of the 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. SunTrust Bank's investment advisory affiliate, STI Capital
Management, N.A., acting as the investment advisor for the Funds, 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, 1998, yields on the Funds were as
follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
FUND YIELD
- ----------------------------------------------------------------------------
<S> <C>
Investment Grade Bond Fund 4.78%
- ----------------------------------------------------------------------------
Capital Appreciation Fund 0.24%
- ----------------------------------------------------------------------------
Value Income Stock Fund 1.85%
- ----------------------------------------------------------------------------
Mid-Cap Equity Fund N/A
- ----------------------------------------------------------------------------
International Equity Fund N/A
- ----------------------------------------------------------------------------
Small Cap Equity Fund 1.26%
- ----------------------------------------------------------------------------
</TABLE>
Based on the foregoing, the average annual total returns for the Funds from
commencement of operations through December 31, 1998 were as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN
-----------------------------------------------------
FUND ONE YEAR SINCE INCEPTION
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Investment Grade Bond Fund 9.38% 7.45%
- ----------------------------------------------------------------------------------------------------
Capital Appreciation Fund 28.97% 29.78%
- ----------------------------------------------------------------------------------------------------
Value Income Stock Fund 9.69% 14.86%
- ----------------------------------------------------------------------------------------------------
Mid-Cap Equity Fund 7.16% 14.92%
- ----------------------------------------------------------------------------------------------------
International Equity Fund 10.80% 13.66%
- ----------------------------------------------------------------------------------------------------
Small Cap Equity Fund -12.18% -11.85%
- ----------------------------------------------------------------------------------------------------
</TABLE>
B-20
<PAGE>
PURCHASE AND REDEMPTION OF SHARES
Purchases and redemptions of shares of the Funds may be made on any day the
New York Stock Exchange ("NYSE") is open for business. Currently, the NYSE is
closed on the days the following holidays are observed: New Year's Day,
Presidents' Day, Martin Luther King, Jr. Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
It is currently the Trust's policy to pay for all redemptions in cash. The
Trust retains the right, however, to alter this policy to provide for
redemptions in whole or in part by a distribution in-kind of readily
marketable securities held by the Funds in lieu of cash. Investors may incur
brokerage charges on the sale of any such securities so received in payment
of redemptions. An Investor 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.
NET ASSET VALUE--PRICING OF PORTFOLIO SECURITIES
The net asset value per share of the Funds is determined at the close of
regular trading on the NYSE (normally 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.
B-21
<PAGE>
TAXES
The following is a summary of certain Federal income tax considerations
generally affecting the Funds and their Investors. No attempt is made to
present a detailed explanation of the Federal tax treatment of a Fund or its
Investors, and the discussion here and in the Trust's prospectus is not
intended as a substitute for careful tax planning. Further, this discussion
does not address the tax considerations affecting any Contract Owner. Federal
income tax considerations affecting such Owners is discussed in the
prospectus and the statement of additional information for such Contract.
FEDERAL INCOME TAX
This discussion of Federal income tax considerations is based on the Internal
Revenue Code, as amended (the "Code), and the regulations issued thereunder,
in effect on the date of this Statement of Additional Information. New
legislation, as well as administrative changes or court decisions may change
the conclusions expressed herein, and may have a retroactive effect with
respect to the transactions contemplated herein.
In order to qualify for treatment as a regulated investment company ("RIC")
under the Code, the Funds must distribute annually to its Shareholders at
least the sum of 90% of its net investment income excludable from gross
income plus 90% of its investment company taxable income (generally, net
investment income plus net short-term capital gain) (the "Distribution
Requirement") and also must meet several additional requirements. Among these
requirements are the following: (i) at least 90% of a Fund's gross income
each taxable year must be derived from dividends, interest, payments with
respect to securities loans, and gains from the sale or other disposition of
stock or securities, or certain other income, (ii) at the close of each
quarter of a Fund's taxable year, at least 50% of the value of its total
assets must be represented by cash and cash items, U.S. Government
securities, securities of other RICs and other securities, with such other
securities limited, in respect to any one issuer, to an amount that does not
exceed 5% of the value of a Fund's assets and that does not represent more
than 10% of the outstanding voting securities of such issuer; and (iii) at
the close of each quarter of a Fund's taxable year, not more than 25% of the
value of its assets may be invested in securities (other than U.S. Government
securities or the securities of other RICs) of any one issuer, or of two or
more issuers engaged in same or similar businesses if a Fund owns at least
20% of the voting power of such issuers.
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
gains (the excess of net long-term capital gains over net short-term capital
loss), a Fund will be subject to a nondeductible 4% excise tax to the extent
it fails to distribute by the end of any calendar year 98% of its ordinary
income for that year and 98% of its capital gain net income for the on-year
period ending on October 31 of that calendar year, plus certain other
amounts. The Funds intend to make sufficient distributions prior to the end
of each calendar year to avoid liability for the Federal excise tax
applicable to regulated investment companies.
B-22
<PAGE>
Any gain or loss recognized on a sale or redemption of Shares of a Fund by an
Investor who is not a dealer in securities will generally be treated as a
long-term capital gain or loss if the shares have been held for more than
twelve months and otherwise will be generally treated as a short-term capital
gain or loss. If shares on which a net capital gain distribution has been
received are subsequently sold or redeemed and such shares have been held for
six months or less, any loss recognized will be treated as a long-term
capital loss to the extent of the long-term capital gain distributions.
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 Investors and the ownership of shares may be subject to state and
local taxes.
FOREIGN TAXES
Dividends and interests received by a Fund may be subject to income,
withholding or other taxes imposed by foreign countries and U.S. possessions
that would reduce the yield on the Fund's stock or securities. Tax
conventions between certain countries and the United States may reduce or
eliminate these taxes. Foreign countries generally do not impose taxes on
capital gains with respect to investments by foreign investors.
If a Fund meets the Distribution Requirement, and if more than 50% of the
value of the Fund's total assets at the close of its taxable year consists of
stock or securities of foreign corporations, the Fund will be eligible to,
and will, file an election with the Internal Revenue Service that will enable
Shareholders, in effect, to receive the benefit of the foreign tax credit
with respect to any foreign and U.S. possessions income taxes paid by the
Fund. Pursuant to the election, the Fund will treat those taxes as dividends
paid to its Shareholders. Each Shareholder will be required to include a
proportionate share of those taxes in gross income as income received from a
foreign source and must treat the amount so included as if the Shareholder
had paid the foreign tax directly. The Shareholder may then either deduct the
taxes deemed paid by him or her in computing his or her taxable income or,
alternatively, use the foregoing information in calculating the foreign tax
credit against the Shareholders' Federal income tax. In no event shall a
Shareholder be allowed a foreign tax credit with respect to shares in the
Fund if such shares are held by the Shareholder for 15 days or less during
the 30-day period beginning on the date which is 15 days before the date on
which such shares become ex-dividend with respect to such dividend. If a Fund
makes the election, the Fund will report annually to its Shareholders the
respective amounts per share of the Fund's income from sources within, and
taxes paid to, foreign countries and U.S. possessions.
The Fund's transactions in foreign currencies and forward foreign currency
contracts will be subject to special provisions of the Code that, among other
things, may affect the character of gains and losses realized by the Fund
(I.E., may effect whether gains or losses are ordinary or capital),
accelerate recognition of income to the fund and defer Fund losses. These
rules could therefore affect the character, amount and timing of
distributions to Shareholders. These provisions also may require the
B-23
<PAGE>
Fund to mark-to-market certain types of the positions in its portfolio (I.E.,
treat them as if they were closed out) which may cause the Fund to recognize
income without receiving cash with which to make distributions in amounts
necessary to satisfy the 90% and 98% distribution requirements for avoiding
income and excise taxes. The Fund will monitor its transactions, will make
the appropriate tax elections, and will make the appropriate entries in the
books and records when it acquires any foreign currency or forward foreign
currency contract in order to mitigate the effect of these rules and prevent
disqualification of the Fund as a RIC and minimize the imposition of income
and excise 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
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 provide transactions at best price and execution
for the Trust. Best price and execution includes many factors, including the
price paid or received for a security, the commission charged, the promptness
and reliability of execution, the confidentiality and placement accorded the
order and other factors affecting the overall benefit obtained by the account
on the transaction. The Trust's determination of what are reasonably
competitive rates is based upon the professional knowledge of its trading
department as to rates paid and charged for similar transactions throughout
the securities industry. In some instances, the Trust pays a minimal share
transaction cost when the transaction presents no difficulty. Some trades are
made on a net basis where the Trust either buys securities directly from the
dealer or sells them to the dealer. In these instances, there is no direct
B-24
<PAGE>
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 rendering advice, either directly or through
publications or writings, about 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 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
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 the Funds 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 Conduct Rules of the National Association of Securities
Dealers, Inc., and subject to seeking best price and execution, the Funds, at
the request of the Distributor, give consideration to sales of shares of the
Trust as a factor in the selection of brokers and dealers to execute Trust
portfolio transactions.
B-25
<PAGE>
It is expected that the Trust may execute brokerage or other agency
transactions through the Distributor or an 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 fiscal year ended December 31, 1998, the Funds paid the following
brokerage commissions with respect to portfolio transactions:
B-26
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL $ AMOUNT OF TOTAL $ AMOUNT OF % OF TOTAL % OF TOTAL
BROKERAGE COMMISSIONS BROKERAGE BROKERAGE BROKERED
PORTFOLIO PAID FYE 98 COMMISSIONS PAID COMMISSIONS TRANSACTIONS
TO SIDCO IN PAID TO EFFECTED
FYE 98 SIDCO FOR THROUGH
FYE 98 SIDCO FOR
FYE 98
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Grade Bond $ 843 $ 843 100% 100%
Fund
- ----------------------------------------------------------------------------------------------------------------------------------
Capital Appreciation Fund $340,807 $3,512 1.03% 32.42%
- ----------------------------------------------------------------------------------------------------------------------------------
Value Income Stock Fund $196,590 $3,905 1.99% 37.74%
- ----------------------------------------------------------------------------------------------------------------------------------
Mid-Cap Equity Fund $ 55,918 $1,068 1.91% 55.54%
- ----------------------------------------------------------------------------------------------------------------------------------
International Equity Fund $115,570 $ 0 0% 0%
- ----------------------------------------------------------------------------------------------------------------------------------
Small Cap Equity Fund $ 36,442 $ 435 1.19% 54.15%
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
For the fiscal year ended December 31, 1997, the Funds paid the following
brokerage commissions with respect to portfolio transactions:
B-27
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL $ AMOUNT OF TOTAL $ AMOUNT OF BROKERAGE
PORTFOLIO BROKERAGE COMMISSIONS PAID IN COMMISSIONS PAID TO SIDCO IN
FYE 97 FYE 97
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investment Grade Bond Fund $ 383 $ 383
- ----------------------------------------------------------------------------------------------------------------------------------
Capital Appreciation Fund $160,630 $2,094
- ----------------------------------------------------------------------------------------------------------------------------------
Value Income Stock Fund $183,900 $1,817
- ----------------------------------------------------------------------------------------------------------------------------------
Mid-Cap Equity Fund $ 64,319 $ 788
- ----------------------------------------------------------------------------------------------------------------------------------
International Equity Fund $ 73,036 $ 0
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
B-28
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL $ AMOUNT OF TOTAL $ AMOUNT OF BROKERAGE
PORTFOLIO BROKERAGE COMMISSIONS PAID IN COMMISSIONS PAID TO SIDCO IN
FYE 97 FYE 97
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Small Cap Equity Fund $ 9,824 $ 74
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
For the fiscal year ended December 31, 1996, the Funds paid the following
brokerage fees:
B-29
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL $ AMOUNT OF BROKERAGE TOTAL $ AMOUNT OF BROKERAGE
PORTFOLIO COMMISSIONS PAID IN FYE COMMISSIONS PAID TO SIDCO IN FYE
1996 1996
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investment Grade Bond Fund $ 332 $ 332
- ----------------------------------------------------------------------------------------------------------------------------------
Capital Appreciation Fund $48,683 $1051
- ----------------------------------------------------------------------------------------------------------------------------------
Value Income Stock Fund $68,004 $ 733
- ----------------------------------------------------------------------------------------------------------------------------------
Mid-Cap Equity Fund $35,536 $ 547
- ----------------------------------------------------------------------------------------------------------------------------------
International Equity Fund $ 1,565 $ 0
- ----------------------------------------------------------------------------------------------------------------------------------
Small Cap Equity Fund * *
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Not in operation.
