-----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, OhEGk2RigSYb0Z3Gw5lBBSsrMMHPHA0kv6V0tfIPcs0W7jx/laIrZkEovVEh28fI aFx5FIeXyU4cqoSfrnJtew== 0000912057-96-022515.txt : 19961011 0000912057-96-022515.hdr.sgml : 19961011 ACCESSION NUMBER: 0000912057-96-022515 CONFORMED SUBMISSION TYPE: 497 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19961010 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: 96641974 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 TRUST SHARES INVESTMENT GRADE BOND FUND INVESTMENT GRADE TAX-EXEMPT BOND FUND U.S. GOVERNMENT SECURITIES FUND LIMITED-TERM FEDERAL MORTGAGE SECURITIES FUND SHORT-TERM BOND FUND SHORT-TERM U.S. TREASURY SECURITIES FUND FLORIDA TAX-EXEMPT BOND FUND GEORGIA TAX-EXEMPT BOND FUND TENNESSEE TAX-EXEMPT BOND FUND PRIME QUALITY MONEY MARKET FUND U.S. GOVERNMENT SECURITIES MONEY MARKET FUND TAX-EXEMPT MONEY MARKET FUND INVESTMENT ADVISORS TO THE FUNDS: TRUSCO CAPITAL MANAGEMENT, INC. STI CAPITAL MANAGEMENT, N.A. SUNTRUST BANK, CHATTANOOGA, N.A. SUNTRUST BANK, ATLANTA (THE "ADVISORS") The STI Classic Funds (the "Trust") is a mutual fund that offers shares in a number of separate investment portfolios (each a "Fund" and, collectively, the "Funds"). This Prospectus sets forth concisely the information about the Trust Shares of the above-referenced Funds. Investors are advised to read this Prospectus and retain it for future reference. A Statement of Additional Information relating to the Funds dated the same date as this Prospectus has been filed with the Securities and Exchange Commission and is available without charge through the Distributor, SEI Financial Services Company, 680 East Swedesford Road, Wayne, Pennsylvania 19087-1658 or by calling 1-800-874-4770. 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. - -------------------------------------------------------------------------------- AN INVESTMENT IN A MONEY MARKET FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT. THERE CAN BE NO ASSURANCE THAT A MONEY MARKET FUND WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE. - -------------------------------------------------------------------------------- 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 1, 1996 2 (THIS PAGE INTENTIONALLY LEFT BLANK) 3 Throughout this Prospectus, the Investment Grade Bond Fund, Investment Grade Tax-Exempt Bond Fund, Short-Term U.S. Treasury Securities Fund, Short-Term Bond Fund, U.S. Government Securities Fund and Limited-Term Federal Mortgage Securities Fund, which invest primarily in bonds and other fixed income instruments, may be referred to as the "Bond Funds," the Florida Tax-Exempt Bond Fund, Georgia Tax-Exempt Bond Fund and Tennessee Tax-Exempt Bond Fund, which invest primarily in tax-exempt bonds and other fixed income instruments, may be referred to as the "State Tax-Exempt Bond Funds," and the Prime Quality Money Market Fund, U.S. Government Securities Money Market Fund and Tax-Exempt Money Market Fund may be referred to as the "Money Market Funds." The Trust Shares are offered primarily to financial institutions and intermediaries ("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. Individuals may not purchase Trust Shares directly, although individuals may be able to purchase Trust Shares through accounts maintained with financial institutions. TABLE OF CONTENTS Expense Summary........................................................... 4 Financial Highlights...................................................... 6 The Trust................................................................. 8 Funds and Investment Objectives........................................... 8 Investment Policies and Strategies........................................ 9 General Investment Policies and Strategies................................ 18 Investment Risks.......................................................... 18 Investment Limitations.................................................... 20 Performance Information................................................... 21 Purchase of Fund Shares................................................... 22 Redemption of Fund Shares................................................. 23 Dividends and Distributions............................................... 24 Tax Information........................................................... 25 STI Classic Funds Information............................................. 27 The Trust................................................................. 27 Board of Trustees......................................................... 27 Investment Advisors....................................................... 27 Portfolio Managers........................................................ 29 Banking Laws.............................................................. 30 Distribution.............................................................. 30 Administration............................................................ 31 Transfer Agent and Dividend Disbursing Agent.............................. 31 Custodian................................................................. 31 Legal Counsel............................................................. 31 Independent Public Accountants............................................ 31 Other Information......................................................... 31 Voting Rights............................................................. 31 Reporting................................................................. 32 Shareholder Inquiries..................................................... 32 Description of Permitted Investments...................................... 32 Appendix.................................................................. A-1
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE TRUST'S STATEMENT OF ADDITIONAL INFORMATION 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. 4 EXPENSE SUMMARY TRUST SHARES The purpose of the following table is to help you understand the various costs and expenses that a shareholder will bear, directly or indirectly, in connection with an investment in the Trust Shares of each Fund. ANNUAL OPERATING EXPENSES (as a percentage of average net assets)
LIMITED-TERM INVESTMENT FEDERAL SHORT-TERM INVESTMENT GRADE U.S. MORTGAGE SHORT-TERM U.S. TREASURY GRADE BOND TAX-EXEMPT GOVERNMENT SECURITIES BOND SECURITIES FUND BOND FUND SECURITIES FUND FUND FUND FUND - -------------------------------------------------------------------------------------------------------------------------------- Management Fees (after fee waivers & reimbursements)(1)................. .63% .61% .16% .43% .46% .22% Other Fund Expenses................. .12% .14% .59% .22% .19% .43% - -------------------------------------------------------------------------------------------------------------------------------- Total Fund Operating Expenses (after fee waivers & reimbursements)(2)(3).............. .75% .75% .75% .65% .65% .65% - -------------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------------
(1) Each Advisor is waiving, on a voluntary basis, a portion of its fee from each Fund. The Advisor reserves the right to terminate its waiver at any time in its sole discretion. Absent such waivers and reimbursements, Advisory Fees for the Funds would be as follows: Investment Grade Bond Fund -- .74%, Investment Grade Tax-Exempt Bond Fund -- .74%, U.S. Government Securities Fund -- .74%, Limited-Term Federal Mortgage Securities Fund -- .65%, Short-Term Bond Fund -- .65% and Short-Term U.S. Treasury Securities Fund -- .65%. See "Investment Advisors." (2) Absent the voluntary waivers described above, Total Fund Operating Expenses would be as follows: Investment Grade Bond Fund -- .86%, Investment Grade Tax-Exempt Bond Fund -- .88%, U.S. Government Securities Fund -- 1.33%, Limited-Term Federal Mortgage Securities Fund -- .87%, Short-Term Bond Fund -- .84% and Short-Term U.S. Treasury Securities Fund -- 1.08%. 5 ANNUAL OPERATING EXPENSES (as a percentage of average net assets)
U.S. GOVERNMENT FLORIDA GEORGIA TENNESSEE PRIME QUALITY SECURITIES TAX-EXEMPT TAX-EXEMPT TAX-EXEMPT TAX-EXEMPT MONEY MARKET MONEY MARKET MONEY MARKET BOND FUND BOND FUND BOND FUND FUND FUND FUND - -------------------------------------------------------------------------------------------------------------------------------- Management Fees (after fee waivers & reimbursements)(1).............. .38% .37% .00% .50% .51% .47% Other Fund Expenses (after fee waivers & reimbursements)(2)(3)... .27% .28% .65% .08% .10% .13% - -------------------------------------------------------------------------------------------------------------------------------- Total Fund Operating Expenses (after fee waivers & reimbursements)(4)(5)............. .65% .65% .65% .58% .61% .60% - -------------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------------
(1) Each Advisor is waiving, on a voluntary basis, a portion of its fee from each Fund. The Advisor reserves the right to terminate its waiver at any time in its sole discretion. Absent such waivers and reimbursements, Advisory Fees for the Funds would be as follows: Florida Tax-Exempt Bond Fund -- .65%, Georgia Tax-Exempt Bond Fund -- .65%, Tennessee Tax-Exempt Bond Fund -- .65%, Prime Quality Money Market Fund -- .65%, U.S. Government Securities Money Market Fund -- .65% and Tax-Exempt Money Market Fund -- .55%. See "Investment Advisors." (2) The Administrator is waiving, on a voluntary basis, a portion of its fee from the Prime Quality Money Market and U.S. Government Securities Money Market Funds. The Administrator reserves the right to terminate its waiver at any time in its sole discretion. Absent such waivers, Other Fund Expenses would be as follows: Prime Quality Money Market Fund -- .13% and U.S. Government Securities Money Market Fund -- .13%. See "Administration." (3) Absent waivers and reimbursements, Other Fund Expenses for the Tennesse Tax-Exempt Bond Fund would be 1.03%. (4) Absent the voluntary waivers described above, Total Fund Operating Expenses would be as follows: Florida Tax-Exempt Bond Fund -- .92%, Georgia Tax-Exempt Bond Fund -- .93%, Tennessee Tax-Exempt Bond Fund -- 1.68%, Prime Quality Money Market Fund -- .78%, U.S. Government Securities Money Market Fund -- .78% and Tax-Exempt Money Market Fund -- .68%. (5) Total Fund Operating Expenses for the Tax-Exempt Money Market Fund have been restated to reflect current fees.
ONE THREE FIVE TEN EXAMPLES YEAR YEARS YEARS YEARS - ---------------------------------------------------------------------------------------------------- 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. INVESTMENT GRADE BOND FUND....................................... $ 8 $ 24 $ 42 $ 93 INVESTMENT GRADE TAX-EXEMPT BOND FUND............................ $ 8 $ 24 $ 42 $ 93 U.S. GOVERNMENT SECURITIES FUND.................................. $ 8 $ 24 $ 42 $ 93 LIMITED-TERM FEDERAL MORTGAGE SECURITIES FUND.................... $ 7 $ 21 $ 36 $ 81 SHORT-TERM BOND FUND............................................. $ 7 $ 21 $ 36 $ 81 SHORT-TERM U.S. TREASURY SECURITIES FUND......................... $ 7 $ 21 $ 36 $ 81 FLORIDA TAX-EXEMPT BOND FUND..................................... $ 7 $ 21 $ 36 $ 81 GEORGIA TAX-EXEMPT BOND FUND..................................... $ 7 $ 21 $ 36 $ 81 TENNESSEE TAX-EXEMPT BOND FUND................................... $ 7 $ 21 $ 36 $ 81 PRIME QUALITY MONEY MARKET FUND.................................. $ 6 $ 19 $ 32 $ 73 U.S. GOVERNMENT SECURITIES MONEY MARKET FUND..................... $ 6 $ 20 $ 34 $ 76 TAX-EXEMPT MONEY MARKET FUND..................................... $ 6 $ 19 $ 33 $ 75 - ---------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------
THE EXAMPLE IS BASED UPON THE TOTAL OPERATING EXPENSES OF A FUND AND SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. A person that purchases shares through an account with a financial institution may be charged separate fees by the financial institution. 6 FINANCIAL HIGHLIGHTS The following information has been audited by Arthur Andersen LLP, the Trust's independent public accountant, whose report thereon was unqualified. This information should be read in conjunction with the Trust's financial statements and notes thereto, which are included in the Trust's Statement of Additional Information and which appear, along with the report of Arthur Andersen LLP, in the Trust's 1996 Annual Report to Shareholders. Additional performance information regarding each Fund is contained in the Trust's Annual Report to Shareholders and is available without charge by calling 1-800-874-4770. For a Trust Share Outstanding Throughout the Period
NET ASSET NET NET REALIZED AND DISTRIBUTIONS NET ASSETS VALUE INVESTMENT UNREALIZED GAINS FROM NET DISTRIBUTIONS NET ASSET END OF BEGINNING INCOME (LOSSES) ON INVESTMENT FROM REALIZED VALUE END TOTAL PERIOD OF PERIOD (LOSS) INVESTMENTS INCOME CAPITAL GAINS OF PERIOD RETURN (000) --------- ---------- ----------------- -------------- -------------- ---------- -------- ----------- ----------------------------- INVESTMENT GRADE BOND FUND ----------------------------- TRUST SHARES 1996................ $10.26 $ 0.60 $ (0.19) $ (0.60) -- $ 10.07 4.02% $ 599,514 1995................ 9.89 0.61 0.37 (0.61) -- 10.26 10.39% 543,308 1994................ 10.45 0.50 (0.36) (0.50) $ (0.20) 9.89 1.17% 460,538 1993 (1)............ 10.09 0.45 0.36 (0.45) -- 10.45 9.34%* 336,132 ---------------------------------------- INVESTMENT GRADE TAX-EXEMPT BOND FUND ---------------------------------------- TRUST SHARES 1996................ $11.28 $ 0.45 $ 0.19 $ (0.45) $ (0.37) $ 11.10 5.82% $ 124,507 1995................ 10.68 0.46 0.60 (0.46) -- 11.28 10.21% 78,208 1994 (2)............ 11.37 0.22 (0.34) (0.22) (0.35) 10.68 (1.10%)+ 44,595 --------------------------------- U. S. GOVERNMENT SECURITIES FUND --------------------------------- TRUST SHARES 1996................ $10.27 $ 0.62 $ (0.33) $ (0.62) $ (0.03) $ 9.91 2.77% $ 10,277 1995 (3)............ 9.98 0.53 0.29 (0.53) -- 10.27 8.64%+ 3,291 ---------------------------------------------- LIMITED-TERM FEDERAL MORTGAGE SECURITIES FUND ---------------------------------------------- TRUST SHARES 1996................ $10.11 $ 0.62 $ (0.14) $ (0.60) -- $ 9.99 4.84% $ 73,370 1995 (4)............ 10.00 0.58 0.13 (0.60) -- 10.11 7.50%+ 41,823 ---------------------- SHORT-TERM BOND FUND ---------------------- TRUST SHARES 1996................ $ 9.98 $ 0.54 $ (0.10) $ (0.54) $ (0.02) $ 9.86 4.45% $ 91,156 1995................ 9.79 0.53 0.19 (0.53) -- 9.98 7.60% 60,952 1994................ 10.01 0.42 (0.21) (0.42) (0.01) 9.79 2.02% 34,772 1993 (5)............ 10.00 0.08 0.01 (0.08) -- 10.01 4.45%* 25,334 ---------------------------------------- SHORT-TERM U.S. TREASURY SECURITIES FUND ---------------------------------------- TRUST SHARES 1996................ $ 9.93 $ 0.55 $ (0.09) $ (0.55) -- $ 9.84 4.73% $ 10,149 1995................ 9.82 0.47 0.11 (0.47) -- 9.93 6.11% 9,599 1994................ 9.98 0.33 (0.11) (0.33) $ (0.05) 9.82 2.17% 12,723 1993 (6)............ 10.00 0.07 (0.02) (0.07) -- 9.98 2.22%* 30,336 RATIO OF NET RATIO OF NET INVESTMENT INCOME RATIO OF INVESTMENT RATIO OF EXPENSES TO (LOSS) TO AVERAGE NET EXPENSES INCOME (LOSS) AVERAGE NET ASSETS ASSETS (EXCLUDING PORTFOLIO TO AVERAGE TO AVERAGE NET (EXCLUDING WAIVERS WAIVERS AND TURNOVER NET ASSETS ASSETS AND REIMBURSEMENTS) REIMBURSEMENTS) RATE ---------- -------------- --------------------- --------------------- ---------- ----------------------------- INVESTMENT GRADE BOND FUND ----------------------------- TRUST SHARES 1996................ 0.75% 5.81% 0.87% 5.69% 184.33% 1995................ 0.75% 6.22% 0.88% 6.09% 237.66% 1994................ 0.75% 4.77% 0.88% 4.64% 259.19% 1993 (1)............ 0.74%* 5.14%* 0.87%* 5.01%* 299.32% ---------------------------------------- INVESTMENT GRADE TAX-EXEMPT BOND FUND ---------------------------------------- TRUST SHARES 1996................ 0.75% 4.01% 0.89% 3.87% 513.90% 1995................ 0.75% 4.34% 0.91% 4.18% 591.91% 1994 (2)............ 0.75%* 3.46%* 0.95%* 3.26%* 432.46% --------------------------------- U. S. GOVERNMENT SECURITIES FUND --------------------------------- TRUST SHARES 1996................ 0.75% 6.05% 1.25% 5.55% 83.38% 1995 (3)............ 0.75%* 6.67%* 3.33%* 4.09%* 30.39% ---------------------------------------------- LIMITED-TERM FEDERAL MORTGAGE SECURITIES FUND ---------------------------------------------- TRUST SHARES 1996................ 0.65% 6.04% 0.84% 5.85% 83.01% 1995 (4)............ 0.65%* 6.43%* 0.93%* 6.15%* 67.63% ---------------------- SHORT-TERM BOND FUND ---------------------- TRUST SHARES 1996................ 0.65% 5.39% 0.81% 5.23% 162.62% 1995................ 0.65% 5.49% 0.85% 5.29% 200.49% 1994................ 0.65% 4.15% 0.85% 3.95% 74.85% 1993 (5)............ 0.64%* 3.88%* 1.11%* 3.41%* 63.89% ---------------------------------------- SHORT-TERM U.S. TREASURY SECURITIES FUND ---------------------------------------- TRUST SHARES 1996................ 0.65% 5.56% 1.00% 5.21% 94.00% 1995................ 0.65% 4.91% 1.08% 4.48% 87.98% 1994................ 0.65% 3.23% 0.81% 3.07% 116.57% 1993 (6)............ 0.63%* 3.34%* 1.04%* 2.93%* 36.44%
7 FINANCIAL HIGHLIGHTS CONTINUED
NET ASSET NET NET REALIZED AND DISTRIBUTIONS NET ASSETS VALUE INVESTMENT UNREALIZED GAINS FROM NET DISTRIBUTIONS NET ASSET END OF BEGINNING INCOME (LOSSES) ON INVESTMENT FROM REALIZED VALUE END TOTAL PERIOD OF PERIOD (LOSS) INVESTMENTS INCOME CAPITAL GAINS OF PERIOD RETURN (000) --------- ---------- ----------------- -------------- -------------- ---------- -------- ----------- ------------------------------ FLORIDA TAX-EXEMPT BOND FUND ------------------------------ TRUST SHARES 1996................ $10.18 $ 0.46 $ (0.07) $ (0.46) $ (0.05) $ 10.06 3.87% $ 30,790 1995................ 9.75 0.44 0.43 (0.44) -- 10.18 9.26% 10,118 1994 (7)............ 10.00 0.13 (0.25) (0.13) -- 9.75 (1.19%)+ 3,192 ------------------------------- GEORGIA TAX-EXEMPT BOND FUND ------------------------------- TRUST SHARES 1996................ $ 9.63 $ 0.43 $ (0.05) $ (0.43) $ (0.02) $ 9.56 3.89% $ 22,950 1995................ 9.42 0.42 0.21 (0.42) -- 9.63 6.94% 13,187 1994 (8)............ 10.00 0.14 (0.58) (0.14) -- 9.42 (4.43%)+ 4,338 --------------------------------- TENNESSEE TAX-EXEMPT BOND FUND --------------------------------- TRUST SHARES 1996................ $ 9.50 $ 0.43 $ (0.11) $ (0.42) -- $ 9.40 3.43% $ 1,823 1995................ 9.22 0.44 0.28 (0.44) -- 9.50 8.17% 1,664 1994 (9)............ 10.00 0.12 (0.77) (0.13) -- 9.22 (6.52%)+ 594 --------------------------------- PRIME QUALITY MONEY MARKET FUND --------------------------------- TRUST SHARES 1996................ $ 1.00 $ 0.05 -- $ (0.05) -- $ 1.00 5.25% $ 1,050,800 1995................ 1.00 0.05 -- (0.05) -- 1.00 4.79% 799,189 1994................ 1.00 0.03 -- (0.03) -- 1.00 2.88% 583,399 1993 (10)........... 1.00 0.03 -- (0.03) -- 1.00 2.92%* 410,991 ----------------------------------------------- U.S. GOVERNMENT SECURITIES MONEY MARKET FUND ----------------------------------------------- TRUST SHARES 1996................ $ 1.00 $ 0.05 -- $ (0.05) -- $ 1.00 5.14% $ 325,493 1995................ 1.00 0.05 -- (0.05) -- 1.00 4.67% 434,111 1994................ 1.00 0.03 -- (0.03) -- 1.00 2.77% 309,228 1993 (10)........... 1.00 0.03 -- (0.03) -- 1.00 2.79%* 453,567 ------------------------------- TAX-EXEMPT MONEY MARKET FUND ------------------------------- TRUST SHARES 1996................ $ 1.00 $ 0.03 -- $ (0.03) -- $ 1.00 3.28% $ 273,613 1995................ 1.00 0.03 -- (0.03) -- 1.00 3.10% 215,413 1994................ 1.00 0.02 -- (0.02) -- 1.00 2.08% 143,982 1993 (10)........... 1.00 0.02 -- (0.02) -- 1.00 2.12%* 78,416 RATIO OF NET RATIO OF NET INVESTMENT INCOME RATIO OF INVESTMENT RATIO OF EXPENSES TO (LOSS) TO AVERAGE NET EXPENSES INCOME (LOSS) AVERAGE NET ASSETS ASSETS (EXCLUDING PORTFOLIO TO AVERAGE TO AVERAGE NET (EXCLUDING WAIVERS WAIVERS AND TURNOVER NET ASSETS ASSETS AND REIMBURSEMENTS) REIMBURSEMENTS) RATE ---------- -------------- --------------------- --------------------- ---------- ------------------------------ FLORIDA TAX-EXEMPT BOND FUND ------------------------------ TRUST SHARES 1996................ 0.65% 4.49% 0.88% 4.26% 62.68% 1995................ 0.65% 4.63% 1.13% 4.15% 105.01% 1994 (7)............ 0.65%* 3.86%* 1.12%* 3.39%* 53.24% ------------------------------- GEORGIA TAX-EXEMPT BOND FUND ------------------------------- TRUST SHARES 1996................ 0.65% 4.36% 0.89% 4.12% 60.02% 1995................ 0.65% 4.56% 0.98% 4.23% 24.50% 1994 (8)............ 0.65%* 4.12%* 1.06%* 3.71%* 25.90% --------------------------------- TENNESSEE TAX-EXEMPT BOND FUND --------------------------------- TRUST SHARES 1996................ 0.65% 4.49% 1.68% 3.46% 41.00% 1995................ 0.65% 4.90% 2.65% 2.90% 27.73% 1994 (9)............ 0.65%* 4.24%* 1.43%* 3.46%* 13.05% --------------------------------- PRIME QUALITY MONEY MARKET FUND --------------------------------- TRUST SHARES 1996................ 0.58% 5.11% 0.78% 4.91% -- 1995................ 0.58% 4.77% 0.79% 4.56% -- 1994................ 0.58% 2.86% 0.79% 2.65% -- 1993 (10)........... 0.58%* 2.85%* 0.78%* 2.65%* -- ----------------------------------------------- U.S. GOVERNMENT SECURITIES MONEY MARKET FUND ----------------------------------------------- TRUST SHARES 1996................ 0.61% 5.02% 0.78% 4.85% -- 1995................ 0.61% 4.64% 0.80% 4.45% -- 1994................ 0.61% 2.69% 0.77% 2.53% -- 1993 (10)........... 0.61%* 2.71%* 0.78%* 2.54%* -- ------------------------------- TAX-EXEMPT MONEY MARKET FUND ------------------------------- TRUST SHARES 1996................ 0.50% 3.23% 0.68% 3.05% -- 1995................ 0.45% 3.12% 0.70% 2.87% -- 1994................ 0.42% 2.05% 0.71% 1.76% -- 1993 (10)........... 0.41%* 2.07%* 0.70%* 1.78%* --
* Annualized. + Cumulative since commencement of operations. (1) The Investment Grade Bond Fund Trust Shares commenced operations on July 16, 1992. (2) The Investment Grade Tax-Exempt Bond Fund Trust Shares commenced operations on October 21, 1993. (3) The U.S. Government Securities Fund Trust Shares commenced operations on July 31, 1994. (4) The Limited Term Federal Mortgage Securities Fund Trust Shares commenced operations on June 7, 1994. (5) The Short-Term Bond Fund Trust Shares commenced operations on March 15, 1993. (6) The Short-Term U.S. Treasury Securities Fund Trust Shares commenced operations on March 15, 1993. (7) The Florida Tax-Exempt Bond Fund Trust Shares commenced operations on January 25, 1994. (8) The Georgia Tax-Exempt Bond Fund Trust Shares commenced operations on January 18, 1994. (9) The Tennessee Tax-Exempt Bond Fund Trust Shares commenced operations on January 27, 1994. (10) The Prime Quality Money Market Fund Trust Shares, the U.S. Government Securities Money Market Fund Trust Shares, and the Tax-Exempt Money Market Fund Trust Shares commenced operations on June 8, 1992. 8 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 each non-money market Fund through three separate classes (Trust Shares, Investor Shares and Flex Shares) and in each Money Market Fund through two separate classes (Trust Shares and Investor Shares) which provide for variations in distribution and service fees, transfer agent fees, voting rights and dividends. Except for differences between classes, each share of each Fund represents an undivided, proportionate interest in that Fund. This Prospectus relates to the Trust Shares of the Funds described below. FUNDS AND INVESTMENT OBJECTIVES BOND FUNDS: THE INVESTMENT GRADE BOND FUND seeks to provide as high a level of total return through current income and capital appreciation as is consistent with the preservation of capital primarily through investment in investment grade fixed income securities. THE INVESTMENT GRADE TAX-EXEMPT BOND FUND seeks to provide as high a level of total return through federally tax-exempt current income and capital appreciation as is consistent with the preservation of capital primarily through investment in investment grade tax-exempt obligations. THE U.S. GOVERNMENT SECURITIES FUND seeks to provide as high a level of current income as is consistent with the preservation of capital by investing primarily in obligations issued or guaranteed by the U.S. Government, its agencies or instrumentalities. THE LIMITED-TERM FEDERAL MORTGAGE SECURITIES FUND seeks to provide as high a level of current income as is consistent with the preservation of capital by investing primarily in mortgage-related securities issued or guaranteed by U.S. Government agencies and instrumentalities. THE SHORT-TERM BOND FUND seeks to provide as high a level of current income, relative to funds with like investment objectives, as is consistent with the preservation of capital primarily through investment in short- to intermediate-term investment grade fixed income securities. THE SHORT-TERM U.S. TREASURY SECURITIES FUND seeks to provide as high a level of current income, relative to funds with like investment objectives, as is consistent with the preservation of capital through investment exclusively in short-term U.S. Treasury securities. STATE TAX-EXEMPT BOND FUNDS: THE FLORIDA TAX-EXEMPT BOND FUND seeks to provide current income exempt from regular federal income tax for Florida residents without undue investment risk. THE GEORGIA TAX-EXEMPT BOND FUND seeks to provide current income exempt from regular federal and state income tax for Georgia residents without undue investment risk. THE TENNESSEE TAX-EXEMPT BOND FUND seeks to provide current income exempt from regular federal and state income tax for Tennessee residents without undue investment risk. 9 MONEY MARKET FUNDS: THE PRIME QUALITY MONEY MARKET FUND seeks to provide as high a level of current income as is consistent with preservation of capital and liquidity by investing exclusively in high quality money market instruments. THE U.S. GOVERNMENT SECURITIES MONEY MARKET FUND seeks to provide as high a level of current income as is consistent with preservation of capital and liquidity by investing exclusively in 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 Reserve Book-Entry System ("U.S. Treasury obligations"), securities of wholly-owned corporations of the U.S. Government that are backed by the full faith and credit of the U.S. Government and repurchase agreements with approved dealers collateralized by U.S. Treasury obligations, and U.S. Government Subsidiary Corporation securities. THE TAX-EXEMPT MONEY MARKET FUND seeks to provide as high a level of current interest income exempt from regular federal income tax as is consistent with preservation of capital and liquidity. The Fund invests primarily in high quality short-term municipal obligations. Each Money Market Fund's ability to generate high current income will be limited by the fact that it is only permitted to invest in high quality securities. It is a fundamental policy of each Money Market Fund to use its best efforts to maintain a constant net asset value of $1.00 per share. There can be no assurance that a Money Market Fund will achieve its investment objective or that the Money Market Funds will be able to maintain a net asset value of $1.00 per share on a continuous basis. In addition, each Money Market Fund intends to comply with federal regulations applicable to money market funds using the amortized cost method for calculating net asset value which require each Fund to invest only in U.S. dollar denominated obligations, to maintain an average maturity on a dollar-weighted basis of 90 days or less and to acquire eligible securities that present minimal credit risk and have a maturity of 397 days or less. These requirements will also limit a Money Market Fund's ability to generate high current income. For a further discussion of these rules, see "Description of Permitted Investments." There can be no assurance that a Fund will achieve its investment objective. The investment objectives of the Investment Grade Bond Fund, U.S. Government Securities Fund, Limited-Term Federal Mortgage Securities Fund, Short-Term Bond Fund and Short-Term U.S. Treasury Securities Fund are non-fundamental and may be changed without a shareholder vote. INVESTMENT POLICIES AND STRATEGIES INVESTMENT GRADE BOND FUND The Investment Grade Bond Fund will invest only in those obligations deemed investment grade obligations rated BBB or better by Standard & Poor's Corporation ("S&P") or Baa or better by Moody's Investors Services, Inc. ("Moody's") or, if not rated by S&P or Moody's, of comparable quality at the time of purchase as determined by the Fund's Advisor, including corporate debt obligations; mortgage-backed securities, collateralized mortgage obligations ("CMOs") and asset-backed securities; obligations issued or guaranteed as to principal and interest by the U.S. Government, its agencies or instrumentalities; custodial receipts involving U.S. Treasury obligations; securities of the government of Canada and its provincial and local governments; securities issued or 10 guaranteed by foreign governments, their political subdivisions, agencies or instrumentalities; obligations of supranational entities and sponsored American Depositary Receipts ("ADRs") that are traded on exchanges or listed on National Association of Securities Dealers Automated Quotations ("NASDAQ"). Under normal circumstances, at least 65% of the Fund's total assets will be invested in corporate and government bonds and debentures. No more than 25% of the Fund's assets will be invested in securities rated BBB by S&P or Baa by Moody's or, if not rated by S&P or Moody's, of comparable quality at the time of purchase as determined by the Fund's Advisor. The Fund may purchase mortgage-backed securities issued or guaranteed as to the payment of principal and interest by the U.S. Government, its agencies or instrumentalities or, subject to a limit of 35% of the Fund's assets, mortgage-backed securities issued by private issuers. These mortgage-backed securities may be backed or collateralized by fixed, adjustable or floating rate mortgages. The Fund may also invest in asset-backed securities which consist of securities backed by company receivables, truck and auto loans, leases, credit card receivables and home equity loans. In order to reduce interest rate risk, and subject to a general limit of 25% of the Fund's assets, the Fund may purchase floating or variable rate securities. Some floating or variable rate securities will be subject to interest rate "caps" or "floors." It may also buy securities on a when-issued basis, putable securities, medium term notes, and zero coupon securities. The Fund may also invest up to 10% of its assets in restricted securities. The Fund may also engage in futures and options. Under normal market conditions, it is anticipated that the Fund's average weighted maturity will range from 4 to 10 years. In the case of mortgage related securities and asset-backed securities, maturity will be determined based on the expected average life of the security. The Fund may shorten its average weighted maturity to as little as 90 days if deemed appropriate for temporary defensive purposes. By so limiting the maturity of its investments, the Fund expects that its net asset value will experience less price movement in response to changes in interest rates than the net asset values of mutual funds investing in similar credit quality securities with longer maturities. The Fund's portfolio turnover rate was 184% for the fiscal year ended May 31, 1996. This rate of turnover, if continued, will likely result in higher transaction costs and higher levels of realized capital gains than if the turnover rate was lower. INVESTMENT GRADE TAX-EXEMPT BOND FUND The Investment Grade Tax-Exempt Bond Fund intends to be fully invested in municipal securities the interest on which is exempt from regular federal income taxes in the opinion of bond counsel to the issuer. The issuers of these securities can be located in all fifty states, the District of Columbia, Puerto Rico and other U.S. territories and possessions. It is a fundamental policy of the Investment Grade Tax-Exempt Bond Fund to invest at least 80% of its total assets in securities the income from which is exempt from regular federal income tax and treated as a preference item for purposes of the alternative minimum tax. At least 65% of the Fund's assets will be invested in municipal bonds and debentures, and at least 75% of its total assets invested in municipal bonds will be in securities rated A or better by S&P or Moody's. Municipal securities must be rated BBB or better by S&P or Baa or better by Moody's in the case of bonds; SP-1, 11 SP-2 or MIG-1, MIG-2 in the case of notes; A-1, A-2, P-1, P-2 in the case of tax-exempt commercial paper; and VMIG-1 or VMIG-2 in the case of variable rate demand obligations. The Fund will only acquire unrated securities if, at the time of purchase, the Fund's Advisor determines that such unrated obligations are of comparable quality to rated obligations that may be acquired by the Fund. The Fund may invest in commitments to purchase the above securities on a when- issued or delayed delivery basis, floating or variable rate securities, and may purchase municipal forwards, medium term notes, putable securities, and zero coupon securities. The Fund's Advisor has discretion to invest up to 20% of the Fund's total assets in taxable debt securities rated at least BBB or better by S&P or Baa or better by Moody's or, if unrated, of comparable quality at the time of purchase as determined by the Fund's Advisor, repurchase agreements, and securities subject to the alternative minimum tax. The Fund may also invest up to 10% of its assets in restricted securities that the Fund's Advisor determines are liquid under guidelines adopted by the Trust's Board of Trustees and may engage in futures and options transactions. Under normal market conditions, it is anticipated that the Fund's average weighted maturity will range from 4 to 10 years. The Fund may shorten its average weighted maturity to as little as 90 days if deemed appropriate for temporary defensive purposes. By so limiting the maturity of its investments, the Fund's net asset value is expected to experience less price movement in response to changes in interest rates than the net asset values of mutual funds investing in similar credit quality securities with longer maturities. The Fund's portfolio turnover rate was 514% for the fiscal year ended May 31, 1996. This rate of turnover, if continued, will likely result in higher transaction costs and higher levels of realized capital gains than if the turnover rate was lower. U.S. GOVERNMENT SECURITIES FUND Under normal market conditions, the Fund will invest at least 65% of its assets in obligations issued or guaranteed by the U.S. Government, its agencies or instrumentalities, including mortgage-backed securities issued or guaranteed by U.S. Government agencies such as the Government National Mortgage Association ("GNMA"), the Federal National Mortgage Association ("FNMA") or the Federal Home Loan Mortgage Corporation ("FHLMC"). Mortgage-backed securities consisting of CMOs and real estate mortgage investment conduits ("REMICs") purchased by the Fund will be issued or guaranteed as to payment of principal and interest by the U.S. Government, its agencies or instrumentalities or, if issued by private issuers, rated in one of the two highest rating categories by a nationally recognized statistical rating organization (an "NRSRO"). The principal governmental issuers or guarantors of mortgage-backed securities are GNMA, FNMA and FHLMC. Obligations of GNMA are backed by the full faith and credit of the U.S. Government while obligations of FNMA and FHLMC are supported by the respective agency only. The Fund may purchase mortgage-backed securities that are backed or collateralized by fixed, adjustable or floating rate mortgages. Mortgage-backed securities that are not issued or guaranteed by the U.S. Government, its agencies or instrumentalities, including securities nominally issued by a governmental entity (such as the Resolution Trust Corporation), are not obligations of a governmental entity and thus may bear a risk of nonpayment. The timely payment of principal 12 and interest normally is supported, at least partially, by various forms of insurance or guarantees. There can be no assurance, however, that such credit enhancement will support full payment of the principal and interest on such obligations. The average maturity of the Fund's investment portfolio will typically range from 7 to 14 years. With respect to the remaining 35% of its assets, the Fund may invest in corporate or government bonds that carry a rating of Baa or better by Moody's or BBB or better by S&P, or that are deemed by the Fund's Advisor to be of comparable quality; commercial paper rated at the time of purchase within the two highest ratings categories of an NRSRO; bankers' acceptances; certificates of deposit and time deposits; and U.S. Treasury obligations, which include custodial receipts and repurchase agreements involving securities that constitute permissible investments for the Fund. The Fund intends to invest in privately issued, mortgage-backed securities only if they are rated in one of the two highest rating categories by an NRSRO. The Fund may purchase securities on a forward commitment or when-issued basis, which means that delivery and payment for such securities generally takes place after the customary securities settlement period. The Fund may purchase floating or variable rate securities, and may engage in dollar rolls. LIMITED-TERM FEDERAL MORTGAGE SECURITIES FUND Under normal market conditions, the Limited-Term Federal Mortgage Securities Fund will invest at least 65% of its assets in mortgage-related securities issued or guaranteed by U.S. Government agencies such as GNMA, FNMA or FHLMC. Obligations of GNMA are backed by the full faith and credit of the U.S. Government while obligations of FNMA and FHLMC are supported by the respective agency only. The Fund may purchase mortgage-backed securities that are backed or collateralized by fixed, adjustable or floating rate mortgages. The Fund's holdings of mortgage-backed securities will typically have an average life of from one to five years. Mortgage-backed securities consisting of CMOs and REMICs purchased by the Fund will be either issued or guaranteed as to payment of principal and interest by the U.S. Government, its agencies or instrumentalities or, if issued by private issuers, rated in one of the two highest rating categories by an NRSRO. Mortgage-backed securities that are not issued or guaranteed by the U.S. Government, its agencies or instrumentalities, including securities nominally issued by a governmental entity (such as the Resolution Trust Corporation), are not obligations of the U.S. Government and thus bear a risk of nonpayment. The timely payment of principal and interest normally is supported, at least partially, by various forms of insurance or guarantees. There can be no assurance, however, that such credit enhancement will support full payment of the principal and interest on such obligations. With respect to the remaining 35% of its assets, the Fund may invest in corporate or government bonds that carry a rating of Baa or better by Moody's or BBB or better by S&P, or that are deemed by the Fund's Advisor to be of comparable quality; asset backed securities; commercial paper rated at the time of purchase in the two highest ratings categories by an NRSRO; bankers' acceptances; certificates of deposit and time deposits; U.S. Treasury obligations and custodial receipts; and repurchase agreements involving securities that constitute permissible investments for the Fund. 13 The Fund may purchase securities on a forward commitment or when-issued basis, which means that delivery and payment for such securities generally takes place after the customary securities settlement period. The Fund may purchase floating or variable rate securities and engage in dollar roll transactions. The Fund may also purchase stripped mortgage-backed securities, but will limit such purchases to 5% of its net assets. SHORT-TERM BOND FUND Under normal circumstances, the Short-Term Bond Fund will invest solely in investment grade obligations rated BBB or better by S&P or Baa or better by Moody's or, if not rated by S&P or Moody's, of comparable quality at the time of purchase as determined by the Fund's Advisor consisting of debt obligations of U.S. and foreign corporations; mortgage-backed securities; CMOs; asset-backed securities; obligations (including mortgage-backed securities) issued or guaranteed as to principal and interest by the U.S. Government, its agencies or instrumentalities; and custodial receipts involving U.S. Treasury obligations; (including Separately Traded Registered Interest and Principal Securities ("STRIPS") and Coupon Under Book Entry System ("CUBES")). Under normal circumstances, at least 65% of the Fund's total assets will be invested in corporate and government bonds and debentures. No more than 25% of the Fund's assets will be invested in securities rated BBB by S&P or Baa by Moody's or, if not rated by S&P or Moody's, of comparable quality at the time of purchase by the Fund's Advisor. The Fund may purchase, without limitation, mortgage-backed securities issued or guaranteed as to the payment of principal and interest by the U.S. Government, its agencies or instrumentalities and, subject to a limit of 25% of the Fund's assets, mortgage-backed securities issued by private issuers. These mortgage-backed securities may be backed or collateralized by fixed, adjustable or floating rate mortgages. The Fund may also invest in asset-backed securities, which consist of securities backed by company receivables, truck and auto loans; leases; credit card receivables; and home equity loans. The Fund will purchase mortgage-backed and asset-backed securities only if they are rated at least AA by S&P or Aa by Moody's or, if unrated, determined to be of comparable quality at the time of purchase by the Fund's Advisor. The Fund may purchase securities on a when-issued basis and may acquire floating or variable rate securities, medium term notes, putable securities, and zero coupon securities. The Fund may also purchase securities issued by foreign governments and supranational agencies. The Fund may also invest in municipal securities when the Fund's Advisor feels it is consistent with the Fund's investment objective. The Fund will not invest in municipal securities unless the Fund's Advisor believes that the yield will be higher than the yield for comparable taxable investments in which the Fund is permitted to invest. The following quality criteria apply to the Fund's investments in municipal securities. The Fund's investments in municipal notes will be limited to those obligations (i) where both principal and interest are backed by the full faith and credit of the United States, (ii) which are rated MIG-2 or V-MIG-2 or better at the time of investment by Moody's, (iii) which are rated SP-2 or better at the time of investment by S&P, or (iv) which, if not rated, are of equivalent quality to MIG-2, V-MIG-2, or SP-2 or better in the Advisor's judgment. The Fund's investment in municipal bonds will be limited to bonds rated BBB or better by S&P or Baa or better by Moody's, or, if not rated by S&P or Moody's, deemed by the 14 Fund's Advisor to be of comparable quality. For the Fund's investments in other types of tax-exempt municipal investments, such as participation interests in municipal lease/ purchase agreements, the quality of the underlying credit or of the bank providing a credit support arrangement must, in the Fund's Advisor's opinion, be equivalent to the municipal note or bond ratings stated above. The Fund is also authorized to invest up to 10% of its assets in restricted securities, including Rule 144A securities, that the Fund's Advisor determines are liquid under guidelines adopted by the Trust's Board of Trustees. The Fund may also enter into bond futures contracts and options on bond futures contracts and engage in securities lending. The Fund intends to maintain a dollar-weighted average maturity of 3 years or less, and the maximum remaining maturity for any security held by the Fund is 7 years. Under normal market conditions it is anticipated that the Fund's dollar-weighted average maturity will range from 2 to 3 years. In the case of mortgage related securities and asset-backed securities, maturity will be determined based on the expected average life of the security. The Fund may shorten its average weighted maturity to as little as 90 days if deemed appropriate for temporary defensive purposes. By so limiting the maturity of its investments, the Fund expects that its net asset value will experience less price movement in response to changes in interest rates than the net asset values of mutual funds investing in similar credit quality securities with longer maturities. The Fund's turnover rate was 163% for the fiscal year ended May 31, 1996. This rate of turnover, if continued, will likely result in higher transaction costs and higher levels of realized capital gains than if the turnover rate was lower. SHORT-TERM U.S. TREASURY SECURITIES FUND The Short-Term U.S. Treasury Securities Fund will invest exclusively in obligations issued by the U.S. Treasury with maximum remaining maturities of 3 years or less. U.S. Treasury securities are considered to be among the safest, as to timely principal and interest payments, investments available. The Fund will not invest in repurchase agreements. The Fund may borrow money for temporary or emergency purposes in an amount not exceeding one-third of its total assets, but has no present intention to do so. Under normal market conditions, it is anticipated that the Fund's average maturity will range from one to two years. Furthermore, for temporary defensive purposes during periods when the Fund's Advisor determines that market conditions warrant, the Short-Term U.S. Treasury Securities Fund may reduce its average weighted maturity to less than one year. FLORIDA TAX-EXEMPT BOND FUND The Florida Tax-Exempt Bond Fund intends to be fully invested in municipal securities the interest on which is exempt from regular federal income taxes based on opinions from bond counsel to the issuers. The issuers of these securities can be located in Florida, the District of Columbia, Puerto Rico and other U.S. territories and possessions. It is a fundamental policy of the Fund to invest at least 80% of its total assets in securities the income from which is exempt from regular federal income tax and not treated as a preference item for purposes of the alternative minimum tax. At least 65% of the Fund's assets will be invested in Florida municipal bonds and debentures, and at least 75% of its total assets invested in municipal bonds will be in securities rated A or better by S&P or Moody's. Municipal securities must be 15 rated BBB or better by S&P or Baa or better by Moody's in the case of bonds; SP-1, SP-2 or MIG-1, MIG-2 in the case of notes; A-1, A-2, or P-1, P-2 in the case of tax-exempt commercial paper; and VMIG-1 or VMIG-2 in the case of variable rate demand obligations. No more than 25% of the Fund's assets will be invested in bonds rated BBB by S&P or Baa by Moody's. The Fund will only acquire securities not rated by S&P or Moody's if, at the time of purchase, the Fund's Advisor determines that such unrated obligations are of comparable quality to rated obligations that may be acquired by the Fund. The Fund may invest in commitments to purchase the above securities on a when- issued or delayed delivery basis, floating or variable rate securities, and may purchase municipal forwards, putable securities, medium term notes, and zero coupon securities. The Fund's Advisor has discretion to invest up to 20% of the Fund's total assets in taxable debt securities rated at least BBB or better by S&P or Baa or better by Moody's or, if not rated by S&P or Moody's, of comparable quality at the time of purchase as determined by the Fund's Advisor, repurchase agreements, and securities subject to the alternative minimum tax. The Fund may also invest in futures and options, but has no present intention to do so for other than hedging purposes. Under normal market conditions, it is anticipated that the Fund's average weighted maturity will range from 6 to 25 years. The Fund may shorten its average weighted maturity to as little as 90 days if deemed appropriate for temporary defensive purposes. GEORGIA TAX-EXEMPT BOND FUND The Georgia Tax-Exempt Bond Fund intends to be fully invested in municipal securities the interest on which is exempt from regular federal income taxes and substantially exempt from State of Georgia income taxes based on opinions from bond counsel to the issuers. The issuers of these securities can be located in Georgia, the District of Columbia, Puerto Rico and other U.S. territories and possessions. It is a fundamental policy of the Fund to invest at least 80% of its total assets in securities the income from which is exempt from regular federal income tax and not treated as a preference item for purposes of the alternative minimum tax. At least 65% of the Fund's assets will be invested in Georgia municipal bonds and debentures, and at least 75% of its total assets invested in municipal bonds will be in securities rated A or better by S&P or Moody's. Municipal securities must be rated BBB or better by S&P or Baa or better by Moody's in the case of bonds; SP-1, SP-2 or MIG-1, MIG-2 in the case of notes; A-1, A-2, or P-1, P-2 in the case of tax-exempt commercial paper; and VMIG-1 or VMIG-2 in the case of variable rate demand obligations. No more than 25% of the Fund's assets will be invested in bonds rated BBB by S&P or Baa by Moody's. The Fund will only acquire securities not rated by S&P or Moody's if, at the time of purchase, the Fund's Advisor determines that such unrated obligations are of comparable quality to rated obligations that may be acquired by the Fund. The Fund may invest in commitments to purchase the above securities on a when- issued or delayed delivery basis, floating or variable rate securities, and may purchase municipal forwards, putable securities, medium term notes, and zero coupon securities. The Fund's Advisor has discretion to invest up to 20% of the Fund's total assets in taxable debt securities rated at least BBB or better by S&P or Baa or better by Moody's or, if not rated by S&P or Moody's, of comparable quality at the time of purchase as determined by the Fund's Advisor, repurchase agreements, and securities 16 subject to the alternative minimum tax. The Fund may also invest in futures and options, but has no present intention to do so for other than hedging purposes. Under normal market conditions, it is anticipated that the Fund's average weighted maturity will range from 6 to 25 years. The Fund may shorten its average weighted maturity to as little as 90 days if deemed appropriate for temporary defensive purposes. TENNESSEE TAX-EXEMPT BOND FUND The Tennessee Tax-Exempt Bond Fund intends to be fully invested in municipal securities the interest on which is exempt from regular federal income taxes and substantially exempt from State of Tennessee income taxes based on opinions from bond counsel to the issuers. The issuers of these securities can be located in Tennessee, the District of Columbia, Puerto Rico and other U.S. territories and possessions. It is a fundamental policy of the Fund to invest at least 80% of its total assets in securities the income from which is exempt from regular federal income tax and not treated as a preference item for purposes of the alternative minimum tax. At least 65% of the Fund's assets will be invested in Tennessee municipal bonds and debentures, and at least 75% of its total assets invested in municipal bonds will be in securities rated A or better by S&P or Moody's. Municipal securities must be rated BBB or better by S&P or Baa or better by Moody's in the case of bonds; SP-1, SP-2 or MIG-1, MIG-2 in the case of notes; A-1, A-2, or P-1, P-2 in the case of tax-exempt commercial paper; and VMIG-1 or VMIG-2 in the case of variable rate demand obligations. No more than 25% of the Fund's assets will be invested in bonds rated BBB by S&P or Baa by Moody's. The Fund will only acquire securities not rated by S&P or Moody's if, at the time of purchase, the Fund's Advisor determines that such unrated obligations are of comparable quality to rated obligations that may be acquired by the Fund. The Fund may invest in floating or variable rate securities, commitments to purchase the above securities on a when-issued or delayed delivery basis, and may purchase municipal forwards, putable securities, medium term notes, and zero coupon securities. The Fund's Advisor has discretion to invest up to 20% of the Fund's total assets in taxable debt securities rated at least BBB or better by S&P or Baa or better by Moody's or, if not rated by S&P or Moody's, of comparable quality at the time of purchase as determined by the Fund's Advisor, repurchase agreements, and securities subject to the alternative minimum tax. The Fund may also invest in futures and options, but has no present intention to do so for other than hedging purposes. Under normal market conditions, it is anticipated that the Fund's average weighted maturity will range from 6 to 25 years. The Fund may shorten its average weighted maturity to as little as 90 days if deemed appropriate for temporary defensive purposes. PRIME QUALITY MONEY MARKET FUND The Prime Quality Money Market Fund will invest in money market instruments denominated in U.S. dollars consisting of (i) U.S. Treasury obligations; (ii) custodial receipts representing interests in component parts of U.S. Treasury obligations; (iii) obligations issued or guaranteed as to principal and interest by agencies and instrumentalities of the U.S. Government; (iv) commercial paper issued by domestic and foreign issuers rated in the highest short-term rating category by one or more NRSROs as described in the "Appendix" or, if not rated, determined by the Fund's Advisor to be of 17 comparable quality; (v) high quality obligations (including certificates of deposit, time deposits, bankers' acceptances, Eurodollar and Yankee bank obligations) of U.S. commercial banks (including foreign branches of such banks), and U.S. and London branches of foreign banks or savings and loan and thrift institutions that are members of the Federal Reserve System, the Federal Deposit Insurance Corporation, or the Federal Savings and Loan Insurance Corporation; (vi) high quality short-term corporate obligations issued by companies with commercial paper meeting the ratings indicated in (iv), above, or, if not rated, determined by the Fund's Advisor to be of comparable quality; (vii) repurchase agreements involving such obligations; (viii) high quality obligations of supranational entities satisfying the credit ratings described in (iv), above, or, if not rated, determined by the Fund's Advisor to be of comparable quality; and (ix) medium term notes. The Fund may not invest more than 25% of its total assets in obligations issued by foreign branches of U.S. banks and London branches of foreign banks. The Fund may purchase securities subject to standby commitments. As a money market fund, the Fund is subject to limitations on the percentage of its assets that may be invested in any one issuer and on the percentage that may be invested in securities carrying the second highest rating assigned by the requisite NRSROs. U.S. GOVERNMENT SECURITIES MONEY MARKET FUND The U.S. Government Securities Money Market Fund will invest exclusively in U.S. Treasury obligations, U.S. Government Subsidiary Corporation securities (e.g., GNMA Securities) and repurchase agreements with dealers selected pursuant to guidelines adopted by the Trust's Board of Trustees and collateralized by U.S. Treasury securities and U.S. Government Subsidiary Corporation securities. TAX-EXEMPT MONEY MARKET FUND The Tax-Exempt Money Market Fund intends to be fully invested in securities the interest on which is exempt from regular federal income taxes in the opinion of bond counsel to the issuer. It is a fundamental policy of the Tax-Exempt Money Market Fund to invest at least 80% of its total assets in securities the income from which is exempt from regular federal income taxes and not treated as a preference item for purposes of the alternative minimum tax. The Fund may invest in high quality, U.S. dollar denominated municipal securities of issuers located in all fifty states, the District of Columbia, Puerto Rico and other U.S. territories rated in one of the two highest short-term rating categories by S&P or Moody's or, if not rated, determined by the Fund's Advisor to be of comparable quality. The Fund will primarily purchase municipal bonds with a remaining maturity of 397 days or less, and will also acquire municipal notes and tax-exempt commercial paper with similar maturities. The Fund may agree to purchase short-term securities on a when-issued basis and may invest in securities subject to standby commitments. Securities purchased on a when-issued basis are subject to settlement within 45 days of the purchase date. The Fund's Advisor has discretion to invest up to 20% of the Fund's assets in U.S. dollar denominated obligations consisting of taxable money market instruments, obligations issued or guaranteed by the U.S. Government or its agencies and instrumentalities, repurchase agreements and securities subject to the alternative minimum tax. 18 GENERAL INVESTMENT POLICIES AND STRATEGIES For temporary defensive purposes, during periods when its Advisor determines that market conditions warrant, each Fund, except the U.S. Government Securities Money Market Fund and Short-Term U.S. Treasury Securities Fund, may hold a portion of its assets in cash and 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; time deposits issued by banks or savings and loan associations; and commercial paper rated in the highest rating category. A Fund may not be pursuing its investment objective when it is engaged in temporary defensive investing. The municipal bonds that the Investment Grade Tax-Exempt Bond Fund and State Tax-Exempt Bond Funds may purchase include general obligation bonds, revenue or special obligation bonds, and private activity and industrial development bonds. General obligation bonds are backed by the taxing power of the issuing municipality while revenue or special obligation bonds are backed by a specific project or facility. The State Tax-Exempt Bond Funds may also purchase certificates of participation which represent an interest in an underlying obligation or commitment such as an obligation issued in connection with a leasing arrangement. The payment of principal and interest on private activity and industrial development bonds generally is dependent solely on the ability of the facility's user to meet its obligation and the pledge, if any, of real or personal property as security for such payment. The Advisor to a State Tax-Exempt Bond Fund or the Investment Grade Tax-Exempt Bond Fund may buy or sell portfolio securities with the intention of generating capital gains. Such gains will increase the Fund's total return and will be taxable upon distribution to Shareholders. See "Tax Information." In the event that a security owned by a Fund is downgraded below the stated rating categories, its Advisor will review and take appropriate action with regard to the security. A Fund's purchase of shares of other investment companies is limited by the Investment Company Act of 1940 (the "1940 Act") and will ordinarily result in an additional layer of charges and expenses. Each of the Funds may engage in securities lending and will limit such practice to 33 1/3% of its total assets. No Fund may purchase additional securities while its outstanding borrowings exceed 5% of its assets. It is a non-fundamental policy of each Fund to invest no more than 15% of its net assets in illiquid securities (10% of the total assets of each Money Market Fund). An illiquid security is a security which cannot be disposed of in the usual course of business within seven days 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 FIXED INCOME SECURITIES The market value of a Fund's fixed income investments will change in response to interest rate changes and other factors. During periods of falling interest rates, the values of outstanding fixed income securities generally 19 rise. Conversely, during periods of rising interest rates, the values of such securities generally decline. Securities with longer maturities are subject to greater fluctuations in value than securities with shorter maturities. Changes by an NRSRO to the rating of any fixed income security and in the ability of an issuer to make payments of interest and principal also affect the value of these investments. Changes in the value of a Fund's securities will not affect cash income derived from these securities but will affect the Fund's net asset value. Fixed income securities rated BBB by S&P or Baa by Moody's (the lowest rating of investment grade bonds) are deemed by these rating services to have speculative characteristics. Guarantees of a Fund's securities by the U.S. Government, its agencies or instrumentalities guarantee only the payment of principal and interest on the guaranteed securities, and do not guarantee the securities' yield or value or the yield or value of a Fund's shares. There is a risk that the current interest rate on floating and variable rate instruments may not accurately reflect existing market interest rates. FOREIGN SECURITIES Investing in the securities of foreign companies involves special risks and considerations not typically associated with investing in U.S. companies. These risks and considerations include differences in accounting, auditing and financial reporting standards, generally higher commission rates on foreign portfolio transactions, the possibility of expropriation or confiscatory taxation, adverse changes in investment or exchange control regulations, political instability which could affect U.S. investment in foreign countries and potential restrictions of the flow of international capital and currencies. Foreign companies may also be subject to less government regulation than U.S. companies. Moreover, the dividends payable on the foreign securities may be subject to foreign withholding taxes, thus reducing the net amount of income available for distribution to a 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. MORTGAGE-BACKED SECURITIES Mortgage-backed securities are subject to the risk of prepayment of the underlying mortgages. During periods of declining interest rates, prepayment of mortgages underlying these securities can be expected to accelerate. When the mortgage-backed securities held by a Fund are prepaid, the Fund generally will reinvest the proceeds in securities with a yield that reflects prevailing interest rates, which may be lower than the prepaid security. MUNICIPAL SECURITIES Since each State Tax-Exempt Bond Fund invests in municipal securities issued by governmental entities of its specific state, the performance of each State Tax-Exempt Bond Fund may be especially affected by factors pertaining to such state's economy and other factors specifically affecting the ability of issuers in that state to meet their obligations. As a result, the value of each State Tax-Exempt Bond Fund's shares may fluctuate more widely than the value of shares of a portfolio investing in securities relating to a number of different states. The ability of state, county, or local 20 governments to meet their obligations will depend primarily on the availability of tax and other revenues to those governments and on their fiscal conditions generally. Municipal securities may be affected from time to time by economic, political, geographic and demographic conditions. In addition, constitutional amendments, legislative measures, executive orders, administrative regulations and voter initiatives may limit a government's power to raise revenues or increase taxes and thus could adversely affect an issuer's ability to meet financial obligations. ZERO COUPON OBLIGATIONS Zero coupon obligations are sold at original issue discount and do not make periodic payments. Zero coupon obligations may be subject to greater fluctuations in value due to interest rate changes than interest bearing obligations. A Fund will be required to include the imputed interest in zero coupon obligations in its current income. Because each Fund distributes all of its net investment income to Shareholders, a Fund may have to sell portfolio securities to distribute the income attributable to these obligations and securities at a time when its Advisor would not have chosen to sell such obligations or securities and which may result in a taxable gain or loss. INVESTMENT LIMITATIONS The following investment limitations constitute fundamental policies of each Fund. Fundamental policies cannot be changed with respect to a Fund without the consent of the holders of a majority of the Fund's outstanding shares. The term "majority of the outstanding shares" means the vote of (i) 67% or more of a Fund's shares present at a meeting, if more than 50% of the outstanding shares of the Fund are present or represented by proxy, or (ii) more than 50% of a Fund's outstanding shares, whichever is less. Each Fund may not: 1. Purchase securities of any issuer (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 a Fund would be invested in the securities of such issuer; provided, however, that a Fund may invest up to 25% of its total assets without regard to this restriction as permitted by applicable law. 2. Purchase any securities which would cause more than 25% of the total assets of a Fund to be invested in the securities of one or more issuers conducting their principal business activities in the same industry, provided that this limitation does not apply to investments in obligations issued or guaranteed by the U.S. Government or its agencies and instrumentalities, repurchase agreements involving such securities or tax-exempt securities issued by governments or political subdivisions of governments and, with respect to only the Money Market Funds, obligations issued by domestic branches of U.S. banks or U.S. branches of foreign banks subject to the same regulations as U.S. banks. For purposes of this limitation, (i) utility companies will be divided according to their services, for example, gas, gas transmission, electric and telephone will each be considered a separate industry; (ii) financial service companies will be classified according to the end users of their services, for example, automobile finance, bank finance and diversified finance will each be considered a separate industry; and (iii) supranational entities will be considered to be a separate industry. It is a non-fundamental policy of the Tax-Exempt Money Market Fund and Investment 21 Grade Tax-Exempt Bond Fund that they will not invest more than 25% of their respective net assets in securities of one or more issuers conducting their principal activities in the same state. In addition, the Tax-Exempt Money Market Fund, Investment Grade Tax-Exempt Bond Fund and State Tax-Exempt Bond Funds will not invest more than 25% of their respective total assets in securities the interest on which is derived from revenues of similar type projects. 