-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VrmPnB5J1pqJchHDlIEKM/QYBAwtJjTFlM2IjOPbuniTheqfQRGbdLMm2qmagGDx p/IMO5xS+FlYqZCNaKjkWA== 0000912057-96-009517.txt : 19960515 0000912057-96-009517.hdr.sgml : 19960515 ACCESSION NUMBER: 0000912057-96-009517 CONFORMED SUBMISSION TYPE: 497 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19960514 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: STI CLASSIC FUNDS CENTRAL INDEX KEY: 0000883939 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: MA FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 497 SEC ACT: 1933 Act SEC FILE NUMBER: 033-45671 FILM NUMBER: 96563652 BUSINESS ADDRESS: STREET 1: 2 OLIVER STREET CITY: BOSTON STATE: MA ZIP: 02109 BUSINESS PHONE: 6109896602 MAIL ADDRESS: STREET 1: 680 E SWEDESFORD ROAD STREET 2: 680 E SWEDESFORD ROAD CITY: WAYNE STATE: PA ZIP: 19087 497 1 497 STI CLASSIC FUNDS INTERNATIONAL EQUITY FUND TRUST CLASS SHARES Supplement dated May 7, 1996 to Prospectus dated October 1, 1995 The Prospectus dated October 1, 1995 is hereby amended by the addition of the following unaudited financial information for the International Equity Fund for the period ended March 31, 1996.
FINANCIAL HIGHLIGHTS STI CLASSIC FUNDS FOR THE PERIOD ENDED MARCH 31, 1996 (UNAUDITED) For a Share Outstanding Throughout the Period RATIO OF RATIO OF NET NET RATIO OF NET RATIO OF INVESTMENT REALIZED NET NET EXPENSES INVESTMENT EXPENSES LOSS TO NET ASSET AND DIVIDENDS ASSET ASSETS TO INCOME/ TO AVERAGE AVERAGE VALUE NET UNREALIZED FROM NET VALUE END OF AVERAGE (LOSS) TO NET ASSETS NET ASSETS PORTFOLIO BEGINNING INVESTMENT GAINS ON INVESTMENT END OF TOTAL PERIOD NET AVERAGE (EXCLUDING (EXCLUDING) TURNOVER OF PERIOD LOSS INVESTMENTS INCOME PERIOD RETURN (000) ASSETS NET ASSETS WAIVERS) WAIVERS) RATE --------- ------ ----------- -------- ------ ------ ----- ------ ---------- --------- -------- ------ - -------------------- INTERNATIONAL EQUITY FUND - -------------------- TRUST 1996(1) $10.00 $ - $ 0.88 $ - $10.88 8.80% $168,030 1.46% 0.11% 1.70% (0.13)% 115% - ---------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------
(1) Commenced operations on December 1, 1995. All ratios for the period except total return have been annualized. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. PLEASE RETAIN THIS SUPPLEMENT FOR FUTURE REFERENCE STI CLASSIC FUNDS TRUST SHARES INTERNATIONAL EQUITY FUND INVESTMENT ADVISOR TO THE FUND: STI CAPITAL MANAGEMENT, N.A. The STI Classic Funds (the "Trust") is a mutual fund that offers shares in a number of separate investment portfolios. This Prospectus sets forth concisely the information about the Trust Shares of the International Equity Fund (the "Fund"). Investors are advised to read this Prospectus and retain it for future reference. A Statement of Additional Information relating to the Fund dated the same date as this Prospectus has been filed with the Securities and Exchange Commission and is available without charge through the Distributor, SEI Financial Services Company, 680 East Swedesford Road, Wayne, PA 19087-1658 or by calling 1-800-428-6970. The Statement of Additional Information is incorporated into this Prospectus by reference. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE TRUST'S SHARES ARE NOT SPONSORED, ENDORSED, OR GUARANTEED BY, AND DO NOT CONSTITUTE OBLIGATIONS OR DEPOSITS OF, THE ADVISORS OR ANY OF THEIR AFFILIATES OR CORRESPONDENTS INCLUDING SUNTRUST BANKS, INC., ARE NOT GUARANTEED OR INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENTAL AGENCY, AND INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. OCTOBER 31, 1995 2 No person has been authorized to give any information or to make any representations not contained in this Prospectus, or in the Statement of Additional Information relating to the Fund incorporated herein by reference, in connection with the offering made by this Prospectus and, if given or made, such information or representations must not be relied upon as having been authorized by the Trust or SEI Financial Services Company (the "Distributor"). This Prospectus does not constitute an offering by the Trust or by the Distributor in any jurisdiction in which such offering may not lawfully be made. The Trust Shares are offered primarily to financial institutions ("Shareholders"), including SunTrust Banks, Inc. and its affiliates and correspondents, for the investment of funds for which they act in a fiduciary, agency, investment advisory or custodial capacity. Fund shares may not be purchased directly by individuals, although institutions may purchase shares for accounts maintained by individuals. TABLE OF CONTENTS Expense Summary...................... 3 The Trust............................ 4 Investment Objective................. 4 Investment Policies and Strategies... 5 General Investment Policies and Strategies.......................... 6 Investment Risks..................... 6 Investment Limitations............... 8 Performance Information.............. 9 General Performance Information...... 9 Purchase Of Fund Shares.............. 9 Redemption Of Fund Shares............ 10 Dividends And Distributions.......... 10 Tax Information...................... 11 STI Classic Funds Information........ 12 Board of Trustees.................... 12 Investment Advisor................... 13 Portfolio Manager.................... 13 Banking Laws......................... 13 Distribution......................... 14 Administration....................... 14 Transfer Agent and Dividend Disbursing Agent.................... 15 Custodian............................ 15 Legal Counsel........................ 15 Independent Public Accountants....... 15 Other Information.................... 15 Voting Rights........................ 15 Reporting............................ 15 Shareholder Inquiries................ 15 Description of Permitted Investments......................... 15 Appendix............................. A-1
3 EXPENSE SUMMARY TRUST SHARES Below is a summary of the annual operating expenses for Trust Shares of the International Equity Fund. A hypothetical example based on the summary is also shown. Actual expenses may vary. ANNUAL OPERATING EXPENSES (as a percentage of average net assets)
INTERNATIONAL EQUITY FUND - ------------------------------------------------------------------------------------------------------------------ Advisory Fees (After Voluntary Reductions)(1)....................................................... 1.10% All Other Expenses.................................................................................. .36% - ------------------------------------------------------------------------------------------------------------------ Total Operating Expenses (After Voluntary Reductions)(1)............................................ 1.46% - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------
(1) Absent voluntary reductions, advisory fees, and total operating expenses, expressed as a percentage of average net assets for the Trust Shares of the Fund would be: 1.25% and 1.61%. Fee reductions are voluntary and may be terminated at any time. Additional information may be found under "Investment Advisor" and "Administration." A person that purchases shares through an account with a financial institution may be charged separate fees by the financial institution.
INTERNATIONAL EXAMPLE EQUITY FUND - -------------------------------------------------------------------------------------------------------------------- An investor would pay the following expenses on a $1,000 investment assuming: (1) 5% annual return and (2) redemption at the end of each time period: One year.......................................................................................... $ 15 Three Years....................................................................................... 46 - -------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------
THE EXAMPLE IS BASED UPON THE TOTAL OPERATING EXPENSES OF THE FUND AND SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. The purpose of this table is to assist the investor in understanding the various costs and expenses that may be directly or indirectly borne by investors in the Trust. "Other Expenses" for the Fund are based on estimated amounts for the current fiscal year. The information set forth in the foregoing table and example relates only to Trust Shares. The Trust also offers Investor Shares and Flex Shares of the Fund which are subject to the same expenses except for different distribution fees and sales charges and different transfer agent fees. 4 PERFORMANCE INFORMATION FOR PREDECESSOR COLLECTIVE FUND The International Equity Fund will be the successor to a collective investment fund currently managed by the Advisor. It is anticipated that a substantial portion of the assets of this collective investment fund will be transferred to the Fund on or about December 1, 1995 in connection with the Fund's commencement of operations. Set forth below is certain performance data for the predecessor collective investment fund, which is deemed relevant because the collective investment fund was managed using virtually the same investment objective, policies and restrictions as those used by the Fund. However, the performance data is not necessarily indicative of the future performance of the Fund. It is expected that the Fund initially will be somewhat smaller in asset size than the predecessor collective investment fund. It is anticipated, however, that the Fund will reach the same asset size as the predecessor fund before the end of the Fund's first year of operation and will continue to grow in size thereafter. The predecessor collective fund did not incur expenses that correspond to the advisory, administrative, and other fees to which the Fund is subject. Accordingly, the following performance information has been adjusted by applying the current total expense ratios for the Fund, which reduced the actual performance of the collective fund. The expense ratio is that set forth under "Annual Operating Expenses" (after giving effect to anticipated waivers and reimbursements). Total Cumulative Return (adjusted to reflect current Fund expenses, net of voluntary waivers and reimbursements for period ended 9/30/95.)
- --------------------------------------------------------------------- DATE OF INCEPTION SINCE OF FUND 1 MONTH 3 MONTHS INCEPTION - --------------------------------------------------------------------- International Equity Collective Fund 2/1/95 4.04% 10.86% 32.53%
THE TRUST STI CLASSIC FUNDS (the "Trust") is a diversified, open-end management investment company that provides a convenient and economical means of investing in several professionally managed portfolios of securities. The Trust currently offers units of beneficial interest ("shares") in a number of separate Funds. Shareholders may purchase shares in The International Equity Fund (the "Fund") through three separate classes (Trust Shares, Flex Shares and Investor Shares) which provide for variations in distribution and transfer agent fees, voting rights and dividends. Except for differences between classes, each share of the Fund represents an undivided, proportionate interest in the Fund. This Prospectus relates to the Trust Shares of the Fund. The Flex Shares and Investor Shares of the Fund currently are not available for purchase. INVESTMENT OBJECTIVE THE INTERNATIONAL EQUITY FUND seeks to provide long term capital appreciation by investing primarily in a diversified portfolio of equity securities of foreign issuers. There can be no assurance that the Fund will achieve its investment objective. The investment objective of the Fund is nonfundamental and may be changed without shareholder approval. 5 INVESTMENT POLICIES AND STRATEGIES INTERNATIONAL EQUITY FUND The Fund, under normal market conditions will invest at least 65% of its assets in equity securities of foreign issuers consisting of: common and preferred stocks, warrants, options and securities convertible into common stock. Securities of foreign issuers purchased by the Fund may be purchased in foreign markets, on United States registered exchanges, the over-the-counter market or in the form of sponsored or unsponsored American Depositary Receipts ("ADRs") traded on registered exchanges or NASDAQ, or sponsored or unsponsored European Depositary Receipts ("EDRs"). The Fund may enter into forward foreign currency contracts as a hedge against possible variations in foreign exchange rates. A forward foreign currency contract is a commitment to purchase or sell a specified currency, at a specified future date, at a specified price. The Fund may enter into forward foreign currency contracts to hedge a specific security transaction or to hedge a portfolio position. The Fund also may purchase and write put and call options on foreign currencies (traded on U.S. and foreign exchanges or over-the-counter markets) to manage the portfolios exposure to changes in dollar exchange rates. The Fund expects to be fully invested in the investments described above, but may invest up to 35% of its total assets in bonds and debentures issued by non-U.S. or U.S. companies, securities issued or guaranteed by foreign and U.S. governments and foreign and U.S. commercial paper. The Fund may invest in futures contracts, including stock index futures contracts, and options on futures contracts. The bonds that the Fund may purchase may be rated in any rating category or may be unrated provided that no more than 10% of the Fund's total assets will be rated below BBB by Standard & Poor's Corporation or below Baa by Moody's Investor Service, Inc. or unrated securities of comparable quality (see "Investment Risks -- High Yield -- Lower Rated Bonds"). When investing in bonds, the Fund may seek capital gains by taking advantage of price appreciation caused by interest rate and credit quality changes. The Fund may also purchase shares of closed-end investment companies that invest in the securities of issuers in a single country or region. The Fund is also permitted to acquire floating and variable rate securities, purchase securities on a when- issued basis and purchase illiquid securities. The Fund will invest in the foreign issues of at least three different countries outside the United States. A foreign issue is one the issuer of which (1) is organized under the laws of a specific country, (2) for which the principal securities trading market is in a specific country or (3) derives a significant proportion (at least 50 percent) of their revenues or profits from goods produced or sold, investments made, or services performed in a specific country or which have at least 50 percent of their assets situated in that country. The Fund will invest primarily in developed countries, (for example Japan, Canada and the United Kingdom). In addition, the Fund may invest in securities of issuers whose principal activities are in countries with emerging markets. The Fund defines an emerging market country as any country the economy and market of which the World Bank or the United Nations considers to be emerging or developing. The annual portfolio turnover rate for the Fund is not expected to exceed 100%. 6 GENERAL INVESTMENT POLICIES AND STRATEGIES For temporary defensive purposes during periods when its Advisor determines that market conditions warrant, the Fund may invest up to 100% of its assets in money market instruments consisting of securities issued or guaranteed as to principal and interest by the U.S. Government, its agencies or instrumentalities, custodial receipts involving U.S. Treasury obligations, repurchase agreements, certificates of deposit, bankers' acceptances, and time deposits issued by banks or savings and loan associations and commercial paper rated in the highest rating category, and may hold a portion of its assets in cash. The Fund may not be pursuing its investment objective when it is engaged in temporary defensive investing. The Fund may also invest in money market instruments for liquidity purposes. The Fund may invest, subject to its investment objective and policies, in zero coupon obligations. Zero coupon obligations are sold at original issue discount and do not make periodic payments. Zero coupon obligations may be subject to greater fluctuations in value due to interest rate changes. The Fund may purchase restricted securities, including Rule 144A securities, that the Advisor determines are liquid pursuant to guidelines established by the Trust's Board of Trustees. In the event that a security owned by the Fund is downgraded below the stated rating categories, the Advisor will review and take appropriate action with regard to the security. The Fund may borrow money for temporary or emergency purposes in an amount not to exceed one-third of the value of its total assets. The Fund may not purchase additional securities while its outstanding borrowings exceed 5% of its assets. The Fund's purchase of shares of other investment companies is limited by the Investment Company Act of 1940 and will ordinarily result in an additional layer of charges and expenses. The Fund may engage in securities lending and will limit such practice to 33 1/3% of its total assets. It is a non-fundamental policy of the Fund to invest no more than 15% of its net assets in illiquid securities. An illiquid security is a security which cannot be disposed of within seven days in the usual course of business at a price approximating its carrying value. For additional information regarding permitted investments, see "Description of Permitted Investments" in this Prospectus and in the Statement of Additional Information. INVESTMENT RISKS FOREIGN SECURITIES AND FOREIGN CURRENCY CONTRACTS Investing in the securities of foreign companies and the utilization of forward foreign currency contracts involve special risks and considerations not typically associated with investing in U.S. companies. These risks and considerations include differences in accounting, auditing and financial reporting standards, generally higher commission rates on foreign portfolio transactions, the possibility of expropriation or confiscatory taxation, adverse changes in investment or exchange control regulations, political instability which could affect U.S. investment in foreign countries and potential restrictions of the flow of international capital and currencies. Foreign companies may also be subject to less government regulation than U.S. companies. Moreover, the dividends payable on the foreign securities may be subject to foreign withholding taxes, thus reducing the net amount of income 7 available for distribution to the Fund's Shareholders. Further, foreign securities often trade with less frequency and volume than domestic securities and, therefore, may exhibit greater price volatility. Changes in foreign exchange rates will affect, favorably or unfavorably, the value of those securities which are denominated or quoted in currencies other than the U.S. dollar. By entering into forward foreign currency contracts, the Fund will seek to protect the value of its investment securities against a decline in the value of a currency. However, these forward foreign currency contracts will not eliminate fluctuations in the underlying prices of the securities. Rather, they simply establish a rate of exchange which one can obtain at some future point in time. Although such contracts tend to minimize the risk of loss due to a decline in the value of the hedged currency, also, they tend to limit any potential gain which might result should the value of such currency increase. The Fund's investments in emerging markets can be considered speculative, and therefore may offer higher potential for gains and losses than investments in developed markets of the world. With respect to any emerging country, there is the greater potential for nationalization, expropriation or confiscatory taxation, political changes, government regulation, social instability or diplomatic developments (including war) which could affect adversely the economies of such countries or investments in such countries. In addition, it may be difficult to obtain and enforce a judgment in the courts of such countries. The economies of developing countries generally are heavily dependent upon international trade and, accordingly, have been and may continue to be adversely affected by trade barriers, exchange controls, managed adjustments in relative currency values and other protectionist measures imposed or negotiated by the countries with which they trade. Investment in Eastern European countries and the countries which made up the former Soviet Union may be affected by political decisions that could cause such countries to revert to a prior system of government. EQUITY SECURITIES Investments in equity securities in general are subject to market risks that may cause their prices to fluctuate over time. The value of convertible equity securities is also affected by prevailing interest rates, the credit quality of the issuer and any call provision. Fluctuations in the value of equity securities in which the Fund invests will cause the net asset value of the Fund to fluctuate. FIXED INCOME SECURITIES The market value of the Fund's fixed income investments will change in response to interest rate changes and other factors. During periods of falling interest rates, the values of outstanding fixed income securities generally rise. Conversely, during periods of rising interest rates, the values of such securities generally decline. Securities with longer maturities are subject to greater fluctuations in value than securities with shorter maturities. Changes by a nationally recognized statistical rating organization ("NRSRO") in the rating of any fixed income security and in the ability of an issuer to make payments of interest and principal also affect the value of these investments. Changes in the value of the Fund's securities will not affect cash income derived from these securities but will affect the Fund's net asset value. 8 Securities rated BBB by S&P or Baa by Moody's (investment grade bonds) are deemed by these rating services to have speculative characteristics. Guarantees of the Fund's Securities by the U.S. Government or its agencies or instrumentalities guarantee only the payment of principal and interest on the guaranteed securities, and do not guarantee the securities' yield or value of the yield or value of the Fund's shares. There is a risk that the current interest rate on floating and variable rate instruments may not accurately reflect existing market interest rates. HIGH YIELD, LOWER RATED BONDS The Fund's investments in high yield, lower rated bonds ("junk bonds") involve greater risk of default or price declines than investments in investment grade securities (rated BBB or higher by S&P or Baa or higher by Moody's) due to changes in the issuer's creditworthiness. The market for high risk, high yield securities may be thinner and less active, causing market price volatility and limited liquidity in the secondary market. This may limit the ability of the Fund to sell such securities at their fair market value either to meet redemption requests or in response to changes in the economy or the financial markets. Market prices for high risk, high yield securities may also be affected by investors' perception of credit quality and the outlook for economic growth. Thus, prices for high risk, high yield securities may move independently of interest rates and the overall bond market. In addition, the market for high risk, high yield securities may be adversely affected by legislative and regulatory developments. INVESTMENT LIMITATIONS The following investment limitations constitute fundamental policies of the Fund. Fundamental policies cannot be changed with respect to the Fund without the consent of the holders of a majority of the Fund's outstanding shares. The term "majority of the outstanding shares" means the vote of (i) 67% or more of the Fund's shares present at a meeting, if more than 50% of the outstanding shares of the Fund are present or represented by proxy, or (ii) more than 50% of the Fund's outstanding shares, whichever is less. The Fund may not: 1. Purchase securities of any issuer (except securities issued or guaranteed by the United States, its agencies or instrumentalities and repurchase agreements involving such securities) if as a result more than 5% of the total assets of the Fund would be invested in the securities of such issuer; provided, however, that the Fund may invest up to 25% of its total assets without regard to this restriction as permitted by applicable law. 2. Purchase any securities which would cause more than 25% of the total assets of the Fund to be invested in the securities of one or more issuers conducting their principal business activities in the same industry, provided that this limitation does not apply to investments in obligations issued or guaranteed by the U.S. Government or its agencies and instrumentalities, repurchase agreements involving such securities or tax-exempt securities issued by governments or political subdivisions of governments. For purposes of this limitation, (i) utility companies will be divided according to their services, for example, gas, gas transmission, electric and telephone will each be considered a separate industry; (ii) financial service companies will be classified according to the end users of their services, for example, automobile 9 finance, bank finance and diversified finance will each be considered a separate industry; and (iii) supranational entities will be considered to be a separate industry. The foregoing percentages will apply at the time of the purchase of a security. Additional investment limitations are set forth in the Statement of Additional Information. PERFORMANCE INFORMATION From time to time, the Fund may advertise performance (total return and yield). These figures will be historical and are not intended to indicate future performance. The yield of the Fund refers to the annualized income generated by an investment in the Fund over a specified 30-day period. The yield is calculated by assuming that the income generated by the investment during that period is generated over one year and is shown as a percentage of the investment. The total return of the Fund refers to the average compounded rate of return on a hypothetical investment, including any sales charge imposed, 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 and assuming the reinvestment of all dividend and capital gains distributions. GENERAL PERFORMANCE INFORMATION The performance of Trust Shares of the Trust will normally be higher than for Investor Shares and Flex Shares of the Trust because Investor Shares and Flex Shares are subject to distribution and certain transfer agent fees not charged to Trust Shares. The performance of Flex Shares in comparison to Investor Shares will vary depending upon investment time horizon. The Fund may periodically compare its performance to other mutual funds tracked by mutual fund rating services, to broad groups of comparable mutual funds or to unmanaged indices which may assume reinvestment of dividends but generally do not reflect deductions for administrative and management costs. PURCHASE OF FUND SHARES Trust Shares of the Fund are sold primarily to financial institutions, including subsidiaries of SunTrust Banks, Inc. ("SunTrust"), for the investment of funds for which they act in a fiduciary, agency, investment advisory or custodial capacity. Individuals may not purchase Trust Shares directly, although individuals may be able to purchase Trust Shares through accounts maintained with financial institutions. Trust Shares are sold without a sales charge, although financial institutions may charge their customer accounts for services provided in connection with the purchase of shares. Financial institutions may impose an earlier cut-off time for receipt of purchase orders directed through them to allow for processing and transmittal of these orders to the Transfer Agent for effectiveness the same day. Information concerning these services and any charges will be provided to customers by the financial institutions. Trust Shares will be held of record by the financial institutions, although customers may have or be given the right to vote the shares depending upon the terms of their relationship with the financial institution. Confirmations of share purchases and redemptions will be sent to the financial institution as the shareholder of record. Shares may be purchased on days on which the New York Stock Exchange is open for business ("business day"). A purchase order for the Fund will be effective as of the business day received by the Transfer 10 Agent if the Transfer Agent receives the order before 4:00 p.m. Eastern time and payment is received within one day. The purchase price of shares of the Fund is the net asset value next determined after a purchase order is effective plus any applicable sales charge (the "offering price"). The net asset value per share of the Fund is determined by dividing the total market value of the Fund's investments and other assets, less any liabilities, by the total outstanding shares of the Fund. Net asset value per share is determined daily as of the close of business of the New York Stock Exchange (currently 4:00 p.m. Eastern time) on any business day. Pursuant to guidelines established by the Trustees, the Trust may use a pricing service to provide market quotations or valuations for securities owned by the Fund. Purchases will be made in full and fractional shares of the Trust calculated to three decimal places. The Trust reserves the right to reject a purchase order when the Distributor determines that it is not in the best interest of the Trust and/or Shareholder(s). Neither the Trust's Transfer Agent nor the Trust will be responsible for any loss, liability, cost or expense for acting upon telephone or wire instructions reasonably believed to be genuine. The Trust maintains procedures, including identification methods and other means, for ascertaining the identity of callers and authenticity of instructions. Shares of the Fund are offered only to residents of states in which the shares are eligible for purchase. Shareholders in certain states may be required to purchase shares through institutions registered as Broker/Dealers in such states. Although the methodology and procedures for calculating the net asset value for Trust Shares are identical to those of Investor Shares and Flex Shares, the net asset value per share of the classes of the Fund may differ because of the distribution, service, and certain transfer agent expenses charged to Investor Shares and Flex Shares. REDEMPTION OF FUND SHARES An order to redeem shares must be transmitted to the transfer agent by the financial institution as the record owner of Trust Shares. Financial institutions may establish procedures for their customers to request redemption of Trust Shares held in their account with the financial institution. Customers should contact their financial institution for information concerning these procedures. Redemption orders must be received by the Transfer Agent before 4:00 p.m. Eastern time on any business day to be effective that day. Redemption proceeds are normally remitted in federal funds wired to the record owner of the shares within one business day, but in no event more than seven days following the effective date of the order. No charge for wiring redemption payments is imposed by the Trust. Redemption orders are effected at the net asset value per share next determined after an order is effective. The Trust intends to pay cash for all shares redeemed, but under abnormal conditions which make payment in cash unwise, payment may be made wholly or partly in liquid portfolio securities with a market value equal to the redemption price. In such circumstances, an investor may incur brokerage costs in converting such securities to cash. DIVIDENDS AND DISTRIBUTIONS Dividends are declared and paid annually by the Fund. The Fund's net realized capital gains (including net short-term capital gains) are 11 distributed at least annually. Net income for dividend purposes consists of (i) interest accrued and original issue discount earned on the Fund's assets, (ii) plus the amortization of market discount and minus the amortization of market premium on such assets, (iii) plus dividend or distribution income on such assets, (iv) less accrued expenses directly attributable to the Fund and the general expenses of the Trust prorated to the Fund on the basis of its relative net assets. Shareholders of record on the record date will be entitled to receive dividends. The net asset value of Trust Shares of the Fund will be reduced by the amount of any dividend or distribution. Dividends and distributions are paid in the form of additional Trust Shares of the Fund unless the customer has elected prior to the date of distribution to receive payment in cash. Such election, or any revocation thereof, must be made in writing prior to the date of distribution to the Trust's transfer agent and will become effective with respect to dividends paid after its receipt. Dividends and distributions are paid within ten days of the end of the time period to which the dividend relates. Dividends and distributions payable to a Shareholder are paid in cash within ten business days after a Shareholder's complete redemption of its Trust Shares in the Fund. The amount of dividends payable on Trust Shares will be more than the