For the period from the commencement of operations to the fiscal years ended
December 31, 1998, 1997 and 1996, the portfolio turnover rate for each of the
Funds was as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
TURNOVER RATE
FUND 1998 1997 1996
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment Grade Bond Fund 183% 219% 303%
- --------------------------------------------------------------------------------------------------------
Capital Appreciation Fund 219% 196% 148%
- --------------------------------------------------------------------------------------------------------
Value Income Stock Fund 76% 105% 80%
- --------------------------------------------------------------------------------------------------------
Mid-Cap Equity Fund 92% 139% 140%
- --------------------------------------------------------------------------------------------------------
International Equity Fund 129% 99% 0%
- --------------------------------------------------------------------------------------------------------
Small Cap Equity Fund 49% 4% *
- --------------------------------------------------------------------------------------------------------
</TABLE>
* Not in operation.
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
B-30
<PAGE>
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 Investor held
personally liable for the obligations of the Trust.
5% AND 25% SHAREHOLDERS
As of April 1, 1999, 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.
<TABLE>
<CAPTION>
ACCOUNT SHARE PERCENT OF TOTAL
NAME OF FUND NAME AND ADDRESS OF SHAREHOLDER BALANCE SHARES
- ------------ ------------------------------- ------- ------
<S> <C> <C> <C>
Investment Grade Glenbrook Life and Annuity Company 1,979,321.4980 99.39%
Bond Fund Attn: Olga Prohny
Financial Control Unit
3100 Sanders Road Suite N4A
Northbrook, IL 60672-7155
Capital Appreciation Glenbrook Life and Annuity Company 5,628,226.0300 100.00%
Fund Attn: Olga Prohny
Financial Control Unit
3100 Sanders Road Suite N4A
Northbrook, IL 60672-7155
</TABLE>
B-31
<PAGE>
<TABLE>
<CAPTION>
ACCOUNT SHARE PERCENT OF TOTAL
NAME OF FUND NAME AND ADDRESS OF SHAREHOLDER BALANCE SHARES
- ------------ ------------------------------- ------- ------
<S> <C> <C> <C>
Value Income Glenbrook Life and Annuity Company 6,708,409.3590 100.00%
Stock Fund Attn: Olga Prohny
Financial Control Unit
3100 Sanders Road Suite N4A
Northbrook, IL 60672-7155
Mid-Cap Equity Glenbrook Life and Annuity Company 2,198,526.5290 100.00%
Fund Attn: Olga Prohny
Financial Control Unit
3100 Sanders Road Suite N4A
Northbrook, IL 60672-7155
International Glenbrook Life and Annuity Company 1,411,461.8850 100.00%
Equity Fund Attn: Olga Prohny
Financial Control Unit
3100 Sanders Road Suite N4A
Northbrook, IL 60672-7155
Small Cap Equity Glenbrook Life and Annuity Company 963,317.0550 65.41%
Fund Attn: Olga Prohny
Financial Control Unit
3100 Sanders Road Suite N4A
Northbrook, IL 60672-7155
Small Cap Equity Allstate Life Insurance Company 509,381.5950 34.59%
Fund Attn: Deborah Bukowy
Investment Operations Equity Unit
3075 Sanders Road Suite G4A
Northbrook, IL 60062-7127
</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
B-32
<PAGE>
report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in accounting and auditing.
B-33
<PAGE>
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 a 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
B-34
<PAGE>
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 Caa are of poor standing.
Such issues may be in default or there may be present elements of danger with
respect to principal and interest. Bonds which are rated Ca represent
obligations which are speculative in a high degree. Such issues are often in
default or have other marked shortcomings. Bonds which are rated C are the
lowest rated class of bonds and issues so rated can be regarded as having
extremely poor prospects of ever attaining any real investment standing.
II. COMMERCIAL PAPER AND SHORT-TERM RATINGS
The following descriptions of commercial paper ratings have been published by
S&P, Moody's, Fitch Investors Service, Inc. ("Fitch"), Duff and Phelps
("Duff") and IBCA Limited ("IBCA"), respectively.
Commercial paper rated A by S&P is regarded by S&P as having the greatest
capacity for timely payment. Issues rated A are further refined by use of the
numbers 1+ and 1. Issues rated A-1+ are those with an "overwhelming degree"
of credit protection. Those rated A-1, reflect a "very strong" degree of
safety regarding timely payment. Those rated A-2 reflect a safety regarding
timely payment but not as high as A-1.
Commercial paper issues rated Prime-1 and Prime-2 by Moody's are judged by
Moody's to have superior ability and strong ability for repayment,
respectively.
The rating Fitch 1+ (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
B-35
<PAGE>
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.
B-36
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Trustees of
STI Classic Variable Trust:
We have audited the accompanying statements of net assets of the Value Income
Stock, Mid-Cap Equity, Small Cap Equity, Capital Appreciation, and Investment
Grade Bond Funds, and the statement of assets and liabilities, including the
schedule of investments, of the International Equity Fund of STI Classic
Variable Trust (the "Trust") as of December 31, 1998, and the related
statements of operations, changes in net assets, and financial highlights for
the periods 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 and financial highlights. Our procedures included confirmation of
securities owned as of December 31, 1998, by correspondence with the custodian
and the application of alternative auditing procedures with respect to unsettled
securities transactions. 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, Mid-Cap Equity, Small Cap Equity, Capital Appreciation,
Investment Grade Bond and International Equity Funds of STI Classic Variable
Trust as of December 31, 1998, the results of their operations, changes in
their net assets, and financial highlights for the periods presented, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Philadelphia, PA
January 29, 1999
<PAGE>
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
STI CLASSIC VARIABLE TRUST FUNDS DECEMBER 31, 1998
VALUE INCOME STOCK FUND
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
SHARES VALUE (000)
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (89.3%)
BASIC MATERIALS (12.9%)
Allegheny Teledyne 57,900 $ 1,183
B.F. Goodrich 30,100 1,080
Boise Cascade 36,500 1,131
Consolidated Papers 26,300 723
Engelhard 35,800 698
Hercules 25,100 687
Minnesota Mining &
Manufacturing 13,400 953
Morton International 38,800 951
Parker Hannifin 23,800 779
Reynolds Metals 23,400 1,233
Sonoco Products 36,530 1,082
Union Camp 11,600 783
Weyerhaeuser 13,800 701
Witco Chemical 18,700 298
Worthington Industries 38,800 485
-------
12,767
-------
CAPITAL GOODS (11.2%)
Cooper Industries 25,800 1,230
Corning 13,000 585
Crown Cork & Seal 35,500 1,094
Harris 31,200 1,143
Johnson Controls 20,600 1,215
National Service Industries 28,000 1,064
Pall 41,800 1,058
Tecumseh Products, Cl A 10,400 485
Tenneco 31,000 1,056
Thomas & Betts 26,300 1,139
Volvo* 40,400 942
-------
11,011
-------
COMMUNICATION SERVICES (3.8%)
Alltel 25,900 1,549
Frontier 15,300 520
GTE 25,100 1,631
-------
3,700
-------
<CAPTION>
- --------------------------------------------------------------------------------
SHARES VALUE (000)
- --------------------------------------------------------------------------------
<S> <C> <C>
CONSUMER CYCLICALS (9.0%)
American Greetings, Cl A 24,400 $ 1,002
Genuine Parts 27,000 903
H&R Block 40,300 1,813
ITT Industries 9,700 386
J.C. Penney 40,000 1,875
Masco 38,500 1,107
Stanley Works 47,100 1,307
TRW 9,700 545
-------
8,938
-------
CONSUMER STAPLES (14.9%)
Bestfoods 17,500 932
ConAgra 64,300 2,025
Dean Foods 23,300 951
Flowers Industries 31,700 759
Food Lion, Cl A 42,900 456
Fortune Brands 31,800 1,006
General Mills 17,900 1,392
Hormel Foods 14,600 478
International Flavors &
Fragrances 32,500 1,436
Kimberly Clark 40,100 2,185
McCormick 22,800 771
Newell 13,400 553
Seagram 27,200 1,034
Wallace Computer Services 28,900 762
-------
14,740
-------
ENERGY (9.0%)
Atlantic Richfield 29,200 1,905
Baker Hughes 63,900 1,130
Conoco* 47,300 987
Fort James Corp. 26,400 1,056
Kerr-McGee 24,300 929
Murphy Oil 22,600 932
Unocal 65,500 1,912
-------
8,851
-------
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
SHARES VALUE (000)
- --------------------------------------------------------------------------------
<S> <C> <C>
FINANCIALS (15.5%)
American Financial Group 20,000 $ 877
American General 12,600 983
AmSouth Bancorp 10,400 475
Bank One 42,300 2,160
BankBoston 24,700 962
Cigna 24,300 1,879
Hibernia, Cl A 39,400 685
KeyCorp 35,200 1,126
Paine Webber Group 22,400 865
PNC Bank 21,600 1,169
Safeco 31,500 1,353
Summit Bancorp 27,000 1,180
Transamerica 8,100 936
Union Planters 14,536 659
-------
15,309
-------
HEALTH CARE (7.4%)
Abbott Laboratories 20,700 1,014
American Home Products 30,200 1,701
Baxter International 36,500 2,347
C.R. Bard 13,700 678
Mallinckrodt 15,400 475
Pharmacia Upjohn ADR 19,700 1,116
-------
7,331
-------
TECHNOLOGY (0.9%)
EG&G 33,700 937
-------
UTILITIES (4.7%)
Consolidated Natural Gas 25,200 1,361
GPU 20,800 919
Questar 38,600 748
Scana 25,500 822
Sonat 29,000 785
-------
4,635
-------
TOTAL COMMON STOCKS
(Cost $85,565) 88,219
-------
<CAPTION>
- --------------------------------------------------------------------------------
FACE
AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENT (10.4%)
Morgan Stanley
4.85%, dated 12/31/98,
matures 1/4/99, repurchase
price $10,265,163 (collateralized
by U.S. Agency Obligations:
market value $10,581,654) $10,260 $10,260
-------
TOTAL REPURCHASE AGREEMENT
(Cost $10,260) 10,260
-------
TOTAL INVESTMENTS (99.7%)
(Cost $95,825) 98,479
-------
OTHER ASSETS AND LIABILITIES, NET (0.3%) 280
-------
NET ASSETS:
Portfolio Shares (unlimited
authorization -- no par value)
based on 6,548,342 outstanding
shares of beneficial interest 87,378
Accumulated net realized gain
on investments 8,502
Net unrealized appreciation
on investments 2,654
Undistributed net investment income 225
-------
Total Net Assets (100.0%) $98,759
-------
-------
Net Asset Value, Offering and
Redemption Price Per Share $15.08
-------
-------
</TABLE>
* NON-INCOME PRODUCING SECURITY
ADR -- AMERICAN DEPOSITORY RECEIPT
Cl -- CLASS
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
9
<PAGE>
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
STI CLASSIC VARIABLE TRUST FUNDS DECEMBER 31, 1998
MID-CAP EQUITY FUND
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
SHARES VALUE (000)
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (91.5%)
CAPITAL GOODS (10.9%)
Allied Waste Industries* 48,700 $ 1,150
Herman Miller 24,100 648