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 MONEY MARKET FUNDS From time to time each Money Market Fund may advertise its "current yield" and "effective compound yield." Both yield figures are based on historical earnings and are not intended to indicate future performance. The "current yield" of each Fund refers to the income generated by an investment in a Fund over a seven-day period (which period will be stated in the advertisement). This income is then "annualized." That is, the amount of income generated by the investment during that week is assumed to be generated each week over a 52-week period and is shown as a percentage of the investment. The "effective yield" is calculated similarly but, when annualized, the income earned by an investment in a Fund is assumed to be reinvested. The "effective yield" will be slightly higher than the "current yield" because of the compounding effect of this assumed reinvestment. The Tax-Exempt Money Market Fund may also advertise a "tax-equivalent yield," which is calculated by determining the rate of return that would have been achieved on a fully taxable investment to produce the after tax equivalent of the Fund's yield, assuming certain tax brackets for a Shareholder. BOND AND STATE TAX-EXEMPT BOND FUNDS From time to time, the Bond and State Tax-Exempt Bond Funds may advertise yield and total return. These figures will be based on historical earnings and are not intended to indicate future performance. The yield of a Fund refers to the annualized income generated by an investment in that Fund over a specified 30-day period. The yield is calculated by assuming that the income generated by the investment during that period is generated over one year and is shown as a percentage of the investment. The Investment Grade Tax-Exempt and State Tax-Exempt Bond Funds may also advertise a "tax-equivalent yield," which is calculated by determining the rate of return that would have been achieved on a fully taxable investment to produce the after tax equivalent of the Fund's yield, assuming certain tax brackets for a Shareholder. The total return of a Fund refers to the average compounded rate of return to a hypothetical investment, including any sales charge imposed, for designated time periods (including but not limited to, the period from which a Fund commenced operations through the specified date), assuming that the entire investment is redeemed at the end of each period and assuming the reinvestment of all dividend and capital gains distributions. The performance of the Shares of the Trust will normally be higher than for Investor Shares and Flex Shares because Investor Shares and Flex Shares are subject to distribution, service, and certain transfer agent fees not charged to Trust Shares. Because of their differing distribution 22 expense arrangements, the performance of Flex Shares in comparison to Investor Shares will vary depending upon the investor's investment time horizon. Each Fund may periodically compare its performance to other mutual funds tracked by mutual fund rating services, to broad groups of comparable mutual funds or to unmanaged indices which may assume reinvestment of dividends but generally do not reflect deductions for administrative and management costs. PURCHASE OF FUND SHARES Trust Shares of the Trust are sold primarily to financial institutions or intermediaries, 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 generally may not purchase Trust Shares directly, although individuals may be able to purchase Trust Shares through accounts maintained with financial institutions and potentially through the Preferred Portfolio Account (an asset allocation account available through SunTrust Securities, Inc.). 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 the reorders to the Trust's transfer agent, Federated Services Company (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 (a "business day"). However, money market mutual fund shares cannot be purchased or redeemed for same day settlement on days the Federal Reserve is closed. MONEY MARKET FUNDS A purchase order for any of the Money Market Funds will be effective as of the Business Day it is received by the Transfer Agent and eligible to receive dividends declared the same day if the Transfer Agent receives the order before 11:00 a.m. Eastern time for the Tax-Exempt Money Market Fund or before 1:00 p.m. Eastern time for the Prime Quality Money Market Fund and U.S. Government Securities Money Market Fund and the Custodian receives federal funds before 4:00 p.m. Eastern time on such day. Otherwise, purchase orders for the Money Market Funds will be effective the next Business Day provided the Custodian receives readily available funds before 4:00 p.m. Eastern time on the next such Business Day. The purchase price is the net asset value per share next computed after the order is received and accepted by the Trust. The net asset value per share of each Fund is determined by dividing the total value of its investments and other assets, less any liabilities, by its total outstanding shares. The net asset value per share is calculated as of the close of business of the New York Stock Exchange (currently 4:00 p.m. Eastern time) each Business Day based on the amortized cost method described 23 in the Statement of Additional Information and is expected to remain constant at $1.00 per share. BOND AND STATE TAX-EXEMPT BOND FUNDS A purchase order for any of the Bond and State Tax-Exempt Bond Funds 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 and payment is received within one day. Purchases will be made in full and fractional shares of the Trust calculated to three decimal places. The purchase price of Trust Shares of a Fund is the net asset value next determined after a purchase order is effective. The net asset value per share of a 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 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 each Fund. 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). The Trust maintains procedures, including identification methods and other means, for ascertaining the identity of callers and authenticity of instructions. If reasonable procedures are not employed, the Trust and/or the Transfer Agent may be liable for any losses due to the unauthorized or fraudulent telephone transactions. Neither the 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. Shares of the Funds are offered only to residents of states in which the shares are eligible for purchase. Investors in certain states may be required to purchase shares through institutions registered as brokers/dealers in such states. Although the methodology and procedures for calculating the net asset value of the Trust Shares are identical to those of the Investor Shares and Flex Shares, the net asset value per share of the classes may differ because of the distribution and certain transfer agent expenses charged to Investor Shares and Flex Shares. REDEMPTION OF FUND SHARES An order to redeem Trust shares must be transmitted to the Transfer Agent by the financial institution as the record owner. 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. With respect to the Money Market Funds, redemption orders must be received by the Transfer Agent on a Business Day before 1:00 p.m. Eastern time for the Prime Quality and U.S. Government Securities Money Market Funds and before 11:00 a.m. Eastern time for the Tax-Exempt Money Market Fund to be effective that day. Redemption orders received after the times noted above will normally be executed the following day. STI Classic Funds reserves the right to wire redemption proceeds within five Business Days after receiving the redemption orders if, in the judgment of the Advisor, an earlier payment could adversely impact a Fund. 24 With respect to the Bond and State Tax-Exempt Bond Funds, 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 within five Business Days following receipt of the order. 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 MONEY MARKET FUNDS Dividends from net investment income (exclusive of capital gains) of each of the Money Market Funds are declared on each Business Day to Shareholders at the close of business on the day of declaration. 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 (except in the case of the Tax-Exempt Money Market Fund) and minus the amortization of market premium on such assets, (iii) 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. Trust Shares begin earning dividends on the Business Day the purchase order is effective and continue earning dividends through and including the Business Day before the redemption order is effective. Dividends are paid within ten Business Days after the end of each month in the form of additional Trust Shares of the same Fund unless the Shareholder has elected prior to the date of distribution to receive payment in cash. Such election, or any revocation thereof, must be made in writing at least 15 days prior to the date of distribution to the Transfer Agent and will become effective with respect to dividends paid after its receipt. Dividends are paid within ten Business Days after a Shareholder's complete redemption of its Trust Shares in a Fund. BOND AND STATE TAX-EXEMPT BOND FUNDS Dividends from net investment income (exclusive of capital gains) are declared on each Business Day and paid monthly by each of the Bond and State Tax-Exempt Bond Funds. Each Fund's net realized capital gains (including net short-term capital gains) are distributed at least annually. Net income for dividend purposes consists of (i) interest accrued and original issue discount earned on the Fund's assets, (ii) plus the amortization of market discount (except in the case of the Investment Grade Tax-Exempt Bond and State Tax-Exempt Bond Funds) 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. Investor Shares and Flex Shares invested in the Bond and State Tax-Exempt Bond Funds are eligible to begin earning dividends that are declared on the Business Day after the purchase order is effective and continue to be eligible for dividends through and including the day the redemption order is effective. The net asset value of Trust Shares of the non-Money Market Funds 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 same Fund unless the customer has elected prior to the 25 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 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 a Fund. 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 each Fund or its Shareholders. In particular, no attempt has been made herein to provide information on the tax laws of Florida, Georgia or Tennessee. Accordingly, Shareholders are urged to consult their tax advisors regarding specific questions as to federal, state and local income taxes. TAX STATUS OF EACH FUND Each Fund is treated as a separate entity for federal tax purposes, and is not combined with the Trust's other Funds. Each 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. Each Fund intends to make sufficient distributions prior to the end of each calendar year to avoid liability for the federal excise tax applicable to regulated investment companies. TAX STATUS OF DISTRIBUTIONS: MONEY MARKET FUNDS The Prime Quality Money Market Fund and the U.S. Government Securities Money Market Fund will each distribute all of their net investment income (including, for this purpose, net short-term capital gains) to Shareholders. Dividends from net investment income will be taxable to Shareholders as ordinary income whether received in cash or in additional shares. The Tax-Exempt Money Market Fund will distribute all of its net investment income (including net short-term capital gains) to Shareholders. If, at the close of each quarter of its taxable year, at least 50% of the value of the Fund's assets consists of obligations the interest on which is excludable from gross income, the Fund may pay exempt-interest dividends to its Shareholders. Those dividends constitute the portion of the aggregate dividends as designated by the Fund, equal to the excess of the excludable interest over certain amounts disallowed as deductions. Exempt-interest dividends are excludable from a Shareholder's gross income for regular federal income tax purposes, but may have alternative minimum tax consequences. See the Statement of Additional Information. Current federal tax law limits the types and volume of bonds qualifying for the federal income tax exemption of interest, which may have an effect on the ability of the Tax-Exempt Money Market Fund to purchase sufficient amounts of tax-exempt securities to satisfy the Code's requirements for the payment of exempt-interest dividends. 26 TAX STATUS OF DISTRIBUTIONS: BOND AND STATE TAX-EXEMPT BOND FUNDS Each 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 Funds will be taxable to Shareholders as ordinary income whether received in cash or in additional shares. Each of the Investment Grade Tax-Exempt Bond and State Tax-Exempt Bond Funds will distribute all of its net investment income (including net short-term capital gains) to Shareholders. If, at the close of each quarter of its taxable year, at least 50% of the value of each of the Fund's assets consist of obligations the interest on which is excludable from gross income, the Fund may pay exempt-interest dividends to its Shareholders. Those dividends constitute the portion of the aggregate dividends as designated by the Fund, equal to the excess of the excludable interest over certain amounts disallowed as deductions. Exempt-interest dividends are excludable from a Shareholder's gross income for regular federal income tax purposes, but may have alternative minimum tax consequences. See the Statement of Additional Information. Current federal tax law limits the types and volume of bonds qualifying for the federal income tax exemption of interest, which may have an effect on the ability of the Investment Grade Tax-Exempt Bond and State Tax-Exempt Bond Funds to purchase sufficient amounts of tax-exempt securities to satisfy the Code's requirements for the payment of exempt-interest dividends. TAX STATUS OF DISTRIBUTIONS: ALL FUNDS Dividends from net investment income will qualify for the dividends received deduction for corporate Shareholders only to the extent such distributions are derived from dividends paid by domestic corporations. Dividends from net capital gains (the excess of net long-term capital gains over net short-term capital loss) will be treated 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. Each Fund will make annual reports to Shareholders of the federal income tax status of all distributions. Dividends declared by a 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 Shareholders on December 31, of that year, if paid by the Fund any time during the following January. Income received on direct U.S. obligations is exempt from tax at the state level when received directly by a Fund and may be exempt, depending on the state, when received by a Shareholder from a 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. Each 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 27 portion of the income dividends received from a Fund is considered tax exempt in their particular states. Income derived by a Fund from obligations of foreign issuers may be subject to foreign withholding taxes. No Fund will be able to treat Shareholders as having paid their proportionate share of such foreign taxes. Interest on indebtedness incurred or continued by a Shareholder in order to purchase shares of a "tax-exempt" Fund is not deductible. Furthermore, entities or persons who are "substantial users" (or persons related to "substantial users") of facilities financed by "private activity bonds" or certain industrial development bonds should consult their tax advisors before purchasing shares. For these purposes, the term "substantial user" is defined generally to include a "non-exempt person" who regularly uses in trade or business a part of a facility financed from the proceeds of such bonds. See the Statement of Additional Information. A 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 Fund. All consideration received by the Trust for shares of any Fund and all assets of such Fund belong to that Fund and would be subject to liabilities related thereto. The Trust pays its expenses, including fees of its service providers, audit and legal expenses, expenses of preparing prospectuses, proxy solicitation material and reports to Share- holders, costs of custodial services and registering the shares under federal and state securities laws, pricing, insurance expenses, litigation and other extraordinary expenses, brokerage costs, interest charges, taxes and organization expenses. BOARD OF TRUSTEES The management and affairs of the Trust are supervised by the Trustees under the laws governing business trusts in the Commonwealth of Massachusetts. The Trustees have approved contracts under which, as described below, certain companies provide essential management services to the Trust. INVESTMENT ADVISORS The Advisors are indirect wholly-owned subsidiaries of SunTrust Banks, Inc. ("SunTrust"), a southeastern regional bank holding company with assets of $66 billion as of December 31, 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, Inc.-- provide a wide range of personal and corporate banking, trust, and investment services through more than 600 locations in the three-state area. Total discretionary assets under management with SunTrust Banks, Inc. equalled approximately $47 billion as of December 31, 1995. Trusco Capital Management, Inc. ("Trusco") serves as the Advisor to the Prime Quality Money Market, U.S. Government Securities Money Market, Tax-Exempt Money Market, Short-Term U.S. Treasury Securities, Short-Term Bond and U.S. Government Securities Funds. As of June 30, 1996, Trusco had approximately 28 $13.7 billion in assets under management. The principal business address of Trusco is 50 Hurt Plaza, Suite 1400, Atlanta, Georgia 30303. STI Capital Management, N.A. ("STI Capital") serves as the Advisor to the Limited-Term Federal Mortgage Securities, Investment Grade Bond, Investment Grade Tax-Exempt Bond and Florida Tax-Exempt Bond Funds. As of June 30, 1996, STI Capital had discretionary management authority with respect to assets of approximately $11 billion. The principal business address of STI Capital is P.O. Box 3808, Orlando, Florida 32802. SunTrust Bank, Chattanooga, N.A. ("SunTrust Bank, Chattanooga") (formerly American National Bank & Trust Company) serves as the Advisor to the Tennessee Tax-Exempt Bond Fund. SunTrust Bank, Chattanooga had approximately $1.7 billion in assets under management as of December 31, 1995. The principal business address of SunTrust Bank, Chattanooga is 736 Market Street, Chattanooga, Tennessee 37402. SunTrust Bank, Atlanta (formerly Trust Company Bank) serves as the Advisor to the Georgia Tax-Exempt Bond Fund. As of December 31, 1995, SunTrust Bank, Atlanta had approximately $12.5 billion in assets under management. The principal address for SunTrust Bank, Atlanta is 25 Park Place, Atlanta, Georgia 30303. The Trust and the above Advisors have entered into advisory agreements (the "Advisory Agreements"). Under the Advisory Agreements, the Advisors make the investment decisions for the assets of the Funds they advise and continuously review, supervise and administer their Fund's respective investment programs. The Advisors discharge their 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 FUNDS INVOLVE RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. RETURNS AND PRINCIPAL VALUES WILL FLUCTUATE AND SHARES AT REDEMPTION MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THERE IS NO GUARANTEE THAT ANY STI CLASSIC FUND WILL ACHIEVE ITS INVESTMENT OBJECTIVE. With respect to all Funds, the Advisors may execute brokerage or other agency transactions through affiliates of the Advisors. For the services provided and expenses incurred pursuant to the applicable Advisory Agreement: Trusco is entitled to receive advisory fees computed daily and paid monthly at the annual rate of .74%, .65%, .65%, .55%, .65% and .65% of the average daily net assets of the U.S. Government Securities Fund, Prime Quality Money Market Fund, U.S. Government Securities Money Market Fund, Tax-Exempt Money Market Fund, Short-Term U.S. Treasury Securities Fund and Short-Term Bond Fund, respectively; STI Capital is entitled to receive advisory fees computed daily and paid monthly at the annual rate of .65%, .74%, .74% and .65% of the average daily net assets of the Florida Tax-Exempt Bond Fund, Investment Grade Bond Fund, Investment Grade Tax-Exempt Bond Fund and Limited-Term Federal Mortgage Securities Fund, respectively; SunTrust Bank, Chattanooga, N.A. is entitled to receive advisory fees computed daily and paid monthly at the annual rates of .65% of the average daily net assets of the Tennessee Tax-Exempt Bond Fund and SunTrust Bank, Atlanta is entitled to receive advisory fees computed daily and paid monthly at the annual rate of .65% of the average daily net assets of the Georgia Tax-Exempt Bond Fund. 29 From time to time, an Advisor may waive (either voluntarily or pursuant to applicable state limitations) advisory fees payable by a Fund. Currently, the Advisors have 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 any time. For the fiscal year ended May 31, 1996: Trusco received advisory fees computed daily and paid monthly at the annual rate of .50%, .51%, .37%, .22%, .46%, and .16% of the average daily net assets of the Prime Quality Money Market Fund, U.S. Government Securities Money Market Fund, Tax-Exempt Money Market Fund, Short-Term U.S. Treasury Securities Fund, Short-Term Bond Fund, and U.S. Government Securities Fund, respectively; STI Capital received advisory fees computed daily and paid monthly at the annual rate of .38%, .63%, .61%, and .43% of the average daily net assets of the Florida Tax-Exempt Bond Fund, Investment Grade Bond Fund, Investment Grade Tax-Exempt Bond Fund, and Limited-Term Federal Mortgage Securities Fund, respectively; SunTrust Bank, Chattanooga received advisory fees computed daily and paid monthly at the annual rate of .00% of the average daily net assets of the Tennessee Tax-Exempt Bond Fund and SunTrust Bank, Atlanta received advisory fees computed daily and paid monthly at the annual rate of .37% of the average daily net assets of the Georgia Tax-Exempt Bond Fund. PORTFOLIO MANAGERS Mr. Charles B. Leonard, CFA, First Vice President of Trusco, and Michael L. Ford, an Associate of Trusco, have been responsible for the day-to-day management of the U.S. Government Securities Fund since it commenced operations. Mr. Leonard has been with Trusco since 1986 as the senior fixed income manager. Mr. Ford has been with Trusco since April, 1994. Prior to joining Trusco, Mr. Ford served as a senior securities analyst with Liberty Capital Advisors from January, 1992 to April, 1994 and served as a securities analyst at Southern Farm Bureau Life Insurance Company from 1990 to 1992. Ms. Mary F. Cernilli, CFA, has been responsible for the day-to-day management of the Tax-Exempt Money Market Fund since January, 1993. Prior to joining Trusco, Ms. Cernilli served as a Treasury Manager with the Xerox Corporation from 1990 to 1993. Mr. David Yealy has been responsible for the day-to-day management of the Short-Term Bond and Short-Term U.S. Treasury Securities Funds since July, 1996 and the Prime Quality Money Market and U.S. Government Securities Funds since they commenced operations. Mr. Yealy joined Trusco in 1991 and currently serves as a Vice President. Mr. L. Earl Denney CFA and Mr. Dave E. West CFA have been responsible for the day-to-day management of the Limited-Term Federal Mortgage Securities Fund since it commenced operations. Mr. Denney has served as Executive Vice President of STI Capital since 1983. Mr. West has served as a fixed income portfolio manager with STI Capital since 1989. Mr. Denney has also been responsible for the day-to-day management of the Investment Grade Bond Fund since it commenced operations. Ms. Gay Cash has been responsible for the day-to-day management of the Georgia Tax-Exempt Bond Fund since it commenced operations. Ms. Cash has served as a Vice President of SunTrust Bank, Atlanta since January 1, 1987. 30 Mr. Ronald Schwartz has been responsible for the day-to-day management of the Florida Tax-Exempt Bond and Investment Grade Tax-Exempt Bond Funds since each Fund commenced operations. Mr. Schwartz joined STI Capital in 1988 and currently serves as a Senior Vice President. Mr. Schwartz, has also been responsible for the day-to-day management of the Tennessee Tax-Exempt Bond Fund since July, 1995. Mr. Schwartz serves as Vice President and Trust Investment Officer of SunTrust Bank, Chattanooga. BANKING LAWS Banking laws and regulations, including the Glass-Steagall Act as presently interpreted by the Board of Governors of the Federal Reserve System, currently (a) prohibit a bank holding company registered under the Federal Bank Holding Company Act of 1956 or its affiliates from sponsoring, organizing, controlling, or distributing the shares of a registered, open-end investment company continuously engaged in the issuance of its shares, and generally prohibit banks from underwriting securities, but (b) do not prohibit such a bank holding company or affiliate or banks generally from acting as an investment advisor, transfer agent, or custodian to such an investment company or from purchasing shares of such a company as agent for and upon the order of a customer. The Advisors believe that each may perform the services for STI Classic Funds contemplated by their respective Advisory Agreements described in this Prospectus without violation of applicable banking laws or regulations. However, future changes in legal requirements relating to the permissible activities of banks and their affiliates, as well as future interpretations of present requirements, could prevent the Advisors from continuing to perform services for STI Classic Funds. If the Advisors were prohibited from providing services to STI Classic Funds, 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 Advisors, or their affiliates, would consider the possibility of offering to perform additional services for STI Classic Funds. It is not possible, of course, to predict whether or in what form such legislation might be enacted or the terms upon which the Advisors, or such affiliates, might offer to provide such services. In addition, state securities laws on this 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 (the "Distribution Agreement"). No compensation is paid to the Distributor for distribution services for the Trust Shares of each 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. The Flex Shares of a Fund are subject to a contingent deferred sales charge, pay a distribution services fee to the Distributor and are also subject to a services fee for personal service and maintenance of shareholder accounts. The contingent deferred sales charge option of the Flex Shares provides investors with an alternative purchase arrangement to Investor Shares. An investor may call 1-800-874-4770 to 31 receive more information regarding Investor Shares or 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. Each Fund may execute brokerage or other agency transactions through the Distributor for which the Distributor receives compensation. ADMINISTRATION SEI Fund Resources (the "Administrator") serves as the Administrator of the Trust. 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 from each Fund, which is calculated daily and paid monthly, at an annual rate as follows:
AVERAGE AGGREGATE DAILY NET ASSETS FEE - -------------------------------------------- --------- $1 - $1 billion 0.10% over $1 billion to $5 billion 0.07% over $5 billion to $8 billion 0.05% over $8 billion to $10 billion 0.045% over $10 billion 0.04%
From time to time, the Administrator may waive (either voluntarily or pursuant to applicable state limitations) all or a portion of the administration fee payable with respect to the Trust. TRANSFER AGENT AND DIVIDEND DISBURSING AGENT Federated Services Company, Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779, 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, Georgia 30308 serves as Custodian of the assets of each Fund. The custodian holds cash, securities and other assets of the Trust as required by the 1940 Act. LEGAL COUNSEL Morgan, Lewis & Bockius LLP, Philadelphia, Pennsylvania, serves as legal counsel to the Trust. INDEPENDENT PUBLIC ACCOUNTANTS The independent public accountants to the Trust are Arthur Andersen LLP, Philadelphia, Pennsylvania. OTHER INFORMATION VOTING RIGHTS Each share held entitles the 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. 32 REPORTING The Trust issues unaudited financial information audited financial statements annually. The Trust furnishes proxy statements and other reports to Shareholders of record. SHAREHOLDER INQUIRIES Shareholders may contact their financial institution's representative in order to obtain information on account statements, procedures and other related information. DESCRIPTION OF PERMITTED INVESTMENTS The following is a description of the permitted investments for the Funds. Further discussion is contained in the Statement of Additional Information. AMERICAN DEPOSITARY RECEIPTS ("ADRs") -- ADRs are securities, typically issued by a U.S. financial institution (a "depositary"), that evidence ownership interests in a security or a pool of securities issued by a foreign issuer and deposited with the depositary. ADRs may be available through "sponsored" or "unsponsored" facilities. A sponsored facility is established jointly by the issuer of the security underlying the receipt and a depositary, whereas an unsponsored facility may be established by a depositary without participation by the issuer of the underlying security. Holders of unsponsored depositary receipts generally bear all the costs of the unsponsored facility. The depositary of an unsponsored facility frequently is under no obligation to distribute shareholder communications received from the issuer of the deposited security or to pass through, to the holders of the receipts, voting rights with respect to the deposited securities. ASSET-BACKED SECURITIES -- Asset-backed securities are securities secured by non-mortgage assets such as company receivables, truck and auto loans, leases and credit card receivables. Such securities are generally issued as pass-through certificates, which represent undivided fractional ownership interests in the underlying pools of assets. Such securities also may be debt instruments, which are also known as collateralized obligations and are generally issued as the debt of a special purpose entity, such as a trust, organized solely for the purpose of owning such assets and issuing such debt. Asset-backed securities are not issued or guaranteed by the U.S. Government, its agencies or instrumentalities; however, the payment of principal and interest on such obligations may be guaranteed up to certain amounts and for a certain period by a letter of credit issued by a financial institution (such as a bank or insurance company) unaffiliated with the issuers of such securities. The purchase of asset-backed securities raises risk considerations peculiar to the financing of the instruments underlying such securities. For example, there is a risk that another party could acquire an interest in the obligations superior to that of the holders of the asset-backed securities. There also is the possibility that recoveries on repossessed collateral may not, in some cases, be available to support payments on those securities. Asset-backed securities entail prepayment risk, which may vary depending on the type of asset, but is generally less than the prepayment risk associated with mortgage-backed securities. In addition, credit card receivables are unsecured obligations of the card holder. The market for asset-backed securities is at a relatively early stage of development. Accordingly, there may be a limited secondary market for such securities. 33 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. CORPORATE DEBT OBLIGATIONS -- Corporate debt obligations are debt instruments issued by corporations with maturities exceeding 270 days. Such instruments may include putable corporate bonds and zero coupon bonds. CUSTODIAL RECEIPTS -- Custodial receipts are interests in separately traded interest and principal component parts of U.S. Treasury obligations that are issued by banks or brokerage firms and are created by depositing U.S. Treasury obligations into a special account at a custodian bank. The custodian holds the interest and principal payments for the benefit of the registered owners of the certificates or receipts. The custodian arranges for the issuance of the certificates or receipts evidencing ownership and maintains the register. Receipts include Treasury Receipts ("TRs"), Treasury Investment Growth Receipts ("TIGRs"), and Certificates of Accrual on Treasury Securities ("CATS"). Receipts are sold as zero coupon securities which means that they are sold at a substantial discount and redeemed at face value at their maturity date without interim cash payments of interest or principal. This discount is accreted over the life of the security, and such accretion will constitute the income earned on the security for both accounting and tax purposes. Because of these features, such securities may be subject to greater interest rate volatility than interest paying investments. See "Zero Coupon Obligations." DERIVATIVES -- Derivatives are securities whose value is derived from an underlying contract, index or security, or any combination thereof. This includes: futures, swap agreements, and some mortgage-back securities (CMOs, REMICs and SMBs). See elsewhere in this "Description of Permitted Investments" for discussions of these various instruments, and see "Investment Policies and Strategies" for more information about any investment policies and limitations applicable to their use. DOLLAR ROLLS -- Dollar rolls are transactions in which securities are sold for delivery in the current month and the seller simultaneously contracts to repurchase substantially similar securities on a specified future date. Any difference between the sale price and the purchase price is netted against the interest income foregone on the securities sold to arrive at an implied borrowing rate. Alternatively, the sale and purchase transactions can be executed at the same price, with the Fund being paid a fee as consideration for entering into the commitment to purchase. Dollar rolls may be renewed prior to cash settlement and initially may involve only a firm commitment agreement by the Fund to buy a security. If the 34 broker-dealer to whom the Fund sells the security becomes insolvent, the Fund's right to repurchase the security may be restricted. Other risks involved in entering into dollar rolls include the risk that the value of the security may change adversely over the term of the dollar roll and that the security the Fund is required to repurchase may be worth less than the security that the Fund originally held. To avoid any leveraging concerns, the Fund will place U.S. Government or other liquid, high grade assets in a segregated account in an amount sufficient to cover its repurchase obligation. EURODOLLAR AND YANKEE BANK OBLIGATIONS -- Eurodollar bank obligations are U.S. dollar-denominated certificates of deposit or time deposits issued outside the United States by foreign branches of U.S. banks or by foreign banks. Yankee bank obligations are U.S. dollar denominated obligations issued in the United States by foreign banks. FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS -- Futures contracts provide for the future sale by one party and purchase by another party of a specified amount of a specific security at a specified future time and at a specified price. An option on a futures contract gives the purchaser the right, in exchange for a premium, to assume a position in a futures contract at a specified exercise price during the term of the option. A Fund may use futures contracts and related options for BONA FIDE hedging purposes, to offset changes in the value of securities held or expected to be acquired, to minimize fluctuations in foreign currencies, or to gain exposure to a particular market or instrument. A Fund will minimize the risk that it will be unable to close out a futures contract by only entering into futures contracts which are traded on national futures exchanges. Stock index futures are futures contracts for various stock indices that are traded on registered securities exchanges. A stock index futures contract obligates the seller to deliver (and the purchaser to take) an amount of cash equal to a specific dollar amount times the difference between the value of a specific stock index at the close of the last trading day of the contract and the price at which the agreement is made. There are risks associated with these activities, including the following: (1) the success of a hedging strategy may depend on an ability to predict movements in the prices of individual securities, fluctuations in markets and movements in interest rates, (2) there may be an imperfect or no correlation between the changes in market value of the securities held by the Fund and the prices of futures and options on futures, (3) there may not be a liquid secondary market for a futures contract or option, (4) trading restrictions or limitations may be imposed by an exchange, and (5) government regulations may restrict trading in futures contracts and futures options. GUARANTEED INVESTMENT CONTRACTS ("GICs") -- GICs are contracts issued by U.S. insurance companies. Pursuant to such contracts, the Fund makes cash contributions to a deposit fund of the insurance company's general account. The insurance company then credits to the Fund on a monthly basis guaranteed interest at either a fixed, variable or floating rate. A GIC provides that this guaranteed interest will not be less than a certain minimum rate. A GIC is a general obligation of the issuing insurance company and not a separate account. The purchase price paid for a GIC becomes part of the 35 general assets of the issuer, and the contract is paid at maturity from the general assets of the issuer. Generally, GICs are not assignable or transferable without the permission of the issuing insurance company. For this reason, an active secondary market in GICs does not currently exist and GICs are considered to be illiquid investments. 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. LOAN PARTICIPATIONS -- Loan participations are interests in loans to U.S. corporations which are administered by the lending bank or agent for a syndicate of lending banks, and sold by the lending bank or syndicate member ("intermediary bank"). In a loan participation, the borrower corporation will be deemed to be the issuer of the participation interest except to the extent the Fund derives its rights from the intermediary bank. Because the intermediary bank does not guarantee a loan participation, a loan participation is subject to the credit risks associated with the underlying corporate borrower. In the event of bankruptcy or insolvency of the corporate borrower, a loan participation may be subject to certain defenses that can be asserted by such borrower as a result of improper conduct by the intermediary bank. In addition, in the event the underlying corporate borrower fails to pay principal and interest when due, the Fund may be subject to delays, expenses and risks that are greater than those that would have been involved if the Fund had purchased a direct obligation of such borrower. Under the terms of a Loan Participation, the Fund may be regarded as a creditor of the intermediary bank (rather than of the underlying corporate borrower), so that the Fund may also be subject to the risk that the intermediary bank may become insolvent. The secondary market for loan participations is limited and any such participation purchased by the Fund may be regarded as illiquid. MEDIUM TERM NOTES -- Medium term notes are periodically or continuously offered corporate or agency debt that differs from traditionally underwritten corporate bonds only in the process by which they are issued. MORTGAGE-BACKED SECURITIES -- Mortgage-backed securities are instruments that entitle the holder to a share of all interest and principal payments from mortgages underlying the security. The mortgages backing these securities include conventional thirty-year fixed rate mortgages, graduated payment mortgages, and adjustable rate mortgages. During periods of declining interest rates, prepayment of mortgages underlying mortgage-backed securities can be expected to accelerate. Prepayment of mortgages which underlie securities purchased at a premium often results in capital losses, while prepayment of mortgages purchased at a discount often results in capital gains. Because of these unpredictable prepayment characteristics, it is often not possible to predict accurately the average life or realized yield of a particular issue. GOVERNMENT PASS-THROUGH SECURITIES: These are securities that are issued or guaranteed by a U.S. Government agency representing an interest in a pool of mortgage loans. The primary issuers or guarantors of these mortgage-backed securities are the 36 Government National Mortgage Association ("GNMA"), the Federal National Mortgage Association ("FNMA") and the Federal Home Loan Mortgage Corporaiton ("FHLMC"). FNMA and FHLMC obligations are not backed by the full faith and credit of the U.S. Government as GNMA certificates are, but FNMA and FHLMC securities are supported by the instrumentalities' right to borrow from the U.S. Treasury. GNMA, FNMA and FHLMC each guarantees timely distributions of interest to certificate holders. GNMA and FNMA also each guarantees timely distributions of scheduled principal. FHLMC has in the past guaranteed only the ultimate collection of principal of the underlying mortgage loan; however, FHLMC now issues mortgage-backed securities (FHLMC Gold PCs) which also guarantee timely payment of monthly principal reductions. Government and private guarantees do not extend to the securities' value, which is likely to vary inversely with fluctuations in interest rates. PRIVATE PASS-THROUGH SECURITIES: These are mortgage-backed securities issued by a non-governmental entity, such as a trust. These securities include collateralized mortgage obligations ("CMOs") and real estate mortgage investment conduits ("REMICs") that are rated in one of the top two rating categories. While they are generally structured with one or more types of credit enhancement, private pass-through securities typically lack a guarantee by an entity having the credit status of a governmental agency or instrumentality. COLLATERALIZED MORTGAGE OBLIGATIONS: CMOs are debt obligations or multiclass pass-through certificates issued by agencies or instrumentalities of the U.S. Government or by private originators or investors in mortgage loans. In a CMO, series of bonds or certificates are usually issued in multiple classes. Principal and interest paid on the underlying mortgage assets may be allocated among the several classes of a series of a CMO in a variety of ways. Each class of a CMO, often referred to as a "tranche," is issued with a specific fixed or floating coupon rate and has a stated maturity or final distribution date. Principal payments on the underlying mortgage assets may cause CMOs to be retired substantially earlier then their stated maturities or final distribution dates, resulting in a loss of all or part of any premium paid. REMICS: A REMIC is a CMO that qualifies for special tax treatment under the Internal Revenue Code and invests in certain mortgages principally secured by interests in real property. Investors may purchase beneficial interests in REMICs, which are known as "regular" interests, or "residual" interests. Guaranteed REMIC pass-through certificates ("REMIC Certificates") issued by FNMA or FHLMC represent beneficial ownership interests in a REMIC trust consisting principally of mortgage loans or FNMA, FHLMC or GNMA-guaranteed mortgage pass-through certificates. For FHLMC REMIC Certificates, FHLMC guarantees the timely payment of interest, and also guarantees the payment of principal as payments are required to be made on the underlying mortgage participation certificates. FNMA REMIC Certificates are issued and guaranteed as to timely distribution of principal and interest by FNMA. STRIPPED MORTGAGE-BACKED SECURITIES ("SMBS"): SMBs are usually structured with two classes that receive specified proportions of the monthly interest and principal payments from a pool of mortgage securities. One class may receive all of the interest payments and thus is termed an interest-only class ("IO"), while the other class may receive all of the principal payments and thus is termed the principal-only class ("PO"). The value of IOs tends to increase as rates rise and decrease as rates fall; the opposite is true of POs. SMBs are 37 extremely sensitive to changes in interest rates because of the impact thereon of prepayment of principal on the underlying mortgage securities. The market for SMBs is not as fully developed as other markets; SMBs therefore may be illiquid. RISK FACTORS: Due to the possibility of prepayments of the underlying mortgage instruments, mortgage-backed securities generally do not have a known maturity. In the absence of a known maturity, market participants generally refer to an estimated average life. An average life estimate is a function of an assumption regarding anticipated prepayment patterns, based upon current interest rates, current conditions in the relevant housing markets and other factors. The assumption is necessarily subjective, and thus different market participants can produce different average life estimates with regard to the same security. There can be no assurance that estimated average life will be a security's actual average life. MUNICIPAL FORWARDS -- Municipal forwards are forward commitments for the purchase of tax-exempt bonds with a specified coupon to be delivered by an issuer at a future date, typically exceeding 45 days but normally less than one year after the commitment date. Municipal forwards are normally used as a refunding mechanism for bonds that may only be redeemed on a designated future date. A Fund will enter into municipal forwards when the price and yield of the underlying bonds are believed to be favorable when compared to current prices and yields. As with forward commitments, municipal forwards are subject to market fluctuations due to changes in market interest rates between the commitment date and the settlement date. Municipal forwards may be considered to be illiquid investments. To avoid any leveraging concerns, a Fund will maintain liquid, high grade securities in a segregated account at least equal to the purchase price of the municipal forward. MUNICIPAL LEASE OBLIGATIONS -- Municipal lease obligations are securities issued by state and local governments and authorities to finance the acquisition of equipment and facilities. They may take the form of a lease, an installment purchase contract, a conditional sales contract, or a participation interest in any of the above. Depending upon the market for such securities, municipal lease obligations may be illiquid. MUNICIPAL SECURITIES -- Municipal securities consist of (i) debt obligations issued by or on behalf of public authorities to obtain funds to be used for various public facilities, for refunding outstanding obligations, for general operating expenses, and for lending such funds to other public institutions and facilities, and (ii) certain private activity and industrial development bonds issued by or on behalf of public authorities to obtain funds to provide for the construction, equipment, repair or improvement of privately operated facilities. General obligation bonds are backed by the taxing power of the issuing municipality. Revenue bonds are backed by the revenues of a project or facility (tolls from a bridge, for example). Certificates of participation represent an interest in an underlying obligation or commitment, such as an obligation issued in connection with a leasing arrangement. The payment of principal and interest on private activity and industrial development bonds generally is dependent solely on the ability of a facility's user to meet its financial obligations and the pledge, if any, of real and personal property as security for such payment. Municipal securities include both municipal notes and municipal bonds. Municipal notes 38 include general obligation notes, tax anticipation notes, revenue anticipation notes, bond anticipation notes, certificates of indebtedness, demand notes and construction loan notes and participation interests in municipal notes. Municipal bonds include general obligation bonds, revenue or special obligation bonds, private activity and industrial development bonds and participation interests in municipal bonds. OBLIGATIONS OF SUPRANATIONAL ENTITIES -- Supranational entities are entities established through the joint participation of several governments, and include the Asian Development Bank, Inter-American Development Bank, International Bank for Reconstruction and Development (World Bank), African Development Bank, European Economic Community, European Investment Bank and Nordic Investment Bank. REPURCHASE AGREEMENTS -- Repurchase agreements are agreements by which a Fund obtains a security and simultaneously commits to return the security to the seller at an agreed upon price on an agreed upon date within a number of days from the date of purchase. The custodian will hold the security as collateral for the repurchase agreement. A Fund bears a risk of loss in the event the other party defaults on its obligations and the Fund is delayed or prevented from exercising its right to dispose of the collateral or if the Fund realizes a loss on the sale of the collateral. A Fund will enter into repurchase agreements only with financial institutions deemed to present minimal risk of bankruptcy during the term of the agreement based on established guidelines. Repurchase agreements are considered loans under the Investment Company Act of 1940. RESTRAINTS ON INVESTMENTS BY MONEY MARKET FUNDS -- Investments by a money market fund are subject to limitations imposed under regulations adopted by the Securities and Exchange Commission. Under these regulations, money market funds may only acquire obligations that present minimal credit risk and that are "eligible securities," which means they are (i) rated, at the time of investment, by at least two nationally recognized security rating organizations (one if it is the only organization rating such obligation) in the highest rating category or, if unrated, determined to be of comparable quality (a "first tier security"), or (ii) rated according to the foregoing criteria in the second highest rating category or, if unrated, determined to be of comparable quality ("second tier security"). A security is not considered to be unrated if its issuer has outstanding obligations of comparable priority and security that have a short-term rating. In the case of taxable money market funds, investments in second tier securities are subject to the further constraints in that (i) no more than 5% of a Fund's assets may be invested in second tier securities and (ii) any investment in securities of any one such issuer is limited to the greater of 1% of the Fund's total assets or $1 million. A taxable money market fund may also hold more than 5% of its assets in first tier securities of a single issuer for three "business days" (that is, any day other than a Saturday, Sunday or customary business holiday). 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 39 liquidity of restricted securities, and for monitoring the Advisor's implementation of the guidelines and procedures. SECURITIES LENDING -- In order to generate additional income, a Fund may lend securities which it owns pursuant to agreements requiring that the loan be continuously secured by collateral consisting of cash, securities of the U.S. Government or its agencies equal to at least 100% of the market value of the securities lent. A Fund continues to receive interest on the securities lent while simultaneously earning interest on the investment of cash collateral. Collateral is marked to market daily. There may be risks of delay in recovery of the securities or even loss of rights in the collateral should the borrower of the securities fail financially or become insolvent. SECURITIES OF FOREIGN ISSUERS -- There are certain risks connected with investing in foreign securities. These include risks of adverse political and economic developments (including possible governmental seizure or nationalization of assets), the possible imposition of exchange controls or other governmental restrictions, less uniformity in accounting and reporting requirements, the possibility that there will be less information on such securities and their issuers available to the public, the difficulty of obtaining or enforcing court judgments abroad, restrictions on foreign investments in other jurisdictions, difficulties in effecting repatriation of capital invested abroad, and difficulties in transaction settlements and the effect of delay on shareholder equity. Foreign securities may be subject to foreign taxes, and may be less marketable than comparable U.S. securities. The value of a Fund's investments denominated in foreign currencies will depend on the relative strengths of those currencies and the U.S. dollar, and a Fund may be affected favorably or unfavorably by changes in the exchange rates or exchange control regulations between foreign currencies and the U.S. dollar. Changes in foreign currency exchange rates also may affect the value of dividends and interest earned, gains and losses realized on the sale of securities and net investment income and gains, if any, to be distributed to shareholders by a Fund. STANDBY COMMITMENTS AND PUTS -- Securities subject to standby commitments or puts permit the holder thereof to sell the securities at a fixed price prior to maturity. Securities subject to a standby commitment or put may be sold at any time at the current market price. However, unless the standby commitment or put was an integral part of the security as originally issued, it may not be marketable or assignable; therefore, the standby commitment or put would only have value to the Fund owning the security to which it relates. In certain cases, a premium may be paid for a standby commitment or put, which premium will have the effect of reducing the yield otherwise payable on the underlying security. The Fund will limit standby commitment or put transactions to institutions believed to present minimal credit risk. TIME DEPOSITS -- Time deposits are non-negotiable receipts issued by a bank in exchange for the deposit of funds. Like a certificate of deposit, it earns a specified rate of interest over a definite period of time; however, it cannot be traded in the secondary market. Time deposits are considered to be illiquid securities. U.S. GOVERNMENT AGENCIES -- Obligations issued or guaranteed by agencies of the U.S. Government, including, among others, the Federal Farm Credit Bank, the Federal Housing Administration and the Small Business Administration, and obligations issued or guaranteed by instrumentalities of the U.S. Government, including, among others, FHLMC, 40 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., GNMA securities), others are supported by the right of the issuer to borrow from the Treasury (e.g., Federal Farm Credit Bank securities), while still others are supported only by the credit of the instrumentality (e.g., FNMA securities). 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") and Coupon Under Book Entry Safekeeping ("CUBES"). VARIABLE AND FLOATING RATE INSTRUMENTS -- Certain obligations may carry variable or floating rates of interest, and may involve a conditional or unconditional demand feature. Such instruments bear interest at rates which are not fixed, but which vary with changes in specified market rates or indices. The interest rates on these securities may be reset daily, weekly, quarterly or some other reset period, and may have a floor or ceiling on interest rate changes. There is a risk that the current interest rate on such obligations may not accurately reflect existing market interest rates. A demand instrument with a demand notice exceeding seven days may be considered illiquid if there is no secondary market for such security. 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 segregate liquid high grade debt securities or cash in an amount at least equal to these commitments. The interest rate realized on these securities is fixed as of the purchase date and no interest accrues to the Fund before settlement. These securities are subject to market fluctuation due to changes in market interest rates and it is possible that the market value at the time of settlement could be higher or lower than the purchase price if the general level of interest rates has changed. Although a Fund generally purchases securities on a when-issued or forward commitment basis with the intention of actually acquiring securities for its portfolio, a Fund may dispose of a when-issued security or forward commitment prior to settlement if it deems appropriate. ZERO COUPON OBLIGATIONS -- Zero coupon obligations are debt securities that do not bear any interest, but instead are issued at a deep discount from par. The value of a zero coupon obligation increases over time to reflect the interest accreted. Such obligations will not result in the payment of interest until maturity, and will have greater price volatility than similar securities that are issued at par and pay interest periodically. A-1 APPENDIX I. BOND RATINGS CORPORATE AND MUNICIPAL BONDS The following are descriptions of Standard & Poor's Corporation ("S&P") and Moody's Investors Service, Inc. ("Moody's") corporate and municipal 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. 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. MUNICIPAL NOTE RATINGS Moody's highest rating for state and municipal and other short-term notes is MIG-1 and VMIG-1. Short-term municipal securities rated MIG-1 or VMIG-1 are of the best quality. They have strong protection from established cash flows of funds for their servicing or from established and broad-based access to the market for refinancing or both. Short-term municipal securities rated MIG-2 and VMIG-2 are of high quality. Margins of protection are ample although not so large as in the preceding group. A-2 An S&P note rating reflects the liquidity concerns and market access risks unique to notes. Notes due in 3 years or less will likely receive a note rating. Notes maturing beyond 3 years will most likely receive a long-term debt rating. The following criteria will be used in making that assessment. - Amortization schedule (the larger the final maturity relative to other maturities the more likely it will be treated as a note). - Source of Payment (the more dependent the issue is on the market for its refinancing, the more likely it will be treated as a note) Note rating symbols are as follows: SP-1. Very strong or strong capacity to pay principal and interest. Those issues determined to possess overwhelming safety characteristics will be given a plus (+) designation. SP-2. Satisfactory capacity to pay principal and interest. 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) STI CLASSIC FUNDS ORGANIZATIONAL OVERVIEW * INVESTMENT ADVISORS Trusco Capital Management, Inc. 50 Hurt Plaza Suite 1400 Atlanta, GA 30303 STI Capital Management, N.A. P.O. Box 3808 Orlando, FL 32802 SunTrust Bank, Chattanooga, N.A. 736 Market Street Chattanooga, TN 37402 SunTrust Bank, Atlanta 25 Park Place Atlanta, GA 30303 * DISTRIBUTOR SEI Financial Services Company 680 E. Swedesford Road Wayne, PA 19087 * ADMINISTRATOR SEI Fund Resources 680 E. Swedesford Road Wayne, PA 19087 * 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 * 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
100486 / 10-95 DISTRIBUTOR SEI Financial Services Company -- - - - - - - - - - STI CLASSIC FUNDS TRUST SHARES CAPITAL GROWTH FUND VALUE INCOME STOCK FUND MID-CAP EQUITY FUND BALANCED FUND SUNBELT EQUITY FUND INTERNATIONAL EQUITY INDEX FUND INTERNATIONAL EQUITY FUND INVESTMENT ADVISORS TO THE FUNDS: STI CAPITAL MANAGEMENT, N.A. TRUSCO CAPITAL MANAGEMENT, INC. (THE "ADVISORS") The STI Classic Funds (the "Trust") is a mutual fund that offers shares in a number of separate investment portfolios (each a "Fund" and, collectively, the "Funds"). This Prospectus sets forth concisely the information about the Trust Shares of the above-referenced Funds. Investors are advised to read this Prospectus and retain it for future reference. A Statement of Additional Information relating to the Funds dated the same date as this Prospectus has been filed with the Securities and Exchange Commission and is available without charge through the Distributor, SEI Financial Services Company, 680 East Swedesford Road, Wayne, Pennsylvania 19087-1658 or by calling 1-800-874-4770. 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 1, 1996 2 The Trust Shares are offered primarily to financial institutions and intermediaries ("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. Individuals may not purchase Trust Shares directly, although individuals may be able to purchase Trust Shares through accounts maintained with financial institutions. TABLE OF CONTENTS Expense Summary........................................................... 3 Financial Highlights...................................................... 4 Performance Information for the Predecessor Collective Funds.............. 6 The Trust................................................................. 6 Funds and Investment Objectives........................................... 7 Investment Policies and Strategies........................................ 7 General Investment Policies and Strategies................................ 13 Investment Risks.......................................................... 14 Investment Limitations.................................................... 16 Performance Information................................................... 16 Purchase of Fund Shares................................................... 17 Redemption of Fund Shares................................................. 18 Dividends and Distributions............................................... 18 Tax Information........................................................... 19 STI Classic Funds Information............................................. 20 The Trust................................................................. 20 Board of Trustees......................................................... 20 Investment Advisors....................................................... 20 Portfolio Managers........................................................ 21 Banking Laws.............................................................. 22 Distribution.............................................................. 23 Administration............................................................ 23 Transfer Agent and Dividend Disbursing Agent.............................. 23 Custodian................................................................. 23 Legal Counsel............................................................. 23 Independent Public Accountants............................................ 23 Other Information......................................................... 24 Voting Rights............................................................. 24 Reporting................................................................. 24 Shareholder Inquiries..................................................... 24 Description of Permitted Investments...................................... 24 Appendix.................................................................. A-1
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE TRUST'S STATEMENT OF ADDITIONAL INFORMATION 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. 3 EXPENSE SUMMARY TRUST SHARES The purpose of the following table is to help you understand the various costs and expenses that a shareholder will bear, directly or indirectly, in connection with an investment in the Trust Shares of each Fund. ANNUAL OPERATING EXPENSES (as a percentage of average net assets)
CAPITAL MID-CAP SUNBELT INTERNATIONAL GROWTH VALUE INCOME EQUITY BALANCED EQUITY EQUITY INDEX INTERNATIONAL FUND STOCK FUND FUND FUND FUND FUND EQUITY FUND - ---------------------------------------------------------------------------------------------------------------------- Management Fees (after fee waivers & reimbursements)(1).... 1.03% .80% 1.00% .79% 1.02% .76% 1.06% Other Fund Expenses.... .12% .15% .15% .16% .13% .29% .40% - ---------------------------------------------------------------------------------------------------------------------- Total Fund Operating Expenses (after fee waivers & reimbursements)(2)(3)... 1.15% .95% 1.15% .95% 1.15% 1.05% 1.46% - ---------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------
(1) Each Advisor is waiving, on a voluntary basis, a portion of its fee from each Fund. Each Advisor reserves the right to terminate its waiver at any time in its sole discretion. Absent such waivers, Advisory Fees for the Funds would be as follows: Capital Growth Fund -- 1.15%, Value Income Stock Fund -- .80%, Mid-Cap Equity Fund -- 1.15%, Balanced Fund -- .95%, Sunbelt Equity Fund -- 1.15%, International Equity Index Fund -- .90%, and International Equity Fund -- 1.25%. See "Investment Advisors." (2) Absent the voluntary waivers described above, Total Fund Operating Expenses would be as follows: Capital Growth Fund -- 1.27%, Value Income Stock Fund -- .95%, Mid-Cap Equity Fund -- 1.30%, Balanced Fund -- 1.11%, Sunbelt Equity Fund -- 1.28%, International Equity Index Fund -- 1.19%, and International Equity Fund -- 1.65%. (3)Total Fund Operating Expenses for the Value Income Stock Fund have been restated to reflect current fees.