dividends payable on Investor Shares and Flex Shares because of the distribution and certain transfer agent expenses charged to Investor Shares and Flex Shares. The amount of dividends payable on Flex Shares generally will be less than the amount of dividends payable on Investor Shares due to the higher distribution and service expenses of Flex Shares. TAX INFORMATION The following summary of federal income tax consequences is based on current tax laws and regulations, which may be changed by legislative, judicial or administrative action. No attempt has been made to present a detailed explanation of the federal, state, or local income tax treatment of the Fund or its Shareholders. Shareholders are urged to consult their tax advisors regarding specific questions as to federal, state and local income taxes. TAX STATUS OF THE FUND: The Fund is treated as a separate entity for federal tax purposes and is not combined with the Trust's other Funds. The Fund intends to qualify for the special tax treatment afforded regulated investment companies by the Internal Revenue Code of 1986, as amended, (the "Code") so that it will be relieved of federal income tax on that part of its net investment income and net capital gains (the excess of long-term capital gains over net short-term capital loss) which is distributed to Shareholders. The Fund intends to make sufficient distributions prior to the end of each calendar year to avoid liability for federal excise tax. TAX STATUS OF DISTRIBUTIONS: The Fund will distribute substantially all of its net investment income (including, for this purpose, net short-term capital gains) to Shareholders. Dividends from net investment income paid by the Fund will be taxable to Shareholders as ordinary income whether received in cash or in additional shares. Dividends from net investment income will qualify for the dividends received deduction for corporate Shareholders only to the extent such 12 distributions are derived from dividends paid by domestic corporations. Any net capital gains will be distributed annually and will be taxed to Shareholders as long-term capital gains, regardless of how long the Shareholder has held shares and regardless of whether distributions are received in cash or in additional shares. For certain individual Shareholders, net long-term capital gains may be taxed at a lower rate than ordinary income. The Fund will make annual reports to Shareholders of the federal income tax status of all distributions. Dividends declared by the Fund in October, November or December of any year and payable to Shareholders of record on a date in that month will be deemed to have been paid by the Fund and received by the Shareholder on December 31 of that year, if paid by the Fund at any time during the following January. Income derived by the Fund from obligations of foreign issuers may be subject to foreign withholding taxes. The Fund expects to elect to treat Shareholders as having paid their proportionate share of such foreign taxes. Income received on direct U.S. obligations is exempt from tax at the state level when received directly by the Fund and may be exempt, depending on the state, when received by the Shareholder as income dividends from the Fund, provided certain state-specific conditions are satisfied. Not all states permit such income dividends to be tax exempt and some require that a certain minimum percentage of an investment company's income be derived from state tax-exempt interest. The Fund will inform Shareholders annually of the percentage of income and distributions derived from direct U.S. obligations. Shareholders should consult their tax advisors to determine whether any portion of the income dividends received from the Fund is considered tax-exempt in their particular state. Sale, exchange or redemption of Fund shares is a taxable event to the Shareholder. STI CLASSIC FUNDS INFORMATION THE TRUST The Trust was organized as a Massachusetts Business Trust under a Declaration of Trust dated January 15, 1992. The Declaration of Trust permits the Trust to offer separate portfolios of shares and different classes of each portfolio of shares. All consideration received by the Trust for shares of any portfolio of shares and all assets of such portfolio of shares belong to that portfolio of shares and would be subject to liabilities related thereto. The Trust pays its expenses, including fees of its service providers, audit and legal expenses, expenses of preparing prospectuses, proxy solicitation material and reports to Shareholders, costs of custodial services and registering the shares under federal and state securities laws, pricing, insurance expenses, litigation and other extraordinary expenses, brokerage costs, interest charges, taxes and organization expenses. BOARD OF TRUSTEES The management and affairs of the Trust are supervised by the Trustees under the laws governing business trusts in the Commonwealth of Massachusetts. The Trustees have approved contracts under which, as described below, certain companies provide essential management services to the Trust. 13 INVESTMENT ADVISOR The Advisor is an indirect wholly-owned subsidiary of SunTrust Banks, Inc. ("SunTrust"), a southeastern regional bank holding company with assets of $44.2 billion as of June 30, 1995. SunTrust ranks among the twenty largest U.S. banking companies. Its three principal subsidiaries -- SunTrust Banks of Florida, Inc., Suntrust Banks of Georgia, Inc. and SunTrust Banks of Tennessee - -- provide a wide range of personal and corporate banking, trust, and investment services through more than 600 locations in the three-state area. Total discretionary assets under management with SunTrust Banks, Inc. equalled approximately $42 billion as of December 31, 1994. STI Capital Management, N.A. ("STI Capital") serves as the Advisor to the Fund. As of June 30, 1995, STI Capital had discretionary management authority with respect to assets of approximately $11.1 billion. The principal business address of STI Capital is P.O. Box 3808, Orlando, FL 32802. The Trust and the Advisor have entered into an advisory agreement (the "Advisory Agreement"). Under the Advisory Agreement, the Advisor makes the investment decisions for the assets of the Fund and continuously reviews, supervises and administers the Fund's investment program. The Advisor discharges its responsibilities subject to the supervision of, and policies established by, the Trustees of the Trust. STI CLASSIC FUNDS ARE NOT DEPOSITS, ARE NOT INSURED OR GUARANTEED BY THE FDIC OR ANY OTHER GOVERNMENT AGENCY, AND ARE NOT ENDORSED OR GUARANTEED BY AND DO NOT CONSTITUTE OBLIGATIONS OF SUNTRUST BANKS, INC. OR ANY OF ITS AFFILIATES. INVESTMENTS IN THE FUND INVOLVES RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. RETURNS AND PRINCIPAL VALUES WILL FLUCTUATE AND SHARES AT REDEMPTION MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THERE IS NO GUARANTEE THAT ANY STI CLASSIC FUND WILL ACHIEVE ITS INVESTMENT OBJECTIVE. With respect to the Fund, the Advisor may execute brokerage or other agency transactions through affiliates of the Advisor. For the services provided and expenses incurred pursuant to the Investment Advisory Agreement, STI Capital is entitled to receive advisory fees computed daily and paid monthly at the annual rate of 1.25% of the average daily net assets of the Fund. Although the advisory fee for the Fund is higher than advisory fees paid by other mutual funds, the Trust believes that the fee is comparable to the advisory fee paid by other mutual funds with similar investment objectives and policies. From time to time, the Advisor may waive (either voluntarily or pursuant to applicable state limitations) the advisory fee payable by the Fund. Currently, the Advisor has agreed to voluntary reductions in their respective fees in amounts necessary to maintain the total operating expenses at the amounts set forth in the Expense Summary. Voluntary reductions of fees may be terminated at anytime. PORTFOLIO MANAGER Mr. Dan Jaworski has been responsible for the day-to-day management of the Fund since its inception. Mr. Jaworski joined STI Capital in 1995. Prior to joining STI Capital, he managed international portfolios at Lazard Freres Asset Management from 1993 through 1994 and the Principal Financial Group from 1988 through 1993. BANKING LAWS Banking laws and regulations, including the Glass-Steagall Act as presently interpreted by 14 the Board of Governors of the Federal Reserve System, presently (a) prohibit a bank holding company registered under the Federal Bank Holding Company Act of 1956 or its affiliates from sponsoring, organizing, controlling, or distributing the shares of a registered, open-end investment company continuously engaged in the issuance of its shares, and generally prohibit banks from underwriting securities, but (b) do not prohibit such a bank holding company or affiliate or banks generally from acting as an investment advisor, transfer agent, or custodian to such an investment company or from purchasing shares of such a company as agent for and upon the order of a customer. The Advisor believes that it may perform the services for the Fund contemplated by its agreement described in this Prospectus without violation of applicable banking laws or regulations. However, future changes in legal requirements relating to the permissible activities of banks and their affiliates, as well as future interpretations of present requirements, could prevent the Advisor from continuing to perform services for the Fund. If the Advisor was prohibited from providing services to the Fund, the Board of Trustees would consider selecting other qualified firms. Any new investment advisory agreements would be subject to Shareholder approval. If current restrictions preventing a bank or its affiliates from legally sponsoring, organizing, controlling, or distributing shares of an investment company were relaxed, the Advisor, or its affiliates, would consider the possibility of offering to perform additional services for the Fund. It is not possible, of course, to predict whether or in what form such legislation might be enacted or the terms upon which the Advisor, or such affiliates, might offer to provide such services. In addition, state securities laws on that issue may differ from the interpretations of federal law expressed herein and banks and financial institutions may be required to register as dealers pursuant to state law. DISTRIBUTION SEI Financial Services Company (the "Distributor"), a wholly-owned subsidiary of SEI Corporation ("SEI"), and the Trust are parties to a distribution agreement ("Distribution Agreement"). No compensation is paid to the Distributor for distribution services for the Trust Shares of the Fund. Trust Shares of the Fund are offered primarily to institutional investors, including affiliates and correspondents for the investment of funds in which they act in a fiduciary, agency or custodial capacity. It is possible that a financial institution may offer different classes of shares to its customers and thus receive different compensation with respect to different classes of shares. The Fund may also execute brokerage or other agency transactions through the Distributor for which the Distributor receives compensation. ADMINISTRATION SEI Financial Management Corporation (the "Administrator"), a wholly-owned subsidiary of SEI, and the Trust are parties to an Administration Agreement (the "Administration Agreement"). Under the terms of the Administration Agreement, the Administrator provides the Trust with certain administrative services, other than investment advisory services, including regulatory reporting, all necessary office space, equipment, personnel, and facilities. 15 The Administrator is entitled to a fee, which is calculated daily and paid monthly, at an annual rate as follows:
AVERAGE AGGREGATE DAILY NET ASSETS FEE - --------------------------------------------- --------- $1 - $1 billion .10% over $1 billion to $5 billion .07% over $5 billion to $8 billion .05% over $8 billion to $10 billion .045% over $10 billion .04%
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT Federated Services Company, Pittsburgh, PA is the Transfer Agent for the shares of the Trust and dividend disbursing agent for the Trust. CUSTODIAN SunTrust Bank, Atlanta, c/o STI Trust & Investment Operations, Inc., 303 Peachtree Street N.E., 14th Floor, Atlanta, GA 30308, serves as Custodian of the assets of each Fund of the Trust except the International Equity Index Fund and the International Equity Fund. The Bank of California, 475 Sansome Street, Suite 1200, San Francisco, CA 94111, serves as Custodian for the International Equity Index Fund. The Bank of New York, One Wall Street, New York, NY 10286, serves as Custodian for the International Equity Fund. Each Custodian holds cash, securities and other assets of the Trust as required by the Investment Company Act of 1940. LEGAL COUNSEL Morgan, Lewis & Bockius LLP, Philadelphia, PA, serves as legal counsel to the Trust. INDEPENDENT PUBLIC ACCOUNTANTS The independent public accountants to the Trust are Arthur Andersen, LLP, Philadelphia, PA. OTHER INFORMATION VOTING RIGHTS Each share held entitles the Shareholder of record to one vote. Each Fund or class of a Fund will vote separately on matters relating solely to that Fund or class. As a Massachusetts Business Trust, the Trust is not required to hold annual meetings of Shareholders but approval will be sought for certain changes in the operation of the Trust and for the election of Trustees under certain circumstances. In addition, a Trustee may be removed by the remaining Trustees or by Shareholders at a special meeting called upon written request of Shareholders owning at least 10% of the outstanding shares of the Trust. In the event that such a meeting is requested the Trust will provide appropriate assistance and information to the Shareholders requesting the meeting. REPORTING The Trust issues unaudited financial information semi-annually and audited financial statements annually. The Trust furnishes proxy statements and other reports to Shareholders of record. SHAREHOLDER INQUIRIES Shareholders may contact their local Trust and Investment Services office of SunTrust Bank, Inc. DESCRIPTION OF PERMITTED INVESTMENTS AMERICAN DEPOSITARY RECEIPTS ("ADRs") -- ADRs are securities, typically issued by a U.S. financial institution (a "depositary"), that evidence ownership interests in a security or a pool of securities issued by a foreign issuer and deposited with the depositary. ADRs may be available through "sponsored" or "unsponsored" facilities. A 16 sponsored facility is established jointly by the issuer of the security underlying the receipt and a depositary, whereas an unsponsored facility may be established by a depositary without participation by the issuer of the underlying security. Holders of unsponsored depositary receipts generally bear all the costs of the unsponsored facility. The depositary of an unsponsored facility frequently is under no obligation to distribute shareholder communications received from the issuer of the deposited security or to pass through, to the holders of the receipts, voting rights with respect to the deposited securities. BANKERS' ACCEPTANCES -- Bankers' acceptances are bills of exchange or time drafts drawn on and accepted by a commercial bank. Bankers' acceptances are used by corporations to finance the shipment and storage of goods. Maturities are generally six months or less. CERTIFICATES OF DEPOSIT-- Certificates of deposit are interest bearing instruments with a specific maturity. They are issued by banks and savings and loan institutions in exchange for the deposit of funds and normally can be traded in the secondary market prior to maturity. Certificates of deposit with penalties for early withdrawal will be considered illiquid. COMMERCIAL PAPER -- Commercial paper is a term used to describe unsecured short-term promissory notes issued by banks, municipalities, corporations and other entities. Maturities on these issues vary from a few to 270 days. CONVERTIBLE SECURITIES -- Convertible securities are corporate securities that are exchangeable for a set number of another security at a prestated price. Convertible securities typically have characteristics similar to both fixed income and equity securities. Because of the conversion feature, the market value of a convertible security tends to move with the market value of the underlying stock. The value of a convertible security is also affected by prevailing interest rates, the credit quality of the issuer, and any call provisions. CORPORATE DEBT OBLIGATIONS -- Debt instruments issued by corporations with maturities exceeding 270 days. Such instruments may include putable corporate bonds and zero coupon bonds. CUSTODIAL RECEIPTS -- Interests in separately traded interest and principal component parts of U. S. Treasury obligations that are issued by banks or brokerage firms and are created by depositing U. S. Treasury obligations into a special account at custodian bank. The custodian holds the interest and principal payments for the benefit of the registered owners of the certificates or receipts. The custodian arranges for the issuance of the certificates or receipts evidencing ownership and maintains the register. Receipts include "Treasury Receipts" ("TR's"), "Treasury Investment Growth Receipts" ("TIGR's"), and "Certificates of Accrual on Treasury Securities" ("CATS"). TR's, TIGR's and CATS are sold as zero coupon securities. See "Zero Coupon Obligations." EUROPEAN DEPOSITARY RECEIPTS ("EDRs") -- EDRs are securities, typically issued by a non-U.S. financial institution, that evidence ownership interests in a security or a pool of securities issued by either a U.S. or foreign issuer. EDRs may be available for investment through "sponsored" or "unsponsored" facilities. See "ADRs." FORWARD FOREIGN CURRENCY CONTRACTS -- A forward foreign currency contract involves an obligation to purchase or sell a specific currency amount at a future date, agreed upon by the parties, at a price set at the time of the contract. The Fund may also enter into a contract to sell, for a fixed amount of U.S. dollars or other appropriate currency, 17 the amount of foreign currency approximating the value of some or all of the Fund's securities denominated in such foreign currency. At the maturity of a forward contract, the Fund may either sell a portfolio security and make delivery of the foreign currency, or it may retain the security and terminate its contractual obligation to deliver the foreign currency by purchasing an "offsetting" contract with the same currency trader, obligating it to purchase, on the same maturity date, the same amount of the foreign currency. The Fund may realize a gain or loss from currency transactions. FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS -- Futures contracts provide for the future sale by one party and purchase by another party of a specified amount of a specific security at a specified future time and at a specified price. An option on a futures contract gives the purchaser the right, in exchange for a premium, to assume a position in a futures contract at a specified exercise price during the term of the option. The Fund may use futures contracts and related options for bona fide hedging purposes, to offset changes in the value of securities held or expected to be acquired, to minimize fluctuations in foreign currencies, or to gain exposure to a particular market or instrument. The Fund will minimize the risk that it will be unable to close out a futures contract by only entering into futures contracts which are traded on national futures exchanges. Stock index futures are futures contracts for various stock indices that are traded on registered securities exchanges. A stock index futures contract obligates the seller to deliver (and the purchaser to take) an amount of cash equal to a specific dollar amount times the difference between the value of a specific stock index at the close of the last trading day of the contract and the price at which the agreement is made. There are risks associated with these activities, including the following: (1) the success of a hedging strategy may depend on an ability to predict movements in the prices of individual securities, fluctuations in markets and movements in interest rates, (2) there may be an imperfect or no correlation between the changes in market value of the securities held by the Fund and the prices of futures and options on futures, (3) there may not be a liquid secondary market for a futures contract or option, (4) trading restrictions or limitations may be imposed by an exchange, and (5) government regulations may restrict trading in futures contracts and futures options. ILLIQUID SECURITIES -- Illiquid securities are securities that cannot be disposed of within seven business days at approximately the price at which they are being carried on the Fund's books. An illiquid security includes a demand instrument with a demand notice period exceeding seven days, where there is no secondary market for such security, and repurchase agreements with durations (or maturities) over seven days in length. OPTIONS ON CURRENCIES -- The Fund may purchase and write put and call options on foreign currencies (traded on U.S. and foreign exchanges or over-the-counter markets) to manage the portfolio's exposure to changes in dollar exchange rates. Call options on foreign currency written by the Fund will be "covered," which means that the Fund will own an equal amount of the underlying foreign currency. With respect to put options on foreign currency written by the Fund, the Fund will establish a segregated account with its custodian bank consisting of cash, U.S. Government securities or other high grade liquid debt securities in an amount equal to the amount the Fund would be required to pay upon exercise of the put. 18 REPURCHASE AGREEMENTS -- Repurchase agreements are agreements by which the Fund obtains a security and simultaneously commits to return the security to the seller at an agreed upon price on an agreed upon date within a number of days from the date of purchase. The custodian will hold the security as collateral for the repurchase agreement. The Fund bears a risk of loss in the event the other party defaults on its obligations and the Fund is delayed or prevented from exercising its right to dispose of the collateral or if the Fund realizes a loss on the sale of the collateral. The Fund will enter into repurchase agreements only with financial institutions deemed to present minimal risk of bankruptcy during the term of the agreement based on established guidelines. Repurchase agreements are considered loans under the Investment Company Act of 1940. RESTRICTED SECURITIES -- Restricted securities are securities that may not be sold freely to the public absent registration under the Securities Act of 1933 or an exemption from registration. Rule 144A securities are securities that have not been registered under the Securities Act of 1933, but which may be traded between certain institutional investors, including investment companies. The Trust's Board of Trustees is responsible for developing guidelines and procedures for determining the liquidity of restricted securities and monitoring the Advisors' implementation of the guidelines and procedures. SECURITIES LENDING -- In order to generate additional income, the Fund may lend securities which it owns pursuant to agreements requiring that the loan be continuously secured by collateral consisting of cash, securities of the U.S. Government or its agencies equal to at least 100% of the market value of the securities lent. The Fund continues to receive interest on the securities lent while simultaneously earning interest on the investment of cash collateral. Collateral is marked to market daily. There may be risks of delay in recovery of the securities or even loss of rights in the collateral should the borrower of the securities fail financially or become insolvent. TIME DEPOSITS -- Time deposits are non-negotiable receipts issued by a bank in exchange for the deposit of funds. Like a certificate of deposit, it earns a specified rate of interest over a definite period of time; however, it cannot be traded in the secondary market. Time deposits are considered to be illiquid securities. U.S. GOVERNMENT AGENCIES -- Obligations issued or guaranteed by agencies of the U.S. Government, including, among others, the Federal Farm Credit Bank, the Federal Housing Administration and the Small Business Administration, and obligations issued or guaranteed by instrumentalities of the U.S. Government, including, among others, the Federal Home Loan Mortgage Corporation, the Federal Land Banks and the U.S. Postal Service. Some of these securities are supported by the full faith and credit of the U.S. Treasury (e.g., Government National Mortgage Association), others are supported by the right of the issuer to borrow from the Treasury (e.g., Federal Farm Credit Bank), while still others are supported only by the credit of the instrumentality (e.g., Federal National Mortgage Association). Guarantees of principal by agencies or instrumentalities of the U.S. Government may be a guarantee of payment at the maturity of the obligation so that in the event of a default prior to maturity there might not be a market and thus no means of realizing on the obligation prior to maturity. Guarantees as to the timely payment of principal and interest do not extend to the value or yield of these securities nor to the value of the Fund's shares. 19 U.S. TREASURY OBLIGATIONS -- U.S. Treasury obligations consist of bills, notes and bonds issued by the U.S. Treasury and separately traded interest and principal component parts of such obligations that are transferable through the Federal book-entry system known as Separately Traded Registered Interest and Principal Securities ("STRIPS"). VARIABLE AND FLOATING RATE INSTRUMENTS -- Certain obligations may carry variable or floating rates of interest, and may involve a conditional or unconditional demand feature. Such instruments bear interest at rates which are not fixed, but which vary with changes in specified market rates or indices. The interest rates on these securities may be reset daily, weekly, quarterly or some other reset period, and may have a floor or ceiling on interest rate changes. There is a risk that the current interest rate on such obligations may not accurately reflect existing market interest rates. A demand instrument with a demand notice exceeding seven days may be considered illiquid if there is no secondary market for such security. WARRANTS -- Instruments giving holders the right, but not the obligation, to buy shares of a company at a given price during a specified period. WHEN-ISSUED AND DELAYED DELIVERY SECURITIES -- When-issued or delayed delivery basis transactions involve the purchase of an instrument with payment and delivery taking place in the future. Delivery of and payment for these securities may occur a month or more after the date of the purchase commitment. The Fund will maintain with the custodian a separate account with liquid high grade debt securities or cash in an amount at least equal to these commitments. The interest rate realized on these securities is fixed as of the purchase date and no interest accrues to the Fund before settlement. These securities are subject to market fluctuation due to changes in market interest rates and it is possible that the market value at the time of settlement could be higher or lower than the purchase price if the general level of interest rates has changed. Although a Fund generally purchases securities on a when-issued or forward commitment basis with the intention of actually acquiring securities for its portfolio, the Fund may dispose of a when-issued security or forward commitment prior to settlement if it deems appropriate. ZERO COUPON OBLIGATIONS -- Zero coupon obligations are debt securities that do not bear any interest, but instead are issued at a deep discount from par. The value of a zero coupon obligation increases over time to reflect the interest accreted. Such obligations will not result in the payment of interest until maturity, and will have greater price volatility than similar securities that are issued at par and pay interest periodically. (THIS PAGE INTENTIONALLY LEFT BLANK) A-1 APPENDIX I. BOND RATINGS *CORPORATE BONDS The following are descriptions of Standard & Poor's Corporation ("S&P's") and Moody's Investors Service, Inc. ("Moody's") corporate bond ratings. Bonds rated AAA have the highest rating S&P assigns to a debt obligation. Such a rating indicates an extremely strong capacity to pay principal and interest. Bonds rated AA also qualify as high-quality debt obligations. Capacity to pay principal and interest is very strong, and in the majority of instances they differ from AAA issues only in small degree. Debt rated A has a strong capacity to pay interest and repay principal although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories. Bonds which are rated BBB are considered to be medium-grade obligations (i.e., they are neither highly protected nor poorly secured). Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. Debt rated BB, B, CCC, CC and C is regarded as having predominately speculative characteristics with respect to capacity to pay interest and repay principal. BB indicates the least degree of speculation and C the highest degree of speculation. While such debt will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major risk exposure to adverse conditions. Bonds which are rated Aaa by Moody's are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edge." Interest payments are protected by a large, or an exceptionally stable, margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. Bonds rated Aa by Moody's are judged by Moody's to be of high quality by all standards. Together with bonds rated Aaa, they comprise what are generally known as high-grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than in Aaa securities. Bonds which are rated A possess many favorable investment attributes and are to be considered as upper-medium grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present which suggest a susceptibility to impairment sometime in the future. Debt rated Baa is regarded as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for debt in this category than in higher rated categories. Bonds which are rated Ba are judged to have speculative elements; their future cannot be considered as well-assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during both good and bad times A-2 over the future. Uncertainty of position characterizes bonds in this class. Bonds which are rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small. Bonds which are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal and interest. Bonds which are rated Ca represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings. Bonds which are rated C are the lowest rated class of bonds and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing. 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 (Highest Grade) 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-2 (Very Good Grade) is the second highest commercial paper rating assigned by Fitch which reflects an assurance of timely payment only slightly less in degree than the strongest issues. The rating Duff-1 is the highest commercial paper rating assigned by Duff. Paper rated Duff-1 is regarded as having very high certainty of timely payment with excellent liquidity factors which are supported by ample asset protection. Risk factors are minor. Paper rated Duff-2 is regarded as having good certainty of timely payment, good access to capital markets and sound liquidity factors and company fundamentals. Risk factors are small. The designation A1 by IBCA indicates that the obligation is supported by a very strong capacity for timely repayment. Those obligations rated A1+ are supported by the highest capacity for timely repayment. Obligations rated A2 are supported by a strong capacity for timely repayment, although such capacity may be susceptible to adverse changes in business, economic or financial conditions. STI CLASSIC FUNDS ORGANIZATIONAL OVERVIEW * INVESTMENT ADVISOR STI Capital Management, N.A. P.O. Box 3808 Orlando, FL 32802 * DISTRIBUTOR SEI Financial Services Company 680 E. Swedesford Road Wayne, PA 19087-1658 * ADMINISTRATOR SEI Financial Management 680 E. Swedesford Road Corporation Wayne, PA 19087-1658 * TRANSFER AGENT Federated Services Company Federated Investors Tower Pittsburgh, PA 15222-3779 * CUSTODIAN SunTrust Bank, Atlanta c/o STI Trust & Investment Operations, Inc. 303 Peachtree Street N.E., 14th Floor Atlanta, GA 30308 The Bank of California 475 Sansome Street (International Equity Index Fund Suite 1200 only) San Francisco, CA 94111 The Bank of New York One Wall Street (International Equity Fund only) New York, NY 10286 * LEGAL COUNSEL Morgan, Lewis & Bockius LLP 2000 One Logan Square Philadelphia, PA 19103 * INDEPENDENT AUDITORS Arthur Andersen, LLP 1601 Market Street Philadelphia, PA 19103
STI CLASSIC FUNDS INTERNATIONAL EQUITY FUND INVESTOR/FLEX CLASS SHARES Supplement dated May 7, 1996 to Prospectus dated October 1, 1995 The Prospectus dated October 1, 1995 is hereby amended by the addition of the following unaudited financial information for the International Equity Fund for the period ended March 31, 1996.