Motivepower Industries 10,000 322
U.S. Filter* 40,000 915
Watsco 20,700 347
-------
3,382
-------
CONSUMER CYCLICALS (19.4%)
BJ's Wholesale Club* 11,000 509
Borders Group* 39,200 978
Ethan Allen Interiors 12,800 525
Family Dollar Stores 38,100 838
Harley-Davidson 21,400 1,014
Just for Feet* 37,250 647
Men's Wearhouse* 28,150 894
Ralph Lauren* 15,800 303
Staff Leasing* 27,700 322
-------
6,030
-------
CONSUMER STAPLES (12.8%)
Avis Rent A Car* 30,400 735
Cracker Barrel Old Country Stores 25,200 587
Dial 11,700 338
Flowers Industries 18,500 443
Interstate Bakeries 24,600 650
Norrell 19,000 280
Papa John's International* 13,900 613
US Foodservice* 6,800 333
-------
3,979
-------
ENERGY (1.6%)
Anadarko Petroleum 4,400 136
Ensearch Exploration Inc* 17,466 122
National-Oilwell Inc* 22,600 253
-------
511
-------
<CAPTION>
- --------------------------------------------------------------------------------
SHARES VALUE (000)
- --------------------------------------------------------------------------------
<S> <C> <C>
FINANCIALS (11.2%)
Colonial Bancgroup 27,300 $ 328
Dime Bancorp 15,700 415
First Security 18,637 436
First Virginia Banks 8,100 381
Hibernia, Cl A 24,200 420
North Fork Bancorporation 23,100 553
Peoples Heritage Financial Group 16,000 320
Trustmark 16,600 376
Western Bancorp 8,100 237
-------
3,466
-------
HEALTH CARE (15.0%)
Acuson Corp* 12,400 184
Centocor* 11,400 514
Curative Technologies* 16,000 536
Forest Laboratories* 8,500 452
Immunex* 5,300 667
Jones Pharmaceuticals 5,000 182
Mylan Laboratories 18,600 586
Quintiles Transnational* 12,700 678
Watson Pharmaceuticals* 13,600 855
-------
4,654
-------
TECHNOLOGY (19.4%)
ADC Telecommunications* 19,500 678
Fiserv* 14,850 764
Flextronics International* 12,400 1,062
Intuit* 6,300 457
Nova* 15,587 541
Sanmina* 18,900 1,181
Sawtek* 28,700 502
Teradyne* 20,100 852
-------
6,037
-------
TRANSPORTATION (1.2%)
CNF Transportation 10,000 376
-------
TOTAL COMMON STOCKS
(Cost $24,829) 28,435
-------
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
FACE
AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENT (5.2%)
Morgan Stanley
4.60%, dated 12/31/98, matures
01/04/99, repurchase price
$1,612,874 (collateralized by a
U.S. Treasury Note: market
value $1,652,834) $1,612 $ 1,612
-------
TOTAL REPURCHASE AGREEMENT
(Cost $1,612) 1,612
-------
TOTAL INVESTMENTS (96.7%)
(Cost $26,441) 30,047
-------
OTHER ASSETS AND LIABILITIES, NET (3.3%) 1,028
-------
NET ASSETS:
Portfolio Shares (unlimited
authorization -- no par value)
based on 2,290,850 outstanding
shares of beneficial interest 27,086
Accumulated net realized gain
on investments 378
Net unrealized appreciation
on investments 3,606
Undistributed net investment income 5
-------
Total Net Assets (100.0%) $31,075
-------
-------
Net Asset Value, Offering and Redemption
Price Per Share $13.56
-------
-------
</TABLE>
* NON-INCOME PRODUCING SECURITY
Cl -- CLASS
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
11
<PAGE>
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
STI CLASSIC VARIABLE TRUST FUNDS DECEMBER 31, 1998
SMALL CAP EQUITY FUND
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
MARKET
SHARES VALUE (000)
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (97.3%)
BASIC MATERIALS (12.1%)
Carpenter Technology 7,600 $ 258
Commonwealth Industries 12,500 117
H. B. Fuller 2,900 140
Lilly Industries Incorporated, Cl A 12,000 239
Madeco ADR 10,900 91
Quimica y Minera Chile ADR 6,600 222
Texas Industries 9,500 256
Titanium Metals 12,800 109
Wausau-Mosinee Paper 9,300 164
-------
1,596
-------
CAPITAL GOODS (15.7%)
A.M. Castle 6,400 96
Ameron 3,500 129
Belden 6,500 138
DT Industries 2,800 44
Furon 7,900 135
Gerber Scientific 6,600 157
Hardinge 2,200 41
Kaman 10,000 161
Kaydon 3,200 128
Lindberg 6,800 62
LSI Industries 6,100 137
Pittway, Cl A 6,800 225
Precision Castparts 3,900 173
Regal Beloit 8,500 195
Smith (A.O.) 5,100 125
Valmont Industries 8,200 114
-------
2,060
-------
CONSUMER CYCLICALS (25.0%)
American Woodmark 5,500 188
Angelica 5,600 104
Bush Industries 15,400 192
Chemed 3,700 124
Guilford Mills 11,800 197
Harman International 7,800 297
Interface 24,200 225
<CAPTION>
- --------------------------------------------------------------------------------
MARKET
SHARES VALUE (000)
- --------------------------------------------------------------------------------
<S> <C> <C>
CONSUMER CYCLICALS (CONTINUED)
Jannock Limited 9,300 $ 87
K2 12,800 132
Kimball International* 12,400 236
Midas 5,200 162
Pep Boys 19,200 301
Pillowtex 7,500 201
Polaroid 21,100 394
Ritchie Bros. Auctioneers* 4,900 132
Springs Industries, Cl A 1,600 66
Sturm Ruger 6,500 78
Toro 5,800 165
-------
3,281
-------
CONSUMER STAPLES (16.8%)
Banta 4,500 123
Bowne & Company 8,400 150
Heilig-Meyers 35,400 237
Ingles Markets, Cl A 7,900 86
Nash Finch 6,900 98
Norrell 27,900 411
Standard Register 10,400 322
Universal Foods 11,900 326
WD-40 4,000 114
Wolverine World Wide 19,700 261
York Group 8,400 80
-------
2,208
-------
ENERGY (1.2%)
Giant Industries 17,400 163
------
FINANCIALS (8.9%)
Administradora de Fondos de
Pensiones Provida ADR* 6,500 87
Alfa 5,100 124
Annuity & Life Re Holdings* 4,800 130
Banco Latinamericano de
Exportaciones 4,700 78
Chicago Title 3,000 141
Klamath First Bancorp 5,100 99
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
MARKET
SHARES VALUE (000)
- --------------------------------------------------------------------------------
<S> <C> <C>
FINANCIALS (CONTINUED)
Scottish Annuity & Life* 9,500 $ 131
Seacoast Banking of Florida 2,200 62
Stirling Cooke Brown Holdings 4,200 73
Student Loan 2,900 130
Westerfed Financial 6,200 112
-------
1,167
-------
HEALTH CARE (6.3%)
Block Drug, Cl A 2,972 129
London International Group ADR 2,400 26
Medeva PLC ADR 22,800 184
Mentor 15,100 354
Vital Signs 7,500 131
-------
824
-------
TECHNOLOGY (1.6%)
Innovex 9,100 125
Pioneer-Standard Electronics 9,800 92
-------
217
-------
TRANSPORTATION (6.2%)
Bandag 5,700 228
Knightsbridge Tankers Limited* 5,800 121
Pittston Burlington 14,700 164
Sea Containers 9,300 278
Western Star Truck Holdings 1,600 21
-------
812
-------
UTILITIES (3.5%)
Northwest Natural Gas 3,700 96
NUI 5,300 142
TNP Enterprises 2,500 95
United Water Resources 5,400 129
-------
462
-------
Total Common Stocks
(Cost $14,403) 12,790
-------
<CAPTION>
- --------------------------------------------------------------------------------
SHARES/FACE MARKET
AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
<S> <C> <C>
PREFERRED STOCK (0.3%)
BASIC MATERIALS (0.3%)
Coeur D'Alene Mines,
CV to 0.8260 Share,
Callable 03/15/99 @ 21.622 $6,300 $ 43
-------
TOTAL PREFERRED STOCK
(Cost $93) 43
-------
REPURCHASE AGREEMENT (5.4%)
Morgan Stanley
4.50%, dated 12/31/98, matures
01/04/99, repurchase price
$709,002 (collateralized by a
U.S. Treasury Note: market
value $725,797) 709 709
-------
TOTAL REPURCHASE AGREEMENT
(Cost $709) 709
-------
TOTAL INVESTMENTS (103.0%)
(Cost $15,205) 13,542
-------
OTHER ASSETS AND LIABILITIES (-3.0%)
Investment securities
purchased payable (784)
Other assets and liabilities, net 387
-------
TOTAL OTHER ASSETS
AND LIABILITIES (397)
-------
NET ASSETS:
Portfolio Shares (unlimited
authorization -- no par value)
based on 1,550,937 outstanding
shares of beneficial interest 15,321
Accumulated net realized loss on
investments (532)
Net unrealized depreciation on
investments (1,664)
Undistributed net investment income 20
-------
Total Net Assets (100.0%) $13,145
-------
-------
Net Asset Value, Offering and
Redemption Price Per Share $8.48
-------
-------
</TABLE>
* NON-INCOME PRODUCING SECURITY
ADR -- AMERICAN DEPOSITORY RECEIPT
Cl -- CLASS
CV -- CONVERTIBLE
PLC -- PUBLIC LIMITED CORPORATION
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
13
<PAGE>
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
STI CLASSIC VARIABLE TRUST FUNDS DECEMBER 31, 1998
CAPITAL APPRECIATION FUND
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
SHARES VALUE (000)
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (91.7%)
BASIC MATERIALS (2.2%)
Air Products & Chemicals 38,900 $ 1,556
Imperial Chemical ADR 5,600 196
Monsanto 3,100 147
Morton International 14,900 365
Praxair 1,400 49
-------
2,313
-------
CAPITAL GOODS (13.1%)
Allied Signal 8,200 363
Allied Waste Industries* 14,500 343
AMP 4,400 229
Eastern Environmental Services* 20,000 592
Emerson Electric 3,800 230
General Electric 38,600 3,940
Honeywell 14,500 1,092
Lockheed Martin 7,100 602
Newell 3,500 144
Republic Services, Cl A* 16,300 301
Textron 4,900 372
Thermo Electron* 6,400 108
Tyco International 24,109 1,819
U.S. Filter* 24,712 565
United Technologies 13,500 1,468
Waste Management Inc* 35,357 1,648
-------
13,816
-------
COMMUNICATION SERVICES (3.0%)
America Online* 300 48
Century Telephone Enterprises 10,300 695
Ericsson Telephone ADR 7,900 189
Fox Entertainment Group, Cl A* 9,800 247
GTE 11,400 741
MCI WorldCom* 17,312 1,242
-------
3,162
-------
<CAPTION>
- --------------------------------------------------------------------------------
SHARES VALUE (000)
- --------------------------------------------------------------------------------
<S> <C> <C>
CONSUMER CYCLICALS (17.0%)
American Greetings 18,800 $ 772
Automatic Data Processing 9,000 722
Carnival 42,200 2,026
Consolidated Stores* 5,200 105
Costco* 19,600 1,415
CVS 26,800 1,474
Dollar General 12,100 286
Federated Department Stores* 10,700 466
Hasbro 17,500 632
Lear* 17,500 674
Lowe's Companies 46,400 2,375
Masco 52,900 1,521
Mattel 29,700 678
McGraw-Hill 7,100 723
New York Times, Cl A 3,800 132
Office Depot* 43,800 1,618
Promus Hotel* 3,300 107
Republic Industries* 4,000 59
Saks Inc* 12,200 385
Service International 17,600 670
SPX* 2,800 188
Starwood Lodging Trust REIT 7,400 168
Tandy 19,200 791
-------
17,987
-------
CONSUMER STAPLES (14.4%)
Avon Products 18,000 796
Bestfoods 5,200 277
Campbell Soup 1,000 55
Cendant* 42,406 808
Coca-Cola 4,300 154
Colgate-Palmolive 5,400 501
ConAgra 14,119 445
Flowers Industries 17,600 421
Fort James Corp. 13,900 556
Fred Meyer* 7,500 452
Gillette 5,000 242
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
SHARES VALUE (000)
- --------------------------------------------------------------------------------
<S> <C> <C>
CONSUMER STAPLES (CONTINUED)
Hershey Foods 8,200 $ 510
McDonald's 3,000 230
PepsiCo 7,300 299
Philip Morris 19,200 1,027
Procter & Gamble 8,500 776
Ralston Purina 35,000 1,133
Rite Aid 34,800 1,725
Rubbermaid 19,200 604
Safeway* 9,400 573
Sara Lee 47,900 1,350
Tele-Communications, Cl A* 16,300 902
US Foodservice* 12,900 632
Viacom, Cl B* 6,900 511
William Wrigley Jr. 2,300 206
-------
15,185
-------
ENERGY (3.1%)
Amoco 600 35
British Petroleum ADR 4,734 450
Conoco* 10,700 223
Halliburton 15,400 456
Mobil 3,300 287
Niagara Mohawk Power* 12,000 193
Texaco 17,500 925
Union Pacific Resources Group 15,401 140
Unocal 9,300 271
Weatherford International* 11,300 219
Williams 1,500 47