ONE THREE FIVE TEN EXAMPLES YEAR YEARS YEARS YEARS - ----------------------------------------------------------------------------- An investor would pay the following expenses on a $1,000 investment assuming: (1) a 5% annual return and (2) redemption at the end of each time period. CAPITAL GROWTH FUND............................... $12 $ 37 $ 63 $140 VALUE INCOME STOCK FUND........................... $10 $ 30 $ 53 $117 MID-CAP EQUITY FUND............................... $12 $ 37 $ 63 $140 BALANCED FUND..................................... $10 $ 30 $ 53 $117 SUNBELT EQUITY FUND............................... $12 $ 37 $ 63 $140 INTERNATIONAL EQUITY INDEX FUND................... $11 $ 33 $ 58 $128 INTERNATIONAL EQUITY FUND......................... $15 $ 46 $ 80 $175 - ----------------------------------------------------------------------------- - -----------------------------------------------------------------------------
THE EXAMPLES ARE BASED UPON THE TOTAL OPERATING EXPENSES OF THE FUNDS AND SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. 4 FINANCIAL HIGHLIGHTS The following information has been audited by Arthur Andersen LLP, independent public accountants to the Trust, whose report thereon was unqualified. This information should be read in conjunction with the Trust's financial statements and notes thereto, which are included in the Trust's Statement of Additional Information and which appear, along with the report of Arthur Andersen LLP, in the Trust's 1996 Annual Report to Shareholders. Additional performance information regarding each Fund is contained in the Trust's Annual Report to Shareholders and is available without charge by calling 1-800-874-4770. For a Trust Share Outstanding Throughout the Period
NET REALIZED AND NET ASSET NET UNREALIZED DISTRIBUTIONS VALUE INVESTMENT GAINS FROM NET DISTRIBUTIONS NET ASSET BEGINNING INCOME (LOSSES) ON INVESTMENT FROM REALIZED VALUE END OF PERIOD (LOSS) INVESTMENTS INCOME CAPITAL GAINS OF PERIOD --------- ---------- ------------ ------------- ------------- ---------- -------------------- CAPITAL GROWTH FUND - ------------------- TRUST SHARES 1996......................... $ 12.18 $ 0.12 $ 3.32 $ (0.13) $ (0.59) $ 14.90 1995......................... 11.99 0.16 0.57 (0.14) (0.40) 12.18 1994......................... 11.95 0.16 0.31 (0.17) (0.26) 11.99 1993 (1)..................... 10.36 0.12 1.57 (0.10) -- 11.95 ------------------------- VALUE INCOME STOCK FUND - ------------------------ TRUST SHARES 1996......................... $ 11.59 $ 0.35 $ 2.71 $ (0.34) $ (1.16) $ 13.15 1995......................... 10.54 0.32 1.56 (0.32) (0.51) 11.59 1994......................... 10.23 0.29 0.70 (0.32) (0.36) 10.54 1993 (2)..................... 10.00 0.11 0.16 (0.04) -- 10.23 --------------------- MID-CAP EQUITY FUND - -------------------- TRUST SHARES 1996......................... $ 11.00 $ 0.08 $ 2.63 $ (0.08) $ (0.87) $ 12.76 1995......................... 9.85 0.08 1.15 (0.08) -- 11.00 1994 (3)..................... 10.00 0.02 (0.16) (0.01) -- 9.85 --------------- BALANCED FUND - -------------- TRUST SHARES 1996......................... $ 10.26 $ 0.33 $ 1.41 $ (0.34) $ (0.11) $ 11.55 1995......................... 9.76 0.33 0.49 (0.32) -- 10.26 1994 (4)..................... 10.00 0.11 (0.29) (0.06) -- 9.76 -------------------- SUNBELT EQUITY FUND - ------------------- TRUST SHARES 1996......................... $ 10.03 $ (0.04) $ 4.32 -- $ (0.20) $ 14.11 1995......................... 9.70 (0.01) 0.38 -- (0.04) 10.03 1994 (4)..................... 10.00 -- (0.30) -- -- 9.70 RATIO OF NET RATIO OF INVESTMENT RATIO OF NET EXPENSES TO INCOME (LOSS) INVESTMENT AVERAGE NET TO AVERAGE NET RATIO OF INCOME ASSETS ASSETS NET ASSETS EXPENSES (LOSS) TO (EXCLUDING (EXCLUDING PORTFOLIO TOTAL END OF PERIOD TO AVERAGE AVERAGE NET WAIVERS AND WAIVERS AND TURNOVER RETURN (000) NET ASSETS ASSETS REIMBURSEMENTS) REIMBURSEMENTS) RATE -------- ------------- ---------- ------------ --------------- --------------- -------- -------------------- CAPITAL GROWTH FUND - ------------------- TRUST SHARES 1996......................... 28.97% $ 981,498 1.15% 0.90% 1.27% 0.78% 156.46% 1995......................... 6.63% 984,205 1.15% 1.38% 1.28% 1.25% 127.79% 1994......................... 3.87% 891,870 1.15% 1.25% 1.29% 1.11% 123.87% 1993 (1)..................... 17.90%* 507,692 1.15%* 1.43%* 1.28%* 1.30%* 95.02% ------------------------- VALUE INCOME STOCK FUND - ------------------------ TRUST SHARES 1996......................... 27.91% $ 1,244,399 0.92% 2.86% 0.92% 2.86% 133.99% 1995......................... 19.06% 991,977 0.95% 3.16% 0.95% 3.16% 125.71% 1994......................... 9.95% 573,082 0.88% 3.21% 0.97% 3.12% 149.28% 1993 (2)..................... 9.05%* 137,761 0.80%* 4.32%* 0.96%* 4.16%* 34.71% --------------------- MID-CAP EQUITY FUND - -------------------- TRUST SHARES 1996......................... 25.54% $ 253,905 1.15% 0.70% 1.29% 0.56% 115.62% 1995......................... 12.56% 125,562 1.15% 0.88% 1.32% 0.71% 65.63% 1994 (3)..................... (1.39%)+ 57,036 1.15%* 1.20%* 1.68%* 0.67%* 7.99% --------------- BALANCED FUND - -------------- TRUST SHARES 1996......................... 17.26% $ 111,638 0.95% 3.00% 1.09% 2.86% 154.63% 1995......................... 8.72% 89,051 0.95% 3.44% 1.11% 3.28% 156.61% 1994 (4)..................... (1.78%)+ 90,579 0.95%* 2.76%* 1.25%* 2.46%* 105.65% -------------------- SUNBELT EQUITY FUND - ------------------- TRUST SHARES 1996......................... 43.19% $ 412,430 1.15% (0.34%) 1.28% (0.47%) 106.27% 1995......................... 3.81% 258,908 1.15% (0.12%) 1.30% (0.27%) 80.03% 1994 (4)..................... (2.99%)+ 128,280 1.15%* (0.19%)* 1.58%* (0.62%)* 21.42%
5 FINANCIAL HIGHLIGHTS (CONTINUED)
NET REALIZED NET ASSET AND DISTRIBUTIONS VALUE NET UNREALIZED FROM NET DISTRIBUTIONS NET ASSET BEGINNING INVESTMENT GAINS ON INVESTMENT FROM REALIZED VALUE END OF PERIOD INCOME INVESTMENTS INCOME CAPITAL GAINS OF PERIOD ---------- ---------- ------------ ------------- ------------- ---------- ------------------------------ INTERNATIONAL EQUITY INDEX FUND - ----------------------------- TRUST SHARES 1996......................... $ 10.24 $ 0.10 $ 0.84 $ (0.13) $ (0.09) $ 10.96 1995 (5)..................... 10.00 0.08 0.19 (0.02) (0.01) 10.24 ------------------------- INTERNATIONAL EQUITY FUND - ------------------------ TRUST SHARES 1996 (6)..................... $ 10.00 $ 0.05 $ 1.35 -- -- $ 11.40 RATIO OF NET RATIO OF INVESTMENT EXPENSES TO INCOME TO RATIO OF NET AVERAGE NET AVERAGE NET RATIO OF INVESTMENT ASSETS ASSETS NET ASSETS EXPENSES INCOME TO (EXCLUDING (EXCLUDING PORTFOLIO TOTAL END OF PERIOD TO AVERAGE AVERAGE NET WAIVERS AND WAIVERS AND TURNOVER RETURN (000) NET ASSETS ASSETS REIMBURSEMENTS) REIMBURSEMENTS) RATE -------- ------------- ---------- ------------ --------------- --------------- -------- ------------------------------ INTERNATIONAL EQUITY INDEX FUND - ----------------------------- TRUST SHARES 1996......................... 9.29% $ 90,980 1.05% 0.84% 1.19% 0.70% 30.46% 1995 (5)..................... 2.69%+ 89,446 1.05%* 1.13%* 1.31%* 0.87%* 10.37% ------------------------- INTERNATIONAL EQUITY FUND - ------------------------ TRUST SHARES 1996 (6)..................... 14.00%+ $ 213,306 1.46%* 1.36%* 1.65%* 1.17%* 113.34%
* Annualized. + Cumulative since commencement of operations. (1) The Capital Growth Fund Trust Shares commenced operations on July 1, 1992. (2) The Value Income Stock Fund Trust Shares commenced operations on February 12, 1993. (3) The Mid-Cap Equity Fund (formerly the Aggressive Growth Fund) Trust Shares commenced operations on February 2, 1994. (4) The Sunbelt Equity Fund Trust Shares and the Balanced Fund Trust Shares commenced operations on January 3, 1994. (5) The International Equity Index Fund Trust Shares commenced operations on June 6, 1994. (6) The International Equity Fund Trust Shares commenced operations on December 1, 1995. 6 PERFORMANCE INFORMATION FOR PREDECESSOR COLLECTIVE FUNDS The International Equity, Value Income Stock Fund and Sunbelt Equity Fund are each the successor to collective investment funds previously managed by STI Capital Management, Inc. and Trusco Capital Management, Inc. A substantial portion of the assets of those collective investment funds was transferred to the Funds in connection with each Fund's commencement of operations. Set forth below is certain performance data for the predecessor collective investment funds, which is deemed relevant because the collective investment funds were managed using virtually the same investment objectives, policies and restrictions as those used by each respective Fund. The performance data, however, is not necessarily indicative of the future performance of each Fund. Further, the predecessor collective funds were not subject to certain investment limitations imposed on mutual funds, which, if they had been imposed, may have adversely affected a collective fund's performance. The predecessor collective funds did not incur expenses that correspond to the advisory, administrative, and other fees to which each Fund is subject. Accordingly, the following performance information has been adjusted by applying the total expense ratios for the corresponding Fund, as disclosed in the Prospectus at the time the Fund commenced operations, which reduced the actual performance of the collective fund. The average annual total returns (adjusted to reflect current Fund expenses, net of voluntary waivers and reimbursements) for the following periods:
- ------------------------------------------------------------------------- ONE FIVE TEN SINCE YEAR YEARS YEARS INCEPTION - ------------------------------------------------------------------------- International Equity N/A N/A N/A 32.90% Collective Fund (2/1/95- 11/30/95) Value Income Stock 20.05% N/A N/A 16.29% Collective Fund (ending (10/1/89- 12/31/92) 12/31/92) Sunbelt Equity 22.87% 21.63 16.34 17.08% Collective Fund (ending (12/1/80- 12/31/93) 12/31/93)
The average annual total returns for the Funds from inception through May 31, 1996 and for the one- and three-year periods ended May 31, 1996 were as follows:
- ------------------------------------------------------------------- ONE THREE SINCE YEAR YEARS INCEPTION - ------------------------------------------------------------------- International Equity Fund* N/A N/A 30.05% Value Income Stock Fund** 27.91% 18.76% 17.89% Sunbelt Equity Fund*** 43.19% N/A 16.44%
*International Equity Fund commenced operations on December 1, 1995 **Value Income Stock Fund commenced operations on February 12, 1993. ***Sunbelt Equity Fund commenced operations on January 3, 1994. 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 each non-money market Fund through three separate classes (Trust Shares, Investor Shares and Flex Shares) and in each Money Market 7 Fund through two separate classes (Trust Shares and Investor Shares), which provide for variations in distribution and service fees, transfer agent fees, voting rights and dividends. Except for differences between classes, each share of each Fund represents an undivided, proportionate interest in that Fund. This Prospectus relates to the Trust Shares of the Funds described below. FUNDS AND INVESTMENT OBJECTIVES THE CAPITAL GROWTH FUND seeks to provide capital appreciation by investing primarily in a portfolio of common stocks, warrants and securities convertible into common stock which, in its Advisor's opinion, are undervalued in the marketplace at the time of purchase. THE VALUE INCOME STOCK FUND seeks to provide current income with the secondary goal of achieving capital appreciation by investing primarily in equity securities. THE MID-CAP EQUITY FUND (formerly known as Aggressive Growth Fund) seeks to provide capital appreciation by investing primarily in a diversified portfolio of common stocks, preferred stocks and securities convertible into common stock of small to mid-sized companies with above-average growth of earnings. Current income will not be an important criterion of investment selection and any such income should be considered incidental. THE BALANCED FUND seeks to provide capital appreciation and current income by investing in common and preferred stocks, warrants, securities convertible into common stock and investment grade fixed income securities. THE SUNBELT EQUITY FUND seeks to provide capital appreciation by investing substantially all, and under normal market conditions at least 65%, of its assets in common stocks, preferred stocks, warrants and securities convertible into common stock of U.S. companies headquartered and/or conducting a substantial portion of their operations in the southern region of the United States. Current income will not be an important criterion of investment selection and any such income should be considered incidental. THE INTERNATIONAL EQUITY INDEX FUND seeks to provide investment results that correspond to the aggregate price and dividend performance of the securities included in the Gross Domestic Product Weighted Morgan Stanley Capital International Europe, Australasia and Far East Index (the "MSCI EAFE-GDP Index" or "EAFE-GDP Index").1 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 a Fund will achieve its investment objective. The investment objective of each Fund is nonfundamental and may be changed without shareholder approval. INVESTMENT POLICIES AND STRATEGIES CAPITAL GROWTH FUND The Capital Growth Fund invests primarily in a diversified portfolio of common stocks, warrants, and securities convertible into common stocks which, in the Fund's Advisor's opinion, are undervalued in the marketplace at - ------------------------ 1 "MSCI EAFE-GDP Index" is a registered service mark of Morgan Stanley Capital International, which does not sponsor and is in no way affiliated with the International Equity Index Fund. 8 the time of purchase. In selecting securities for the Fund, its Advisor will evaluate factors believed to affect capital appreciation such as the issuer's background, industry position, historical returns on equity and experience and qualifications of the management team. Dividend and interest income should be considered incidental to the growth of capital. The Fund's Advisor will rotate the Capital Growth Fund's holdings between various market sectors based on economic analysis of the overall business cycle. Under normal conditions, at least 65% of the total assets of the Capital Growth Fund will be invested in common stocks. All of the common stocks in which the Fund invests are traded on registered exchanges or on the over-the-counter market in the United States. Assets of the Capital Growth Fund not invested in the securities described above may be invested in U.S. dollar denominated equity securities of foreign issuers (including sponsored American Depositary Receipts ("ADRs") that are traded on exchanges or listed on National Association of Securities Dealers Automated Quotations ("NASDAQ")); securities issued by money market mutual funds; pay-in-kind securities; and bonds. The bonds that the Capital Growth Fund may purchase may be rated in any rating category or may be unrated, provided that no more than 10% of the Fund's total assets will be invested in bonds rated below BBB by Standard & Poor's Corporation ("S&P") or below Baa by Moody's Investors Services, Inc. ("Moody's") or securities not rated by S&P or Moody's and of comparable quality. See "Investment Risks -- High Yield, Lower Rated Bonds." In addition, the Fund may invest up to 10% of its assets in restricted securities. The Fund's turnover rate for the fiscal year ended May 31, 1996 was 156%. This rate of turnover, if continued, will likely result in higher brokerage commissions and higher levels of realized capital gains than if the turnover rate was lower. VALUE INCOME STOCK FUND The Value Income Stock Fund seeks to provide current income by structuring its investments in an attempt to maintain the Fund's yield at a level above the average dividend yield of the securities comprising the S&P 500 Stock Index. Achieving such a yield will be the Fund's primary consideration when purchasing securities. A secondary consideration of the Fund will be capital appreciation. The Fund will invest at least 80% of its total assets in equity securities. Investments will consist primarily of common stocks, and, under normal market conditions, at least 65% of the Fund's assets will be invested in common stocks issued by corporations which have a history of paying regular dividends, although there can be no assurance that such corporations will continue to pay dividends. Other equity securities in which the Fund may invest are convertible debt securities; preferred stocks and warrants which are convertible into or exchangeable for common stocks; and U.S. dollar denominated equity securities of foreign issuers (including sponsored ADRs that are traded on exchanges or listed on NASDAQ). All of the common stocks in which the Fund invests are traded on registered exchanges such as the New York or American Stock Exchange or on the over-the-counter market in the United States (i.e., NASDAQ). The Fund may also purchase debt securities (corporate debt obligations and U.S. Treasury obligations) which may be rated in any rating category or may be unrated, provided that no more than 10% of the Fund's total assets will be invested in bonds rated below BBB by S&P or below 9 Baa by Moody's or securities not rated by S&P or Moody's and of comparable quality. The Fund may also invest in futures and options. The Fund will invest primarily in stocks of companies operating in all aspects of the U.S. and world economies that have a market capitalization of at least $500 million, and that the Fund's Advisor believes possess fundamentally favorable long-term characteristics. However, stocks of companies with smaller market capitalizations and stocks that are out of favor in the financial community and in which little opportunity for price appreciation is recognized by the financial community may also be purchased if the Fund's Advisor believes they are undervalued. The Fund's turnover rate for the fiscal year ended May 31, 1996 was 134%. This rate of turnover, if continued, will likely result in higher brokerage commissions and higher levels of realized capital gains than if the turnover rate was lower. MID-CAP EQUITY FUND The Mid-Cap Equity Fund invests primarily in a diversified portfolio of common stocks, preferred stocks, and securities convertible into common stocks of small to mid-size companies, (i.e., $50 million to $1 billion and $500 million to $5 billion, respectively, as measured by their market capitalization), with above-average growth of earnings. Under normal conditions, at least 80% of the total assets of the Fund will be invested in equity securities, and as a matter of non-fundamental policy, the Fund will invest at least 65% of its assets in mid-size companies. Current income will not be an important criterion of investment selection and any such income should be considered incidental. In selecting securities for the Fund, the Fund's Advisor will evaluate factors such as the issuer's background, industry position, historical returns on equity and experience and qualifications of the management team. Most of the common stocks in which the Fund invests are traded on registered exchanges or on the over-the-counter market in the United States. Assets of the Fund not invested in the securities described above may be invested in U.S. dollar denominated equity securities of foreign issuers (including sponsored ADRs that are traded on exchanges or listed on NASDAQ); securities issued by mutual funds; repurchase agreements; and bonds. The bonds that the Fund may purchase, including any variable or floating rate instruments, must be rated B or better by S&P or Moody's, provided that this requirement shall not apply to the Fund's purchase of bonds issued by the government of Canada or by various supranational entities, and provided further that no more than 10% of the Fund's total assets will be invested in bonds rated below BBB by S&P or below Baa by Moody's or securities not rated by S&P or Moody's and of comparable quality. The Fund may invest up to 10% of its assets in restricted securities. The Fund's turnover rate for the fiscal year ended May 31, 1996 was 116%. This rate of turnover, if continued, will likely result in higher brokerage commissions and higher levels of realized capital gains than if the turnover rate was lower. SUNBELT EQUITY FUND The Sunbelt Equity Fund seeks to provide capital appreciation by investing substantially all, and under normal market conditions at least 65%, of its assets in common stocks; preferred stocks; warrants; and securities convertible into common stock of U.S. companies headquartered and/or conducting a substantial portion of their operations in (i.e., maintaining at 10 least 50% of their assets in or deriving at least 50% of their revenues and/or sales from) the southern region of the United States. Current income will not be an important criterion of investment selection and any such income should be considered incidental. The Fund's Advisor will seek to identify and purchase securities of companies that it believes to be undervalued and that possess a strong balance sheet, a strong earnings record and adequate market liquidity. Most of the common stocks in which the Fund invests are traded on registered exchanges such as the New York or American Stock Exchange or on NASDAQ. The Fund will invest no more than 10% of its assets in convertible securities rated lower than BBB. (See "Investment Risks -- High Yield, Lower Rated Bonds.") The Fund may invest up to 10% of its total assets in restricted securities. The Fund may also purchase futures and options for hedging purposes. Obligations relating to futures contracts will be limited to not more than 20% of the Fund's total assets. The Fund will invest primarily in stocks of U.S. companies headquartered and/or operating in the following U.S. states: Texas, Arkansas, Alabama, Mississippi, Tennessee, Kentucky, Florida, Virginia, Georgia, North Carolina, South Carolina and Louisiana. To the extent that the Fund's investments are not as geographically dispersed across the U.S. as other funds with comparable objectives, the impact of economic forces on and the relative economic conditions of these states will be greater on Shareholders. The Fund's turnover rate for the fiscal year ended May 31, 1996 was 106%. This rate of turnover, if continued, will likely result in higher brokerage commissions and higher levels of realized capital gains than if the turnover rate was lower. BALANCED FUND The Balanced Fund seeks to provide capital appreciation and current income through investments in a diversified portfolio of common and preferred stocks, warrants, securities convertible into common stocks, and investment grade fixed income securities. Under normal conditions, no more than 70% of the total assets of the Fund will be invested in common stocks and other equity securities, and no more than 60% of the Fund's total assets will be invested in bonds and other fixed income securities. The Fund will maintain at least 25% of its total assets in senior fixed income securities. In selecting equity securities for the Fund, the Fund's Advisor will evaluate factors believed to affect capital appreciation such as the issuer's background, industry position, historical returns on equity and experience and qualifications of the management team. The Fund's Advisor will rotate the Fund's holdings between various market sectors based on economic analysis of the overall business cycle. All of the common stocks in which the Fund invests are traded on registered exchanges or on NASDAQ. Assets of the Fund not invested in the securities described above may be invested in U.S. dollar denominated equity securities of foreign issuers (including sponsored ADRs that are traded on exchanges or listed on NASDAQ), securities issued by investment companies, and bonds. The Fund will invest in investment grade fixed income securities rated BBB or better by S&P or Baa or better by Moody's or, if not rated by S&P or Moody's, of comparable quality at the time of purchase as determined by the Fund's Advisor, including corporate debt obligations; mortgage-backed securities, collateralized mortgage obligations and asset-backed securities; obligations issued or guaranteed as 11 to principal and interest by the U.S. Government, its agencies or instrumentalities; custodial receipts involving U.S. Treasury obligations; securities of the government of Canada and its provincial and local governments; securities issued or guaranteed by foreign governments, their political subdivisions, agencies or instrumentalities; and obligations of supranational entities. No more than 25% of the Fund's assets will be invested in securities rated BBB by S&P or Baa by Moody's or, if not rated by S&P or Moody's, of comparable quality at the time of purchase as determined by the Fund's Advisor. The Fund may purchase mortgage-backed securities issued or guaranteed as to the payment of principal and interest by the U.S. Government, its agencies or instrumentalities or, subject to a limit of 25% of the Fund's assets, mortgage-backed securities issued by private issuers. These mortgage-backed securities may be backed or collateralized by fixed, adjustable or floating rate mortgages. The Fund may also invest in asset backed securities which consist of securities backed by company receivables, truck and auto loans, leases, credit card receivables and home equity loans. In order to reduce interest rate risk, the Fund may purchase floating or variable rate securities. It may also buy securities on a when-issued basis, putable securities, pay-in-kind securities and zero coupon securities. The Fund may also invest futures and options. Some floating or variable rate securities will be subject to interest rate "caps" or "floors." The Balanced Fund's turnover rate for the fiscal year ended May 31, 1996 was 148% for the equity portion of its portfolio and 164% for the fixed income portion of its portfolio. These rates of turnover, if continued, will likely result in higher transaction costs and brokerage commissions and higher levels of realized capital gains than if the turnover rate was lower. INTERNATIONAL EQUITY INDEX FUND The Fund will invest substantially all and, under normal market conditions, at least 65% of its assets in common and preferred stocks; warrants; options; and securities convertible into common stock of companies headquartered or based in the approximately twenty foreign countries included in the EAFE-GDP Index. The Fund will invest only in the 1088 or so companies included in the EAFE-GDP Index. Because it is impractical to invest in every company included in the Index, the Fund will select a representative sample of securities in each country using a statistically-based optimization process. Morgan Stanley & Co. Incorporated maintains the optimization computer programs which will be utilized to select companies within each country. The Fund will be constructed to have aggregate investment characteristics similar to those of the EAFE-GDP Index. The Fund will invest in a statistically selected sample of the securities included in the EAFE-GDP Index, although not all countries nor all companies within a country will be represented in the Fund's portfolio of securities at any time. The Fund expects to invest in approximately 300 stocks so that the results fall within a targeted tracking error range. From time to time, adjustments may be made in the Fund's portfolio because of changes in the composition of the EAFE-GDP Index. No attempt will be made to manage the portfolio using traditional economic, financial and market analyses. The Fund expects that there will be a close correlation between the Fund's performance and that of the EAFE-GDP Index. A 1.00 correlation would indicate perfect correlation, 12 which would be achieved when the net asset value of the Fund, including the value of its dividend and capital gains distributions, increases or decreases in exact proportion to changes in the EAFE-GDP Index. The correlation between the Fund and the EAFE-GDP Index is expected to be over 0.95 on an annual basis. The Fund's ability to track the EAFE-GDP Index, however, may be affected by, among other things, transaction costs, changes in either the composition of the EAFE-GDP Index or number of shares outstanding for the component companies of the EAFE-GDP Index, and the timing and amount of purchases and redemptions. 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 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. These contracts may be bought or sold to protect the Fund, to some degree, against a possible loss resulting from an adverse change in the relationship between foreign currencies and the U.S. dollar. The Fund expects to be fully invested in the investments described above, but may invest up to 35% of its total assets in U.S. and non-U.S. denominated money market instruments; repurchase agreements; futures contracts, including stock index futures contracts; and options on futures contracts. Obligations relating to futures contracts will be limited to 20% of the Fund's total assets. The Fund is also permitted to acquire floating and variable rate securities; purchase securities on a when-issued basis; and purchase illiquid securities. 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 ADRs traded on registered exchanges or NASDAQ, or sponsored or unsponsored 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 13 foreign or 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 S&P or below Baa by Moody's, Inc. or securities not rated by S&P or Moody's and 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 its 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 its 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 Fund's turnover rate for the fiscal year ended May 31, 1996 was 113%. This rate of turnover, if continued, will likely result in higher brokerage commissions and higher levels of realized capital gains than if the turnover rate was lower. GENERAL INVESTMENT POLICIES AND STRATEGIES For temporary defensive purposes, during periods when its Advisor determines that market conditions warrant, each Fund may hold a portion of its assets in cash and 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; time deposits issued by banks or savings and loan associations; and commercial paper rated in the highest rating category. A Fund may not be pursuing its investment objective when it is engaged in temporary defensive investing. Each Fund, except the International Equity Index Fund, may purchase restricted securities, including Rule 144A securities, that its respective Advisor determines are liquid pursuant to guidelines established by the Trust's Board of Trustees. In the event that a security owned by a Fund is downgraded below the stated rating categories, its Advisor will review and take appropriate action with regard to the security. Each Fund may borrow money for temporary or emergency purposes in an amount not to exceed one-third of the value of its total assets. A Fund may not purchase additional securities while its outstanding borrowings exceed 5% of its assets. 14 Each Fund may purchase securities issued by money market mutual funds. A Fund's purchase of shares of other investment companies is limited by the Investment Company Act of 1940 (the "1940 Act") and will ordinarily result in an additional layer of charges and expenses. Each of the Funds 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 each Fund to invest no more than 15% of its net assets in illiquid securities. An illiquid security is a security which cannot be disposed of in the usual course of business within seven days 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 EQUITY SECURITIES Investments in equity securities are generally subject to market risks that may cause their prices to fluctuate over time. The values of convertible equity securities are also affected by prevailing interest rates, the credit quality of the issuer and any call provision. Fluctuations in the value of equity securities in which a Fund invests will cause the net asset value of the Fund to fluctuate. FIXED INCOME SECURITIES The market value of a Fund's fixed income investments will change in response to interest rate changes and other factors. During periods of falling interest rates, the values of outstanding fixed income securities generally rise. Conversely, during periods of rising interest rates, the values of such securities generally decline. Securities with longer maturities are subject to greater fluctuations in value than securities with shorter maturities. Changes by a nationally recognized statistical rating organization ("NRSRO") to the rating of any fixed income security and in the ability of an issuer to make payments of interest and principal also affect the value of these investments. Changes in the value of a Fund's securities will not affect cash income derived from these securities but will affect the Fund's net asset value. There is a risk that the current interest rate on floating and variable rate instruments may not accurately reflect existing market interest rates. Fixed income securities rated BBB by S&P or Baa by Moody's (the lowest ratings of investment grade bonds) are deemed by these rating services to have speculative characteristics. 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 15 securities may be subject to foreign withholding taxes, thus reducing the net amount of income available for distribution to a 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 International Equity Index Fund and International Equity Fund will seek to protect the value of its respective 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, they tend to limit any potential gain which might result should the value of such currency increase. HIGH YIELD, LOWER RATED BONDS A Fund's investments in high yield, lower rated bonds ("junk bonds") involve greater risk of default or price declines than investments in investment grade securities (E.G., securities rated BBB or higher by S&P or Baa or higher by Moody's) due to changes in the issuer's creditworthiness. 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 a 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 the issuer's credit quality and the outlook for economic growth. Thus, prices for high risk, high yield securities may move independently of interest rates and the overall bond market. In addition, the market for high risk, high yield securities may be adversely affected by legislative and regulatory developments. MORTGAGE-BACKED SECURITIES Mortgage-backed securities are subject to the risk of prepayment of the underlying mortgages. During periods of declining interest rates, prepayment of mortgages underlying these securities can be expected to accelerate. When the mortgage-backed securities held by the Balanced Fund are prepaid, the Balanced Fund generally will reinvest the proceeds in securities with a yield that reflects prevailing interest rates, which may be lower than the prepaid security. 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 great fluctuations in value due to interest rate changes. A Fund will be required to include the imputed interest in zero coupon obligations in its current income. Because each Fund distributes all of its net investment income to investors, a Fund may have to sell portfolio securities to distribute the income attributable to these obligations and securities at a time when its Advisor would not have chosen to sell such obligations or securities. 16 INVESTMENT LIMITATIONS The following investment limitations constitute fundamental policies of each Fund. Fundamental policies cannot be changed with respect to a Fund without the consent of the holders of a majority of the Fund's outstanding shares. The term "majority of the outstanding shares" means the vote of (i) 67% or more of a Fund's shares present at a meeting, if more than 50% of the outstanding shares of the Fund are present or represented by proxy, or (ii) more than 50% of a Fund's outstanding shares, whichever is less. Each Fund may not: 1. Purchase securities of any issuer (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 a Fund would be invested in the securities of such issuer; provided, however, that a Fund may invest up to 25% of its total assets without regard to this restriction as permitted by applicable law. 2. Purchase any securities which would cause more than 25% of the total assets of a Fund to be invested in the securities of one or more issuers conducting their principal business activities in the same industry, provided that this limitation does not apply to investments in obligations issued or guaranteed by the U.S. Government 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 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 Funds may advertise performance (total return and yield). These figures will be historical and are not intended to indicate future performance. The yield of a Fund refers to the annualized income generated by an investment in that Fund over a specified 30-day period. The yield is calculated by assuming that the income generated by the investment during that period is generated over one year and is shown as a percentage of the investment. The total return of a Fund refers to the average compounded rate of return on a hypothetical investment, including any sales charge imposed, for designated time periods (including but not limited to, the period from which a Fund commenced operations through the specified date), assuming that the entire investment is redeemed at the end of each period and assuming the reinvestment of all dividend and capital gains distributions. The performance of the Trust Shares of the Trust will normally be higher than for Investor Shares and Flex Shares because Investor Shares and Flex Shares are subject to distribution, service and certain transfer agent fees not charged to Trust Shares. The performance of Flex Shares in comparison to Investor Shares will vary depending upon the investment time horizon. 17 Each Fund may periodically compare its performance to other mutual funds tracked by mutual fund rating services, to broad groups of comparable mutual funds or to unmanaged indices which may assume reinvestment of dividends but generally do not reflect deductions for administrative and management costs. PURCHASE OF FUND SHARES Trust Shares of the Trust are sold primarily to financial institutions or intermediaries, 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 generally may not purchase Trust Shares directly, although individuals may be able to purchase Trust Shares through accounts maintained with financial institutions and potentially through the Preferred Portfolio Account (an asset allocation account available through SunTrust Securities, Inc.) 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 Trust's transfer agent, Federated Services Company (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 (a "Business Day"). A purchase order for any of the Funds will be effective as of the Business Day received by the Transfer Agent if the Transfer Agent receives the order before 4:00 p.m. Eastern time and payment is received within one day. Purchases will be made in full and fractional shares of the Trust calculated to three decimal places. The purchase price of shares of a 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 a 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 each Fund. 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). The Trust maintains procedures, including identification methods and other means, for ascertaining the identity of callers and authenticity of instructions. If reasonable procedures are not employed, the Trust and/or the Transfer Agent may be liable for any losses due to unauthorized or fraudulent telephone transactions. Neither the 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. 18 Shares of the Funds are offered only to residents of states in which the shares are eligible for purchase. Investors 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 Funds 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 Trust shares must be transmitted to the Transfer Agent by the financial institution as the record owner. 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 from net investment income (exclusive of capital gains) are declared and paid quarterly by each of the Funds, except that dividends are declared and paid annually by the International Equity Index Fund and International Equity Fund. Each Fund's net realized capital gains (including net short-term capital gains) are distributed at least annually. Net income for dividend purposes consists of (i) interest accrued and original issue discount earned on a 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 Funds 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 same 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 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 19 within ten Business Days after a Shareholder's complete redemption of its Trust Shares in a Fund. 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 each 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 EACH FUND: Each Fund is treated as a separate entity for federal tax purposes, and is not combined with the Trust's other Funds. Each 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. Each Fund intends to make sufficient distributions prior to the end of each calendar year to avoid liability for the federal excise tax applicable to regulated investment companies. TAX STATUS OF DISTRIBUTIONS: Each 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 Funds 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 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 Funds will make annual reports to Shareholders of the federal income tax status of all distributions. Dividends declared by a 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 a Fund from obligations of foreign issuers may be subject to foreign withholding taxes. The International Equity Index and International Equity Funds expect to elect to treat Shareholders as having paid their proportionate share of such foreign taxes. The other Funds will not be able to make this election. Income received on direct U.S. obligations is exempt from tax at the state level when received directly by a Fund and may be exempt, depending on the state, when received by the Shareholder as income dividends from a 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 Funds will inform 20 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 a Fund is considered tax-exempt in their particular state. A 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 Fund. All consideration received by the Trust for shares of any Fund and all assets of such Fund belong to that Fund and would be subject to liabilities related thereto. The Trust pays its expenses, including fees of its service providers, audit and legal expenses, expenses of preparing prospectuses, proxy solicitation material and reports to Shareholders, costs of custodial services and registering the shares under federal and state securities laws, pricing, insurance expenses, litigation and other extraordinary expenses, brokerage costs, interest charges, taxes and organization expenses. BOARD OF TRUSTEES The management and affairs of the Trust are supervised by the Trustees under the laws governing business trusts in the Commonwealth of Massachusetts. The Trustees have approved contracts under which, as described below, certain companies provide essential management services to the Trust. INVESTMENT ADVISORS The Advisors are indirect wholly-owned subsidiaries of SunTrust Banks, Inc. ("SunTrust"), a southeastern regional bank holding company with assets of $66 billion as of December 31, 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, Inc. -- provide a wide range of personal and corporate banking, trust, and investment services through more than 600 locations in the three-state area. Total discretionary assets under management with SunTrust Banks, Inc. equalled approximately $47 billion as of December 31, 1995. STI Capital Management, N.A. ("STI Capital") serves as the Advisor to the Capital Growth, Value Income Stock, Mid-Cap Equity, Balanced and International Equity Funds and joint advisor to the International Equity Index Fund. As of June 30, 1996, STI Capital had discretionary management authority with respect to assets of approximately $11 billion. The principal business address of STI Capital is P.O. Box 3808, Orlando, Florida 32802. Trusco Capital Management, Inc. ("Trusco") serves as the Advisor to the Sunbelt Equity Fund and as joint advisor to the International Equity Index Fund. As of June 30, 1996, Trusco had approximately $13.7 billion in assets under management. The principal business address of Trusco is 50 Hurt Plaza, Suite 1400, Atlanta, Georgia 30303. The Trust and the above Investment Advisors have entered into advisory agreements (the "Advisory Agreements"). Under the Advisory Agreements, the Advisors make the investment decisions for the assets of the Funds they advise and continuously review, supervise and administer their Fund's respective investment programs. The Advisors discharge their 21 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 FUNDS INVOLVE RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. RETURNS AND PRINCIPAL VALUES WILL FLUCTUATE AND SHARES AT REDEMPTION MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THERE IS NO GUARANTEE THAT ANY STI CLASSIC FUND WILL ACHIEVE ITS INVESTMENT OBJECTIVE. With respect to all Funds, the Advisors may execute brokerage or other agency transactions through affiliates of the Advisors. For the services provided and expenses incurred pursuant to the applicable Advisory Agreements, STI Capital is entitled to receive advisory fees computed daily and paid monthly at the annual rate of 1.15%, 0.95%, 1.15%, 0.80%, and 1.25% of the average daily net assets of the Capital Growth, Balanced, Mid-Cap Equity, Value Income Stock and International Equity Funds, respectively. Trusco is entitled to receive an advisory fee computed daily and paid monthly at the annual rate of 1.15% of the average daily net assets of the Sunbelt Equity Fund. Trusco and STI Capital jointly are entitled to receive an advisory fee computed daily and paid monthly at the annual rate of 0.90% of the average daily net assets of the International Equity Index Fund. Although the advisory fee for each Fund is higher than advisory fees paid by other mutual funds, the Trust believes that each such fee is comparable to the advisory fee paid by many other mutual funds with similar investment objectives and policies. From time to time, an Advisor may waive (either voluntarily or pursuant to applicable state limitations) advisory fees payable by a Fund. Currently, the Advisors have 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 any time. For the fiscal year ended May 31, 1996, STI Capital received advisory fees computed daily and paid monthly at the annual rate of 1.03%, 0.80%, 1.00%, 0.79% and 1.06% of the average daily net assets of the Capital Growth, Value Income Stock, Mid-Cap Equity, Balanced and International Equity Funds, respectively. Trusco received an advisory fee computed daily and paid monthly at the annual rate of 1.02% of the average daily net assets of Sunbelt Equity Fund. Trusco and STI Capital jointly received an advisory fee computed daily and paid monthly at the annual rate of 0.76% of the average daily net assets of the International Equity Index Fund. PORTFOLIO MANAGERS Mr. Anthony Gray has been responsible for the day-to-day management of the Capital Growth Fund since it commenced operations. Mr. Gray has served as Chief Executive Officer and Chief Investment Officer of STI Capital since 1979. Mr. Gray has also been responsible for the day-to-day management of the equity portion of the Balanced Fund since it commenced operations. Mr. Mills Riddick, CFA, has been responsible for the day-to-day management of the Value Income Stock Fund since April, 1995. Mr. Riddick has been a value portfolio manager at STI Capital since 1989. Mr. Elliott A. Perny has been responsible for the day-to-day management of the Mid-Cap Equity Fund since October 1, 1996. Mr. Perny has served as Senior Executive Vice President of 22 STI Capital since September, 1992 and has served as a portfolio manager with STI Capital since 1991. Mr. L. Earl Denney CFA has been responsible for the day-to-day management of the fixed income portion of the Balanced Fund since it commenced operations. Mr. Denney has served as Executive Vice President of STI Capital since 1983. Mr. Dan Jaworski has been responsible for the day-to-day management of the International Equity Fund since it commenced operations. 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. Mr. James Foster has been responsible for the day-to-day management of the Sunbelt Equity Fund it commenced operations. Mr. Foster has served as a Vice President of Trusco since 1989. Mr. Stanley J. Cherny and Mr. Robert J. Rhodes, CFA, have been responsible fo the day-to-day operations of the International Equity Index Fund since it commenced operations. Mr. Cherny has been with Trusco since 1994. Prior to joining Trusco, Mr. Cherny served as a portfolio manager with Payden & Rygel from 1988 to 1994. Mr. Rhodes has served as a portfolio manager and Director of Research with Trusco since June, 1985. BANKING LAWS Banking laws and regulations, including the Glass-Steagall Act as presently interpreted by the Board of Governors of the Federal Reserve System, currently (a) prohibit a bank holding company registered under the Federal Bank Holding Company Act of 1956 or its affiliates from sponsoring, organizing, controlling, or distributing the shares of a registered, open-end investment company continuously engaged in the issuance of its shares, and generally prohibit banks from underwriting securities, but (b) do not prohibit such a bank holding company or affiliate or banks generally from acting as an investment advisor, transfer agent, or custodian to such an investment company or from purchasing shares of such a company as agent for and upon the order of a customer. The Advisors believe that each may perform the services for STI Classic Funds contemplated by their respective Advisory Agreements described in this Prospectus without violation of applicable banking laws or regulations. However, future changes in legal requirements relating to the permissible activities of banks and their affiliates, as well as future interpretations of present requirements, could prevent the Advisors from continuing to perform services for STI Classic Funds. If the Advisors were prohibited from providing services to STI Classic Funds, 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 Advisors, or their affiliates, would consider the possibility of offering to perform additional services for STI Classic Funds. It is not possible, of course, to predict whether or in what form such legislation might be enacted or the terms upon which the Advisors, or such affiliates, might offer to provide such services. In addition, state securities laws on this 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. 23 DISTRIBUTION SEI Financial Services Company (the "Distributor"), a wholly-owned subsidiary of SEI Corporation ("SEI"), and the Trust are parties to a distribution agreement (the "Distribution Agreement"). No compensation is paid to the Distributor for distribution services for the Trust Shares of each 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. An investor may call 1-800-874-4770 to receive more information regarding Investor Shares or 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. Each Fund may execute brokerage or other agency transactions through the Distributor for which the Distributor receives compensation. ADMINISTRATION SEI Fund Resources (the "Administrator") serves as the Administrator of the Trust. 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 from the Trust, which is calculated daily and paid monthly, at an annual rate as follows:
AVERAGE AGGREGATE DAILY NET ASSETS FEE - ------------------------------------------ ----------- $1 - $1 billion 0.10 % over $1 billion to $5 billion 0.07 % over $5 billion to $8 billion 0.05 % over $8 billion to $10 billion 0.045% over $10 billion 0.04 %
From time to time, the Administrator may waive (either voluntarily or pursuant to applicable state limitations) all or a portion of the administration fee payable by the Trust. TRANSFER AGENT AND DIVIDEND DISBURSING AGENT Federated Services Company, Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779 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 Peacetree Street N.E., 14th Floor, Atlanta, Georgia 30308, serves as custodian of the assets of each Fund with the exception of the International Equity Index and International Equity Funds. Union Bank of California, 475 Sansome Street, Suite 1200, San Francisco, California 94111, serves as Custodian for the International Equity Index Fund. The Bank of New York, One Wall Street, New York, New York 10286, serves as custodian for the International Equity Fund. Each custodian holds cash, securities and other assets of the Trust as required by the 1940 Act. LEGAL COUNSEL Morgan, Lewis & Bockius LLP, Philadelphia, Pennsylvania, serves as legal counsel to the Trust. INDEPENDENT PUBLIC ACCOUNTANTS The independent public accountants to the Trust are Arthur Andersen LLP, Philadelphia, Pennsylvania. 24 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 and audited financial statements annually. The Trust furnishes proxy statements and other reports to Shareholders of record. SHAREHOLDER INQUIRIES Shareholders may contact their financial institution's representative in order to obtain information on account statements, procedures and other related information. DESCRIPTION OF PERMITTED INVESTMENTS The following is a description of the permitted investments for the Funds. Further discussion is contained in the Statement of Additional Information. AMERICAN DEPOSITARY RECEIPTS ("ADRs") -- ADRs are securities, typically issued by a U.S. financial institution (a "depositary"), that evidence ownership interests in a security or a pool of securities issued by a foreign issuer and deposited with the depositary. ADRs may be available through "sponsored" or "unsponsored" facilities. A sponsored facility is established jointly by the issuer of the security underlying the receipt and a depositary, whereas an unsponsored facility may be established by a depositary without participation by the issuer of the underlying security. Holders of unsponsored depositary receipts generally bear all the costs of the unsponsored facility. The depositary of an unsponsored facility frequently is under no obligation to distribute shareholder communications received from the issuer of the deposited security or to pass through, to the holders of the receipts, voting rights with respect to the deposited securities. ASSET-BACKED SECURITIES -- Asset-backed securities are securities secured by non-mortgage assets such as company receivables, truck and auto loans, leases and credit card receivables. Such securities are generally issued as pass-through certificates, which represent undivided fractional ownership interests in the underlying pools of assets. Such securities also may be debt instruments, which are also known as collateralized obligations and are generally issued as the debt of a special purpose entity, such as a trust, organized solely for the purpose of owning such assets and issuing such debt. Asset-backed securities are not issued or guaranteed by the U.S. Government, its agencies or instrumentalities; however, the payment of principal and interest on such obligations may be guaranteed up to certain amounts and for a certain period by a letter of credit issued by a financial institution (such as 25 a bank or insurance company) unaffiliated with the issuers of such securities. The purchase of asset-backed securities raises risk considerations peculiar to the financing of the instruments underlying such securities. For example, there is a risk that another party could acquire an interest in the obligations superior to that of the holders of the asset-backed securities. There also is the possibility that recoveries on repossessed collateral may not, in some cases, be available to support payments on those securities. Asset-backed securities entail prepayment risk, which may vary depending on the type of asset, but is generally less than the prepayment risk associated with mortgage-backed securities. In addition, credit card receivables are unsecured obligations of the card holder. The market for asset-backed securities is at a relatively early stage of development. Accordingly, there may be a limited secondary market for such securities. BANKERS' ACCEPTANCES -- Bankers' acceptances are bills of exchange or time drafts drawn on and accepted by a commercial bank. Bankers' acceptances are used by corporations to finance the shipment and storage of goods. Maturities are generally six months or less. CERTIFICATES OF DEPOSIT-- Certificates of deposit are interest bearing instruments with a specific maturity. They are issued by banks and savings and loan institutions in exchange for the deposit of funds and normally can be traded in the secondary market prior to maturity. Certificates of deposit with penalties for early withdrawal will be considered illiquid. COMMERCIAL PAPER -- Commercial paper is a term used to describe unsecured short-term promissory notes issued by banks, municipalities, corporations and other entities. Maturities on these issues vary from a few to 270 days. CONVERTIBLE SECURITIES -- Convertible securities are corporate securities that are exchangeable for a set number of another security at a prestated price. Convertible securities typically have characteristics similar to both fixed income and equity securities. Because of the conversion feature, the market value of a convertible security tends to move with the market value of the underlying stock. The value of a convertible security is also affected by prevailing interest rates, the credit quality of the issuer, and any call provisions. CORPORATE DEBT OBLIGATIONS -- Debt instruments issued by corporations with maturities exceeding 270 days. Such instruments may include putable corporate bonds and zero coupon bonds. 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" ("TRs"), "Treasury Investment Growth Receipts" ("TIGRs"), and "Certificates of Accrual on Treasury Securities" ("CATS"). TRs, TIGRs and CATS are sold as zero coupon securities. See "Zero Coupon Obligations." DERIVATIVES -- Derivatives are securities whose value is derived from an underlying contract, index or security, or any combination thereof. This includes: futures, swap agreements, and some mortgage-back securities (CMOs, REMICs and SMBs). See elsewhere in this "Description of Permitted 26 Investments" for discussions of these various instruments, and see "Investment Policies and Strategies" for more information about any investment policies and limitations applicable to their use. 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. A 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 position in a futures contract at a specified exercise price during the term of the option. A Fund may use futures contracts and related options for bona fide hedging purposes, to offset changes in the value of securities held or expected to be acquired, to minimize fluctuations in foreign currencies, or to gain exposure to a particular market or instrument. A Fund will minimize the risk that it will be unable to close out a futures contract by only entering into futures contracts which are traded on national futures exchanges. Stock index futures are futures contracts for various stock indices that are traded on registered securities exchanges. A stock index futures contract obligates the seller to deliver (and the purchaser to take) an amount of cash equal to a specific dollar amount times the difference between the value of a specific stock index at the close of the last trading day of the contract and the price at which the agreement is made. There are risks associated with these activities, including the following: (1) the success of a hedging strategy may depend on an ability to predict movements in the prices of individual securities, fluctuations in markets and movements in interest rates, (2) there may be an imperfect or no correlation between the changes in market value of the securities held by the Fund and the prices of futures and options on futures, (3) there may not be a liquid secondary market for a futures contract or option, (4) trading restrictions or limitations may be imposed by an exchange, and (5) government regulations may restrict trading in futures contracts and futures options. ILLIQUID SECURITIES -- Illiquid securities are securities that cannot be disposed of within seven business days at approximately the price at which they are being carried on the Fund's books. An illiquid security includes a demand instrument with a demand notice period 27 exceeding seven days, where there is no secondary market for such security, and repurchase agreements with durations (or maturities) over seven days in length. MEDIUM TERM NOTES -- Medium term notes are periodically or continuously offered corporate or agency debt that differs from traditionally underwritten corporate bonds only in the process by which they are issued. MORTGAGE-BACKED SECURITIES -- Mortgage-backed securities are instruments that entitle the holder to a share of all interest and principal payments from mortgages underlying the security. The mortgages backing these securities include conventional thirty-year fixed rate mortgages, graduated payment mortgages, and adjustable rate mortgages. During periods of declining interest rates, prepayment of mortgages underlying mortgage-backed securities can be expected to accelerate. Prepayment of mortgages which underlie securities purchased at a premium often results in capital losses, while prepayment of mortgages purchased at a discount often results in capital gains. Because of these unpredictable prepayment characteristics, it is often not possible to predict accurately the average life or realized yield of a particular issue. GOVERNMENT PASS-THROUGH SECURITIES: These are securities that are issued or guaranteed by a U.S. Government agency representing an interest in a pool of mortgage loans. The primary issuers or guarantors of these mortgage-backed securities are the Government National Mortgage Association ("GNMA"), the Federal National Mortgage Association ("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC"). FNMA and FHLMC obligations are not backed by the full faith and credit of the U.S. Government as GNMA certificates are, but FNMA and FHLMC securities are supported by the instrumentalities' right to borrow from the U.S. Treasury. GNMA, FNMA and FHLMC each guarantees timely distributions of interest to certificate holders. GNMA and FNMA also each guarantees timely distributions of scheduled principal. FHLMC has in the past guaranteed only the ultimate collection of principal of the underlying mortgage loan; however, FHLMC now issues mortgage-backed securities (FHLMC Gold PCs) which also guarantee timely payment of monthly principal reductions. Government and private guarantees do not extend to the securities' value, which is likely to vary inversely with fluctuations in interest rates. PRIVATE PASS-THROUGH SECURITIES: These are mortgage-backed securities issued by a non-governmental entity, such as a trust. These securities include collateralized mortgage obligations ("CMOs") and real estate mortgage investment conduits ("REMICs") that are rated in one of the top two rating categories. While they are generally structured with one or more types of credit enhancement, private pass-through securities typically lack a guarantee by an entity having the credit status of a governmental agency or instrumentality. COLLATERALIZED MORTGAGE OBLIGATIONS: CMOs are debt obligations or multiclass pass-through certificates issued by agencies or instrumentalities of the U.S. Government or by private originators or investors in mortgage loans. In a CMO, series of bonds or certificates are usually issued in multiple classes. Principal and interest paid on the underlying mortgage assets may be allocated among the several classes of a series of a CMO in a variety of ways. Each class of a CMO, often referred to as a "tranche," is issued with a specific fixed or floating coupon rate and has a stated maturity or final distribution date. Principal payments on the underlying mortgage assets may cause CMOs to be retired substantially 28 earlier then their stated maturities or final distribution dates, resulting in a loss of all or part of any premium paid. REMICS: A REMIC is a CMO that qualifies for special tax treatment under the Internal Revenue Code and invests in certain mortgages principally secured by interests in real property. Investors may purchase beneficial interests in REMICs, which are known as "regular" interests, or "residual" interests. Guaranteed REMIC pass-through certificates ("REMIC Certificates") issued by FNMA or FHLMC represent beneficial ownership interests in a REMIC trust consisting principally of mortgage loans or FNMA, FHLMC or GNMA-guaranteed mortgage pass-through certificates. For FHLMC REMIC Certificates, FHLMC guarantees the timely payment of interest, and also guarantees the payment of principal as payments are required to be made on the underlying mortgage participation certificates. FNMA REMIC Certificates are issued and guaranteed as to timely distribution of principal and interest by FNMA. STRIPPED MORTGAGE-BACKED SECURITIES ("SMBS"): SMBs are usually structured with two classes that receive specified proportions of the monthly interest and principal payments from a pool of mortgage securities. One class may receive all of the interest payments and is thus termed an interest-only class ("IO"), while the other class may receive all of the principal payments and is thus termed the principal-only class ("PO"). The value of IOs tends to increase as rates rise and decrease as rates fall; the opposite is true of POs. SMBs are extremely sensitive to changes in interest rates because of the impact thereon of prepayment of principal on the underlying mortgage securities. The market for SMBs is not as fully developed as other markets; SMBs therefore may be illiquid. OBLIGATIONS OF SUPRANATIONAL ENTITIES -- Supranational entities are entities established through the joint participation of several governments, and include the Asian Development Bank, the Inter-American Development Bank, International Bank for Reconstruction and Development (World Bank), African Development Bank, European Economic Community, European Investment Bank and the Nordic Investment Bank. OPTIONS ON CURRENCIES -- The International Equity Index 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. PAY-IN-KIND SECURITIES -- Pay-in-kind securities are bonds or preferred stock that pay interest or dividends in the form of additional bonds or preferred stock. REPURCHASE AGREEMENTS -- Repurchase agreements are agreements by which a Fund obtains a security and simultaneously commits to return the security to the seller at an agreed upon price on an agreed upon date within a number of days from the date of purchase. The custodian will hold the security as collateral for the repurchase agreement. A Fund bears a risk of loss in the event the other party defaults on its obligations and the Fund is delayed or prevented from exercising its right to dispose of 29 the collateral or if the Fund realizes a loss on the sale of the collateral. A Fund will enter into repurchase agreements only with financial institutions deemed to present minimal risk of bankruptcy during the term of the agreement based on established guidelines. Repurchase agreements are considered loans under the Investment Company Act of 1940. RESTRICTED SECURITIES -- Restricted securities are securities that may not be sold freely to the public absent registration under the Securities Act of 1933 or an exemption from registration. Rule 144A securities are securities that have not been registered under the Securities Act of 1933, but which may be traded between certain institutional investors, including investment companies. The Trust's Board of Trustees is responsible for developing guidelines and procedures for determining the liquidity of restricted securities and monitoring the Advisors' implementation of the guidelines and procedures. SECURITIES LENDING -- In order to generate additional income, a Fund may lend securities which it owns pursuant to agreements requiring that the loan be continuously secured by collateral consisting of cash, securities of the U.S. Government or its agencies equal to at least 100% of the market value of the securities lent. A Fund continues to receive interest on the securities lent while simultaneously earning interest on the investment of cash collateral. Collateral is marked to market daily. There may be risks of delay in recovery of the securities or even loss of rights in the collateral should the borrower of the securities fail financially or become insolvent. STANDBY COMMITMENTS AND PUTS -- Standby commitments and puts are securities subject to standby commitments or puts permit the holder thereof to sell the securities at a fixed price prior to maturity. Securities subject to a standby commitment or put may be sold at any time at the current market price. However, unless the standby commitment or put was an integral part of the security as originally issued, it may not be marketable or assignable; therefore, the standby commitment or put would only have value to the Fund owning the security to which it relates. In certain cases, a premium may be paid for a standby commitment or put, which premium will have the effect of reducing the yield otherwise payable on the underlying security. The Fund will limit standby commitment or put transactions to institutions believed to present minimal credit risk. SWAPS, CAPS, FLOORS and COLLARS -- Interest rate swaps, mortgage swaps, currency swaps and other types of swap agreements such as caps, floors and collars are designed to permit the purchaser to preserve a return or spread on a particular investment or portion of its portfolio, and to protect against any increase in the price of securities the Fund anticipates purchasing at a later date. In a typical interest rate swap, one party agrees to make regular payments equal to a floating interest rate times a "notional principal amount," in return for payments equal to a fixed rate times the same amount, for a specific period of time. If a swap agreement provides for payment in different currencies, the parties might agree to exchange the notional principal amount as well. Swaps may also depend on other prices or rates, such as the value of an index or mortgage prepayment rates. In a typical cap or floor agreement, one party agrees to make payments only under specified circumstances, usually in return for payment of a fee by the other party. For example, the buyer of an interest rate cap obtains the right to receive payments to the extent that a specific interest rate exceeds an agreed-upon level, while the seller of an interest rate floor is obligated to make payments to the extent that 30 a specified interest rate falls below an agreed-upon level. An interest rate collar combines elements of buying a cap and selling a floor. Swap agreements are sophisticated hedging instruments that typically involve a small investment of cash relative to the magnitude of risk assumed. As a result, swaps can be highly volatile and have a considerable impact on the Fund's performance. Swap agreements are subject to risks related to the counterparty's ability to perform, and may decline in value if the counterparty's creditworthiness deteriorates. The Fund may also suffer losses if it is unable to terminate outstanding swap agreements or reduce its exposure through offsetting transactions. Any obligation the Fund may have under these types of arrangements will be covered by setting aside liquid high grade securities in a segregated account. The Fund will enter into swaps only with counterparties believed to be creditworthy. 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, FHLMC, 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., GNMA securities), others are supported by the right of the issuer to borrow from the Treasury (e.g., Federal Farm Credit Bank securities), while still others are supported only by the credit of the instrumentality (e.g., FNMA securities). 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 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 31 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 segregate liquid high grade debt securities or cash in an amount at least equal to these commitments. The interest rate realized on these securities is fixed as of the purchase date and no interest accrues to the Fund before settlement. These securities are subject to market fluctuation due to changes in market interest rates and it is possible that the market value at the time of settlement could be higher or lower than the purchase price if the general level of interest rates has changed. Although a Fund generally purchases securities on a when-issued or forward commitment basis with the intention of actually acquiring securities for its portfolio, a Fund may dispose of a when-issued security or forward commitment prior to settlement if it deems appropriate. ZERO COUPON OBLIGATIONS -- Zero coupon obligations are debt securities that do not bear any interest, but instead are issued at a deep discount from par. The value of a zero coupon obligation increases over time to reflect the interest accreted. Such obligations will not result in the payment of interest until maturity, and will have greater price volatility than similar securities that are issued at par and pay interest periodically. 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 or 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. 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. Together with bonds rated Aaa, they comprise what are generally known as high-grade bonds. 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 a 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) STI CLASSIC FUNDS ORGANIZATIONAL OVERVIEW * INVESTMENT ADVISORS Trusco Capital Management, Inc. 50 Hurt Plaza Suite 1400 Atlanta, GA 30303 STI Capital Management, N.A. P.O. Box 3808 Orlando, FL 32802 * DISTRIBUTOR SEI Financial Services Company 680 E. Swedesford Road Wayne, PA 19087 * ADMINISTRATOR SEI Fund Resources 680 E. Swedesford Road Wayne, PA 19087 * TRANSFER AGENT Federated Services Company Federated Investors Tower Pittsburgh, PA 15222-3779 * CUSTODIANS SunTrust Bank, Atlanta c/o STI Trust & Investment Operations, Inc. 303 Peachtree Street N.E. 14th Floor Atlanta, GA 30308 Union 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
100093/10-95 DISTRIBUTOR SEI Financial Services Company -- - - - - - - - - - - - - - - PROSPECTUS TRUST SHARES CAPITAL GROWTH FUND VALUE INCOME STOCK FUND MID-CAP EQUITY FUND BALANCED FUND SUNBELT EQUITY FUND INTERNATIONAL EQUITY INDEX FUND INTERNATIONAL EQUITY FUND INVESTMENT ADVISORS STI CAPITAL MANAGEMENT, N.A. TRUSCO CAPITAL MANAGEMENT, INC. OCTOBER 1, 1996 [LOGO] STI CLASSIC FUNDS INVESTOR SHARES CAPITAL GROWTH FUND VALUE INCOME STOCK FUND MID-CAP EQUITY FUND BALANCED FUND SUNBELT EQUITY FUND INTERNATIONAL EQUITY INDEX FUND INTERNATIONAL EQUITY FUND INVESTMENT ADVISORS TO THE FUNDS: STI CAPITAL MANAGEMENT, N.A. TRUSCO CAPITAL MANAGEMENT, INC. (THE "ADVISORS") The STI Classic Funds (the "Trust") is a mutual fund that offers shares in a number of separate investment portfolios (each a "Fund" and, collectively, the "Funds"). This Prospectus sets forth concisely the information about the Investor Shares of the above-referenced Funds. Investors are advised to read this Prospectus and retain it for future reference. A Statement of Additional Information relating to the Funds dated the same date as this Prospectus has been filed with the Securities and Exchange Commission and is available without charge through the Distributor, SEI Financial Services Company, 680 East Swedesford Road, Wayne, Pennsylvania 19087-1658 or by calling 1-800-874-4770. 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 1, 1996 2 TABLE OF CONTENTS Expense Summary........................................................... 3 Financial Highlights...................................................... 5 Performance Information for Predecessor Collective Funds.................. 7 The Trust................................................................. 7 Funds and Investment Objectives........................................... 8 Investment Policies and Strategies........................................ 8 General Investment Policies and Strategies................................ 14 Investment Risks.......................................................... 15 Investment Limitations.................................................... 17 Performance Information................................................... 17 Fundlink.................................................................. 18 Purchase of Fund Shares................................................... 18 Redemption of Fund Shares................................................. 21 Exchanges................................................................. 22 Dividends and Distributions............................................... 22 Tax Information........................................................... 23 STI Classic Funds Information............................................. 24 The Trust................................................................. 24 Board of Trustees......................................................... 24 Investment Advisors....................................................... 24 Portfolio Managers........................................................ 26 Banking Laws.............................................................. 26 Distribution.............................................................. 27 Administration............................................................ 28 Transfer Agent and Dividend Disbursing Agent.............................. 28 Custodian................................................................. 28 Legal Counsel............................................................. 28 Independent Public Accountants............................................ 28 Other Information......................................................... 28 Voting Rights............................................................. 28 Reporting................................................................. 29 Shareholder Inquiries..................................................... 29 Description of Permitted Investments...................................... 29 Appendix.................................................................. A-1
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS OR IN THE TRUST'S STATEMENT OF ADDITIONAL INFORMATION 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. 3 EXPENSE SUMMARY INVESTOR SHARES The purpose of the following table is to help you understand the various costs and expenses that a shareholder will bear, directly or indirectly, in connection with an investment in the Investor Shares.