FINANCIAL HIGHLIGHTS STI CLASSIC FUNDS FOR THE PERIOD ENDED MARCH 31, 1996 (UNAUDITED) For a Share Outstanding Throughout the Period RATIO OF RATIO OF NET NET RATIO OF NET RATIO OF INVESTMENT REALIZED NET NET EXPENSES INVESTMENT EXPENSES LOSS TO NET ASSET AND DIVIDENDS ASSET ASSETS TO INCOME/ TO AVERAGE AVERAGE VALUE NET UNREALIZED FROM NET VALUE END OF AVERAGE (LOSS) TO NET ASSETS NET ASSETS PORTFOLIO BEGINNING INVESTMENT GAINS ON INVESTMENT END OF TOTAL PERIOD NET AVERAGE (EXCLUDING (EXCLUDING) TURNOVER OF PERIOD LOSS INVESTMENTS INCOME PERIOD RETURN (000) ASSETS NET ASSETS WAIVERS) WAIVERS) RATE --------- ------ ----------- -------- ------ ------ ----- ------ ---------- --------- -------- ------ - -------------------- INTERNATIONAL EQUITY FUND - -------------------- INVESTOR 1996(1) $10.44 $ - $ 0.43 $ - $10.87 4.12% $2,333 1.81% 0.09% 3.53% (1.63)% 115% FLEX 1996(1) $10.44 $ (0.01) $ 0.43 $ - $10.86 4.02% $521 2.51% (0.51)% 6.13% (4.13)% 115% - -------------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------------
(1) Commenced operations on January 2, 1996. All ratios for the period except total return have been annualized. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. PLEASE RETAIN THIS SUPPLEMENT FOR FUTURE REFERENCE STI CLASSIC FUNDS INVESTOR SHARES FLEX SHARES INTERNATIONAL EQUITY FUND INVESTMENT ADVISOR TO THE FUND: STI CAPITAL MANAGEMENT, N.A. The STI Classic Funds (the "Trust") is a mutual fund that offers shares in a number of separate investment portfolios. This Prospectus sets forth concisely the information about the Investor Shares and Flex Shares of the International Equity Fund (the "Fund"). Investors are advised to read this Prospectus and retain it for future reference. A Statement of Additional Information relating to the Fund dated the same date as this Prospectus has been filed with the Securities and Exchange Commission and is available without charge through the Distributor, SEI Financial Services Company, 680 East Swedesford Road, Wayne, PA 19087-1658 or by calling 1-800-428-6970. The Statement of Additional Information is incorporated into this Prospectus by reference. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE TRUST'S SHARES ARE NOT SPONSORED, ENDORSED, OR GUARANTEED BY, AND DO NOT CONSTITUTE OBLIGATIONS OR DEPOSITS OF, THE ADVISORS OR ANY OF THEIR AFFILIATES OR CORRESPONDENTS INCLUDING SUNTRUST BANKS, INC., ARE NOT GUARANTEED OR INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENTAL AGENCY, AND INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED. OCTOBER 31, 1995 AS SUPPLEMENTED DECEMBER 21, 1995 2 No person has been authorized to give any information or to make any representations not contained in this Prospectus, or in the Statement of Additional Information relating to the Fund incorporated herein by reference, in connection with the offering made by this Prospectus and, if given or made, such information or representations must not be relied upon as having been authorized by the Trust or SEI Financial Services Company (the "Distributor"). This Prospectus does not constitute an offering by the Trust or by the Distributor in any jurisdiction in which such offering may not lawfully be made. TABLE OF CONTENTS Expense Summary...................... 3 Performance Information.............. 5 The Trust............................ 5 Investment Objective................. 5 Investment Policies and Strategies... 6 General Investment Policies and Strategies......................... 7 Investment Risks..................... 7 Investment Limitations............... 9 Performance Information.............. 10 General Performance Information...... 10 Purchase of Fund Shares.............. 10 Redemption of Fund Shares............ 15 Fundlink............................. 16 Exchanges............................ 16 Dividends and Distributions.......... 16 Tax Information...................... 17 STI Classic Funds Information........ 18 The Trust............................ 18 Board of Trustees.................... 18 Investment Advisor................... 19 Portfolio Manager.................... 19 Banking Laws......................... 20 Distribution......................... 20 Administration....................... 21 Transfer Agent and Dividend Disbursing Agent................... 21 Custodian............................ 21 Legal Counsel........................ 22 Independent Public Accountants....... 22 Other Information.................... 22 Voting Rights........................ 22 Reporting............................ 22 Shareholder Inquiries................ 22 Description of Permitted Investments........................ 22 Appendix............................. A-1
3 EXPENSE SUMMARY INVESTOR SHARES Below is a summary of the transaction expenses and annual operating expenses for Investor Shares of the International Equity Fund described in this Prospectus. A hypothetical example based on the estimated expenses is also shown. Actual expenses may vary. SHAREHOLDER TRANSACTION EXPENSES INTERNATIONAL EQUITY FUND - -------------------------------------------------------------------------------------------- Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)... 3.75% Maximum Sales Charge Imposed on Reinvested Dividends............................ None Deferred Sales Charge........................................................... None Redemption Fees(1).............................................................. None Exchange Fee.................................................................... None - -------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------
(1) There is a $7.00 wire charge for redemptions for all funds processed from retail accounts which require wires to particular banks. ANNUAL OPERATING EXPENSES (as a percentage of average net assets)
INTERNATIONAL EQUITY FUND - ----------------------------------------------------------------------------------------------------------------------- Advisory Fees (After Voluntary Reductions)(1)......................................................... 1.10% All Other Expenses.................................................................................... .41% 12b-1 Service & Distribution Expenses (After Voluntary Reductions).................................... .30% - ----------------------------------------------------------------------------------------------------------------------- Total Operating Expenses (After Voluntary Reductions)(1).............................................. 1.81% - ----------------------------------------------------------------------------------------------------------------------- - -----------------------------------------------------------------------------------------------------------------------
(1) Absent voluntary reductions, advisory fees, service and distribution expenses, and total operating expenses, expressed as a percentage of average net assets for the Investor Shares of the Fund would be: 1.25%, 0.33% and 1.99%. Fee reductions are voluntary and may be terminated at any time. Additional information may be found under "Investment Advisor," "Administration," and "Distribution." A person that purchases shares through an account with a financial institution may be charged separate fees by the financial institution.
INTERNATIONAL EXAMPLE EQUITY FUND - --------------------------------------------------------------------------------------------------------------------- An investor would pay the following expenses on a $1,000 investment assuming: (1) 5% annual return and (2) redemption at the end of each time period: ONE YEAR $ 55 THREE YEARS....................................................................................... 92 - ---------------------------------------------------------------------------------------------------------------------
THE EXAMPLE IS BASED UPON THE TOTAL OPERATING EXPENSES OF THE FUND AND SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. The purpose of this table is to assist the investor in understanding the various costs and expenses that may be directly or indirectly borne by investors in the Trust. "Other Expenses" for the Fund are based on estimated amounts for the current fiscal year. The information set forth in the foregoing table and example relates only to Investor Shares. The Trust also offers Trust Shares and Flex Shares of the Fund which are subject to the same expenses except there are no distribution fees, different transfer agent fees or sales charges. The rules of the Securities and Exchange Commission require that the maximum sales charge be reflected in the above table. However, certain investors may qualify for reduced sales charges. See "Purchase of Fund Shares." Long-term Investor Class Shareholders may eventually pay more than the economic equivalent of the maximum front-end sales charges otherwise permitted by the National Association of Securities Dealers, Inc.'s Rules of Fair Practice. 4 EXPENSE SUMMARY FLEX SHARES Below is a summary of the transaction expenses and annual operating expenses for the Flex Shares of the International Equity Fund. A hypothetical example based on the estimated expenses is also shown. Actual expenses may vary. SHAREHOLDER TRANSACTION EXPENSES INTERNATIONAL EQUITY FUND - -------------------------------------------------------------------------------------------- Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)................................................................ None Maximum Sales Charge Imposed on Reinvested Dividends........................................................ None Maximum Contingent Deferred Sales Charge................................................................... 2.00% Redemption Fees(1).............................................................. None Exchange Fee.................................................................... None - -------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------
(1) There is a $7.00 wire charge for redemptions for all funds processed from retail accounts which require wires to particular banks. ANNUAL OPERATING EXPENSES (as a percentage of average net assets)
INTERNATIONAL EQUITY FUND - ----------------------------------------------------------------------------------------------------------------------- Advisory Fees (After Voluntary Reductions)(1)......................................................... 1.10% All Other Expenses.................................................................................... .41% 12b-1 Distribution & Service Expenses................................................................. 1.00% - ----------------------------------------------------------------------------------------------------------------------- Total Operating Expenses (After Voluntary Reductions)(1).............................................. 2.51% - ----------------------------------------------------------------------------------------------------------------------- - -----------------------------------------------------------------------------------------------------------------------
(1) Absent voluntary reductions, advisory fees and total operating expenses, expressed as a percentage of average net assets for the Flex Shares of the Fund would be 1.25% and 2.66%. Fee reductions are voluntary and may be terminated at any time. Additional information may be found under "Investment Advisor," "Administration," and "Distribution." A person that purchases shares through an account with a financial institution may be charged separate fees by the financial institution.
INTERNATIONAL EXAMPLE EQUITY FUND - --------------------------------------------------------------------------------------------------------------------- An investor would pay the following expenses on a $1,000 investment assuming: (1) 5% annual return and (2) redemption at the end of each time period: ONE YEAR Assuming a complete redemption at end of period................................................... $ 45 Assuming no redemptions........................................................................... 25 THREE YEARS Assuming a complete redemption at end of period................................................... 78 Assuming no redemptions........................................................................... 78 - ---------------------------------------------------------------------------------------------------------------------
THE EXAMPLE IS BASED UPON THE TOTAL OPERATING EXPENSES OF THE FUND AND SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. The purpose of this table is to assist the investor in understanding the various costs and expenses that may be directly or indirectly borne by investors in the Trust. "Other Expenses" for the Fund are based on estimated amounts for the current fiscal year. The information set forth in the foregoing table and example relates only to Flex Shares. The Trust also offers Trust Shares and Investor Shares of the Fund which are subject to the same expenses except for variations in distribution and service fees, transfer agent fees and sales charges. The rules of the Securities and Exchange Commission require that the maximum sales charge be reflected in the above table. However, certain investors may qualify for reduced sales charges. See "Purchase of Fund Shares." Long-term Flex Shareholders may eventually pay more than the economic equivalent of the maximum front-end sales charges otherwise permitted by the National Association of Securities Dealers, Inc.'s Rules of Fair Practice. 5 PERFORMANCE INFORMATION FOR PREDECESSOR COLLECTIVE FUND The International Equity Fund is the successor to a collective investment fund previously managed by the Advisor. A substantial portion of the assets of this collective investment fund was transferred to the Fund on December 1, 1995 in connection with the Fund's commencement of operations. Set forth below is certain performance data for the predecessor collective investment fund, which is deemed relevant because the collective investment fund was managed using virtually the same investment objective, policies and restrictions as those used by the Fund. However, the performance data is not necessarily indicative of the future performance of the Fund. The Fund will be somewhat smaller in asset size than the predecessor collective investment fund. It is anticipated, however, that the Fund will reach the same or greater asset size as the predecessor fund before the end of the Fund's first year of operation and will continue to grow in size thereafter. The predecessor collective fund did not incur expenses that correspond to the advisory, administrative, and other fees to which the Fund is subject. Accordingly, the following performance information has been adjusted by applying the current total expense ratios for the Fund, which reduced the actual performance of the collective fund. The expense ratio is that set forth under "Annual Operating Expenses" (after giving effect to anticipated waivers and reimbursements). INVESTOR SHARES Total Cumulative Return for the period ended 9/30/95 (adjusted to reflect current Fund expenses, net of voluntary waivers and reimbursements and the maximum sales charge of 3.75%.)
- --------------------------------------------------------------------- DATE OF INCEPTION SINCE OF FUND 1 MONTH 3 MONTHS INCEPTION - --------------------------------------------------------------------- International Equity Collective Fund 2/1/95 0.18% 7.35% 27.51%
FLEX SHARES Total Cumulative Return for the period ended 9/30/95 (adjusted to reflect current Fund expenses, net of voluntary waivers and reimbursements and with the applicable maximum contingent deferred sales charge of 2.00%.)
- --------------------------------------------------------------------- DATE OF INCEPTION SINCE OF FUND 1 MONTH 3 MONTHS INCEPTION - --------------------------------------------------------------------- International Equity Collective Fund 2/1/95 2.09% 9.35% 30.67%
THE TRUST STI Classic Funds (the "Trust") is a diversified, open-end management investment company that provides a convenient and economical means of investing in several professionally managed portfolios of securities. The Trust currently offers units of beneficial interest ("shares") in a number of separate Funds. Shareholders may purchase shares in the International Equity Fund (the "Fund") through three separate classes (Trust Shares, Investor Shares and Flex Shares) which provide for variations in distribution and transfer agent fees, voting rights and dividends. Except for differences between classes, each share of the Fund represents an undivided, proportionate interest in the Fund. This Prospectus relates to the Investor Shares and Flex Shares of the Fund. INVESTMENT OBJECTIVE THE INTERNATIONAL EQUITY FUND seeks to provide long term capital appreciation by investing primarily in a diversified portfolio of equity securities of foreign issuers. 6 There can be no assurance that the Fund will achieve its investment objective. The investment objective of the Fund is nonfundamental and may be changed without shareholder approval. INVESTMENT POLICIES AND STRATEGIES INTERNATIONAL EQUITY FUND The Fund under normal market conditions will invest at least 65% of its assets in equity securities of foreign issuers consisting of: common and preferred stocks, warrants, options and securities convertible into common stock. Securities of foreign issuers purchased by the Fund may be purchased in foreign markets, on United States registered exchanges, the over-the-counter market or in the form of sponsored or unsponsored American Depositary Receipts ("ADRs") traded on registered exchanges or NASDAQ, or sponsored or unsponsored European Depositary Receipts ("EDRs"). The Fund may enter into forward foreign currency contracts as a hedge against possible variations in foreign exchange rates. A forward foreign currency contract is a commitment to purchase or sell a specified currency, at a specified future date, at a specified price. The Fund may enter into forward foreign currency contracts to hedge a specific security transaction or to hedge a portfolio position. The Fund also may purchase and write put and call options on foreign currencies (traded on U.S. and foreign exchanges or over-the-counter markets) to manage the portfolio's exposure to changes in dollar exchange rates. The Fund expects to be fully invested in the investments described above, but may invest up to 35% of its total assets in bonds and debentures issued by non-U.S. or U.S. companies, securities issued or guaranteed by foreign and U.S. governments and foreign and U.S. commercial paper. The Fund may invest in futures contracts, including stock index futures contracts, and options on futures contracts. The bonds that the Fund may purchase may be rated in any rating category or may be unrated provided that no more than 10% of the Fund's total assets will be rated below BBB by Standard & Poor's Corporation or below Baa by Moody's Investor Service, Inc. or unrated securities of comparable quality (see "Investment Risks -- High Yield -- Lower Rated Bonds"). When investing in bonds, the Fund may seek capital gains by taking advantage of price appreciation caused by interest rate and credit quality changes. The Fund may also purchase shares of closed-end investment companies that invest in the securities of issuers in a single country or region. The Fund is also permitted to acquire floating and variable rate securities, purchase securities on a when- issued basis and purchase illiquid securities. The Fund will invest in the foreign issues of at least three different countries outside the United States. A foreign issue is one the issuer of which (1) is organized under the laws of a specific country, (2) for which the principal securities trading market is in a specific country or (3) derives a significant proportion (at least 50 percent) of their revenues or profits from goods produced or sold, investments made, or services performed in a specific country or which have at least 50 percent of their assets situated in that country. The Fund will invest primarily in developed countries, (for example Japan, Canada and the United Kingdom). In addition, the Fund may invest in securities of issuers whose principal activities are in countries with emerging markets. The Fund defines an emerging market country as any country the economy and market of which the World Bank or the United Nations considers to be emerging or developing. 7 The annual portfolio turnover rate for the Fund is not expected to exceed 100%. GENERAL INVESTMENT POLICIES AND STRATEGIES For temporary defensive purposes during periods when its Advisor determines that market conditions warrant, the Fund may invest up to 100% of its assets in money market instruments consisting of securities issued or guaranteed as to principal and interest by the U.S. Government, its agencies or instrumentalities, custodial receipts involving U.S. Treasury obligations, repurchase agreements, certificates of deposit, bankers' acceptances, and time deposits issued by banks or savings and loan associations and commercial paper rated in the highest rating category, and may hold a portion of its assets in cash. The Fund may not be pursuing its investment objective when it is engaged in temporary defensive investing. The Fund may also invest in money market instruments for liquidity purposes. The Fund may invest, subject to its investment objective and policies, in zero coupon obligations. Zero coupon obligations are sold at original issue discount and do not make periodic payments. Zero coupon obligations may be subject to greater fluctuation in value due to interest rate changes. The Fund may purchase restricted securities, including Rule 144A securities, that the Advisor determines are liquid pursuant to guidelines established by the Trust's Board of Trustees. In the event that a security owned by the Fund is downgraded below the stated rating categories, the Advisor will review and take appropriate action with regard to the security. The Fund may borrow money for temporary or emergency purposes in an amount not to exceed one-third of the value of its total assets. The Fund may not purchase additional securities while its outstanding borrowings exceed 5% of its assets. The Fund's purchase of shares of other investment companies is limited by the Investment Company Act of 1940 and will ordinarily result in an additional layer of charges and expenses. The Fund may engage in securities lending and will limit such practice to 33 1/3% of its total assets. It is a non-fundamental policy of the Fund to invest no more than 15% of its net assets in illiquid securities. An illiquid security is a security which cannot be disposed of within seven days in the usual course of business at a price approximating its carrying value. For additional information regarding permitted investments, see "Description of Permitted Investments" in this Prospectus and in the Statement of Additional Information. INVESTMENT RISKS FOREIGN SECURITIES AND FOREIGN CURRENCY CONTRACTS Investing in the securities of foreign companies and the utilization of forward foreign currency contracts involve special risks and considerations not typically associated with investing in U.S. companies. These risks and considerations include differences in accounting, auditing and financial reporting standards, generally higher commission rates on foreign portfolio transactions, the possibility of expropriation or confiscatory taxation, adverse changes in investment or exchange control regulations, political instability which could affect U.S. investment in foreign countries and potential restrictions of the flow of international capital and currencies. Foreign companies may also be subject to less government regulation than U.S. companies. Moreover, the dividends payable on the foreign 8 securities may be subject to foreign withholding taxes, thus reducing the net amount of income available for distribution to the Fund's Shareholders. Further, foreign securities often trade with less frequency and volume than domestic securities and, therefore, may exhibit greater price volatility. Changes in foreign exchange rates will affect, favorably or unfavorably, the value of those securities which are denominated or quoted in currencies other than the U.S. dollar. By entering into forward foreign currency contracts, the Fund will seek to protect the value of its investment securities against a decline in the value of a currency. However, these forward foreign currency contracts will not eliminate fluctuations in the underlying prices of the securities. Rather, they simply establish a rate of exchange which one can obtain at some future point in time. Although such contracts tend to minimize the risk of loss due to a decline in the value of the hedged currency, also, they tend to limit any potential gain which might result should the value of such currency increase. The Fund's investments in emerging markets can be considered speculative, and therefore may offer higher potential for gains and losses than investments in developed markets of the world. With respect to any emerging country, there is the greater potential for nationalization, expropriation or confiscatory taxation, political changes, government regulation, social instability or diplomatic developments (including war) which could affect adversely the economies of such countries or investments in such countries. In addition, it may be difficult to obtain and enforce a judgment in the courts of such countries. The economies of developing countries generally are heavily dependent upon international trade and, accordingly, have been and may continue to be adversely affected by trade barriers, exchange controls, managed adjustments in relative currency values and other protectionist measures imposed or negotiated by the countries with which they trade. Investment in Eastern European countries and the countries which made up the former Soviet Union, may be affected by political decisions that could cause such countries to revert to a prior system of government. EQUITY SECURITIES Investments in equity securities in general are subject to market risks that may cause their prices to fluctuate over time. The value of convertible equity securities is also affected by prevailing interest rates, the credit quality of the issuer and any call provision. Fluctuations in the value of equity securities in which the Fund invests will cause the net asset value of the Fund to fluctuate. FIXED INCOME SECURITIES The market value of the Fund's fixed income investments will change in response to interest rate changes and other factors. During periods of falling interest rates, the values of outstanding fixed income securities generally rise. Conversely, during periods of rising interest rates, the values of such securities generally decline. Securities with longer maturities are subject to greater fluctuations in value than securities with shorter maturities. Changes by a nationally recognized statistical rating organization ("NRSRO") in the rating of any fixed income security and in the ability of an issuer to make payments of interest and principal also affect the value of these investments. Changes in the value of the Fund's securities will not affect cash income derived from these securities but will affect the Fund's net asset value. 