-------
3,246
-------
FINANCIALS (12.8%)
Allstate 1,100 42
American International Group 3,200 309
Associates First Capital 10,200 432
Atlantic Richfield 1,300 85
Bank One 22,860 1,167
Bank United, Cl A 4,600 181
<CAPTION>
- --------------------------------------------------------------------------------
SHARES VALUE (000)
- --------------------------------------------------------------------------------
<S> <C> <C>
FINANCIALS (CONTINUED)
BankAmerica 15,542 $ 934
BankBoston 5,100 199
Citigroup 1 --
Chubb 4,400 285
Colonial Bancgroup 3,900 47
Compass Bancshares 5,000 190
Conseco 21,600 660
FHLMC 11,900 767
First American of Tennessee 2,900 129
First Union 1,200 73
FNMA 9,300 688
Household International 19,966 791
KeyCorp 10,000 320
Lincoln National 300 25
Mellon Bank 19,500 1,341
MGIC Investment 9,500 378
PNC Bank 19,400 1,050
Regions Financial 3,100 125
SouthTrust 1,900 70
Sunamerica 18,600 1,509
Torchmark 22,900 809
U.S. Bancorp 5,800 206
Waddell & Reed Financial, Cl A* 7 --
Waddell & Reed Financial, Cl B* 5,191 121
Washington Mutual 11,168 426
Wells Fargo 5,000 200
-------
13,559
-------
HEALTH CARE (11.5%)
Abbott Laboratories 23,300 1,142
Allegiance 9,600 448
Alza* 2,200 115
American Home Products 7,900 445
Arterial Vascular Engineering* 2,000 105
Baxter International 7,200 463
Becton Dickinson 11,000 470
Boston Scientific* 16,100 432
</TABLE>
15
<PAGE>
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
STI CLASSIC VARIABLE TRUST FUNDS DECEMBER 31, 1998
CAPITAL APPRECIATION FUND--CONCLUDED
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
SHARES VALUE (000)
- --------------------------------------------------------------------------------
<S> <C> <C>
HEALTH CARE (CONTINUED)
Bristol-Myers Squibb 23,200 $ 3,104
Eli Lilly 2,900 258
Forest Laboratories* 5,500 293
Healthsouth* 30,302 468
Johnson & Johnson 2,400 201
Merck 14,600 2,156
Tenet Healthcare* 26,100 685
Warner Lambert 17,700 1,331
-------
12,116
-------
TECHNOLOGY (13.8%)
3Com* 6,900 309
Ceridian* 17,300 1,208
Cisco Systems* 23,500 2,181
Compaq Computer 10,724 450
EMC* 10,800 918
HBO 9,500 273
Hewlett Packard 5,300 362
IBM 12,700 2,346
Intel 7,400 877
Microsoft* 15,100 2,094
Networks Associates* 17,208 1,140
Northern Telecom 6,400 321
Sun Microsystems* 7,500 642
Texas Instruments 5,600 479
W.W. Grainger 8,700 362
Xerox 5,500 649
-------
14,611
-------
TRANSPORTATION (0.8%)
Burlington Northern Santa Fe 9,000 304
Delta Air Lines 8,200 426
Trans World Air* 3,300 125
-------
855
-------
Total Common Stocks
(Cost $77,720) 96,850
-------
<CAPTION>
- --------------------------------------------------------------------------------
SHARES/FACE
AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
<S> <C> <C>
PREFERRED STOCKS (0.5%)
CONSUMER STAPLES (0.1%)
Suiza Capital Trust II, CV to
0.6390 Share, Callable
04/02/01 @ 51.719* 2,400 $ 104
--------
TECHNOLOGY (0.4%)
Microsoft, CV to 1 Share 4,000 391
--------
Total Preferred Stocks
(Cost $420) 495
--------
CONVERTIBLE BONDS (0.9%)
Elan Finance, CV to 6.875 Shares
Callable 12/14/03 @ 61.657,
0.000%, 12/14/18 (A) (B) (C) $1,000 565
Potomac Electric Power
CV to 29.5 Shares
Callable 03/15/99 @ 95.644 350 338
--------
Total Convertible Bonds
(Cost $859) 903
--------
REGULATED INVESTMENT COMPANY (0.2%)
Dollar General, STRYPES* 6,900 246
--------
Total Regulated Investment Company
(Cost $272) 246
--------
REPURCHASE AGREEMENT (7.3%)
Morgan Stanley
4.85%, dated 12/31/98, matures
01/04/99, repurchase price
$7,739,646 (collateralized by
U.S. Agency Obligations:
market value $7,895,204) 7,735 7,735
--------
Total Repurchase Agreement
(Cost $7,735) 7,735
--------
Total Investments (100.6%)
(Cost $87,006) 106,229
--------
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
VALUE (000)
- --------------------------------------------------------------------------------
<S> <C>
OTHER ASSETS AND LIABILITIES, NET (-0.6%) $ (669)
--------
NET ASSETS:
Portfolio Shares (unlimited
authorization -- no par value)
based on 5,266,489 outstanding
shares of beneficial interest 78,704
Accumulated net realized gain
on investments 7,573
Net unrealized appreciation
on investments 19,223
Undistributed net investment income 60
--------
TOTAL NET ASSETS (100.0%) $105,560
--------
--------
Net Asset Value, Offering and
Redemption Price Per Share $20.04
--------
--------
</TABLE>
* NON-INCOME PRODUCING SECURITY
ADR -- AMERICAN DEPOSITORY RECEIPT
Cl -- CLASS
CV -- CONVERTIBLE
STRYPES -- STRUCTURED YIELD PRODUCT EXCHANGE SECURITIES
(A) -- ZERO COUPON BOND
(B) -- PRIVATE PLACEMENT SECURITY
(C) -- PUT AND DEMAND FEATURES EXIST REQUIRING THE ISSUER TO REPURCHASE THE
INSTRUMENT PRIOR TO MATURITY.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
17
<PAGE>
STATEMENT OF NET ASSETS
- ------------------------------------------------------------------
STI CLASSIC VARIABLE TRUST FUNDS DECEMBER 31, 1998
INVESTMENT GRADE BOND FUND
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
FACE
AMOUNT (000) VALUE (000)
- ------------------------------------------------------------------
<S> <C> <C>
U.S. TREASURY OBLIGATIONS (25.5%)
U.S. Treasury Bonds
7.500%, 11/15/16 $ 750 $ 931
8.125%, 08/15/19 1,800 2,404
U.S. Treasury Notes
6.250%, 10/31/01 1,500 1,564
--------
Total U.S. Treasury Obligations
(Cost $4,512) 4,899
--------
CORPORATE OBLIGATIONS (38.2%)
FINANCE (22.5%)
Bank of Boston
6.625%, 12/01/05 100 104
Bear Stearns
6.250%, 07/15/05 200 201
Conseco
6.800%, 06/15/05 200 187
6.400%, 06/15/11 300 291
Countrywide Home Loan, MTN
6.510%, 02/11/05 300 301
Finova Capital
6.250%, 11/01/02 250 251
Ford Motor Credit
6.500%, 02/28/02 300 309
Great Western Financial
8.600%, 02/01/02 100 107
Household Finance
6.500%, 11/15/08 150 156
Liberty Property, MTN
6.600%, 06/05/02 200 205
Merrill Lynch
6.875%, 11/15/18 150 156
Merrill Lynch, MTN
6.060%, 10/15/01 625 633
Morgan Stanley, MTN
6.090%, 03/09/01 250 253
Provident
7.000%, 07/15/18 350 361
<CAPTION>
- ------------------------------------------------------------------
FACE
AMOUNT (000) VALUE (000)
- ------------------------------------------------------------------
<S> <C> <C>
FINANCE (CONTINUED)
Salomon
7.300%, 05/15/02 $250 $ 262
Salomon Smith Barney
6.250%, 01/15/05 250 253
Sprint Capital
6.125%, 11/15/08 300 306
--------
4,336
--------
INDUSTRIAL (15.7%)
American Home Products
7.900%, 02/15/05 300 335
Bausch & Lomb
6.150%, 08/01/01 400 402
6.750%, 12/15/04 150 154
Dillards
6.430%, 08/01/04 450 457
Ikon Capital, MTN
6.730%, 06/15/01 150 151
Philip Morris
7.250%, 09/15/01 300 313
7.500%, 04/01/04 150 160
Praxair
6.900%, 11/01/06 175 182
Western Resources
6.250%, 08/15/03 200 205
Worldcom
6.125%, 08/15/01 650 660
--------
3,019
--------
Total Corporate Obligations
(Cost $7,241) 7,355
--------
U.S. GOVERNMENT AGENCY OBLIGATIONS (25.8%)
FHLMC
7.500%, 09/01/03 118 120
FNMA
7.000%, 10/01/03 354 362
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
FACE
AMOUNT (000) VALUE (000)
- ------------------------------------------------------------------
U.S. GOVERNMENT AGENCY OBLIGATIONS (CONTINUED)
<S> <C> <C>
GNMA
8.000%, 12/15/22 $2,196 $ 2,282
7.000%, 12/15/28 2,150 2,202
--------
Total U.S. Government Agency Obligations
(Cost $4,959) 4,966
--------
REPURCHASE AGREEMENT (9.2%)
Morgan Stanley
4.60%, dated 12/31/98, matures
01/04/99, repurchase price
$1,765,979 (collateralized by
U.S. Treasury Note: market
value $1,810,123) 1,765 1,765
--------
Total Repurchase Agreement
(Cost $1,765) 1,765
--------
Total Investments (98.7%)
(Cost $18,477) 18,985
--------
OTHER ASSETS AND LIABILITIES, NET (1.3%) 251
--------
<CAPTION>
- ------------------------------------------------------------------
VALUE (000)
- ------------------------------------------------------------------
<S> <C>
NET ASSETS:
Portfolio Shares (unlimited
authorization--no par value)
based on 1,818,882 outstanding
shares of beneficial interest $ 18,479
Accumulated net realized gain
on investments 252
Net unrealized appreciation
on investments 507
Distributions in excess of net investment
income (2)
--------
Total Net Assets (100.0%) $ 19,236
--------
--------
Net Asset Value, Offering and
Redemption Price Per Share $10.58
--------
--------
</TABLE>
FHLMC -- FEDERAL HOME LOAN MORTGAGE CORPORATION
FNMA -- FEDERAL NATIONAL MORTGAGE ASSOCIATION
GNMA -- GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
MTN -- MEDIUM TERM NOTE
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
19
<PAGE>
SCHEDULE OF INVESTMENTS
- ------------------------------------------------------------------
STI CLASSIC VARIABLE TRUST FUNDS DECEMBER 31, 1998
INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
SHARES VALUE (000)
- ------------------------------------------------------------------
<S> <C> <C>
FOREIGN COMMON STOCKS (92.7%)
AUSTRALIA (2.2%)
AMP Limited 4,200 $ 53
Australia & New Zealand
Banking Group 26,066 170
National Australia Bank 3,600 54
QBE Insurance 34,292 142
---------
419
---------
AUSTRIA (0.9%)
Erste Bank 3,300 176
---------
BRAZIL (0.2%)
Tele Norte Leste
Participacoes ADR 3,500 44
---------
CANADA (0.2%)
Power Corporation of Canada 2,000 43
---------
DENMARK (1.0%)
Novo Nordisk, Cl B 1,420 187
---------
FRANCE (12.7%)
AXA 900 130
Dexia France 2,790 429
Elf Aquitaine 500 58
France Telecom 6,149 488
Groupe Danone 900 257
Lafarge 605 57
Lagardere SCA 6,925 294
Suez Lyonnaise des Eaux 1,870 384
Vivendi 1,200 311
---------
2,408
---------
GERMANY (8.9%)
Bayer 2,250 94
Buderus 320 116
DaimlerChrysler 2,000 197
Hoechst 1,100 46
Mannesmann 2,400 275
<CAPTION>
- ------------------------------------------------------------------
SHARES VALUE (000)
- ------------------------------------------------------------------
<S> <C> <C>
GERMANY (CONTINUED)
Preussag 635 $ 287
RWE 7,500 410
Veba 4,328 259
---------
1,684
---------
GREECE (1.5%)
Hellenic Telecom
Organization 7,480 199
Hellenic Telecom
Organization ADR 6,500 86
---------
285
---------
HONG KONG (0.3%)
National Mutual Asia 69,400 52
---------
INDONESIA (0.0%)
Modern Photo Film, F 60,000 4
---------
IRELAND (4.0%)
Allied Irish Banks 13,200 235
Bank of Ireland 22,988 505
CRH 700 12
---------
752
---------
ITALY (7.1%)
INA 88,600 234
San Paolo-IMI 16,430 290
Telecom Italia 79,520 679
Unione Immobiliare 268,000 140
---------
1,343
---------
JAPAN (11.9%)
Canon 8,000 171
Eisai 13,000 253
Fuji Photo Film 5,000 186
Honda Motor 6,000 197
Nintendo 800 78
Nippon Telegraph & Telephone 51 394
Ricoh 7,000 65
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
SHARES VALUE (000)
- ------------------------------------------------------------------
<S> <C> <C>
JAPAN (CONTINUED)
Sankyo 7,000 $ 153
Takefuji 2,400 175
TDK 2,300 210
Terumo 15,300 360
---------
2,242
---------
NETHERLANDS (4.8%)
Ahold 6,500 240
ING Groep 3,213 196
KPN 9,608 480
---------
916
---------
NEW ZEALAND (3.7%)
Fernz 68,400 210
Fletcher Challenge Building 91,338 141
Telecom Corporation of
New Zealand 80,800 350
---------
701
---------