SHAREHOLDER TRANSACTION EXPENSES - ------------------------------------------------------- ALL FUNDS - ------------------------------------------------------- Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)................................. 3.75% Maximum Sales Charge Imposed on Reinvested Dividends................... None Maximum 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)
CAPITAL MID-CAP SUNBELT INTERNATIONAL INTERNATIONAL GROWTH VALUE INCOME EQUITY BALANCED EQUITY EQUITY INDEX EQUITY FUND STOCK FUND FUND FUND FUND FUND FUND - -------------------------------------------------------------------------------------------------------------------------------- Management Fees (after fee waivers & reimbursements)(1).............. 1.03% .80% 1.00% .79% 1.02% .76% 1.06% 12b-1 Service & Distribution Fees (after fee waivers & reimbursements)(2)................ .52% .28% .40% .25% .40% .01% .00% Other Fund Expenses (after fee waivers & reimbursements)(3)...... .25% .22% .20% .21% .18% .68% .75% - -------------------------------------------------------------------------------------------------------------------------------- Total Fund Operating Expenses (after fee waivers & reimbursements)(4)................ 1.80% 1.30% 1.60% 1.25% 1.60% 1.45% 1.81% - -------------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------------
(1) Each Advisor is waiving, on a voluntary basis, a portion of its fee from each Fund. Each Advisor reserves the right to terminate its waiver at any time in its sole discretion. Absent such waivers and reimbursements, Advisory Fees for the Funds would be as follows: Capital Growth Fund -- 1.15%, Value Income Stock Fund -- .80%, Mid-Cap Equity Fund -- 1.15%, Balanced Fund -- .95%, Sunbelt Equity Fund -- 1.15%, International Equity Index Fund -- .90%, and International Equity Fund -- 1.25%. See "Investment Advisors." (2) The Distributor is reimbursing, on a voluntary basis, a portion of its expenses from each Fund. The Distributor reserves the right to terminate its reimbursement at any time in its sole discretion. Absent such reimbursements, 12b-1 Service & Distribution Fees would be as follows: Capital Growth Fund -- .68%, Value Income Stock Fund -- .33%, Mid-Cap Equity Fund -- .43%, Balanced Fund -- .28%, Sunbelt Equity Fund -- .43%, International Equity Index Fund -- .38%, and International Equity Fund -- .33%. See "Distribution." (3) Absent waivers and reimbursements, Other Fund Expenses would be as follows: Capital Growth Fund -- .25%, Value Income Stock Fund -- .24%, Mid-Cap Equity Fund -- .38%, Balanced Fund -- .66%, Sunbelt Equity Fund -- .35%, International Equity Index Fund -- .78% and International Equity Fund -- 1.56%. (4) Absent the voluntary waivers described above, Total Fund Operating Expense would be as follows: Capital Growth Fund -- 2.08%, Value Income Stock Fund -- 1.37%, Mid-Cap Equity Fund -- 1.96%, Balanced Fund -- 1.89%, Sunbelt Equity Fund -- 1.93%, International Equity Index Fund -- 2.06%, and International Equity Fund -- 3.14%. 4
ONE THREE FIVE TEN EXAMPLES YEAR YEARS YEARS YEARS - -------------------------------------------------------------------------------------------------------------- An investor would pay the following expenses on a $1,000 investment assuming: (1) a 5% annual return and (2) redemption at the end of each time period. CAPITAL GROWTH FUND........................................................ $ 55 $ 92 $ 131 $ 241 VALUE INCOME STOCK FUND.................................................... $ 50 $ 77 $ 106 $ 188 MID-CAP EQUITY FUND........................................................ $ 53 $ 86 $ 121 $ 220 BALANCED FUND.............................................................. $ 50 $ 76 $ 104 $ 183 SUNBELT EQUITY FUND........................................................ $ 53 $ 86 $ 121 $ 220 INTERNATIONAL EQUITY INDEX FUND............................................ $ 52 $ 82 $ 114 $ 205 INTERNATIONAL EQUITY FUND.................................................. $ 55 $ 92 $ 132 $ 242 - -------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------
The examples are based upon the total operating expenses of a Fund and should not be considered a representation of past or future expenses. Actual expenses may be greater or less than those shown. A person that purchases shares through an account with a financial institution may be charged separate fees by the financial institution. 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 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 FINANCIAL HIGHLIGHTS The following information has been audited by Arthur Andersen LLP, independent public accountants to the Trust, whose report thereon was unqualified. This information should be read in conjunction with the Trust's financial statements and notes thereto, which are included in the Trust's Statement of Additional Information and which appear, along with the report of Arthur Andersen LLP, in the Trust's 1996 Annual Report to Shareholders. Additional performance information regarding each Fund is contained in the Trust's Annual Report to Shareholders and is available without charge by calling 1-800-874-4770. For an Investor Share Outstanding Throughout the Period
NET ASSET DISTRIBUTIONS VALUE NET NET REALIZED AND FROM NET DISTRIBUTIONS NET ASSET BEGINNING INVESTMENT UNREALIZED GAINS INVESTMENT FROM REALIZED VALUE END TOTAL OF PERIOD INCOME ON INVESTMENTS INCOME CAPITAL GAINS OF PERIOD RETURN --------- ---------- ----------------- ------------- ------------- ---------- -------- -------------------- CAPITAL GROWTH FUND -------------------- INVESTOR SHARES 1996.............. $12.17 $ 0.03 $ 3.32 $ (0.04) $ (0.59) $ 14.89 28.18% 1995.............. 11.98 0.09 0.57 (0.07) (0.40) 12.17 5.93% 1994.............. 11.93 0.09 0.31 (0.09) (0.26) 11.98 3.26% 1993 (1).......... 10.00 0.06 1.93 (0.06) -- 11.93 20.49%* ------------------------- VALUE INCOME STOCK FUND ------------------------- INVESTOR SHARES 1996.............. $11.58 $ 0.30 $ 2.71 $ (0.30) $ (1.16) $ 13.13 27.39% 1995.............. 10.52 0.28 1.56 (0.27) (0.51) 11.58 18.71% 1994.............. 10.23 0.26 0.67 (0.27) (0.37) 10.52 9.27% 1993 (2).......... 9.73 0.09 0.44 (0.03) -- 10.23 19.42%* --------------------- MID-CAP EQUITY FUND --------------------- INVESTOR SHARES 1996.............. $10.99 $ 0.03 $ 2.62 $ (0.03) $ (0.87) $ 12.74 24.93% 1995.............. 9.84 0.03 1.15 (0.03) -- 10.99 11.96% 1994 (3).......... 10.00 0.01 (0.17) -- -- 9.84 (1.60%)+ --------------- BALANCED FUND --------------- INVESTOR SHARES 1996.............. $10.30 $ 0.30 $ 1.41 $ (0.30) $ (0.11) $ 11.60 16.88% 1995.............. 9.79 0.28 0.51 (0.28) -- 10.30 8.29% 1994 (4).......... 10.00 0.03 (0.24) -- -- 9.79 (2.10%)+ -------------------- SUNBELT EQUITY FUND -------------------- INVESTOR SHARES 1996.............. $ 9.96 $ (0.11) $ 4.30 -- $ (0.20) $ 13.95 42.58% 1995.............. 9.69 (0.05) 0.36 -- (0.04) 9.96 3.20% 1994 (4).......... 10.00 (0.02) (0.29) -- -- 9.69 (3.10%)+ RATIO OF NET INVESTMENT INCOME RATIO OF EXPENSES (LOSS) TO AVERAGE NET ASSETS RATIO OF RATIO OF NET TO AVERAGE NET NET ASSETS END OF EXPENSES INVESTMENT INCOME ASSETS (EXCLUDING (EXCLUDING PORTFOLIO PERIOD TO AVERAGE TO AVERAGE NET WAIVERS AND WAIVERS AND TURNOVER (000) NET ASSETS ASSETS REIMBURSEMENTS) REIMBURSEMENTS) RATE ----------- ---------- ----------------- ----------------- ----------------- ---------- -------------------- CAPITAL GROWTH FUND -------------------- INVESTOR SHARES 1996.............. $191,078 1.80% 0.24% 2.08% (0.04%) 156.46% 1995.............. 160,875 1.80% 0.73% 2.10% 0.43% 127.79% 1994.............. 170,795 1.80% 0.64% 2.11% 0.33% 123.87% 1993 (1).......... 131,858 1.80%* 0.81%* 2.06%* 0.55%* 95.02% ------------------------- VALUE INCOME STOCK FUND ------------------------- INVESTOR SHARES 1996.............. $130,597 1.30% 2.47% 1.37% 2.40% 133.99% 1995.............. 92,256 1.30% 2.80% 1.41% 2.69% 125.71% 1994.............. 60,589 1.25% 2.80% 1.44% 2.61% 149.28% 1993 (2).......... 24,779 1.15%* 4.51%* 1.63%* 4.04%* 34.71% --------------------- MID-CAP EQUITY FUND --------------------- INVESTOR SHARES 1996.............. $ 17,971 1.60% 0.25% 1.96% (0.11%) 115.62% 1995.............. 7,345 1.60% 0.43% 2.27% (0.24%) 65.63% 1994 (3).......... 3,004 1.60%* 0.74%* 4.60%* (2.26%)* 7.99% --------------- BALANCED FUND --------------- INVESTOR SHARES 1996.............. $ 4,896 1.25% 2.70% 1.89% 2.06% 154.63% 1995.............. 3,765 1.25% 3.17% 1.80% 2.62% 156.61% 1994 (4).......... 2,311 1.25%* 2.46%* 4.91%* (1.20%)* 105.65% -------------------- SUNBELT EQUITY FUND -------------------- INVESTOR SHARES 1996.............. $ 29,002 1.60% (0.79%) 1.93% (1.12%) 106.27% 1995.............. 22,180 1.60% (0.57%) 1.98% (0.95%) 80.03% 1994 (4).......... 16,077 1.60%* (0.63%)* 2.04%* (1.07%)* 21.42%
6 FINANCIAL HIGHLIGHTS CONTINUED
NET ASSET DISTRIBUTIONS VALUE NET NET REALIZED AND FROM NET DISTRIBUTIONS NET ASSET BEGINNING INVESTMENT UNREALIZED GAINS INVESTMENT FROM REALIZED VALUE END TOTAL OF PERIOD INCOME ON INVESTMENTS INCOME CAPITAL GAINS OF PERIOD RETURN --------- ---------- ----------------- ------------- ------------- ---------- -------- ------------------------------ INTERNATIONAL EQUITY INDEX FUND ------------------------------ INVESTOR SHARES 1996.............. $10.20 $ 0.05 $ 0.85 $ (0.13) $ (0.09) $ 10.88 8.90% 1995 (5).......... 10.00 0.05 0.17 (0.01) (0.01) 10.20 2.18%+ ------------------------- INTERNATIONAL EQUITY FUND ------------------------- INVESTOR SHARES 1996 (6).......... $10.44 $ 0.04 $ 0.90 -- -- $ 11.38 9.00%+ RATIO OF NET INVESTMENT INCOME RATIO OF EXPENSES (LOSS) TO AVERAGE NET ASSETS RATIO OF RATIO OF NET TO AVERAGE NET NET ASSETS END OF EXPENSES INVESTMENT INCOME ASSETS (EXCLUDING (EXCLUDING PORTFOLIO PERIOD TO AVERAGE TO AVERAGE NET WAIVERS AND WAIVERS AND TURNOVER (000) NET ASSETS ASSETS REIMBURSEMENTS) REIMBURSEMENTS) RATE ----------- ---------- ----------------- ----------------- ----------------- ---------- ------------------------------ INTERNATIONAL EQUITY INDEX FUND ------------------------------ INVESTOR SHARES 1996.............. $ 5,597 1.45% 0.48% 2.06% (0.13%) 30.46% 1995 (5).......... 3,960 1.45%* 0.67%* 2.44%* (0.32%)* 10.37% ------------------------- INTERNATIONAL EQUITY FUND ------------------------- INVESTOR SHARES 1996 (6).......... $ 3,448 1.81%* 1.73%* 3.14%* 0.40%* 113.34%
* Annualized. + Cumulative since commencement of operations. (1) The Capital Growth Fund Investor Shares Investor Shares commenced operations on June 9, 1992. (2) The Value Income Stock Fund Investor Shares commenced operation on February 17, 1993. (3) The Mid-Cap Equity Fund (formerly, Aggressive Growth Fund) Investor Shares commenced operations on February 1, 1994. (4) The Sunbelt Equity Fund Investor Shares and the Balanced Fund Investor Shares commenced operations on January 4, 1994. (5) The International Equity Index Fund Investor Shares commenced operations on June 6, 1994. (6) The International Equity Fund commenced operations on January 2, 1996. 7 PERFORMANCE INFORMATION FOR PREDECESSOR COLLECTIVE FUNDS The International Equity, Value Income Stock Fund and Sunbelt Equity Fund are each the successor to collective investment funds previously managed by STI Capital Management, Inc. and Trusco Capital Management, Inc. A substantial portion of the assets of those collective investments funds was transferred to the Funds in connection with each Fund's commencement of operations. Set forth below is certain performance data for the predecessor collective investment funds, which is deemed relevant because the collective investment funds were managed using virtually the same investment objectives, policies and restrictions as those used by each respective Fund. The performance data, however, is not necessarily indicative of the future performance of each Fund. Further, the predecessor collective funds were not subject to certain investment limitations imposed on mutual funds which, if they had been imposed, may have adversely affected a collective fund's performance. The predecessor collective funds did not incur expenses that correspond to the advisory, administrative, and other fees to which each Fund is subject. Accordingly, the following performance information has been adjusted by applying the total expense ratios for the corresponding Fund, as disclosed in the Prospectus at the time the Fund commenced operations, which reduced the actual performance of the collective fund. The average annual total returns (adjusted to reflect current Fund expenses, net of voluntary waivers and reimbursements) for the following periods:
- ------------------------------------------------------------ ONE FIVE TEN SINCE YEAR YEARS YEARS INCEPTION - ------------------------------------------------------------ International N/A N/A N/A 27.50% Equity (2/1/95- Collective Fund 11/30/95) Value Income 15.14% N/A N/A 14.93% Stock (ending (10/1/89- Collective Fund 12/31/92) 12/31/92) Sunbelt Equity 17.72% 20.71% 15.89% 16.74% Collective (ending (12/1/80- Fund 12/31/93 12/31/93)
The average annual total returns for the Funds from inception through May 31, 1996 and for the one- and three-year periods ended May 31, 1996 were as follows:
- -------------------------------------------------------- ONE THREE SINCE YEAR YEARS INCEPTION - -------------------------------------------------------- International Equity Fund* N/A N/A 12.31% Value Income Stock Fund** 22.62% 16.73% 17.08% Sunbelt Equity Fund*** 37.21% N/A 14.06%
*International Equity Fund commenced operations on January 2, 1996. **Value Income Stock Fund commenced operations on February 17, 1993. ***Sunbelt Equity Fund commenced operations on January 4, 1994. 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 each non-money market Fund through three separate classes (Trust Shares, Investor Shares 8 and Flex Shares) and in each Money Market Fund through two separate classes (Trust Shares and Investor Shares), which provide for variations in distribution and service fees, transfer agent fees, voting rights and dividends. Except for differences between classes, each share of each Fund represents an undivided, proportionate interest in that Fund. This Prospectus relates to the Investor Shares of the Funds described below. FUNDS AND INVESTMENT OBJECTIVES THE CAPITAL GROWTH FUND seeks to provide capital appreciation by investing primarily in a portfolio of common stocks, warrants and securities convertible into common stock which in its Advisor's opinion are undervalued in the marketplace at the time of purchase. THE VALUE INCOME STOCK FUND seeks to provide current income with the secondary goal of achieving capital appreciation by investing primarily in equity securities. THE MID-CAP EQUITY FUND (formerly known as the Aggressive Growth Fund) seeks to provide capital appreciation by investing primarily in a diversified portfolio of common stocks, preferred stocks and securities convertible into common stock of small to mid-sized companies with above-average growth of earnings. Current income will not be an important criterion of investment selection and any such income should be considered incidental. THE BALANCED FUND seeks to provide capital appreciation and current income by investing in common and preferred stocks, warrants, securities convertible into common stock and investment grade fixed income securities. THE SUNBELT EQUITY FUND seeks to provide capital appreciation by investing substantially all, and under normal market conditions at least 65%, of its assets in common stocks, preferred stocks, warrants and securities convertible into common stock of U.S. companies headquartered and/or conducting a substantial portion of their operations in the southern region of the United States. Current income will not be an important criterion of investment selection and any such income should be considered incidental. THE INTERNATIONAL EQUITY INDEX FUND seeks to provide investment results that correspond to the aggregate price and dividend performance of the securities included in the Gross Domestic Product Weighted Morgan Stanley Capital International Europe, Australasia and Far East Index (the "MSCI EAFE-GDP Index" or "EAFE-GDP Index").1 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 a Fund will achieve its investment objective. The investment objective of each Fund is nonfundamental and may be changed without shareholder approval. INVESTMENT POLICIES AND STRATEGIES CAPITAL GROWTH FUND The Capital Growth Fund invests primarily in a diversified portfolio of common stocks, - ------------------------ 1 "MSCI EAFE-GDP Index" is a registered service mark of Morgan Stanley Capital International which does not sponsor and is in no way affiliated with the International Equity Index Fund. 9 warrants, and securities convertible into common stocks which, in the Fund's Advisor's opinion, are undervalued in the marketplace at the time of purchase. In selecting securities for the Fund, its Advisor will evaluate factors believed to affect capital appreciation such as the issuer's background, industry position, historical returns on equity and experience and qualifications of the management team. Dividend and interest income should be considered incidental to the growth of capital. The Fund's Advisor will rotate the Capital Growth Fund's holdings between various market sectors based on economic analysis of the overall business cycle. Under normal conditions, at least 65% of the total assets of the Capital Growth Fund will be invested in common stocks. All of the common stocks in which the Fund invests are traded on registered exchanges or on the over-the-counter market in the United States. Assets of the Capital Growth Fund not invested in the securities described above may be invested in U.S. dollar denominated equity securities of foreign issuers (including sponsored American Depositary Receipts ("ADRs") that are traded on exchanges or listed on National Association of Securities Dealers Automated Quotations ("NASDAQ"), securities issued by money market mutual funds; pay-in-kind securities; and bonds. The bonds that the Capital Growth Fund may purchase may be rated in any rating category or may be unrated, provided that no more than 10% of the Fund's total assets will be invested in bonds rated below BBB by Standard & Poor's Corporation ("S&P") or below Baa by Moody's Investors Service, Inc. ("Moody's") or securities not rated by S&P or Moody's and of comparable quality (see "Investment Risks -- High Yield, Lower Rated Bonds"). In addition, the Fund may invest up to 10% of its assets in restricted securities. The Fund's turnover rate for the fiscal year ended May 31, 1996 was 156%. This rate of turnover, if continued, will likely result in higher brokerage commissions and higher levels of realized capital gains than if the turnover rate was lower. VALUE INCOME STOCK FUND The Value Income Stock Fund seeks to provide current income by structuring its investments in an attempt to maintain the Fund's yield at a level above the average dividend yield of the securities comprising the S&P 500 Stock Index. Achieving such a yield will be the Fund's primary consideration when purchasing securities. A secondary consideration of the Fund will be capital appreciation. The Fund will invest at least 80% of its total assets in equity securities. Investments will consist primarily of common stocks, and, under normal market conditions, at least 65% of the Fund's assets will be invested in common stocks issued by corporations which have a history of paying regular dividends, although there can be no assurance that such corporations will continue to pay dividends. Other equity securities in which the Fund may invest are convertible debt securities; preferred stocks and warrants which are convertible into or exchangeable for common stocks; and U.S. dollar denominated equity securities of foreign issuers (including sponsored ADRs that are traded on exchanges or listed on NASDAQ). All of the common stocks in which the Fund invests are traded on registered exchanges such as the New York or American Stock Exchange or on the over-the-counter market in the United States (i.e., NASDAQ). The Fund may also purchase debt securities (corporate debt obligations and U.S. Treasury obligations) which may be rated in any rating category or may be unrated, provided that no more than 10 10% of the Fund's total assets will be invested in bonds rated below BBB by S&P or below Baa by Moody's or securities not rated by S&P or Moody's and of comparable quality. The Fund may also invest in futures and options. The Fund will invest primarily in stocks of companies operating in all aspects of the U.S. and world economies that have a market capitalization of at least $500 million, and that the Fund's Advisor believes possess fundamentally favorable long-term characteristics. However, stocks of companies with smaller market capitalizations and stocks that are out of favor in the financial community and in which little opportunity for price appreciation is recognized by the financial community may also be purchased if the Fund's Advisor believes they are undervalued. The Fund's turnover rate for the fiscal year ended May 31, 1996 was 134%. This rate of turnover, if continued, will likely result in higher brokerage commissions and higher levels of realized capital gains than if the turnover rate was lower. MID-CAP EQUITY FUND The Mid-Cap Equity Fund invests primarily in a diversified portfolio of common stocks, preferred stocks, and securities convertible into common stocks of small to mid-size companies, (i.e., $50 million to $1 billion and $500 million to $5 billion, respectively, as measured by their market capitalization), with above-average growth of earnings. Under normal conditions, at least 80% of the total assets of the Fund will be invested in equity securities and as a matter of non-fundamental policy, the Fund will invest at least 65% of its assets in mid-size companies. Current income will not be an important criterion of investment selection and any such income should be considered incidental. In selecting securities for the Fund, the Fund's Advisor will evaluate factors such as the issuer's background, industry position, historical returns on equity and experience and qualifications of the management team. Most of the common stocks in which the Fund invests are traded on registered exchanges or on the over-the-counter market in the United States. Assets of the Fund not invested in the securities described above may be invested in U.S. dollar denominated equity securities of foreign issuers (including sponsored ADRs that are traded on exchanges or listed on NASDAQ); securities issued by mutual funds; repurchase agreements; and bonds. The bonds that the Fund may purchase, including any variable or floating rate instruments, must be rated B or better by S&P or Moody's, provided that this requirement shall not apply to the Fund's purchase of bonds issued by the government of Canada or by various supranational entities, and provided further that no more than 10% of the Fund's total assets will be invested in bonds rated below BBB by S&P or below Baa by Moody's or securities not rated by S&P or Moody's that are of comparable quality. The Fund may invest up to 10% of its assets in restricted securities. The Fund's turnover rate for the fiscal year ended May 31, 1996 was 116%. This rate of turnover, if continued, will likely result in higher brokerage commissions and higher levels of realized capital gains than if the turnover rate was lower. SUNBELT EQUITY FUND The Sunbelt Equity Fund seeks to provide capital appreciation by investing substantially all, and under normal market conditions at least 65%, of its assets in common stocks; preferred stocks; warrants; and securities convertible into common stock of U.S. companies 11 headquartered and/or conducting a substantial portion of their operations in (i.e., maintaining at least 50% of their assets in or deriving at least 50% of their revenues and/or sales from) the southern region of the United States. Current income will not be an important criterion of investment selection and any such income should be considered incidental. The Fund's Advisor will seek to identify and purchase securities of companies that it believes to be undervalued and that possess a strong balance sheet, a strong earnings record and adequate market liquidity. Most of the common stocks in which the Fund invests are traded on registered exchanges such as the New York or American Stock Exchange or on NASDAQ. The Fund will invest no more than 10% of its assets in convertible securities rated lower than BBB. (See "Investment Risks -- High Yield, Lower Rated Bonds.") The Fund may invest up to 10% of its total assets in restricted securities. The Fund may also purchase futures and options for hedging purposes. Obligations relating to futures contracts will be limited to not more than 20% of the Fund's total assets. The Fund will invest primarily in stocks of U.S. companies headquartered and/or operating in the following U.S. states: Texas, Arkansas, Alabama, Mississippi, Tennessee, Kentucky, Florida, Virginia, Georgia, North Carolina, South Carolina and Louisiana. To the extent that the Fund's investments are not as geographically dispersed across the U.S. as other funds with comparable objectives, the impact of economic forces on and the relative economic conditions of these states will be greater on shareholders. The Fund's turnover rate for the fiscal year ended May 31, 1996 was 106%. This rate of turnover, if continued, will likely result in higher brokerage commissions and higher levels of realized capital gains than if the turnover rate was lower. BALANCED FUND The Balanced Fund seeks to provide capital appreciation and current income through investments in a diversified portfolio of common and preferred stocks, warrants, securities convertible into common stocks, and investment grade fixed income securities. Under normal conditions, no more than 70% of the total assets of the Fund will be invested in common stocks and other equity securities, and no more than 60% of the Fund's total assets will be invested in bonds and other fixed income securities. The Fund will maintain at least 25% of its total assets in senior fixed income securities. In selecting equity securities for the Fund, the Fund's Advisor will evaluate factors believed to affect capital appreciation such as the issuer's background, industry position, historical returns on equity and experience and qualifications of the management team. The Fund's Advisor will rotate the Fund's holdings between various market sectors based on economic analysis of the overall business cycle. All of the common stocks in which the Fund invests are traded on registered exchanges or on NASDAQ. Assets of the Fund not invested in the securities described above may be invested in U.S. dollar denominated equity securities of foreign issuers (including sponsored ADRs that are traded on exchanges or listed on NASDAQ), securities issued by investment companies, and bonds. The Fund will invest in investment grade fixed income securities rated BBB or better by S&P or Baa or better by Moody's or, if not rated by S&P or Moody's, of comparable quality at the 12 time of purchase as determined by the Fund's Advisor, including corporate debt obligations; mortgage-backed securities, collateralized mortgage obligations and asset-backed securities; obligations issued or guaranteed as to principal and interest by the U.S. Government, its agencies or instrumentalities; custodial receipts involving U.S. Treasury obligations; securities of the government of Canada and its provincial and local governments; securities issued or guaranteed by foreign governments, their political subdivisions, agencies or instrumentalities; and obligations of supranational entities. No more than 25% of the Fund's assets will be invested in securities rated BBB by S&P or Baa by Moody's or, if not rated by S&P or Moody's, of comparable quality at the time of purchase as determined by the Fund's Advisor. The Fund may purchase mortgage-backed securities issued or guaranteed as to the payment of principal and interest by the U.S. Government, its agencies or instrumentalities or, subject to a limit of 25% of the Fund's assets, mortgage-backed securities issued by private issuers. These mortgage-backed securities may be backed or collateralized by fixed, adjustable or floating rate mortgages. The Fund may also invest in asset backed securities which consist of securities backed by company receivables, truck and auto loans, leases, credit card receivables and home equity loans. In order to reduce interest rate risk, the Fund may purchase floating or variable rate securities. It may also buy securities on a when-issued basis, putable securities, pay-in-kind securities and zero coupon securities. The Fund may also invest futures and options. Some floating or variable rate securities will be subject to interest rate "caps" or "floors." The Balanced Fund's turnover rate for the fiscal year ended May 31, 1996 was 148% for the equity portion of its portfolio and 164% for the fixed income portion of its portfolio. These rates of turnover if continued will likely result in higher transaction costs and brokerage commissions and higher levels of realized capital gains than if the turnover rate was lower. INTERNATIONAL EQUITY INDEX FUND The Fund will invest substantially all and, under normal market conditions, at least 65% of its assets in common and preferred stocks; warrants; options; and securities convertible into common stock of companies headquartered or based in the approximately twenty foreign countries included in the EAFE-GDP Index. The Fund will invest only in the 1088 or so companies included in the EAFE-GDP Index. Because it is impractical to invest in every company included in the Index, the Fund will select a representative sample of securities in each country using a statistically-based optimization process. Morgan Stanley & Co. Incorporated maintains the optimization computer programs which will be utilized to select companies within each country. The Fund will be constructed to have aggregate investment characteristics similar to those of the EAFE-GDP Index. The Fund will invest in a statistically selected sample of the securities included in the EAFE-GDP Index, although not all countries nor all companies within a country will be represented in the Fund's portfolio of securities at any time. The Fund expects to invest in approximately 300 stocks so that the results fall within a targeted tracking error range. From time to time, adjustments may be made in the Fund's portfolio because of changes in the composition of the EAFE-GDP Index. No attempt will be made to manage the portfolio using traditional economic, financial and market analyses. 13 The Fund expects that there will be a close correlation between the Fund's performance and that of the EAFE-GDP Index. A 1.00 correlation would indicate perfect correlation, which would be achieved when the net asset value of the Fund, including the value of its dividend and capital gains distributions, increases or decreases in exact proportion to changes in the EAFE-GDP Index. The correlation between the Fund and the EAFE-GDP Index is expected to be over 0.95 on an annual basis. The Fund's ability to track the EAFE-GDP Index, however, may be affected by, among other things, transaction costs, changes in either the composition of the EAFE-GDP Index or number of shares outstanding for the component companies of the EAFE-GDP Index, and the timing and amount of purchases and redemptions. 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 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. These contracts may be bought or sold to protect the Fund, to some degree, against a possible loss resulting from an adverse change in the relationship between foreign currencies and the U.S. dollar. The Fund expects to be fully invested in the investments described above, but may invest up to 35% of its total assets in U.S. and non-U.S. denominated money market instruments; repurchase agreements; futures contracts, including stock index futures contracts; and options on futures contracts. Obligations relating to futures contracts will be limited to 20% of the Fund's total assets. The Fund is also permitted to acquire floating and variable rate securities; purchase securities on a when-issued basis; and purchase illiquid securities. 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. 14 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 or 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 S&P or below Baa by Moody's or securities not rated by S&P or Moody's that are 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 its 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 its 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 Fund's turnover rate for the fiscal year ended May 31, 1996 was 113%. This rate of turnover, if continued, will likely result in higher brokerage commissions and higher levels of realized capital gains than if the turnover rate was lower. GENERAL INVESTMENT POLICIES AND STRATEGIES For temporary defensive purposes, during periods when its Advisor determines that market conditions warrant, each Fund may hold a portion of its assets in cash and 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; time deposits issued by banks or savings and loan associations; and commercial paper rated in the highest rating category. A Fund may not be pursuing its investment objective when it is engaged in temporary defensive investing. Each Fund, except the International Equity Index Fund, may purchase restricted securities, including Rule 144A securities, that its respective Advisor determines are liquid pursuant to guidelines established by the Trust's Board of Trustees. In the event that a security owned by a Fund is downgraded below the stated rating categories, its Advisor will review and take appropriate action with regard to the security. 15 Each Fund may borrow money for temporary or emergency purposes in an amount not to exceed one-third of the value of its total assets. A Fund may not purchase additional securities while its outstanding borrowings exceed 5% of its assets. Each Fund may purchase securities issued by money market mutual funds. A Fund's purchase of shares of other investment companies is limited by the Investment Company Act of 1940 (the "1940 Act") and will ordinarily result in an additional layer of charges and expenses. Each of the Funds 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 each Fund to invest no more than 15% of its net assets in illiquid securities. An illiquid security is a security which cannot be disposed of in the usual course of business within seven days 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 EQUITY SECURITIES Investments in equity securities are generally subject to market risks that may cause their prices to fluctuate over time. The values of convertible equity securities are also affected by prevailing interest rates, the credit quality of the issuer and any call provision. Fluctuations in the value of equity securities in which a Fund invests will cause the net asset value of the Fund to fluctuate. FIXED INCOME SECURITIES The market value of a Fund's fixed income investments will change in response to interest rate changes and other factors. During periods of falling interest rates, the values of outstanding fixed income securities generally rise. Conversely, during periods of rising interest rates, the values of such securities generally decline. Securities with longer maturities are subject to greater fluctuations in value than securities with shorter maturities. Changes by a nationally recognized statistical rating organization ("NRSRO") to the rating of any fixed income security and in the ability of an issuer to make payments of interest and principal also affect the value of these investments. Changes in the value of a Fund's securities will not affect cash income derived from these securities but will affect the Fund's net asset value. There is a risk that the current interest rate on floating and variable rate instruments may not accurately reflect existing market interest rates. Fixed income securities rated BBB by S&P or Baa by Moody's (the lowest rating of investment grade bonds) are deemed by these rating services to have speculative characteristics. 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, 16 adverse changes in investment or exchange control regulations, political instability which could affect U.S. investment in foreign countries and potential restrictions of the flow of international capital and currencies. Foreign companies may also be subject to less government regulation than U.S. companies. Moreover, the dividends payable on the foreign securities may be subject to foreign withholding taxes, thus reducing the net amount of income available for distribution to a 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 International Equity Index Fund and International Equity Fund will seek to protect the value of its respective 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, they tend to limit any potential gain which might result should the value of such currency increase. HIGH YIELD, LOWER RATED BONDS A Fund's investments in high yield, lower rated bonds ("junk bonds") involve greater risk of default or price declines than investments in investment grade securities (E.G., securities rated BBB or higher by S&P or Baa or higher by Moody's) due to changes in the issuer's creditworthiness. 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 a 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 the issuer's credit quality and the outlook for economic growth. Thus, prices for high risk, high yield securities may move independently of interest rates and the overall bond market. In addition, the market for high risk, high yield securities may be adversely affected by legislative and regulatory developments. MORTGAGE-BACKED SECURITIES Mortgage-backed securities are subject to the risk of prepayment of the underlying mortgages. During periods of declining interest rates, prepayment of mortgages underlying these securities can be expected to accelerate. When the mortgage-backed securities held by the Balanced Fund are prepaid, the Balanced Fund generally will reinvest the proceeds in securities with a yield that reflects prevailing interest rates, which may be lower than the prepaid security. 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 than interest bearing obligations. A Fund will be required to include the imputed interest in zero coupon obligations in its current income. Because each Fund distributes all of its net investment income to Shareholders, a Fund may have to sell portfolio 17 securities to distribute the income attributable to these obligations and securities at a time when its Advisor would not have chosen to sell such obligations or securities and which may result in a taxable gain or loss. INVESTMENT LIMITATIONS The following investment limitations constitute fundamental policies of each Fund. Fundamental policies cannot be changed with respect to a Fund without the consent of the holders of a majority of the Fund's outstanding shares. The term "majority of the outstanding shares" means the vote of (i) 67% or more of a Fund's shares present at a meeting, if more than 50% of the outstanding shares of the Fund are present or represented by proxy, or (ii) more than 50% of a Fund's outstanding shares, whichever is less. Each Fund may not: 1. Purchase securities of any issuer (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 a Fund would be invested in the securities of such issuer; provided, however, that a Fund may invest up to 25% of its total assets without regard to this restriction as permitted by applicable law. 2. Purchase any securities which would cause more than 25% of the total assets of a Fund to be invested in the securities of one or more issuers conducting their principal business activities in the same industry, provided that this limitation does not apply to investments in obligations issued or guaranteed by the U.S. Government 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 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 Funds may advertise performance (total return and yield). These figures will be historical and are not intended to indicate future performance. The yield of a Fund refers to the annualized income generated by an investment in that Fund over a specified 30-day period. The yield is calculated by assuming that the income generated by the investment during that period is generated over one year and is shown as a percentage of the investment. The total return of a Fund refers to the average compounded rate of return on a hypothetical investment, including any sales charge imposed, for designated time periods (including but not limited to, the period from which a Fund commenced operations through the specified date), assuming that the entire investment is redeemed at the end of each period and assuming the reinvestment of all dividend and capital gains distributions. The performance of the Trust's Investor Shares and Flex Shares will normally be lower than for Trust Shares because Investor Shares and Flex Shares are subject to distribution, service and 18 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. Each Fund may periodically compare its performance to other mutual funds tracked by mutual fund rating services, to broad groups of comparable mutual funds or to unmanaged indices which may assume reinvestment of dividends but generally do not reflect deductions for administrative and management costs. FUNDLINK All purchases and redemptions of Investor 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 SunTrust 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 Consultant of a SunTrust Banks, Inc. affiliate bank and complete the appropriate application and authorization agreements. PURCHASE OF FUND SHARES Investor Shares are sold on a continuous basis and may be purchased by contacting the Trust's transfer agent, Federated Services Company (the "Transfer Agent"), either by mail, by telephone or by wire. Investor Shares may also be purchased through Investment Consultants of SunTrust Securities, Inc. which serves as Shareholder Servicing Agents to the Trust. Furthermore, Investor Shares may be purchased through certain correspondent banks of SunTrust Banks, Inc. or other financial institutions who have executed dealer sales agreements. Shares may be purchased on days on which the New York Stock Exchange is open for business (a "Business Day"). A purchase order for any of the Funds 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. All purchases made by check should be in U.S. dollars and made payable to "STI Classic Funds (Fund Name)." Third party checks, credit cards, credit card checks and cash will not be accepted. When purchases are made by check, redemptions will not be allowed until the investment being redeemed has been in the account for 15 Business Days. Purchases by mail are considered received after payment by check is converted into federal funds. The purchase price of shares of a 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 a 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 each Fund. Minimum initial and subsequent purchase amounts, respectively, for each Fund are $2,000 and $1,000 ($100 via statement coupon). Purchases made pursuant to the 19 Systematic Investment Plan (described below) are subject to lower minimum initial and subsequent purchase amounts. 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. The minimum initial purchase amount for retirement plans is $2,000. These minimums may be waived at the Distributor's discretion. 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). The Trust maintains procedures, including identification methods and other means, for ascertaining the identity of callers and authenticity of instructions. If reasonable procedures are not employed, the Trust and/or the Transfer Agent may be liable for any losses due to unauthorized or fraudulent telephone transactions. Neither the 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. Shares of the Funds are offered only to residents of states in which the shares are eligible for purchase. Investors 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 Shares are identical to those for Trust Shares and Flex Shares, the net asset value per share of the classes may differ because of the distribution and certain transfer agent expenses charged to Investor Shares and Flex Shares. SYSTEMATIC INVESTMENT PLAN Shares of each Fund may be purchased systematically through deductions from checking or savings accounts maintained through SunTrust Banks, Inc. affiliate banks. Investors may purchase shares on a fixed schedule (semi-monthly or monthly) with amounts from $100 up to $100,000. The Systematic Investment Plan is subject to account minimum initial purchase and subsequent amounts of $500 and $50 and minimum maintained balance requirements. The purchases will be effective on the Business Day that the Transfer Agent receives the transmission. SALES CHARGE INFORMATION The following schedule applies to the purchase of Investor Shares of a Fund:
AMOUNT OF SALES CHARGE SALES CHARGE SALES CHARGE AS A AS A REALLOWED TO PERCENTAGE PERCENTAGE OF DEALERS AS A OF OFFERING NET AMOUNT % OF OFFERING PRICE INVESTED PRICE* ------------------ ------------------- ----------------- Less than $100,000...................... 3.75% 3.90% 3.375% $100,000 but less than $250,000......... 3.25% 3.36% 2.925% $250,000 but less than $1,000,000....... 2.50% 2.56% 2.250% $1,000,000 and higher................... 1.50% 1.52% 1.350%
* The entire sales charge will be reallowed to dealers affiliated with the Advisers and their affiliates. Dealers who receive more than 90% of the sales charge may be considered underwriters for purposes of the Securities Act of 1933. 20 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. 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 and/or Trust Shares through a SunTrust Securities, Inc. asset allocation account will be exempt from sales charges. RIGHTS OF ACCUMULATION In calculating the sales charge rates applicable to current purchases of a 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 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 of 1986, as amended, 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 Funds 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 shares of an Eligible 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 a 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 21 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 a Fund can be automatically reinvested in 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 a Fund may be purchased at their net asset value if Investor Shares sold subject to a sales charge were redeemed from a 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 be received by the Transfer Agent within 60 days after the redemption. It is the responsibility of the investor to notify the Transfer Agent that the investor is repurchasing Investor Shares at the time of the transaction. REDEMPTION OF FUND SHARES Shareholders may redeem their Investor Shares without charge on any day that net asset value is calculated. Investor Shares may ordinarily be redeemed by mail or telephone request to the Transfer Agent. However, all or part of a shareholder's holdings of Investor 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 to be effective that day. Redemption proceeds are remitted within five Business Days following receipt of the order. Requests for redemptions from the Funds may be placed in writing or by telephone directly to an Investment Consultant 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 are purchased by check or through Automated Clearing House ("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 15 Business Days. A Shareholder may be required to redeem Investor Shares if the balance in a Shareholder's Fund account drops below $2,000 as a result of redemptions and the 22 Shareholder does not increase its balance to at least $2,000 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. EXCHANGES Some or all of the Investor Shares of the Funds 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. 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 Trust 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 Consultant 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 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 60 days' notice. DIVIDENDS AND DISTRIBUTIONS Dividends from net investment income (exclusive of capital gains) are declared and paid quarterly by each of the Funds except that dividends are declared and paid annually by the International Equity Index Fund and International Equity Fund. Each Fund's net realized capital gains (including net short-term capital gains) are distributed at least annually. Net income for dividend purposes consists of (i) interest accrued and original issue discount earned on a 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 23 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 of the Funds will be reduced by the amount of any dividend or distribution. Dividends and distributions are paid in the form of additional Investor Shares of the same 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 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 Investor Shares in a Fund. 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 each 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 EACH FUND: Each Fund is treated as a separate entity for federal tax purposes, and is not combined with the Trust's other Funds. Each 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. Each Fund intends to make sufficient distributions prior to the end of each calendar year to avoid liability for the federal excise tax applicable to regulated investment companies. TAX STATUS OF DISTRIBUTIONS: Each 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 Funds 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 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 Funds will make annual reports to Shareholders of the federal income tax status of all distributions. Dividends declared by a 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. 24 Income derived by a Fund from obligations of foreign issuers may be subject to foreign withholding taxes. The International Equity Index and International Equity Funds expect to elect to treat Shareholders as having paid their proportionate share of such foreign taxes. The other Funds will not be able to make this election. Income received on direct U.S. obligations is exempt from tax at the state level when received directly by a Fund and may be exempt, depending on the state, when received by the Shareholder as income dividends from a 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 Funds 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 a Fund is considered tax-exempt in their particular state. A 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 Fund. All consideration received by the Trust for shares of any Fund and all assets of such Fund belong to that Fund and would be subject to liabilities related thereto. The Trust pays its expenses, including fees of its service providers, audit and legal expenses, expenses of preparing prospectuses, proxy solicitation material and reports to Shareholders, costs of custodial services and registering the shares under federal and state securities laws, pricing, insurance expenses, litigation and other extraordinary expenses, brokerage costs, interest charges, taxes and organization expenses. BOARD OF TRUSTEES The management and affairs of the Trust are supervised by the Trustees under the laws governing business trusts in the Commonwealth of Massachusetts. The Trustees have approved contracts under which, as described below, certain companies provide essential management services to the Trust. INVESTMENT ADVISORS The Advisors are indirect wholly-owned subsidiaries of SunTrust Banks, Inc. ("SunTrust"), a southeastern regional bank holding company with assets of $66 billion as of December 31, 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, Inc.-- provide a wide range of personal and corporate banking, trust, and investment services through more than 600 locations in the three-state area. Total discretionary assets under management with SunTrust Banks, Inc. equalled approximately $47 billion as of December 31, 1995. STI Capital Management, N.A. ("STI Capital") serves as the Advisor to the Capital Growth, Value Income, Mid-Cap Equity, Balanced and International Equity Funds and joint advisor to 25 the International Equity Index Fund. As of June 30, 1996, STI Capital had discretionary management authority with respect to assets of approximately $11 billion. The principal business address of STI Capital is P.O. Box 3808, Orlando, Florida 32802. Trusco Capital Management, Inc. ("Trusco") serves as the Advisor to the Sunbelt Equity Fund and as joint advisor to the International Equity Index Fund. As of June 30, 1996, Trusco had approximately $13.7 billion in assets under management. The principal business address of Trusco is 50 Hurt Plaza, Suite 1400, Atlanta, Georgia 30303. The Trust and the above Advisors have entered into advisory agreements (the "Advisory Agreements"). Under the Advisory Agreements, the Advisors make the investment decisions for the assets of the Funds they advise and continuously review, supervise and administer their Fund's respective investment program. The Advisors discharge their 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 FUNDS INVOLVE RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. RETURNS AND PRINCIPAL VALUES WILL FLUCTUATE AND SHARES AT REDEMPTION MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THERE IS NO GUARANTEE THAT ANY STI CLASSIC FUND WILL ACHIEVE ITS INVESTMENT OBJECTIVE. With respect to all Funds, the Advisors may execute brokerage or other agency transactions through affiliates of the Advisors. For the services provided and expenses incurred pursuant to the Advisory Agreements, STI Capital is entitled to receive advisory fees computed daily and paid monthly at the annual rate of 1.15%, 0.95%, 1.15%, 0.80% and 1.25% of the average daily net assets of the Capital Growth, Balanced, Mid-Cap Equity, Value Income Stock and International Equity Funds, respectively. Trusco is entitled to receive an advisory fee computed daily and paid monthly at the annual rate of 1.15% of the average daily net assets of the Sunbelt Equity Fund. Trusco and STI Capital jointly are entitled to receive an advisory fee computed daily and paid monthly at the annual rate of 0.90% of the average daily net assets of the International Equity Index Fund. Although the advisory fee for each 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 many other mutual funds with similar investment objectives and policies. From time to time, an Advisor may waive (either voluntarily or pursuant to applicable state limitations) advisory fees payable by a Fund. Currently, the Advisors 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 any time. For the fiscal year ended May 31, 1996, STI Capital received advisory fees computed daily and paid monthly at the annual rate of 1.03%, 0.80%, 1.00%, 0.79% and 1.06% of the average daily net assets of the Capital Growth, Value Income Stock, Mid-Cap Equity, Balanced and International Equity Funds, respectively. Trusco received an advisory fee computed daily and paid monthly at the annual rate of 1.02% of the average daily net assets of Sunbelt Equity Fund. Trusco and STI Capital jointly received an advisory fee computed daily and paid monthly 26 at the annual rate of 0.76% of the average daily net assets of the International Equity Index Fund. PORTFOLIO MANAGERS Mr. Anthony Gray has been responsible for the day-to-day management of the Capital Growth Fund since it commenced operations. Mr. Gray has served as Chief Executive Officer and Chief Investment Officer of STI Capital since 1979. Mr. Gray has also been responsible for the day-to-day management of the equity portion of the Balanced Fund since it commenced operations. Mr. Mills Riddick, CFA, has been responsible for the day-to-day management of the Value Income Stock Fund since April, 1995. Mr. Riddick has been a value portfolio manager at STI Capital Management since 1989. Mr. Elliott A. Perny has been responsible for the day-to-day management of the Mid-Cap Equity Fund since October 1, 1996. Mr. Perny has served as Senior Executive Vice President of STI Capital since September, 1992 and has served as a portfolio manager with STI Capital since 1991. Mr. L. Earl Denney, CFA, has been responsible for the day-to-day management of the fixed income portion of the Balanced Fund since it commenced operations. Mr. Denney has served as Executive Vice President of STI Capital since 1983. Mr. Dan Jaworski has been responsible for the day-to-day management of the International Equity Fund since it commenced operations. 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. Mr. James Foster has been responsible for the day-to-day management of the Sunbelt Equity Fund since it commenced operations. Mr. Foster has served as a Vice President of Trusco since 1989. BANKING LAWS Banking laws and regulations, including the Glass-Steagall Act as presently interpreted by the Board of Governors of the Federal Reserve System, currently (a) prohibit a bank holding company registered under the Federal Bank Holding Company Act of 1956 or its affiliates from sponsoring, organizing, controlling, or distributing the shares of a registered, open-end investment company continuously engaged in the issuance of its shares, and generally prohibit banks from underwriting securities, but (b) do not prohibit such a bank holding company or affiliate or banks generally from acting as an investment advisor, transfer agent, or custodian to such an investment company or from purchasing shares of such a company as agent for and upon the order of a customer. The Advisors believe that each may perform the services for STI Classic Funds contemplated by their respective Advisory Agreements described in this Prospectus without violation of applicable banking laws or regulations. However, future changes in legal requirements relating to the permissible activities of banks and their affiliates, as well as future interpretations of present requirements, could prevent the Advisors from continuing to perform services for STI Classic Funds. If the Advisors were prohibited from providing services to STI Classic Funds, 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, 27 controlling, or distributing shares of an investment company were relaxed, the Advisors, or their affiliates, would consider the possibility of offering to perform additional services for STI Classic Funds. It is not possible, of course, to predict whether or in what form such legislation might be enacted or the terms upon which the Advisors, or such affiliates, might offer to provide such services. In addition, state securities laws on this 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 (the "Distribution Agreement") dated May 29, 1992. The Investor Shares of each Fund have a distribution plan ("Investor Plan"). The Distribution Agreement and the Investor Plan provide that the Investor Shares of the Funds may pay a distribution services fee to the Distributor of up to .68% of the daily net assets of the Capital Growth Fund, .33% of the average daily net assets of the Value Income Stock Fund, .43% of the average daily net assets of the Mid-Cap Equity and Sunbelt Equity Funds, .28% of the average daily net assets of the Balanced Fund and .38% of the average daily net assets of the International Equity Index Fund and .33% of the average daily net assets of the International Equity Fund. 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: (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. The Investor Plan is characterized as a compensation plan 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 of the Trust and application forms. Trust Shares of each 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 a Fund are subject to a contingent deferred sales charge, pay a distribution services fee to the Distributor and are also subject to a services fee for personal service and maintenance of shareholder accounts. The contingent deferred sales charge option of the Flex Shares provides investors with an alterntive purchase arrangement to Investor Shares. An investor may call 1-800-874-4770 to receive more information regarding Trust or Flex Shares. It is possible 28 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. Each Fund may execute brokerage or other agency transactions through the Distributor, for which the Distributor receives compensation. With respect to each of the Funds, the Distributor may, from time to time and at its own expense, provide promotional incentives, in the form of cash or other compensation, to certain financial institutions whose representatives have sold or are expected to sell significant amounts of these Funds. ADMINISTRATION SEI Fund Resources (the "Administrator") serves as the Administrator of the Trust. 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 from each Fund, which is calculated daily and paid monthly, at an annual rate as follows:
AVERAGE AGGREGATE NET ASSETS FEE - ------------------------------------------ --------- $1 - $1 billion 0.10% over $1 billion to $5 billion 0.07% over $5 billion to $8 billion 0.05% over $8 billion to $10 billion 0.045% over $10 billion 0.04%
From time to time, the Administrator may waive (either voluntarily or pursuant to applicable state limitations) all or a portion of the administration fee payable with respect to the Trust. TRANSFER AGENT AND DIVIDEND DISBURSING AGENT Federated Services Company, Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779, 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, Georgia 30308 serves as custodian of the assets of each Fund with the exception of the International Equity Index and the International Equity Funds. Union Bank of California, 475 Sansome Street, Suite 1200, San Francisco, California 94111, serves as custodian for the International Equity Index Fund. The Bank of New York, One Wall Street, New York, New York 10286, serves as custodian for the International Equity Fund. The custodians hold cash, securities and other assets of the Trust as required by the 1940 Act. LEGAL COUNSEL Morgan, Lewis & Bockius LLP, Philadelphia, Pennsylvania, serves as legal counsel to the Trust. INDEPENDENT PUBLIC ACCOUNTANTS The independent public accountants to the Trust are Arthur Andersen LLP, Philadelphia, Pennsylvania. OTHER INFORMATION VOTING RIGHTS Each share held entitles the 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 29 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 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 1-800-874-4770. DESCRIPTION OF PERMITTED INVESTMENTS The following is a description of the permitted investments for the Funds. Further discussion is contained in the Statement of Additional Information. AMERICAN DEPOSITARY RECEIPTS ("ADRs") -- ADRs are securities, typically issued by a U.S. financial institution (a "depositary"), that evidence ownership interests in a security or a pool of securities issued by a foreign issuer and deposited with the depositary. ADRs may be available through "sponsored" or "unsponsored" facilities. A sponsored facility is established jointly by the issuer of the security underlying the receipt and a depositary, whereas an unsponsored facility may be established by a depositary without participation by the issuer of the underlying security. Holders of unsponsored depositary receipts generally bear all the costs of the unsponsored facility. The depositary of an unsponsored facility frequently is under no obligation to distribute shareholder communications received from the issuer of the deposited security or to pass through, to the holders of the receipts, voting rights with respect to the deposited securities. ASSET-BACKED SECURITIES -- Asset-backed securities are securities secured by non-mortgage assets such as company receivables, truck and auto loans, leases and credit card receivables. Such securities are generally issued as pass-through certificates, which represent undivided fractional ownership interests in the underlying pools of assets. Such securities also may be debt instruments, which are also known as collateralized obligations and are generally issued as the debt of a special purpose entity, such as a trust, organized solely for the purpose of owning such assets and issuing such debt. Asset-backed securities are not issued or guaranteed by the U.S. Government, its agencies or instrumentalities; however, the payment of principal and interest on such obligations may be guaranteed up to certain amounts and for a certain period by a letter of credit issued by a financial institution (such as a bank or insurance company) unaffiliated with the issuers of such securities. The purchase of asset-backed securities raises risk considerations peculiar to the financing of the instruments underlying such securities. For example, there is a risk that another party could acquire an interest in the obligations superior to that of the holders of the asset-backed securities. There also is the possibility that 30 recoveries on repossessed collateral may not, in some cases, be available to support payments on those securities. Asset-backed securities entail prepayment risk, which may vary depending on the type of asset, but is generally less than the prepayment risk associated with mortgage-backed securities. In addition, credit card receivables are unsecured obligations of the card holder. The market for asset-backed securities is at a relatively early stage of development. Accordingly, there may be a limited secondary market for such securities. BANKERS' ACCEPTANCES -- Bankers' acceptances are bills of exchange or time drafts drawn on and accepted by a commercial bank. Bankers' acceptances are used by corporations to finance the shipment and storage of goods. Maturities are generally six months or less. CERTIFICATES OF DEPOSIT -- Certificates of deposit are interest bearing instruments with a specific maturity. They are issued by banks and savings and loan institutions in exchange for the deposit of funds and normally can be traded in the secondary market prior to maturity. Certificates of deposit with penalties for early withdrawal will be considered illiquid. COMMERCIAL PAPER -- Commercial paper is a term used to describe unsecured short-term promissory notes issued by banks, municipalities, corporations and other entities. Maturities on these issues vary from a few to 270 days. CONVERTIBLE SECURITIES -- Convertible securities are corporate securities that are exchangeable for a set number of another security at a prestated price. Convertible securities typically have characteristics similar to both fixed income and equity securities. Because of the conversion feature, the market value of a convertible security tends to move with the market value of the underlying stock. The value of a convertible security is also affected by prevailing interest rates, the credit quality of the issuer, and any call provisions. CORPORATE DEBT OBLIGATIONS -- Corporate debt obligations are debt instruments issued by corporations with maturities exceeding 270 days. Such instruments may include putable corporate bonds and zero coupon bonds. CUSTODIAL RECEIPTS -- Custodial receipts are 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" ("TRs"), "Treasury Investment Growth Receipts" ("TIGRs"), and "Certificates of Accrual on Treasury Securities" ("CATS"). TRs, TIGRs and CATS are sold as zero coupon securities. See "Zero Coupon Obligations." DERIVATIVES -- Derivatives are securities whose value is derived from an underlying contract, index or security, or any combination thereof. This includes: futures, swap agreements, and some mortgage-back securities (CMOs, REMICs and SMBs). See elsewhere in this "Description of Permitted Investments" for discussions of these various instruments, and see "Investment Policies and Strategies" for more information about any investment policies and limitations applicable to their use. EUROPEAN DEPOSITARY RECEIPTS ("EDRs") -- EDRs are securities, typically 31 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. A 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 position in a futures contract at a specified exercise price during the term of the option. A Fund may use futures contracts and related options for bona fide hedging purposes, to offset changes in the value of securities held or expected to be acquired, to minimize fluctuations in foreign currencies, or to gain exposure to a particular market or instrument. A Fund will minimize the risk that it will be unable to close out a futures contract by only entering into futures contracts which are traded on national futures exchanges. Stock index futures are futures contracts for various stock indices that are traded on registered securities exchanges. A stock index futures contract obligates the seller to deliver (and the purchaser to take) an amount of cash equal to a specific dollar amount times the difference between the value of a specific stock index at the close of the last trading day of the contract and the price at which the agreement is made. There are risks associated with these activities, including the following: (1) the success of a hedging strategy may depend on an ability to predict movements in the prices of individual securities, fluctuations in markets and movements in interest rates, (2) there may be an imperfect or no correlation between the changes in market value of the securities held by the Fund and the prices of futures and options on futures, (3) there may not be a liquid secondary market for a futures contract or option, (4) trading restrictions or limitations may be imposed by an exchange, and (5) government regulations may restrict trading in futures contracts and futures options. ILLIQUID SECURITIES -- Illiquid securities are securities that cannot be disposed of within seven business days at approximately the price at which they are being carried on the Fund's books. An illiquid security includes a demand instrument with a demand notice period exceeding seven days, where there is no secondary market for such security, and repurchase agreements with durations (or maturities) over seven days in length. MEDIUM TERM NOTES -- Medium term notes are periodically or continuously offered 32 corporate or agency debt that differs from traditionally underwritten corporate bonds only in the process by which they are issued. MORTGAGE-BACKED SECURITIES -- Mortgage-backed securities are instruments that entitle the holder to a share of all interest and principal payments from mortgages underlying the security. The mortgages backing these securities include conventional thirty-year fixed rate mortgages, graduated payment mortgages, and adjustable rate mortgages. During periods of declining interest rates, prepayment of mortgages underlying mortgage-backed securities can be expected to accelerate. Prepayment of mortgages which underlie securities purchased at a premium often results in capital losses, while prepayment of mortgages purchased at a discount often results in capital gains. Because of these unpredictable prepayment characteristics, it is often not possible to predict accurately the average life or realized yield of a particular issue. GOVERNMENT PASS-THROUGH SECURITIES: These are securities that are issued or guaranteed by a U.S. Government agency representing an interest in a pool of mortgage loans. The primary issuers or guarantors of these mortgage-backed securities are the Government National Mortgage Association ("GNMA"), the Federal National Mortgage Association ("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC"). FNMA and FHLMC obligations are not backed by the full faith and credit of the U.S. Government as GNMA certificates are, but FNMA and FHLMC securities are supported by the instrumentalities' right to borrow from the U.S. Treasury. GNMA, FNMA and FHLMC each guarantees timely distributions of interest to certificate holders. GNMA and FNMA also each guarantees timely distributions of scheduled principal. FHLMC has in the past guaranteed only the ultimate collection of principal of the underlying mortgage loan; however, FHLMC now issues mortgage-backed securities (FHLMC Gold PCs) which also guarantee timely payment of monthly principal reductions. Government and private guarantees do not extend to the securities' value, which is likely to vary inversely with fluctuations in interest rates. PRIVATE PASS-THROUGH SECURITIES: These are mortgage-backed securities issued by a non-governmental entity, such as a trust. These securities include collateralized mortgage obligations ("CMOs") and real estate mortgage investment conduits ("REMICs") that are rated in one of the top two rating categories. While they are generally structured with one or more types of credit enhancement, private pass-through securities typically lack a guarantee by an entity having the credit status of a governmental agency or instrumentality. COLLATERALIZED MORTGAGE OBLIGATIONS: CMOs are debt obligations or multiclass pass-through certificates issued by agencies or instrumentalities of the U.S. Government or by private originators or investors in mortgage loans. In a CMO, series of bonds or certificates are usually issued in multiple classes. Principal and interest paid on the underlying mortgage assets may be allocated among the several classes of a series of a CMO in a variety of ways. Each class of a CMO, often referred to as a "tranche," is issued with a specific fixed or floating coupon rate and has a stated maturity or final distribution date. Principal payments on the underlying mortgage assets may cause CMOs to be retired substantially earlier then their stated maturities or final distribution dates, resulting in a loss of all or part of any premium paid. REMICS: A REMIC is a CMO that qualifies for special tax treatment under the Internal Revenue Code and invests in certain mortgages principally secured by interests in 33 real property. Investors may purchase beneficial interests in REMICs, which are known as "regular" interests, or "residual" interests. Guaranteed REMIC pass-through certificates ("REMIC Certificates") issued by FNMA or FHLMC represent beneficial ownership interests in a REMIC trust consisting principally of mortgage loans or FNMA, FHLMC or GNMA-guaranteed mortgage pass-through certificates. For FHLMC REMIC Certificates, FHLMC guarantees the timely payment of interest, and also guarantees the payment of principal as payments are required to be made on the underlying mortgage participation certificates. FNMA REMIC Certificates are issued and guaranteed as to timely distribution of principal and interest by FNMA. STRIPPED MORTGAGE-BACKED SECURITIES ("SMBS"): SMBs are usually structured with two classes that receive specified proportions of the monthly interest and principal payments from a pool of mortgage securities. One class may receive all of the interest payments and is thus termed an interest-only class ("IO"), while the other class may receive all of the principal payments and is thus termed the principal-only class ("PO"). The value of IOs tends to increase as rates rise and decrease as rates fall; the opposite is true of POs. SMBs are extremely sensitive to changes in interest rates because of the impact thereon of prepayment of principal on the underlying mortgage securities. The market for SMBs is not as fully developed as other markets; SMBs therefore may be illiquid. OBLIGATIONS OF SUPRANATIONAL ENTITIES -- Supranational entities are entities established through the joint participation of several governments, and include the Asian Development Bank, the Inter-American Development Bank, International Bank for Reconstruction and Development (World Bank), African Development Bank, European Economic Community, European Investment Bank and the Nordic Investment Bank. OPTIONS ON CURRENCIES -- The International Equity Index 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. PAY-IN-KIND SECURITIES -- Pay-in-kind securities are bonds or preferred stock that pay interest or dividends in the form of additional bonds or preferred stock. REPURCHASE AGREEMENTS -- Repurchase agreements are agreements by which a Fund obtains a security and simultaneously commits to return the security to the seller at an agreed upon price on an agreed upon date within a number of days from the date of purchase. The custodian will hold the security as collateral for the repurchase agreement. A Fund bears a risk of loss in the event the other party defaults on its obligations and the Fund is delayed or prevented from exercising its right to dispose of the collateral or if the Fund realizes a loss on the sale of the collateral. A Fund will enter into repurchase agreements only with financial institutions deemed to present minimal risk of bankruptcy during the term of the agreement based on established guidelines. Repurchase agreements are considered loans under the Investment Company Act of 1940. 34 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, a Fund may lend securities which it owns pursuant to agreements requiring that the loan be continuously secured by collateral consisting of cash, securities of the U.S. Government or its agencies equal to at least 100% of the market value of the securities lent. A Fund continues to receive interest on the securities lent while simultaneously earning interest on the investment of cash collateral. Collateral is marked to market daily. There may be risks of delay in recovery of the securities or even loss of rights in the collateral should the borrower of the securities fail financially or become insolvent. STANDBY COMMITMENTS AND PUTS -- Securities subject to standby commitments or puts permit the holder thereof to sell the securities at a fixed price prior to maturity. Securities subject to a standby commitment or put may be sold at any time at the current market price. However, unless the standby commitment or put was an integral part of the security as originally issued, it may not be marketable or assignable; therefore, the standby commitment or put would only have value to the Fund owning the security to which it relates. In certain cases, a premium may be paid for a standby commitment or put, which premium will have the effect of reducing the yield otherwise payable on the underlying security. The Fund will limit standby commitment or put transactions to institutions believed to present minimal credit risk. SWAPS, CAPS, FLOORS and COLLARS -- Interest rate swaps, mortgage swaps, currency swaps and other types of swap agreements such as caps, floors and collars are designed to permit the purchaser to preserve a return or spread on a particular investment or portion of its portfolio, and to protect against any increase in the price of securities the Fund anticipates purchasing at a later date. In a typical interest rate swap, one party agrees to make regular payments equal to a floating interest rate times a "notional principal amount," in return for payments equal to a fixed rate times the same amount, for a specific period of time. If a swap agreement provides for payment in different currencies, the parties might agree to exchange the notional principal amount as well. Swaps may also depend on other prices or rates, such as the value of an index or mortgage prepayment rates. In a typical cap or floor agreement, one party agrees to make payments only under specified circumstances, usually in return for payment of a fee by the other party. For example, the buyer of an interest rate cap obtains the right to receive payments to the extent that a specific interest rate exceeds an agreed-upon level, while the seller of an interest rate floor is obligated to make payments to the extent that a specified interest rate falls below an agreed-upon level. An interest rate collar combines elements of buying a cap and selling a floor. Swap agreements are sophisticated hedging instruments that typically involve a small investment of cash relative to the magnitude of risk assumed. As a result, swaps can be highly volatile and have a considerable impact on the Fund's performance. Swap agreements are 35 subject to risks related to the counterparty's ability to perform, and may decline in value if the counterparty's creditworthiness deteriorates. The Fund may also suffer losses if it is unable to terminate outstanding swap agreements or reduce its exposure through offsetting transactions. Any obligation the Fund may have under these types of arrangements will be covered by setting aside liquid high grade securities in a segregated account. The Fund will enter into swaps only with counterparties believed to be creditworthy. 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, FHLMC, 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., GNMA securities), others are supported by the right of the issuer to borrow from the Treasury (e.g., Federal Farm Credit Bank securities), while still others are supported only by the credit of the instrumentality (e.g., FNMA securities). 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 notice exceeding seven days may be considered illiquid if there is no secondary market for such security. WARRANTS -- Warrants are 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 segregate liquid high grade debt securities or cash in an amount at least equal to these commitments. 36 The interest rate realized on these securities is fixed as of the purchase date and no interest accrues to the Fund before settlement. These securities are subject to market fluctuation due to changes in market interest rates and it is possible that the market value at the time of settlement could be higher or lower than the purchase price if the general level of interest rates has changed. Although a Fund generally purchases securities on a when-issued or forward commitment basis with the intention of actually acquiring securities for its portfolio, a Fund may dispose of a when-issued security or forward commitment prior to settlement if it deems appropriate. ZERO COUPON OBLIGATIONS -- Zero coupon obligations are debt securities that do not bear any interest, but instead are issued at a deep discount from par. The value of a zero coupon obligation increases over time to reflect the interest accreted. Such obligations will not result in the payment of interest until maturity, and will have greater price volatility than similar securities that are issued at par and pay interest periodically. 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 or 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. 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. Together with bonds rated Aaa, they comprise what are generally known as high-grade bonds. 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 a 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 SECURITIES, INC. -- FLORIDA 200 S. Orange Avenue Tower 10 Orlando, FL 32801 (407) 237-4380 1-800-432-4760, ext. 4380 501 E. Las Olas Boulevard Ft. Lauderdale, FL 33301 (954) 765-7422 Boca Raton Office 800 S. Federal Highway Boca Raton, FL 33435 (561) 243-6707 Coral Ridge Office 2626 E. Oakland Park Blvd. Ft. Lauderdale, FL 33306 (954) 765-2155 Delray Beach Office 302 E. Atlantic Avenue Delray Beach, FL 33483 (561) 243-6750 5200 W. Atlantic Ave. Delray Beach, FL 33484 (561) 243-6743 Hollywood Office 2001 Hollywood Blvd. Hollywood, FL 33021 (954) 765-7062 Palm Beach Office 303 Royal Poinciana Plaza Palm Beach, FL 33480 (561) 835-2855 PGA Office 4500 PGA Blvd. Palm Beach Gardens, FL 33410 (561) 835-2802 8200 W. Broward Blvd. Plantation, FL 33324 (954) 765-7661 777 Brickell Avenue Miami, FL 33131 (305) 579-7450 401 E. Jackson Street Tampa, FL 33602 (813) 224-2517 700 Virginia Avenue Ft. Pierce, FL 34982 (407) 467-6459 Osceola Office 111 E. Osceola Street Stuart, FL 34994 (407) 223-6012 Belnova Office 120 S. Ridgewood Avenue Daytona Beach, FL 32114 (904) 258-2390 Bill France 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 200 W. Forsyth Street Jacksonville, FL 32202 (904) 632-2534 1612 E. Cape Coral Parkway Cape Coral, FL 33904 (941) 540-6128 Pelican Bay Office 801 Laurel Oak Drive Naples, FL 33963 (941) 598-0515 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 5899 Whitfield Avenue Sarasota, FL 34243 (941) 359-7415 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 210 Security Square Winter Haven, FL 33880 (941) 297-6855 One East Jefferson Street Brooksville, FL 34601 (352) 754-5798 Crystal River Office 1502 SE Highway 19 Crystal River, FL 34428 (352) 795-8214 5435 Gall Blvd. Zephyrhills, FL 33541 (813) 780-4154 6335 U.S. Highway 19 New Port Richey, FL 34652 (813) 861-4375 Seven Hills Office 1170 Mariner Blvd. Spring Hill, FL 34609 (352) 754-5779 203 E. Silver Springs Blvd. Ocala, FL 34470 (352) 368-6477 3522 Thomasville Road Tallahassee, FL 32308 (904) 298-5064 511 W. 23rd Street Panama City, FL 32405 (904) 872-6086 11 Hoffman Drive Gulf Breeze, FL 32561 (904) 435-1264 GEORGIA: SUNTRUST SECURITIES, INC. -- GEORGIA 55 Park Place First Floor Atlanta, GA 30303 (404) 588-8108 1-800-600-6350 101 N. Lumpkin Street Athens, GA 30601 (706) 354-5346 Gainesville Branch 427 Oak Street Gainesville, GA 30501 (770) 503-8674 100 East Second Avenue Rome, GA 30161 (706) 236-4325 2815 Wrightsboro Road Augusta, GA 30909 (706) 821-2015 606 Cherry Street Macon, GA 31201 (912) 755-5175 1246 First Avenue Columbus, GA 31901 (706) 649-3631 33 Bull Street, Suite 208 Savannah, GA 31401 (912) 944-1165 410 W. Broad Avenue Albany, GA 31701 (912) 430-5468 Coffee County Branch 201 S. Peterson Avenue Douglas, GA 31533 (912) 383-5242 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 SECURITIES, INC. -- TENNESSEE 424 Church Street 4th Floor Nashville, TN 37219 (615) 748-4477 1-800-932-2652 736 Market Street Chattanooga, TN 37402 (423) 757-3005 TN WATS 1-800-572-7306, Ext. 3005 Bordering States WATS 1-800-874-1083, Ext. 3005 Out of State WATS 1-800-251-6266, Ext. 3005 9950 Kingston Pike Knoxville, TN 37997 (423) 544-2181 1-800-456-1177 207 Mockingbird Lane Johnson City, TN 37604 (423) 461-1005 25 Public Square Lawrenceburg, TN 38464 (615) 762-3511 ALABAMA: SUNTRUST SECURITIES, INC. -- ALABAMA 201 South Court Street Florence, AL 35630 (205) 767-8537 STI CLASSIC FUNDS ORGANIZATIONAL OVERVIEW * INVESTMENT ADVISORS Trusco Capital Management, Inc. 50 Hurt Plaza Suite 1400 Atlanta, GA 30303 STI Capital Management, N.A. P.O. Box 3808 Orlando, FL 32802 * DISTRIBUTOR SEI Financial Services Company 680 E. Swedesford Road Wayne, PA 19087 * ADMINISTRATOR SEI Fund Resources 680 E. Swedesford Road Wayne, PA 19087 * 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 Union 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, New York 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
100092/10-95 DISTRIBUTOR SEI Financial Services Company -- - - - - - - - - - - - - - - - PROSPECTUS INVESTOR SHARES CAPITAL GROWTH FUND VALUE INCOME STOCK FUND AGGRESSIVE GROWTH FUND BALANCED FUND SUNBELT EQUITY FUND INTERNATIONAL EQUITY INDEX FUND INVESTMENT ADVISORS STI CAPITAL MANAGEMENT, N.A. TRUSCO CAPITAL MANAGEMENT, INC. OCTOBER 1, 1996 [LOGO] STI CLASSIC FUNDS INVESTOR SHARES INVESTMENT GRADE BOND FUND INVESTMENT GRADE TAX-EXEMPT BOND FUND U.S. GOVERNMENT SECURITIES FUND LIMITED-TERM FEDERAL MORTGAGE SECURITIES FUND SHORT-TERM BOND FUND SHORT-TERM U.S. TREASURY SECURITIES FUND FLORIDA TAX-EXEMPT BOND FUND GEORGIA TAX-EXEMPT BOND FUND TENNESSEE TAX-EXEMPT BOND FUND PRIME QUALITY MONEY MARKET FUND U.S. GOVERNMENT SECURITIES MONEY MARKET FUND TAX-EXEMPT MONEY MARKET FUND INVESTMENT ADVISORS TO THE FUNDS: TRUSCO CAPITAL MANAGEMENT, INC. STI CAPITAL MANAGEMENT, N.A. SUNTRUST BANK, CHATTANOOGA, N.A. SUNTRUST BANK, ATLANTA (THE "ADVISORS") The STI Classic Funds (the "Trust") is a mutual fund that offers shares in a number of separate investment portfolios (each a "Fund" and, collectively, the "Funds"). This Prospectus sets forth concisely the information about the Investor Shares of the above-referenced Funds. Investors are advised to read this Prospectus and retain it for future reference. A Statement of Additional Information relating to the Funds dated the same date as this Prospectus has been filed with the Securities and Exchange Commission and is available without charge through the Distributor, SEI Financial Services Company, 680 East Swedesford Road, Wayne, Pennsylvania 19087-1658 or by calling 1-800-874-4770. 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. - -------------------------------------------------------------------------------- AN INVESTMENT IN A MONEY MARKET FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT. THERE CAN BE NO ASSURANCE THAT A MONEY MARKET FUND WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE. - -------------------------------------------------------------------------------- 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 1, 1996 2 Throughout this Prospectus, the Investment Grade Bond Fund, Investment Grade Tax-Exempt Bond Fund, Short-Term U.S. Treasury Securities Fund, Short-Term Bond Fund, U.S. Government Securities Fund and Limited-Term Federal Mortgage Securities Fund, which invest primarily in bonds and other fixed income instruments, may be referred to as the "Bond Funds," the Florida Tax-Exempt Bond Fund, Georgia Tax-Exempt Bond Fund and Tennessee Tax-Exempt Bond Fund, which invest primarily in tax-exempt bonds and other fixed income instruments, may be referred to as the "State Tax-Exempt Bond Funds," and the Prime Quality Money Market Fund, U.S. Government Securities Money Market Fund and Tax-Exempt Money Market Fund may be referred to as the "Money Market Funds." TABLE OF CONTENTS Expense Summary........................................................... 3 Financial Highlights...................................................... 6 The Trust................................................................. 8 Funds and Investment Objectives........................................... 8 Investment Policies and Strategies........................................ 9 General Investment Policies and Strategies................................ 18 Investment Risks.......................................................... 18 Investment Limitations.................................................... 20 Performance Information................................................... 21 Fundlink.................................................................. 22 Purchase of Fund Shares................................................... 22 Redemption of Fund Shares................................................. 26 Exchanges................................................................. 27 Dividends and Distributions............................................... 28 Tax Information........................................................... 29 STI Classic Funds Information............................................. 31 The Trust................................................................. 31 Board of Trustees......................................................... 31 Investment Advisors....................................................... 31 Portfolio Managers........................................................ 33 Banking Laws.............................................................. 33 Distribution.............................................................. 34 Administration............................................................ 35 Transfer Agent and Dividend Disbursing Agent.............................. 35 Custodian................................................................. 36 Legal Counsel............................................................. 36 Independent Public Accountants............................................ 36 Other Information......................................................... 36 Voting Rights............................................................. 36 Reporting................................................................. 36 Shareholder Inquiries..................................................... 36 Description of Permitted Investments...................................... 36 Appendix.................................................................. A-1
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE TRUST'S STATEMENT OF ADDITIONAL INFORMATION 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. 3 EXPENSE SUMMARY INVESTOR SHARES The purpose of the following tables is to help you understand the various costs and expenses that a shareholder will bear, directly or indirectly, in connection with an investment in the Investor Shares of each Fund.