9 Securities rated BBB by S&P or Baa by Moody's (investment grade bonds) are deemed by these rating services to have speculative characteristics. Guarantees of the Fund's securities by the U.S. Government or its agencies or instrumentalities guarantee only the payment of principal and interest on the guaranteed securities, and do not guarantee the securities' yield or value of the yield or value of the Fund's shares. There is a risk that the current interest rate on floating and variable rate instruments may not accurately reflect existing market interest rates. HIGH YIELD, LOWER RATED BONDS The Fund's investments in high yield, lower rated bonds ("junk bonds") involve greater risk of default or price declines than investments in investment grade securities (rated BBB or higher by S&P or Baa or higher by Moody's) due to changes in the issuer's creditworthiness. The market for high risk, high yield securities may be thinner and less active, causing market price volatility and limited liquidity in the secondary market. This may limit the ability of the Fund to sell such securities at their fair market value either to meet redemption requests or in response to changes in the economy or the financial markets. Market prices for high risk, high yield securities may also be affected by investors' perception of credit quality and the outlook for economic growth. Thus, prices for high risk, high yield securities may move independently of interest rates and the overall bond market. In addition, the market for high risk, high yield securities may be adversely affected by legislative and regulatory developments. INVESTMENT LIMITATIONS The following investment limitations constitute fundamental policies of the Fund. Fundamental policies cannot be changed with respect to the Fund without the consent of the holders of a majority of the Fund's outstanding shares. The term "majority of the outstanding shares" means the vote of (i) 67% or more of the Fund's shares present at a meeting, if more than 50% of the outstanding shares of the Fund are present or represented by proxy, or (ii) more than 50% of the Fund's outstanding shares, whichever is less. The Fund may not: 1. Purchase securities of any issuer (except securities issued or guaranteed by the United States, its agencies or instrumentalities and repurchase agreements involving such securities) if as a result more than 5% of the total assets of the Fund would be invested in the securities of such issuer; provided, however, that the Fund may invest up to 25% of its total assets without regard to this restriction as permitted by applicable law. 2. Purchase any securities which would cause more than 25% of the total assets of the Fund to be invested in the securities of one or more issuers conducting their principal business activities in the same industry, provided that this limitation does not apply to investments in obligations issued or guaranteed by the U.S. Government or its agencies and instrumentalities, repurchase agreements involving such securities or tax-exempt securities issued by governments or political subdivisions of governments. For purposes of this limitation, (i) utility companies will be divided according to their services, for example, gas, gas transmission, electric and telephone will each be considered a separate industry; (ii) financial service companies will be classified according to the end users of their services, for example, automobile finance, bank finance and diversified finance 10 will each be considered a separate industry; and (iii) supranational entities will be considered to be a separate industry. The foregoing percentages will apply at the time of the purchase of a security. Additional investment limitations are set forth in the Statement of Additional Information. PERFORMANCE INFORMATION From time to time, the Fund may advertise performance (total return and yield). These figures will be historical and are not intended to indicate future performance. The yield of the Fund refers to the annualized income generated by an investment in the Fund over a specified 30-day period. The yield is calculated by assuming that the income generated by the investment during that period is generated over one year and is shown as a percentage of the investment. The total return of the Fund refers to the average compounded rate of return on a hypothetical investment, including any sales charge imposed, 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 and assuming the reinvestment of all dividend and capital gains distributions. GENERAL PERFORMANCE INFORMATION The performance of Investor Shares and Flex Shares of the Trust will normally be lower than for Trust Shares of the Trust because Investor Shares and Flex Shares are subject to distribution and certain transfer agent fees not charged to Trust Shares. Because of their differing distribution expense arrangements the performance of Flex Shares in comparison to Investor Shares will vary depending upon the investor's investment time horizon. The Fund may periodically compare its performance to other mutual funds tracked by mutual fund rating services, to broad groups of comparable mutual funds or to unmanaged indices which may assume reinvestment of dividends but generally do not reflect deductions for administrative and management costs. PURCHASE OF FUND SHARES Investor Shares and Flex Shares are sold on a continuous basis and may be purchased through the Trust's Transfer Agent, Federated Services Company (the "Transfer Agent,") either by mail, by telephone or by wire. Investor Shares and Flex Shares may also be purchased through Investment Services Representatives of SunTrust Banks, Inc. affiliate banks which serve as Shareholder Servicing Agents to the Trust. Furthermore, Investor Shares and Flex Shares may be purchased through SunTrust Securities, Inc., as well as certain correspondent banks of SunTrust Banks, Inc. Shares may be purchased on days on which the New York Stock Exchange is open for business ("business day"). A purchase order for the Fund will be effective as of the business day it is received by the Transfer Agent if the Transfer Agent receives the order before 4:00 p.m. Eastern time. Purchases will be made in full and fractional shares of the Trust calculated to three decimal places. Purchases by mail are considered received after payment by check is converted into federal funds. The purchase price of Investor Shares of the Fund is the net asset value next determined after a purchase order is effective plus any applicable sales charge (the "offering price"). The purchase price of Flex Shares is the net asset value determined after a purchase order 11 is effective. Flex Shares are subject to a deferred sales charge if redeemed within one year of purchase. The net asset value per share of the Fund is determined by dividing the total market value of the Fund's investments and other assets, less any liabilities, by the total outstanding shares of the Fund. Net asset value per share is determined daily as of close of business of the New York Stock Exchange (currently 4:00 p.m. Eastern time) on any business day. Pursuant to guidelines established by the Trustees, the Trust may use a pricing service to provide market quotations or valuations for securities owned by the Fund. Minimum initial and subsequent purchase amounts, respectively, for Investor Shares of the Fund are $2,000 and $1,000 ($100 via statement coupon) and for Flex Shares of the Fund $10,000 and $1,000 ($100 via statement coupon). Employees and their immediate family members (spouses and children under age 21) of SunTrust Banks, Inc. and its affiliates may establish accounts with a minimum initial purchase amount of $1,000 for Investor and Flex Shares of the Fund. The minimum initial purchase amount for retirement plans is $2,000. These minimums may be waived at the Distributor's discretion, and, in the case of Flex Shares, may be waived at the Distributor's discretion for any one trust or fiduciary account including employee benefit plans created under Sections 401 or 457 of the Internal Revenue Code including related plans of the same employer. Financial institutions may impose an earlier cut-off time for receipt of purchase orders directed through them to allow for processing and transmittal of these orders to the Transfer Agent for effectiveness the same day. The Trust reserves the right to reject a purchase order when the Distributor determines that it is not in the best interest of the Trust and/or Shareholder(s). Neither the Trust's Transfer Agent nor the Trust will be responsible for any loss, liability, cost or expense for acting upon telephone or wire instructions reasonably believed to be genuine. The Trust maintains procedures, including identification methods and other means, for ascertaining the identity of callers and authenticity of instructions. Shares of the Fund are offered only to residents of states in which the shares are eligible for purchase. Shareholders in certain states may be required to purchase shares through institutions registered as broker/dealers in such states. Although the methodology and procedures for calculating the net asset value of Investor, Trust, and Flex Shares are identical, the net asset value per share of the classes may differ because of the distribution, service, and certain transfer agent expenses charged to Investor Shares and Flex Shares. In deciding whether to purchase Investor Shares or Flex Shares, investors should take into consideration their present and anticipated purchase amounts and time horizons. Investors should consider, based on the anticipated life of their investment, whether the accumulated distribution fees and contingent deferred sales charge on Flex Shares would be less than the initial sales charge on the Investor Shares purchased at the same time. And, simultaneously and to what extent such differential would be offset by the higher dividend distributions per share on the Investor Shares. To assist investors in making this decision, an analysis program is available through a local SunTrust Trust and Investment Services representative upon request. 12 *SYSTEMATIC INVESTMENT PLAN Investor Shares and Flex Shares of the Fund may be purchased systematically through deductions from checking or savings accounts maintained through SunTrust Banks, Inc. affiliate banks. Investors may purchase Investor Shares on a fixed schedule (semi-monthly or monthly) with amounts from $50 up to $100,000. The Systematic Investment Plan is subject to minimum initial purchase and subsequent amounts of $500 and $50, respectively. Minimum maintained balance requirements are $10,000 (Flex Shares) and $2,000 (Investor Shares). Since the minimum normal initial investment amount for Flex Shares is $10,000 per Fund, it is expected that Systematic Investment Plan purchases will total $10,000 per Fund within a two-year period. The distributor maintains the right to terminate a Systematic Investment Plan account if the account fails to reach this $10,000 total cumulative purchase amount within the two-year period. The purchases will be effective on the business day that the transfer agent receives the transmission. INVESTOR SHARES *SALES CHARGE INFORMATION The following schedule applies to the purchase of Investor Shares of the Fund:
SALES CHARGE AS A SALES CHARGE AS A PERCENTAGE OF PERCENTAGE OF NET OFFERING PRICE AMOUNT INVESTED ----------------- ------------------ Less than $100,000... 3.75% 3.90% $100,000 but less than $250,000....... 3.25% 3.36% $250,000 but less than $1,000,000..... 2.50% 2.56% $1,000,000 and higher.............. 1.50% 1.52%
Employees and their immediate family members (spouses and children under age 21) of SunTrust Banks, Inc. and its affiliates, as well as persons investing distributions from qualified employee benefit retirement plans or rollovers from Individual Retirement Accounts ("IRAs") previously established with a SunTrust Banks, Inc. affiliate bank trust department, will be exempt from sales charges in purchasing Investor Shares. In addition, certain trust accounts for which a subsidiary bank of SunTrust Banks, Inc. acts in an administrative, fiduciary, investment advisory, or custodial capacity, will be exempt from sales charges and be placed in Trust Shares. When accounts for which a subsidiary bank of SunTrust Banks, Inc. has acted in a fiduciary, administrative, custodial or investment advisory capacity are closed and Investor Shares purchased, the Investor Shares that are purchased in an amount equal to or lesser than the value of the account distribution will be exempt from sales charges. Any subsequent purchases will be subject to the applicable sales charge. Purchases of STI Classic Funds Investor Shares through a SunTrust Banks, Inc. affiliate bank's asset allocation account will be exempt from sales charges. Dealers may be reallowed the entire sales charge imposed on purchases of Investor Shares and may, therefore, be deemed "underwriters" for purposes of the Securities Act of 1933. *RIGHTS OF ACCUMULATION In calculating the sales charge rates applicable to current purchases of the Fund's Investor Shares by a "single purchaser," the Trust will cumulate current purchases at the offering price with the current market value of previously purchased Investor Shares of any Trust's non-Money Market Funds ("Eligible Funds") which are sold subject to a sales charge. The term "single purchaser" refers to (i) an individual, (ii) an individual and spouse 13 purchasing shares of an Eligible Fund for their own account or for trust or custodial accounts for their minor children, or (iii) a fiduciary purchasing for any one trust, estate or fiduciary account, including employee benefit plans created under Sections 401 or 457 of the Internal Revenue Code, including related plans of the same employer. Furthermore, under this provision, purchases by a "single purchaser" shall include purchases by an individual for his/her own account in combination with (i) purchases of that individual and spouse for their joint account or for trust and custodial accounts for their minor children and (ii) purchases of that individual's spouse for his/her own account. To be entitled to a reduced sales charge based upon shares already owned, the investor must ask the Distributor for such reduction at the time of purchase and provide the account number(s) of the investor, the investor and spouse, and their children (under age 21), and give the ages of such children. The Fund may amend or terminate this right of accumulation at any time as to subsequent purchases. *LETTER OF INTENT By submitting a Letter of Intent to the Transfer Agent, a "single purchaser" may purchase Investor Shares of a non-Money Market Fund during a 13-month period at the reduced sales charge rates applicable to the aggregate amount of the intended purchases stated in the Letter. The Letter may apply to purchases made up to 90 days before the date of the Letter. The purchase price for these prior trades will not be adjusted. A written Letter of Intent provided to the Transfer Agent, is not legally binding on the signer or the Fund, and provides for the holding in escrow by the transfer agent of 3.75% of the total amount intended to be purchased until such purchase is completed within the 13-month period. A Letter of Intent may be dated to include shares purchased up to 90 days prior to the date the Letter is signed. The 13-month period begins on the date of the earliest purchase. If the intended investment is not completed, the Transfer Agent will surrender an appropriate number of the escrowed shares for redemption in order to realize the difference between the sales charge on the shares purchased at the reduced rate and the sales charge otherwise applicable to the total shares purchased. *COMBINED PURCHASE/QUANTITY DISCOUNT PRIVILEGE The Trust will combine purchases of Investor Shares of Eligible Funds made on the same day by the investor, his/her spouse, and his/her children under age 21 when calculating the sales charge. This combination may also apply to purchases made pursuant to a Letter of Intent. Purchases made by such persons over a 13 month period could thus qualify the entire purchase for a reduced sales charge. *SPECIAL DIVIDEND SERVICES Dividend distributions made by the Fund can be automatically reinvested in Investor Shares of any one Fund of the Trust without a sales charge, subject to account minimum initial purchase amounts and minimum maintained balance requirements. *REPURCHASE OF FUND SHARES Investor Shares of the Fund may be purchased at their net asset value if such Investor Shares, sold subject to a sales charge were redeemed from the Fund within the past 60 days. The amount which may be reinvested is limited to an amount up to but not exceeding the redemption proceeds. In order to exercise this privilege a written order for the purchases must 14 be received by the Transfer Agent within 60 days after the redemption. It is the responsibility of the investor to notify the Transfer Agent at the time of repurchase. FLEX SHARES *CONTINGENT DEFERRED SALES CHARGE INFORMATION Flex Shares of the Fund may be purchased at their net asset value. Shares redeemed within the first year after purchase will be subject to a contingent deferred sales charge ("CDSC") equal to 2.00% of the lesser of the net asset value of the shares at the time of purchase or the net asset value of the shares at the time of redemption, in accordance with the following schedule:
CONTINGENT DEFERRED SALES CHARGE AS A PERCENTAGE OF YEAR SINCE DOLLAR AMOUNT SUBJECT TO PURCHASE CHARGE ----------- --------------------------- First 2.00% Second None
The CDSC will not apply to shares purchased through reinvestment of dividends or capital gain distributions, accordingly, no sales charge is imposed on increases in net asset value above the initial purchase price. In determining whether a particular redemption is subject to a CDSC, it is assumed that the redemption is first of shares held for over one year or shares acquired through reinvestment of dividends or other distributions. No CDSC will be charged on exchanges of Flex Shares of the Fund for Flex Shares of any other Fund. See "Exchanges." In determining the amount of the Flex Shares CDSC that applies, all purchases shall be considered as having been made on the trade date. The contingent deferred sales charge will not be imposed when a redemption occurs under the following circumstances: (i) a total or partial distribution from a qualified plan, other than an IRA, Keogh Plan, or a custodial account following retirement; (ii) a total or partial distribution from an IRA, Keogh Plan, or a custodial account after the beneficial owner or participant attains age 59 1/2 or (iii) from the death or complete disability (as defined in the Internal Revenue Code or evidenced by a certificate from the U.S. Social Security Administration) of the beneficial owner or participant. The exemption from the contigent deferred sales charge for qualified plans, an IRA, Keogh Plan, or a custodial account does not extend to account transfers, rollovers, and other redemptions made for purposes of reinvestment. Contingent deferred sales charges are not charged in connection with exchanges of shares for shares in other STI Classic Fund Flex Shares or in connection with redemptions by the Fund of accounts with low balances. 15 REDEMPTION OF FUND SHARES Shareholders may redeem their Investor Shares or Flex Shares on any day that net asset value is calculated. Investor Shares and Flex Shares may ordinarily be redeemed by mail or telephone request to the Transfer Agent. All redemption orders are effected at the net asset value per share next determined after receipt of a valid redemption request, reduced by any applicable CDSC for Flex Shares. See "FLEX SHARES -- Sales Charge Information." All or part of a shareholder's holdings of Investor Shares or Flex Shares may be redeemed in accordance with instructions and limitations pertaining to his or her account. Redemption orders must be received by the Transfer Agent before 4:00 p.m. Eastern time on any business day. Redemption proceeds are remitted within five days following receipt of the order. Requests for redemptions from the Fund may be placed in writing or by telephone directly to an Investment Services Representative of a SunTrust Banks, Inc. affiliate bank, through SunTrust Securities, Inc., and through certain correspondent banks of SunTrust Banks, Inc. (or via FUNDLINK to the Transfer Agent). Redemptions placed via telephone or FUNDLINK (1-800-428-6970) can only be placed for a minimum of $1,000. Redemption proceeds can be wired, distributed by check, or transferred to a Shareholder's account via FUNDLINK. There will be a $7.00 wire charge for redemptions processed from accounts which require wires to particular banks. When Investor Shares or Flex Shares are purchased by check or through ACH the proceeds from the redemption of those Shares are not available, and the Shares may not be exchanged, until the Trust or its agents are reasonably certain that the purchase check has cleared, which could take up to 7 business days. A Shareholder may be required to redeem Investor Shares or Flex Shares if the balance in a Shareholder's Fund account drops below $2,000 for Investor Shares and $10,000 for Flex Shares as a result of redemptions and the Shareholder does not increase its balance to at least $2,000 for Investor Shares and $10,000 for Flex Shares on 60 days' written notice. The minimum account balance for employees of SunTrust Banks, Inc. and its affiliates is $1,000. The Trust intends to pay cash for all shares redeemed, but under abnormal conditions which make payment in cash unwise, payment may be made wholly or partly in liquid portfolio securities with a market value equal to the redemption price. In such cases, an investor may incur brokerage costs in converting such securities to cash. Redemptions of $25,000 or greater must be in writing and a signature guarantee must accompany the written request. *SYSTEMATIC WITHDRAWAL PLAN A systematic withdrawal plan can be established for any Fund account with a $10,000 minimum balance. Under the plan, redemptions can be automatically processed (monthly, quarterly, semi-annually or annually) by check or through an electronic transfer to a Shareholder's SunTrust Banks, Inc. affiliate bank account with a minimum redemption amount of $50. Because regular, systematic withdrawals of Flex Shares made within one year of purchase will be subject to the CDSC, it may not be in the best interest of Flex shareholders to participate in the Systematic Withdrawal Plan. Exceptions 16 relating to Flex Share systematic withdrawals from qualified retirement plans were previously referenced. FUNDLINK All purchases and redemptions of Investor Shares and Flex Shares may be completed via FUNDLINK, a telephone activated service that allows Shareholders to transfer money between the STI Classic Funds and a Shareholder's bank account(s). To initiate a FUNDLINK transaction, Shareholders are provided a toll-free telephone number (1-800-428-6970) to call the Trust's Transfer Agent. To utilize this service, a Shareholder must contact an Investment Services Representative of a SunTrust Banks, Inc. affiliate bank and complete the appropriate application and authorization agreements. EXCHANGES Some or all of the Investor Shares of the Fund for which payment has been received (i.e., an established account) may be exchanged for Investor Shares of other Funds within the Trust. Shares being exchanged for the first time from a Money Market Fund into a Fund with a sales charge will be subject to the sales charge of that Fund. Likewise, Shares being exchanged for the first time into a Fund with a higher sales charge will be subject to an incremental sales charge. Exchanges made from a Fund with a higher sales charge to a Fund with a lower sales charge or a Money Market Fund are made without a sales charge. Flex Shares of the Fund may be exchanged at net asset value only for Flex Shares of the other Funds of the Trust or for Investor Shares of the Money Market Funds of the Trust. No CDSC will be imposed on redemptions of Money Market Fund Shares acquired in an exchange, provided they are held for at least one year from the initial purchase date of the Flex Shares or are exchanged back into Flex Shares. Subsequent exchanges of Investor Shares of the Money Market Funds (which were acquired in an exchange of Flex Shares) may be only for Flex Shares of the Equity or Fixed Income Funds. Flex Shares owned by qualifying investors may be exchanged for Trust Shares (Shares for which SunTrust Banks, Inc. or one of its affiliates acts in a fiduciary, agency, investment advisory or custodial capacity) at net asset value. Trust Shares acquired in an exchange of Flex Shares will not be subject to a CDSC upon redemption. Four exchanges may be made per calendar year. More than four exchanges in a year may be considered an abuse of the exchange privilege. The Fund reserves the right to charge a $10.00 fee for each exchange. A Shareholder with more than four exchanges per year will be notified prior to the imposition of any such fee. Exchanges may be requested through an Investment Services Representative of a SunTrust Banks, Inc. affiliate bank, SunTrust Securities, Inc. and certain correspondent banks of SunTrust Banks, Inc., either by telephone or in writing, (or via FUNDLINK through the Fund's Transfer Agent). The minimum exchange amount is $1,000 subject to account minimum initial purchase amounts and minimum maintained balance requirements. This exchange offer is subject to change or termination by the Trust upon sixty days' notice. DIVIDENDS AND DISTRIBUTIONS Dividends are declared and paid annually by the Fund. The Fund's net realized capital gains (including net short-term capital gains) are distributed at least annually. Net income for dividend purposes consists of (i) interest 17 accrued and original issue discount earned on the Fund's assets, (ii) plus the amortization of market discount and minus the amortization of market premium on such assets, (iii) plus dividend or distribution income on such assets, (iv) less accrued expenses directly attributable to the Fund and the general expenses of the Trust prorated to the Fund on the basis of its relative net assets. Shareholders of record on the record date will be entitled to receive dividends. The net asset value of Investor Shares or Flex Shares of the Fund will be reduced by the amount of any dividend or distribution. Dividends and distributions are paid in the form of additional Investor Shares or Flex Shares of the Fund unless the customer has elected prior to the date of distribution to receive payment in cash. Such election, or any revocation thereof, must be made in writing prior to the date of distribution to the Trust's transfer agent and will become effective with respect to dividends paid after its receipt. Dividends and distributions are paid within ten days of the end of the time period to which the dividend relates. Dividends and distributions payable to a Shareholder are paid in cash within ten business days after a Shareholder's complete redemption of its Shares in the Fund. The amount of dividends payable on Investor Shares and Flex Shares will be less than the dividends payable on Trust Shares because of the distribution and certain transfer agent expenses charged to Investor Shares and Flex Shares. The amount of dividends payable on Flex Shares generally will be less than the amount of dividends payable on Investor Shares due to the higher distribution and service expenses of Flex Shares. TAX INFORMATION The following summary of federal income tax consequences is based on current tax laws and regulations, which may be changed by legislative, judicial or administrative action. No attempt has been made to present a detailed explanation of the federal, state, or local income tax treatment of the Fund or its Shareholders. Shareholders are urged to consult their tax advisors regarding specific questions as to federal, state and local income taxes. TAX STATUS OF THE FUND: The Fund is treated as a separate entity for federal tax purposes and is not combined with the Trust's other Funds. The Fund intends to qualify for the special tax treatment afforded regulated investment companies by the Internal Revenue Code of 1986, as amended, (the "Code") so that it will be relieved of federal income tax on that part of its net investment income and net capital gains (the excess of long-term capital gains over net short-term capital loss) which is distributed to Shareholders. The Fund intends to make sufficient distributions prior to the end of each calendar year to avoid liability for federal excise tax. TAX STATUS OF DISTRIBUTIONS: The Fund will distribute substantially all of its net investment income (including, for this purpose, net short-term capital gains) to Shareholders. Dividends from net investment income paid by the Fund will be taxable to Shareholders as ordinary income whether received in cash or in additional shares. Dividends from net investment income will qualify for the dividends received deduction for corporate Shareholders only to the extent such 18 distributions are derived from dividends paid by domestic corporations. Any net capital gains will be distributed annually and will be taxed to Shareholders as long-term capital gains, regardless of how long the Shareholder has held shares and regardless of whether distributions are received in cash or in additional shares. For certain individual Shareholders, net long-term capital gains may be taxed at a lower rate than ordinary income. The Fund will make annual reports to Shareholders of the federal income tax status of all distributions. Dividends declared by the Fund in October, November or December of any year and payable to Shareholders of record on a date in that month will be deemed to have been paid by the Fund and received by the Shareholder on December 31 of that year, if paid by the Fund at any time during the following January. Income derived by the Fund from obligations of foreign issuers may be subject to foreign withholding taxes. The Fund expects to elect to treat Shareholders as having paid their proportionate share of such foreign taxes. Income received on direct U.S. obligations is exempt from tax at the state level when received directly by the Fund and may be exempt, depending on the state, when received by the Shareholder as income dividends from the Fund, provided certain state-specific conditions are satisfied. Not all states permit such income dividends to be tax exempt and some require that a certain minimum percentage of an investment company's income be derived from state tax-exempt interest. The Fund will inform Shareholders annually of the percentage of income and distributions derived from direct U.S. obligations. Shareholders should consult their tax advisors to determine whether any portion of the income dividends received from the Fund is considered tax-exempt in their particular state. Sale, exchange or redemption of Fund shares is a taxable event to the Shareholder. STI CLASSIC FUNDS INFORMATION THE TRUST The Trust was organized as a Massachusetts Business Trust under a Declaration of Trust dated January 15, 1992. The Declaration of Trust permits the Trust to offer separate portfolios of shares and different classes of each portfolio of shares. All consideration received by the Trust for shares of any portfolio of shares and all assets of such portfolio of shares belong to that portfolio of shares and would be subject to liabilities related thereto. The Trust pays its expenses, including fees of its service providers, audit and legal expenses, expenses of preparing prospectuses, proxy solicitation material and reports to Shareholders, costs of custodial services and registering the shares under federal and state securities laws, pricing, insurance expenses, litigation and other extraordinary expenses, brokerage costs, interest charges, taxes and organization expenses. BOARD OF TRUSTEES The management and affairs of the Trust are supervised by the Trustees under the laws governing business trusts in the Commonwealth of Massachusetts. The Trustees have approved contracts under which, as described below, certain companies provide essential management services to the Trust. 