NORWAY (2.9%)
Christiania Bank 21,000 73
Orkla, Cl A 6,100 91
Petroleum Geo Services ADR 5,500 87
Sparebanken NOR 15,210 296
---------
547
---------
PANAMA (0.4%)
Banco Latinamericano
de Exportaciones 4,600 76
---------
PORTUGAL (2.0%)
Banco Espirito Santo 4,235 131
Electricidade de Portugal 5,500 121
Portugal Telecom ADR 2,950 132
---------
384
---------
<CAPTION>
- ------------------------------------------------------------------
SHARES VALUE (000)
- ------------------------------------------------------------------
<S> <C> <C>
SPAIN (3.6%)
Argentaria 12,000 $ 311
Endesa 11,350 301
Repsol 1,200 64
---------
676
---------
SWEDEN (2.4%)
Castellum 12,300 133
Drott, Cl B 11,000 101
Volvo, Cl B 9,700 222
---------
456
---------
SWITZERLAND (3.4%)
Novartis, Registered 331 651
---------
UNITED KINGDOM (18.6%)
Allied Zurich 27,350 408
Bass 16,060 234
British Aerospace 28,447 241
British Energy PLC 8,600 98
Diageo 20,632 235
General Electric 38,650 348
Glaxo Wellcome 4,100 141
Ladbroke Group 28,840 116
Lloyds TSB Group 14,100 200
LucasVarity 36,158 121
National Westminster Bank 13,553 261
Railtrack Group 3,750 98
Reckitt & Colman 13,400 177
Rolls-Royce 69,300 287
Royal & Sun Alliance 133 1
Smithkline Beecham 19,640 274
Storehouse 33,130 75
Tomkins 41,572 196
---------
3,511
---------
Total Foreign Common Stocks
(Cost $15,965) 17,557
---------
</TABLE>
21
<PAGE>
SCHEDULE OF INVESTMENTS
- ------------------------------------------------------------------
STI CLASSIC VARIABLE TRUST FUNDS DECEMBER 31, 1998
INTERNATIONAL EQUITY FUND--CONCLUDED
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
SHARES VALUE (000)
- ------------------------------------------------------------------
<S> <C> <C>
FOREIGN PREFERRED STOCK (1.0%)
GERMANY (1.0%)
GEA 7,570 $ 181
---------
TOTAL FOREIGN PREFERRED STOCK
(Cost $245) 181
---------
TOTAL INVESTMENTS (93.7%)
(Cost $16,210) $ 17,738
---------
---------
</TABLE>
* NON-INCOME PRODUCING SECURITY
ADR -- AMERICAN DEPOSITORY RECEIPT
Cl -- CLASS
F -- FOREIGN SHARES
PLC -- PUBLIC LIMITED CORPORATION
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
22
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES (000)
- --------------------------------------------------------------------------------
STI CLASSIC VARIABLE TRUST FUNDS DECEMBER 31, 1998
<TABLE>
<CAPTION>
-------------
International
Equity
Fund
-------------
Assets:
<S> <C>
Investments at Market Value (Cost $16,210) .................................. $17,738
Cash and Foreign Currency ................................................... 1,085
Receivables for Investment Securities Sold .................................. 93
Other Assets ................................................................ 52
-------
Total Assets ................................................................ 18,968
-------
Liabilities:
Payables for Portfolio Shares Redeemed ...................................... 2
Accrued Expenses ............................................................ 40
-------
Total Liabilities ........................................................... 42
-------
Net Assets:
Portfolio Shares (unlimited authorization -- no par value)
Based on 1,450,151 Outstanding shares of beneficial interest .............. 17,034
Undistributed net investment income ......................................... 119
Accumulated net realized gain on investments ................................ 270
Accumulated net realized loss on foreign currency transactions .............. (27)
Net unrealized appreciation on forward foreign currency contracts,
foreign currency, and translation of other assets
and liabilities in foreign currency ....................................... 2
Net unrealized appreciation on investments .................................. 1,528
-------
Total Net Assets ............................................................ $18,926
-------
-------
Net Asset Value, Offering and Redemption Price Per Share ....................... $ 13.05
-------
-------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
24
<PAGE>
STATEMENT OF OPERATIONS (000)
- --------------------------------------------------------------------------------
STI CLASSIC VARIABLE TRUST FUNDS FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
VALUE
INCOME MID-CAP SMALL CAP CAPITAL INVESTMENT INTERNATIONAL
STOCK EQUITY EQUITY APPRECIATION GRADE EQUITY
FUND FUND FUND FUND BOND FUND FUND
------ ------- --------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Investment Income:
Interest Income .................................... $ 414 $ 118 $ 46 $ 429 $ 861 $ 57
Dividend Income .................................... 2,128 118 236 885 -- 358
Less: Foreign Taxes Withheld ....................... -- -- -- -- -- (34)
------ ------ ------- ------- ------ ---------
Total Investment Income ........................ 2,542 236 282 1,314 861 381
------ ------ ------- ------- ------ ---------
Expenses:
Investment Advisory Fees ........................... 715 317 133 961 107 214
Less: Investment Advisory Fees Waived .............. (144) (105) (81) (218) (85) (81)
Administrator Fees ................................. 62 62 62 62 62 75
Custody Fees ....................................... 47 7 5 34 5 32
Transfer Agent Fees ................................ 35 7 4 28 5 4
Professional Fees .................................. 75 14 9 51 7 11
Trustee Fees ....................................... 7 2 1 6 1 2
Registration Fees .................................. -- -- -- -- -- --
Printing Expenses .................................. 42 9 4 28 5 5
Pricing Fees ....................................... 2 1 -- 2 -- 8
Insurance and Other Fees ........................... 3 -- 1 2 -- --
Amortization of Deferred Organization Costs ........ 2 2 1 2 2 3
------ ------ ------- ------- ------ ---------
Total Expenses ................................. 846 316 139 958 109 273
------ ------ ------- ------- ------ ---------
Net Investment Income (Loss) ................. 1,696 (80) 143 356 752 108
------ ------ ------- ------- ------ ---------
Net Realized Gain (Loss) on Securities Sold ........ 8,551 485 (532) 7,815 268 270
Net Realized Loss on Foreign Currency Transactions . -- -- -- -- -- (15)
Net Unrealized Appreciation
(Depreciation) on Investments .................... (2,853) 1,389 (1,561) 12,917 251 1,029
Net Unrealized Appreciation on Forward
Currency Contracts, Foreign Currency,
and Translation of Other Assets
and Liabilities in Foreign Currency .............. -- -- -- -- -- 2
------ ------ ------- ------- ------ ---------
Net Realized and Unrealized Gain (Loss)
on Investments and Foreign Currency ....... 5,698 1,874 (2,093) 20,732 519 1,286
------ ------ ------- ------- ------ ---------
Increase (Decrease) in Net Assets from Operations .... $7,394 $1,794 $(1,950) $21,088 $1,271 $ 1,394
------ ------ ------- ------- ------ ---------
------ ------ ------- ------- ------ ---------
</TABLE>
Amounts designated as "--" are either $0 or have been rounded to $0.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
25
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS (000)
- --------------------------------------------------------------------------------
STI CLASSIC VARIABLE TRUST FUNDS
<TABLE>
<CAPTION>
VALUE INCOME MID-CAP
STOCK FUND EQUITY FUND
-------------------------- --------------------------
01/01/98- 01/01/97- 01/01/98- 01/01/97-
12/31/98 12/31/97 12/31/98 12/31/97
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Investment Activities:
Net Investment Income (Loss) ................................. $ 1,696 $ 1,115 $ (80) $ (14)
Net Realized Gain (Loss) on Investments and Foreign
Currency Transactions ...................................... 8,551 6,730 485 2,335
Net Unrealized Appreciation (Depreciation) on Investments .... (2,853) 4,177 1,389 1,514
Net Unrealized Appreciation on Forward Foreign
Currency Contracts, Foreign Currency, and
Translation of Other Assets and Liabilities in
Foreign Currency ........................................... -- -- -- --
-------- -------- -------- --------
Increase (Decrease) in Net Assets Resulting from Operations .. 7,394 12,022 1,794 3,835
-------- -------- -------- --------
Distributions to Shareholders:
Net Investment Income ........................................ (1,696) (1,121) -- (13)
Capital Gains ................................................ (6,777) (904) (2,305) (736)
-------- -------- -------- --------
Total Distributions .......................................... (8,473) (2,025) (2,305) (749)
-------- -------- -------- --------
Capital Transactions:
Proceeds from Shares Issued .................................. 23,136 32,879 7,168 9,159
Reinvestment of Cash Distributions ........................... 8,473 2,025 2,305 749
Cost of Shares Repurchased ................................... (4,518) (3,370) (1,800) (3,375)
-------- -------- -------- --------
Increase in Net Assets from Capital Transactions ............. 27,091 31,534 7,673 6,533
-------- -------- -------- --------
Total Increase in Net Assets ................................. 26,012 41,531 7,162 9,619
-------- -------- -------- --------
Net Assets:
Beginning of Period .......................................... 72,747 31,216 23,913 14,294
-------- -------- -------- --------
End of Period ................................................ $ 98,759 $ 72,747 $ 31,075 $ 23,913
-------- -------- -------- --------
-------- -------- -------- --------
Shares Issued and Redeemed:
Shares Issued ................................................ 1,451 2,358 509 708
Shares Issued in Lieu of Cash Distributions .................. 622 138 216 55
Shares Redeemed .............................................. (307) (230) (145) (257)
-------- -------- -------- --------
Net Share Transactions ....................................... 1,766 2,266 580 506
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
26
<PAGE>
<TABLE>
<CAPTION>
SMALL CAP CAPITAL APPRECIATION
EQUITY FUND FUND
----------------------- -----------------------
01/01/98- 10/22/97*- 01/01/98- 01/01/97-
12/31/98 12/31/97 12/31/98 12/31/97
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Investment Activities:
Net Investment Income (Loss) ................................. $ 143 $ 20 $ 356 $ 311
Net Realized Gain (Loss) on Investments and Foreign
Currency Transactions ...................................... (532) 20 7,815 7,858
Net Unrealized Appreciation (Depreciation) on Investments .... (1,561) (103) 12,917 4,911
Net Unrealized Appreciation on Forward Foreign
Currency Contracts, Foreign Currency, and
Translation of Other Assets and Liabilities in
Foreign Currency ........................................... -- -- -- --
--------- --------- --------- ---------
Increase (Decrease) in Net Assets Resulting from Operations .. (1,950) (63) 21,088 13,080
--------- --------- --------- ---------
Distributions to Shareholders:
Net Investment Income ........................................ (143) (20) (356) (312)
Capital Gains ................................................ -- -- (8,084) (1,300)
--------- --------- --------- ---------
Total Distributions .......................................... (143) (20) (8,440) (1,612)
--------- --------- --------- ---------
Capital Transactions:
Proceeds from Shares Issued .................................. 8,463 7,626 26,149 27,091
Reinvestment of Cash Distributions ........................... 143 20 8,440 1,612
Cost of Shares Repurchased ................................... (931) -- (3,554) (3,483)
--------- --------- --------- ---------
Increase in Net Assets from Capital Transactions ............. 7,675 7,646 31,035 25,220
--------- --------- --------- ---------
Total Increase in Net Assets ................................. 5,582 7,563 43,683 36,688
--------- --------- --------- ---------
Net Assets:
Beginning of Period .......................................... 7,563 -- 61,877 25,189
--------- --------- --------- ---------
End of Period ................................................ $ 13,145 $ 7,563 $ 105,560 $ 61,877
--------- --------- --------- ---------
--------- --------- --------- ---------
Shares Issued and Redeemed:
Shares Issued ................................................ 868 772 1,374 1,771
Shares Issued in Lieu of Cash Distributions .................. 16 2 510 100
Shares Redeemed .............................................. (107) -- (200) (216)
--------- --------- --------- ---------
Net Share Transactions ....................................... 777 774 1,684 1,655
--------- --------- --------- ---------
--------- --------- --------- ---------
<CAPTION>
INVESTMENT GRADE BOND INTERNATIONAL
FUND EQUITY FUND
----------------------- -----------------------
01/01/98- 01/01/97- 01/01/98- 01/01/97-
12/31/98 12/31/97 12/31/98 12/31/97
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Investment Activities:
Net Investment Income (Loss) .................................... $ 752 $ 493 $ 108 $ 33
Net Realized Gain (Loss) on Investments and Foreign
Currency Transactions ......................................... 268 24 255 101
Net Unrealized Appreciation (Depreciation) on Investments ....... 251 220 1,029 484
Net Unrealized Appreciation on Forward Foreign
Currency Contracts, Foreign Currency, and
Translation of Other Assets and Liabilities in
Foreign Currency .............................................. -- -- 2 --
--------- --------- --------- ---------
Increase (Decrease) in Net Assets Resulting from Operations ..... 1,271 737 1,394 618
--------- --------- --------- ---------
Distributions to Shareholders:
Net Investment Income ........................................... (754) (493) (21) (1)
Capital Gains ................................................... -- -- (113) --
--------- --------- --------- ---------
Total Distributions ............................................. (754) (493) (134) (1)
--------- --------- --------- ---------
Capital Transactions:
Proceeds from Shares Issued ..................................... 9,749 4,194 5,290 12,992
Reinvestment of Cash Distributions .............................. 755 493 134 1
Cost of Shares Repurchased ...................................... (1,687) (3,068) (1,605) (758)
--------- --------- --------- ---------
Increase in Net Assets from Capital Transactions ................ 8,817 1,619 3,819 12,235
--------- --------- --------- ---------
Total Increase in Net Assets .................................... 9,334 1,863 5,079 12,852
--------- --------- --------- ---------
Net Assets:
Beginning of Period ............................................. 9,902 8,039 13,847 995
--------- --------- --------- ---------
End of Period ................................................... $ 19,236 $ 9,902 $ 18,926 $ 13,847
--------- --------- --------- ---------
--------- --------- --------- ---------
Shares Issued and Redeemed:
Shares Issued ................................................... 936 421 406 1,136
Shares Issued in Lieu of Cash Distributions ..................... 72 49 11 --
Shares Redeemed ................................................. (161) (309) (134) (67)
--------- --------- --------- ---------
Net Share Transactions .......................................... 847 161 283 1,069
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
*Commencement of Operations
Amounts designated as "--" are either $0 or have been rounded to $0.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
27
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
STI CLASSIC VARIABLE TRUST FUNDS FOR THE YEARS ENDED THROUGH DECEMBER 31,
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
<TABLE>
<CAPTION>
NET NET REALIZED AND
NET ASSET VALUE INVESTMENT UNREALIZED GAINS (LOSSES) DISTRIBUTIONS FROM DISTRIBUTIONS FROM
BEGINNING OF PERIOD INCOME (LOSS) ON INVESTMENTS NET INVESTMENT INCOME REALIZED CAPITAL GAINS
------------------- ------------- ------------------------ --------------------- ----------------------
<S> <C> <C> <C> <C> <C>
VALUE INCOME STOCK FUND
1998 $15.21 $ 0.27 $ 1.02 $(0.28) $(1.14)
1997 12.41 0.28 3.02 (0.28) (0.22)
1996 10.67 0.23 1.74 (0.23) --
1995 (1) 10.00 0.06 0.67 (0.06) --
MID-CAP EQUITY FUND (A)
1998 $13.97 $ 0.00 $ 0.70 -- $(1.11)
1997 11.86 (0.01) 2.64 (0.01) (0.51)
1996 10.27 0.06 1.59 (0.06) --
1995 (1) 10.00 0.05 0.27 (0.05) --
SMALL CAP EQUITY FUND
1998 $ 9.77 $ 0.12 $(1.30) $(0.11) $ --
1997 (2) 10.00 0.03 (0.23) (0.03) --
CAPITAL APPRECIATION FUND
1998 $17.27 $ 0.07 $ 4.54 $(0.08) $(1.76)
1997 13.06 0.10 4.63 (0.10) (0.42)
1996 10.66 0.12 2.40 (0.12) --
1995 (1) 10.00 0.04 0.66 (0.04) --
INVESTMENT GRADE BOND FUND
1998 $10.19 $ 0.54 $ 0.39 $(0.54) $ --
1997 9.92 0.58 0.27 (0.58) --
1996 10.25 0.54 (0.33) (0.54) --
1995 (1) 10.00 0.13 0.25 (0.13) --
INTERNATIONAL EQUITY FUND
1998 $11.87 $ 0.10 $ 1.17 $(0.01) $(0.08)
1997 10.16 0.03 1.68 -- --
1996 (3) 10.00 0.01 0.16 (0.01) --
</TABLE>
(1) Commenced operations on October 2, 1995. All ratios for the period have
been annualized.
(2) Commenced operations on October 22, 1997. All ratios for the period have
been annualized.
(3) Commenced operations on November 7, 1996. All ratios for the period have
been annualized.
* Returns are for the period indicated and have not been annualized.
(A) During the fiscal year ended December 31, 1996, the Aggressive Growth Fund
changed its name to the Mid-Cap Equity Fund.
Amounts designated as "--" are either $0 or rounded to $0.
28
<PAGE>
<TABLE>
<CAPTION>
RATIO OF
NET ASSET NET ASSETS RATIO OF NET INVESTMENT
VALUE END TOTAL END OF EXPENSES TO INCOME (LOSS) TO
OF PERIOD RETURN PERIOD (000) AVERAGE NET ASSETS AVERAGE NET ASSETS
--------- ------ ------------ ------------------ ------------------
<S> <C> <C> <C> <C> <C>
VALUE INCOME STOCK FUND
1998 $15.08 9.69% $ 98,759 0.95% 1.90%
1997 15.21 26.82 72,747 0.95 2.09
1996 12.41 18.64 31,216 0.95 2.45
1995 (1) 10.67 7.31* 4,015 0.95 2.98
MID-CAP EQUITY FUND (A)
1998 $13.56 7.16% $ 31,075 1.15% (0.29)%
1997 13.97 22.23 23,913 1.15 (0.07)
1996 11.86 16.05 14,294 1.15 0.58
1995 (1) 10.27 3.19* 3,409 1.15 2.22
SMALL CAP EQUITY FUND
1998 $ 8.48 (12.18)% $ 13,145 1.20% 1.23%
1997 (2) 9.77 (2.05)* 7,563 1.20 1.62
CAPITAL GROWTH FUND
1998 $20.04 28.97% $105,560 1.15% 0.43%
1997 17.27 36.54 61,877 1.15 0.70
1996 13.06 23.75 25,189 1.15 1.15
1995 (1) 10.66 6.96* 3,778 1.15 1.69
INVESTMENT GRADE BOND FUND
1998 $10.58 9.38% $19,236 0.75% 5.19%
1997 10.19 8.84 9,902 0.75 5.81
1996 9.92 2.29 8,039 0.75 5.54
1995 (1) 10.25 3.68* 3,115 0.75 5.04
INTERNATIONAL EQUITY FUND
1998 $13.05 10.80% $18,926 1.60% 0.63%
1997 11.87 16.84 13,847 1.60 0.41
1996 (3) 10.16 1.70* 995 1.60 1.83
<CAPTION>
RATIO OF
RATIO OF NET INVESTMENT
EXPENSES TO INCOME (LOSS) TO
AVERAGE NET ASSETS AVERAGE NET ASSETS PORTFOLIO
(EXCLUDING WAIVERS (EXCLUDING WAIVERS TURNOVER
AND REIMBURSEMENTS) AND REIMBURSEMENTS) RATE
------------------- ------------------- -----------
<S> <C> <C> <C>
VALUE INCOME STOCK FUND
1998 1.11% 1.74% 76.36%
1997 1.23 1.81 104.84
1996 1.95 1.45 79.80
1995 (1) 5.72 (1.79) 7.17
MID-CAP EQUITY FUND (A)
1998 1.53% (0.67)% 92.27%
1997 1.77 (0.69) 138.98
1996 2.79 (1.06) 139.60
1995 (1) 6.34 (2.97) 13.29
SMALL CAP EQUITY FUND
1998 1.89% 0.54% 49.10%
1997 (2) 2.66 0.16 4.11
CAPITAL GROWTH FUND
1998 1.41% 0.17% 219.17%
1997 1.60 0.25 195.86
1996 2.43 (0.13) 148.48
1995 (1) 6.18 (3.34) 8.05
INVESTMENT GRADE BOND FUND
1998 1.34% 4.60% 183.13%
1997 1.58 4.98 219.22
1996 2.78 3.51 303.30
1995 (1) 6.05 (0.26) 108.55
INTERNATIONAL EQUITY FUND
1998 2.07% 0.16% 128.93%
1997 2.93 (0.92) 99.14
1996 (3) 31.39 (27.96) --
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
29
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STI CLASSIC VARIABLE TRUST FUNDS DECEMBER 31, 1998
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 Company Act of 1940, as amended, as an open-end
management investment company with six funds: the Value Income Stock Fund, the
Mid-Cap Equity Fund, the Small Cap Equity Fund, the Capital Appreciation Fund,
the International Equity 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 that are traded on a
national securities exchange (or reported on the NASDAQ national market
system) are valued 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.
Foreign securities in the International Equity Fund are valued based upon
quotations from the primary market in which they are traded.
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 for Federal income tax purposes and distribute
all of its taxable income and net capital gains. 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 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. It is computed by dividing the assets of
each Fund, less its liabilities, by the number of outstanding shares. The
offering price per share for the shares of the Investment Grade Bond and
Equity Funds is the net asset value per share.
30
<PAGE>
FOREIGN CURRENCY TRANSACTIONS -- With respect to the International Equity
Fund, the books and records are maintained in U.S. dollars. Foreign
currency amounts are translated into U.S. dollars on the following basis:
- market value of investment securities, assets and liabilities at the
current rate of exchange; and
- purchases and sales of investment securities, income, and expenses at
the relevant rates of exchange prevailing on the respective dates of
such transactions.
The International Equity Fund does not isolate the portion of gains and
losses on investments in equity securities that is due to changes in the
foreign exchange rates from that which is due to change in market prices of
equity securities.
The International Equity Fund reports certain foreign currency-related
transactions as components of realized gains for financial reporting
purposes, whereas such components are treated as ordinary income for
Federal income tax purposes.