SHAREHOLDER TRANSACTION EXPENSES - ------------------------------------------------------------------------------------------------------------------------ INVESTMENT GRADE BOND, INVESTMENT GRADE LIMITED-TERM SHORT-TERM TAX-EXEMPT BOND FEDERAL U.S. TREASURY AND U.S. GOVERNMENT MORTGAGE SHORT-TERM SECURITIES SECURITIES FUNDS SECURITIES FUND BOND FUND FUND - ------------------------------------------------------------------------------------------------------------------------ Maximum Sales Charge Imposed on Purchases (as a percentage of offering price).................. 3.75% 2.50% 2.00% 1.00% Maximum Sales Charge Imposed on Reinvested Dividends...................................... None None None None Maximum Deferred Sales Charge................... None None None None Redemption Fees(1).............................. None None None None Exchange Fee.................................... None None None 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)
LIMITED-TERM INVESTMENT FEDERAL SHORT-TERM INVESTMENT GRADE TAX- MORTGAGE U.S. TREASURY GRADE BOND EXEMPT BOND U.S. GOVERNMENT SECURITIES SHORT-TERM SECURITIES FUND FUND SECURITIES FUND FUND BOND FUND FUND - ------------------------------------------------------------------------------------------------------------------------- Management Fees (after fee waivers & reimbursements)(1).......... .63% .61% .16% .43% .46% .22% 12b-1 Service & Distribution Fees (after fee waivers & reimbursements)(2).......... .22% .28% .35% .20% .20% .15% Other Fund Expenses (after fee waivers & reimbursements)(3).......... .30% .26% .64% .27% .19% .43% - ------------------------------------------------------------------------------------------------------------------------- Total Fund Operating Expenses (after fee waivers & reimbursements)(4).......... 1.15% 1.15% 1.15% .90% .85% .80% - ------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------
(1) Each Advisor is waiving, on a voluntary basis, a portion of its fee from each Fund. The Advisor reserves the right to terminate its waiver at any time in its sole discretion. Absent such waivers and reimbursements, Advisory Fees for the Funds would be as follows: Investment Grade Bond Fund -- .74%, Investment Grade Tax-Exempt Bond Fund -- .74%, U.S. Government Securities Fund -- .74%, Limited-Term Federal Mortgage Securities Fund -- .65%, Short-Term Bond Fund -- .65% and Short-Term U.S. Treasury Securities Fund -- .65%. See "Investment Advisors." (2) The Distributor is reimbursing, on a voluntary basis, a portion of its expenses from each Fund. The Distributor reserves the right to terminate its reimbursement at any time in its sole discretion. Absent such reimbursements, 12b-1 Service & Distribution Fees for the Funds would be as follows: Investment Grade Bond Fund -- .43%, Investment Grade Tax-Exempt Bond Fund -- .43%, U.S. Government Securities Fund -- .38%, Limited-Term Federal Mortgage Securities Fund -- .23%, Short-Term Bond Fund -- .23% and Short-Term U.S. Treasury Securities Fund -- .18%. See "Distribution." (3) Absent waivers and reimbursements, Other Fund Expenses would be as follows: Investment Grade Bond Fund -- .30%, Investment Grade Tax-Exempt Bond Fund -- .26%, U.S. Government Securities Fund -- 1.38%, Limited-Term Federal Mortgage Securities Fund -- 1.37%, Short-Term Bond Fund -- .84% and Short-Term U.S. Treasury Securities -- .49%. (4) Absent the voluntary waivers described above, Total Fund Operating Expenses would be as follows: Investment Grade Bond Fund -- 1.47%, Investment Grade Tax-Exempt Bond Fund -- 1.43%, U.S. Government Securities Fund -- 2.50%, Limited-Term Federal Mortgage Securities Fund -- 2.25%, Short-Term Bond Fund -- 1.72% and Short-Term U.S. Treasury Securities Fund -- 1.32%. 4 EXPENSE SUMMARY INVESTOR SHARES
SHAREHOLDER TRANSACTION EXPENSES - ------------------------------------------------------------------------------- STATE TAX-EXEMPT BOND FUNDS - ------------------------------------------------------------------------------- Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)......................................... 3.75% Maximum Sales Charge Imposed on Reinvested Dividends........ None Maximum 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)
PRIME U.S. GOVERNMENT FLORIDA GEORGIA TENNESSEE QUALITY SECURITIES TAX-EXEMPT TAX-EXEMPT TAX-EXEMPT TAX-EXEMPT MONEY MARKET MONEY MARKET MONEY MARKET BOND FUND BOND FUND BOND FUND FUND FUND FUND - --------------------------------------------------------------------------------------------------------------------------- Management Fees (after fee waivers & reimbursements)(1).......... .38% .37% .00% .50% .51% .47% 12b-1 Service & Distribution Fees (after fee waivers & reimbursements)(2).......... .15% .15% .10% .14% .08% .09% Other Expenses (after fee waivers & reimbursements)(3).......... .32% .33% .75% .11% .16% .16% - --------------------------------------------------------------------------------------------------------------------------- Total Fund Operating Expenses (after fee waivers & reimbursements)(4)(5)....... .85% .85% .85% .75% .75% .72% - --------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------
(1) Each Advisor is waiving, on a voluntary basis, a portion of its fee from each Fund. The Advisor reserves the right to terminate its waiver at any time in its sole discretion. Absent such waivers and reimbursements, Advisory Fees for the Funds would be as follows: Florida Tax-Exempt Bond Fund -- .65%, Georgia Tax-Exempt Bond Fund -- .65%, Tennessee Tax-Exempt Bond Fund -- .65%, Prime Quality Money Market Fund -- .65%, U.S. Government Securities Money Market Fund -- .65%, and Tax-Exempt Money Market Fund -- .55%. See "Investment Advisors." (2) The Distributor is reimbursing, on a voluntary basis, a portion of its expenses from each Fund. The Distributor reserves the right to terminate its reimbursement at any time in its sole discretion. Absent such reimbursements, 12b-1 Service & Distribution Fees for the Funds would be as follows: Florida Tax-Exempt Bond Fund -- .18%, Georgia Tax-Exempt Bond Fund -- .18%, Tennessee Tax-Exempt Bond Fund -- .18%, Prime Quality Money Market Fund -- .20%, U.S. Government Securities Money Market Fund -- .17% and Tax-Exempt Money Market Fund -- .15%. See "Distribution." (3) Absent waivers and reimbursements, Other Expenses would be as follows: Florida Tax-Exempt Bond Fund -- .53%, Georgia Tax-Exempt Bond Fund -- .58%, Tennessee Tax-Exempt Bond Fund -- 1.25%, Prime Quality Money Market Fund -- .15%, U.S. Government Securities Money Market Fund -- .17% and Tax-Exempt Money Market Fund -- .16%. (4) Absent the voluntary waivers described above, Total Fund Operating Expenses would be as follows: Florida Tax-Exempt Bond Fund -- 1.36%, Georgia Tax-Exempt Bond Fund -- 1.41%, Tennessee Tax-Exempt Bond Fund -- 2.08%, Prime Quality Money Market Fund -- 1.00%, U.S. Government Securities Money Market Fund -- .99% and Tax-Exempt Money Market Fund -- .86%. (5) Total Fund Operating Expenses for the Tax-Exempt Money Market Fund have been restated to reflect current fees. 5
ONE THREE FIVE TEN EXAMPLES YEAR YEARS YEARS YEARS - ---------------------------------------------------------------------------------------------------- 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. INVESTMENT GRADE BOND FUND....................................... $ 49 $ 73 $ 98 $ 172 INVESTMENT GRADE TAX-EXEMPT BOND FUND............................ $ 49 $ 73 $ 98 $ 172 U.S. GOVERNMENT SECURITIES FUND.................................. $ 49 $ 73 $ 98 $ 172 LIMITED-TERM FEDERAL MORTGAGE SECURITIES FUND.................... $ 34 $ 53 $ 74 $ 133 SHORT-TERM BOND FUND............................................. $ 29 $ 47 $ 66 $ 123 SHORT-TERM U.S. TREASURY SECURITIES FUND......................... $ 18 $ 35 $ 54 $ 108 FLORIDA TAX-EXEMPT BOND FUND..................................... $ 46 $ 64 $ 83 $ 138 GEORGIA TAX-EXEMPT BOND FUND..................................... $ 46 $ 64 $ 83 $ 138 TENNESSEE TAX-EXEMPT BOND FUND................................... $ 46 $ 64 $ 83 $ 138 PRIME QUALITY MONEY MARKET FUND.................................. $ 8 $ 24 $ 42 $ 93 U.S. GOVERNMENT SECURITIES MONEY MARKET FUND..................... $ 8 $ 24 $ 42 $ 93 TAX-EXEMPT MONEY MARKET FUND..................................... $ 7 $ 23 $ 40 $ 89 - ---------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------
THE EXAMPLE IS BASED UPON THE TOTAL OPERATING EXPENSES OF A FUND AND SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. A person that purchases shares through an account with a financial institution may be charged separate fees by the financial institution. 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 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. 6 FINANCIAL HIGHLIGHTS The following information has been audited by Arthur Andersen LLP, independent public accountants to the Trust, whose report thereon was unqualified. This information should be read in conjunction with the Trust's financial statements and notes thereto, which are included in the Trust's Statement of Additional Information and which appear, along with the report of Arthur Andersen LLP, in the Trust's 1996 Annual Report to Shareholders. Additional performance information regarding each Fund is contained in the Trust's Annual Report to Shareholders and is available without charge by calling 1-800-874-4770. For an Investor Share Outstanding Throughout the Period
NET ASSET NET REALIZED AND DISTRIBUTIONS VALUE NET UNREALIZED GAINS FROM NET DISTRIBUTIONS NET ASSET BEGINNING INVESTMENT (LOSSES) ON INVESTMENT FROM REALIZED VALUE END TOTAL OF PERIOD INCOME INVESTMENTS INCOME CAPITAL GAINS OF PERIOD RETURN --------- ---------- ----------------- ------------- ------------- ---------- -------- ------------------------------ INVESTMENT GRADE BOND FUND ------------------------------ INVESTOR SHARES 1996.............. $10.26 $ 0.56 $ (0.20) $ (0.56) -- $ 10.06 3.50% 1995.............. 9.89 0.57 0.38 (0.58) -- 10.26 10.04% 1994.............. 10.44 0.46 (0.35) (0.46) $ (0.20) 9.89 0.86% 1993 (1).......... 10.00 0.44 0.44 (0.44) -- 10.44 9.21%* ------------------------------------------- INVESTMENT GRADE TAX-EXEMPT BOND FUND ------------------------------------------- INVESTOR SHARES 1996.............. $11.30 $ 0.41 $ 0.19 $ (0.41) $ (0.37) $ 11.12 5.40% 1995.............. 10.69 0.42 0.61 (0.42) -- 11.30 9.91% 1994.............. 10.79 0.33 0.25 (0.33) (0.35) 10.69 5.37% 1993 (2).......... 10.00 0.35 0.82 (0.35) (0.03) 10.79 11.88%* ---------------------------------- U.S. GOVERNMENT SECURITIES FUND ---------------------------------- INVESTOR SHARES 1996.............. $10.26 $ 0.59 $ (0.33) $ (0.59) $ (0.03) $ 9.90 2.47% 1995 (3).......... 10.00 0.56 0.26 (0.56) -- 10.26 8.61+ ------------------------------------------------- LIMITED-TERM FEDERAL MORTGAGE SECURITIES FUND ------------------------------------------------- INVESTOR SHARES 1996.............. $10.11 $ 0.60 $ (0.14) $ (0.60) -- $ 9.97 4.59% 1995 (4).......... 9.98 0.58 0.13 (0.58) -- 10.11 7.45%+ ----------------------- SHORT-TERM BOND FUND ----------------------- INVESTOR SHARES 1996.............. $10.01 $ 0.52 $ (0.10) $ (0.53) $ (0.02) $ 9.88 4.23% 1995.............. 9.81 0.51 0.19 (0.50) -- 10.01 7.44% 1994.............. 10.03 0.40 (0.21) (0.40) (0.01) 9.81 1.81% 1993 (5).......... 10.06 0.06 (0.03) (0.06) -- 10.03 1.65%* ------------------------------------------ SHORT-TERM U.S. TREASURY SECURITIES FUND ------------------------------------------ INVESTOR SHARES 1996.............. $ 9.94 $ 0.54 $ (0.10) $ (0.54) -- $ 9.84 4.52% 1995.............. 9.83 0.46 0.11 (0.46) -- 9.94 6.03% 1994.............. 9.99 0.32 (0.12) (0.31) $ (0.05) 9.83 2.01% 1993 (6).......... 10.01 0.06 (0.02) (0.06) -- 9.99 1.84%* RATIO OF NET RATIO OF INVESTMENT INCOME NET RATIO OF EXPENSES (LOSS) TO AVERAGE NET ASSETS RATIO OF INVESTMENT TO AVERAGE NET NET ASSETS END OF EXPENSES INCOME TO ASSETS (EXCLUDING (EXCLUDING PORTFOLIO PERIOD TO AVERAGE AVERAGE NET WAIVERS AND WAIVERS AND TURNOVER (000) NET ASSETS ASSETS REIMBURSEMENTS) REIMBURSEMENTS) RATE ----------- ---------- ----------- ----------------- ----------------- ---------- ------------------------------ INVESTMENT GRADE BOND FUND ------------------------------ INVESTOR SHARES 1996.............. $ 36,155 1.15% 5.40% 1.44% 5.11% 184.33% 1995.............. 33,772 1.15% 5.79% 1.49% 5.45% 237.66% 1994.............. 35,775 1.14% 4.39% 1.41% 4.12% 259.19% 1993 (1).......... 24,375 1.14%* 4.75%* 1.46%* 4.43%* 299.32% ------------------------------------------- INVESTMENT GRADE TAX-EXEMPT BOND FUND ------------------------------------------- INVESTOR SHARES 1996.............. $ 37,427 1.15% 3.61% 1.42% 3.34% 513.90% 1995.............. 41,693 1.15% 3.88% 1.43% 3.60% 591.91% 1994.............. 46,182 1.14% 2.96% 1.51% 2.59% 432.46% 1993 (2).......... 15,844 1.12%* 3.61%* 1.83%* 2.90%* 344.87% ---------------------------------- U.S. GOVERNMENT SECURITIES FUND ---------------------------------- INVESTOR SHARES 1996.............. $ 2,396 1.15% 5.68% 2.50% 4.33% 83.38% 1995 (3).......... 589 1.15%* 6.08%* 6.84%* 0.39%* 30.39% ------------------------------------------------- LIMITED-TERM FEDERAL MORTGAGE SECURITIES FUND ------------------------------------------------- INVESTOR SHARES 1996.............. $ 2,512 0.90% 5.75% 2.25% 4.40% 83.01% 1995 (4).......... 623 0.90%* 6.27%* 7.74%* (0.57%)* 67.63% ----------------------- SHORT-TERM BOND FUND ----------------------- INVESTOR SHARES 1996.............. $ 2,700 0.85% 5.20% 1.72% 4.33% 162.62% 1995.............. 2,609 0.85% 5.24% 1.56% 4.53% 200.49% 1994.............. 2,381 0.85% 3.94% 2.52% 2.27% 74.85% 1993 (5).......... 716 0.85%* 3.85%* 7.22%* (2.52%)* 63.89% ------------------------------------------ SHORT-TERM U.S. TREASURY SECURITIES FUND ------------------------------------------ INVESTOR SHARES 1996.............. $ 4,192 0.80% 5.43% 1.32% 4.91% 94.00% 1995.............. 7,144 0.80% 4.74% 1.33% 4.21% 87.98% 1994.............. 4,841 0.78% 3.11% 1.41% 2.48% 116.57% 1993 (6).......... 2,423 0.80%* 3.16%* 3.42%* 0.54%* 36.44%
7 FINANCIAL HIGHLIGHTS CONTINUED
NET ASSET NET REALIZED AND DISTRIBUTIONS VALUE NET UNREALIZED GAINS FROM NET DISTRIBUTIONS NET ASSET BEGINNING INVESTMENT (LOSSES) ON INVESTMENT FROM REALIZED VALUE END TOTAL OF PERIOD INCOME INVESTMENTS INCOME CAPITAL GAINS OF PERIOD RETURN --------- ---------- ----------------- ------------- ------------- ---------- -------- -------------------------------- FLORIDA TAX-EXEMPT BOND FUND -------------------------------- INVESTOR SHARES 1996.............. $10.18 $ 0.44 $ (0.06) $ (0.44) $ (0.05) $ 10.07 3.76% 1995.............. 9.75 0.42 0.43 (0.42) -- 10.18 9.04% 1994 (7).......... 10.00 0.13 (0.25) (0.13) -- 9.75 (1.22%)+ --------------------------------- GEORGIA TAX-EXEMPT BOND FUND --------------------------------- INVESTOR SHARES 1996.............. $ 9.65 $ 0.41 $ (0.05) $ (0.41) $ (0.02) $ 9.58 3.69% 1995.............. 9.44 0.40 0.21 (0.40) -- 9.65 6.70% 1994 (8).......... 10.00 0.13 (0.56) (0.13) -- 9.44 (4.29%)+ ----------------------------------- TENNESSEE TAX-EXEMPT BOND FUND ----------------------------------- INVESTOR SHARES 1996.............. $ 9.53 $ 0.41 $ (0.10) $ (0.42) -- $ 9.42 3.28% 1995.............. 9.23 0.44 0.29 (0.43) -- 9.53 8.24% 1994 (8).......... 10.00 0.13 (0.77) (0.13) -- 9.23 (6.39%)+ ----------------------------------- PRIME QUALITY MONEY MARKET FUND ----------------------------------- INVESTOR SHARES 1996.............. $ 1.00 $ 0.05 -- $ (0.05) -- $ 1.00 5.08% 1995.............. 1.00 0.05 -- (0.05) -- 1.00 4.62% 1994.............. 1.00 0.03 -- (0.03) -- 1.00 2.71% 1993 (9).......... 1.00 0.03 -- (0.03) -- 1.00 2.75%* -------------------------------------------------- U.S. GOVERNMENT SECURITIES MONEY MARKET FUND -------------------------------------------------- INVESTOR SHARES 1996.............. $ 1.00 $ 0.05 -- $ (0.05) -- $ 1.00 4.99% 1995.............. 1.00 0.04 -- (0.04) -- 1.00 4.51% 1994.............. 1.00 0.03 -- (0.03) -- 1.00 2.63% 1993 (9).......... 1.00 0.03 -- (0.03) -- 1.00 2.65%* --------------------------------- TAX-EXEMPT MONEY MARKET FUND --------------------------------- INVESTOR SHARES 1996.............. $ 1.00 $ 0.03 -- $ (0.03) -- $ 1.00 3.16% 1995.............. 1.00 0.03 -- (0.03) -- 1.00 3.00% 1994.............. 1.00 0.02 -- (0.02) -- 1.00 1.96% 1993 (9).......... 1.00 0.02 -- (0.02) -- 1.00 2.00%* RATIO OF NET RATIO OF INVESTMENT INCOME NET RATIO OF EXPENSES (LOSS) TO AVERAGE NET ASSETS RATIO OF INVESTMENT TO AVERAGE NET NET ASSETS END OF EXPENSES INCOME TO ASSETS (EXCLUDING (EXCLUDING PORTFOLIO PERIOD TO AVERAGE AVERAGE NET WAIVERS AND WAIVERS AND TURNOVER (000) NET ASSETS ASSETS REIMBURSEMENTS) REIMBURSEMENTS) RATE ----------- ---------- ----------- ----------------- ----------------- ---------- -------------------------------- FLORIDA TAX-EXEMPT BOND FUND -------------------------------- INVESTOR SHARES 1996.............. $ 4,025 0.85% 4.28% 1.36% 3.77% 62.68% 1995.............. 3,320 0.85% 4.36% 1.50% 3.71% 105.01% 1994 (7).......... 2,280 0.85%* 3.67%* 3.20%* 1.32%* 53.24% --------------------------------- GEORGIA TAX-EXEMPT BOND FUND --------------------------------- INVESTOR SHARES 1996.............. $ 3,418 0.85% 4.17% 1.41% 3.61% 60.02% 1995.............. 3,268 0.85% 4.31% 1.43% 3.73% 24.50% 1994 (8).......... 3,300 0.85%* 3.93%* 2.36%* 2.42%* 25.90% ----------------------------------- TENNESSEE TAX-EXEMPT BOND FUND ----------------------------------- INVESTOR SHARES 1996.............. $ 1,523 0.85% 4.29% 2.08% 3.06% 41.00% 1995.............. 1,170 0.85% 4.70%* 2.10% 3.45% 27.73% 1994 (8).......... 1,127 0.85%* 3.74%* 6.60%* (2.01%)* 13.05% ----------------------------------- PRIME QUALITY MONEY MARKET FUND ----------------------------------- INVESTOR SHARES 1996.............. $215,696 0.75% 4.94% 1.00% 4.69% -- 1995.............. 157,616 0.75% 4.55% 1.01% 4.29% -- 1994.............. 129,415 0.75% 2.67% 0.99% 2.43% -- 1993 (9).......... 61,578 0.75%* 2.68%* 1.02%* 2.41%* -- -------------------------------------------------- U.S. GOVERNMENT SECURITIES MONEY MARKET FUND -------------------------------------------------- INVESTOR SHARES 1996.............. $ 58,608 0.75% 4.88% 0.99% 4.64% -- 1995.............. 46,639 0.75% 4.51% 1.02% 4.24% -- 1994.............. 32,395 0.75% 2.54% 0.97% 2.32% -- 1993 (9).......... 16,688 0.75%* 2.57%* 1.11%* 2.21%* -- --------------------------------- TAX-EXEMPT MONEY MARKET FUND --------------------------------- INVESTOR SHARES 1996.............. $ 95,223 0.62% 3.10% 0.85% 2.87% -- 1995.............. 87,647 0.55% 3.00% 0.87% 2.68% -- 1994.............. 61,675 0.54% 1.93% 0.88% 1.59% -- 1993 (9).......... 35,209 0.53%* 1.95%* 0.95%* 1.53%* --
* Annualized. + Cumulative since commencement of operations. (1) The Investment Grade Bond Fund Investor Shares commenced operations on June 11, 1992. (2) The Investment Grade Tax-Exempt Bond Fund Investor Shares commenced operations on June 9, 1992. (3) The U.S. Government Securities Fund Investor Shares commenced operations on June 9, 1994. (4) The Limited-Term Federal Mortgage Securities Fund Investor Shares commenced operations on July 17, 1994. (5) The Short-Term Bond Fund Investor Shares commenced operations on March 22, 1993. (6) The Short-Term U.S. Treasury Securities Fund Investor Shares commenced operations on March 18, 1993. (7) The Florida Tax-Exempt Bond Fund Investor Shares commenced operations on January 18, 1994. (8) The Georgia Tax-Exempt Bond Fund Investor Shares and the Tennessee Tax-Exempt Bond Fund Investor Shares commenced operations on January 19, 1994. (9) The Prime Quality Money Market Fund Trust Shares and Investor Shares, U.S. Government Securities Money Market Fund Trust Shares and Investor Shares, and Tax-Exempt Money Market Fund Trust Shares and Investor Shares commenced opertions on June 8, 1992. 8 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 each non-money Market Fund through three separate classes (Trust Shares, Investor Shares and Flex Shares), and in each Money Market Fund through two separate classes (Trust Shares and Investor Shares), which provide for variations in distribution and service fees, transfer agent fees, voting rights and dividends. Except for differences between classes, each share of each Fund represents an undivided, proportionate interest in that Fund. This Prospectus relates to the Investor Shares of the Funds described below. FUNDS AND INVESTMENT OBJECTIVES BOND FUNDS: THE INVESTMENT GRADE BOND FUND seeks to provide as high a level of total return through current income and capital appreciation as is consistent with the preservation of capital primarily through investment in investment grade fixed income securities. THE INVESTMENT GRADE TAX-EXEMPT BOND FUND seeks to provide as high a level of total return through federally tax-exempt current income and capital appreciation as is consistent with the preservation of capital primarily through investment in investment grade tax-exempt obligations. THE U.S. GOVERNMENT SECURITIES FUND seeks to provide as high a level of current income as is consistent with the preservation of capital by investing primarily in obligations issued or guaranteed by the U.S. Government, its agencies or instrumentalities. THE LIMITED-TERM FEDERAL MORTGAGE SECURITIES FUND seeks to provide as high a level of current income as is consistent with the preservation of capital by investing primarily in mortgage-related securities issued or guaranteed by U.S. Government agencies and instrumentalities. THE SHORT-TERM BOND FUND seeks to provide as high a level of current income, relative to funds with like investment objectives, as is consistent with the preservation of capital primarily through investment in short- to intermediate-term investment grade fixed income securities. THE SHORT-TERM U.S. TREASURY SECURITIES FUND seeks to provide as high a level of current income, relative to funds with like investment objectives, as is consistent with the preservation of capital through investment exclusively in short-term U.S. Treasury securities. STATE TAX-EXEMPT BOND FUNDS: THE FLORIDA TAX-EXEMPT BOND FUND seeks to provide current income exempt from regular federal income tax for Florida residents without undue investment risk. THE GEORGIA TAX-EXEMPT BOND FUND seeks to provide current income exempt from regular federal and state income tax for Georgia residents without undue investment risk. THE TENNESSEE TAX-EXEMPT BOND FUND seeks to provide current income exempt from regular federal and state income tax for Tennessee residents without undue investment risk. 9 MONEY MARKET FUNDS: THE PRIME QUALITY MONEY MARKET FUND seeks to provide as high a level of current income as is consistent with preservation of capital and liquidity by investing exclusively in high quality money market instruments. THE U.S. GOVERNMENT SECURITIES MONEY MARKET FUND seeks to provide as high a level of current income as is consistent with preservation of capital and liquidity by investing exclusively in 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 Reserve Book-Entry System ("U.S. Treasury obligations"), securities of wholly-owned corporations of the U.S. Government that are backed by the full faith and credit of the U.S. Government ("U.S. Government Subsidiary Corporations") and repurchase agreements with approved dealers collateralized by U.S. Treasury obligations, and U.S. Government Subsidiary Corporation securities. THE TAX-EXEMPT MONEY MARKET FUND seeks to provide as high a level of current interest income exempt from regular federal income tax as is consistent with preservation of capital and liquidity. The Fund invests primarily in high quality short-term municipal obligations. Each Money Market Fund's ability to generate high current income will be limited by the fact that it is only permitted to invest in high quality securities. It is a fundamental policy of each Money Market Fund to use its best efforts to maintain a constant net asset value of $1.00 per share. There can be no assurance that a Money Market Fund will achieve its investment objective or will be able to maintain a net asset value of $1.00 per share on a continuous basis. In addition, each Money Market Fund intends to comply with federal regulations applicable to money market funds using the amortized cost method for calculating net asset value which require each Fund to invest only in U.S. dollar denominated obligations, to maintain an average maturity on a dollar-weighted basis of 90 days or less and to acquire eligible securities that present minimal credit risk and have a maturity of 397 days or less. These requirements will also limit a Money Market Fund's ability to generate high current income. For a further discussion of these rules, see "Description of Permitted Investments." There can be no assurance that a Fund will achieve its investment objective. The investment objectives of the Investment Grade Bond Fund, U.S. Government Securities Fund, Limited-Term Federal Mortgage Securities Fund, Short-Term Bond Fund and Short-Term U.S. Treasury Securities Fund are nonfundamental and may be changed without a shareholder vote. INVESTMENT POLICIES AND STRATEGIES INVESTMENT GRADE BOND FUND The Investment Grade Bond Fund will invest only in those obligations deemed investment grade obligations rated BBB or better by Standard & Poor's Corporation ("S&P") or Baa or better by Moody's Investors Service, Inc. ("Moody's") or, if not rated by S&P or Moody's, of comparable quality at the time of purchase as determined by the Fund's Advisor, including corporate debt obligations; mortgage-backed securities, collateralized mortgage obligations ("CMOs") and asset-backed securities; obligations issued or guaranteed as to principal and interest by the U.S. Government, its agencies or instrumentalities; custodial receipts involving U.S. Treasury obligations; securities of the government of Canada and its provincial and local governments; securities issued or 10 guaranteed by foreign governments, their political subdivisions, agencies or instrumentalities; obligations of supranational entities and sponsored American Depositary Receipts ("ADRs") that are traded on exchanges or listed on National Association of Securities Dealers Automated Quotations ("NASDAQ"). Under normal circumstances, at least 65% of the Fund's total assets will be invested in corporate and government bonds and debentures. No more than 25% of the Fund's assets will be invested in securities rated BBB by S&P or Baa by Moody's or, if not rated by S&P or Moody's, of comparable quality at the time of purchase as determined by the Advisor. The Fund may purchase mortgage-backed securities issued or guaranteed as to the payment of principal and interest by the U.S. Government, its agencies or instrumentalities or, subject to a limit of 35% of the Fund's assets, mortgage-backed securities issued by private issuers. These mortgage-backed securities may be backed or collateralized by fixed, adjustable or floating rate mortgages. The Fund may also invest in asset-backed securities which consist of securities backed by company receivables, truck and auto loans, leases, credit card receivables and home equity loans. In order to reduce interest rate risk, and subject to a general limit of 25% of the Fund's assets, the Fund may purchase floating or variable rate securities. Some floating or variable rate securities will be subject to interest rate "caps" or "floors." It may also buy securities on a when-issued basis, medium term notes, putable securities and zero coupon securities. The Fund may also invest up to 10% of its assets in restricted securities. The Fund may also engage in futures and options transactions. Under normal market conditions, it is anticipated that the Fund's average weighted maturity will range from 4 to 10 years. In the case of mortgage related securities and asset-backed securities, maturity will be determined based on the expected average life of the security. The Fund may shorten its average weighted maturity to as little as 90 days if deemed appropriate for temporary defensive purposes. By so limiting the maturity of its investments, the Fund expects that its net asset value will experience less price movement in response to changes in interest rates than the net asset values of mutual funds investing in similar credit quality securities with longer maturities. The Fund's portfolio turnover rate was 184% for the fiscal year ended May 31, 1996. This rate of turnover, if continued, will likely result in higher transaction costs and higher levels of realized capital gains than if the turnover rate was lower. INVESTMENT GRADE TAX-EXEMPT BOND FUND The Investment Grade Tax-Exempt Bond Fund intends to be fully invested in municipal securities the interest on which is exempt from regular federal income taxes in the opinion of bond counsel to the issuer. The issuers of these securities can be located in all fifty states, the District of Columbia, Puerto Rico and other U.S. territories and possessions. It is a fundamental policy of the Investment Grade Tax-Exempt Bond Fund to invest at least 80% of its total assets in securities the income from which is exempt from regular federal income tax and not treated as a preference item for purposes of the alternative minimum tax. At least 65% of the Fund's assets will be invested in municipal bonds and debentures, and at least 75% of its total assets invested in municipal bonds will be in securities rated A or better by S&P or Moody's. Municipal securities must be rated BBB or better by S&P or Baa or better by Moody's in the case of bonds; SP-1, 11 SP-2 or MIG-1, MIG-2 in the case of notes; A-1, A-2, P-1, P-2 in the case of tax-exempt commercial paper; and SP-1, SP-2, VMIG-1 or VMIG-2 in the case of variable rate demand obligations. The Fund will only acquire securities not rated by S&P or Moody's if, at the time of purchase, the Fund's Advisor determines that such unrated obligations are of comparable quality to rated obligations that may be acquired by the Fund. The Fund may invest in commitments to purchase the above securities on a when- issued or delayed delivery basis, floating or variable rate securities and may purchase municipal forwards, medium term notes, putable securities and zero coupon securities. The Fund's Advisor has discretion to invest up to 20% of the Fund's total assets in taxable debt securities rated at least BBB or better by S&P or Baa or better by Moody's or, if not rated by S&P or Moody's, of comparable quality at the time of purchase as determined by the Fund's Advisor, repurchase agreements, and securities subject to the alternative minimum tax. The Fund may also invest up to 10% of its assets in restricted securities that the Fund's Advisor determines are liquid under guidelines adopted by the Trust's Board of Trustees and may engage in futures and options transactions. Under normal market conditions, it is anticipated that the Fund's average weighted maturity will range from 4 to 10 years. The Fund may shorten its average weighted maturity to as little as 90 days if deemed appropriate for temporary defensive purposes. By so limiting the maturity of its investments, the Fund's net asset value is expected to experience less price movement in response to changes in interest rates than the net asset values of mutual funds investing in similar credit quality securities with longer maturities. The Fund's portfolio turnover rate was 514% for the fiscal year ended May 31, 1996. This rate of turnover, if continued, will likely result in higher transaction costs and higher levels of realized capital gains than if the turnover rate was lower. U.S. GOVERNMENT SECURITIES FUND Under normal market conditions, the Fund will invest at least 65% of its assets in obligations issued or guaranteed by the U.S. Government, its agencies or instrumentalities, including mortgage-backed securities issued or guaranteed by U.S. Government agencies such as the Government National Mortgage Association ("GNMA"), the Federal National Mortgage Association ("FNMA") or the Federal Home Loan Mortgage Corporation ("FHLMC"). Mortgage-backed securities consisting of CMOs and real estate mortgage investment conduits ("REMICs") purchased by the Fund will be issued or guaranteed as to payment of principal and interest by the U.S. Government, its agencies or instrumentalities or, if issued by private issuers, rated in one of the two highest rating categories by a nationally recognized statistical rating organization (an "NRSRO"). The principal governmental issuers or guarantors of mortgage-backed securities are GNMA, FNMA and FHLMC. Obligations of GNMA are backed by the full faith and credit of the U.S. Government while obligations of FNMA and FHLMC are supported by the respective agency only. The Fund may purchase mortgage-backed securities that are backed or collateralized by fixed, adjustable or floating rate mortgages. Mortgage-backed securities that are not issued or guaranteed by the U.S. Government, its agencies or instrumentalities, including securities nominally issued by a governmental entity (such as the Resolution Trust Corporation), are not obligations of a 12 governmental entity and thus may bear a risk of nonpayment. The timely payment of principal and interest normally is supported, at least partially, by various forms of insurance or guarantees. There can be no assurance, however, that such credit enhancement will support full payment of the principal and interest on such obligations. The average maturity of the Fund's investment portfolio will typically range from 7 to 14 years. With respect to the remaining 35% of its assets, the Fund may invest in corporate or government bonds that carry a rating of Baa or better by Moody's or BBB or better by S&P or better, or that are deemed by the Fund's Advisor to be of comparable quality; commercial paper rated at the time of purchase within the two highest ratings categories of an NRSRO; bankers' acceptances; certificates of deposit and time deposits; and U.S. Treasury obligations, which include custodial receipts and repurchase agreements involving securities that constitute permissible investments for the Fund. The Fund intends to invest in privately issued, mortgage-backed securities only if they are rated in one of the two highest rating categories by an NRSRO. The Fund may purchase securities on a forward commitment or when-issued basis, which means that delivery and payment for such securities generally takes place after the customary securities settlement period. The Fund may purchase floating or variable rate securities, and may engage in dollar roll transactions. LIMITED-TERM FEDERAL MORTGAGE SECURITIES FUND Under normal market conditions, the Limited-Term Federal Mortgage Securities Fund will invest at least 65% of its assets in mortgage-related securities issued or guaranteed by U.S. Government agencies such as GNMA, FNMA or FHLMC. Obligations of GNMA are backed by the full faith and credit of the U.S. Government while obligations of FNMA and FHLMC are supported by the respective agency only. The Fund may purchase mortgage-backed securities that are backed or collateralized by fixed, adjustable or floating rate mortgages. The Fund's holdings of mortgage-backed securities will typically have an average life of from one to five years. Mortgage-backed securities consisting of CMOs and REMICs purchased by the Fund will be either issued or guaranteed as to payment of principal and interest by the U.S. Government, its agencies or instrumentalities or, if issued by private issuers, rated in one of the two highest rating categories by an NRSRO. Mortgage-backed securities that are not issued or guaranteed by the U.S. Government, its agencies or instrumentalities, including securities nominally issued by a governmental entity (such as the Resolution Trust Corporation), are not obligations of the U.S. Government and thus bear a risk of nonpayment. The timely payment of principal and interest normally is supported, at least partially, by various forms of insurance or guarantees. There can be no assurance, however, that such credit enhancement will support full payment of the principal and interest on such obligations. With respect to the remaining 35% of its assets, the Fund may invest in corporate or government bonds that carry a rating of Baa or better by Moody's or BBB or better by S&P, or that are deemed by the Fund's Advisor to be of comparable quality; asset backed securities; commercial paper rated at the time of purchase in one of the two highest ratings categories by an NRSRO; bankers' acceptances; certificates of deposit and time deposits; U.S. Treasury 13 obligations and custodial receipts; and repurchase agreements involving securities that constitute permissible investments for the Fund. The Fund may purchase securities on a forward commitment or when-issued basis, which means that delivery and payment for such securities generally takes place after the customary securities settlement period. The Fund may purchase floating or variable rate securities, and may engage in dollar roll transactions. The Fund may also purchase stripped mortgage-backed securities, but will limit such purchases to 5% of its net assets. SHORT-TERM BOND FUND Under normal circumstances, the Short-Term Bond Fund will invest solely in investment grade obligations rated BBB or better by S&P or Baa or better by Moody's or, if not rated by S&P or Moody's, of comparable quality at the time of purchase as determined by the Fund's Advisor consisting of debt obligations of U.S. and foreign corporations, mortgage-backed securities; CMOs; asset-backed securities; obligations (including mortgage-backed securities) issued or guaranteed as to principal and interest by the U.S. Government, its agencies or instrumentalities; and custodial receipts involving U.S. Treasury obligations (including Separately Traded Registered Interest and Principal Securities ("STRIPS") and Coupon Under Book Entry System ("CUBES")). Under normal circumstances, at least 65% of the Fund's total assets will be invested in corporate and government bonds and debentures. No more than 25% of the Fund's assets will be invested in securities rated BBB by S&P or Baa by Moody's or, if not rated by S&P or Moody's, of comparable quality at the time of purchase by the Fund's Advisor. The Fund may purchase, without limitation, mortgage-backed securities issued or guaranteed as to the payment of principal and interest by the U.S. Government, its agencies or instrumentalities and, subject to a limit of 25% of the Fund's assets, mortgage-backed securities issued by private issuers. These mortgage-backed securities may be backed or collateralized by fixed, adjustable or floating rate mortgages. The Fund may also invest in asset-backed securities, which consist of securities backed by company receivables; truck and auto loans; leases; credit card receivables; and home equity loans. The Fund will purchase mortgage-backed and asset-backed securities only if they are rated at least AA by S&P or Aa by Moody's or, if not rated by S&P or Moody's, determined to be of comparable quality at the time of purchase by the Fund's Advisor. The Fund may purchase securities on a when-issued basis and may acquire floating or variable rate securities, medium term notes, putable securities, and zero coupon securities. The Fund may also purchase securities issued by foreign governments and supranational agencies. The Fund may also invest in municipal securities when the Fund's Advisor feels it is consistent with the Fund's investment objective. The Fund will not invest in municipal securities unless the Fund's Advisor believes that the yield will be higher than the yield for comparable taxable investments in which the Fund is permitted to invest. The following quality criteria apply to the Fund's investments in municipal securities. The Fund's investments in municipal notes will be limited to those obligations (i) where both principal and interest are backed by the full faith and credit of the United States, (ii) which are rated MIG-2 or V-MIG-2 or better at the time of investment by Moody's, (iii) which are rated SP-2 or better at the time of investment by S&P, or (iv) which, if not rated by S&P or Moody's, are of equivalent quality to MIG-2, V-MIG-2, or SP-2 or better in 14 the Advisor's judgment. The Fund's investment in municipal bonds will be limited to bonds rated BBB or better by S&P or Baa or better by Moody's, or, if not rated by S&P or Moody's, deemed by the Fund's Advisor to be of comparable quality. For the Fund's investments in other types of tax-exempt municipal investments, such as participation interests in municipal lease/purchase agreements, the quality of the underlying credit or of the bank providing a credit support arrangement must, in the Fund's Advisor's opinion, be equivalent to the municipal note or bond ratings stated above. The Fund is also authorized to invest up to 10% of its assets in restricted securities, including Rule 144A securities, that the Fund's Advisor determines are liquid under guidelines adopted by the Trust's Board of Trustees. The Fund may also enter into bond futures contracts and options on bond futures contracts and engage in securities lending. The Fund intends to maintain a dollar-weighted average maturity of 3 years or less, and the maximum remaining maturity for any security held by the Fund is 7 years. Under normal market conditions it is anticipated that the Fund's dollar-weighted average maturity will range from 2 to 3 years. In the case of mortgage related securities and asset-backed securities, maturity will be determined based on the expected average life of the security. The Fund may shorten its average weighted maturity to as little as 90 days if deemed appropriate for temporary defensive purposes. By so limiting the maturity of its investments, the Fund expects that its net asset value will experience less price movement in response to changes in interest rates than the net asset values of mutual funds investing in similar credit quality securities with longer maturities. The Fund's turnover rate was 163% for the fiscal year ended May 31, 1996. This rate of turnover, if continued, will likely result in higher transaction costs and higher levels of realized capital gains than if the turnover rate was lower. SHORT-TERM U.S. TREASURY SECURITIES FUND The Short-Term U.S. Treasury Securities Fund will invest exclusively in obligations issued by the U.S. Treasury with maximum remaining maturities of 3 years or less. U.S. Treasury securities are considered to be among the safest, as to timely principal and interest payments, investments available. The Fund will not invest in repurchase agreements. The Fund may borrow money for temporary or emergency purposes in an amount not exceeding one-third of its total assets, but has no present intention to do so. Under normal market conditions, it is anticipated that the Fund's average maturity will range from one to two years. Furthermore, for temporary defensive purposes during periods when the Fund's Advisor determines that market conditions warrant, the Short-Term U.S. Treasury Securities Fund may reduce its average weighted maturity to less than one year. FLORIDA TAX-EXEMPT BOND FUND The Florida Tax-Exempt Bond Fund intends to be fully invested in municipal securities the interest on which is exempt from regular federal income tax based on opinions from bond counsel to the issuers. The issuers of these securities can be located in Florida, the District of Columbia, Puerto Rico and other U.S. territories and possessions. It is a fundamental policy of the Fund to invest at least 80% of its total assets in securities the income from which is exempt from regular federal income tax and not treated as a preference item for purposes of the alternative minimum tax. At least 65% of the Fund's assets will be invested in Florida 15 municipal bonds and debentures, and at least 75% of its total assets invested in municipal bonds will be in securities rated A or better by S&P or Moody's. Municipal securities must be rated BBB or better by S&P or Baa or better by Moody's in the case of bonds; SP-1, SP-2 or MIG-1, MIG-2 in the case of notes; A-1, A-2, or P-1, P-2 in the case of tax-exempt commercial paper; and SP-1, SP-2, VMIG-1 or VMIG-2 in the case of variable rate demand obligations. No more than 25% of the Fund's assets will be invested in bonds rated BBB by S&P or Baa by Moody's. The Fund will only acquire securities not rated by S&P or Moody's if, at the time of purchase, the Fund's Advisor determines that such unrated obligations are of comparable quality to rated obligations that may be acquired by the Fund. The Fund may invest in commitments to purchase the above securities on a when- issued or delayed delivery basis, floating or variable rate securities, and may purchase municipal forwards, putable securities, medium term notes, and zero coupon securities. The Fund's Advisor has discretion to invest up to 20% of the Fund's total assets in taxable debt securities rated at least BBB or better by S&P or Baa or better by Moody's or, if not rated by S&P or Moody's, of comparable quality at the time of purchase as determined by the Fund's Advisor, repurchase agreements, and securities subject to the alternative minimum tax. The Fund may also invest in futures and options, but has no present intention to do so for other than hedging purposes. Under normal market conditions, it is anticipated that the Fund's average weighted maturity will range from 6 to 25 years. The Fund may shorten its average weighted maturity to as little as 90 days if deemed appropriate for temporary defensive purposes. GEORGIA TAX-EXEMPT BOND FUND The Georgia Tax-Exempt Bond Fund intends to be fully invested in municipal securities the interest on which is exempt from regular federal income taxes and substantially exempt from State of Georgia income taxes based on opinions from bond counsel to the issuers. The issuers of these securities can be located in Georgia, the District of Columbia, Puerto Rico and other U.S. territories and possessions. It is a fundamental policy of the Fund to invest at least 80% of its total assets in securities the income from which is exempt from regular federal income tax and not treated as a preference item for purposes of alternative minimum tax. At least 65% of the Fund's assets will be invested in Georgia municipal bonds and debentures, and at least 75% of its total assets invested in municipal bonds will be in securities rated A or better by S&P or Moody's. Municipal securities must be rated BBB or better by S&P or Baa or better by Moody's in the case of bonds; SP-1, SP-2 or MIG-1, MIG-2 in the case of notes; A-1, A-2, or P-1, P-2 in the case of tax-exempt commercial paper; and VMIG-1 or VMIG-2 in the case of variable rate demand obligations. No more than 25% of the Fund's assets will be invested in bonds rated BBB by S&P or Baa by Moody's. The Fund will only acquire securities not rated by S&P or Moody's if, at the time of purchase, the Fund's Advisor determines that such unrated obligations are of comparable quality to rated obligations that may be acquired by the Fund. The Fund may commit to purchase the above securities on a when-issued or delayed delivery basis, invest in floating or variable rate securities, and may purchase municipal forwards, putable securities, medium term notes and zero coupon securities. The Fund's Advisor has discretion to invest up to 20% of the Fund's total assets in taxable debt securities rated at least BBB or better by S&P 16 or Baa or better by Moody's or, if not rated by S&P or Moody's, of comparable quality at the time of purchase as determined by the Fund's Advisor, repurchase agreements, and securities subject to the alternative minimum tax. The Fund may also invest in futures and options, but has no present intention to do so for other than hedging purposes. Under normal market conditions, it is anticipated that the Fund's average weighted maturity will range from 6 to 25 years. The Fund may shorten its average weighted maturity to as little as 90 days if deemed appropriate for temporary defensive purposes. TENNESSEE TAX-EXEMPT BOND FUND The Tennessee Tax-Exempt Bond Fund intends to be fully invested in municipal securities the interest on which is exempt from regular federal income taxes and substantially exempt from State of Tennessee income taxes based on opinions from bond counsel to the issuers. The issuers of these securities can be located in Tennessee, the District of Columbia, Puerto Rico and other U.S. territories and possessions. It is a fundamental policy of the Fund to invest at least 80% of its total assets in securities the income from which is exempt from regular federal income tax and not treated as a preference item for purposes of the alternative minimum tax. At least 65% of the Fund's assets will be invested in Tennessee municipal bonds and debentures, and at least 75% of its total assets invested in municipal bonds will be in securities rated A or better by S&P or Moody's. Municipal securities must be rated BBB or better by S&P or Baa or better by Moody's in the case of bonds; SP-1, SP-2 or MIG-1, MIG-2 in the case of notes; A-1, A-2, or P-1, P-2 in the case of tax-exempt commercial paper; and VMIG-1 or VMIG-2 in the case of variable rate demand obligations. No more than 25% of the Fund's assets will be invested in bonds rated BBB by S&P or Baa by Moody's. The Fund will only acquire securities not rated by S&P or Moody's if, at the time of purchase, the Fund's Advisor determines that such unrated obligations are of comparable quality to rated obligations that may be acquired by the Fund. The Fund may invest in floating or variable rate securities, commitments to purchase the above securities on a when-issued or delayed delivery basis, and may purchase municipal forwards, putable securities, medium term notes and zero coupon securities. The Fund's Advisor has discretion to invest up to 20% of the Fund's total assets in taxable debt securities rated at least BBB or better by S&P or Baa or better by Moody's or, if not rated by S&P or Moody's, of comparable quality at the time of purchase as determined by the Fund's Advisor, repurchase agreements, and securities subject to the alternative minimum tax. The Fund may also invest in futures and options, but has no present intention to do so for other than hedging purposes. Under normal market conditions, it is anticipated that the Fund's average weighted maturity will range from 6 to 25 years. The Fund may shorten its average weighted maturity to as little as 90 days if deemed appropriate for temporary defensive purposes. PRIME QUALITY MONEY MARKET FUND The Prime Quality Money Market Fund will invest in money market instruments denominated in U.S. dollars consisting of (i) U.S. Treasury obligations; (ii) custodial receipts representing interests in component parts of U.S. Treasury obligations; (iii) obligations issued or guaranteed as to principal and interest by agencies and instrumentalities of the U.S. Government; (iv) commercial paper issued by domestic and 17 foreign issuers rated in the highest short-term rating category by one or more NRSROs as described in the "Appendix" or, if not rated, determined by the Fund's Advisor to be of comparable quality; (v) high quality obligations (including certificates of deposit, time deposits, bankers' acceptances, Eurodollar and Yankee bank obligations) of U.S. commercial banks (including foreign branches of such banks), and U.S. and London branches of foreign banks or savings and loan and thrift institutions that are members of the Federal Reserve System, the Federal Deposit Insurance Corporation, or the Federal Savings and Loan Insurance Corporation; (vi) high quality short-term corporate obligations issued by companies with commercial paper meeting the ratings indicated in (iv), above, or, if not rated, determined by the Fund's Advisor to be of comparable quality; (vii) repurchase agreements involving such obligations; (viii) high quality obligations of supranational entities satisfying the credit ratings described in (iv), above, or, if not rated, determined by the Fund's Advisor to be of comparable quality; and (ix) medium term notes. The Fund may not invest more than 25% of its total assets in obligations issued by foreign branches of U.S. banks and London branches of foreign banks. The Fund may purchase securities subject to standby commitments. As a money market fund, the Fund is subject to limitations on the percentage of its assets that may be invested in any one issuer and on the percentage that may be invested in securities carrying the second highest rating assigned by the requisite NRSROs. U.S. GOVERNMENT SECURITIES MONEY MARKET FUND The U.S. Government Securities Money Market Fund will invest exclusively in U.S. Treasury obligations, U.S. Government Subsidiary Corporation securities (e.g., GNMA securities) and repurchase agreements with dealers selected pursuant to guidelines adopted by the Trust's Board of Trustees and collateralized by U.S. Treasury securities and U.S. Government Subsidiary Corporation securities. TAX-EXEMPT MONEY MARKET FUND The Tax-Exempt Money Market Fund intends to be fully invested in securities the interest on which is exempt from regular federal income taxes in the opinion of bond counsel to the issuer. It is a fundamental policy of the Tax-Exempt Money Market Fund to invest at least 80% of its total assets in securities the income from which is exempt from regular federal income taxes and not treated as a preference item for purposes of the alternative minimum tax. The Fund may invest in high quality U.S. dollar denominated municipal securities of issuers located in all fifty states, the District of Columbia, Puerto Rico and other U.S. territories rated in one of the two highest short-term rating categories by S&P or Moody's or, if not rated, determined by the Fund's Advisor to be of comparable quality. The Fund will primarily purchase municipal bonds with a remaining maturity of 397 days or less, and will also acquire municipal notes and tax-exempt commercial paper with similar maturities. The Fund may agree to purchase short-term securities on a when-issued basis and may invest in securities subject to standby commitments. Securities purchased on a when-issued basis are subject to settlement within 45 days of the purchase date. The Fund's Advisor has discretion to invest up to 20% of the Fund's assets in U.S. dollar denominated obligations consisting of taxable money market instruments, obligations issued or guaranteed by the U.S. Government, its agencies and instrumentalities, repurchase 18 agreements and securities subject to the alternative minimum tax. GENERAL INVESTMENT POLICIES AND STRATEGIES For temporary defensive purposes, during periods when its Advisor determines that market conditions warrant, each Fund, except the U.S. Government Securities Money Market Fund and Short-Term U.S. Treasury Securities Fund, may hold a portion of its assets in cash and 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, time deposits issued by banks or savings and loan associations, and commercial paper rated in the highest rating category. A Fund may not be pursuing its investment objective when it is engaged in temporary defensive investing. The municipal bonds that the Investment Grade Tax-Exempt Bond Fund and State Tax-Exempt Bond Funds may purchase include general obligation bonds, revenue or special obligation bonds, and private activity and industrial development bonds. General obligation bonds are backed by the taxing power of the issuing municipality while revenue or special obligation bonds are backed by a specific project or facility. The State Tax-Exempt Bond Funds may also purchase certificates of participation which represent an interest in an underlying obligation or commitment such as an obligation issued in connection with a leasing arrangement. The payment of principal and interest on private activity and industrial development bonds generally is dependent solely on the ability of the facility's user to meet its obligation and the pledge, if any, of real or personal property as security for such payment. The Advisor to a State Tax-Exempt Bond Fund or the Investment Grade Tax-Exempt Bond Fund may buy or sell portfolio securities with the intention of generating capital gains. Such gains will increase the Fund's total return and will be taxable upon distribution to Shareholders. See "Tax Information." In the event that a security owned by a Fund is downgraded below the stated rating categories, its Advisor will review and take appropriate action with regard to the security. A Fund's purchase of shares of other investment companies is limited by the Investment Company Act of 1940 (the "1940 Act") and will ordinarily result in an additional layer of charges and expenses. Each of the Funds may engage in securities lending and will limit such practice to 33 1/3% of its total assets. No Fund may purchase additional securities while its outstanding borrowings exceed 5% of its assets. It is a non-fundamental policy of each Fund to invest no more than 15% of its net assets in illiquid securities (10% of the net assets of each Money Market Fund). An illiquid security is a security which cannot be disposed of in the usual course of business within seven days 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 FIXED INCOME SECURITIES The market value of a Fund's fixed income investments will change in response to interest 19 rate changes and other factors. During periods of falling interest rates, the values of outstanding fixed income securities generally rise. Conversely, during periods of rising interest rates, the values of such securities generally decline. Securities with longer maturities are subject to greater fluctuations in value than securities with shorter maturities. Changes by an NRSRO to the rating of any fixed income security and in the ability of an issuer to make payments of interest and principal also affect the value of these investments. Changes in the value of a Fund's securities will not affect cash income derived from these securities but will affect the Fund's net asset value. Fixed income securities rated BBB by S&P or Baa by Moody's (the lowest rating of investment grade bonds) are deemed by these rating services to have speculative characteristics. Guarantees of a Fund's securities by the U.S. Government, its agencies or instrumentalities guarantee only the payment of principal and interest on the guaranteed securities, and do not guarantee the securities' yield or value or the yield or value of a Fund's shares. There is a risk that the current interest rate on floating and variable rate instruments may not accurately reflect existing market interest rates. FOREIGN SECURITIES Investing in the securities of foreign companies involves special risks and considerations not typically associated with investing in U.S. companies. These risks and considerations include differences in accounting, auditing and financial reporting standards, generally higher commission rates on foreign portfolio transactions, the possibility of expropriation or confiscatory taxation, adverse changes in investment or exchange control regulations, political instability which could affect U.S. investment in foreign countries and potential restrictions of the flow of international capital and currencies. Foreign companies may also be subject to less government regulation than U.S. companies. Moreover, the dividends payable on the foreign securities may be subject to foreign withholding taxes, thus reducing the net amount of income available for distribution to a 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. MORTGAGE-BACKED SECURITIES Mortgage-backed securities are subject to the risk of prepayment of the underlying mortgages. During periods of declining interest rates, prepayment of mortgages underlying these securities can be expected to accelerate. When the mortgage-backed securities held by a Fund are prepaid, the Fund generally will reinvest the proceeds in securities with a yield that reflects prevailing interest rates, which may be lower than the prepaid security. MUNICIPAL SECURITIES Since each State Tax-Exempt Bond Fund invests in municipal securities issued by governmental entities of its specific states the performance of each State Tax-Exempt Bond Fund may be especially affected by factors pertaining to such state's economy and other factors specifically affecting the ability of issuers in that state to meet their obligations. As a result, the value of each State Tax-Exempt Bond Fund's shares may fluctuate more widely 20 than the value of shares of a portfolio investing in securities relating to a number of different states. The ability of state, county, or local governments to meet their obligations will depend primarily on the availability of tax and other revenues to those governments and on their fiscal conditions generally. Municipal securities may be affected from time to time by economic, political, geographic and demographic conditions. In addition, constitutional amendments, legislative measures, executive orders, administrative regulations and voter initiatives may limit a government's power to raise revenues or increase taxes and thus could adversely affect an issuer's ability to meet financial obligations. ZERO COUPON OBLIGATIONS Zero coupon obligations are sold at original issue discount and do not make periodic payments. Zero coupon obligations may be subject to greater fluctuations in value due to interest rate changes than interest bearing obligations. A Fund will be required to include the imputed interest in zero coupon obligations in its current income. Because each Fund distributes all of its net investment income to Shareholders, a Fund may have to sell portfolio securities to distribute the income attributable to these obligations and securities at a time when its Advisor would not have chosen to sell such obligations or securities and which may result in a taxable gain or loss. INVESTMENT LIMITATIONS The following investment limitations constitute fundamental policies of each Fund. Fundamental policies cannot be changed with respect to a Fund without the consent of the holders of a majority of the Fund's outstanding shares. The term "majority of the outstanding shares" means the vote of (i) 67% or more of a Fund's shares present at a meeting, if more than 50% of the outstanding shares of the Fund are present or represented by proxy, or (ii) more than 50% of a Fund's outstanding shares, whichever is less. Each Fund may not: 1. Purchase securities of any issuer (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 a Fund would be invested in the securities of such issuer; provided, however, that a Fund may invest up to 25% of its total assets without regard to this restriction as permitted by applicable law. 2. Purchase any securities which would cause more than 25% of the total assets of a Fund to be invested in the securities of one or more issuers conducting their principal business activities in the same industry, provided that this limitation does not apply to investments in obligations issued or guaranteed by the U.S. Government or its agencies and instrumentalities, repurchase agreements involving such securities or tax-exempt securities issued by governments or political subdivisions of governments and, with respect to only the Money Market Funds, obligations issued by domestic branches of U.S. banks or U.S. branches of foreign banks subject to the same regulations as U.S. banks. For purposes of this limitation, (i) utility companies will be divided according to their services, for example, gas, gas transmission, electric and telephone will each be considered a separate industry; (ii) financial service companies will be classified according to the end users of their services, for example, automobile finance, bank finance and diversified finance will each be considered a separate industry; and (iii) supranational entities will be considered to be a separate industry. It is a non-fundamental policy of the Tax-Exempt Money Market Fund and Investment Grade Tax-Exempt Bond Fund that they will not invest more than 25% of their respective net assets in securities of one or more issuers conducting their principal activities in the same state. In addition, the Tax-Exempt Money Market 21 Fund, Investment Grade Tax-Exempt Bond Fund and State Tax-Exempt Bond Funds will not invest more than 25% of their respective total assets in securities the interest on which is derived from revenues of similar type projects. 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 MONEY MARKET FUNDS From time to time each Money Market Fund may advertise its "current yield" and "effective compound yield." Both yield figures are based on historical earnings and are not intended to indicate future performance. The "current yield" of each Fund refers to the income generated by an investment in a Fund over a seven-day period (which period will be stated in the advertisement). This income is then "annualized." That is, the amount of income generated by the investment during that week is assumed to be generated each week over a 52-week period and is shown as a percentage of the investment. The "effective yield" is calculated similarly but, when annualized, the income earned by an investment in a Fund is assumed to be reinvested. The "effective yield" will be slightly higher than the "current yield" because of the compounding effect of this assumed reinvestment. The Tax-Exempt Money Market Fund may also advertise a "tax-equivalent yield," which is calculated by determining the rate of return that would have been achieved on a fully taxable investment to produce the after tax equivalent of the Fund's yield, assuming certain tax brackets for a Shareholder. BOND AND STATE TAX-EXEMPT BOND FUNDS From time to time, the Bond and State Tax-Exempt Bond Funds may advertise performance (yield and total return). These figures will be based on historical earnings and are not intended to indicate future performance. The yield of a Fund refers to the annualized income generated by an investment in that Fund over a specified 30-day period. The yield is calculated by assuming that the income generated by the investment during that period is generated over one year and is shown as a percentage of the investment. The Investment Grade Tax-Exempt and State Tax-Exempt Bond Funds may also advertise a "tax-equivalent yield," which is calculated by determining the rate of return that would have been achieved on a fully taxable investment to produce the after tax equivalent of the Fund's yield, assuming certain tax brackets for a Shareholder. The total return of a Fund refers to the average compounded rate of return to a hypothetical investment, including any sales charge imposed, for designated time periods (including but not limited to, the period from which a Fund commenced operations through the specified date), assuming that the entire investment is redeemed at the end of each period and assuming the reinvestment of all dividend and capital gains distributions. 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, service 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. Each Fund may periodically compare its performance to other mutual funds tracked by mutual fund rating services, to broad groups of comparable mutual funds or to unmanaged indices which may assume reinvestment of dividends but generally do not reflect deductions for administrative and management costs. 22 FUNDLINK All purchases and redemptions of Investor 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 SunTrust 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 Consultant of a SunTrust Banks, Inc. affiliate bank and complete the appropriate application and authorization agreements. PURCHASE OF FUND SHARES Investor Shares are sold on a continuous basis and may be purchased by contacting the Trust's transfer agent, Federated Services Company (the "Transfer Agent"), either by mail, by telephone or by wire. Investor Shares may also be purchased through Investment Consultants of SunTrust Securities, Inc., which serves as Shareholder Servicing Agents to the Trust. Furthermore, Investor Shares may be purchased through certain correspondent banks of SunTrust Banks, Inc. or other financial institutions who have executed dealer sales agreements. All purchases made by check should be in U.S. dollars and made payable to the "STI Classic Funds (Fund Name)." Third party checks, credit cards, credit card checks and cash will not be accepted. When purchases are made by check, redemptions will not be allowed until the investment being redeemed has been in the account for 15 Business Days. Shares may be purchased on days on which the New York Stock Exchange is open for business (a "Business Day"). However, money market mutual fund shares cannot be purchased or redeemed for same day settlement on days the Federal Reserve is closed. MONEY MARKET FUNDS A purchase order for any of the Money Market Funds will be effective as of the Business Day it is received by the Transfer Agent and eligible to receive dividends declared the same day if the Transfer Agent receives the order before 11:00 a.m. Eastern time for the Tax-Exempt Money Market Fund or before 1:00 p.m. Eastern time for the Prime Quality Money Market Fund and U.S. Government Securities Money Market Fund and the Custodian receives federal funds before 4:00 p.m. Eastern time on such day. Otherwise, purchase orders for the Money Market Funds will be effective the next Business Day provided the Custodian receives readily available funds before 4:00 p.m. Eastern time on the next such Business Day. The purchase price is the net asset value per share next computed after the order is received and accepted by the Trust. The net asset value per share of each Fund is determined by dividing the total value of its investments and other assets, less any liabilities, by its total outstanding shares. The net asset value per share is calculated as of close of business of the New York Stock Exchange (currently 4:00 p.m. Eastern time) each Business Day based on the amortized cost method described in the Statement of Additional Information and is expected to remain constant at $1.00 per share. Minimum initial and subsequent purchase amounts for all Investor Shares of Money Market Funds are $5,000 and $1,000, respectively. Purchases made pursuant to the Systematic Investment Plan (described below) are subject to lower minimum initial and subsequent purchase amounts. Subsequent purchases via statement coupon are permitted in amounts of $100 or more. These minimums may be waived at the Distributor's discretion. BOND AND STATE TAX-EXEMPT BOND FUNDS A purchase order for any of the Bond or State Tax-Exempt Bond Funds will be effective as of the Business Day it is received by the Transfer Agent if the Transfer Agent receives the order 23 before 4:00 p.m. Eastern time. Purchases will be made in full and fractional shares of a Fund 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 a 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 a 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 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 each Fund. Minimum initial and subsequent purchase amounts, respectively, for each Bond and State Tax-Exempt Bond Fund are $2,000 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. The minimum initial purchase amount for retirement plans is $2,000. These minimums may be waived at the Distributor's discretion. 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). The Trust maintains procedures, including identification methods and other means, for ascertaining the identity of callers and authenticity of instructions. If reasonable procedures are not employed, the Trust and/or the Transfer Agent may be liable for any losses due to unauthorized or fraudulent telephone transactions. Neither the 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. Shares of the Funds are offered only to residents of states in which the shares are eligible for purchase. Investors in certain states may be required to purchase shares through institutions registered as brokers/dealers in such states. Although the methodology and procedures for calculating the net asset value of Investor Shares are identical to those for Trust Shares and Flex Shares, the net asset value per share of the classes may differ because of the distribution and certain transfer agent expenses charged to Investor Shares and Flex Shares. SYSTEMATIC INVESTMENT PLAN Shares of each Fund may be purchased systematically through deductions from checking or savings accounts maintained through SunTrust Banks, Inc. affiliate banks. Investors may purchase shares on a fixed schedule (semi-monthly or monthly) with amounts from $100 up to $100,000. The Systematic Investment Plan is subject to account minimum initial purchase and subsequent purchase amounts of $500 and $50 and minimum balance requirements. The purchases will be effective on the Business Day that the Transfer Agent receives the transmission. 24 SALES CHARGE INFORMATION The following schedules apply to the purchase of Investor Shares of a Fund:
AMOUNT OF SALES CHARGE REALLOWED TO SALES CHARGE SALES CHARGE DEALERS AS A AS A AS A PERCENTAGE OF PERCENTAGE OF PERCENTAGE OF OFFERING NET AMOUNT OFFERING PRICE INVESTED PRICE* ------------- ------------- ------------- U.S. GOVERNMENT SECURITIES, INVESTMENT GRADE TAX-EXEMPT BOND, INVESTMENT GRADE BOND, and STATE TAX-EXEMPT BOND FUNDS Less than $100,000........................................ 3.75% 3.90% 3.375% $100,000 but less than $250,000........................... 3.25% 3.36% 2.925% $250,000 but less than $1,000,000......................... 2.50% 2.56% 2.250% $1,000,000 and higher..................................... 1.00% 1.01% 0.900% LIMITED-TERM FEDERAL MORTGAGE SECURITIES FUND Less than $100,000........................................ 2.50% 2.56% 2.250% $100,000 but less than $250,000........................... 1.75% 1.78% 1.575% $250,000 but less than $1,000,000......................... 1.25% 1.27% 1.125% $1,000,000 and higher..................................... None None None SHORT-TERM BOND FUND Less than $100,000........................................ 2.00% 2.04% 1.800% $100,000 but less than $250,000........................... 1.50% 1.52% 1.350% $250,000 but less than $1,000,000......................... 1.00% 1.01% 0.900% $1,000,000 and higher..................................... None None None SHORT-TERM U.S. TREASURY SECURITIES FUND Less than $100,000........................................ 1.00% 1.01% 0.900% $100,000 but less than $250,000........................... 0.75% 0.76% 0.675% $250,000 but less than $500,000........................... 0.50% 0.50% 0.450% $500,000 and higher....................................... None None None
*The entire sales charge will be reallowed to dealers affiliated with the Advisers and their affiliates. Dealers who receive more than 90% of the sales charge may be considered underwriters for purposes of the Securities Act of 1933. 25 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. 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 Fund Investor Shares and/or Trust Shares through a SunTrust Securities, Inc. asset allocation account will be exempt from sales charges. Dealers will 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 a 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 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 of 1986, as amended, 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 Funds 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 shares of an Eligible 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 a 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 26 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 a Fund can be automatically reinvested in any one Fund without a sales charge, subject to account minimum initial purchase amounts and minimum maintained balance requirements. REPURCHASE OF FUND SHARES Investor Shares of a Fund may be purchased at their net asset value if Investor Shares, sold subject to a sales charge, were redeemed from a 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 be received by the Transfer Agent within 60 days after the redemption. It is the responsibility of the investor to notify the Transfer Agent that the investor is repurchasing Investor Shares at the time of the transaction. REDEMPTION OF FUND SHARES Shareholders may redeem their Investor Shares without charge on any day that net asset value is calculated. Investor Shares may ordinarily be redeemed by mail or telephone request to the Transfer Agent. With respect to the Money Market Funds, redemption orders must be received by the Transfer Agent on a Business Day before 1:00 p.m. Eastern time for the Prime Quality and U.S. Government Securities Money Market Funds and before 11:00 a.m. Eastern time for the Tax-Exempt Money Market Fund to be effective that day. Redemption orders received after the times noted above will normally be executed the following day. The Trust reserves the right to wire redemption proceeds within five Business Days after receiving the redemption orders if, in the judgment of the Advisor, an earlier payment could adversely impact a Fund. With respect to the Bond and State Tax-Exempt Bond Funds, 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 within five Business Days following receipt of the order. Requests for redemptions from the Funds may be placed in writing or by telephone directly to an Investment Consultant 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 27 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 are purchased by check or through ACH Automated Clearing House ("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 15 Business Days. A Shareholder may be required to redeem Investor Shares if the balance in a Shareholder's Fund account drops below $2,000 for the Bond and State Tax-Exempt Bond Funds ($5,000 for the Money Market Funds) as a result of redemptions, and, the Shareholder does not increase its balance to at least $2,000 for the Bond and State Tax-Exempt Bond Funds ($5,000 for the Money Market Funds) on 60 days' written notice. The minimum account balance for employees of SunTrust is $1,000 for the Bond and State Tax-Exempt Bond Funds. 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 for Bond and State Tax-Exempt Bond Funds 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. EXCHANGES Some or all of the Investor Shares of the Funds 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. 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 Trust 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 Consultant 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 Transfer Agent). The minimum exchange amount is $1,000 subject to account minimum initial purchase amounts 28 and minimum maintained balance requirements. This exchange offer is subject to change or termination by the Trust at any time upon 60 days' notice. DIVIDENDS AND DISTRIBUTIONS MONEY MARKET FUNDS Dividends from net investment income (exclusive of capital gains) of each of the Money Market Funds are declared on each Business Day to Shareholders at the close of business on the day of declaration. 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 (except in the case of the Tax-Exempt Money Market Fund) and minus the amortization of market premium on such assets, (iii) 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. Investor Shares begin earning dividends on the Business Day the purchase order is effective and continue earning dividends through and including the Business Day before the redemption order is effective. Dividends are paid within ten Business Days after the end of each month in the form of additional Investor Shares of the same Fund unless the Shareholder has elected prior to the date of distribution to receive payment in cash. Such election, or any revocation thereof, must be made in writing at least 15 days prior to the date of distribution to the Transfer Agent and will become effective with respect to dividends paid after its receipt. Dividends are paid within ten Business Days after a Shareholder's complete redemption of his Investor Shares in a Fund. BOND AND STATE TAX-EXEMPT BOND FUNDS Dividends from net investment income (exclusive of capital gains) are declared on each Business Day and paid monthly by each of the Bond and State Tax-Exempt Bond Funds. Each Fund's net realized capital gains (including net short-term capital gains) are distributed at least annually. Net income for dividend purposes consists of (i) interest accrued and original issue discount earned on the Fund's assets, (ii) plus the amortization of market discount (except in the case of the Investment Grade Tax-Exempt Bond and State Tax-Exempt Bond Funds) 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. Investor Shares invested in the Bond and State Tax-Exempt Bond Funds are eligible to begin earning dividends that are declared on the Business Day after the purchase order is effective and continue to be eligible for dividends through and including the day the redemption order is effective. The net asset value of Investor Shares of the non-Money Market Funds will be reduced by the amount of any dividend or distribution. Dividends and distributions are paid in the form of additional Investor Shares of the same 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 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 29 Shareholder's complete redemption of its Investor Shares in a Fund. 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 each Fund or its Shareholders. In particular, no attempt has been made herein to provide information on the tax laws of Florida, Georgia or Tennessee. Accordingly, Shareholders are urged to consult their tax advisors regarding specific questions as to federal, state and local income taxes. TAX STATUS OF EACH FUND Each Fund is treated as a separate entity for federal tax purposes, and is not combined with the Trust's other Funds. Each 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. Each Fund intends to make sufficient distributions prior to the end of each calendar year to avoid liability for the federal excise tax applicable to regulated investment companies. TAX STATUS OF DISTRIBUTIONS: MONEY MARKET FUNDS The Prime Quality Money Market Fund and the U.S. Government Securities Money Market Fund will each distribute all of their net investment income (including, for this purpose, net short-term capital gains) to Shareholders. Dividends from net investment income will be taxable to Shareholders as ordinary income whether received in cash or in additional shares. The Tax-Exempt Money Market Fund will distribute all of its net investment income (including net short-term capital gains) to Shareholders. If, at the close of each quarter of its taxable year, at least 50% of the value of the Fund's assets consists of obligations the interest on which is excludable from gross income, the Fund may pay exempt-interest dividends to its Shareholders. Those dividends constitute the portion of the aggregate dividends as designated by the Fund, equal to the excess of the excludable interest over certain amounts disallowed as deductions. Exempt-interest dividends are excludable from a Shareholder's gross income for regular federal income tax purposes, but may have alternative minimum tax consequences. See the Statement of Additional Information. Current federal tax law limits the types and volume of bonds qualifying for the federal income tax exemption of interest, which may have an effect on the ability of the Tax-Exempt Money Market Fund to purchase sufficient amounts of tax-exempt securities to satisfy the Code's requirements for the payment of exempt-interest dividends. TAX STATUS OF DISTRIBUTIONS: BOND AND STATE TAX-EXEMPT BOND FUNDS Each 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 Funds will be taxable to Shareholders as ordinary income whether received in cash or in additional shares. 30 Each of the Investment Grade Tax-Exempt Bond and State Tax-Exempt Bond Funds will distribute all of its net investment income (including net short-term capital gains) to Shareholders. If, at the close of each quarter of its taxable year, at least 50% of the value of a Fund's assets consist of obligations the interest on which is excludable from gross income, the Fund may pay "exempt-interest dividends" to its Shareholders. Those dividends constitute the portion of the aggregate dividends as designated by the Fund, equal to the excess of the excludable interest over certain amounts disallowed as deductions. Exempt-interest dividends are excludable from a Shareholder's gross income for regular federal income tax purposes, but may have alternative minimum tax consequences. See the Statement of Additional Information. Current federal tax law limits the types and volume of bonds qualifying for the federal income tax exemption of interest, which may have an effect on the ability of the Investment Grade Tax-Exempt Bond and State Tax-Exempt Bond Funds to purchase sufficient amounts of tax-exempt securities to satisfy the Code's requirements for the payment of exempt-interest dividends. TAX STATUS OF DISTRIBUTIONS: ALL FUNDS Dividends from net investment income will qualify for the dividends received deduction for corporate Shareholders only to the extent such distributions are derived from dividends paid by domestic corporations. Dividends from net capital gains (the excess of net long-term capital gains over net short-term capital loss) will be treated 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. Each Fund will make annual reports to Shareholders of the federal income tax status of all distributions. Dividends declared by a 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 Shareholders on December 31, of that year, if paid by the Fund any time during the following January. Income received on direct U.S. obligations is exempt from tax at the state level when received directly by a Fund and may be exempt, depending on the state, when received by a Shareholder from a 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. Each 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 a Fund is considered tax exempt in their particular states. Income derived by a Fund from obligations of foreign issuers may be subject to foreign withholding taxes. No Fund will be able to elect to treat Shareholders as having paid their proportionate share of such foreign taxes. Interest on indebtedness incurred or continued by a Shareholder in order to purchase shares of a "tax-exempt" Fund is not deductible. Furthermore, entities or persons who are "substantial users" (or persons related to "substantial users") of facilities financed by "private activity bonds" or certain industrial development bonds should consult their tax advisors before purchasing shares. For these purposes, 31 the term "substantial user" is defined generally to include a "non-exempt person" who regularly uses in trade or business a part of a facility financed from the proceeds of such bonds. See the Statement of Additional Information. A 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 Fund. All consideration received by the Trust for shares of any Fund and all assets of such Fund belong to that Fund and would be subject to liabilities related thereto. The Trust pays its expenses, including fees of its service providers, audit and legal expenses, expenses of preparing prospectuses, proxy solicitation material and reports to Shareholders, costs of custodial services and registering the shares under federal and state securities laws, pricing, insurance expenses, litigation and other extraordinary expenses, brokerage costs, interest charges, taxes and organization expenses. BOARD OF TRUSTEES The management and affairs of the Trust are supervised by the Trustees under the laws governing business trusts in the Commonwealth of Massachusetts. The Trustees have approved contracts under which, as described below, certain companies provide essential management services to the Trust. INVESTMENT ADVISORS The Advisors are indirect wholly-owned subsidiaries of SunTrust Banks, Inc. ("SunTrust"), a southeastern regional bank holding company with assets of $66 billion as of December 31, 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, Inc.--provide a wide range of personal and corporate banking, trust, and investment services through more than 600 locations in the three-state area. Total discretionary assets under management with SunTrust Banks, Inc. equalled approximately $47 billion as of December 31, 1995. Trusco Capital Management, Inc. ("Trusco") serves as the Advisor to the Prime Quality Money Market, U.S. Government Securities Money Market, Tax-Exempt Money Market, Short-Term U.S. Treasury Securities, Short-Term Bond and U.S. Government Securities Funds. As of June 30, 1996, Trusco had approximately $13.7 billion in assets under management. The principal business address of Trusco is 50 Hurt Plaza, Suite 1400, Atlanta, Georgia 30303. STI Capital Management, N.A. ("STI Capital") serves as the Advisor to the Limited-Term Federal Mortgage Securities, Investment Grade Bond, Investment Grade Tax-Exempt Bond and Florida Tax-Exempt Bond Funds. As of June 30, 1996, STI Capital had discretionary management authority with respect to assets of approximately $11 billion. The principal business address of STI Capital is P.O. Box 3808, Orlando, Florida 32802. SunTrust Bank, Chattanooga, N.A. ("SunTrust Bank, Chattanooga") (formerly American National Bank & Trust Company) serves as the Advisor to the Tennessee Tax-Exempt Bond Fund. SunTrust Bank, Chattanooga, N.A. had 32 approximately $1.7 billion in assets under management as of December 31, 1995. The principal business address of SunTrust Bank, Chattanooga, N.A. is 736 Market Street, Chattanooga, Tennessee 37402. SunTrust Bank, Atlanta (formerly Trust Company Bank) serves as the Advisor to the Georgia Tax-Exempt Bond Fund. As of December 31, 1995, SunTrust Bank, Atlanta had approximately $12.5 billion in assets under management. The principal address for SunTrust Bank, Atlanta is 25 Park Place, Atlanta, Georgia 30303. The Trust and the above Advisors have entered into advisory agreements (the "Advisory Agreements"). Under the Advisory Agreements, the Advisors make the investment decisions for the assets of the Fund(s) they advise and continuously review, supervise and administer their respective Fund's investment program. The Advisors discharge their 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 FUNDS INVOLVE RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. RETURNS AND PRINCIPAL VALUES WILL FLUCTUATE AND SHARES AT REDEMPTION MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THERE IS NO GUARANTEE THAT ANY STI CLASSIC FUND WILL ACHIEVE ITS INVESTMENT OBJECTIVE. With respect to all Funds, the Advisors may execute brokerage or other agency transactions through affiliates of the Advisors. For the services provided and expenses incurred pursuant to the Advisory Agreement: Trusco is entitled to receive advisory fees computed daily and paid monthly at the annual rate of .74%, .65%, .65%, .55%, .65% and .65% of the average daily net assets of the U.S. Government Securities Fund, Prime Quality Money Market Fund, U.S. Government Securities Money Market Fund, Tax-Exempt Money Market Fund, Short-Term U.S. Treasury Securities Fund and Short-Term Bond Fund, respectively; STI Capital is entitled to receive advisory fees computed daily and paid monthly at the annual rate of .65%, .74%, .74% and .65% of the average daily net assets of the Florida Tax-Exempt Bond Fund, Investment Grade Bond Fund, Investment Grade Tax-Exempt Bond Fund and Limited-Term Federal Mortgage Securities Fund, respectively; SunTrust Bank, Chattanooga is entitled to receive advisory fees computed daily and paid monthly at the annual rates of .65% of the average daily net assets of the Tennessee Tax-Exempt Bond Fund; and SunTrust Bank, Atlanta is entitled to receive advisory fees computed daily and paid monthly at the annual rate of .65% of the average daily net assets of the Georgia Tax-Exempt Bond Fund. From time to time, an Advisor may waive (either voluntarily or pursuant to applicable state limitations) advisory fees payable by a Fund. Currently, the Advisors 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 any time. For the fiscal year ended May 31, 1996: Trusco received advisory fees computed daily and paid monthly at the annual rate of .50%, .51%, .37%, .22%, .46% and .16% of the average daily net assets of the Prime Quality Money Market Fund, U.S. Government Securities Money Market Fund, Tax-Exempt Money Market Fund, Short-Term U.S. Treasury Securities Fund, Short-Term Bond Fund and U.S. Government 33 Securities Fund, respectively; STI Capital received advisory fees computed daily and paid monthly at the annual rate of .38%, .63%, .61%, and .43% of the average daily net assets of the Florida Tax-Exempt Bond Fund, Investment Grade Bond Fund, Investment Grade Tax-Exempt Bond Fund and Limited-Term Federal Mortgage Securities Fund, respectively; SunTrust Bank, Chattanooga received advisory fees computed daily and paid monthly at the annual rate of .00% of the average daily net assets of the Tennessee Tax-Exempt Bond Fund and SunTrust Bank, Atlanta received advisory fees computed daily and paid monthly at the annual rate of .37% of the average daily net assets of the Georgia Tax-Exempt Bond Fund. PORTFOLIO MANAGERS Mr. Charles B. Leonard, CFA, First Vice President of Trusco, and Michael L. Ford, an Associate of Trusco, have been responsible for the day-to-day management of the U.S. Government Securities Fund since it commenced operations. Mr. Leonard has been with Trusco since 1986 as the senior fixed income manager. Mr. Ford has been with Trusco since April 1994. Prior to joining Trusco, Mr. Ford served as a senior securities analyst with Liberty Capital Advisors from January, 1992 to April, 1994 and has served as a securities analyst at Southern Farm Bureau Life Insurance Company from 1990 to 1992. Mr. David Yealy has been responsible for the day-to-day management of the Short-Term Bond and Short-Term U.S. Treasury Securities Funds since July, 1996 and the Prime Quality Money Market and U.S. Government Securities Funds since they commenced operations. Mr. Yealy joined Trusco in 1991 and currently serves as a Vice President. Ms. Mary F. Cernilli, CFA, has been responsible for the day-to-day management of the Tax-Exempt Money Market Fund since January, 1993. Prior to joining Trusco, Ms. Cernilli served as a Treasury Manager with Xerox Corporation from 1990 to 1993. Mr. L. Earl Denney, CFA, and Mr. Dave E. West, CFA, have been responsible for the day-to-day management of the Limited-Term Federal Mortgage Securities Fund since it commenced operations. Mr. Denney has served as Executive Vice President of STI Capital since 1983. Mr. West has served as a fixed income portfolio manager with STI Capital since 1989. Mr. Denney has also been responsible for the day-to-day management of the Investment Grade Bond Fund since it commenced operations. Ms. Gay Cash has been responsible for the day-to-day management of the Georgia Tax-Exempt Bond Fund since it commenced operations. Ms. Cash has served as a Vice President of SunTrust, Atlanta since January 1, 1987. Mr. Ronald Schwartz, CFA, has been responsible for the day-to-day management of the Florida Tax-Exempt Bond and Investment Grade Tax-Exempt Bond Funds since each Fund commenced operations. Mr. Schwartz joined STI Capital in 1988 and currently serves as a Senior Vice President. Mr. Schwartz, has also been responsible for the day-to-day management of the Tennessee Tax-Exempt Bond Fund since July, 1995. Mr. Schwartz serves as Vice President and Trust Investment Officer of SunTrust Bank, Chattanooga. BANKING LAWS Banking laws and regulations, including the Glass-Steagall Act as presently interpreted by the Board of Governors of the Federal Reserve System, currently (a) prohibit a bank holding company registered under the Federal Bank Holding Company Act of 1956 or its affiliates 34 from sponsoring, organizing, controlling, or distributing the shares of a registered, open-end investment company continuously engaged in the issuance of its shares, and generally prohibit banks from underwriting securities, but (b) do not prohibit such a bank holding company or affiliate or banks generally from acting as an investment advisor, transfer agent, or custodian to such an investment company or from purchasing shares of such a company as agent for and upon the order of a customer. The Advisors believe that each may perform the services for STI Classic Funds contemplated by their respective Advisory Agreements described in this Prospectus without violation of applicable banking laws or regulations. However, future changes in legal requirements relating to the permissible activities of banks and their affiliates, as well as future interpretations of present requirements, could prevent the Advisors from continuing to perform services for STI Classic Funds. If the Advisors were prohibited from providing services to STI Classic Funds, 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 Advisors, or their affiliates, would consider the possibility of offering to perform additional services for STI Classic Funds. It is not possible, of course, to predict whether or in what form such legislation might be enacted or the terms upon which the Advisors, or such affiliates, might offer to provide such services. In addition, state securities laws on this 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 (the "Distribution Agreement") dated May 29, 1992. The Investor Shares of each Fund have a distribution plan dated May 29, 1992, as amended ("Investor Plan"). The Distribution Agreement and the Investor Plan provide that the Investor Shares of the Funds may pay a distribution services fee to the Distributor of up to .20% of the average daily net assets of the Prime Quality Money Market Fund, .17% of the average daily net assets of the U.S. Government Securities Money Market Fund, .15% of the average daily net assets of the Tax-Exempt Money Market Fund, .18% of the average daily net assets of the Short-Term U.S. Treasury Securities Fund, .23% of the average daily net assets of the Short-Term Bond Fund, .43% of the average daily net assets of the Investment Grade Bond Fund, .43% of the average daily net assets of the Investment Grade Tax-Exempt Bond Fund, .18% of the average daily net assets of the Florida Tax-Exempt Bond Fund, .18% of the average daily net assets of the Georgia Tax-Exempt Bond Fund, .18% of the average daily net assets of the Tennessee Tax-Exempt Bond Fund, .38% of the average daily net assets of the U.S. Government Securities Fund and .23% of the average daily net assets of the Limited-Term Federal Mortgage Securities Fund. 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: (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 35 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. The Investor Plan is characterized as a compensation plan 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 of the Trust and application forms. Trust Shares of each 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 a Fund are subject to a contingent deferred sales charge, pay a distribution services fee to the Distributor and are also subject to a services fee for personal service and maintenance of shareholder accounts. The contingent deferred sales charge option of the Flex Shares provides investors with an alternative purchase arrangement to Investor Shares. An investor may call 1-800-874-4770 to receive more information regarding Trust Shares or 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. Each Fund may execute brokerage or other agency transactions through the Distributor, for which the Distributor receives compensation. With respect to each of the Funds, the Distributor may, from time to time and at its own expense, provide promotional incentives, in the form of cash or other compensation, to certain financial institutions whose representatives have sold or are expected to sell significant amounts of these Funds. ADMINISTRATION SEI Fund Resources (the "Administrator") serves as Administrator of the Trust. 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 from each Fund, which is calculated daily and paid monthly, at an annual rate as follows:
AVERAGE AGGREGATE DAILY NET ASSETS FEE - ------------------------------------------ --------- $1 - $1 billion 0.10% over $1 billion to $5 billion 0.07% over $5 billion to $8 billion 0.05% over $8 billion to $10 billion 0.045% over $10 billion 0.04%
From time to time, the Administrator may waive (either voluntarily or pursuant to applicable state limitations) all or a portion of the administration fee payable with respect to the Trust. TRANSFER AGENT AND DIVIDEND DISBURSING AGENT Federated Services Company, Federated Investors Tower, Pittsburgh, Pennsylvania 36 15222-3779, 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 and Investment Operations, Inc., 303 Peachtree Street N.E., 14th Floor, Atlanta, Georgia 30308, serves as custodian of the assets of each Fund. The custodian holds cash, securities and other assets of the Trust as required by the 1940 Act. LEGAL COUNSEL Morgan, Lewis & Bockius LLP, Philadelphia, Pennsylvania, serves as legal counsel to the Trust. INDEPENDENT PUBLIC ACCOUNTANTS The independent public accountants to the Trust are Arthur Andersen LLP, Philadelphia, Pennsylvania. OTHER INFORMATION VOTING RIGHTS Each share held entitles the 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 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 1-800-874-4770. DESCRIPTION OF PERMITTED INVESTMENTS The following is a description of the permitted investments for the Funds. Further discussion is contained in the Statement of Additional Information. 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 37 received from the issuer of the deposited security or to pass through, to the holders of the receipts, voting rights with respect to the deposited securities. ASSET-BACKED SECURITIES -- Asset-backed securities are securities secured by non-mortgage assets such as company receivables, truck and auto loans, leases and credit card receivables. Such securities are generally issued as pass-through certificates, which represent undivided fractional ownership interests in the underlying pools of assets. Such securities also may be debt instruments, which are also known as collateralized obligations and are generally issued as the debt of a special purpose entity, such as a trust, organized solely for the purpose of owning such assets and issuing such debt. Asset-backed securities are not issued or guaranteed by the U.S. Government, its agencies or instrumentalities; however, the payment of principal and interest on such obligations may be guaranteed up to certain amounts and for a certain period by a letter of credit issued by a financial institution (such as a bank or insurance company) unaffiliated with the issuers of such securities. The purchase of asset-backed securities raises risk considerations peculiar to the financing of the instruments underlying such securities. For example, there is a risk that another party could acquire an interest in the obligations superior to that of the holders of the asset-backed securities. There also is the possibility that recoveries on repossessed collateral may not, in some cases, be available to support payments on those securities. Asset-backed securities entail prepayment risk, which may vary depending on the type of asset, but is generally less than the prepayment risk associated with mortgage-backed securities. In addition, credit card receivables are unsecured obligations of the card holder. The market for asset-backed securities is at a relatively early stage of development. Accordingly, there may be a limited secondary market for such securities. BANKERS' ACCEPTANCES -- Bankers' acceptances are bills of exchange or time drafts drawn on and accepted by a commercial bank. Bankers' acceptances are used by corporations to finance the shipment and storage of goods. Maturities are generally six months or less. CERTIFICATES OF DEPOSIT -- Certificates of deposit are interest bearing instruments with a specific maturity. They are issued by banks and savings and loan institutions in exchange for the deposit of funds and normally can be traded in the secondary market prior to maturity. Certificates of deposit with penalties for early withdrawal will be considered illiquid. COMMERCIAL PAPER -- Commercial paper is a term used to describe unsecured short-term promissory notes issued by banks, municipalities, corporations and other entities. Maturities on these issues vary from a few to 270 days. CORPORATE DEBT OBLIGATIONS -- Corporate debt obligations are debt instruments issued by corporations with maturities exceeding 270 days. Such instruments may include putable corporate bonds and zero coupon bonds. CUSTODIAL RECEIPTS -- Custodial receipts are interests in separately traded interest and principal component parts of U.S. Treasury obligations that are issued by banks or brokerage firms and are created by depositing U.S. Treasury obligations into a special account at a custodian bank. The custodian holds the interest and principal payments for the benefit of the registered owners of the certificates or receipts. The custodian arranges for the issuance of the certificates or receipts evidencing ownership and maintains the register. Receipts 38 include Treasury Receipts ("TRs"), Treasury Investment Growth Receipts ("TIGRs"), and Certificates of Accrual on Treasury Securities ("CATS"). Receipts are sold as zero coupon securities which means that they are sold at a substantial discount and redeemed at face value at their maturity date without interim cash payments of interest or principal. This discount is accreted over the life of the security, and such accretion will constitute the income earned on the security for both accounting and tax purposes. Because of these features, such securities may be subject to greater interest rate volatility than interest paying investments. See "Zero Coupon Obligations." DERIVATIVES -- Derivatives are securities whose value is derived from an underlying contract, index or security, or any combination thereof. This includes: futures, swap agreements, and some mortgage-back securities (CMOs, REMICs and SMBs). See elsewhere in this "Description of Permitted Investments" for discussions of these various instruments, and see "Investment Policies and Strategies" for more information about any investment policies and limitations applicable to their use. DOLLAR ROLLS -- Dollar rolls are transactions in which securities are sold for delivery in the current month and the seller simultaneously contracts to repurchase substantially similar securities on a specified future date. Any difference between the sale price and the purchase price is netted against the interest income foregone on the securities sold to arrive at an implied borrowing rate. Alternatively, the sale and purchase transactions can be executed at the same price, with the Fund being paid a fee as consideration for entering into the commitment to purchase. Dollar rolls may be renewed prior to cash settlement and initially may involve only a firm commitment agreement by the Fund to buy a security. If the broker-dealer to whom the Fund sells the security becomes insolvent, the Fund's right to repurchase the security may be restricted. Other risks involved in entering into dollar rolls include the risk that the value of the security may change adversely over the term of the dollar roll and that the security the Fund is required to repurchase may be worth less than the security that the Fund originally held. To avoid any leveraging concerns, the Fund will place U.S. Government or other liquid, high grade assets in a segregated account in an amount sufficient to cover its repurchase obligation. EURODOLLAR AND YANKEE BANK OBLIGATIONS -- Eurodollar bank obligations are U.S. dollar-denominated certificates of deposit or time deposits issued outside the United States by foreign branches of U.S. banks or by foreign banks. Yankee bank obligations are U.S. dollar denominated obligations issued in the United States by foreign banks. FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS -- Futures contracts provide for the future sale by one party and purchase by another party of a specified amount of a specific security at a specified future time and at a specified price. An option on a futures contract gives the purchaser the right, in exchange for a premium, to assume a position in a futures contract at a specified exercise price during the term of the option. A Fund may use futures contracts and related options for bona fide hedging purposes, to offset changes in the value of securities held or expected to be acquired, to minimize fluctuations in foreign currencies, or to gain exposure to a particular market or instrument. A Fund will minimize the risk that it will be unable to close out a futures contract by only entering into 39 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. GUARANTEED INVESTMENT CONTRACTS ("GICs") -- GICs are contracts issued by U.S. insurance companies. Pursuant to such contracts, the Fund makes cash contributions to a deposit fund of the insurance company's general account. The insurance company then credits to the Fund on a monthly basis guaranteed interest at either a fixed, variable or floating rate. A GIC provides that this guaranteed interest will not be less than a certain minimum rate. A GIC is a general obligation of the issuing insurance company and not a separate account. The purchase price paid for a GIC becomes part of the general assets of the issuer, and the contract is paid at maturity from the general assets of the issuer. Generally, GICs are not assignable or transferable without the permission of the issuing insurance company. For this reason, an active secondary market in GICs does not currently exist and GICs are considered to be illiquid investments. 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. LOAN PARTICIPATIONS -- Loan participations are interests in loans to U.S. corporations which are administered by the lending bank or agent for a syndicate of lending banks, and sold by the lending bank or syndicate member ("intermediary bank"). In a loan participation, the borrower corporation will be deemed to be the issuer of the participation interest except to the extent the Fund derives its rights from the intermediary bank. Because the intermediary bank does not guarantee a loan participation, a loan participation is subject to the credit risks associated with the underlying corporate borrower. In the event of bankruptcy or insolvency of the corporate borrower, a loan participation may be subject to certain defenses that can be asserted by such borrower as a result of improper conduct by the intermediary bank. In addition, in the event the underlying corporate borrower fails to pay principal and interest when due, the Fund may be subject to delays, expenses and risks that are greater than those that would have been involved if the Fund had purchased a direct obligation of such borrower. 40 Under the terms of a Loan Participation, the Fund may be regarded as a creditor of the intermediary bank (rather than of the underlying corporate borrower), so that the Fund may also be subject to the risk that the intermediary bank may become insolvent. The secondary market for loan participations is limited and any such participation purchased by the Fund may be regarded as illiquid. MEDIUM TERM NOTES -- Medium term notes are periodically or continuously offered corporate or agency debt that differs from traditionally underwritten corporate bonds only in the process by which they are issued. MORTGAGE-BACKED SECURITIES -- Mortgage-backed securities are instruments that entitle the holder to a share of all interest and principal payments from mortgages underlying the security. The mortgages backing these securities include conventional thirty-year fixed rate mortgages, graduated payment mortgages, and adjustable rate mortgages. During periods of declining interest rates, prepayment of mortgages underlying mortgage-backed securities can be expected to accelerate. Prepayment of mortgages which underlie securities purchased at a premium often results in capital losses, while prepayment of mortgages purchased at a discount often results in capital gains. Because of these unpredictable prepayment characteristics, it is often not possible to predict accurately the average life or realized yield of a particular issue. GOVERNMENT PASS-THROUGH SECURITIES: These are securities that are issued or guaranteed by a U.S. Government agency representing an interest in a pool of mortgage loans. The primary issuers or guarantors of these mortgage-backed securities are the Government National Mortgage Association ("GNMA"), the Federal National Mortgage Association ("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC"). FNMA and FHLMC obligations are not backed by the full faith and credit of the U.S. Government as GNMA certificates are, but FNMA and FHLMC securities are supported by the instrumentalities' right to borrow from the U.S. Treasury. GNMA, FNMA and FHLMC each guarantees timely distributions of interest to certificate holders. GNMA and FNMA also each guarantees timely distributions of scheduled principal. FHLMC has in the past guaranteed only the ultimate collection of principal of the underlying mortgage loan; however, FHLMC now issues mortgage-backed securities (FHLMC Gold PCs) which also guarantee timely payment of monthly principal reductions. Government and private guarantees do not extend to the securities' value, which is likely to vary inversely with fluctuations in interest rates. PRIVATE PASS-THROUGH SECURITIES: These are mortgage-backed securities issued by a non-governmental entity, such as a trust. These securities include collateralized mortgage obligations ("CMOs") and real estate mortgage investment conduits ("REMICs") that are rated in one of the top two rating categories. While they are generally structured with one or more types of credit enhancement, private pass-through securities typically lack a guarantee by an entity having the credit status of a governmental agency or instrumentality. COLLATERALIZED MORTGAGE OBLIGATIONS: CMOs are debt obligations or multiclass pass-through certificates issued by agencies or instrumentalities of the U.S. Government or by private originators or investors in mortgage loans. In a CMO, series of bonds or certificates are usually issued in multiple classes. Principal and interest paid on the underlying mortgage assets may be allocated among the several classes of a series of a CMO in a variety of ways. Each class of a CMO, often referred to as a "tranche," is issued with a specific fixed or floating coupon rate and has a stated maturity 41 or final distribution date. Principal payments on the underlying mortgage assets may cause CMOs to be retired substantially earlier then their stated maturities or final distribution dates, resulting in a loss of all or part of any premium paid. REMICS: A REMIC is a CMO that qualifies for special tax treatment under the Internal Revenue Code and invests in certain mortgages principally secured by interests in real property. Investors may purchase beneficial interests in REMICs, which are known as "regular" interests, or "residual" interests. Guaranteed REMIC pass-through certificates ("REMIC Certificates") issued by FNMA or FHLMC represent beneficial ownership interests in a REMIC trust consisting principally of mortgage loans or FNMA, FHLMC or GNMA-guaranteed mortgage pass-through certificates. For FHLMC REMIC Certificates, FHLMC guarantees the timely payment of interest, and also guarantees the payment of principal as payments are required to be made on the underlying mortgage participation certificates. FNMA REMIC Certificates are issued and guaranteed as to timely distribution of principal and interest by FNMA. STRIPPED MORTGAGE-BACKED SECURITIES ("SMBS"): SMBs are usually structured with two classes that receive specified proportions of the monthly interest and principal payments from a pool of mortgage securities. One class may receive all of the interest payments and is thus termed an interest-only class ("IO"), while the other class may receive all of the principal payments and thus is termed the principal-only class ("PO"). The value of IOs tends to increase as rates rise and decrease as rates fall; the opposite is true of POs. SMBs are extremely sensitive to changes in interest rates because of the impact thereon of prepayment of principal on the underlying mortgage securities. The market for SMBs is not as fully developed as other markets; SMBs therefore may be illiquid. RISK FACTORS: Due to the possibility of prepayments of the underlying mortgage instruments, mortgage-backed securities generally do not have a known maturity. In the absence of a known maturity, market participants generally refer to an estimated average life. An average life estimate is a function of an assumption regarding anticipated prepayment patterns, based upon current interest rates, current conditions in the relevant housing markets and other factors. The assumption is necessarily subjective, and thus different market participants can produce different average life estimates with regard to the same security. There can be no assurance that estimated average life will be a security's actual average life. MUNICIPAL FORWARDS -- Municipal forwards are forward commitments for the purchase of tax-exempt bonds with a specified coupon to be delivered by an issuer at a future date, typically exceeding 45 days but normally less than one year after the commitment date. Municipal forwards are normally used as a refunding mechanism for bonds that may only be redeemed on a designated future date. A Fund will enter into municipal forwards when the price and yield of the underlying bonds are believed to be favorable when compared to current prices and yields. As with forward commitments, municipal forwards are subject to market fluctuations due to changes in market interest rates between the commitment date and the settlement date. Municipal forwards may be considered to be illiquid investments. To avoid any leveraging concerns, a Fund will maintain liquid, high grade securities in a segregated account at least equal to the purchase price of the municipal forward. MUNICIPAL LEASE OBLIGATIONS -- Municipal lease obligations are securities issued by state 42 and local governments and authorities to finance the acquisition of equipment and facilities. They may take the form of a lease, an installment purchase contract, a conditional sales contract, or a participation interest in any of the above. Depending upon the market for such securities, municipal lease obligations may be illiquid. MUNICIPAL SECURITIES -- Municipal securities consist of (i) debt obligations issued by or on behalf of public authorities to obtain funds to be used for various public facilities, for refunding outstanding obligations, for general operating expenses, and for lending such funds to other public institutions and facilities, and (ii) certain private activity and industrial development bonds issued by or on behalf of public authorities to obtain funds to provide for the construction, equipment, repair or improvement of privately operated facilities. General obligation bonds are backed by the taxing power of the issuing municipality. Revenue bonds are backed by the revenues of a project or facility (tolls from a bridge, for example). Certificates of participation represent an interest in an underlying obligation or commitment, such as an obligation issued in connection with a leasing arrangement. The payment of principal and interest on private activity and industrial development bonds generally is dependent solely on the ability of a facility's user to meet its financial obligations and the pledge, if any, of real and personal property as security for such payment. Municipal securities include both municipal notes and municipal bonds. Municipal notes include general obligation notes, tax anticipation notes, revenue anticipation notes, bond anticipation notes, certificates of indebtedness, demand notes and construction loan notes and participation interests in municipal notes. Municipal bonds include general obligation bonds, revenue or special obligation bonds, private activity and industrial development bonds and participation interests in municipal bonds. OBLIGATIONS OF SUPRANATIONAL ENTITIES -- Supranational entities are entities established through the joint participation of several governments, and include the Asian Development Bank, the Inter-American Development Bank, International Bank for Reconstruction and Development (World Bank), African Development Bank, European Economic Community, European Investment Bank and the Nordic Investment Bank. REPURCHASE AGREEMENTS -- Repurchase agreements are agreements by which a Fund obtains a security and simultaneously commits to return the security to the seller at an agreed upon price on an agreed upon date within a number of days from the date of purchase. The custodian will hold the security as collateral for the repurchase agreement. A Fund bears a risk of loss in the event the other party defaults on its obligations and the Fund is delayed or prevented from exercising its right to dispose of the collateral or if the Fund realizes a loss on the sale of the collateral. A Fund will enter into repurchase agreements only with financial institutions deemed to present minimal risk of bankruptcy during the term of the agreement based on established guidelines. Repurchase agreements are considered loans under the Investment Company Act of 1940. RESTRAINTS ON INVESTMENTS BY MONEY MARKET FUNDS -- Investments by a money market fund are subject to limitations imposed under regulations adopted by the Securities and Exchange Commission. Under these regulations, money market funds may only acquire obligations that present minimal credit risk and that are "eligible securities," which means they are (i) rated, at the time of investment, by at least two nationally recognized security rating 43 organizations (one if it is the only organization rating such obligation) in the highest rating category or, if unrated, determined to be of comparable quality (a "first tier security"), or (ii) rated according to the foregoing criteria in the second highest rating category or, if unrated, determined to be of comparable quality ("second tier security"). A security is not considered to be unrated if its issuer has outstanding obligations of comparable priority and security that have a short-term rating. In the case of taxable money market funds, investments in second tier securities are subject to the further constraints in that (i) no more than 5% of a Fund's assets may be invested in second tier securities and (ii) any investment in securities of any one such issuer is limited to the greater of 1% of the Fund's total assets or $1 million. A taxable money market fund may also hold more than 5% of its assets in first tier securities of a single issuer for three "business days" (that is, any day other than a Saturday, Sunday or customary business holiday). RESTRICTED SECURITIES -- Restricted securities are securities that may not be sold freely to the public absent registration under the Securities Act of 1933 or an exemption from registration. Rule 144A securities are securities that have not been registered under the Securities Act of 1933 but which may be traded between certain institutional investors including investment companies. The Trust's Board of Trustees is responsible for developing guidelines and procedures for determining the liquidity of restricted securities, and for monitoring the Advisor's implementation of the guidelines and procedures. SECURITIES LENDING -- In order to generate additional income, a Fund may lend securities which it owns pursuant to agreements requiring that the loan be continuously secured by collateral consisting of cash, securities of the U.S. Government or its agencies equal to at least 100% of the market value of the securities lent. A Fund continues to receive interest on the securities lent while simultaneously earning interest on the investment of cash collateral. Collateral is marked to market daily. There may be risks of delay in recovery of the securities or even loss of rights in the collateral should the borrower of the securities fail financially or become insolvent. SECURITIES OF FOREIGN ISSUERS -- There are certain risks connected with investing in foreign securities. These include risks of adverse political and economic developments (including possible governmental seizure or nationalization of assets), the possible imposition of exchange controls or other governmental restrictions, less uniformity in accounting and reporting requirements, the possibility that there will be less information on such securities and their issuers available to the public, the difficulty of obtaining or enforcing court judgments abroad, restrictions on foreign investments in other jurisdictions, difficulties in effecting repatriation of capital invested abroad, and difficulties in transaction settlements and the effect of delay on shareholder equity. Foreign securities may be subject to foreign taxes, and may be less marketable than comparable U.S. securities. The value of a Fund's investments denominated in foreign currencies will depend on the relative strengths of those currencies and the U.S. dollar, and a Fund may be affected favorably or unfavorably by changes in the exchange rates or exchange control regulations between foreign currencies and the U.S. dollar. Changes in foreign currency exchange rates also may affect the value of dividends and interest earned, gains and losses realized on the sale of securities and net investment income and gains, if any, to be distributed to shareholders by a Fund. STANDBY COMMITMENTS AND PUTS -- Securities subject to standby commitments or puts 44 permit the holder thereof to sell the securities at a fixed price prior to maturity. Securities subject to a standby commitment or put may be sold at any time at the current market price. However, unless the standby commitment or put was an integral part of the security as originally issued, it may not be marketable or assignable; therefore, the standby commitment or put would only have value to the Fund owning the security to which it relates. In certain cases, a premium may be paid for a standby commitment or put, which premium will have the effect of reducing the yield otherwise payable on the underlying security. The Fund will limit standby commitment or put transactions to institutions believed to present minimal credit risk. TIME DEPOSITS -- Time deposits are non-negotiable receipts issued by a bank in exchange for the deposit of funds. Like a certificate of deposit, it earns a specified rate of interest over a definite period of time; however, it cannot be traded in the secondary market. Time deposits are considered to be illiquid securities. U.S. GOVERNMENT AGENCIES -- Obligations issued or guaranteed by agencies of the U.S. Government, including, among others, the Federal Farm Credit Bank, the Federal Housing Administration and the Small Business Administration, and obligations issued or guaranteed by instrumentalities of the U.S. Government, including, among others, FHLMC, 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., GNMA Securities), others are supported by the right of the issuer to borrow from the Treasury (e.g., Federal Farm Credit Bank Securities), while still others are supported only by the credit of the instrumentality (e.g., FNMA Securities). 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") and Coupon Under Book Entry Safekeeping ("CUBES"). VARIABLE AND FLOATING RATE INSTRUMENTS -- Certain obligations may carry variable or floating rates of interest, and may involve a conditional or unconditional demand feature. Such instruments bear interest at rates which are not fixed, but which vary with changes in specified market rates or indices. The interest rates on these securities may be reset daily, weekly, quarterly or some other reset period, and may have a floor or ceiling on interest rate changes. There is a risk that the current interest rate on such obligations may not accurately reflect existing market interest rates. A demand instrument with a demand notice exceeding seven days may be considered illiquid if there is no secondary market for such security. 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 segregate liquid high grade debt securities or cash in an amount at least equal 45 to these commitments. The interest rate realized on these securities is fixed as of the purchase date and no interest accrues to the Fund before settlement. These securities are subject to market fluctuation due to changes in market interest rates and it is possible that the market value at the time of settlement could be higher or lower than the purchase price if the general level of interest rates has changed. Although a Fund generally purchases securities on a when-issued or forward commitment basis with the intention of actually acquiring securities for its portfolio, a Fund may dispose of a when-issued security or forward commitment prior to settlement if it deems appropriate. ZERO COUPON OBLIGATIONS -- Zero coupon obligations are debt securities that do not bear any interest, but instead are issued at a deep discount from par. The value of a zero coupon obligation increases over time to reflect the interest accreted. Such obligations will not result in the payment of interest until maturity, and will have greater price volatility than similar securities that are issued at par and pay interest periodically. (THIS PAGE INTENTIONALLY LEFT BLANK) A-1 APPENDIX I. BOND RATINGS CORPORATE AND MUNICIPAL BONDS The following are descriptions of Standard & Poor's Corporation ("S&P") and Moody's Investors Service, Inc. ("Moody's") corporate and municipal 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. 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. MUNICIPAL NOTE RATINGS Moody's highest rating for state and municipal and other short-term notes is MIG-1 and VMIG-1. Short-term municipal securities rated MIG-1 or VMIG-1 are of the best quality. They have strong protection from established cash flows of funds for their servicing or from established and broad-based access to the market for refinancing or both. Short-term municipal securities rated MIG-2 and VMIG-2 are of high quality. Margins of protection are ample although not so large as in the preceding group. A-2 An S&P note rating reflects the liquidity concerns and market access risks unique to notes. Notes due in 3 years or less will likely receive a note rating. Notes maturing beyond 3 years will most likely receive a long-term debt rating. The following criteria will be used in making that assessment. - - Amortization schedule (the larger the final maturity relative to other maturities the more likely it will be treated as a note). - - Source of Payment (the more dependent the issue is on the market for its refinancing, the more likely it will be treated as a note). Note rating symbols are as follows: SP-1. Very strong or strong capacity to pay principal and interest. Those issues determined to possess overwhelming safety characteristics will be given a plus (+) designation. SP-2. Satisfactory capacity to pay principal and interest. 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 liquidit y 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) (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 SECURITIES, INC. -- FLORIDA 200 S. Orange Avenue Tower 10 Orlando, FL 32801 (407) 237-4380 1-800-432-4760, ext. 4380 501 E. Las Olas Boulevard Ft. Lauderdale, FL 33301 (954) 765-7422 Boca Raton Office 800 S. Federal Highway Boca Raton, FL 33435 (561) 243-6707 Coral Ridge Office 2626 E. Oakland Park Blvd. Ft. Lauderdale, FL 33306 (954) 765-2155 Delray Beach Office 302 E. Atlantic Avenue Delray Beach, FL 33483 (561) 243-6750 5200 W. Atlantic Ave. Delray Beach, FL 33484 (561) 243-6743 Hollywood Office 2001 Hollywood Blvd. Hollywood, FL 33021 (954) 765-7062 Palm Beach Office 303 Royal Poinciana Plaza Palm Beach, FL 33480 (561) 835-2855 PGA Office 4500 PGA Blvd. Palm Beach Gardens, FL 33410 (561) 835-2802 8200 W. Broward Blvd. Plantation, FL 33324 (954) 765-7661 777 Brickell Avenue Miami, FL 33131 (305) 579-7450 401 E. Jackson Street Tampa, FL 33602 (813) 224-2517 700 Virginia Avenue Ft. Pierce, FL 34982 (407) 467-6459 Osceola Office 111 East Osceola Street Stuart, FL 34994 (407) 223-6012 Belnova Office 120 S. Ridgewood Avenue Daytona Beach, FL 32114 (904) 258-2390 Bill France 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 200 W. Forsyth Street Jacksonville, FL 32202 (904) 632-2534 1612 E. Cape Coral Parkway Cape Coral, FL 33904 (941) 540-6128 Pelican Bay Office 801 Laurel Oak Drive Naples, FL 33963 (941) 598-0515 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 5899 Whitfield Avenue Sarasota, FL 34243 (941) 359-7415 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 210 Security Square Winter Haven, FL 33880 (941) 297-6855 One East Jefferson Street Brooksville, FL 34601 (352) 754-5798 Crystal River Office 1502 SE Highway 19 Crystal River, FL 34428 (352) 795-8214 5435 Gall Blvd. Zephyrhills, FL 33541 (813) 780-4154 6335 U.S. Highway 19 New Port Richey, FL 34652 (813) 861-4375 Seven Hills Office 1170 Mariner Blvd. Spring Hill, FL 34609 (352) 754-5779 203 E. Silver Springs Blvd. Ocala, FL 34470 (352) 368-6477 3522 Thomasville Road Tallahassee, FL 32308 (904) 298-5064 511 W. 23rd Street Panama City, FL 32405 (904) 872-6086 11 Hoffman Drive Gulf Breeze, FL 32561 (904) 435-1264 GEORGIA: SUNTRUST SECURITIES, INC. -- GEORGIA 55 Park Place First Floor Atlanta, GA 30303 (404) 588-8108 1-800-600-6350 101 N. Lumpkin Street Athens, GA 30601 (706) 354-5346 427 Oak Street Gainsville, GA 30501 (770) 503-8674 100 East Second Avenue Rome, GA 30161 (706) 236-4325 2815 Wrightsboro Road Augusta, GA 30909 (706) 821-2015 606 Cherry Street Macon, GA 31201 (912) 755-5175 1246 First Avenue Columbus, GA 31901 (706) 649-3631 33 Bull Street, Suite 208 Savannah, GA 31401 (912) 944-1165 410 W. Broad Avenue Albany, GA 31701 (912) 430-5468 Coffee County Branch 201 S. Peterson Avenue Douglas, GA 31533 (912) 383-5242 510 Gloucester Street Brunswick, GA 31520 (912) 262-5322 701 Sea Island Road St. Simons Island, GA 31522 (912) 638-3620 (912) 262-2227 TENNESSEE: SUNTRUST BANK, SECURITIES, INC. -- TENNESSEE 424 Church Street 4th Floor Nashville, TN 37219 (615) 748-4477 1-800-932-2652 736 Market Street Chattanooga, TN 37402 (423) 757-3005 TN WATS 1-800-572-7306, Ext. 3005 Bordering States WATS 1-800-874-1083, Ext. 3005 Out of State WATS 1-800-251-6266, Ext. 3005 9950 Kingston Pike Knoxville, TN 37922 (423) 544-2181 1-800-456-1177 207 Mockingbird Lane Johnson City, TN 37604 (423) 461-1005 25 Public Square Lawrenceburg, TN 38464 (615) 762-3511 ALABAMA: SUNTRUST SECURITIES, INC. -- ALABAMA 201 South Court Street Florence, AL 35630 (205) 767-8537 STI CLASSIC FUNDS ORGANIZATIONAL OVERVIEW * INVESTMENT ADVISORS Trusco Capital Management, Inc. 50 Hurt Plaza Suite 1400 Atlanta, GA 30303 STI Capital Management, N.A. P.O. Box 3808 Orlando, FL 32802 SunTrust Bank, Chattanooga, N.A. 736 Market Street Chattanooga, TN 37402 SunTrust Bank, Atlanta 25 Park Place Atlanta, GA 30303 * DISTRIBUTOR SEI Financial Services Company 680 E. Swedesford Road Wayne, PA 19087 * ADMINISTRATOR SEI Fund Resources 680 E. Swedesford Road Wayne, PA 19087 * 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 * 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
100487/10-95 DISTRIBUTOR SEI Financial Services Company -- - - - - - - - - - - - - - PROSPECTUS INVESTOR SHARES INVESTMENT GRADE BOND FUND INVESTMENT GRADE TAX-EXEMPT BOND FUND U.S. GOVERNMENT SECURITIES FUND LIMITED-TERM FEDERAL MORTGAGE SECURITIES FUND SHORT-TERM BOND FUND SHORT-TERM U.S. TREASURY SECURITIES FUND FLORIDA TAX-EXEMPT BOND FUND GEORGIA TAX-EXEMPT BOND FUND TENNESSEE TAX-EXEMPT BOND FUND PRIME QUALITY MONEY MARKET FUND U.S. GOVERNMENT SECURITIES MONEY MARKET FUND TAX-EXEMPT MONEY MARKET FUND INVESTMENT ADVISORS TRUSCO CAPITAL MANAGEMENT, INC. STI CAPITAL MANAGEMENT, N.A. SUNTRUST BANK, CHATTANOOGA, N.A. SUNTRUST BANK, ATLANTA OCTOBER 1, 1996 [LOGO] STI CLASSIC FUNDS FLEX SHARES INVESTMENT GRADE BOND FUND INVESTMENT GRADE TAX-EXEMPT BOND FUND U.S. GOVERNMENT SECURITIES FUND LIMITED-TERM FEDERAL MORTGAGE SECURITIES FUND SHORT-TERM BOND FUND SHORT-TERM U.S. TREASURY SECURITIES FUND FLORIDA TAX-EXEMPT BOND FUND GEORGIA TAX-EXEMPT BOND FUND TENNESSEE TAX-EXEMPT BOND FUND CAPITAL GROWTH FUND VALUE INCOME STOCK FUND MID-CAP EQUITY FUND BALANCED FUND SUNBELT EQUITY FUND INTERNATIONAL EQUITY INDEX FUND INTERNATIONAL EQUITY FUND INVESTMENT ADVISORS TO THE FUNDS: TRUSCO CAPITAL MANAGEMENT, INC. STI CAPITAL MANAGEMENT, N.A. SUNTRUST BANK, CHATTANOOGA SUNTRUST BANK, ATLANTA (THE "ADVISORS") The STI Classic Funds (the "Trust") is a mutual fund that offers shares in a number of separate investment portfolios (each a "Fund" and, collectively, the "Funds"). This Prospectus sets forth concisely the information about the Flex Shares of the above-referenced Funds. Investors are advised to read this Prospectus and retain it for future reference. A Statement of Additional Information relating to the Funds dated the same date as this Prospectus has been filed with the Securities and Exchange Commission and is available without charge through the Distributor, SEI Financial Services Company, 680 East Swedesford Road, Wayne, Pennsylvania 19087-1658 or by calling 1-800-874-4770. 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 1, 1996 2 Throughout this Prospectus, the Investment Grade Bond Fund, Investment Grade Tax-Exempt Bond Fund, Short-Term U.S. Treasury Securities Fund, Short-Term Bond Fund, U.S. Government Securities Fund and Limited-Term Federal Mortgage Securities Fund, which invest primarily in bonds and other fixed income instruments, may be referred to as the "Bond Funds," and the Florida Tax-Exempt Bond Fund, Georgia Tax-Exempt Bond Fund and Tennessee Tax-Exempt Bond Fund, which invest primarily in tax-exempt bonds and other fixed income instruments, may be referred to as the "State Tax-Exempt Bond Funds" and the Capital Growth Fund, Value Income Stock Fund, Mid-Cap Equity Fund, Sunbelt Equity Fund. International Equity Index Fund and International Equity Fund, which invest primarily in equity securities, may be referred to as the "Equity Funds." TABLE OF CONTENTS Expense Summary........................................................... 3 Financial Highlights...................................................... 7 Performance Information for Predecessor Collective Funds.................. 9 The Trust................................................................. 9 Funds and Investment Objectives........................................... 10 Investment Policies and Strategies........................................ 11 General Investment Policies and Strategies................................ 24 Investment Risks.......................................................... 25 Investment Limitations.................................................... 27 Performance Information................................................... 28 Fundlink.................................................................. 28 Purchase of Fund Shares................................................... 29 Redemption of Fund Shares................................................. 31 Exchanges................................................................. 32 Dividends and Distributions............................................... 32 Tax Information........................................................... 33 STI Classic Funds Information............................................. 35 The Trust................................................................. 35 Board of Trustees......................................................... 35 Investment Advisors....................................................... 35 Portfolio Managers........................................................ 37 Banking Laws.............................................................. 38 Distribution.............................................................. 39 Administration............................................................ 40 Transfer Agent and Dividend Disbursing Agent.............................. 40 Custodian................................................................. 40 Legal Counsel............................................................. 40 Independent Public Accountants............................................ 40 Other Information......................................................... 40 Voting Rights............................................................. 40 Reporting................................................................. 41 Shareholder Inquiries..................................................... 41 Description of Permitted Investments...................................... 41 Appendix.................................................................. A-1
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE TRUST'S STATEMENT OF ADDITIONAL INFORMATION 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. 3 EXPENSE SUMMARY FLEX SHARES Bond Funds The purpose of the following tables is to help you understand the various costs and expenses that a shareholder will bear, directly or indirectly, in connection with an investment in the Flex Shares of each Fund.