19 INVESTMENT ADVISOR The Advisor is an indirect wholly-owned subsidiary of SunTrust Banks, Inc. ("SunTrust"), a southeastern regional bank holding company with assets of $44.2 billion as of June 30, 1995. SunTrust ranks among the twenty largest U.S. banking companies. Its three principal subsidiaries-- SunTrust Banks of Florida, Inc., SunTrust Banks of Georgia, Inc. and SunTrust Banks of Tennessee--provide a wide range of personal and corporate banking, trust, and investment services through more than 600 locations in the three-state area. Total discretionary assets under management with SunTrust Banks, Inc. equalled approximately $42 billion as of December 31, 1994. STI Capital Management, N.A. ("STI Capital") serves as the Advisor to the Fund. As of June 30, 1995, STI Capital had discretionary management authority with respect to assets of approximately $11.1 billion. The principal business address of STI Capital is P.O. Box 3808, Orlando, FL 32802. The Trust and the Advisor have entered into an advisory agreement (the "Advisory Agreement"). Under the Advisory Agreement, the Advisor makes the investment decisions for the assets of the Fund, and continuously reviews, supervises and administers the Fund's investment program. The Advisor discharges its responsibilities subject to the supervision of, and policies established by, the Trustees of the Trust. STI CLASSIC FUNDS ARE NOT DEPOSITS, ARE NOT INSURED OR GUARANTEED BY THE FDIC OR ANY OTHER GOVERNMENT AGENCY, AND ARE NOT ENDORSED OR GUARANTEED BY AND DO NOT CONSTITUTE OBLIGATIONS OF SUNTRUST BANKS, INC. OR ANY OF ITS AFFILIATES. INVESTMENTS IN THE FUND INVOLVES RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. RETURNS AND PRINCIPAL VALUES WILL FLUCTUATE AND SHARES AT REDEMPTION MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THERE IS NO GUARANTEE THAT THE FUND WILL ACHIEVE ITS INVESTMENT OBJECTIVE. With respect to the Fund, the Advisor may execute brokerage or other agency transactions through affiliates of the Advisor. For the services provided and expenses incurred pursuant to the Advisory Agreement, STI Capital is entitled to receive advisory fees computed daily and paid monthly at the annual rate of 1.25% of the average daily net assets of the Fund. Although the advisory fee for the Fund is higher than advisory fees paid by other mutual funds, the Trust believes that the fee is comparable to the advisory fee paid by other mutual funds with similar investment objectives and policies. From time to time, the Advisor may waive (either voluntarily or pursuant to applicable state limitations) the advisory fee payable by the Fund. Currently, the Advisor and the Distributor have agreed to voluntary reductions in their respective fees as well as reductions in service and distribution fees in amounts necessary to maintain the total operating expenses at the amounts set forth in the Expense Summary. Voluntary reductions of fees may be terminated at anytime. PORTFOLIO MANAGER Mr. Dan Jaworski has been responsible for the day-to-day management of the Fund since its inception. Mr. Jaworski joined STI Capital in 1995. Prior to joining STI Capital he managed international portfolios at Lazard Freres Asset Management from 1993 through 1994 and the Principal Financial Group from 1988 through 1993. 20 BANKING LAWS Banking laws and regulations, including the Glass-Steagall Act as presently interpreted by the Board of Governors of the Federal Reserve System, presently (a) prohibit a bank holding company registered under the Federal Bank Holding Company Act of 1956 or its affiliates from sponsoring, organizing, controlling, or distributing the shares of a registered, open-end investment company continuously engaged in the issuance of its shares, and generally prohibit banks from underwriting securities, but (b) do not prohibit such a bank holding company or affiliate or banks generally from acting as an investment advisor, transfer agent, or custodian to such an investment company or from purchasing shares of such a company as agent for and upon the order of a customer. The Advisor believes that it may perform the services for the Fund contemplated by its agreement described in this Prospectus without violation of applicable banking laws or regulations. However, future changes in legal requirements relating to the permissible activities of banks and their affiliates, as well as future interpretations of present requirements, could prevent the Advisor from continuing to perform services for the Fund. If the Advisor was prohibited from providing services to the Fund, the Board of Trustees would consider selecting other qualified firms. Any new investment advisory agreements would be subject to Shareholder approval. If current restrictions preventing a bank or its affiliates from legally sponsoring, organizing, controlling, or distributing shares of an investment company were relaxed, the Advisor, or its affiliates, would consider the possibility of offering to perform additional services for the Fund. It is not possible, of course, to predict whether or in what form such legislation might be enacted or the terms upon which the Advisor, or such affiliates, might offer to provide such services. In addition, state securities laws on that issue may differ from the interpretations of federal law expressed herein and banks and financial institutions may be required to register as dealers pursuant to state law. DISTRIBUTION SEI Financial Services Company (the "Distributor"), a wholly-owned subsidiary of SEI Corporation ("SEI"), and the Trust, are parties to a Distribution Agreement ("Distribution Agreement") dated November 21, 1995. The Investor Shares of the Fund have a distribution plan ("Investor Plan") and the Flex Shares of the Fund have a distribution plan ("Flex Plan"). The Distribution Agreement and the Investor Plan provide that the Investor Shares of the Fund may pay a distribution services fee to the Distributor of up to .33% of its average daily net assets. The Distribution Agreement and the Flex Plan provide that the Flex Shares of the Fund may pay a distribution services fee to the Distributor of up to .75% of the average daily net assets of the Flex Shares of the Fund. Flex Shares are also subject to a service fee of up to .25% of the average daily net assets of the Flex Shares of each Fund. This service fee may be used for personal service and maintenance of shareholder accounts. Asset-based charges such as those incurred by the Flex Shares are designed to permit an investor to purchase Fund Shares without the assessment of a front-end sales charge. The Distributor will waive all or a portion of the distribution fee in order to limit the net expenses of the Investor Shares to the amounts set forth under "Expense Summary." The Distributor may apply this fee toward: 21 (a) compensation for its services in connection with distribution assistance or provision of shareholder services; or (b) payments to financial institutions and intermediaries such as banks (including SunTrust Banks, Inc.'s affiliate banks), savings and loan associations, insurance companies, and investment counselors, broker-dealers, and the Distributor's affiliates and subsidiaries as compensation for services, reimbursement of expenses incurred in connection with distribution assistance, or provision of Shareholder services. Both the Investor Plan and the Flex Plan are characterized as compensation plans since the distribution fee will be paid to the Distributor without regard to the distribution or shareholder service expenses incurred by the Distributor or the amount of payments made to financial institutions and intermediaries. SunTrust Banks, Inc.'s affiliate banks and certain correspondent banks may serve as shareholder servicing agents to the Trust. A prospective investor may visit any one of the Investment Services offices of the SunTrust Banks, Inc.'s affiliate banks, as listed on the last pages of the Prospectus, SunTrust Securities, Inc. or certain correspondent banks of SunTrust Banks, Inc. to receive copies of the Prospectuses for the Investor Shares or Flex Shares of the Trust and application forms. Trust Shares of the Fund are offered without a sales charge or a distribution fee primarily to institutional investors, including affiliates and correspondents for the investment of funds in which they act in a fiduciary, agency, investment advisory or custodial capacity. The Flex Shares of the Fund pay a distribution services fee to the Distributor and are also subject to a service fee for personal service and maintenance of shareholder accounts. The initial sales charge option of the Investor Shares provides investors with an alternative purchase arrangement to Flex Shares. It is possible that a financial institution may offer different classes of shares to its customers and thus receive different compensation with respect to different classes of shares. The Fund may also execute brokerage or other agency transactions through the Distributor, for which the Distributor receives compensation. ADMINISTRATION SEI Financial Management Corporation (the "Administrator"), a wholly-owned subsidiary of SEI, and the Trust are parties to an Administration Agreement (the "Administration Agreement"). Under the terms of the Administration Agreement, the Administrator provides the Trust with certain administrative services, other than investment advisory services, including regulatory reporting, all necessary office space, equipment, personnel, and facilities. The Administrator is entitled to a fee, which is calculated daily and paid monthly, at an annual rate as follows:
AVERAGE AGGREGATE DAILY NET ASSETS FEE - --------------------------------------------- --------- $1 - $1 billion .10% over $1 billion to $5 billion .07% over $5 billion to $8 billion .05% over $8 billion to $10 billion .045% over $10 billion .04%
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT Federated Services Company, Pittsburgh, PA is the Transfer Agent for the shares of the Trust and dividend disbursing agent for the Trust. CUSTODIAN SunTrust Bank, Atlanta, c/o STI Trust & Investment Operations, Inc., 303 Peachtree Street N.E., 14th Floor, Atlanta, GA 30308, serves as Custodian of the assets of each 22 Fund of the Trust with the exception of the International Equity Index Fund and the International Equity Fund. The Bank of California, 475 Sansome Street, Suite 1200, San Francisco, CA 94111, serves as Custodian for the International Equity Index Fund. The Bank of New York, One Wall Street, New York, NY 10286, serves as Custodian for the International Equity Fund. The Custodians hold cash, securities and other assets of the Trust as required by the Investment Company Act of 1940. LEGAL COUNSEL Morgan, Lewis & Bockius LLP, Philadelphia, PA, serves as legal counsel to the Trust. INDEPENDENT PUBLIC ACCOUNTANTS The independent public accountants to the Trust are Arthur Andersen, LLP, Philadelphia, PA. OTHER INFORMATION VOTING RIGHTS Each share held entitles the Shareholder of record to one vote. Each Fund or class of a Fund will vote separately on matters relating solely to that Fund or class. As a Massachusetts Business Trust, the Trust is not required to hold annual meetings of Shareholders but approval will be sought for certain changes in the operation of the Trust and for the election of Trustees under certain circumstances. In addition, a Trustee may be removed by the remaining Trustees or by Shareholders at a special meeting called upon written request of Shareholders owning at least 10% of the outstanding shares of the Trust. In the event that such a meeting is requested the Trust will provide appropriate assistance and information to the Shareholders requesting the meeting. REPORTING The Trust issues unaudited financial information semi-annually and audited financial statements annually. The Trust furnishes proxy statements and other reports to Shareholders of record. SHAREHOLDER INQUIRIES Shareholders may contact the Transfer Agent in order to obtain information on account statements, procedures and other related information by calling 1-800-428-6970. DESCRIPTION OF PERMITTED INVESTMENTS AMERICAN DEPOSITARY RECEIPTS ("ADRs") -- ADRs are securities, typically issued by a U.S. financial institution (a "depositary"), that evidence ownership interests in a security or a pool of securities issued by a foreign issuer and deposited with the depositary. ADRs may be available through "sponsored" or "unsponsored" facilities. A sponsored facility is established jointly by the issuer of the security underlying the receipt and a depositary, whereas an unsponsored facility may be established by a depositary without participation by the issuer of the underlying security. Holders of unsponsored depositary receipts generally bear all the costs of the unsponsored facility. The depositary of an unsponsored facility frequently is under no obligation to distribute shareholder communications received from the issuer of the deposited security or to pass through, to the holders of the receipts, voting rights with respect to the deposited securities. BANKERS' ACCEPTANCES -- Bankers' acceptances are bills of exchange or time drafts drawn on and accepted by a commercial bank. Bankers' acceptances are used by corporations to finance the shipment and storage of goods. Maturities are generally six months or less. 23 CERTIFICATES OF DEPOSIT -- Certificates of deposit are interest bearing instruments with a specific maturity. They are issued by banks and savings and loan institutions in exchange for the deposit of funds and normally can be traded in the secondary market prior to maturity. Certificates of deposit with penalties for early withdrawal will be considered illiquid. COMMERCIAL PAPER -- Commercial paper is a term used to describe unsecured short-term promissory notes issued by banks, municipalities, corporations and other entities. Maturities on these issues vary from a few to 270 days. CONVERTIBLE SECURITIES -- Convertible securities are corporate securities that are exchangeable for a set number of another security at a prestated price. Convertible securities typically have characteristics similar to both fixed income and equity securities. Because of the conversion feature, the market value of a convertible security tends to move with the market value of the underlying stock. The value of a convertible security is also affected by prevailing interest rates, the credit quality of the issuer, and any call provisions. CORPORATE DEBT OBLIGATIONS -- Debt instruments issued by corporations with maturities exceeding 270 days. Such instruments may include putable corporate bonds and zero coupon bonds. CUSTODIAL RECEIPTS -- Interests in separately traded interest and principal component parts of U. S. Treasury obligations that are issued by banks or brokerage firms and are created by depositing U. S. Treasury obligations into a special account at custodian bank. The custodian holds the interest and principal payments for the benefit of the registered owners of the certificates or receipts. The custodian arranges for the issuance of the certificates or receipts evidencing ownership and maintains the register. Receipts include "Treasury Receipts" ("TR's"), "Treasury Investment Growth Receipts" ("TIGR's"), and "Certificates of Accrual on Treasury Securities" ("CATS"). TR's, TIGR's and CATS are sold as zero coupon securities. See "Zero Coupon Obligations." EUROPEAN DEPOSITARY RECEIPTS ("EDRs") -- EDRs are securities, typically issued by a non-U.S. financial institution, that evidence ownership interests in a security or a pool of securities issued by either a U.S. or foreign issuer. EDRs may be available for investment through "sponsored" or "unsponsored" facilities. See "ADRs." FORWARD FOREIGN CURRENCY CONTRACTS -- A forward foreign currency contract involves an obligation to purchase or sell a specific currency amount at a future date, agreed upon by the parties, at a price set at the time of the contract. The Fund may also enter into a contract to sell, for a fixed amount of U.S. dollars or other appropriate currency, the amount of foreign currency approximating the value of some or all of the Fund's securities denominated in such foreign currency. At the maturity of a forward contract, the Fund may either sell a portfolio security and make delivery of the foreign currency, or it may retain the security and terminate its contractual obligation to deliver the foreign currency by purchasing an "offsetting" contract with the same currency trader, obligating it to purchase, on the same maturity date, the same amount of the foreign currency. The Fund may realize a gain or loss from currency transactions. FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS -- Futures contracts provide for the future sale by one party and purchase by another party of a specified amount of a specific security at a specified future time and at a specified price. An option on a futures contract gives the purchaser the right, in exchange for a premium, to assume a 24 position in a futures contract at a specified exercise price during the term of the option. The Fund may use futures contracts and related options for bona fide hedging purposes, to offset changes in the value of securities held or expected to be acquired, to minimize fluctuations in foreign currencies, or to gain exposure to a particular market or instrument. The Fund will minimize the risk that it will be unable to close out a futures contract by only entering into futures contracts which are traded on national futures exchanges. Stock index futures are futures contracts for various stock indices that are traded on registered securities exchanges. A stock index futures contract obligates the seller to deliver (and the purchaser to take) an amount of cash equal to a specific dollar amount times the difference between the value of a specific stock index at the close of the last trading day of the contract and the price at which the agreement is made. There are risks associated with these activities, including the following: (1) the success of a hedging strategy may depend on an ability to predict movements in the prices of individual securities, fluctuations in markets and movements in interest rates, (2) there may be an imperfect or no correlation between the changes in market value of the securities held by the Fund and the prices of futures and options on futures, (3) there may not be a liquid secondary market for a futures contract or option, (4) trading restrictions or limitations may be imposed by an exchange, and (5) government regulations may restrict trading in futures contracts and futures options. ILLIQUID SECURITIES -- Illiquid securities are securities that cannot be disposed of within seven business days at approximately the price at which they are being carried on the Fund's books. An illiquid security includes a demand instrument with a demand notice period exceeding seven days, where there is no secondary market for such security, and repurchase agreements with durations (or maturities) over seven days in length. OPTIONS ON CURRENCIES -- The Fund may purchase and write put and call options on foreign currencies (traded on U.S. and foreign exchanges or over-the-counter markets) to manage the portfolio's exposure to changes in dollar exchange rates. Call options on foreign currency written by the Fund will be "covered," which means that the Fund will own an equal amount of the underlying foreign currency. With respect to put options on foreign currency written by the Fund, the Fund will establish a segregated account with its custodian bank consisting of cash, U.S. Government securities or other high grade liquid debt securities in an amount equal to the amount the Fund would be required to pay upon exercise of the put. REPURCHASE AGREEMENTS -- Repurchase agreements are agreements by which the Fund obtains a security and simultaneously commits to return the security to the seller at an agreed upon price on an agreed upon date within a number of days from the date of purchase. The custodian will hold the security as collateral for the repurchase agreement. The Fund bears a risk of loss in the event the other party defaults on its obligations and the Fund is delayed or prevented from exercising its right to dispose of the collateral or if the Fund realizes a loss on the sale of the collateral. The Fund will enter into repurchase agreements only with financial institutions deemed to present minimal risk of bankruptcy during the term of the agreement based on established guidelines. Repurchase agreements are considered loans under the Investment Company Act of 1940. RESTRICTED SECURITIES -- Restricted securities are securities that may not be sold freely to the public absent registration under the Securities Act of 1933 or an exemption from 25 registration. Rule 144A securities are securities that have not been registered under the Securities Act of 1933, but which may be traded between certain institutional investors, including investment companies. The Trust's Board of Trustees is responsible for developing guidelines and procedures for determining the liquidity of restricted securities and monitoring the Advisors' implementation of the guidelines and procedures. SECURITIES LENDING -- In order to generate additional income, the Fund may lend securities which it owns pursuant to agreements requiring that the loan be continuously secured by collateral consisting of cash, securities of the U.S. Government or its agencies equal to at least 100% of the market value of the securities lent. The Fund continues to receive interest on the securities lent while simultaneously earning interest on the investment of cash collateral. Collateral is marked to market daily. There may be risks of delay in recovery of the securities or even loss of rights in the collateral should the borrower of the securities fail financially or become insolvent. TIME DEPOSITS -- Time deposits are non-negotiable receipts issued by a bank in exchange for the deposit of funds. Like a certificate of deposit, it earns a specified rate of interest over a definite period of time; however, it cannot be traded in the secondary market. Time deposits are considered to be illiquid securities. U.S. GOVERNMENT AGENCIES -- Obligations issued or guaranteed by agencies of the U.S. Government, including, among others, the Federal Farm Credit Bank, the Federal Housing Administration and the Small Business Administration, and obligations issued or guaranteed by instrumentalities of the U.S. Government, including, among others, the Federal Home Loan Mortgage Corporation, the Federal Land Banks and the U.S. Postal Service. Some of these securities are supported by the full faith and credit of the U.S. Treasury (e.g., Government National Mortgage Association), others are supported by the right of the issuer to borrow from the Treasury (e.g., Federal Farm Credit Bank), while still others are supported only by the credit of the instrumentality (e.g., Federal National Mortgage Association). Guarantees of principal by agencies or instrumentalities of the U.S. Government may be a guarantee of payment at the maturity of the obligation so that in the event of a default prior to maturity there might not be a market and thus no means of realizing on the obligation prior to maturity. Guarantees as to the timely payment of principal and interest do not extend to the value or yield of these securities nor to the value of the Fund's shares. U.S. TREASURY OBLIGATIONS -- U.S. Treasury obligations consist of bills, notes and bonds issued by the U.S. Treasury and separately traded interest and principal component parts of such obligations that are transferable through the Federal book-entry system known as Separately Traded Registered Interest and Principal Securities ("STRIPS"). VARIABLE AND FLOATING RATE INSTRUMENTS -- Certain obligations may carry variable or floating rates of interest, and may involve a conditional or unconditional demand feature. Such instruments bear interest at rates which are not fixed, but which vary with changes in specified market rates or indices. The interest rates on these securities may be reset daily, weekly, quarterly or some other reset period, and may have a floor or ceiling on interest rate changes. There is a risk that the current interest rate on such obligations may not accurately reflect existing market interest rates. A demand instrument with a demand 26 notice exceeding seven days may be considered illiquid if there is no secondary market for such security. WARRANTS -- Instruments giving holders the right, but not the obligation, to buy shares of a company at a given price during a specified period. WHEN-ISSUED AND DELAYED DELIVERY SECURITIES -- When-issued or delayed delivery basis transactions involve the purchase of an instrument with payment and delivery taking place in the future. Delivery of and payment for these securities may occur a month or more after the date of the purchase commitment. The Fund will maintain with the custodian a separate account with liquid high grade debt securities or cash in an amount at least equal to these commitments. The interest rate realized on these securities is fixed as of the purchase date and no interest accrues to the Fund before settlement. These securities are subject to market fluctuation due to changes in market interest rates and it is possible that the market value at the time of settlement could be higher or lower than the purchase price if the general level of interest rates has changed. Although a Fund generally purchases securities on a when-issued or forward commitment basis with the intention of actually acquiring securities for its portfolio, the Fund may dispose of a when-issued security or forward commitment prior to settlement if it deems appropriate. ZERO COUPON OBLIGATIONS -- Zero coupon obligations are debt securities that do not bear any interest, but instead are issued at a deep discount from par. The value of a zero coupon obligation increases over time to reflect the interest accreted. Such obligations will not result in the payment of interest until maturity, and will have greater price volatility than similar securities that are issued at par and pay interest periodically. A-1 APPENDIX I. BOND RATINGS *CORPORATE BONDS The following are descriptions of Standard & Poor's Corporation ("S&P")and Moody's Investors Service, Inc. ("Moody's") corporate bond ratings. Bonds rated AAA have the highest rating S&P assigns to a debt obligation. Such a rating indicates an extremely strong capacity to pay principal and interest. Bonds rated AA also qualify as high-quality debt obligations. Capacity to pay principal and interest is very strong, and in the majority of instances they differ from AAA issues only in small degree. Debt rated A has a strong capacity to pay interest and repay principal although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories. Bonds which are rated BBB are considered to be medium-grade obligations (i.e., they are neither highly protected nor poorly secured). Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. Debt rated BB, B, CCC, CC and C is regarded as having predominately speculative characteristics with respect to capacity to pay interest and repay principal. BB indicates the least degree of speculation and C the highest degree of speculation. While such debt will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major risk exposure to adverse conditions. Bonds which are rated Aaa by Moody's are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edge." Interest payments are protected by a large, or an exceptionally stable, margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. Bonds rated Aa by Moody's are judged by Moody's to be of high quality by all standards. Together with bonds rated Aaa, they comprise what are generally known as high-grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than in Aaa securities. Bonds which are rated A possess many favorable investment attributes and are to be considered as upper-medium grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present which suggest a susceptibility to impairment sometime in the future. Debt rated Baa is regarded as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for debt in this category than in higher rated categories. Bonds which are rated Ba are judged to have speculative elements; their future cannot be considered as well-assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during both good and bad times A-2 over the future. Uncertainty of position characterizes bonds in this class. Bonds which are rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small. Bonds which are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal and interest. Bonds which are rated Ca represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings. Bonds which are rated C are the lowest rated class of bonds and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing. 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 (Highest Grade) 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-2 (Very Good Grade) is the second highest commercial paper rating assigned by Fitch which reflects an assurance of timely payment only slightly less in degree than the strongest issues. The rating Duff-1 is the highest commercial paper rating assigned by Duff. Paper rated Duff-1 is regarded as having very high certainty of timely payment with excellent liquidity factors which are supported by ample asset protection. Risk factors are minor. Paper rated Duff-2 is regarded as having good certainty of timely payment, good access to capital markets and sound liquidity factors and company fundamentals. Risk factors are small. The designation A1 by IBCA indicates that the obligation is supported by a very strong capacity for timely repayment. Those obligations rated A1+ are supported by the highest capacity for timely repayment. Obligations rated A2 are supported by a strong capacity for timely repayment, although such capacity may be susceptible to adverse changes in business, economic or financial conditions. (THIS PAGE INTENTIONALLY LEFT BLANK) (THIS PAGE INTENTIONALLY LEFT BLANK) TRUST AND INVESTMENT SERVICES OFFICES OF SUNTRUST BANKS, INC. AFFILIATE BANKS: FLORIDA: (STATEWIDE TOLL FREE) 1-800-526-1177 SUNTRUST BANK, CENTRAL FLORIDA, N.A. 200 S. Orange Avenue Tower 10 Orlando, FL 32801 (407) 237-4380 1-800-432-4760, ext. 4380 SUNTRUST BANK, SOUTH FLORIDA, N.A. 501 E. Las Olas Boulevard Ft. Lauderdale, FL 33301 (305) 765-7422 Boca Raton Office 800 S. Federal Highway Boca Raton, FL 33435 (407) 243-6707 Coral Ridge Office 2626 E. Oakland Park Blvd. Ft. Lauderdale, FL 33306 (305) 765-2155 Delray Beach Office 302 E. Atlantic Avenue Delray Beach, FL 33483 (407) 243-6750 Hollywood Office 2001 Hollywood Blvd. Hollywood, FL 33021 (305) 765-7062 PGA Office 4500 PGA Blvd. Palm Beach Gardens, FL 33410 (407) 835-2802 SUNTRUST BANK, MIAMI, N.A. 777 Brickell Avenue Miami, FL 33131 (305) 579-7450 SUNTRUST BANK, TAMPA BAY 401 E. Jackson Street Tampa, FL 33602 (813) 224-2517 SUNTRUST BANK, TREASURE COAST, N.A. 700 Virginia Avenue Ft. Pierce, FL 34982 (407) 467-6459 Osceola Office 111 East Osceola Street Stuart, FL 34994 (407) 223-6012 SUNTRUST BANK, EAST CENTRAL FLORIDA Holly Hill Office 1510 Ridgewood Avenue Holly Hill, FL 32117 (904) 258-2660 West Port Orange Office 4900 Clyde Morris Blvd. Port Orange, FL 32119 (904) 258-2654 Deland Office 302 E. New York Avenue Deland, FL 32724 (904) 822-5891 SUNTRUST BANK, NORTH FLORIDA, N.A. 200 W. Forsyth Street Jacksonville, FL 32202 (904) 632-2534 SUNTRUST BANK, SOUTHWEST FLORIDA 12730 New Brittany Blvd. Ft. Myers, FL 33907 (941) 277-2531 Pelican Bay Office 801 Laurel Oak Drive Naples, FL 33963 (941) 598-0517 SUNTRUST BANK, GULF COAST South Gate Office 3400 S. Tamiami Trail Sarasota, FL 34230 (941) 316-4027 Port Charlotte Office 18501 Murdock Circle Port Charlotte, FL 33949 (941) 625-9286 North Beneva Office 3577 Fruitville Road Sarasota, FL 34237 (941) 316-4003 South Beneva Office 8181 S. Tamiami Trail Sarasota, FL 34231 (941) 927-7903 Venice Office 200 Nokomis Avenue South Venice, FL 34285 (941) 486-4417 SUNTRUST BANK, MID-FLORIDA, N.A. 210 Security Square Winter Haven, FL 33880 (941) 297-6855 Okeechobee Office 815 S. Parrott Avenue Okeechobee, FL 34974 (941) 763-1903 SUNTRUST BANK, NATURE COAST One East Jefferson Street Brooksville, FL 34601 (904) 754-5798 Regency Park Office 10290 Regency Park Blvd. Port Richey, FL 34668 (813) 861-4375 Seven Hills Office 1170 Mariner Blvd. Spring Hill, FL 34609 (904) 754-5779 SUNTRUST BANK, NORTH CENTRAL FLORIDA 203 E. Silver Springs Blvd. Ocala, FL 34470 (904) 368-6477 200 West Office 929 SW State Road 200 Ocala, FL 34481 (904) 368-6472 SUNTRUST BANK, TALLAHASSEE, N.A. 3522 Thomasville Road Tallahassee, FL 32312 (904) 298-5064 SUNTRUST BANK, WEST FLORIDA 220 W. Garden Street Pensacola, FL 32501 (904) 435-1262 Gulf Breeze Office 11 Hoffman Drive Gulf Breeze, FL 32561 (904) 934-6072 GEORGIA: SUNTRUST BANK, ATLANTA 55 Park Place First Floor Atlanta, GA 30303 (404) 588-7315 1-800-241-0901 Ext. 7315 SUNTRUST BANK, NORTHEAST GEORGIA, N.A. 101 N. Lumpkin Street Athens, GA 30601 (706) 354-5346 Gainesville Branch 104 Green Street Gainesville, GA 30503 (770) 503-8674 SUNTRUST BANK, NORTHWEST GEORGIA, N.A. 100 East Second Avenue Rome, GA 30161 (706) 236-4325 SUNTRUST BANK, AUGUSTA, N.A. 2815 Wrightsboro Road Augusta, GA 30909 (706) 821-2015 SUNTRUST BANK, MIDDLE GEORGIA, N.A. 606 Cherry Street Macon, GA 31208 (912) 755-5175 SUNTRUST BANK, WEST GEORGIA, N.A. 1246 First Avenue Columbus, GA 31901 (706) 649-3631 SUNTRUST BANK, SAVANNAH, N.A. 33 Bull Street Savannah, GA 31401 (912) 944-1165 SUNTRUST BANK, SOUTH GEORGIA, N.A. 401 W. Broad Avenue Albany, GA 31701 (912) 430-5468 Coffee County Branch 201 S. Peterson Avenue Douglas, GA 31533 (912) 384-1820 SUNTRUST BANK, SOUTHEAST GEORGIA, N.A. 510 Gloucester Street Brunswick, GA 31520 (912) 262-5322 Sea Island Road Branch 701 Sea Island Road St. Simons Island, GA 31522 (912) 638-3620 (912) 262-2227 TENNESSEE: SUNTRUST BANK, NASHVILLE, N.A. 424 Church Street 4th Floor Nashville, TN 37230 (615) 748-4477 1-800-932-2652 SUNTRUST BANK, CHATTANOOGA, N.A. 736 Market Street Chattanooga, TN 37402 (615) 757-3085 TN WATS 1-800-572-7306, Ext. 3085 Bordering States WATS 1-800-874-1083, Ext. 3085 SUNTRUST BANK, EAST TENNESSEE, N.A. 700 East Hill Avenue Knoxville, TN 37997 (423) 544-2201 1-800-442-3487 SUNTRUST BANK, NORTHEAST TENNESSEE 207 Mockingbird Lane Johnson City, TN 37604 (423) 461-1005 SUNTRUST BANK, SOUTH CENTRAL TENNESSEE, N.A. 25 Public Square Lawrenceburg, TN 38464 (615) 762-3511 ALABAMA: SUNTRUST BANK, ALABAMA, N.A. 201 South Court Street Florence, AL 35630 (205) 767-8463 STI CLASSIC FUNDS ORGANIZATIONAL OVERVIEW * INVESTMENT ADVISOR STI Capital Management, N.A. P.O. Box 3808 Orlando, FL 32802 * DISTRIBUTOR SEI Financial Services Company 680 E. Swedesford Road Wayne, PA 19087-1658 * ADMINISTRATOR SEI Financial Management 680 E. Swedesford Road Corporation Wayne, PA 19087-1658 * TRANSFER AGENT Federated Services Company Federated Investors Tower Pittsburgh, PA 15222-3779 * CUSTODIAN SunTrust Bank, Atlanta c/o STI Trust & Investment Operations, Inc. 303 Peachtree Street, N.E. 14th Floor Atlanta, GA 30308 The Bank of California 475 Sansome Street (International Equity Index Fund Suite 1200 only) San Francisco, CA 94111 The Bank of New York One Wall Street (International Equity Fund only) New York, NY 10286 * LEGAL COUNSEL Morgan, Lewis & Bockius LLP 2000 One Logan Square Philadelphia, PA 19103 * INDEPENDENT PUBLIC ACCOUNTANTS Arthur Andersen, LLP 1601 Market Street Philadelphia, PA 19103
STI CLASSIC FUNDS Supplement dated May 7, 1996 to the Statement of Additional Information dated October 1, 1995 The Statement of Additional Information for STI Classic Funds is hereby amended and supplemented by the following unaudited financial statements of the International Equity Fund for the period ended March 31, 1996. PLEASE RETAIN THIS SUPPLEMENT FOR FUTURE REFERENCE
Schedule of Investments STI CLASSIC FUNDS MARCH 31, 1996 Unaudited Market INTERNATIONAL EQUITY FUND Shares Value (000) - -------------------------------------------------------------------------------- Foreign Common Stocks (99.8%) - -------------------------------------------------------------------------------- Argentina (1.0%) Telefonica Argentina ADR . . . . . . . . . . $ 64,500 $ 1,653 Total Argentina . . . . . . . . . . . . . . . . . . . . . 1,653 Australia (2.0%) Australia & New Zealand Bank . . . . . . . . 152,425 729 Newscorp . . . . . . . . . . . . . . . . . . 125,500 734 QBE Insurance. . . . . . . . . . . . . . . . 167,000 834 Tabcorp. . . . . . . . . . . . . . . . . . . 268,000 1,086 Total Australia . . . . . . . . . . . . . . . . . . . . . 3,383 Brazil (0.6%) Usiminas ADR . . . . . . . . . . . . . . . . 90,000 968 Total Brazil. . . . . . . . . . . . . . . . . . . . . . . 968 Canada (3.8%) Alcan Aluminum . . . . . . . . . . . . . . . 50,000 1,613 Bank of Montreal . . . . . . . . . . . . . . 85,000 1,981 Bombardier . . . . . . . . . . . . . . . . . 60,000 886 CAE . . . . . . . . . . . . . . . . . . . . 224,988 1,940 Total Canada. . . . . . . . . . . . . . . . . . . . . . . 6,420 Denmark (2.7%) Copenhagen Airports. . . . . . . . . . . . . 13,000 1,277 Novo Nordisk . . . . . . . . . . . . . . . . 12,700 1,625 Sophus Berendsen . . . . . . . . . . . . . . 15,000 1,790 Total Denmark . . . . . . . . . . . . . . . . . . . . . . 4,692 Finland (7.1%) Cultor 2 . . . . . . . . . . . . . . . . . . 107,700 4,886 Finnair. . . . . . . . . . . . . . . . . . . 200,000 1,629 Konecranes*. . . . . . . . . . . . . . . . . 50,000 880 Raision Tehtaat. . . . . . . . . . . . . . . 25,000 859 Repola . . . . . . . . . . . . . . . . . . . 110,000 2,186 TT Tieto . . . . . . . . . . . . . . . . . . 50,000 1,674 Total Finland . . . . . . . . . . . . . . . . . . . . . . 12,114 France (6.2%) Christian Dior . . . . . . . . . . . . . . . 40,350 5,377 Ecco . . . . . . . . . . . . . . . . . . . . 5,025 1,158 Lagardere Groupe . . . . . . . . . . . . . . 122,500 3,250 Societe Generale . . . . . . . . . . . . . . 7,000 778 Total France. . . . . . . . . . . . . . . . . . . . . . . 10,563 Germany (5.1%) Altana . . . . . . . . . . . . . . . . . . . 1,200 738
Schedule of Investments STI CLASSIC FUNDS MARCH 31, 1996 Unaudited Market INTERNATIONAL EQUITY FUND Shares Value (000) - -------------------------------------------------------------------------------- Hoechst. . . . . . . . . . . . . . . . . . . 2,300 $ 817 Mannesmann . . . . . . . . . . . . . . . . . 4,900 1,792 Siemens . . . . . . . . . . . . . . . . . . 4,600 2,523 Veba . . . . . . . . . . . . . . . . . . . . 38,600 1,878 Wella. . . . . . . . . . . . . . . . . . . . 2,000 983 Total Germany . . . . . . . . . . . . . . . . . . . . . . 8,731 Hong Kong (3.2%) Cheung Kong Holdings . . . . . . . . . . . . 240,000 1,692 China Hong Kong Photo. . . . . . . . . . . . 500,000 255 HSBC Holdings. . . . . . . . . . . . . . . . 100,000 1,500 Swire Pacific, Cl A. . . . . . . . . . . . . 90,000 791 Tingyi*. . . . . . . . . . . . . . . . . . . 1,962,000 514 Yue Yuen . . . . . . . . . . . . . . . . . . 2,700,000 656 Total Hong Kong . . . . . . . . . . . . . . . . . . . . . 5,408 Indonesia (1.0%) Indorama Synthetics. . . . . . . . . . . . . 492,000 1,684 Total Indonesia . . . . . . . . . . . . . . . . . . . . . 1,684 Ireland (0.2%) CRH-Dublin . . . . . . . . . . . . . . . . . 36,229 318 Total Ireland . . . . . . . . . . . . . . . . . . . . . . 318 Italy (0.7%) Saipem . . . . . . . . . . . . . . . . . . . 350,000 1,162 Total Italy . . . . . . . . . . . . . . . . . . . . . . . 1,162 Japan (12.8%) Amway Japan. . . . . . . . . . . . . . . . . 87,900 2,187 Canon. . . . . . . . . . . . . . . . . . . . 142,000 2,710 Fuji Photo Film. . . . . . . . . . . . . . . 82,000 2,347 Mitsubishi Heavy Industries. . . . . . . . . 294,000 2,541 Nippon Television Network. . . . . . . . . . 10,000 2,947 Omron. . . . . . . . . . . . . . . . . . . . 79,000 1,751 Paris Miki . . . . . . . . . . . . . . . . . 90,200 3,459 Sanyo Shinpan. . . . . . . . . . . . . . . . 26,300 1,944 Sony . . . . . . . . . . . . . . . . . . . . 33,400 1,997 Total Japan . . . . . . . . . . . . . . . . . . . . . . . 21,883 Malaysia (0.3%) Arab Malaysian Finance . . . . . . . . . . . 114,000 563 Total Malaysia. . . . . . . . . . . . . . . . . . . . . . 563 Mexico (2.2%) Panamerican Beverages ADR. . . . . . . . . . 93,000 3,757 Total Mexico. . . . . . . . . . . . . . . . . . . . . . . 3,757
Schedule of Investments STI CLASSIC FUNDS MARCH 31, 1996 Unaudited Market INTERNATIONAL EQUITY FUND Shares Value (000) - -------------------------------------------------------------------------------- Netherlands (11.4%) ABN - Amro . . . . . . . . . . . . . . . . . 46,000 $ 2,289 Amev . . . . . . . . . . . . . . . . . . . . 48,200 3,401 DSM . . . . . . . . . . . . . . . . . . . . 17,500 1,661 Hollandsche Beton Groep. . . . . . . . . . . 1,500 249 IHC Caland . . . . . . . . . . . . . . . . . 67,500 2,755 International Nederlanden. . . . . . . . . . 51,000 3,705 KPN . . . . . . . . . . . . . . . . . . . . 39,900 1,570 VNU . . . . . . . . . . . . . . . . . . . . 232,000 3,864 Total Netherlands . . . . . . . . . . . . . . . . . . . . 19,494 New Zealand (0.4%) Fletcher Challenge Building* . . . . . . . . 297,500 731 Total New Zealand . . . . . . . . . . . . . . . . . . . . 731 Peru (2.4%) CPT Telefonica del Peru. . . . . . . . . . . 1,171,569 2,418 Credicorp. . . . . . . . . . . . . . . . . . 89,700 1,615 Total Peru. . . . . . . . . . . . . . . . . . . . . . . . 4,033 Philippines (1.8%) Benpres GDS* . . . . . . . . . . . . . . . . 502,961 3,144 Total Philippines . . . . . . . . . . . . . . . . . . . . 3,144 Republic of Panama (1.5%) Banco Latino Americano . . . . . . . . . . . 52,200 2,577 Total Republic of Panama. . . . . . . . . . . . . . . . . 2,577 South Korea (0.6%) Korea Chemical . . . . . . . . . . . . . . . 10,000 1,095 Total South Korea . . . . . . . . . . . . . . . . . . . . 1,095 Spain (3.4%) Repsol . . . . . . . . . . . . . . . . . . . 88,800 3,350 Telefonica de Espana . . . . . . . . . . . . 150,000 2,382 Total Spain . . . . . . . . . . . . . . . . . . . . . . . 5,732 Sweden (10.0%) Avesta Sheffield . . . . . . . . . . . . . . 140,200 1,416 Cardo* . . . . . . . . . . . . . . . . . . . 80,000 1,628 Ericsson . . . . . . . . . . . . . . . . . . 108,100 2,377 Getinge Industrier . . . . . . . . . . . . . 71,100 3,636 Hoganas. . . . . . . . . . . . . . . . . . . 53,400 1,626 Kalmar . . . . . . . . . . . . . . . . . . . 40,900 777 Nobelpharma. . . . . . . . . . . . . . . . . 70,000 1,100 SKF . . . . . . . . . . . . . . . . . . . . 70,000 1,545 Svedala. . . . . . . . . . . . . . . . . . . 92,400 3,013 Total Sweden. . . . . . . . . . . . . . . . . . . . . . . 17,118
Schedule of Investments STI CLASSIC FUNDS MARCH 31, 1996 Unaudited Market INTERNATIONAL EQUITY FUND Shares Value (000) - -------------------------------------------------------------------------------- Switzerland (7.8%) Brown Boveri & Cie . . . . . . . . . . . . . 2,315 $ 2,817 Ciba Geigy . . . . . . . . . . . . . . . . . 3,000 3,757 Roche Holdings . . . . . . . . . . . . . . . 100 831 Sandoz Pharmaceutical. . . . . . . . . . . . 2,900 3,402 Societe Generale Surveillance. . . . . . . . 1,240 2,592 Total Switzerland . . . . . . . . . . . . . . . . . . . . 13,399 United Kingdom (10.5%) Astec. . . . . . . . . . . . . . . . . . . . 457,000 900 Bank of Ireland. . . . . . . . . . . . . . . 401,055 2,652 British Airport Authority. . . . . . . . . . 200,000 1,637 CRH . . . . . . . . . . . . . . . . . . . . 173,700 1,527 Grand Metropolitan . . . . . . . . . . . . . 165,000 1,062 Grand Metropolitan ADR . . . . . . . . . . . 35,000 919 National Power . . . . . . . . . . . . . . . 407,000 2,900 Orange ADR*. . . . . . . . . . . . . . . . . 283,000 4,846 Rank Organisation. . . . . . . . . . . . . . 207,000 1,539 Total United Kingdom. . . . . . . . . . . . . . . . . . . 17,982 United States (1.1%) Comverse Technology* . . . . . . . . . . . . 80,700 1,947 Total United States . . . . . . . . . . . . . . . . . . . 1,947 - -------------------------------------------------------------------------------- Total Foreign Common Stocks (Cost $163,461,427). . . . . . . . . . . . . . . . . 170,551 - -------------------------------------------------------------------------------- Total Investments (99.8% of Net Assets) (Cost $163,461,427). . . . . . . . . . . . . . . . . $ 170,551 - --------------------------------------------------------------------------------
* Non-income producing security ADR - American Depository Receipt
STATEMENT OF ASSETS AND LIABILITIES (000) STI CLASSIC FUNDS MARCH 31, 1996 (UNAUDITED) -------------------- INTERNATIONAL EQUITY FUND -------------------- ASSETS: Investments at market value (Cost $163,461,427) $ 170,551 Cash and foreign currency 8,044 Receivables for investment securities sold 4,768 Receivables for capital shares sold 1,278 Other assets 300 ------------------------ Total assets 184,941 ------------------------ LIABILITIES: Payables for investment securities purchased 13,612 Payables for capital shares repurchased 193 Accrued expenses 252 ------------------------ Total liabilities 14,057 ------------------------ NET ASSETS: Fund shares of the Trust Class (unlimited authorization - no par value) based on 15,440,533 outstanding shares of beneficial interest 159,043 Fund shares of the Investor Class (unlimited authorization - no par value) based on 214,704 outstanding shares of beneficial interest 2,275 Fund shares of the Flex Class (unlimited authorization - no par value) based on 47,950 outstanding shares of beneficial interest 509 Accumulated net realized gain on investments 2,039 Accumulated net realized loss on foreign currency transactions (109) Undistributed net investment income 41 Net unrealized appreciation on investments 7,090 Net unrealized depreciation on foreign currency and translation of other assets and liabilities in foreign currency (4) ------------------------ Total net assets $ 170,884 ------------------------ ------------------------ Net Asset Value, Offering and Redemption Price Per Share - Trust Class $ 10.88 ------------------------ ------------------------ Net Asset Value and Redemption Price Per Share - Investor Class $ 10.87 ------------------------ ------------------------ Maximum Public Offering Price Per Share - Investor Class ($10.87/96.25%) $ 11.29 ------------------------ ------------------------ Net Asset Value, Offering and Redemption Price Per Share - Flex Class(1) $ 10.86 ------------------------ ------------------------
- ----------------------------------------------------------- (1) Flex Class has a contingent deferred sales charge. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
STATEMENT OF OPERATIONS (000) STI CLASSIC FUNDS FOR THE PERIOD ENDED MARCH 31, 1996 (UNAUDITED) ---------------- INTERNATIONAL EQUITY FUND (1) ---------------- INVESTMENT INCOME: Interest $ 127 Dividends 547 Less: Foreign taxes withheld (58) ----------------- Total investment income 616 ----------------- EXPENSES: Investment advisory fees 491 Investment advisory fees waived (100) Administration fees 28 Custody fees 67 Legal and audit fees 5 Printing fees 3 Organizational costs - Transfer agent fees 15 Registration and filing fees 59 Distributions fees - Investor 1 Distributions fees waived- Investor (1) Distribution fees - Flex 1 Distribution fees waived - Flex (1) Other fees 7 ----------------- Total expenses 575 ----------------- NET INVESTMENT INCOME 41 ----------------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain on securities sold 2,039 Net realized loss on foreign currency transactions (109) Net change in unrealized appreciation on investments 7,090 Net change in unrealized depreciation on foreign currency and translation of other assets and liabilities in foreign currency (4) ----------------- Total net realized and unrealized gain on investments 9,016 ----------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 9,057 ----------------- -----------------
- ---------------------------------------------------- 1 Commenced operations on December 1, 1995. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
STATEMENT OF CHANGES IN NET ASSETS (000) STI CLASSIC FUNDS FOR THE PERIOD ENDED MARCH 31, 1996 (UNAUDITED) ---------------- INTERNATIONAL EQUITY FUND 12/1/95 (1) to 3/31/96 ---------------- OPERATIONS: Net investment income $ 41 Net realized gain on investments and foreign currency transactions 1,930 Net change in unrealized appreciation of investments and foreign currency transactions 7,086 ---------------- Net increase in net assets resulting from operations 9,057 ---------------- SHARE TRANSACTIONS: Trust Class: Proceeds from shares issued 168,592 Shares issued in lieu of cash distributions - Cost of shares repurchased (9,549) ---------------- Increase in net assets derived from Institutional Class transactions 159,043 ---------------- Investor Class: Proceeds from shares issued 2,478 Shares issued in lieu of cash distributions - Cost of shares repurchased (203) ---------------- Increase in net assets derived from Retail Class transactions 2,275 ---------------- Flex Class: Proceeds from shares issued 511 Shares issued in lieu of cash distributions - Cost of shares repurchased (2) ---------------- Increase in net assets derived from Flex Class transactions 509 ---------------- Increase in net assets derived from capital share transactions 161,827 ---------------- Net increase in net assets 170,884 NET ASSETS: Beginning of period - ---------------- End of period $ 170,884 ---------------- ---------------- SHARES ISSUED AND REDEEMED: Trust Class: Shares issued 16,344 Shares issued in lieu of cash distributions - Shares repurchased (903) ---------------- Total Institutional Class transactions 15,441 ---------------- Investor Class: Shares issued 234 Shares issued in lieu of cash distributions - Shares repurchased (19) ---------------- Total Retail Class transactions 215 ---------------- Flex Class: Shares issued 48 Shares issued in lieu of cash distributions - Shares repurchased - ---------------- Total Flex Class transactions 48 ---------------- Increase in capital shares 15,704 ---------------- ----------------
- -------------------------- 1 Commenced operations on December 1, 1995. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. NOTES TO FINANCIAL STATEMENTS STI CLASSIC FUNDS MARCH 31, 1996 UNAUDITED STI INTERNATIONAL EQUITY FUND (1) ORGANIZATION The STI Classic Funds (the "Trust") was organized as a Massachusetts business trust under a Declaration of Trust dated January 15, 1992. The Trust is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The Trust presently consists of a series of nineteen portfolios which includes the International Equity Fund (the "Fund"). The Fund commenced operations on December 1, 1995. The other portfolios in the series which are not being reported at this time include the Prime Quality Money Market Fund, the U.S. Government Securities Money Market Fund, the Tax-Exempt Money Market Fund, the Investment Grade Bond Fund, the Investment Grade Tax-Exempt Bond Fund, the Short-Term U.S. Treasury Securities Fund, the Short-Term Bond Fund, the Capital Growth Fund, the Value Income Stock Fund, the Sunbelt Equity Fund, the Mid-Cap Equity Fund, the Balanced Fund, the Florida Tax-Exempt Bond Fund, the Georgia Tax-Exempt Bond Fund, the Tennessee Tax-Exempt Bond Fund, the U.S. Government Securities Fund, the Limited-Term Federal Mortgage Securities Fund, the International Equity Index Fund and the International Equity Fund. The assets of each portfolio are segregated, and a shareholder's interest is limited to the fund in which shares are held. (2) SIGNIFICANT ACCOUNTING POLICIES The significant accounting policies followed by the Fund are as follows: SECURITY VALUATION - Investment securities of the Fund which are listed on a securities exchange for which market quotations are readily available are valued at the last quoted sales price for such 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 last quoted bid price. Foreign securities are valued based upon quotations from the primary market in which they are traded. FEDERAL INCOME TAXES - It is the Fund's intention to qualify as a regulated investment company for Federal income tax purposes and distribute all of its taxable income and capital gains. Accordingly, no provision for Federal income taxes is required. SECURITY TRANSACTIONS AND RELATED INCOME - Security transactions are accounted for on the date the security is purchased or sold (trade date). Dividend income is recognized on the ex-dividend date, and interest income is recorded on the accrual basis. Cost used in determining realized gains and losses on the sales of investment securities are those of the specific securities sold. NET ASSET VALUE PER SHARE - The net asset value per share of the Fund is calculated on each business day, by dividing the total value of the fund's assets, less liabilities, by the number of shares outstanding. The maximum offering price per share for the Investor shares of the Fund is equal to the net asset value per share plus a sales load of 3.75%. NOTES TO FINANCIAL STATEMENTS STI CLASSIC FUNDS MARCH 31, 1996 UNAUDITED STI INTERNATIONAL EQUITY FUND FOREIGN CURRENCY TRANSLATION- The books and records of the Fund are maintained in U.S. dollars on the following basis: (I) market value of investment securities, assets and liabilities at the current rate of exchange; and (II) purchases and sales of investment securities, income and expenses at the relevant rates of exchange prevailing on the respective dates of such transactions. The Fund does not isolate that portion of gains and losses on investments in equity securities which is due to changes in the foreign exchange rates from that which is due to change in market prices of equity securities. The 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 - Expenses that are directly related to the Fund are charged directly to the Fund. Class specific expenses, such as the 12b-1 fees, are borne by that class. Other operating expenses of the Trust are prorated to the Funds on the basis of relative net asset value. Distributions from net investment income is declared and paid to shareholders annually. Any net realized capital gains on sales of securities are distributed to shareholders at least annually. (3) ORGANIZATION COSTS AND TRANSACTIONS WITH AFFILIATES: Organizational costs of approximately $10,000 have been capitalized by the Fund and are being amortized over sixty months commencing with operations. Certain officers of the Trust are also officers of SEI Financial Management Corporation (the "Administrator") and/or SEI Financial Services Company (the "Distributor"). Such officers are paid no fees by the Trust for serving as officers of the Trust. (4) ADMINISTRATION, TRANSFER AGENCY SERVICING AND DISTRIBUTIONS AGREEMENTS: The Trust and the Administrator are parties to an Administration agreement dated May 29, 1995, under which the Administrator provides administrative services for an annual fee (expressed as a percentage of the combined average daily net assets of the Trust and STI Variable Annuity Trust) of: .10% up to $1 billion, .07% on the next $4 billion, .05% on the next $3 billion, .045% on the next $2 billion and .04% for over $10 billion. The Trust and Federated Services Company are parties to a Transfer Agency servicing agreement dated May 14, 1994 under which Federated Services Company provides transfer agency services to the Trust. The Trust and the Distributor are parties to a Distribution Agreement (12b-1 Plan) dated May 29, 1995. The Distributor will receive no fees for its distribution services under this agreement for the Trust Shares of the Fund. With respect to the Investor Shares and Flex Shares, the Distributor receives an amounts, pursuant to a Distribution Plan and (in the case of Flex Shares) a Service Plan, as outlined in the table in footnote 5 under column titled "Distribution Fee". NOTES TO FINANCIAL STATEMENTS STI CLASSIC FUNDS MARCH 31, 1996 UNAUDITED STI INTERNATIONAL EQUITY FUND (5) INVESTMENT ADVISORY AGREEMENT: The Trust and SunBank Capital Management, N.A. have entered into an advisory agreement dated May 29, 1992. Under terms of the agreement, the Fund is charged the following annual fees based upon average net assets:
MAXIMUM FLEX MAXIMUM SHARE MAXIMUM TRUST INVESTOR INVESTOR DISTRIBUTION FLEX ANNUAL SHARE SHARE SHARE AND SHARE ADVISORY MAXIMUM DISTRI- MAXIMUM SERVICE MAXIMUM FEE EXPENSE BUTION FEE EXPENSE FEE EXPENSE ----- ------- ---------- ------- --- ------- International Equity Fund 1.25% 1.46% .33% 1.81% 1.00% 2.51%
The Investment Advisor, the Administrator and the Distributor have voluntarily agreed to waive all or a portion of their fees (and to reimburse Funds' expenses) in order to limit operating expenses to an amount as outlined in the table above. Fee waivers and expense reimbursements are voluntary and may be terminated at any time. (6) INVESTMENT TRANSACTIONS During the period December 1, 1995 to March 31, 1996 the cost of purchases and the proceeds from sales of securities, other than temporary investments in short-term securities were as follows:
U.S. GOVERNMENT SECURITIES OTHER INVESTMENT SECURITIES --------------------------- ---------------------------- PURCHASES (000) SALES (000) PURCHASES (000) SALES (000) --------------- ----------- --------------- ----------- International Equity Fund --- --- $210,703 $145,930
At March 31, 1996, 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 Fund at March 31, 1996 is as follows (000):
INTERNATIONAL EQUITY FUND ------------------------- Aggregate gross unrealized appreciation $ 9,029 Aggregate gross unrealized depreciation (1,939) ------ Net unrealized appreciation $ 7,090 -----
STI CLASSIC FUNDS Investment Advisor: SunBank 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 International Equity Fund prospectus dated October 31, 1995. Prospectuses may be obtained through the Distributor, SEI Financial Services Company, 680 E. Swedesford Road, Wayne, PA 19087-1658. TABLE OF CONTENTS
PAGE THE TRUST. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .B-2 DESCRIPTION OF PERMITTED INVESTMENTS . . . . . . . . . . . . . . . .B-2 INVESTMENT LIMITATIONS . . . . . . . . . . . . . . . . . . . . . . .B-9 INVESTMENT ADVISORS. . . . . . . . . . . . . . . . . . . . . . . . B-11 THE ADMINISTRATOR. . . . . . . . . . . . . . . . . . . . . . . . . B-12 THE DISTRIBUTOR. . . . . . . . . . . . . . . . . . . . . . . . . . B-13 TRUSTEES AND OFFICERS OF THE TRUST . . . . . . . . . . . . . . . . B-14 COMPUTATION OF YIELD . . . . . . . . . . . . . . . . . . . . . . . B-16 CALCULATION OF TOTAL RETURN. . . . . . . . . . . . . . . . . . . . B-17 PURCHASE AND REDEMPTION OF SHARES. . . . . . . . . . . . . . . . . B-17 DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . . . . . . . B-18 TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-18 FUND TRANSACTIONS. . . . . . . . . . . . . . . . . . . . . . . . . B-20 TRADING PRACTICES AND BROKERAGE. . . . . . . . . . . . . . . . . . B-20 DESCRIPTION OF SHARES. . . . . . . . . . . . . . . . . . . . . . . B-22 SHAREHOLDER LIABILITY. . . . . . . . . . . . . . . . . . . . . . . B-22 LIMITATION OF TRUSTEES' LIABILITY. . . . . . . . . . . . . . . . . B-22 EXPERTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-23
October 31, 1995 THE TRUST STI Classic Funds is a diversified, open-end management investment company established under Massachusetts law as a Massachusetts Business Trust under a Declaration of Trust dated January 15, 1992. The Declaration of Trust permits the Trust to offer separate series ("Funds") of units of beneficial interest ("shares") and different classes of shares of each Fund. Shareholders at present may purchase shares through three separate classes (Trust Shares, Investor Shares and Flex Shares), which provide for variations in distribution costs, voting rights and dividends. Except for these differences, each Trust Share, Investor Share and Flex Share of each Fund represents an equal proportionate interest in that portfolio. See "Description of Shares." This Statement of Additional Information relates to the Trust Shares, Investor Shares and Flex Shares of the Trust's International Equity Fund (the "Fund"). DESCRIPTION OF PERMITTED INVESTMENTS VARIABLE RATE MASTER DEMAND NOTES The Fund may invest in variable rate master demand notes which may or may not be backed by bank letters of credit. These notes permit the investment of fluctuating amounts at varying market rates of interest pursuant to direct arrangements between the Fund, as lender, and the borrower. Such notes provide that the interest rate on the amount outstanding varies on a daily, weekly or monthly basis depending upon a stated short-term interest rate index. Both the lender and the borrower have the right to reduce the amount of outstanding indebtedness at any time. There is no secondary market for the notes and it is not generally contemplated that such instruments will be traded. The quality of the note or the underlying credit must, in the opinion of the Advisor, be equivalent to the ratings applicable to permitted investments for each Fund. The Advisor will monitor on an ongoing basis the earning power, cash flow and liquidity ratios of the issuers of such instruments and will similarly monitor the ability of an issuer of a demand instrument to pay principal and interest on demand. STRIPS The Fund may invest in Separately Traded Interest and Principal Securities ("STRIPS"), which are component parts of U.S. Treasury Securities traded through the Federal Book-Entry System. The Advisor will only purchase STRIPS that it determines are liquid or, if illiquid, do not violate each Fund's investment policy concerning investments in illiquid securities. U.S. GOVERNMENT AGENCY SECURITIES Certain investments of the Fund may include U.S. Government Agency Securities. Agencies of the United States Government which issue obligations consist of, among others, the Export Import Bank of the United States, Farmers Home Administration, Federal Farm Credit Bank, Federal Housing Administration, Government National Mortgage Association ("GNMA"), Maritime Administration, Small Business Administration, and The Tennessee Valley Authority. B-2 Obligations of instrumentalities of the United States Government include securities issued by, among others, Federal Home Loan Banks, Federal Home Loan Mortgage Corporation ("FHLMC"), Federal Intermediate Credit Banks, Federal Land Banks, Federal National Mortgage Association ("FNMA") and the United States Postal Service as well as government trust certificates. Some of these securities are supported by the full faith and credit of the United States Treasury (e.g., GNMA), others are supported by the right of the issuer to borrow from the Treasury and still others are supported only by the credit of the instrumentality (e.g., FNMA). Guarantees of principal by agencies or instrumentalities of the U.S. Government may be a guarantee of payment at the maturity of the obligation so that in the event of a default prior to maturity there might not be a market and thus no means of realizing the value of the obligation prior to maturity. REPURCHASE AGREEMENTS The Fund may enter into repurchase agreements. Repurchase agreements are agreements by which a person (e.g., a Fund) obtains a security and simultaneously commits to return the security to the seller (a primary securities dealer as recognized by the Federal Reserve Bank of New York or a national member bank as defined in Section 3(d)(1) of the Federal Deposit Insurance Act, as amended) at an agreed upon price (including principal and interest) on an agreed upon date within a number of days (usually not more than seven) from the date of purchase. The resale price reflects the purchase price plus an agreed upon market rate of interest which is unrelated to the coupon rate or maturity of the underlying security. A repurchase agreement involves the obligation of the seller to pay the agreed upon price, which obligation is in effect secured by the value of the underlying security. Repurchase agreements are considered to be loans by the Fund for purposes of its investment limitations. The repurchase agreements entered into by the Fund will provide that the underlying security at all times shall have a value at least equal to 102% of the resale price stated in the agreement (the Advisor monitors compliance with this requirement). Under all repurchase agreements entered into by the Fund, the Custodian or its agent must take possession of the underlying collateral. However, if the seller defaults, the Fund could realize a loss on the sale of the underlying security to the extent that the proceeds of the sale including accrued interest are less than the resale price provided in the agreement including interest. In addition, even though the Bankruptcy Code provides protection for most repurchase agreements, if the seller should be involved in bankruptcy or insolvency proceedings, the Fund may incur delay and costs in selling the underlying security or may suffer a loss of principal and interest if the Fund is treated as an unsecured creditor and required to return the underlying security to the seller's estate. WHEN-ISSUED SECURITIES The Fund may purchase securities on a when-issued basis, in which case delivery and payment normally take place within 45 days after the date of commitment to purchase. The Fund will only make commitments to purchase obligations on a when-issued basis with the B-3 intention of actually acquiring the securities, but may sell them before the settlement date. The when-issued securities are subject to market fluctuation, and no interest accrues on the security to the purchaser during this period. The payment obligation and the interest rate that will be received on the securities are each fixed at the time the purchaser enters into the commitment. Purchasing obligations on a when-issued basis is a form of leveraging and can involve a risk that the yields available in the market when the delivery takes place may actually be higher than those obtained in the transaction itself. In that case there could be an unrealized loss at the time of delivery. Segregated accounts will be established with the Custodian, and the Fund will maintain high quality, liquid assets in an amount at least equal in value to the Fund's commitments to purchase when-issued securities. If the value of these assets declines, the Fund will place additional liquid assets in the account on a daily basis so that the value of the assets in the account is equal to the amount of such commitments. 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 includes restricted securities, and the Fund may invest up to 15% of its total 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 1933 Act Rule 144A, that are determined to be liquid are not subject to this limitation. This determination is to be made by the Fund's Advisor pursuant to guidelines adopted by the Board of Trustees. Under these guidelines, the Advisor will consider the frequency of trades and quotes for the security, the number of dealers in, and potential purchasers for, the securities, dealer undertakings to make a market in the security, and the nature of the security and of the marketplace trades. In purchasing such Restricted Securities, the Advisor intends to purchase securities that are exempt from registration under Rule 144A under the 1933 Act. SECURITIES LENDING The Fund may lend securities pursuant to agreements requiring that the loans be continuously secured by cash, securities of the U.S. Government or its agencies, or any combination of cash and such securities, as collateral equal to 100% of the market value at all times of the securities lent. Such loans will not be made if, as a result, the aggregate amount of all outstanding securities loans for the Fund exceed one-third of the value of the Fund's total assets taken at fair market value. The Fund will continue to receive interest on the securities lent while simultaneously earning interest on the investment of the cash collateral in U.S. Government securities. However, the Fund will normally pay lending fees to such broker-dealers and related expenses from the interest earned on invested collateral. There may be risks of delay in receiving additional collateral or risks of delay in recovery of the securities or even loss of rights in the collateral should the borrower of the securities fail B-4 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 Fund may use the Distributor or a broker-dealer affiliate of the Advisor as a broker in these transactions. FUTURES CONTRACTS AND OPTIONS ON FUTURES The Fund may invest in futures contracts and options on futures. Although futures contracts by their terms call for actual delivery or acceptance of the underlying securities, in most cases the contracts are closed out before the settlement date without the making or taking of delivery. Closing out an open futures position is done by taking an opposite position ("buying" a contract which has previously been "sold" or "selling" a contract previously "purchased") in an identical contract to terminate the position. Brokerage commissions are incurred when a futures contract is bought or sold. Futures traders are required to make a good faith margin deposit in cash or government securities with or for the account of a broker or custodian to initiate and maintain open positions in futures contracts. A margin deposit is intended to assure completion of the contract (delivery or acceptance of the underlying security) if it is not terminated prior to the specified delivery date. Minimal initial margin requirements are established by the futures exchange and may be changed. Brokers may establish deposit requirements which are higher than the exchange minimums. Deposit requirements on futures contracts customarily range upward from less than 5% of the value of the contract being traded. After a futures contract position is opened, the value of the contract is marked to market daily. If the futures contract price changes to the extent that the margin on deposit does not satisfy the required margin, payment of additional "variation" margin will be required. Conversely, changes in the contract value may reduce the required margin, resulting in a repayment of excess margin to the contract holder. Variation margin payments are made to and from the futures broker for as long as the contract remains open. The Fund expects to earn interest income on their margin deposits. Traders in futures contracts and related options may be broadly classified as either "hedgers" or "speculators." Hedgers use the futures markets primarily to offset unfavorable changes in the value of securities otherwise held or expected to be acquired for investment purposes. Speculators are less inclined to own the securities underlying the futures contracts which they trade, and use futures contracts with the expectation of realizing profits from fluctuations in the prices of underlying securities. The Fund intends to use futures contracts and related options only for bona fide hedging purposes. Regulations of the Commodity Futures Trading Commission applicable to the Fund require that all of the futures transactions and related options constitute bona fide hedging transactions. The Fund will only sell futures contracts to protect securities they own against B-5 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, the 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 Fund's exposure to market fluctuations, the use of futures contracts may be a more effective means of hedging this exposure. While the Fund 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, the Fund would continue to be required to make daily cash payments to maintain its required margin. In such situations, if the Fund has insufficient cash, it may have to sell portfolio securities to meet daily margin requirements at a time when it may be disadvantageous to do so. In addition, the Fund may be required to make delivery of the instruments underlying 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 Fund will minimize the risk that it will be unable to close out a futures contract by entering into futures contracts only if they are traded on national futures exchanges and for which there appears to be a liquid secondary market. The risk of loss in trading futures contracts can be substantial, due both to the low margin deposits required and the extremely high degree of leverage involved in futures pricing. As a result, a relatively small price movement in a futures contract may result in immediate and substantial loss (or gain) to a Fund. For example, if at the time of purchase, 10% of the value of the futures contract is deposited as margin, a subsequent 10% decrease in the value of the futures contract would result in a total loss of the margin deposit, before any deduction for the transaction costs, if the account were then closed out. A 15% decrease would result in a loss equal to 150% of the original margin deposit if the contract were closed out. Thus, a purchase or sale of a futures contract may result in losses in excess of the amount invested in the contract. However, because the Fund will be engaged in futures transactions only for hedging purposes, the Advisor does not believe that the Fund will generally be subject to the risks of loss frequently associated with futures transactions. The Fund presumably would have sustained comparable losses if, instead of the futures contract, they had invested in the underlying financial instrument and sold it after the decline. The risk of B-6 loss from the purchase of options is less as compared with the purchase or sale of futures contracts because the maximum amount at risk is the premium paid for the option. Utilization of futures transactions by the Fund does involve the risk of imperfect or no correlation where the securities underlying futures contracts have different maturities than the fund securities being hedged. It is also possible that the Fund could both lose money on futures contracts and experience a decline in value of its fund securities. There is also the risk of loss by the Funds of margin deposits in the event of the bankruptcy of a broker with whom the Fund has an open position in a futures contract or related option. Most futures exchanges limit the amount of fluctuation permitted in futures contract prices during a single trading day. The daily limit establishes the maximum amount that the price of a futures contract may vary either up or down from the previous day's settlement price at the end of a trading session. Once the daily limit has been reached in a particular type of contract, no trades may be made on that day at a price beyond that limit. The daily limit governs only price movement during a particular trading day and therefore does not limit potential losses because the limit may prevent the liquidation of unfavorable positions. Futures contract prices have occasionally moved to the daily limit for several consecutive trading days with little or no trading, thereby preventing prompt liquidation of future positions and subjecting some futures traders to substantial losses. OPTIONS The Fund will not engage in option writing strategies for speculative purposes. A call option gives the purchaser of such option the right to buy, and the writer, in this case the Fund, the obligation to sell the underlying security at the exercise price during the option period. The advantage to the Fund of writing covered calls is that the Fund receives a premium which is additional income. However, if the security rises in value, the Fund may not fully participate in the market appreciation. During the option period, a covered call option writer may be assigned an exercise notice by the broker-dealer through whom such call option was sold requiring the writer to deliver the underlying security against payment of the exercise price. This obligation is terminated upon the expiration of the option period or at such earlier time in which the writer effects a closing purchase transaction. A closing purchase transaction is one in which the Fund, when obligated as a writer of an option, terminates its obligation by purchasing an option of the same series as the option previously written. A closing purchase transaction cannot be effected with respect to an option once the option writer has received an exercise notice for such option. Closing purchase transactions will ordinarily be effected to realize a profit on an outstanding call option, to prevent an underlying security from being called, to permit the sale of the underlying security or to enable Fund to write another call option on the underlying security B-7 with either a different exercise price or expiration date or both. The Fund may realize a net gain or loss from a closing purchase transaction depending upon whether the net amount of the original premium received on the call option is more or less than the cost of effecting the closing purchase transaction. Any loss incurred in a closing purchase transaction may be partially or entirely offset by the premium received from a sale of a different call option on the same underlying security. Such a loss may also be wholly or partially offset by unrealized appreciation in the market value of the underlying security. Conversely, a gain resulting from a decline in the market value of the underlying security. If a call option expires unexercised, the Fund will realize a short-term capital gain in the amount of the premium on the option, less the commission paid. Such a gain, however, may be offset by depreciation in the market value of the underlying security during the option period. If a call option is exercised, the Fund will realize a gain or loss from the sale of the underlying security equal to the difference between the cost of the underlying security, and the proceeds of the sale of the security plus the amount of the premium on the option, less the commission paid. The market value of a call option generally reflects the market price of an underlying security. Other principal factors affecting market value include supply and demand, interest rates, the price volatility of the underlying security and the time remaining until the expiration date. The Fund will write call options only on a covered basis, which means that the Fund will own the underlying security subject to a call option at all times during the option period. Unless a closing purchase transaction is effected, the Fund would be required to continue to hold a security which it might otherwise wish to sell, or deliver a security it would want to hold. Options written by the Fund will normally have expiration dates 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 The Fund will invest primarily in certain obligations or securities of foreign issuers. Possible 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, and foreign securities. 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 B-8 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, the Fund attempts to take advantage of differences between both economic trends and the performance of securities markets in the various countries, regions and geographic areas as prescribed by the Fund's investment objective and policies. During certain periods the investment return on securities in some or all countries may exceed the return on similar investments in the United States, while at other times the investment return may be less than that on similar U.S. securities. Shares of the Fund, when included in appropriate amounts in a portfolio otherwise consisting of domestic securities, may provide a source of increased diversification. The 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 the Fund's investments in another country's markets. SHARES OF OTHER INVESTMENT COMPANIES The Fund's purchase of investment company shares will result in the layering of expenses. The Fund is prohibited from acquiring the securities of other investment companies if, as a result of such acquisition, the Fund owns in the aggregate (1) more than 3% of the total outstanding voting stock of the acquired company, (2) securities issued by the acquired company having an aggregate value of 5% of the value of the total assets of the Fund, or (3) securities issued by the acquired company and all other investment companies having an aggregate value in excess of 10% of the value of the total assets of the Fund. OTHER INVESTMENTS The Trust is not prohibited from investing in obligations of banks which are clients of SEI Corporation ("SEI"), the parent company of the Administrator and the Distributor. However, the purchase of shares of the Trust by such banks or by their customers will not be a consideration in determining which bank obligations the Trust will purchase. The Trust will not purchase obligations issued by the Advisor. INVESTMENT LIMITATIONS The following are fundamental policies of the International Equity Fund and cannot be changed with respect to the Fund without the consent of the holders of a majority of the Fund's outstanding shares. B-9 The Fund may not: 1. Acquire more than 10% of the voting securities of any one issuer. 2. Invest in companies for the purpose of exercising control. 3. Borrow money except for temporary or emergency purposes and then only in an amount not exceeding one-third of the value of total assets. Any borrowing will be done from a bank and, to the extent that such borrowing exceeds 5% of the value of the Fund's assets, asset coverage of at least 300% is required. In the event that such asset coverage shall at any time fall below 300%, the Fund shall, within three days thereafter or such longer period as the Securities and Exchange Commission ("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) the Fund may purchase or hold debt instruments in accordance with its investment objective and policies; (b) the Fund may enter into repurchase agreements, and (c) the Fund may engage in securities lending as described in the 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 and interests in a pool of securities that are secured by interests in real estate. However, subject to the permitted investment spectrum, the 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. 