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 Value Income Stock Fund,
the Mid-Cap Equity Fund, the Small Cap Equity Fund and the Capital
Appreciation Fund are declared and paid quarterly to shareholders.
Distributions from net investment income for the International Equity Fund
are declared and paid annually 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.
RECLASSIFICATION OF COMPONENTS OF NET ASSETS -- The timing and
characterization of certain income and capital gains distributions are
determined annually in accordance with federal tax regulations which may
differ from generally accepted accounting principles. As a result, net
investment income (loss) and net realized gain (loss) on investment
transactions for a reporting period may differ significantly from
distributions during such period. These book/tax differences may be
temporary or permanent in nature. To the extent these differences are
permanent, they are charged or credited to paid-in-capital or accumulated
net realized gain, as appropriate, in the period that the differences
arise. Accordingly, the following permanent differences, primarily
attributable to a net operating loss in the Mid-Cap Equity Fund and the
classification of short-term capital gains and ordinary income for tax
purposes in the Small Cap Equity Fund, have been reclassified to/from the
following accounts:
<TABLE>
<CAPTION>
UNDISTRIBUTED
ACCUMULATED NET INVESTMENT
REALIZED GAIN INCOME
(000) (000)
------------- --------------
<S> <C> <C>
Mid-Cap Equity Fund $ (85) $ 85
Small Cap Equity Fund (20) 20
</TABLE>
These reclassifications have no effect on net assets or net asset values
per share.
USE OF ESTIMATES -- 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 Investments Mutual Fund Services (the "Administrator") are
parties to an administration agreement (the "Administration
31
<PAGE>
Agreement") dated August 18, 1995 as amended November 19, 1997. 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 Funds) of: .12% up to $1 billion, .09%
on the next $4 billion, .07% on the next $3 billion, .065% on the next $2
billion, and .06% for over $10 billion.
The Trust and Federated Services Company are parties to a Transfer Agency
servicing agreement dated August 2, 1995 under which Federated Services Company
provides transfer agency services to the Trust.
The Trust and SEI Investments Distribution Co. ("the Distributor") are parties
to a Distribution Agreement dated August 2, 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%, 1.15%, 1.15% and
1.25% of the average daily net assets of the Investment Grade Bond Fund, Capital
Appreciation Fund, Value Income Stock Fund, Mid-Cap Equity Fund, Small Cap
Equity Fund and International Equity Fund, respectively. STI Capital has
voluntarily agreed to waive all or a portion of its fees (and to reimburse
Funds' expenses) in order to limit operating expenses. Fee waivers and expense
reimbursements are voluntary and may be terminated at any time.
SunTrust Bank, Atlanta acts as Custodian for all the Funds except the
International Equity Fund which has a custodian agreement with the Bank of New
York. 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
The Trust incurred organization costs of approximately $55,566. These costs have
been deferred in the accounts of the Funds and are being amortized on a straight
line basis over a period of sixty months commencing with operations. The costs
include legal fees of approximately $44,153 for organizational work performed by
a law firm of which two officers of the Trust are partners. 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 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 year ended December 31, 1998 were as follows:
<TABLE>
<CAPTION>
U.S. GOVT. U.S. GOVT.
PURCHASES SALES PURCHASES SALES
(000) (000) (000) (000)
--------- ------- ---------- ----------
<S> <C> <C> <C> <C>
Value Income Stock Fund ....... $ 79,417 $ 62,106 $ -- $ --
Mid-Cap Equity Fund ........... 27,965 23,387 -- --
Small Cap Equity Fund ......... 13,121 5,253 -- --
Capital Appreciation Fund ..... 189,306 168,068 -- --
Investment Grade
Bond Fund .................. 8,904 6,440 22,042 17,230
International Equity Fund ..... 23,789 20,297 -- --
</TABLE>
32
<PAGE>
At December 31, 1998, the total cost of securities and the net realized gains or
losses on securities sold for Federal income tax purposes was not materially
different from amounts reported for financial reporting purposes. The aggregate
gross unrealized appreciation and depreciation for securities held by the
Investment Grade Bond and Equity Funds at December 31, 1998 was as follows:
<TABLE>
<CAPTION>
NET UNREALIZED
APPRECIATED DEPRECIATED APPRECIATION/
SECURITIES SECURITIES (DEPRECIATION)
(000) (000) (000)
----------- ----------- --------------
<S> <C> <C> <C>
Value Income Stock Fund ............ $ 9,562 $ (6,908) $ 2,654
Mid-Cap Equity Fund ................ 6,438 (2,832) 3,606
Small Cap Equity Fund .............. 728 (2,392) (1,664)
Capital Appreciation Fund .......... 22,353 (3,130) 19,223
Investment Grade Bond Fund ......... 530 (23) 507
International Equity Fund .......... 2,392 (864) 1,528
</TABLE>
Subsequent to October 31, 1998, the Funds recognized net capital losses for tax
purposes that have been deferred to 1999 and can be used to offset future
capital gains at December 31, 1998. The Funds also had capital loss
carryforwards at December 31, 1998 as follows:
<TABLE>
<CAPTION>
CAPITAL POST
CARRYOVER EXPIRES 10/31
12/31/98 2006 DEFERRED
(000) (000) LOSS
--------- -------- --------
<S> <C> <C> <C>
Mid-Cap Equity Fund ............ $ -- $ -- $ 381
Small Cap Equity Fund .......... 388 388 129
</TABLE>
For tax purposes, the losses in the Funds can be carried forward for a maximum
of eight years to offset any net realized capital gains.
The Capital Appreciation Fund had cumulative wash sales at December 31, 1998
amounting to $1,147,920. These wash sale losses cannot be used for Federal
income tax purposes in the current year and deferred for use in future years.
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.
33
<PAGE>
STI CLASSIC VARIABLE TRUST
PART C: OTHER INFORMATION
POST-EFFECTIVE AMENDMENT NO. 7
ITEM 23. EXHIBITS:
(a) Agreement and Declaration of Trust of the Registrant (incorporated
herein by reference to Post-Effective Amendment No. 1 filed April 2,
1996).
(b)(1) By-Laws of the Registrant (incorporated herein by reference to
Post-Effective Amendment No. 1 filed April 2, 1996).
(c) Not applicable.
(d)(1) Investment Advisory Agreement between the Registrant and STI Capital
Management, N.A., dated August 18, 1995, (incorporated herein by
reference to Post-Effective Amendment No. 1 filed April 2, 1996).
(e) Distribution Agreement between the Registrant and SEI Financial
Services Company, dated August 18, 1995, (incorporated herein by
reference to Post-Effective Amendment No. 1 filed April 2, 1996).
(f) Not applicable.
(g)(1) Custodian Agreement between the Registrant and SunTrust Bank, Atlanta,
dated August 18, 1995 -incorporated herein by reference to
Post-Effective Amendment No. 1 filed April 2, 1996.
(g)(2) Custody Agreement with Bank of New York incorporated by reference to
Post-Effective Amendment No. 2 filed August 21, 1996.
(g)(3) Third Amendment to Custodian Agreement dated October 10, 1996 -
incorporated by reference to Exhibit 8(c) of Post-Effective Amendment
No. 5 to the Registrant's Statement filed with the SEC via EDGAR
Accession No. 0001047469-98-008284 on March 2, 1998.
(g)(4) Fourth Amendment to Custodian Agreement dated May 6, 1997 -
incorporated by reference to Exhibit 8(d) of Post-Effective Amendment
No. 5 to the Registrant's Statement filed with the SEC via EDGAR
Accession No. 0001047469-98-008284 on March 2, 1998.
(h)(1) Administration Agreement between the Registrant and SEI Financial
Management Corporation, dated August 18, 1995, as amended
November 9, 1997 - incorporated by reference to Exhibit 9(a) of
Post-Effective Amendment No. 5 to the Registrant's Statement filed
with the SEC via EDGAR Accession No. 0001047469-98-008284 on
March 2, 1998.
(h)(2) Form of Participation Agreement among the Registrant, SEI Financial
Services Company, Glenbrook Life and Annuity Company, dated
October 2, 1995 - incorporated by reference to Post-Effective
Amendment No. 1 filed April 2, 1996.
(h)(3) Agreement for Shareholder Recordkeeping between the Registrant and
Federated Services Company, dated August 2, 1995 - incorporated herein
by reference to Post-Effective Amendment No. 1 filed April 2, 1996.
(h)(4) Amended Schedule to the Administration Agreement between the
Registrant and SEI Financial Management Corporation dated August 19,
1996 -incorporated by reference to Exhibit 9(a) of Post-Effective
Amendment No. 5 to the Registrant's Statement filed with the SEC via
EDGAR Accession No. 0001047469-98-008284 on March 2, 1998.
(h)(5) Amended Schedule to the Adminstration Agreement between the
Registrant and SEI Fund Resources dated November 19, 1997 is filed
herewith.
(h)(6) Amended Schedule to the Administration Agreement between the
Registrant and SEI Investments Mutual Funds Services dated March 1,
1999 is filed herewith.
(i) Opinion of Counsel - incorporated herein by reference to
Post-Effective Amendment No. 1 filed April 2, 1996.
(j) Consent of independent auditors Arthur Andersen LLP is filed herewith.
(k) Not applicable.
(l) Not applicable.
(m) Not applicable.
(n) Financial Data Schedules are filed herewith.
(o) Not applicable.
(p) Powers of attorney - incorporated by reference to Post-Effective
Amendment No. 6 to the Registrant's Registration Statement filed with
the SEC via EDGAR Accession No. 0001047469-99-007836 on March 1, 1999.
---------------------------------
C-1
<PAGE>
Item 24. 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
Investments Company, which also controls the distributor of the Registrant, SEI
Investments Distribution Co., other corporations engaged in providing various
financial and recordkeeping services, primarily to bank trust departments,
pension plan sponsors, and investment managers.
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 26. 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>
STI CAPITAL MANAGEMENT, N.A.
E. Jenner Wood III SunTrust Banks, Inc. --
Director
Hunting F. Deutsch SunTrust Bank, Orlando --
Director
Anthony R. Gray -- --
Chairman & Chief Investment
Officer
James R. Wood -- --
President
Elliott A. Perny -- --
Executive Vice President
Stuart F. Van Arsdale -- --
Senior Vice President
C-2
<PAGE>
Jonathan D. Rich -- --
Director
Larry M. Cole -- --
Senior Vice President
L. Earl Denney -- --
Executive Vice President
Ronald Schwartz -- --
Senior Vice President
Andre B.Prawato -- --
Senior Vice President
Edward J. Dau -- --
Senior Vice President
James K. Wood -- --
Senior Vice President
Mills A. Riddick -- --
Senior Vice President
Christopher A. Jones -- --
Senior Vice President
David E. West -- --
Vice President
Brett L. Barner -- --
Senior Vice President
</TABLE>
ITEM 29. PRINCIPAL UNDERWRITERS:
(a) Furnish the name of each investment company (other than the Registrant) for
which each principal underwriter currently distributing the securities of
the Registrant also acts as a principal underwriter, distributor or
investment adviser.
Registrant's distributor, SEI Investments Distribution Co. (the
"Distributor"), acts as distributor for:
SEI Daily Income Trust July 15, 1982
SEI Liquid Asset Trust November 29, 1982
SEI Tax Exempt Trust December 3, 1982
SEI Index Funds July 10, 1985
SEI Institutional Managed Trust January 22, 1987
SEI Institutional International Trust August 30, 1988
The Advisors' Inner Circle Fund November 14, 1991
The Pillar Funds February 28, 1992
CUFUND May 1, 1992
STI Classic Funds May 29, 1992
First American Funds, Inc. November 1, 1992
First American Investment Funds, Inc. November 1, 1992
C-3
<PAGE>
The Arbor Fund January 28, 1993
Boston 1784 Funds-Registered Trademark- June 1, 1993
The PBHG Funds, Inc. July 16, 1993
Morgan Grenfell Investment Trust January 3, 1994
The Achievement Funds Trust December 27, 1994
Bishop Street Funds January 27, 1995
CrestFunds, Inc. March 1, 1995
ARK Funds November 1, 1995
Huntington Funds January 11, 1996
SEI Asset Allocation Trust April 1, 1996
TIP Funds April 28, 1996
SEI Institutional Investments Trust June 14, 1996
First American Strategy Funds, Inc. October 1, 1996
HighMark Funds February 15, 1997
Armada Funds March 8, 1997
PBHG Insurance Series Fund, Inc. April 1, 1997
The Expedition Funds June 9, 1997
Alpha Select Funds January 1, 1998
Oak Associates Funds February 27, 1998
The Nevis Fund, Inc. June 29, 1998
The Parkstone Group of Funds September 14, 1998
The Distributor provides numerous financial services to investment
managers, pension plan sponsors, and bank trust departments. These
services include portfolio evaluation, performance measurement and
consulting services ("Funds Evaluation") and automated execution, clearing
and settlement of securities transactions ("MarketLink").