SHAREHOLDER TRANSACTION EXPENSES - ------------------------------------------------------------------------------------ BOND FUNDS - ------------------------------------------------------------------------------------ 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)
LIMITED-TERM INVESTMENT FEDERAL SHORT-TERM INVESTMENT GRADE TAX- MORTGAGE SHORT-TERM U.S. TREASURY GRADE BOND EXEMPT BOND U.S. GOVERNMENT SECURITIES BOND SECURITIES FUND FUND SECURITIES FUND FUND FUND FUND - -------------------------------------------------------------------------------------------------------------------------------- Management Fees (after fee waivers & reimbursements)(1)............. .63% .61% .16% .43% .46% .22% 12b-1 Distribution & Service Fees (after fee waivers & reimbursements)(2)............... .39% .56% .28% .02% .00% .03% Other Fund Expenses (after fee waivers & reimbursements)(3)..... .62% .46% 1.22% .80% .74% .80% - -------------------------------------------------------------------------------------------------------------------------------- Total Fund Operating Expenses (after fee waivers & reimbursements)(4)............... 1.64% 1.63% 1.66% 1.25% 1.20% 1.05% - -------------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------------
(1) Each Advisor is waiving, on a voluntary basis, a portion of its fee from each Fund. Each Advisor reserves the right to terminate its waiver at any time in its sole discretion. Absent such waivers and reimbursements, Advisory Fees for the Funds would be as follows: Investment Grade Bond Fund -- .74%, Investment Grade Tax-Exempt Bond Fund -- .74%, U.S. Government Securities Fund -- .74%, Limited-Term Federal Mortgage Securities Fund -- .65%, Short-Term Bond Fund -- .65% and Short-Term U.S. Treasury Securities Fund -- .65%. See "Investment Advisors." (2) The Distributor is reimbursing, on a voluntary basis, a portion of its expenses from each Fund. The Distributor reserves the right to terminate its reimbursement at any time in its sole discretion. Absent such reimbursements, 12b-1 Distribution & Service Fees would be as follows: Investment Grade Bond Fund -- 1.00%, Investment Grade Tax-Exempt Bond Fund -- 1.00%, U.S. Government Securities Fund -- 1.00%, Limited-Term Federal Mortgage Securities Fund -- 1.00 %, Short-Term Bond Fund -- 1.00% and Short- Term U.S. Treasury Securities Fund -- 1.00%. See "Distribution." (3) Absent waivers and reimbursements, Other Fund Expenses would be as follows: Investment Grade Bond Fund -- .75%, Investment Grade Tax-Exempt Bond Fund -- .51%, Limited-Term Federal Mortgage Securities Fund -- 1.94%, Short-Term Bond Fund -- 2.41% and Short-Term U.S. Treasury Securities Fund -- 1.32%. (4) Absent the voluntary waivers described above, Total Fund Operating Expenses would be as follows: Investment Grade Bond Fund -- 2.49%, Investment Grade Tax-Exempt Bond Fund -- 2.25%, U.S. Government Securities Fund -- 2.96%, Limited-Term Federal Mortgage Securities Fund -- 3.59%, Short-Term Bond Fund -- 4.06% and Short-Term U.S. Treasury Securities Fund -- 2.97%. 4 EXPENSE SUMMARY FLEX SHARES State Tax-Exempt Bond Funds
SHAREHOLDER TRANSACTION EXPENSES - ---------------------------------------------------------------- STATE TAX-EXEMPT BOND FUNDS - ---------------------------------------------------------------- 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)
FLORIDA GEORGIA TENNESSEE TAX-EXEMPT TAX-EXEMPT TAX-EXEMPT BOND FUND BOND FUND BOND FUND - ----------------------------------------------------------------------------------------------------- Management Fees (after fee waivers & reimbursements)(1).............................. .38% .37% .00% 12b-1 Distribution & Service Fees (after fee waivers & reimbursements)(2).................... .16% .30% .54% Other Expenses (after fee waivers & reimbursements)(3).............................. .81% .68% .81% - ----------------------------------------------------------------------------------------------------- Total Fund Operating Expenses (after fee waivers & reimbursements)(4)(5)........................... 1.35% 1.35% 1.35% - ----------------------------------------------------------------------------------------------------- - -----------------------------------------------------------------------------------------------------
(1) Each Advisor is waiving, on a voluntary basis, a portion of its fee from each Fund. Each Advisor reserves the right to terminate its waiver at any time in its sole discretion. Absent such waivers and reimbursements, Advisory Fees for the Funds would be as follows: Florida Tax-Exempt Bond Fund -- .65%, Georgia Tax-Exempt Bond Fund -- .65% and Tennessee Tax-Exempt Bond Fund -- .65%. See "Investment Advisors." (2) The Distributor is reimbursing, on a voluntary basis, a portion of its expenses from each Fund. The Distributor reserves the right to terminate its reimbursement at any time in its sole discretion. Absent such reimbursements, 12b-1 Distribution & Service Fees would be as follows: Florida Tax-Exempt Bond Fund -- 1.00%, Georgia Tax-Exempt Bond Fund -- 1.00% and Tennessee Tax-Exempt Bond Fund -- 1.00%. See "Distribution." (3) Absent waivers and reimbursements, Other Fund Expenses would be as follows: Florida Tax-Exempt Bond Fund -- .89%, Georgia Tax-Exempt Bond Fund -- .70% and Tennessee Tax-Exempt Bond Fund -- 1.09%. (4) Absent the voluntary waivers described above, Total Fund Operating Expenses would be as follows: Florida Tax-Exempt Bond Fund -- 2.54%, Georgia Tax-Exempt Bond Fund -- 2.35% and Tennessee Tax-Exempt Bond Fund -- 2.74%. (5) Total Fund Operating Expenses for the Tennessee Tax-Exempt Bond Fund have been restated to reflect current fees. 5 EXPENSE SUMMARY FLEX SHARES Equity and Balanced Funds
SHAREHOLDER TRANSACTION EXPENSES - ------------------------------------------------------------- EQUITY AND BALANCED FUNDS - ------------------------------------------------------------- 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)
VALUE CAPITAL INCOME MID-CAP SUNBELT INTERNATIONAL INTERNATIONAL GROWTH STOCK EQUITY BALANCED EQUITY EQUITY INDEX EQUITY FUND FUND FUND FUND FUND FUND FUND - ------------------------------------------------------------------------------------------------------------------------------ Management Fees (after fee waivers & reimbursements)(1).................... 1.03% .80% 1.00% .79% 1.02% .76% 1.06% 12b-1 Distribution & Service Fees (after voluntary reductions & reimbursements)(2).................... .76% .86% .46% .43% .16% .10% .00% Other Fund Expenses (after fee waivers & reimbursements)(3).................... .48% .34% .74% .79% 1.02% 1.24% 1.45% - ------------------------------------------------------------------------------------------------------------------------------ Total Fund Operating Expenses (after fee waivers & reimbursements)(4)(5)....... 2.27% 2.00% 2.20% 2.01% 2.20% 2.10% 2.51% - ------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------
(1) Each Advisor is waiving, on a voluntary basis, a portion of its fee from each Fund. Each Advisor reserves the right to terminate its waiver at any time in its sole discretion. Absent such waivers and reimbursements, Advisory Fees for the Funds would be as follows: Capital Growth Fund -- 1.15%, Value Income Stock Fund -- .80%, Mid-Cap Equity Fund -- 1.15%, Balanced Fund --.95%, Sunbelt Equity Fund -- 1.15%, International Equity Index Fund -- .90% and International Equity Fund -- 1.25%. See "Investment Advisors." (2) The Distributor is reimbursing, on a voluntary basis, a portion of its expenses from each Fund. The Distributor reserves the right to terminate its reimbursement at any time in its sole discretion. Absent such reimbursements, 12b-1 Distribution & Service Fees would be as follows: Capital Growth Fund -- 1.00%, Value Income Stock Fund -- 1.00%, Mid-Cap Equity Fund -- 1.00%, Balanced Fund -- 1.00%, Sunbelt Equity Fund -- 1.00%, International Equity Index Fund -- 1.00% and International Equity Fund -- 1.00%. See "Distribution." (3) Absent waivers and reimbursements, Other Fund Expenses would be as follows: Capital Growth Fund -- .53%, Value Income Stock Fund -- .35%, Mid-Cap Equity Fund -- .89%, Balanced Fund -- 1.02%, Sunbelt Equity Fund -- 1.47%, International Equity Index Fund -- 2.24% and International Equity Fund -- 3.61%. (4) Absent the voluntary waivers described above, Total Fund Operating Expenses would be as follows: Capital Growth Fund -- 2.68%, Value Income Stock Fund -- 2.15%, Mid-Cap Equity Fund -- 3.04%, Balanced Fund -- 2.97%, Sunbelt Equity Fund -- 3.62%, International Equity Index Fund -- 4.14% and International Equity Fund -- 5.86%. (5) Total Operating Expenses for the Balanced Fund have been restated to reflect current fees. 6
ONE THREE FIVE TEN EXAMPLES YEAR YEARS YEARS YEARS - -------------------------------------------------------------------------------------------------------------- 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. INVESTMENT GRADE BOND FUND................................................. $ 37 $ 52 $ 89 $ 194 INVESTMENT GRADE TAX-EXEMPT BOND FUND...................................... $ 37 $ 51 $ 89 $ 193 U.S. GOVERNMENT SECURITIES FUND............................................ $ 37 $ 52 $ 90 $ 197 LIMITED-TERM FEDERAL MORTGAGE SECURITIES FUND.............................. $ 33 $ 40 $ 69 $ 151 SHORT-TERM BOND FUND....................................................... $ 32 $ 38 $ 66 $ 145 SHORT-TERM U.S. TREASURY SECURITIES FUND................................... $ 31 $ 34 $ 58 $ 128 FLORIDA TAX-EXEMPT BOND FUND............................................... $ 34 $ 43 $ 74 $ 162 GEORGIA TAX-EXEMPT BOND FUND............................................... $ 34 $ 43 $ 74 $ 162 TENNESSEE TAX-EXEMPT BOND FUND............................................. $ 34 $ 43 $ 74 $ 162 CAPITAL GROWTH FUND........................................................ $ 43 $ 71 $ 122 $ 261 VALUE INCOME STOCK FUND.................................................... $ 40 $ 63 $ 108 $ 233 MID-CAP EQUITY FUND........................................................ $ 42 $ 69 $ 118 $ 253 BALANCED FUND FUND......................................................... $ 40 $ 63 $ 108 $ 234 SUNBELT EQUITY FUND........................................................ $ 42 $ 69 $ 118 $ 253 INTERNATIONAL EQUITY INDEX FUND............................................ $ 41 $ 66 $ 113 $ 243 INTERNATIONAL EQUITY FUND.................................................. $ 45 $ 78 $ 134 $ 285 - -------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------
THE EXAMPLE IS BASED UPON THE TOTAL OPERATING EXPENSES OF THE FUNDS AND SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. A person that purchases shares through an account with a financial institution may be charged separate fees by the financial institution. 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 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. 7 FINANCIAL HIGHLIGHTS The following information has been audited by Arthur Andersen LLP, independent public accountants to the Trust, whose report thereon was unqualified. This information should be read in conjunction with the Trust's financial statements and notes thereto, which are included in the Trust's Statement of Additional Information and which appear, along with the report of Arthur Andersen LLP, in the Trust's 1996 Annual Report to Shareholders. Additional performance information regarding each Fund is contained in the Trust's Annual Report to Shareholders and is available without charge by calling 1-800-874-4770. For a Flex Share Outstanding Throughout the Period
NET ASSET NET DISTRIBUTIONS VALUE INVESTMENT NET REALIZED AND FROM NET DISTRIBUTIONS NET ASSET BEGINNING INCOME UNREALIZED GAINS INVESTMENT FROM REALIZED VALUE END TOTAL OF PERIOD (LOSS) ON INVESTMENTS INCOME CAPITAL GAINS OF PERIOD RETURN --------- ---------- ----------------- ------------- ------------- ---------- --------- ------------------------------ INVESTMENT GRADE BOND FUND ------------------------------ FLEX SHARES 1996 (1)............... $10.33 $ 0.52 $ (0.26) $ (0.52) -- $ 10.07 2.50%* ------------------------------------------- INVESTMENT GRADE TAX-EXEMPT BOND FUND ------------------------------------------- FLEX SHARES 1996 (2)............... $11.30 $ 0.37 $ 0.18 $ (0.37) $ (0.37) $ 11.11 4.91%* ---------------------------------- U.S. GOVERNMENT SECURITIES FUND ---------------------------------- FLEX SHARES 1996 (1)............... $10.31 $ 0.52 $ (0.37) $ (0.52) $ (0.03) $ 9.91 1.42%* ------------------------------------------------- LIMITED-TERM FEDERAL MORTGAGE SECURITIES FUND ------------------------------------------------- FLEX SHARES 1996 (1)............... $10.14 $ 0.55 $ (0.15) $ (0.55) -- $ 9.99 4.10%* ----------------------- SHORT-TERM BOND FUND ----------------------- FLEX SHARES 1996 (3)............... $10.02 $ 0.47 $ (0.12) $ (0.47) $ (0.02) $ 9.88 3.73%* ------------------------------------------ SHORT-TERM U.S. TREASURY SECURITIES FUND ------------------------------------------ FLEX SHARES 1996 (4)............... $ 9.96 $ 0.48 $ (0.14) $ (0.48) -- $ 9.82 3.72%* -------------------------------- FLORIDA TAX-EXEMPT BOND FUND -------------------------------- FLEX SHARES 1996 (2)............... $10.19 $ 0.39 $ (0.06) $ (0.39) $ (0.05) $ 10.08 3.27%* --------------------------------- GEORGIA TAX-EXEMPT BOND FUND --------------------------------- FLEX SHARES 1996 (5)............... $ 9.72 $ 0.36 $ (0.14) $ (0.36) $ (0.02) $ 9.56 2.25%* ----------------------------------- TENNESSEE TAX-EXEMPT BOND FUND ----------------------------------- FLEX SHARES 1996 (6)............... $ 9.59 $ 0.37 $ (0.18) $ (0.37) -- $ 9.41 1.98%* RATIO OF NET INVESTMENT INCOME RATIO OF EXPENSES (LOSS) TO AVERAGE NET ASSETS RATIO OF RATIO OF NET TO AVERAGE NET NET ASSETS END OF EXPENSES INVESTMENT INCOME ASSETS (EXCLUDING (EXCLUDING PORTFOLIO PERIOD TO AVERAGE (LOSS) TO AVERAGE WAIVERS AND WAIVERS AND TURNOVER (000) NET ASSETS NET ASSETS REIMBURSEMENTS) REIMBURSEMENTS) RATE ----------- ---------- ----------------- ----------------- ----------------- ---------- ------------------------------ INVESTMENT GRADE BOND FUND ------------------------------ FLEX SHARES 1996 (1)............... $ 4,621 1.64%* 4.84%* 2.49%* 3.99%* 184.33% ------------------------------------------- INVESTMENT GRADE TAX-EXEMPT BOND FUND ------------------------------------------- FLEX SHARES 1996 (2)............... $ 5,536 1.63%* 3.12%* 2.25%* 2.50%* 513.90% ---------------------------------- U.S. GOVERNMENT SECURITIES FUND ---------------------------------- FLEX SHARES 1996 (1)............... $ 2,826 1.66%* 5.18%* 2.86%* 3.98%* 83.38% ------------------------------------------------- LIMITED-TERM FEDERAL MORTGAGE SECURITIES FUND ------------------------------------------------- FLEX SHARES 1996 (1)............... $ 1,349 1.25%* 5.38%* 3.59%* 3.04%* 83.01% ----------------------- SHORT-TERM BOND FUND ----------------------- FLEX SHARES 1996 (3)............... $ 966 1.20%* 4.77%* 4.06%* 1.91%* 162.62% ------------------------------------------ SHORT-TERM U.S. TREASURY SECURITIES FUND ------------------------------------------ FLEX SHARES 1996 (4)............... $ 2,423 1.05%* 5.03%* 2.97%* 3.11%* 94.00% -------------------------------- FLORIDA TAX-EXEMPT BOND FUND -------------------------------- FLEX SHARES 1996 (2)............... $ 2,692 1.35%* 3.79%* 2.54%* 2.60%* 62.68% --------------------------------- GEORGIA TAX-EXEMPT BOND FUND --------------------------------- FLEX SHARES 1996 (5)............... $ 4,207 1.35%* 3.66%* 2.35%* 2.66%* 60.02% ----------------------------------- TENNESSEE TAX-EXEMPT BOND FUND ----------------------------------- FLEX SHARES 1996 (6)............... $ 2,017 1.34%* 3.80%* 2.74%* 2.40%* 41.00%
8 FINANCIAL HIGHLIGHTS CONTINUED
NET ASSET NET DISTRIBUTIONS VALUE INVESTMENT NET REALIZED AND FROM NET DISTRIBUTIONS NET ASSET BEGINNING INCOME UNREALIZED GAINS INVESTMENT FROM REALIZED VALUE END TOTAL OF PERIOD (LOSS) ON INVESTMENTS INCOME CAPITAL GAINS OF PERIOD RETURN --------- ---------- ----------------- ------------- ------------- ---------- --------- ---------------------- CAPITAL GROWTH FUND ---------------------- FLEX SHARES 1996 (2)............... $12.20 $ 0.02 $ 3.26 $ (0.05) $ (0.59) $ 14.84 27.48%* -------------------------- VALUE INCOME STOCK FUND -------------------------- FLEX SHARES 1996 (2)............... $11.59 $ 0.26 $ 2.65 $ (0.26) $ (1.16) $ 13.08 26.52%* ---------------------- MID-CAP EQUITY FUND ---------------------- FLEX SHARES 1996 (6)............... $11.13 -- $ 2.45 $ (0.02) $ (0.87) $ 12.69 23.00%* ---------------- BALANCED FUND ---------------- FLEX SHARES 1996 (7)............... $10.36 $ 0.24 $ 1.29 $ (0.25) $ (0.11) $ 11.53 15.58%* --------------------- SUNBELT EQUITY FUND --------------------- FLEX SHARES 1996 (6)............... $10.20 $ (0.07) $ 4.04 -- $ (0.20) $ 13.97 39.86%* -------------------------------- INTERNATIONAL EQUITY INDEX FUND -------------------------------- FLEX SHARES 1996 (8)............... $10.24 -- $ 0.82 $ (0.10) $ (0.09) $ 10.87 8.32%+* -------------------------- INTERNATIONAL EQUITY FUND -------------------------- FLEX SHARES 1996 (9)............... $10.44 $ 0.02 $ 0.91 -- -- $ 11.37 8.91%+ RATIO OF NET INVESTMENT INCOME RATIO OF EXPENSES (LOSS) TO AVERAGE NET ASSETS RATIO OF RATIO OF NET TO AVERAGE NET NET ASSETS END OF EXPENSES INVESTMENT INCOME ASSETS (EXCLUDING (EXCLUDING PORTFOLIO PERIOD TO AVERAGE (LOSS) TO AVERAGE WAIVERS AND WAIVERS AND TURNOVER (000) NET ASSETS NET ASSETS REIMBURSEMENTS) REIMBURSEMENTS) RATE ----------- ---------- ----------------- ----------------- ----------------- ---------- ---------------------- CAPITAL GROWTH FUND ---------------------- FLEX SHARES 1996 (2)............... $ 10,969 2.27%* (0.29%)* 2.68%* (0.70%)* 156.46% -------------------------- VALUE INCOME STOCK FUND -------------------------- FLEX SHARES 1996 (2)............... $ 26,298 2.00%* 1.72%* 2.15%* 1.57%* 133.99% ---------------------- MID-CAP EQUITY FUND ---------------------- FLEX SHARES 1996 (6)............... $ 5,029 2.20%* (0.37%)* 3.04%* (1.21%)* 115.62% ---------------- BALANCED FUND ---------------- FLEX SHARES 1996 (7)............... $ 3,131 2.00%* 1.85%* 2.97%* 0.88%* 154.63% --------------------- SUNBELT EQUITY FUND --------------------- FLEX SHARES 1996 (6)............... $ 2,705 2.20%* (1.43%)* 3.62%* (2.85%)* 106.27% -------------------------------- INTERNATIONAL EQUITY INDEX FUND -------------------------------- FLEX SHARES 1996 (8)............... $ 917 2.10%* (0.24%)* 4.14%* (2.28%)* 30.46% -------------------------- INTERNATIONAL EQUITY FUND -------------------------- FLEX SHARES 1996 (9)............... $ 953 2.51%* 1.08%* 5.86%* (2.27%)* 113.34%
* Annualized. + Cumulative since commencement of operations. (1) Commenced operations on June 7, 1995. (2) Commenced operations on June 1, 1995. (3) Commenced operations on June 20, 1995. (4) Commenced operations on June 22, 1995. (5) Commenced operations on June 6, 1995. (6) Commenced operations on June 5, 1995. (7) Commenced operations on June 14, 1995. (8) Commenced operations on June 8, 1995. (9) Commenced operations on January 2, 1996. 9 PERFORMANCE INFORMATION FOR PREDECESSOR COLLECTIVE FUNDS The International Equity, Value Income Stock Fund and Sunbelt Equity Fund are each the successor to collective investment funds previously managed by STI Capital Management, Inc. and Trusco Capital Management, Inc. A substantial portion of the assets of those collective investment funds was transferred to the Funds in connection with each Fund's commencement of operations. Set forth below is certain performance data for the predecessor collective investment funds, which is deemed relevant because the collective investment funds were managed using virtually the same investment objectives, policies and restrictions as those used by each respective Fund. The performance data, however, is not necessarily indicative of the future performance of each Fund. Further, the predecessor collective funds were not subject to certain investment limitations imposed on mutual funds which, if they had been imposed, may have adversely affected a collective fund's performance. The predecessor collective funds did not incur expenses that correspond to the advisory, administrative, and other fees to which each Fund is subject. Accordingly, the following performance information has been adjusted by applying the total expense ratios for the corresponding Fund, as disclosed in the Prospectus at the time the Fund commenced operations, which reduced the actual performance of the collective fund. The average annual total returns (adjusted to reflect current Fund expenses, net of voluntary waivers and reimbursements) for the following periods:
- ------------------------------------------------------------------------------------- ONE FIVE SINCE YEAR YEARS TEN YEARS INCEPTION - ------------------------------------------------------------------------------------- International Equity N/A N/A N/A 28.97% Collective Fund (2/1/95- 11/30/95) Value Income Stock 16.40% N/A N/A 15.57% Collective Fund (ending (10/1/89- 12/31/92) 12/31/92) Sunbelt Equity 19.13% 21.14% 16.10% 16.90% Collective Fund (ending (12/1/80- 12/31/93) 12/31/93)
The average annual total returns for the Funds from inception through May 31, 1996 and for the one- and three-year periods ended May 31, 1996 were as follows:
- ------------------------------------------------------------------------------- ONE THREE SINCE YEAR YEARS INCEPTION - ------------------------------------------------------------------------------- International Equity Fund* N/A N/A 17.65% Value Income Stock Fund** N/A N/A 24.52% Sunbelt Equity Fund*** N/A N/A 37.90%
*International Equity Fund commenced operations on January 2, 1996 **Value Income Stock Fund commenced operations on June 1, 1995. ***Sunbelt Equity Fund commenced operations on June 5, 1995. 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 each non-Money Market Fund through three separate classes (Trust Shares, Investor Shares and Flex Shares) and in each Money Market Fund through two separate classes (Trust Shares and Investor Shares), which provide for 10 variations in distribution and service fees, transfer agent fees, sales charges, voting rights and dividends. Except for differences between classes, each share of each Fund represents an undivided, proportionate interest in that Fund. This Prospectus relates to the Flex Shares of the Funds described below. FUNDS AND INVESTMENT OBJECTIVES BOND FUNDS: THE INVESTMENT GRADE BOND FUND seeks to provide as high a level of total return through current income and capital appreciation as is consistent with the preservation of capital primarily through investment in investment grade fixed income securities. THE INVESTMENT GRADE TAX-EXEMPT BOND FUND seeks to provide as high a level of total return through federally tax-exempt current income and capital appreciation as is consistent with the preservation of capital primarily through investment in investment grade tax-exempt obligations. THE U.S. GOVERNMENT SECURITIES FUND seeks to provide as high a level of current income as is consistent with the preservation of capital by investing primarily in obligations issued or guaranteed by the U.S. Government, its agencies or instrumentalities. THE LIMITED-TERM FEDERAL MORTGAGE SECURITIES FUND seeks to provide as high a level of current income as is consistent with the preservation of capital by investing primarily in mortgage-related securities issued or guaranteed by U.S. Government agencies and instrumentalities. THE SHORT-TERM BOND FUND seeks to provide as high a level of current income, relative to funds with like investment objectives, as is consistent with the preservation of capital primarily through investment in short- to intermediate-term investment grade fixed income securities. THE SHORT-TERM U.S. TREASURY SECURITIES FUND seeks to provide as high a level of current income, relative to funds with like investment objectives, as is consistent with the preservation of capital through investment exclusively in short-term U.S. Treasury securities. STATE TAX-EXEMPT BOND FUNDS: THE FLORIDA TAX-EXEMPT BOND FUND seeks to provide current income exempt from regular federal income tax for Florida residents without undue investment risk. THE GEORGIA TAX-EXEMPT BOND FUND seeks to provide current income exempt from regular federal and state income tax for Georgia residents without undue investment risk. THE TENNESSEE TAX-EXEMPT BOND FUND seeks to provide current income exempt from regular federal and state income tax for Tennessee residents without undue investment risk. EQUITY FUNDS: THE CAPITAL GROWTH FUND seeks to provide capital appreciation by investing primarily in a portfolio of common stocks, warrants and securities convertible into common stock which in its Advisor's opinion are undervalued in the marketplace at the time of purchase. THE VALUE INCOME STOCK FUND seeks to provide current income with the secondary goal of achieving capital appreciation by investing primarily in equity securities. 11 THE MID-CAP EQUITY FUND (formerly known as the Aggressive Growth Fund) seeks to provide capital appreciation by investing primarily in a diversified portfolio of common stocks, preferred stocks and securities convertible into common stock of small to mid-sized companies with above-average growth of earnings. Current income will not be an important criterion of investment selection and any such income should be considered incidental. THE BALANCED FUND seeks to provide capital appreciation and current income by investing in common and preferred stocks, warrants, securities convertible into common stock and investment grade fixed income securities. THE SUNBELT EQUITY FUND seeks to provide capital appreciation by investing substantially all, and under normal market conditions at least 65%, of its assets in common stocks, preferred stocks, warrants and securities convertible into common stock of U.S. companies headquartered and/or conducting a substantial portion of their operations in the southern region of the United States. Current income will not be an important criterion of investment selection and any such income should be considered incidental. THE INTERNATIONAL EQUITY INDEX FUND seeks to provide investment results that correspond to the aggregate price and dividend performance of the securities included in the Gross Domestic Product Weighted Morgan Stanley Capital International Europe, Australasia and Far East Index (the "MSCI EAFE-GDP Index" or "EAFE-GDP Index"). 1 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 a Fund will achieve its investment objective. The investment objectives of the Investment Grade Bond Fund, U.S. Government Securities Fund, Limited-Term Federal Mortgage Securities Fund, Short-Term Bond Fund, Short-Term U.S. Treasury Securities Fund, Capital Growth Fund, Value Income Stock Fund, Mid-Cap Equity Fund, Balanced Fund, Sunbelt Equity Fund, International Equity Index Fund and International Equity Fund are nonfundamental and may be changed without a shareholder vote. INVESTMENT POLICIES AND STRATEGIES INVESTMENT GRADE BOND FUND The Investment Grade Bond Fund will invest only in those fixed income obligations deemed investment grade obligations, i.e., rated BBB or better by Standard & Poor's Corporation ("S&P") or Baa or better by Moody's Investors Services, Inc. ("Moody's") or, if not rated by S&P or Moody's, of comparable quality at the time of purchase as determined by the Fund's Advisor, including corporate debt obligations; mortgage-backed securities, collateralized mortgage obligations ("CMOs") and asset-backed securities; obligations issued or guaranteed as to principal and interest by the U.S. Government, its agencies or instrumentalities; custodial receipts involving U.S. Treasury obligations; securities of the government of Canada and its provincial and local governments; securities issued or guaranteed by foreign governments, their political subdivisions, agencies or - ------------ 1 "MSCI EAFE-GDP Index" is a registered service mark of Morgan Stanley Capital International which does not sponsor and is in no way affiliated with the International Equity Index Fund. 12 instrumentalities; obligations of supranational entities and sponsored American Depositary Receipts ("ADRs") that are traded on exchanges or listed on National Association of Securities Dealers Automated Quotations ("NASDAQ"). Under normal circumstances, at least 65% of the Fund's total assets will be invested in corporate and government bonds and debentures. No more than 25% of the Fund's assets will be invested in securities rated BBB by S&P or Baa by Moody's or, if not rated by S&P or Moody's, of comparable quality at the time of purchase as determined by the Advisor. The Fund may purchase mortgage-backed securities issued or guaranteed as to the payment of principal and interest by the U.S. Government, its agencies or instrumentalities or, subject to a limit of 35% of the Fund's assets, mortgage-backed securities issued by private issuers. These mortgage-backed securities may be backed or collateralized by fixed, adjustable or floating rate mortgages. The Fund may also invest in asset-backed securities which consist of securities backed by company receivables, truck and auto loans, leases, credit card receivables and home equity loans. In order to reduce interest rate risk, and subject to a general limit of 25% of the Fund's assets, the Fund may purchase floating or variable rate securities. Some floating or variable rate securities will be subject to interest rate "caps" or "floors." It may also buy securities on a when-issued basis, medium term notes, putable securities and zero coupon securities. The Fund may also invest up to 10% of its assets in restricted securities. The Fund may also engage in futures and options transactions. Under normal market conditions, it is anticipated that the Fund's average weighted maturity will range from 4 to 10 years. In the case of mortgage related securities and asset-backed securities, maturity will be determined based on the expected average life of the security. The Fund may shorten its average weighted maturity to as little as 90 days if deemed appropriate for temporary defensive purposes. By so limiting the maturity of its investments, the Fund expects that its net asset value will experience less price movement in response to changes in interest rates than the net asset values of mutual funds investing in similar credit quality securities with longer maturities. The Fund's portfolio turnover rate was 184% for the fiscal year ended May 31, 1996. This rate of turnover will likely result in higher transaction costs and higher levels of realized capital gains than if the turnover rate was lower. INVESTMENT GRADE TAX-EXEMPT BOND FUND The Investment Grade Tax-Exempt Bond Fund intends to be fully invested in municipal securities the interest on which is exempt from regular federal income taxes in the opinion of bond counsel to the issuer. The issuers of these securities can be located in all fifty states, the District of Columbia, Puerto Rico and other U.S. territories and possessions. It is a fundamental policy of the Investment Grade Tax-Exempt Bond Fund to invest at least 80% of its total assets in securities the income from which is exempt from regular federal income tax and not treated as a preference item for purposes of the alternative minimum tax. At least 65% of the Fund's assets will be invested in municipal bonds and debentures, and at least 75% of its total assets invested in municipal bonds will be in securities rated A or better by S&P or Moody's. Municipal securities must be rated BBB or better by S&P or Baa or better by Moody's in the case of bonds; SP-1, SP-2 or MIG-1, MIG-2 in the case of notes; A-1, A-2, P-1, P-2 in the case of tax-exempt 13 commercial paper; and SP-1, SP-2, VMIG-1 or VMIG-2 in the case of variable rate demand obligations. The Fund will only acquire securities not rated by S&P or Moody's if, at the time of purchase, the Fund's Advisor determines that such unrated obligations are of comparable quality to rated obligations that may be acquired by the Fund. The Fund may invest in commitments to purchase the above securities on a when- issued or delayed delivery basis, floating or variable rate securities and may purchase municipal forwards, medium term notes, putable securities and zero coupon securities. The Fund's Advisor has discretion to invest up to 20% of the Fund's total assets in taxable debt securities rated at least BBB or better by S&P or Baa or better by Moody's or, if not rated by S&P or Moody's, of comparable quality at the time of purchase as determined by the Fund's Advisor, repurchase agreements, and securities subject to the alternative minimum tax. The Fund may also invest up to 10% of its assets in restricted securities that the Fund's Advisor determines are liquid under guidelines adopted by the Trust's Board of Trustees and may engage in futures and options transactions. Under normal market conditions, it is anticipated that the Fund's average weighted maturity will range from 4 to 10 years. The Fund may shorten its average weighted maturity to as little as 90 days if deemed appropriate for temporary defensive purposes. By so limiting the maturity of its investments, the Fund's net asset value is expected to experience less price movement in response to changes in interest rates than the net asset values of mutual funds investing in similar credit quality securities with longer maturities. The Fund's portfolio turnover rate was 514% for the fiscal year ended May 31, 1996. This rate of turnover, if continued, will likely result in higher transaction costs and higher levels of realized capital gains than if the turnover rate was lower. U.S. GOVERNMENT SECURITIES FUND Under normal market conditions, the Fund will invest at least 65% of its assets in obligations issued or guaranteed by the U.S. Government, its agencies or instrumentalities, including mortgage-backed securities issued or guaranteed by U.S. Government agencies such as the Government National Mortgage Association ("GNMA"), the Federal National Mortgage Association ("FNMA") or the Federal Home Loan Mortgage Corporation ("FHLMC"). Mortgage-backed securities consisting of CMOs and real estate mortgage investment conduits ("REMICs") purchased by the Fund will be issued or guaranteed as to payment of principal and interest by the U.S. Government, its agencies or instrumentalities or, if issued by private issuers, rated in one of the two highest rating categories by a nationally recognized statistical rating organization (an "NRSRO"). The principal governmental issuers or guarantors of mortgage-backed securities are GNMA, FNMA and FHLMC. Obligations of GNMA are backed by the full faith and credit of the U.S. Government while obligations of FNMA and FHLMC are supported by the respective agency only. The Fund may purchase mortgage-backed securities that are backed or collateralized by fixed, adjustable or floating rate mortgages. Mortgage-backed securities that are not issued or guaranteed by the U.S. Government, its agencies or instrumentalities, including securities nominally issued by a governmental entity (such as the Resolution Trust Corporation), are not obligations of a governmental entity and thus may bear a risk of nonpayment. The timely payment of principal 14 and interest normally is supported, at least partially, by various forms of insurance or guarantees. There can be no assurance, however, that such credit enhancement will support full payment of the principal and interest on such obligations. The average maturity of the Fund's investment portfolio will typically range from 7 to 14 years. With respect to the remaining 35% of its assets, the Fund may invest in corporate or government bonds that carry a rating of Baa or better by Moody's or BBB or better by S&P or better, or that are deemed by the Fund's Advisor to be of comparable quality; commercial paper rated at the time of purchase within the two highest ratings categories of an NRSRO; bankers' acceptances; certificates of deposit and time deposits; and U.S. Treasury obligations, which include custodial receipts and repurchase agreements involving securities that constitute permissible investments for the Fund. The Fund intends to invest in privately issued, mortgage-backed securities only if they are rated in one of the two highest rating categories by an NRSRO. The Fund may purchase securities on a forward commitment or when-issued basis, which means that delivery and payment for such securities generally takes place after the customary securities settlement period. The Fund may purchase floating or variable rate securities, and may engage in dollar roll transactions. LIMITED-TERM FEDERAL MORTGAGE SECURITIES FUND Under normal market conditions, the Limited-Term Federal Mortgage Securities Fund will invest at least 65% of its assets in mortgage-related securities issued or guaranteed by U.S. Government agencies such as GNMA, FNMA or FHLMC. Obligations of GNMA are backed by the full faith and credit of the U.S. Government while obligations of FNMA and FHLMC are supported by the respective agency only. The Fund may purchase mortgage-backed securities that are backed or collateralized by fixed, adjustable or floating rate mortgages. The Fund's holdings of mortgage-backed securities will typically have an average life of from one to five years. Mortgage-backed securities consisting of CMOs and REMICs purchased by the Fund will be either issued or guaranteed as to payment of principal and interest by the U.S. Government, its agencies or instrumentalities or, if issued by private issuers, rated in one of the two highest rating categories by an NRSRO. Mortgage-backed securities that are not issued or guaranteed by the U.S. Government, its agencies or instrumentalities, including securities nominally issued by a governmental entity (such as the Resolution Trust Corporation), are not obligations of the U.S. Government and thus bear a risk of nonpayment. The timely payment of principal and interest normally is supported, at least partially, by various forms of insurance or guarantees. There can be no assurance, however, that such credit enhancement will support full payment of the principal and interest on such obligations. With respect to the remaining 35% of its assets, the Fund may invest in corporate or government bonds that carry a rating of Baa or better by Moody's or BBB or better by S&P, or that are deemed by the Fund's Advisor to be of comparable quality; asset backed securities; commercial paper rated at the time of purchase in one of the two highest ratings categories by an NRSRO; bankers' acceptances; certificates of deposit and time deposits; U.S. Treasury obligations and custodial receipts; and 15 repurchase agreements involving securities that constitute permissible investments for the Fund. The Fund may purchase securities on a forward commitment or when-issued basis, which means that delivery and payment for such securities generally takes place after the customary securities settlement period. The Fund may purchase floating or variable rate securities, and may engage in dollar roll transactions. The Fund may also purchase stripped mortgage-backed securities, but will limit such purchases to 5% of its net assets. SHORT-TERM BOND FUND Under normal circumstances, the Short-Term Bond Fund will invest solely in investment grade obligations rated BBB or better by S&P or Baa or better by Moody's or, if not rated by S&P or Moody's, of comparable quality at the time of purchase as determined by the Fund's Advisor consisting of debt obligations of U.S. and foreign corporations, mortgage-backed securities; CMOs; asset-backed securities; obligations (including mortgage-backed securities) issued or guaranteed as to principal and interest by the U.S. Government, its agencies or instrumentalities; and custodial receipts involving U.S. Treasury obligations (including Separately Traded Registered Interest and Principal Securities ("STRIPS") and Coupon Under Book Entry System ("CUBES")). Under normal circumstances, at least 65% of the Fund's total assets will be invested in corporate and government bonds and debentures. No more than 25% of the Fund's assets will be invested in securities rated BBB by S&P or Baa by Moody's or, if not rated by S&P or Moody's, of comparable quality at the time of purchase by the Fund's Advisor. The Fund may purchase, without limitation, mortgage-backed securities issued or guaranteed as to the payment of principal and interest by the U.S. Government, its agencies or instrumentalities and, subject to a limit of 25% of the Fund's assets, mortgage-backed securities issued by private issuers. These mortgage-backed securities may be backed or collateralized by fixed, adjustable or floating rate mortgages. The Fund may also invest in asset-backed securities, which consist of securities backed by company receivables, truck and auto loans; leases; credit card receivables; and home equity loans. The Fund will purchase mortgage-backed and asset-backed securities only if they are rated at least AA by S&P or Aa by Moody's or, if not rated by S&P or Moody's, determined to be of comparable quality at the time of purchase by the Fund's Advisor. The Fund may purchase securities on a when-issued basis and may acquire floating or variable rate securities, medium term notes, putable securities, and zero coupon securities. The Fund may also purchase securities issued by foreign governments and supranational agencies. The Fund may also invest in municipal securities when the Fund's Advisor feels it is consistent with the Fund's investment objective. The Fund will not invest in municipal securities unless the Fund's Advisor believes that the yield will be higher than the yield for comparable taxable investments in which the Fund is permitted to invest. The following quality criteria apply to the Fund's investments in municipal securities. The Fund's investments in municipal notes will be limited to those obligations (i) where both principal and interest are backed by the full faith and credit of the United States, (ii) which are rated MIG-2 or V-MIG-2 or better at the time of investment by Moody's, (iii) which are rated SP-2 or better at the time of investment by S&P, or (iv) which, if not rated by S&P or Moody's, are of equivalent quality to MIG-2, V-MIG-2, or SP-2 or better in the Advisor's judgment. The Fund's investment 16 in municipal bonds will be limited to bonds rated BBB or better by S&P or Baa or better by Moody's, or, if not rated by S&P or Moody's, deemed by the Fund's Advisor to be of comparable quality. For the Fund's investments in other types of tax-exempt municipal investments, such as participation interests in municipal lease/purchase agreements, the quality of the underlying credit or of the bank providing a credit support arrangement must, in the Fund's Advisor's opinion, be equivalent to the municipal note or bond ratings stated above. The Fund is also authorized to invest up to 10% of its assets in restricted securities, including Rule 144A securities, that the Fund's Advisor determines are liquid under guidelines adopted by the Trust's Board of Trustees. The Fund may also enter into bond futures contracts and options on bond futures contracts and engage in securities lending. The Fund intends to maintain a dollar-weighted average maturity of 3 years or less, and the maximum remaining maturity for any security held by the Fund is 7 years. Under normal market conditions it is anticipated that the Fund's dollar-weighted average maturity will range from 2 to 3 years. In the case of mortgage related securities and asset-backed securities, maturity will be determined based on the expected average life of the security. The Fund may shorten its average weighted maturity to as little as 90 days if deemed appropriate for temporary defensive purposes. By so limiting the maturity of its investments, the Fund expects that its net asset value will experience less price movement in response to changes in interest rates than the net asset values of mutual funds investing in similar credit quality securities with longer maturities. The Fund's turnover rate was 163% for the fiscal year ended May 31, 1996. This rate of turnover, if continued, will likely result in higher transaction costs and higher levels of realized capital gains than if the turnover rate was lower. SHORT-TERM U.S. TREASURY SECURITIES FUND The Short-Term U.S. Treasury Securities Fund will invest exclusively in obligations issued by the U.S. Treasury with maximum remaining maturities of 3 years or less. U.S. Treasury securities are considered to be among the safest, as to timely principal and interest payments, investments available. The Fund will not invest in repurchase agreements. The Fund may borrow money for temporary or emergency purposes in an amount not exceeding one-third of its total assets, but has no present intention to do so. Under normal market conditions, it is anticipated that the Fund's average maturity will range from one to two years. Furthermore, for temporary defensive purposes during periods when the Fund's Advisor determines that market conditions warrant, the Short-Term U.S. Treasury Securities Fund may reduce its average weighted maturity to less than one year. FLORIDA TAX-EXEMPT BOND FUND The Florida Tax-Exempt Bond Fund intends to be fully invested in municipal securities the interest on which is exempt from regular federal income tax based on opinions from bond counsel to the issuers. The issuers of these securities can be located in Florida, the District of Columbia, Puerto Rico and other U.S. territories and possessions. It is a fundamental policy of the Fund to invest at least 80% of its total assets in securities the income from which is exempt from regular federal income tax and not treated as a preference item for purposes of the alternative minimum tax. At least 65% of the Fund's assets will be invested in Florida 17 municipal bonds and debentures, and at least 75% of its total assets invested in municipal bonds will be in securities rated A or better by S&P or Moody's. Municipal securities must be rated BBB or better by S&P or Baa or better by Moody's in the case of bonds; SP-1, SP-2 or MIG-1, MIG-2 in the case of notes; A-1, A-2, or P-1, P-2 in the case of tax-exempt commercial paper; and SP-1, SP-2 or VMIG-1, VMIG-2 in the case of variable rate demand obligations. No more than 25% of the Fund's assets will be invested in bonds rated BBB by S&P or Baa by Moody's. The Fund will only acquire securities not rated by S&P or Moody's if, at the time of purchase, the Fund's Advisor determines that such unrated obligations are of comparable quality to rated obligations that may be acquired by the Fund. The Fund may invest in commitments to purchase the above securities on a when- issued or delayed delivery basis, floating or variable rate securities, and may purchase municipal forwards, putable securities, medium term notes, and zero coupon securities. The Fund's Advisor has discretion to invest up to 20% of the Fund's total assets in taxable debt securities rated at least BBB or better by S&P or Baa or better by Moody's or, if not rated by S&P or Moody's, of comparable quality at the time of purchase as determined by the Fund's Advisor, repurchase agreements, and securities subject to the alternative minimum tax. The Fund may also invest in futures and options, but has no present intention to do so for other than hedging purposes. Under normal market conditions, it is anticipated that the Fund's average weighted maturity will range from 6 to 25 years. The Fund may shorten its average weighted maturity to as little as 90 days if deemed appropriate for temporary defensive purposes. GEORGIA TAX-EXEMPT BOND FUND The Georgia Tax-Exempt Bond Fund intends to be fully invested in municipal securities the interest on which is exempt from regular federal income taxes and substantially exempt from State of Georgia income taxes based on opinions from bond counsel to the issuers. The issuers of these securities can be located in Georgia, the District of Columbia, Puerto Rico and other U.S. territories and possessions. It is a fundamental policy of the Fund to invest at least 80% of its total assets in securities the income from which is exempt from regular federal income tax and not treated as a preference item for purposes of alternative minimum tax. At least 65% of the Fund's assets will be invested in Georgia municipal bonds and debentures, and at least 75% of its total assets invested in municipal bonds will be in securities rated A or better by S&P or Moody's. Municipal securities must be rated BBB or better by S&P or Baa or better by Moody's in the case of bonds; SP-1, SP-2 or MIG-1, MIG-2 in the case of notes; A-1, A-2, or P-1, P-2 in the case of tax-exempt commercial paper; and SP-1, SP-2 or VMIG-1, VMIG-2 in the case of variable rate demand obligations. No more than 25% of the Fund's assets will be invested in bonds rated BBB by S&P or Baa by Moody's. The Fund will only acquire securities not rated by S&P or Moody's if, at the time of purchase, the Fund's Advisor determines that such unrated obligations are of comparable quality to rated obligations that may be acquired by the Fund. The Fund may invest in commitments to purchase the above securities on a when- issued or delayed delivery basis, floating or variable rate securities, and may purchase municipal forwards, putable securities, medium term notes and zero coupon securities. The Fund's Advisor has discretion to invest up to 20% of the Fund's total assets in taxable debt 18 securities rated at least BBB or better by S&P or Baa or better by Moody's or, if not rated by S&P or Moody's, of comparable quality at the time of purchase as determined by the Fund's Advisor, repurchase agreements, and securities subject to the alternative minimum tax. The Fund may also invest in futures and options, but has no present intention to do so for other than hedging purposes. Under normal market conditions, it is anticipated that the Fund's average weighted maturity will range from 6 to 25 years. The Fund may shorten its average weighted maturity to as little as 90 days if deemed appropriate for temporary defensive purposes. TENNESSEE TAX-EXEMPT BOND FUND The Tennessee Tax-Exempt Bond Fund intends to be fully invested in municipal securities the interest on which is exempt from regular federal income taxes and substantially exempt from State of Tennessee income taxes based on opinions from bond counsel to the issuers. The issuers of these securities can be located in Tennessee, the District of Columbia, Puerto Rico and other U.S. territories and possessions. It is a fundamental policy of the Fund to invest at least 80% of its total assets in securities the income from which is exempt from regular federal income tax and not treated as a preference item for purposes of the alternative minimum tax. At least 65% of the Fund's assets will be invested in Tennessee municipal bonds and debentures, and at least 75% of its total assets invested in municipal bonds will be in securities rated A or better by S&P or Moody's. Municipal securities must be rated BBB or better by S&P or Baa or better by Moody's in the case of bonds; SP-1, SP-2 or MIG-1, MIG-2 in the case of notes; A-1, A-2, or P-1, P-2 in the case of tax-exempt commercial paper; and SP-1, SP-2, VMIG-1 or VMIG-2 in the case of variable rate demand obligations. No more than 25% of the Fund's assets will be invested in bonds rated BBB by S&P or Baa by Moody's. The Fund will only acquire securities not rated by S&P or Moody's if, at the time of purchase, the Fund's Advisor determines that such unrated obligations are of comparable quality to rated obligations that may be acquired by the Fund. The Fund may invest in floating or variable rate securities, commitments to purchase the above securities on a when-issued or delayed delivery basis, and may purchase municipal forwards, putable securities, medium term notes and zero coupon securities. The Fund's Advisor has discretion to invest up to 20% of the Fund's total assets in taxable debt securities rated at least BBB or better by S&P or Baa or better by Moody's or, if not rated by S&P or Moody's, of comparable quality at the time of purchase as determined by the Fund's Advisor, repurchase agreements, and securities subject to the alternative minimum tax. The Fund may also invest in futures and options, but has no present intention to do so for other than hedging purposes. Under normal market conditions, it is anticipated that the Fund's average weighted maturity will range from 6 to 25 years. The Fund may shorten its average weighted maturity to as little as 90 days if deemed appropriate for temporary defensive purposes. CAPITAL GROWTH FUND The Capital Growth Fund invests primarily in a diversified portfolio of common stocks, warrants, and securities convertible into common stocks which, in the Fund's Advisor's opinion, are undervalued in the marketplace at the time of purchase. In selecting securities for the Fund, its Advisor will evaluate factors believed to affect capital appreciation such as 19 the issuer's background, industry position, historical returns on equity and experience and qualifications of the management team. Dividend and interest income should be considered incidental to the growth of capital. The Fund's Advisor will rotate the Capital Growth Fund's holdings between various market sectors based on economic analysis of the overall business cycle. Under normal conditions, at least 65% of the total assets of the Capital Growth Fund will be invested in common stocks. All of the common stocks in which the Fund invests are traded on registered exchanges or on the over-the-counter market in the United States. Assets of the Capital Growth Fund not invested in the securities described above may be invested in U.S. dollar denominated equity securities of foreign issuers (including sponsored ADRs that are traded on exchanges or listed on NASDAQ); securities issued by money market mutual funds; pay-in-kind securities; and bonds. The bonds that the Capital Growth Fund may purchase may be rated in any rating category or may be unrated, provided that no more than 10% of the Fund's total assets will be invested in bonds rated below BBB by S&P or below Baa by Moody's or securities not rated by S&P or Moody's of comparable quality (see "Investment Risks, High Yield, Lower Rated Bonds"). In addition, the Fund may invest up to 10% of its assets in restricted securities. The Fund's turnover rate for the fiscal year ended May 31, 1996 was 156%. This rate of turnover, if continued, will likely result in higher brokerage commissions and higher levels of realized capital gains than if the turnover rate was lower. VALUE INCOME STOCK FUND The Value Income Stock Fund seeks to provide current income by structuring its investments in an attempt to maintain the Fund's yield at a level above the average dividend yield of the securities comprising the S&P 500 Stock Index. Achieving such a yield will be the Fund's primary consideration when purchasing securities. A secondary consideration of the Fund will be capital appreciation. The Fund will invest at least 80% of its total assets in equity securities. Investments will consist primarily of common stocks, and, under normal market conditions, at least 65% of the Fund's assets will be invested in common stocks issued by corporations which have a history of paying regular dividends, although there can be no assurance that such corporations will continue to pay dividends. Other equity securities in which the Fund may invest are convertible debt securities, preferred stocks and warrants which are convertible into or exchangeable for common stocks; and U.S. dollar denominated equity securities of foreign issuers (including sponsored ADRs that are traded on exchanges or listed on NASDAQ). All of the common stocks in which the Fund invests are traded on registered exchanges such as the New York or American Stock Exchange or on the over-the-counter market in the United States (i.e., NASDAQ). The Fund may also purchase debt securities (corporate debt obligations and U.S. Treasury obligations) which may be rated in any rating category or may be unrated, provided that no more than 10% of the Fund's total assets will be invested in bonds rated below BBB by S&P or below Baa by Moody's or securities not rated by S&P or Moody's of comparable quality. The Fund may also invest in futures and options. The Fund will invest primarily in stocks of companies operating in all aspects of the U.S. 20 and world economies that have a market capitalization of at least $500 million, and that the Fund's Advisor believes possess fundamentally favorable long-term characteristics. However, stocks of companies with smaller market capitalizations and stocks that are out of favor in the financial community and in which little opportunity for price appreciation is recognized by the financial community may also be purchased if the Fund's Advisor believes they are undervalued. The Fund's turnover rate for the fiscal year ended May 31, 1996 was 134%. This rate of turnover, if continued, will likely result in higher brokerage commissions and higher levels of realized capital gains than if the turnover rate was lower. MID-CAP EQUITY FUND The Mid-Cap Equity Fund invests primarily in a diversified portfolio of common stocks, preferred stocks, and securities convertible into common stocks of small to mid-size companies, (i.e., $50 million to $1 billion and $500 million to $5 billion, respectively, as measured by their market capitalization), with above-average growth of earnings. Under normal conditions, at least 80% of the total assets of the Fund will be invested in equity securities, and as a matter of non-fundamental policy, the Fund will invest at least 65% of its assets in mid-size companies. Current income will not be an important criterion of investment selection and any such income should be considered incidental. In selecting securities for the Fund, the Fund's Advisor will evaluate factors such as the issuer's background, industry position, historical returns on equity and experience and qualifications of the management team. Most of the common stocks in which the Fund invests are traded on registered exchanges or on the over-the-counter market in the United States. Assets of the Fund not invested in the securities described above may be invested in U.S. dollar denominated equity securities of foreign issuers (including sponsored ADRs that are traded on exchanges or listed on NASDAQ); securities issued by mutual funds; repurchase agreements; and bonds. The bonds that the Fund may purchase, including any variable or floating rate instruments, must be rated B or better by S&P or Moody's, provided that this requirement shall not apply to the Fund's purchase of bonds issued by the government of Canada or by various supranational entities, and provided further that no more than 10% of the Fund's total assets will be invested in bonds rated below BBB by S&P or below Baa by Moody's or securities not rated by S&P or Moody's of comparable quality. The Fund may invest up to 10% of its assets in restricted securities. The Fund's turnover rate for the fiscal year ended May 31, 1996 was 116%. This rate of turnover, if continued, will likely result in higher brokerage commissions and higher levels of realized capital gains than if the turnover rate was lower. SUNBELT EQUITY FUND The Sunbelt Equity Fund seeks to provide capital appreciation by investing substantially all, and under normal market conditions at least 65%; of its assets in common stocks; preferred stocks; warrants; and securities convertible into common stock of U.S. companies headquartered and/or conducting a substantial portion of their operations in (i.e., maintaining at least 50% of their assets in or deriving at least 50% of their revenues and/or sales from) the southern region of the United States. Current income will not be an important criterion of investment selection and any such income 21 should be considered incidental. The Fund's Advisor will seek to identify and purchase securities of companies that it believes to be undervalued and that possess a strong balance sheet, a strong earnings record and adequate market liquidity. Most of the common stocks in which the Fund invests are traded on registered exchanges such as the New York or American Stock Exchange or on NASDAQ. The Fund will invest no more than 10% of its assets in convertible securities rated lower than BBB. The Fund may invest up to 10% of its total assets in restricted securities. The Fund may also purchase futures and options for hedging purposes. Obligations relating to futures contracts will be limited to not more than 20% of the Fund's total assets. The Fund will invest primarily in stocks of U.S. companies headquartered and/or operating in the following U.S. states: Texas, Arkansas, Alabama, Mississippi, Tennessee, Kentucky, Florida, Virginia, Georgia, North Carolina, South Carolina and Louisiana. To the extent that the Fund's investments are not as geographically dispersed across the U.S. as other funds with comparable objectives, the impact of economic forces on and the relative economic conditions of these states will be greater on the Fund. The Fund's turnover rate for the fiscal year ended May 31, 1996 was 106%. This rate of turnover, if continued, will likely result in higher brokerage commissions and higher levels of realized capital gains than if the turnover rate was lower. BALANCED FUND The Balanced Fund seeks to provide capital appreciation and current income through investments in a diversified portfolio of common and preferred stocks, warrants, securities convertible into common stocks, and investment grade fixed income securities. Under normal conditions, no more than 70% of the total assets of the Fund will be invested in common stocks and other equity securities, and no more than 60% of the Fund's total assets will be invested in bonds and other fixed income securities. The Fund will maintain at least 25% of its total assets in senior fixed income securities. In selecting equity securities for the Fund, the Fund's Advisor will evaluate factors believed to affect capital appreciation such as the issuer's background, industry position, historical returns on equity and experience and qualifications of the management team. The Fund's Advisor will rotate the Fund's holdings between various market sectors based on economic analysis of the overall business cycle. All of the common stocks in which the Fund invests are traded on registered exchanges or on NASDAQ. Assets of the Fund not invested in the securities described above may be invested in U.S. dollar denominated equity securities of foreign issuers (including sponsored ADRs that are traded on exchanges or listed on NASDAQ), securities issued by investment companies, and bonds. The Fund will invest in investment grade fixed income securities rated BBB or better by S&P or Baa or better by Moody's or, if not rated by S&P or Moody's, of comparable quality at the time of purchase as determined by the Fund's Advisor, including corporate debt obligations; mortgage-backed securities, collateralized mortgage obligations and asset-backed securities; obligations issued or guaranteed as to principal and interest by the U.S. Government, its agencies or instrumentalities; custodial receipts involving U.S. Treasury obligations; securities of the government of Canada and its provincial and local governments; securities issued or guaranteed 22 by foreign governments, their political subdivisions, agencies or instrumentalities; and obligations of supranational entities. No more than 25% of the Fund's assets will be invested in securities rated BBB by S&P or Baa by Moody's or, if not rated by S&P or Moody's, of comparable quality at the time of purchase as determined by the Fund's Advisor. The Fund may purchase mortgage-backed securities issued or guaranteed as to the payment of principal and interest by the U.S. Government, its agencies or instrumentalities or, subject to a limit of 25% of the Fund's assets, mortgage-backed securities issued by private issuers. These mortgage-backed securities may be backed or collateralized by fixed, adjustable or floating rate mortgages. The Fund may also invest in asset backed securities which consist of securities backed by company receivables, truck and auto loans, leases, credit card receivables and home equity loans. In order to reduce interest rate risk, the Fund may purchase floating or variable rate securities. It may also buy securities on a when-issued basis, putable securities, pay-in-kind securities and zero coupon securities. The Fund may also invest futures and options. Some floating or variable rate securities will be subject to interest rate "caps" or "floors." The Balanced Fund's turnover rate for the fiscal year ended May 31, 1996 was 148% for the equity portion of its portfolio and 164% for the fixed income portion of its portfolio. These rates of turnover, if continued will likely result in higher transaction costs and brokerage commissions and higher levels of realized capital gains than if the turnover rate was lower. INTERNATIONAL EQUITY INDEX FUND The Fund will invest substantially all and, under normal market conditions, at least 65% of its assets in common and preferred stocks; warrants; options; and securities convertible into common stock of companies headquartered or based in the approximately twenty foreign countries included in the EAFE-GDP Index. The Fund will invest only in the 1088 or so companies included in the EAFE-GDP Index. Because it is impractical to invest in every company included in the Index, the Fund will select a representative sample of securities in each country using a statistically-based optimization process. Morgan Stanley & Co. Incorporated maintains the optimization computer programs which will be utilized to select companies within each country. The Fund will be constructed to have aggregate investment characteristics similar to those of the EAFE-GDP Index. The Fund will invest in a statistically selected sample of the securities included in the EAFE-GDP Index, although not all countries nor all companies within a country will be represented in the Fund's portfolio of securities at any time. The Fund expects to invest in approximately 300 stocks so that the results fall within a targeted tracking error range. From time to time, adjustments may be made in the Fund's portfolio because of changes in the composition of the EAFE-GDP Index. No attempt will be made to manage the portfolio using traditional economic, financial and market analyses. The Fund expects that there will be a close correlation between the Fund's performance and that of the EAFE-GDP Index. A 1.00 correlation would indicate perfect correlation, which would be achieved when the net asset value of the Fund, including the value of its dividend and capital gains distributions, increases or decreases in exact proportion to changes in the EAFE-GDP Index. The correlation between the Fund and the EAFE-GDP Index is expected to be over 0.95 on an annual basis. The Fund's ability to track the 23 EAFE-GDP Index, however, may be affected by, among other things, transaction costs, changes in either the composition of the EAFE-GDP Index or number of shares outstanding for the component companies of the EAFE-GDP Index, and the timing and amount of purchases and redemptions. 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 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. These contracts may be bought or sold to protect the Fund, to some degree, against a possible loss resulting from an adverse change in the relationship between foreign currencies and the U.S. dollar. The Fund expects to be fully invested in the investments described above, but may invest up to 35% of its total assets in U.S. and non-U.S. denominated money market instruments; repurchase agreements; futures contracts, including stock index futures contracts; and options on futures contracts. Obligations relating to futures contracts will be limited to 20% of the Fund's total assets. The Fund is also permitted to acquire floating and variable rate securities; purchase securities on a when-issued basis; and purchase illiquid securities. 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 or 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 S&P or 24 below Baa by Moody's or not rated by S&P or Moody's 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 its 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 its 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 Fund's portfolio turnover rate for the fiscal year ended May 31, 1996 was 113%. This rate of turnover, if continued, will likely result in higher brokerage commissions and higher levels of realized capital gains than if the turnover rate was lower. GENERAL INVESTMENT POLICIES AND STRATEGIES For temporary defensive purposes, during periods when its Advisor determines that market conditions warrant, each Fund, except the Short-Term U.S. Treasury Securities Fund, may hold a portion of its assets in cash and 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; time deposits issued by banks or savings and loan associations; and commercial paper rated in the highest rating category. A Fund may not be pursuing its investment objective when it is engaged in temporary defensive investing. The Equity Funds and the Balanced Fund may invest in money market instruments for liquidity purposes. The municipal bonds that the Investment Grade Tax-Exempt Bond Fund and State Tax-Exempt Bond Funds may purchase include general obligation bonds, revenue or special obligation bonds, and private activity and industrial development bonds. General obligation bonds are backed by the taxing power of the issuing municipality while revenue or special obligation bonds are backed by a specific project or facility. The State Tax-Exempt Bond Funds may also purchase certificates of participation which represent an interest in an underlying obligation or commitment such as an obligation issued in connection with a leasing arrangement. The payment of principal and interest on private activity and industrial development bonds generally is dependent solely on the ability of the facility's user to meet its obligation and the pledge, if any, of real or personal property as security for such payment. 