8. Act as an underwriter of securities of other issuers except as it may be deemed an underwriter in selling a security. B-10 9. Issue senior securities (as defined in the 1940 Act) except in connection with permitted borrowings as described above or as permitted by rule, regulation or order of the SEC. NON-FUNDAMENTAL POLICIES The Fund may not purchase or retain securities of an issuer if, to the knowledge of the Trust, an officer, trustee, partner or director of the Trust or any investment advisor of the Trust owns beneficially more than 1/2 of 1% of the shares or securities of such issuer and all such officers, trustees, partners and directors owning more than 1/2 of 1% of such shares or securities together own more than 5% of such shares or securities. The Fund may not invest in warrants except that the Fund may invest in warrants in an amount not exceeding 5% of the Fund's net assets as valued at the lower of cost or market value. Included in that amount, but not to exceed 2% of the Fund's net assets, may be warrants not listed on the New York Stock Exchange or American Stock Exchange. The Fund may not invest in illiquid securities in an amount exceeding, in the aggregate, 15% of the Fund's assets. An illiquid security is a security which cannot be disposed of promptly (within seven days), and in the usual course of business without a loss, and includes repurchase agreements maturing in excess of seven days, time deposits with a withdrawal penalty, non-negotiable instruments and instruments for which no market exists. The Fund may invest in interests in oil, gas or other mineral exploration or development programs and oil, gas or mineral leases. The Fund may write or purchase puts, calls, options or combinations thereof, except that the Fund may write covered call options with respect to any or all parts of the Fund securities and engage in futures transactions, and the Fund may purchase putable securities. The Fund may sell options previously purchased and enter into closing transactions with respect to covered call options. The Fund may not invest in securities of issuers which together with predecessors have a record of less than three years continuous operation or equity securities of issuers which are not readily marketable if such investments will exceed 5% of the Fund's total assets. With the exception of the limitations on liquidity standards, the foregoing percentages will apply at the time of the purchase of a security and shall not be considered violated unless an excess occurs or exists immediately after and as a result of a purchase of such security. INVESTMENT ADVISORS The Trust and SunBank Capital Management, N.A. (the "Advisor") have entered into an advisory agreement with the Trust (the "Advisory Agreement"). The Advisory Agreement B-11 provides that the Advisor shall not be protected against any liability to the Trust or its Shareholders by reason of willful misfeasance, bad faith or gross negligence on its part in the performance of its duties or from reckless disregard of its obligations or duties thereunder. The Advisory Agreement provides that if, for any fiscal year, the ratio of expenses of any Fund (including amounts payable to an Advisor but excluding interest, taxes, brokerage, litigation, and other extraordinary expenses) exceeds limitations established by certain states, the Advisor and/or the Administrator will bear the amount of such excess. The Advisor will not be required to bear expenses of the Trust to an extent which would result in a Fund's inability to qualify as a regulated investment company under provisions of the Internal Revenue Code. The continuance of the Advisory Agreement, after the first two years, must be specifically approved at least annually (i) by the vote of the Trustees, and (ii) by the vote of a majority of the Trustees who are not parties to each Agreement or "interested persons" of any party thereto, cast in person at a meeting called for the purpose of voting on such approval. The Advisory Agreement will terminate automatically in the event of its assignment, and is terminable at any time without penalty by the Trustees of the Trust or, with respect to the Fund, by a majority of the outstanding shares of the Fund, on not less than 30 days nor more than 60 days written notice to the Advisor, or by the Advisor on 90 days written notice to the Trust. THE ADMINISTRATOR The Trust and SEI Financial Management Corporation (the "Administrator"), a wholly-owned subsidiary of SEI have entered into an Administration Agreement (the "Administration Agreement"). The Administration Agreement provides that the Administrator shall not be liable for any error of judgment or mistake of law or for any loss suffered by the Trust in connection with the matters to which the Administration Agreement relates, except a loss resulting from willful misfeasance, bad faith or gross negligence on the part of the Administrator in the performance of its duties or from reckless disregard by it of its duties and obligations thereunder. The Administrator, a wholly-owned subsidiary of SEI Corporation ("SEI"), was organized as a Delaware corporation in 1969 and has its principal business offices at 680 East Swedesford Road, Wayne, PA 19087. Alfred P. West, Jr., Henry H. Greer, and Carmen V. Romeo constitute the Board of Directors of the Administrator. Mr. West is the Chairman of the Board and Chief Executive Officer of the Administrator and of SEI. SEI and its subsidiaries are leading providers of funds evaluation services, trust accounting systems, and brokerage and information services to financial institutions, institutional investors and money managers. The Administrator also serves as administrator to the following other institutional mutual funds: 1784 Funds; The Achievement Funds Trust; The Advisors' Inner Circle Fund; The Arbor Fund; Bishop Street Funds; The Compass Capital Group; Conestoga Family of Funds; CoreFunds, Inc.; CrestFunds, Inc.; CUFund; FFB Lexicon Funds; First American Investment B-12 Funds, Inc.; First American Funds; Insurance Investment Products Trust; Inventor Funds, Inc.; MarquisSM Funds; Morgan Grenfell Investment Trust; The PBHG Funds, Inc.; The Pillar Funds; Rembrandt FundsR; SEI Liquid Asset Trust; SEI International Trust; SEI Institutional Managed Trust; SEI Index Funds; SEI Tax Exempt Trust; SEI Daily Income Trust; and Stepstone Funds. THE DISTRIBUTOR SEI Financial Services Company (the "Distributor"), a wholly-owned subsidiary of SEI, and the Trust are parties to a distribution agreement ("Distribution Agreement") dated May 29, 1992 which applies to Trust Shares, Investor Shares and Flex Shares of the Fund. The Distributor will receive no compensation for distribution of Trust Shares. In addition, the Investor Shares of the Fund have a distribution plan ("Investor Plan"), and the Flex Shares of the Fund have a distribution plan ("Flex Plan"). The Distribution Agreement is renewable annually and may be terminated by the Distributor, the Qualified Trustees, or by a majority vote of the outstanding securities of the Trust upon not more than 60 days written notice by either party. INVESTOR SHARES AND FLEX SHARES DISTRIBUTION PLANS The Distribution Agreement and the Investor Plan adopted by the Trust provide that the Investor Shares Fund will pay the Distributor a fee of up to .33% of the average daily net assets of the Fund. The Distribution Agreement and the Flex Plan adopted by the Trust provide that each Flex Shares Fund will pay the Distributor a fee of up to .75% of the average daily net assets of the Fund. The Distributor can use these fees to compensate broker-dealers and service providers, including SunTrust and its affiliates, which provide administrative and/or distribution services to Investor Shares or Flex Shares Shareholders or their customers who beneficially own Investor Shares or Flex Shares. In addition, Flex Shares are subject to a service fee of up to .25% of the average daily net assets of the Flex Shares of the Fund. This service fee will be used for services provided and expenses incurred in maintaining shareholder accounts, responding to shareholder inquiries and providing information on their investments. These services for which broker-dealers and service providers may be compensated may include establishing and maintaining customer accounts and records; aggregating and processing purchase and redemption requests from customers; placing net purchase and redemption orders with the Distributor; automatically investing customer account cash balances; providing periodic statements to customers; arranging for wires; answering customer inquiries concerning their investments; assisting customers in changing dividend options, account designations, and addresses; performing sub-accounting functions; processing dividend payments from the Trust on behalf of customers; and forwarding Shareholder communications from the Trust (such as proxies, Shareholder reports, and dividend distribution, and tax notices) to these customers with respect to investments in the B-13 Trust. Certain state securities laws may require those financial institutions providing such distribution services to register as dealers pursuant to state law. Although banking laws and regulations prohibit banks from distributing shares of open-end investment companies such as the Trust, according to an opinion issued to the staff of the SEC by the Office of the Comptroller of the Currency, financial institutions are not prohibited from acting in other capacities for investment companies, such as providing shareholder services. Should future legislative, judicial or administrative action prohibit or restrict the activities of financial institutions in connection with providing shareholder services, the Trust may be required to alter materially or discontinue its arrangements with such financial institutions. The Trust has adopted the Investor Plan and the Flex Plan in each case in accordance with the provisions of Rule 12b-1 under the 1940 Act which regulates circumstances under which an investment company may directly or indirectly bear expenses relating to the distribution of its shares. Continuance of the Investor Plan and the Flex Plan must be approved annually by a majority of the Trustees of the Trust and by a majority of the Qualified Trustees. The Investor Plan and the Flex Plan require that quarterly written reports of amounts spent under the Investor Plan and the Flex Plan and the purposes of such expenditures be furnished to and reviewed by the Trustees. The Investor Plan and the Flex Plan may not be amended to increase materially the amount which may be spent thereunder without approval by a majority of the outstanding shares of the Trust. All material amendments of the Plans will require approval by a majority of the Trustees of the Trust and of the Qualified Trustees. None of the Flex Shares incur a sales charge when they are purchased, but Flex Shares are subject to a sales charge if they are redeemed within one year of purchase. Pursuant to the Distribution Agreement and the Flex Plan, Flex Shares are subject to an ongoing distribution and service fee calculated on the Fund's, aggregate average daily net assets attributable to its Flex Shares. TRUSTEES AND OFFICERS OF THE TRUST The management and affairs of the Trust are supervised by the Trustees under the laws governing business trusts in the Commonwealth of Massachusetts. The Trustees and executive officers of the Trust and their principal occupations for the last five years are set forth below. DANIEL S. GOODRUM - Trustee - 48 Cayuga Road, Fort Lauderdale, FL 33308. Chairman & CEO, SunBank/South Florida, N.A. from 1985 to 1991; Chairman Audit Committee and Director, Holy Cross Hospital; Executive Committee Member and Director, Honda Classic Foundation; Director, Broward Community College Foundation. WILTON LOONEY - Trustee - 2999 Circle 75 Parkway, Atlanta, GA 30339. President of Genuine Parts Company from 1961-1964; Chairman of the Board 1964-1990; Honorary Chairman of the Board from 1990 to present. Rollins, Inc.; RPC Energy Services, Inc. B-14 CHAMPNEY A. MCNAIR - Trustee - 1405 Trust Co. of Georgia Building, Atlanta, GA 30303. Director and Chairman of Investment Committee and member of Executive Committee, Cotton States Life and Health Insurance Company; Director and Chairman of Investment Committee and member of Executive Committee, Cotton States Mutual Insurance Company; Chairman, Trust Company of Georgia Advisory Council. F. WENDELL GOOCH - Trustee - P.O. Box 190, Paoli, IN 47454. President, Orange County Publishing Co., Inc., since October 1981. Publisher of the Paoli News and the Paoli Republican and Editor of the Paoli Republican since January 1981, President, H & W Distribution, Inc. since July 1984. Current Trustee on the Board of Trustees for the SEI Family of Funds and The Capitol Mutual Funds. Executive Vice President, Trust Department, Harris Trust and Savings Bank and Chairman of the Board of Directors of The Harris Trust Company of Arizona before January 1981. T. GORDY GERMANY - Trustee - Retired President, Chairman, and CEO of Crawford & Company; held these positions from 1973 to 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 - 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 from 1983-1988. JESSE S. HALL - Trustee* - 988 Winall Down Road, NE, Atlanta, GA 30318. Executive Vice President, SunTrust Banks, Inc. from 1985 to 1994; Director of Crawford & Company since 1979; Member, Atlanta Estate Planning Council from 1988 to 1993. DAVID G. LEE - President, Chief Executive Officer - Senior Vice President of the Administrator and Distributor since 1993. Vice President of the Administrator and Distributor (1991-1993). President, GW Sierra Trust Funds before 1991. CARMEN V. ROMEO - Treasurer, Assistant Secretary - Director, Executive Vice President, Chief Financial Officer and Treasurer of SEI. Director and Treasurer of the Administrator and Distributor since 1981. RICHARD W. GRANT - Secretary - 2000 One Logan Square, Philadelphia, PA 19103, Partner of Morgan, Lewis & Bockius LLP (law firm), Counsel to the Trust, Administrator and Distributor. B-15 SANDRA K. ORLOW - Vice President, Assistant Secretary - Vice President and Assistant Secretary of the Administrator and Distributor since 1983. KEVIN P. ROBINS - Vice President, Assistant Secretary - Senior Vice President & General Counsel of SEI, the Administrator and the Distributor since 1994. Vice President of SEI, the Administrator and the Distributor 1992-1994. Associate, (law firm) prior to 1992. KATHRYN L. STANTON - Vice President, Assistant Secretary - Vice President, Assistant Secretary of SEI, the Administrator and Distributor since 1994. Associate, (law firm) 1989-1994. ROBERT B. CARROLL - Vice President, Assistant Secretary - Vice President, Assistant Secretary of SEI, the Administrator and Distributor since 1994. United States Securities and Exchange Commission, Division of Investment Management, 1990-1994. Associate, McGuire, Woods, Battle & Boothe (law firm) before 1990. The Trustees and officers of the Trust own less than 1% of the outstanding shares of the Trust. - ------------------ * Jesse S. Hall may be deemed to be an "interested person" of the Trust as defined in the Investment Company Act of 1940. COMPUTATION OF YIELD The current yield of the Fund will be calculated daily based upon the seven days ending on the date of calculation ("base period"). The yield is computed by determining the net change (exclusive of capital changes) in the value of a hypothetical pre-existing shareholder account having a balance of one share at the beginning of the period, subtracting a hypothetical charge reflecting deductions from shareholder accounts, and dividing such net change by the value of the account at the beginning of the same period to obtain the base period return and multiplying the result by (365/7). Realized and unrealized gains and losses are not included in the calculation of the yield. The effective compound yield of the Fund is determined by computing the net change, exclusive of capital changes, in the value of a hypothetical pre-existing account having a balance of one share at the beginning of the period, subtracting a hypothetical charge reflecting deductions from shareholder accounts, and dividing the difference by the value of the account at the beginning of the base period to obtain the base period return, and then compounding the base period return by adding 1, raising the sum to a power equal to 365 divided by 7, and subtracting 1 from the result, according to the following formula: Effective Yield = [Base Period Return + 1) 365/7] - - 1. The current and the effective yields reflect the reinvestment of net income earned daily on portfolio assets. B-16 The yield of the Fund fluctuates, and the annualization of a week's dividend is not a representation by the Trust as to what an investment in the Fund will actually yield in the future. Actual yields will depend on such variables as asset quality, average asset maturity, the type of instruments the Fund invests in, changes in interest rates on money market instruments, changes in the expenses of the Fund and other factors. CALCULATION OF TOTAL RETURN From time to time, the Fund may advertise total return. In particular, total return will be calculated according to the following formula: P (1 + T)n = ERV, where P = a hypothetical initial payment of $1,000; T = average annual total return; n = number of years; and ERV = ending redeemable value of a hypothetical $1,000 payment made at the beginning of the designated time period as of the end of such period. From time to time, the Trust may include the names of clients of the Advisor in advertisements and/or sales literature for the Trust. The SEI Funds Evaluation database tracks the total return of numerous tax-exempt pension accounts. The range of returns in these accounts determines the percentile rankings. SunBank 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. PURCHASE AND REDEMPTION OF SHARES It is currently the Trust's policy to pay for all redemptions in cash. The Trust retains the right, however, to alter this policy to provide for redemptions in whole or in part by a distribution in-kind of readily marketable securities held by the Fund in lieu of cash. Shareholders may incur brokerage charges on the sale of any such securities so received in payment of redemptions. A Shareholder will at all times be entitled to aggregate cash redemptions from the Fund 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 is restricted, or during the existence of an emergency (as determined by the Securities and Exchange Commission by rule or regulation) as a result of disposal or valuation of a Fund's securities is not reasonably practicable, or for such other periods as the Securities and Exchange Commission has by order permitted. The Trust also reserves the right to suspend sales of shares of the Fund for any period during which the New York Stock Exchange, an Advisor, the Administrator and/or the Custodian are not open for business. Investors will receive written notification at least thirty days prior to any change in the Fund's investment objective. B-17 Certain state securities laws may require those financial institutions providing certain distribution services to the Trust to register as dealers pursuant to state law. DETERMINATION OF NET ASSET VALUE The securities of the Fund are valued by the Administrator pursuant to valuations provided by an independent pricing service. The pricing service relies primarily on prices of actual market transactions as well as trader quotations. However, the service may also use a matrix system to determine valuations of fixed income securities, which system considers such factors as security prices, yields, maturities, call features, ratings and developments relating to specific securities in arriving at valuations. The procedures of the pricing service and its valuations are reviewed by the officers of the Trust under the general supervision of the Trustees. TAXES FEDERAL INCOME TAX In order to qualify for treatment as a regulated investment company ("RIC") under the Internal Revenue Code of 1986, as amended ("Code"), the Fund must distribute annually to its Shareholders at least the sum of 90% of its net interest income excludable from gross income plus 90% of its investment company taxable income (generally, net investment income plus net short-term capital gain) ("Distribution Requirement") and also must meet several additional requirements. Among these requirements are the following: (i) at least 90% of the Fund's gross income each taxable year must be derived from dividends, interest, payments with respect to securities loans, and gains from the sale or other disposition of stock or securities, or certain other income, (ii) the Fund must derive less than 30% of its gross income each taxable year from the sale or other disposition of stocks or securities held for less than three months; (iii) at the close of each quarter of the Fund's taxable year, at least 50% of the value of its total assets must be represented by cash and cash items, U.S. Government securities, securities of other RIC's and other securities, with such other securities limited, in respect to any one issuer, to an amount that does not exceed 5% of the value of the Fund's assets and that does not represent more than 10% of the outstanding voting securities of such issuer; and (iv) at the close of each quarter of the Fund's taxable year, not more than 25% of the value of its assets may be invested in securities (other than U.S. Government securities or the securities of other RIC's) of any one issuer, or of two or more issuers engaged in same or similar businesses if the Fund owns at least 20% of the voting power of such issuers. 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 B-18 income for that year and 98% of its capital gain net income for the one-year period ending on October 31 of that calendar year, plus certain other amounts. Any gain or loss recognized on a sale or redemption of shares of a Fund by a Shareholder who is not a dealer in securities will generally be treated as 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 distribution. STATE TAXES The 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 Fund to Shareholders and the ownership of shares may be subject to state and local taxes. FOREIGN TAXES Dividends and interests received by the Fund may be subject to income, withholding or other taxes imposed by foreign countries and U.S. possessions that would reduce the yield on the Fund's 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 the 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 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. If the Fund makes the election, it 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. B-19 These rules could therefore affect the character, amount and timing of distributions to Shareholders. These provisions also may require the 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 regulated investment company 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, an Advisor is responsible for placing the orders to execute transactions for a Fund. In placing orders, it is the policy of the Trust to seek to obtain the best net results taking into account such factors as price (including the applicable dealer spread), the size, type and difficulty of the transaction involved, the firm's general execution and operational facilities, and the firm's risk in positioning the securities involved. While an Advisor generally seeks reasonably competitive spreads or commissions, the Trust will not necessarily be paying the lowest spread or commission available. TRADING PRACTICES AND BROKERAGE The Trust selects brokers or dealers to execute transactions for the purchase or sale of portfolio securities on the basis of its judgment of their professional capability to provide the service. The primary consideration is to have brokers or dealers execute transactions at best price and execution. Best price and execution refers to many factors, including the price paid or received for a security, the commission charged, the promptness and reliability of execution, the confidentiality and placement accorded the order and other factors affecting the overall benefit obtained by the account on the transaction. The Trust's determination of what are reasonably competitive rates is based upon the professional knowledge of its trading department as to rates paid and charged for similar transactions throughout the securities industry. In some instances, the Trust pays a minimal share transaction cost when the transaction presents no difficulty. Some trades are made on a net basis where the Trust either buys securities directly from the dealer or sells them to the dealer. In these instances, there is no direct commission charged but there is a spread (the difference between the buy and sell price) which is the equivalent of a commission. The Trust may allocate out of all commission business generated by all of the funds and accounts under management by an Advisor, brokerage business to brokers or dealers who provide brokerage and research services. These research services include advice, either directly or through publications or writings, as to the value of securities, the advisability of B-20 investing in, purchasing or selling securities, and the availability of securities or purchasers or sellers of securities; furnishing of analyses and reports concerning issuers, securities or industries; providing information on economic factors and trends, assisting in determining portfolio strategy, providing computer software used in security analyses, and providing portfolio performance evaluation and technical market analyses. Such services are used by an Advisor in connection with its investment decision-making process with respect to one or more funds and accounts managed by it, and may not be used exclusively with respect to the fund or account generating the brokerage. As provided in the Securities Exchange Act of 1934 (the "1934 Act") higher commissions may be paid to broker-dealers who provide brokerage and research services than to broker/dealers who do not provide such services if such higher commissions are deemed reasonable in relation to the value of the brokerage and research services provided. Although transactions are directed to broker-dealers who provide such brokerage and research services, the Trust believes that the commissions paid to such broker-dealers are not, in general, higher than commissions that would be paid to broker-dealers not providing such services and that such commissions are reasonable in relation to the value of the brokerage and research services provided. In addition, portfolio transactions which generate commissions or their equivalent are directed to broker-dealers who provide daily portfolio pricing services to the Trust. Subject to best price and execution, commissions used for pricing may or may not be generated by the funds receiving the pricing service. 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 trust may obtain, it is the opinion of the Advisor and the Trust's Board of Trustees that the advantages of combined orders outweigh the possible disadvantages of separate transactions. Consistent with the Rules of Fair Practice of the National Association of Securities Dealers, Inc., and subject to seeking best price and execution, the Funds, at the request of the Distributor, give consideration to sales of shares of the Trust as a factor in the selection of brokers and dealers to execute Trust portfolio transactions. It is expected that the Trust may execute brokerage or other agency transactions through the Distributor or an affiliate of an Advisor, both of which are registered broker-dealers, for a commission in conformity with the 1940 Act, the 1934 Act and rules promulgated by the SEC. Under these provisions, the Distributor or an affiliate of 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 B-21 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 renumeration received or to be received by other brokers in connection with comparable transactions involving similar securities being purchased or sold on a securities exchange during a comparable period of time." In addition, the Trust may direct commission business to one or more designated broker/dealers in connection with such broker/dealer's provision of services to the Trust or payment of certain Trust expenses (e.g., custody, pricing and professional fees). The Trustees, including those who are not "interested persons" of the Trust, have adopted procedures for evaluating the reasonableness of commissions paid to the Distributor and will review these procedures periodically. DESCRIPTION OF SHARES The Declaration of Trust authorizes the issuance of an unlimited number of shares and classes of shares of the Fund each of which represents an equal proportionate interest in that Fund with each other share. Shares are entitled upon liquidation to a pro rata share in the net assets of the Fund. Shareholders have no preemptive rights. The Declaration of Trust provides that the Trustees of the Trust may create additional series of shares or classes of series. All consideration received by the Trust for shares of any additional series and all assets in which such consideration is invested would belong to that series and would be subject to the liabilities related thereto. Share certificates representing shares will not be issued. SHAREHOLDER LIABILITY The Trust is an entity of the type commonly known as a "Massachusetts Business Trust." Under Massachusetts law, shareholders of such a trust could, under certain circumstances, be held personally liable as partners for the obligations of the trust. Even if, however, the Trust were held to be a partnership, the possibility of the Shareholders' incurring financial loss for that reason appears remote because the Trust's Declaration of Trust contains an express disclaimer of Shareholder liability for obligations of the Trust and requires that notice of such disclaimer be given in each agreement, obligation or instrument entered into or executed by or on behalf of the Trust or the Trustees, and because the Declaration of Trust provides for indemnification out of the Trust property for any Shareholder held personally liable for the obligations of the Trust. 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. B-22 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 included in this Statement of Additional Information have been audited by Arthur Andersen LLP, Independent Public Accountants, as indicated in their report with respect thereto, and are included herein in reliance upon the authority of said firm as experts in giving said report. 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