(b) Furnish the Information required by the following table with respect to
each director, officer or partner of each principal underwriter named in the
answer to Item 21 of Part B. Unless otherwise noted, the business address of
each director or officer is Oaks, PA 19456.
<TABLE>
<CAPTION>
Position and Office Positions and Offices
Name with Underwriter with Registrant
- ---- ---------------- ---------------
<S> <C> <C>
Alfred P. West, Jr. Director, Chairman of the Board of Directors --
Henry H. Greer Director --
Carmen V. Romeo Director --
Mark J. Held President & Chief Operating Officer --
Gilbert L. Beebower Executive Vice President --
Richard B. Lieb Executive Vice President --
Dennis J. McGonigle Executive Vice President --
Robert M. Silvestri Chief Financial Officer & Treasurer --
Leo J. Dolan, Jr. Senior Vice President --
Carl A. Guarino Senior Vice President --
Larry Hutchison Senior Vice President --
Jack May Senior Vice President --
Hartland J. McKeown Senior Vice President --
Barbara J. Moore Senior Vice President --
Kevin P. Robins Senior Vice President & General Counsel Vice President and Assistant
Secretary
Patrick K. Walsh Senior Vice President --
Robert Aller Vice President --
Gordon W. Carpenter Vice President --
</TABLE>
C-4
<PAGE>
<TABLE>
Position and Office Positions and Officers
Name with Underwriter with Registrant
- ---- ---------------- ---------------
<S> <C> <C>
Todd Cipperman Vice President & Assistant Secretary Vice President & Assistant
Secretary
S. Courtney E. Collier Vice President & Assistant Secretary --
Robert Crudup Vice President & Managing Director --
Barbara Doyne Vice President --
Jeff Drennen Vice President --
Vic Galef Vice President & Managing Director --
Lydia A. Gavalis Vice President & Assistant Secretary Vice President & Assistant
Secretary
Greg Gettinger Vice President & Assistant Secretary --
Kathy Heilig Vice President Vice President & Assistant
Secretary
Jeff Jacobs Vice President --
Samuel King Vice President --
Kim Kirk Vice President & Managing Director --
John Krzeminski Vice President & Managing Director Vice President & Assistant
Secretary
Carolyn McLaurin Vice President & Managing Director --
W. Kelso Morrill Vice President --
Mark Nagle Vice President President & Chief Executive
Officer
Joanne Nelson Vice President --
Joseph M. O'Donnell Vice President & Assistant Secretary Vice President & Assistant
Secretary
Sandra K. Orlow Vice President & Secretary Vice President & Assistant
Secretary
Cynthia M. Parrish Vice President & Assistant Secretary --
Kim Rainey Vice President --
Rob Redican Vice President --
Maria Rinehart Vice President --
Mark Samuels Vice President & Managing Director --
Steve Smith Vice President --
Daniel Spaventa Vice President --
Kathryn L. Stanton Vice President & Assistant Secretary Vice President & Assistant
Secretary
Lynda J. Striegel Vice President & Assistant Secretary Vice President & Assistant
Secretary
Lori L. White Vice President & Assistant Secretary --
Wayne M. Withrow Vice President & Managing Director --
</TABLE>
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:
C-5
<PAGE>
The Bank of New York SunTrust Banks, Inc.
One Wall Street Park Place
New York, NY 10286 P.O. Box 105504
(International Equity Fund) 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 Investments Mutual Funds Services
One Freedom Valley Road
Oaks, PA 19456
(c) With respect to Rules 31a-1(b)(5), (6), (9) and (10) and 31a-1(f), the
required books and records are maintained at the principal offices of the
Registrant's 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.
Registrant undertakes to furnish each person to whom a prospectus is delivered
with a copy of the Registrant's latest annual report to Shareholders, upon
request and without charge.
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 (the "Securities
Act") and the Investment Company Act of 1940, as amended, the Registrant
certifies that it meets all of the requirements for the 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. 7 to Registration
Statement No. 33-91476 to be signed on its behalf by the undersigned, duly
authorized, in the City of Oaks, Commonwealth of Pennsylvania on the 26th day of
April, 1999.
STI CLASSIC VARIABLE TRUST
By: /s/ Mark Nagle
------------------------------
Mark Nagle, President
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment to the Registration Statement has been signed below by the following
person in the capacity on the dates indicated.
*
- --------------------------- Trustee April 26, 1999
F. Wendell Gooch
*
- --------------------------- Trustee April 26, 1999
Daniel S. Goodrum
*
- --------------------------- Trustee April 26, 1999
Wilton Looney
*
- --------------------------- Trustee April 26, 1999
Champney A. McNair
*
- --------------------------- Trustee April 26, 1999
T. Gordy Germany
*
- --------------------------- Trustee April 26, 1999
William H. Cammack
*
- --------------------------- Trustee April 26, 1999
Jonathan T. Walton
*
- --------------------------- Trustee April 26, 1999
Dr. Bernard F. Sliger
*
- --------------------------- Controller, April 26, 1999
Carol Rooney Treasurer &
Chief Financial
Officer
/s/ Mark Nagle
- --------------------------- President & Chief April 26, 1999
Mark Nagle Executive Officer
* By: /s/ Mark Nagle
-----------------------------------
Mark Nagle, As Power of Attorney
<PAGE>
EXHIBIT INDEX
Number Exhibit
- ------ -------
EX-99.A Agreement and Declaration of Trust of the Registrant -
incorporated herein by reference to Post-Effective Amendment
No. 1 filed April 2, 1996.
EX-99.B1 By-Laws of the Registrant - incorporated herein by reference
to Post-Effective Amendment No. 1 filed April 2, 1996.
EX-99.C1 Not applicable.
EX-99.D1 Investment Advisory Agreement between the Registrant and STI
Capital Management, N.A., dated August 18, 1995 -
incorporated herein by reference to Post-Effective Amendment
No. 1 filed April 2, 1996.
EX-99.E Distribution Agreement between the Registrant and SEI
Financial Services Company, dated August 18, 1995 -
incorporated herein by reference to Post-Effective Amendment
No. 1 filed April 2, 1996.
EX-99.F Not applicable.
EX-99.G1 Custodian Agreement between the Registrant and SunTrust
Bank, Atlanta, dated August 18, 1995 -incorporated herein by
reference to Post-Effective Amendment No. 1 filed
April 2, 1996.
EX-99.G2 Custody Agreement with Bank of New York incorporated by
reference to Post-Effective Amendment No. 2 filed August 21,
1996.
EX-99.G3 Third Amendment to Custodian Agreement dated October 10,
1996 - incorporated by reference to Exhibit 8(c) of
Post-Effective Amendment No. 5 to the Registrant's
Statement filed with the SEC via EDGAR Accession
No. 0001047469-98-008284 on March 2, 1998.
EX-99.G4 Fourth Amendment to Custodian Agreement dated May 6, 1997 -
incorporated by reference to Exhibit 8(d) of Post-Effective
Amendment No. 5 to the Registrant's Statement filed with the
SEC via EDGAR Accession No. 0001047469-98-008284 on
March 2, 1998.
EX-99.H1 Administration Agreement between the Registrant and SEI
Financial Management Corporation, dated August 18, 1995, as
amended November 9, 1997 - incorporated by reference to
Exhibit 9(a) of Post-Effective Amendment No. 5 to the
Registrant's Statement filed with the SEC via EDGAR
Accession No. 0001047469-98-008284 on March 2, 1998.
EX-99.H2 Form of Participation Agreement among the Registrant, SEI
Financial Services Company, Glenbrook Life and Annuity
Company, dated October 2, 1995 - incorporated by reference
to Post-Effective Amendment No. 1 filed April 2, 1996.
EX-99.H3 Agreement for Shareholder Recordkeeping between the
Registrant and Federated Services Company, dated
August 2, 1995 - incorporated herein by reference to
Post-Effective Amendment No. 1 filed April 2, 1996.
EX-99.H4 Amended Schedule to the Administration Agreement between the
Registrant and SEI Financial Management Corporation dated
August 19, 1996 -incorporated by reference to Exhibit 9(a)
of Post-Effective Amendment No. 5 to the Registrant's
Statement filed with the SEC via EDGAR Accession No.
0001047469-98-008284 on March 2, 1998.
EX-99.H5 Amended Schedule to the Administration Agreement between
the Registrant and SEI Fund Resources dated
November 19, 1997 is filed herewith.
EX-99.H6 Amended Schedule to the Administration Agreement between
the Registrant and SEI Investments Mutual Funds Services
dated March 1, 1999 is filed herewith.
EX-99.I Opinion of Counsel - incorporated herein by reference to
Post-Effective Amendment No. 1 filed April 2, 1996.
EX-99.J Consent of independent auditors, Arthur Andersen LLP, is
filed herewith.
EX-99.K Not applicable.
EX-99.L Not applicable.
EX-99.M Not applicable.
EX-99.N EX-27.1 Financial Data Schedule for the Capital
Appreciation Fund is filed herewith.
EX-27.2 Financial Data Schedule for the Value Income Stock
Fund is filed herewith.
EX-27.3 Financial Data Schedule for the Mid-Cap Equity Fund
is filed herewith.
EX-27.4 Financial Data Schedule for the Investment Grade
Bond Fund is filed herewith.
EX-27.5 Financial Data Schedules for the International
Equity Fund is filed herewith.
EX-27.6 Financial Data Schedule for the Small-Cap Equity
Fund is filed herewith.
EX-99.O Not applicable.
EX-99.P Powers of attorney - incorporated by reference to
Post-Effective Amendment No. 6 to the Registrant's
Registration Statement filed with the SEC via EDGAR
Accession No. 0001047469-99-007836 on March 1, 1999.
<PAGE>
AMENDED
SCHEDULE A
DATED NOVEMBER 19, 1997
TO THE ADMINISTRATION AGREEMENT
DATED AUGUST 18, 1995
BETWEEN
STI CLASSIC VARIABLE TRUST
AND
SEI FUND RESOURCES
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:
.12% on first $1 billion
.09% on the next $4 billion
.07% on the next $3 billion
.065% on the next $2 billion
.06 % thereafter
Term: Pursuant to Article 7, the term of this Agreement shall remain in
effect until June 30, 2001. 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 non-breaching party may immediately
terminate this Agreement.
1
<PAGE>
AMENDED
SCHEDULE A
DATED MARCH 1, 1999
TO THE ADMINISTRATION AGREEMENT
DATED MAY 29, 1995
BETWEEN
STI CLASSIC VARIABLE TRUST
AND
SEI INVESTMENTS MUTUAL FUNDS SERVICES
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:
.12% on first $1 billion
.09% on the next $4 billion
.07% on the next $3 billion
.065% on the next $2 billion
.06% thereafter
Term: Pursuant to Article 7, this Agreement shall remain in effect until
February 28, 2004. 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 non-breaching party may immediately terminate this
Agreement.
1
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use in this
Registration Statement of our report dated January 29, 1999 on the December 31,
1998 financial statements of STI Classic Variable Trust, included in
Post-Effective Amendment No. 7 to the Registration Statement on Form N1-A, and
to all references to our Firm included in or made part of this Registration
Statement File No. 33-91476.
/s/ Arthur Andersen LLP
Philadelphia, PA
April 28, 1999
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<ACCUMULATED-NET-GAINS> 378
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<NET-ASSETS> 31075
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<EXPENSES-NET> (316)
<NET-INVESTMENT-INCOME> (80)
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