25 The Advisor to a State Tax-Exempt Bond Fund or the Investment Grade Tax-Exempt Bond Fund may buy or sell portfolio securities with the intention of generating capital gains. Such gains will increase the Fund's total return and will be taxable upon distribution to Shareholders. See "Tax Information." In the event that a security owned by a Fund is downgraded below the stated rating categories, its Advisor will review and take appropriate action with regard to the security. Each Fund may purchase securities issued by money market mutual funds. A Fund's purchase of shares of other investment companies is limited by the Investment Company Act of 1940 (the "1940 Act") and will ordinarily result in an additional layer of charges and expenses. Each of the Funds may engage in securities lending and will limit such practice to 33 1/3% of its total assets. No Fund may purchase additional securities while its outstanding borrowings exceed 5% of its assets. It is a non-fundamental policy of each Fund to invest no more than 15% of its net assets in illiquid securities. An illiquid security is a security which cannot be disposed of in the usual course of business within seven days at a price approximating its carrying value. The Capital Growth Fund, Value Income Stock Fund, Mid-Cap Equity Fund, Balanced Fund, Sunbelt Equity Fund and International Equity Fund may purchase restricted securities, including Rule 144A securities, that its Advisor determines are liquid pursuant to the guidelines established by the Trust's Board of Trustees. For additional information regarding permitted investments, see "Description of Permitted Investments" in this Prospectus and in the Statement of Additional Information. INVESTMENT RISKS EQUITY SECURITIES Investment in equity securities are generally subject to market risks that may cause their prices to fluctuate over time. The values of convertible equity securities are also affected by prevailing interest rates, the credit quality of the issuer and any call provision. Fluctuations in the value of equity securities in which a Fund invests will cause the net asset value of the Fund to fluctuate. FIXED INCOME SECURITIES The market value of a Fund's fixed income investments will change in response to interest rate changes and other factors. During periods of falling interest rates, the values of outstanding fixed income securities generally rise. Conversely, during periods of rising interest rates, the values of such securities generally decline. Securities with longer maturities are subject to greater fluctuations in value than securities with shorter maturities. Changes by an NRSRO to the rating of any fixed income security and in the ability of an issuer to make payments of interest and principal also affect the value of these investments. Changes in the value of a Fund's securities will not affect cash income derived from these securities but will affect the Fund's net asset value. Fixed income securities rated BBB by S&P or Baa by Moody's (the lowest rating of investment grade bonds) are deemed by these rating services to have speculative characteristics. Guarantees of a 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 26 not guarantee the securities' yield or value or the yield or value of a Fund's shares. There is a risk that the current interest rate on floating and variable rate instruments may not accurately reflect existing market interest rates. FOREIGN SECURITIES AND FOREIGN CURRENCY CONTRACTS Investing in the securities of foreign companies involves special risks and considerations not typically associated with investing in U.S. companies. These risks and considerations include differences in accounting, auditing and financial reporting standards, generally higher commission rates on foreign portfolio transactions, the possibility of expropriation or confiscatory taxation, adverse changes in investment or exchange control regulations, political instability which could affect U.S. investment in foreign countries and potential restrictions of the flow of international capital and currencies. Foreign companies may also be subject to less government regulation than U.S. companies. Moreover, the dividends payable on the foreign securities may be subject to foreign withholding taxes, thus reducing the net amount of income available for distribution to a 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 International Equity Index Fund and International Equity Fund will seek to protect the value of its respective 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, they tend to limit any potential gain which might result should the value of such currency increase. HIGH YIELD, LOWER RATED BONDS A Fund's investments in high yield, lower rated bonds ("junk bonds") involve greater risk of default or price declines than investments in investment grade securities (E.G., securities rated BBB or higher by S&P or Baa or higher by Moody's) due to changes in the issuer's creditworthiness. 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 a 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 the issuer's credit quality and the outlook for economic growth. Thus, prices for high risk, high yield securities may move independently of interest rates and the overall bond market. In addition, the market for high risk, high yield securities may be adversely affected by legislative and regulatory developments. MORTGAGE-BACKED SECURITIES Mortgage-backed securities are subject to the risk of prepayment of the underlying mortgages. During periods of declining interest rates, prepayment of mortgages underlying these securities can be expected to accelerate. When the mortgage-backed securities held by a Fund are prepaid, the Fund generally will reinvest the proceeds in securities with a yield 27 that reflects prevailing interest rates, which may be lower than the prepaid security. MUNICIPAL SECURITIES Since each State Tax-Exempt Bond Fund invests in municipal securities issued by governmental entities of its specific state, the performance of each State Tax-Exempt Bond Fund may be especially affected by factors pertaining to such state's economy and other factors specifically affecting the ability of issuers in that state to meet their obligations. As a result, the value of each State Tax-Exempt Bond Fund's shares may fluctuate more widely than the value of shares of a portfolio investing in securities relating to a number of different states. The ability of state, county, or local governments to meet their obligations will depend primarily on the availability of tax and other revenues to those governments and on their fiscal conditions generally. Municipal securities may be affected from time to time by economic, political, geographic and demographic conditions. In addition, constitutional amendments, legislative measures, executive orders, administrative regulations and voter initiatives may limit a government's power to raise revenues or increase taxes and thus could adversely affect an issuer's ability to meet financial obligations. ZERO COUPON OBLIGATIONS Zero coupon obligations are sold at original issue discount and do not make periodic payments. Zero coupon obligations may be subject to greater fluctuations in value due to interest rate changes than interest bearing obligations. A Fund will be required to include the imputed interest in zero coupon obligations in its current income. Because each Fund distributes all of its net investment income to Shareholders, a Fund may have to sell portfolio securities to distribute the income attributable to these obligations and securities at a time when its Advisor would not have chosen to sell such obligations or securities and which may result in a taxable gain or loss. INVESTMENT LIMITATIONS The following investment limitations constitute fundamental policies of each Fund. Fundamental policies cannot be changed with respect to a Fund without the consent of the holders of a majority of the Fund's outstanding shares. The term "majority of the outstanding shares" means the vote of (i) 67% or more of a Fund's shares present at a meeting, if more than 50% of the outstanding shares of the Fund are present or represented by proxy, or (ii) more than 50% of a Fund's outstanding shares, whichever is less. Each Fund may not: 1. Purchase securities of any issuer (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 a Fund would be invested in the securities of such issuer; provided, however, that a Fund may invest up to 25% of its total assets without regard to this restriction as permitted by applicable law. 2. Purchase any securities which would cause more than 25% of the total assets of a Fund to be invested in the securities of one or more issuers conducting their principal business activities in the same industry, provided that this limitation does not apply to investments in obligations issued or guaranteed by the U.S. Government 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 28 will each be considered a separate industry; (ii) financial service companies will be classified according to the end users of their services, for example, automobile finance, bank finance and diversified finance will each be considered a separate industry; and (iii) supranational entities will be considered to be a separate industry. It is a non-fundamental policy of the Investment Grade Tax-Exempt Bond Fund that it will not invest more than 25% of its net assets in securities of one or more issuers conducting their principal activities in the same state. In addition, the Investment Grade Tax-Exempt Bond Fund and State Tax-Exempt Bond Funds will not invest more than 25% of their respective total assets in securities the interest on which is derived from revenues of similar type projects. The foregoing percentages will apply at the time of the purchase of a security. Additional investment limitations are set forth in the Statement of Additional Information. PERFORMANCE INFORMATION From time to time, the Funds may advertise performance (yield and total return). These figures will be based on historical earnings and are not intended to indicate future performance. The yield of a Fund refers to the annualized income generated by an investment in that Fund over a specified 30-day period. The yield is calculated by assuming that the income generated by the investment during that period is generated over one year and is shown as a percentage of the investment. The Investment Grade Tax-Exempt and State Tax-Exempt Bond Funds may also advertise a "tax-equivalent yield," which is calculated by determining the rate of return that would have been achieved on a fully taxable investment to produce the after tax equivalent of the Fund's yield, assuming certain tax brackets for a Shareholder. The total return of a Fund refers to the average compounded rate of return to a hypothetical investment, including any sales charge imposed, for designated time periods (including but not limited to, the period from which a Fund commenced operations through the specified date), assuming that the entire investment is redeemed at the end of each period and assuming the reinvestment of all dividend and capital gains distributions. The performance of the Trust's Investor Shares and Flex Shares will normally be lower than for Trust Shares because Investor Shares and Flex Shares are subject to distribution, services, and certain transfer agent fees not charged to Trust Shares. Because of their differing sales charge and distribution expense arrangements, the performance of Flex Shares in comparison to Investor Shares will vary depending upon the investor's investment time horizon. Each Fund may periodically compare its performance to other mutual funds tracked by mutual fund rating services, to broad groups of comparable mutual funds or to unmanaged indices which may assume reinvestment of dividends but generally do not reflect deductions for administrative and management costs. FUNDLINK All purchases and redemptions of 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 SunTrust 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 29 Shareholder must contact an Investment Consultant of a SunTrust Banks, Inc. affiliate bank and complete the appropriate application and authorization agreements. PURCHASE OF FUND SHARES Flex Shares are sold at net asset value (without an initial sales charge) and are subject to a deferred sales charge if redeemed within one year of purchase. Flex Shares provide the benefit of permitting all investor dollars to be invested from the initial time of purchase. Flex Shares are sold on a continuous basis and may be purchased by contacting the Trust's transfer agent, Federated Services Company (the "Transfer Agent"), either by mail, by telephone or by wire. Flex Shares may also be purchased through Investment Consultants of SunTrust Securities, Inc. which serves as Shareholder Servicing Agents to the Trust. Furthermore, Flex Shares may be purchased through certain correspondent banks of SunTrust Banks, Inc. or other financial institutions who have executed dealer sales agreements. Shares may be purchased on days on which the New York Stock Exchange is open for business (a "Business Day"). A purchase order for any of the Funds 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 a Fund calculated to three decimal places. All purchases made by check should be in U.S. dollars and made payable to the "STI Classic Funds (Fund Name)." Third party checks, credit cards, credit card checks and cash will not be accepted. When purchases are made by check, redemptions will not be allowed until the investment being redeemed has been in the account for 15 business days. Purchases by mail are considered received after payment by check is converted into federal funds. The purchase price of Flex Shares of a Fund is the net asset value next determined after a purchase order is effective. The net asset value per share of a 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 each Fund. Minimum initial and subsequent purchase amounts, respectively, for each Fund are $10,000 and $1,000 ($100 via statement coupon). Purchases made pursuant to the Systematic Investment Plan (described below) are subject to lower minimum initial and subsequent purchase amounts. The minimum initial purchase amount for retirement plans is $2,000. These minimums may be waived at the Distributor's discretion such as 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). 30 The Trust and the Transfer Agent maintain procedures, including identification methods and other means, for ascertaining the identity of callers and authenticity of instructions. If reasonable procedures are not employed, the Trust and/or the Transfer Agent may be liable for any losses due to unauthorized or fraudulent telephone transactions. Neither the 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. Shares of the Funds are offered only to residents of states in which the shares are eligible for purchase. Investors in certain states may be required to purchase shares through institutions registered as brokers/dealers in such states. 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 plus accumulated distribution on Investor Shares. Investors should also consider whether, 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 Securities Investment Consultant upon request. SYSTEMATIC INVESTMENT PLAN Shares of each Fund may be purchased systematically through deductions from checking or savings accounts maintained through SunTrust Banks, Inc. affiliate banks. The Systematic Investment Plan is subject to subsequent minimum maintained balance requirements. The minimum initial purchase amount for the Systematic Investment Plan is $500. 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. Investors may purchase shares on a fixed schedule (semi-monthly or monthly) with amounts from $50 up to $100,000. The purchases will be effective on the Business Day that the Transfer Agent receives the transmission. CONTINGENT DEFERRED SALES CHARGE INFORMATION Flex Shares of the Funds 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. 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 any Fund for Flex Shares of any other Fund. See "Exchanges." In determining the amount of the 31 Flex Shares CDSC that applies, all purchases shall be considered as having been made on the trade date. The CDSC 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 CDSC 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. CDSCs are not charged in connection with redemptions by the Fund of accounts with low balances. Under the Systematic Withdrawal Plan discussed later, annual redemptions of up to 12% of the value of a Shareholder's Flex Shares are not subject to the CDSC. REDEMPTION OF FUND SHARES Shareholders may redeem their Flex Shares on any day that net asset value is calculated. 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. See "Sales Charge Information." However, all or part of a shareholder's holdings of 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 to be effective that day. Redemption proceeds are normally remitted within five Business Days following receipt of the order. Requests for redemptions from the Funds may be placed in writing or by telephone directly to an Investment Consultant 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 Flex Shares are purchased by check 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 15 Business Days. A Shareholder may be required to redeem Flex Shares if the balance in a Shareholder's Fund account drops below $10,000 as a result of redemptions, and, the Shareholder does not increase its balance to at least $10,000 on 60 days' written notice. 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. 32 Redemptions of $25,000 or greater for a Fund 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. Other exceptions to the CDSC charge relating to systematic withdrawals from qualified retirement plans were previously referenced. EXCHANGES Flex Shares of the Funds 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 Trust 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 Consultant 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 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 at any time upon 60 days' notice. DIVIDENDS AND DISTRIBUTIONS Dividends from net investment income (exclusive of capital gains) are declared on each Business Day and paid monthly by each of the Bond and State Tax-Exempt Bond Funds. Dividends from net investment income (exclusive of capital gains) are declared and paid quarterly by the Equity Funds and Balanced Fund, except that dividends are declared and paid annually by the International Equity Index Fund and International Equity Fund. Each Fund's net realized capital gains (including net short-term capital gains) are distributed at least annually. Net income for dividend purposes consists of (i) interest accrued and original issue discount earned on a Fund assets, (ii) plus the amortization of market discount (except in the case of the Investment Grade Tax-Exempt Bond and State Tax-Exempt Bond Funds) and minus the amortization of market premium on such assets, (iii) plus dividend or distribution income on such assets, (iv) less accrued expenses 33 directly attributable to the Fund and the general expenses of the Trust prorated to the Fund on the basis of its relative net assets. Flex Shares invested in the Bond and State Tax-Exempt Bond Funds are eligible to begin earning dividends that are declared on the Business Day after the purchase order is effective and continue to be eligible for dividends through and including the day the redemption order is effective. The net asset value of Flex Shares of the Funds will be reduced by the amount of any dividend or distribution. Dividends and distributions are paid in the form of additional Flex Shares of the same 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 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 Flex Shares in a Fund. 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 each Fund or its Shareholders. In particular, no attempt has been made herein to provide information on the tax laws of Florida, Georgia or Tennessee. Accordingly, Shareholders are urged to consult their tax advisors regarding specific questions as to federal, state and local income taxes. TAX STATUS OF EACH FUND Each Fund is treated as a separate entity for federal tax purposes, and is not combined with the Trust's other Funds. Each 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. Each Fund intends to make sufficient distributions prior to the end of each calendar year to avoid liability for the federal excise tax applicable to regulated investment companies. TAX STATUS OF DISTRIBUTIONS: BOND AND STATE TAX-EXEMPT BOND FUNDS Each 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 Funds will be taxable to Shareholders as ordinary income whether received in cash or in additional shares. Each of the Investment Grade Tax-Exempt Bond and State Tax-Exempt Bond Funds will distribute all of its net investment income (including net short-term capital gains) to Shareholders. If, at the close of each quarter of its taxable year, at least 50% of the value of a Fund's assets consist of obligations the interest on which is excludable from gross income, the Fund may pay exempt-interest dividends to its Shareholders. Those dividends constitute the portion of the aggregate dividends as designated by the Fund, equal to the excess of the excludable interest over certain amounts disallowed as deductions. Exempt-interest dividends are excludable from a Shareholder's 34 gross income for regular federal income tax purposes, but may have alternative minimum tax consequences. See the Statement of Additional Information. Current federal tax law limits the types and volume of bonds qualifying for the federal income tax exemption of interest, which may have an effect on the ability of the Investment Grade Tax-Exempt Bond and State Tax-Exempt Bond Funds to purchase sufficient amounts of tax-exempt securities to satisfy the Code's requirements for the payment of exempt-interest dividends. TAX STATUS OF DISTRIBUTIONS: ALL FUNDS Dividends from net investment income will qualify for the dividends received deduction for corporate Shareholders only to the extent such distributions are derived from dividends paid by domestic corporations. Dividends from net capital gains (the excess of net long-term capital gains over net short-term capital loss) will be treated 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. Each Fund will make annual reports to Shareholders of the federal income tax status of all distributions. Dividends declared by a 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 Shareholders on December 31, of that year, if paid by the Fund any time during the following January. Income received on direct U.S. obligations is exempt from tax at the state level when received directly by a Fund and may be exempt, depending on the state, when received by a Shareholder from a 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. Each 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 a Fund is considered tax exempt in their particular states. Income derived by a Fund from obligations of foreign issuers may be subject to foreign withholding taxes. The International Equity Index and International Equity Funds expect to elect to treat Shareholders as having paid their proportionate share of such foreign taxes. The other Funds will not be able to make this election. Interest on indebtedness incurred or continued by a Shareholder in order to purchase shares of a "tax-exempt" Fund is not deductible. Furthermore, entities or persons who are "substantial users" (or persons related to "substantial users") of facilities financed by "private activity bonds" or certain industrial development bonds should consult their tax advisors before purchasing shares. For these purposes, the term "substantial user" is defined generally to include a "non-exempt person" who regularly uses in trade or business a part of a facility financed from the proceeds of such bonds. See the Statement of Additional Information. A sale, exchange or redemption of Fund shares is a taxable event to the Shareholder. 35 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 Fund. All consideration received by the Trust for shares of any Fund and all assets of such Fund belong to that Fund and would be subject to liabilities related thereto. The Trust pays its expenses, including fees of its service providers, audit and legal expenses, expenses of preparing prospectuses, proxy solicitation material and reports to Shareholders, costs of custodial services and registering the shares under federal and state securities laws, pricing, insurance expenses, litigation and other extraordinary expenses, brokerage costs, interest charges, taxes and organization expenses. BOARD OF TRUSTEES The management and affairs of the Trust are supervised by the Trustees under the laws governing business trusts in the Commonwealth of Massachusetts. The Trustees have approved contracts under which, as described below, certain companies provide essential management services to the Trust. INVESTMENT ADVISORS The Advisors are indirect wholly-owned subsidiaries of SunTrust Banks, Inc. ("SunTrust"), a southeastern regional bank holding company with assets of $66 billion as of December 31, 1995. SunTrust ranks among the twenty largest U.S. banking companies. Its three principal subsidiaries--SunTrust Bank of Florida, Inc., SunTrust Banks of Georgia, Inc. and SunTrust Banks of Tennessee, Inc.-- provide a wide range of personal and corporate banking, trust, and investment services through more than 600 locations in the three-state area. Total discretionary assets under management with SunTrust Banks, Inc. equalled approximately $47 billion as of December 31, 1995. Trusco Capital Management, Inc. ("Trusco") serves as the Advisor to the Short-Term U.S. Treasury Securities, Short-Term Bond, U.S. Government Securities and Sunbelt Equity Funds and joint advisor to the International Equity Index Fund. As of June 30, 1996, Trusco had approximately $13.7 billion in assets under management. The principal business address of Trusco is 50 Hurt Plaza, Suite 1400, Atlanta, Georgia 30303. STI Capital Management, N.A. ("STI Capital") serves as the Advisor to the Limited-Term Federal Mortgage Securities, Investment Grade Bond, Investment Grade Tax-Exempt Bond, Florida Tax-Exempt Bond, Capital Growth, Value Income Stock, Mid-Cap Equity, Balanced and International Equity Funds and joint advisor to the International Equity Index Fund. As of June 30, 1996, STI Capital had discretionary management authority with respect to assets of approximately $11 billion. The principal business address of STI Capital is P.O. Box 3808, Orlando, Florida 32802. SunTrust Bank, Chattanooga, N.A. ("SunTrust Bank, Chattanooga") (formerly American National Bank & Trust Company) serves as the Advisor to the Tennessee Tax-Exempt Bond Fund. SunTrust Bank, Chattanooga had approximately $1.7 billion in assets under management as of December 31, 1995. The principal business address of SunTrust Bank, Chattanooga is 736 Market Street, Chattanooga, Tennessee 37402. 36 SunTrust Bank, Atlanta (formerly Trust Company Bank) serves as the Advisor to the Georgia Tax-Exempt Bond Fund. As of December 31, 1995, SunTrust Bank, Atlanta had approximately $12.5 billion in assets under management. The principal address for SunTrust Bank, Atlanta is 25 Park Place, Atlanta, Georgia 30303. The Trust and the above Advisors have entered into advisory agreements (the "Advisory Agreements"). Under the Advisory Agreements, the Advisors make the investment decisions for the assets of the Fund(s) they advise and continuously review, supervise and administer their Fund's respective investment program. The Advisors discharge their 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 FUNDS INVOLVE RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. RETURNS AND PRINCIPAL VALUES WILL FLUCTUATE AND SHARES AT REDEMPTION MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THERE IS NO GUARANTEE THAT ANY STI CLASSIC FUND WILL ACHIEVE ITS INVESTMENT OBJECTIVE. With respect to all Funds, the Advisors may execute brokerage or other agency transactions through affiliates of the Advisors. For the services provided and expenses incurred pursuant to the Advisory Agreements: Trusco is entitled to receive advisory fees computed daily and paid monthly at the annual rate of 0.74%, 0.65%, 0.65% and 1.15% of the average daily net assets of the U.S. Government Securities Fund, Short-Term U.S. Treasury Securities Fund, Short-Term Bond Fund and Sunbelt Equity Fund, respectively; STI Capital is entitled to receive advisory fees computed daily and paid monthly at the annual rate of 0.65%, 0.74%, 0.74%, 0.65%, 1.15%, 0.95%, 1.15%, 0.80% and 1.25% of the average daily net assets of the Florida Tax-Exempt Bond Fund, Investment Grade Bond Fund, Investment Grade Tax-Exempt Bond Fund, Limited-Term Federal Mortgage Securities Fund, Capital Growth Fund, Balanced Fund, Mid-Cap Equity Fund, Value Income Stock Fund and International Equity Fund, respectively. Trusco and STI Capital jointly are entitled to receive an advisory fee computed daily and paid monthly at the annual rate of 0.90% of the average daily net assets of the International Equity Index Fund; SunTrust Bank, Chattanooga is entitled to receive advisory fees computed daily and paid monthly at the annual rates of .65% of the average daily net assets of the Tennessee Tax-Exempt Bond Fund; and SunTrust Bank, Atlanta is entitled to receive advisory fees computed daily and paid monthly at the annual rate of .65% of the average daily net assets of the Georgia Tax-Exempt Bond Fund. Although the advisory fees for the Sunbelt Equity Fund, Capital Growth Fund, Balanced Fund, Mid-Cap Equity Fund, Value Income Stock Fund and International Equity Index Fund are higher than advisory fees paid by other mutual funds, the Trust believes that the fees are comparable to the advisory fees paid by many other mutual funds with similar investment objectives and policies. From time to time, an Advisor may waive (either voluntarily or pursuant to applicable state limitations) advisory fees payable by a Fund. Currently, the Advisors 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 any time. 37 For the fiscal year ended May 31, 1996: Trusco received advisory fees computed daily and paid monthly at the annual rate of 0.22%, 0.46%, 1.02%, and 0.16% of the average daily net assets of the Short-Term U.S. Treasury Securities Fund, Short-Term Bond Fund, Sunbelt Equity Fund, and U.S. Government Securities Fund, respectively; STI Capital received advisory fees computed daily and paid monthly at the annual rate of 0.38%, 0.63%, 0.61%, 1.03%, 0.79%, 1.00%, 0.80%, 0.43% and 1.06%, of the average daily net assets of the Florida Tax-Exempt Bond Fund, Investment Grade Bond Fund, Investment Grade Tax-Exempt Bond Fund, Capital Growth Fund, Balanced Fund, Mid-Cap Equity Fund, Value Income Stock Fund, Limited-Term Federal Mortgage Securities Fund and International Equity Fund, respectively; Trusco and STI Capital jointly received an advisory fee computed daily and paid monthly at the annual rate of 0.76% of the average daily net assets of the International Equity Index Fund; SunTrust Bank, Chattanooga received advisory fees computed daily and paid monthly at the annual rates of 0.00% of the average daily net assets of the Tennessee Tax-Exempt Bond Fund; and SunTrust Bank, Atlanta received advisory fees computed daily and paid monthly at the annual rate of 0.37% of the average daily net assets of the Georgia Tax- Exempt Bond Fund. PORTFOLIO MANAGERS Mr. Charles B. Leonard, CFA, First Vice President of Trusco, and Michael L. Ford, an Associate of Trusco, have been responsible for the day-to-day management of the U.S. Government Securities Fund since it commenced operations. Mr. Leonard has been with Trusco since 1986 as the senior fixed income manager. Mr. Ford has been with Trusco since April 1994. Prior to joining Trusco, Mr. Ford served as a senior securities analyst with Liberty Capital Advisors from January, 1992 to April, 1994 and has served as a securities analyst at Southern Farm Bureau Life Insurance Company from 1990 to 1992. Mr. L. Earl Denney, CFA, and Mr. Dave E. West, CFA, have been responsible for the day-to-day management of the Limited-Term Federal Mortgage Securities Fund since it commenced operations. Mr. Denney has served as Executive Vice President of STI Capital since 1983. Mr. West has served as a fixed income portfolio manager with STI Capital since 1989. Mr. Denney has also been responsible for the day-to-day management of the Investment Grade Bond Fund since it commenced operations and the fixed income portion of the Balanced Fund since it commenced operations. Ms. Gay Cash has been responsible for the day-to-day management of the Georgia Tax-Exempt Bond Fund since it commenced operations. Ms. Cash has served as a Vice President of SunTrust Bank, Atlanta since January 1, 1987. Mr. Ronald Schwartz, CFA, has been responsible for the day-to-day management of the Florida Tax-Exempt Bond and Investment Grade Tax-Exempt Bond Funds since each Fund commenced operations. Mr. Schwartz joined STI Capital in 1988 and currently serves as a Senior Vice President. Mr. Schwartz, has also been responsible for the day-to-day management of the Tennessee Tax-Exempt Bond Fund since July, 1995. Mr. Schwartz serves as Vice President and Trust Investment Officer of SunTrust Bank, Chattanooga. Mr. Mills Riddick, CFA, has been responsible for the day-to-day management of the Value Income Stock Fund since April, 1995. Mr. Riddick has been a value portfolio manager at STI Capital since 1989. Mr. Anthony Gray has been responsible for the day-to-day management of the Capital Growth 38 Fund since it commenced operations. Mr. Gray has served as Chief Executive Officer and Chief Investment Officer of STI Capital since 1979. Mr. Gray has also been responsible for the day-to-day management of the equity portion of the Balanced Fund since it commenced operations. Mr. Elliott A. Perny has been responsible for the day-to-day management of the Mid-Cap Equity Fund since October 1, 1996. Mr. Perny has served as Senior Executive Vice President of STI Capital since September, 1992 and has served as a portfolio manager with STI Capital since 1991. Mr. Dan Jaworski has been responsible for the day-to-day management of the International Equity Fund since it commenced operations. 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. Mr. David Yealy has been responsible for the day-to-day management of the Short-Term Bond and Short-Term U.S. Treasury Securities Funds since July 1996. Mr. Yealy joined Trusco in 1991 and currently serves as a Vice President. Mr. James Foster has been responsible for the day-to-day management of the Sunbelt Equity Fund since it commenced operations. Mr. Foster has served as a Vice President of Trusco since 1989. Mr. Stanley J. Cherny and Mr. Robert J. Rhodes, CFA, have been responsible for the day-to-day operations of the International Equity Index Fund since it commenced operations, Mr. Cherny has been with Trusco since 1994. Prior to joining Trusco, Mr. Cherny served as a portfolio manager with Payden & Rygel from 1988 to 1994. Mr. Rhodes has served as a portfolio manager and Director of Research with Trusco since June, 1985. BANKING LAWS Banking laws and regulations, including the Glass-Steagall Act as presently interpreted by the Board of Governors of the Federal Reserve System, currently (a) prohibit a bank holding company registered under the Federal Bank Holding Company Act of 1956 or its affiliates from sponsoring, organizing, controlling, or distributing the shares of a registered, open-end investment company continuously engaged in the issuance of its shares, and generally prohibit banks from underwriting securities, but (b) do not prohibit such a bank holding company or affiliate or banks generally from acting as an investment advisor, transfer agent, or custodian to such an investment company or from purchasing shares of such a company as agent for and upon the order of a customer. The Advisors believe that each may perform the services for STI Classic Funds contemplated by their respective Advisory Agreements described in this Prospectus without violation of applicable banking laws or regulations. However, future changes in legal requirements relating to the permissible activities of banks and their affiliates, as well as future interpretations of present requirements, could prevent the Advisors from continuing to perform services for STI Classic Funds. If the Advisors were prohibited from providing services to STI Classic Funds, 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 Advisors, or their affiliates, would consider the possibility of offering to perform additional services for STI Classic Funds. It is not possible, of course, to predict whether or in what form such legislation might be enacted or 39 the terms upon which the Advisors, or such affiliates, might offer to provide such services. In addition, state securities laws on this 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 (the "Distribution Agreement") dated May 29, 1992. The Flex Shares of each Fund have a distribution plan ("Flex Plan"). The Distribution Agreement and the Flex Plan provide that the Flex Shares of the Funds may pay a distribution services fee to the Distributor of up to .75% of the average daily net assets of the Flex Shares of each 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 sales charges 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 Flex Shares to the amounts set forth under "Expense Summary." The Distributor may apply the distribution fee toward: (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. The Flex Plan is characterized as a compensation plan 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 Flex Shares of the Trust and application forms. Trust Shares of each Fund are offered without a sales charge or a distribution or service 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. Investor Shares of each Fund are offered subject to a sales load on purchases and a distribution fee. The different sales charge option of the Investor Shares provides investors with an alternative purchase arrangement to the Flex Shares. An investor may call 1-800-874-4770 to receive more information regarding Trust Shares or Investor Shares. It is possible that financial institutions and intermediaries may offer different classes of shares to their customers and thus receive different compensation with respect to different classes of shares. Each Fund may execute brokerage or other agency transactions through the Distributor, for which the Distributor receives compensation. 40 With respect to each of the Funds, the Distributor may, from time to time and at its own expense, provide promotional incentives, in the form of cash or other compensation, to certain financial institutions whose representatives have sold or are expected to sell significant amounts of these Funds. ADMINISTRATION SEI Fund Resources (the "Administrator") serves as Administrator of the Trust. 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 from each Fund, which is calculated daily and paid monthly at an annual rate as follows:
AVERAGE AGGREGATE DAILY NET ASSETS FEE - ---------------------------------------- --------- $1 - $1 billion......................... 0.10% over $1 billion to $5 billion........... 0.07% over $5 billion to $8 billion........... 0.05% over $8 billion to $10 billion.......... 0.045% over $10 billion........................ 0.04%
From time to time, the Administrator may waive (either voluntarily or pursuant to applicable state limitations) all or a portion of the administration fee payable with respect to the Trust. TRANSFER AGENT AND DIVIDEND DISBURSING AGENT Federated Services Company, Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779, 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, Georgia 30308, serves as custodian of the assets of each Fund of the Trust except the International Equity Index and International Equity Funds. Union 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, New York, 10286, serves as custodian for the International Equity Fund. The custodians hold cash, securities and other assets of the Trust as required by the 1940 Act. LEGAL COUNSEL Morgan, Lewis & Bockius LLP, Philadelphia, Pennsylvania, serves as legal counsel to the Trust. INDEPENDENT PUBLIC ACCOUNTANTS The independent public accountants to the Trust are Arthur Andersen LLP, Philadelphia, Pennsylvania. OTHER INFORMATION VOTING RIGHTS Each share held entitles the 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 41 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 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 1-800-874-4770. DESCRIPTION OF PERMITTED INVESTMENTS The following is a description of the permitted investments for the Funds. Further discussion is contained in the Statement of Additional Information. AMERICAN DEPOSITARY RECEIPTS ("ADRs") -- ADRs are securities, typically issued by a U.S. financial institution (a "depositary"), that evidence ownership interests in a security or a pool of securities issued by a foreign issuer and deposited with the depositary. ADRs may be available through "sponsored" or "unsponsored" facilities. A sponsored facility is established jointly by the issuer of the security underlying the receipt and a depositary, whereas an unsponsored facility may be established by a depositary without participation by the issuer of the underlying security. Holders of unsponsored depositary receipts generally bear all the costs of the unsponsored facility. The depositary of an unsponsored facility frequently is under no obligation to distribute shareholder communications received from the issuer of the deposited security or to pass through, to the holders of the receipts, voting rights with respect to the deposited securities. ASSET-BACKED SECURITIES -- Asset-backed securities are securities secured by non-mortgage assets such as company receivables, truck and auto loans, leases and credit card receivables. Such securities are generally issued as pass-through certificates, which represent undivided fractional ownership interests in the underlying pools of assets. Such securities also may be debt instruments, which are also known as collateralized obligations and are generally issued as the debt of a special purpose entity, such as a trust, organized solely for the purpose of owning such assets and issuing such debt. Asset-backed securities are not issued or guaranteed by the U.S. Government, its agencies or instrumentalities; however, the payment of principal and interest on such obligations may be guaranteed up to certain amounts and for a certain period by a letter of credit issued by a financial institution (such as a bank or insurance company) unaffiliated with the issuers of such securities. The purchase of asset-backed securities raises risk considerations peculiar to the financing of the instruments underlying such securities. For example, there is a risk that another party could acquire an interest in the obligations superior to that of the holders of the asset-backed securities. There also is the possibility that recoveries on repossessed collateral may not, in some cases, be available to support payments on those securities. Asset-backed securities entail prepayment risk, which may vary depending on the type of asset, but is generally less than the prepayment risk associated with mortgage-backed securities. In 42 addition, credit card receivables are unsecured obligations of the card holder. The market for asset-backed securities is at a relatively early stage of development. Accordingly, there may be a limited secondary market for such securities. BANKERS' ACCEPTANCES -- Bankers' acceptances are bills of exchange or time drafts drawn on and accepted by a commercial bank. Bankers' acceptances are used by corporations to finance the shipment and storage of goods. Maturities are generally six months or less. CERTIFICATES OF DEPOSIT -- Certificates of deposit are interest bearing instruments with a specific maturity. They are issued by banks and savings and loan institutions in exchange for the deposit of funds and normally can be traded in the secondary market prior to maturity. Certificates of deposit with penalties for early withdrawal will be considered illiquid. COMMERCIAL PAPER -- Commercial paper is a term used to describe unsecured short-term promissory notes issued by banks, municipalities, corporations and other entities. Maturities on these issues vary from a few to 270 days. CONVERTIBLE SECURITIES -- Convertible securities are corporate securities that are exchangeable for a set number of another security at a prestated price. Convertible securities typically have characteristics similar to both fixed income and equity securities. Because of the conversion feature, the market value of a convertible security tends to move with the market value of the underlying stock. The value of a convertible security is also affected by prevailing interest rates, the credit quality of the issuer, and any call provisions. CORPORATE DEBT OBLIGATIONS -- Corporate debt obligations are debt instruments issued by corporations with maturities exceeding 270 days. Such instruments may include putable corporate bonds and zero coupon bonds. CUSTODIAL RECEIPTS -- Custodial receipts are interests in separately traded interest and principal component parts of U.S. Treasury obligations that are issued by banks or brokerage firms and are created by depositing U.S. Treasury obligations into a special account at a custodian bank. The custodian holds the interest and principal payments for the benefit of the registered owners of the certificates or receipts. The custodian arranges for the issuance of the certificates or receipts evidencing ownership and maintains the register. Receipts include Treasury Receipts ("TRs"), Treasury Investment Growth Receipts ("TIGRs"), and Certificates of Accrual on Treasury Securities ("CATS"). Receipts are sold as zero coupon securities which means that they are sold at a substantial discount and redeemed at face value at their maturity date without interim cash payments of interest or principal. This discount is accreted over the life of the security, and such accretion will constitute the income earned on the security for both accounting and tax purposes. Because of these features, such securities may be subject to greater interest rate volatility than interest paying investments. See "Zero Coupon Obligations." DERIVATIVES -- Derivatives are securities whose value is derived from an underlying contract, index or security, or any combination thereof. This includes: futures, swap agreements, and some mortgage-back securities (CMOs, REMICs, and SMBs). See elsewhere in this "Description of Permitted Investments" for discussions of these various instruments, and see "Investment Policies and Strategies" for more information about any investment policies and limitations applicable to their use. 43 DOLLAR ROLLS -- Dollar rolls are transactions in which securities are sold for delivery in the current month and the seller simultaneously contracts to repurchase substantially similar securities on a specified future date. Any difference between the sale price and the purchase price is netted against the interest income foregone on the securities sold to arrive at an implied borrowing rate. Alternatively, the sale and purchase transactions can be executed at the same price, with the Fund being paid a fee as consideration for entering into the commitment to purchase. Dollar rolls may be renewed prior to cash settlement and initially may involve only a firm commitment agreement by the Fund to buy a security. If the broker-dealer to whom the Fund sells the security becomes insolvent, the Fund's right to repurchase the security may be restricted. Other risks involved in entering into dollar rolls include the risk that the value of the security may change adversely over the term of the dollar roll and that the security the Fund is required to repurchase may be worth less than the security that the Fund originally held. To avoid any leveraging concerns, the Fund will place U.S. Government or other liquid, high grade assets in a segregated account in an amount sufficient to cover its repurchase obligation. 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." EURODOLLAR AND YANKEE BANK OBLIGATIONS -- Eurodollar bank obligations are U.S. dollar-denominated certificates of deposit or time deposits issued outside the United States by foreign branches of U.S. banks or by foreign banks. Yankee bank obligations are U.S. dollar denominated obligations issued in the United States by foreign banks. 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. A 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 position in a futures contract at a specified exercise price during the term of the option. A Fund may use futures contracts and related options for bona fide hedging purposes, to offset changes in the value of securities held or expected to be acquired, to minimize fluctuations in foreign currencies, or to gain exposure to a particular market or instrument. A Fund will minimize the risk that it will be unable to close out a futures contract by only 44 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. GUARANTEED INVESTMENT CONTRACTS ("GICs") -- GICs are contracts issued by U.S. insurance companies. Pursuant to such contracts, the Fund makes cash contributions to a deposit fund of the insurance company's general account. The insurance company then credits to the Fund on a monthly basis guaranteed interest at either a fixed, variable or floating rate. A GIC provides that this guaranteed interest will not be less than a certain minimum rate. A GIC is a general obligation of the issuing insurance company and not a separate account. The purchase price paid for a GIC becomes part of the general assets of the issuer, and the contract is paid at maturity from the general assets of the issuer. Generally, GICs are not assignable or transferable without the permission of the issuing insurance company. For this reason, an active secondary market in GICs does not currently exist and GICs are considered to be illiquid investments. 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. LOAN PARTICIPATIONS -- Loan participations are interests in loans to U.S. corporations which are administered by the lending bank or agent for a syndicate of lending banks, and sold by the lending bank or syndicate member ("intermediary bank"). In a loan participation, the borrower corporation will be deemed to be the issuer of the participation interest except to the extent the Fund derives its rights from the intermediary bank. Because the intermediary bank does not guarantee a loan participation, a loan participation is subject to the credit risks associated with the underlying corporate borrower. In the event of bankruptcy or insolvency of the corporate borrower, a loan participation may be subject to certain defenses that can be asserted by such borrower as a result of improper conduct by the intermediary bank. In addition, in the event the underlying corporate borrower fails to pay principal and interest when due, the Fund may be subject to delays, expenses and risks that are greater than those that would have been involved if the Fund had purchased a direct obligation of such borrower. Under the terms of 45 a Loan Participation, the Fund may be regarded as a creditor of the intermediary bank (rather than of the underlying corporate borrower), so that the Fund may also be subject to the risk that the intermediary bank may become insolvent. The secondary market for loan participations is limited and any such participation purchased by the Fund may be regarded as illiquid. MEDIUM TERM NOTES -- Medium term notes are periodically or continuously offered corporate or agency debt that differs from traditionally underwritten corporate bonds only in the process by which they are issued. MORTGAGE-BACKED SECURITIES -- Mortgage-backed securities are instruments that entitle the holder to a share of all interest and principal payments from mortgages underlying the security. The mortgages backing these securities include conventional thirty-year fixed rate mortgages, graduated payment mortgages, and adjustable rate mortgages. During periods of declining interest rates, prepayment of mortgages underlying mortgage-backed securities can be expected to accelerate. Prepayment of mortgages which underlie securities purchased at a premium often results in capital losses, while prepayment of mortgages purchased at a discount often results in capital gains. Because of these unpredictable prepayment characteristics, it is often not possible to predict accurately the average life or realized yield of a particular issue. GOVERNMENT PASS-THROUGH SECURITIES: These are securities that are issued or guaranteed by a U.S. Government agency representing an interest in a pool of mortgage loans. The primary issuers or guarantors of these mortgage-backed securities are the Government National Mortgage Association ("GNMA"), the Federal National Mortgage Association ("FNMA"), and the Federal Home Loan Mortgage Corporation ("FHLMC"). FNMA and FHLMC obligations are not backed by the full faith and credit of the U.S. Government as GNMA certificates are, but FNMA and FHLMC securities are supported by the instrumentalities' right to borrow from the U.S. Treasury. GNMA, FNMA and FHLMC each guarantees timely distributions of interest to certificate holders. GNMA and FNMA also each guarantees timely distributions of scheduled principal. FHLMC has in the past guaranteed only the ultimate collection of principal of the underlying mortgage loan; however, FHLMC now issues mortgage-backed securities (FHLMC Gold PCs) which also guarantee timely payment of monthly principal reductions. Government and private guarantees do not extend to the securities' value, which is likely to vary inversely with fluctuations in interest rates. PRIVATE PASS-THROUGH SECURITIES: These are mortgage-backed securities issued by a non-governmental entity, such as a trust. These securities include collateralized mortgage obligations ("CMOs") and real estate mortgage investment conduits ("REMICs") that are rated in one of the top two rating categories. While they are generally structured with one or more types of credit enhancement, private pass-through securities typically lack a guarantee by an entity having the credit status of a governmental agency or instrumentality. COLLATERALIZED MORTGAGE OBLIGATIONS: CMOs are debt obligations or multiclass pass-through certificates issued by agencies or instrumentalities of the U.S. Government or by private originators or investors in mortgage loans. In a CMO, series of bonds or certificates are usually issued in multiple classes. Principal and interest paid on the underlying mortgage assets may be allocated among the several classes of a series of a CMO in a variety of ways. Each class of a CMO, often referred to as a "tranche," is issued with a specific fixed 46 or floating coupon rate and has a stated maturity or final distribution date. Principal payments on the underlying mortgage assets may cause CMOs to be retired substantially earlier then their stated maturities or final distribution dates, resulting in a loss of all or part of any premium paid. REMICS: A REMIC is a CMO that qualifies for special tax treatment under the Internal Revenue Code and invests in certain mortgages principally secured by interests in real property. Investors may purchase beneficial interests in REMICs, which are known as "regular" interests, or "residual" interests. Guaranteed REMIC pass-through certificates ("REMIC Certificates") issued by FNMA or FHLMC represent beneficial ownership interests in a REMIC trust consisting principally of mortgage loans or FNMA, FHLMC or GNMA-guaranteed mortgage pass-through certificates. For FHLMC REMIC Certificates, FHLMC guarantees the timely payment of interest, and also guarantees the payment of principal as payments are required to be made on the underlying mortgage participation certificates. FNMA REMIC Certificates are issued and guaranteed as to timely distribution of principal and interest by FNMA. STRIPPED MORTGAGE-BACKED SECURITIES ("SMBS"): SMBs are usually structured with two classes that receive specified proportions of the monthly interest and principal payments from a pool of mortgage securities. One class may receive all of the interest payments and is thus termed an interest-only class ("IO"), while the other class may receive all of the principal payments and thus is termed the principal-only class ("PO"). The value of IOs tends to increase as rates rise and decrease as rates fall; the opposite is true of POs. SMBs are extremely sensitive to changes in interest rates because of the impact thereon of prepayment of principal on the underlying mortgage securities. The market for SMBs is not as fully developed as other markets; SMBs therefore may be illiquid. RISK FACTORS: Due to the possibility of prepayments of the underlying mortgage instruments, mortgage-backed securities generally do not have a known maturity. In the absence of a known maturity, market participants generally refer to an estimated average life. An average life estimate is a function of an assumption regarding anticipated prepayment patterns, based upon current interest rates, current conditions in the relevant housing markets and other factors. The assumption is necessarily subjective, and thus different market participants can produce different average life estimates with regard to the same security. There can be no assurance that estimated average life will be a security's actual average life. MUNICIPAL FORWARDS -- Municipal forwards are forward commitments for the purchase of tax-exempt bonds with a specified coupon to be delivered by an issuer at a future date, typically exceeding 45 days but normally less than one year after the commitment date. Municipal forwards are normally used as a refunding mechanism for bonds that may only be redeemed on a designated future date. A Fund will enter into municipal forwards when the price and yield of the underlying bonds are believed to be favorable when compared to current prices and yields. As with forward commitments, municipal forwards are subject to market fluctuations due to changes in market interest rates between the commitment date and the settlement date. Municipal forwards may be considered to be illiquid investments. To avoid any leveraging concerns, a Fund will maintain liquid, high grade securities in a segregated account at least equal to the purchase price of the municipal forward. 47 MUNICIPAL LEASE OBLIGATIONS -- Municipal lease obligations are securities issued by state and local governments and authorities to finance the acquisition of equipment and facilities. They may take the form of a lease, an installment purchase contract, a conditional sales contract, or a participation interest in any of the above. Depending upon the market for such securities, municipal lease obligations may be illiquid. MUNICIPAL SECURITIES -- Municipal securities consist of (i) debt obligations issued by or on behalf of public authorities to obtain funds to be used for various public facilities, for refunding outstanding obligations, for general operating expenses, and for lending such funds to other public institutions and facilities, and (ii) certain private activity and industrial development bonds issued by or on behalf of public authorities to obtain funds to provide for the construction, equipment, repair or improvement of privately operated facilities. General obligation bonds are backed by the taxing power of the issuing municipality. Revenue bonds are backed by the revenues of a project or facility (tolls from a bridge, for example). Certificates of participation represent an interest in an underlying obligation or commitment, such as an obligation issued in connection with a leasing arrangement. The payment of principal and interest on private activity and industrial development bonds generally is dependent solely on the ability of a facility's user to meet its financial obligations and the pledge, if any, of real and personal property as security for such payment. Municipal securities include both municipal notes and municipal bonds. Municipal notes include general obligation notes, tax anticipation notes, revenue anticipation notes, bond anticipation notes, certificates of indebtedness, demand notes and construction loan notes and participation interests in municipal notes. Municipal bonds include general obligation bonds, revenue or special obligation bonds, private activity and industrial development bonds and participation interests in municipal bonds. OPTIONS ON CURRENCIES -- The International Equity Index 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. OBLIGATIONS OF SUPRANATIONAL ENTITIES -- Supranational entities are entities established through the joint participation of several governments, and include the Asian Development Bank, the Inter-American Development Bank, International Bank for Reconstruction and Development (World Bank), African Development Bank, European Economic Community, European Investment Bank and the Nordic Investment Bank. PAY-IN-KIND SECURITIES -- Pay-in-Kind securities are bonds or preferred stock that pay interest or dividends in the form of additional bonds or preferred stock. REPURCHASE AGREEMENTS -- Repurchase agreements are agreements by which a Fund obtains a security and simultaneously commits to return the security to the seller at an agreed upon price on an agreed upon date within a number of days from the date of purchase. The custodian will hold the security as collateral for 48 the repurchase agreement. A Fund bears a risk of loss in the event the other party defaults on its obligations and the Fund is delayed or prevented from exercising its right to dispose of the collateral or if the Fund realizes a loss on the sale of the collateral. A Fund will enter into repurchase agreements only with financial institutions deemed to present minimal risk of bankruptcy during the term of the agreement based on established guidelines. Repurchase agreements are considered loans under the Investment Company Act of 1940. RESTRICTED SECURITIES -- Restricted securities are securities that may not be sold freely to the public absent registration under the Securities Act of 1933 or an exemption from registration. Rule 144A securities are securities that have not been registered under the Securities Act of 1933 but which may be traded between certain institutional investors including investment companies. The Trust's Board of Trustees is responsible for developing guidelines and procedures for determining the liquidity of restricted securities, and for monitoring the Advisor's implementation of the guidelines and procedures. SECURITIES LENDING -- In order to generate additional income, a Fund may lend securities which it owns pursuant to agreements requiring that the loan be continuously secured by collateral consisting of cash, securities of the U.S. Government or its agencies equal to at least 100% of the market value of the securities lent. A Fund continues to receive interest on the securities lent while simultaneously earning interest on the investment of cash collateral. Collateral is marked to market daily. There may be risks of delay in recovery of the securities or even loss of rights in the collateral should the borrower of the securities fail financially or become insolvent. SECURITIES OF FOREIGN ISSUERS -- There are certain risks connected with investing in foreign securities. These include risks of adverse political and economic developments (including possible governmental seizure or nationalization of assets), the possible imposition of exchange controls or other governmental restrictions, less uniformity in accounting and reporting requirements, the possibility that there will be less information on such securities and their issuers available to the public, the difficulty of obtaining or enforcing court judgments abroad, restrictions on foreign investments in other jurisdictions, difficulties in effecting repatriation of capital invested abroad, and difficulties in transaction settlements and the effect of delay on shareholder equity. Foreign securities may be subject to foreign taxes, and may be less marketable than comparable U.S. securities. The value of a Fund's investments denominated in foreign currencies will depend on the relative strengths of those currencies and the U.S. dollar, and a Fund may be affected favorably or unfavorably by changes in the exchange rates or exchange control regulations between foreign currencies and the U.S. dollar. Changes in foreign currency exchange rates also may affect the value of dividends and interest earned, gains and losses realized on the sale of securities and net investment income and gains, if any, to be distributed to shareholders by a Fund. STANDBY COMMITMENTS AND PUTS -- Securities subject to standby commitments or puts permit the holder thereof to sell the securities at a fixed price prior to maturity. Securities subject to a standby commitment or put may be sold at any time at the current market price. However, unless the standby commitment or put was an integral part of the security as originally issued, it may not be marketable or assignable; therefore, the standby commitment or put would only have value to the Fund owning the security to which it relates. In certain cases, a premium may be 49 paid for a standby commitment or put, which premium will have the effect of reducing the yield otherwise payable on the underlying security. The Fund will limit standby commitment or put transactions to institutions believed to present minimal credit risk. SWAPS, CAPS, FLOORS and COLLARS -- Interest rate swaps, mortgage swaps, currency swaps and other types of swap agreements such as caps, floors and collars are designed to permit the purchaser to preserve a return or spread on a particular investment or portion of its portfolio, and to protect against any increase in the price of securities the Fund anticipates purchasing at a later date. In a typical interest rate swap, one party agrees to make regular payments equal to a floating interest rate times a "notional principal amount," in return for payments equal to a fixed rate times the same amount, for a specific period of time. If a swap agreement provides for payment in different currencies, the parties might agree to exchange the notional principal amount as well. Swaps may also depend on other prices or rates, such as the value of an index or mortgage prepayment rates. In a typical cap or floor agreement, one party agrees to make payments only under specified circumstances, usually in return for payment of a fee by the other party. For example, the buyer of an interest rate cap obtains the right to receive payments to the extent that a specific interest rate exceeds an agreed-upon level, while the seller of an interest rate floor is obligated to make payments to the extent that a specified interest rate falls below an agreed-upon level. An interest rate collar combines elements of buying a cap and selling a floor. Swap agreements are sophisticated hedging instruments that typically involve a small investment of cash relative to the magnitude of risk assumed. As a result, swaps can be highly volatile and have a considerable impact on the Fund's performance. Swap agreements are subject to risks related to the counterparty's ability to perform, and may decline in value if the counterparty's creditworthiness deteriorates. The Fund may also suffer losses if it is unable to terminate outstanding swap agreements or reduce its exposure through offsetting transactions. Any obligation the Fund may have under these types of arrangements will be covered by setting aside liquid high grade securities in a segregated account. 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, FHLMC, 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., GNMA securities), others are supported by the right of the issuer to borrow from the Treasury (e.g., Federal Farm Credit Bank securities), while still others are supported only by the credit of the instrumentality (e.g., FNMA securities). 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 50 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") and Coupon Under Book Entry Safekeeping ("CUBES"). VARIABLE AND FLOATING RATE INSTRUMENTS -- Certain obligations may carry variable or floating rates of interest, and may involve a conditional or unconditional demand feature. Such instruments bear interest at rates which are not fixed, but which vary with changes in specified market rates or indices. The interest rates on these securities may be reset daily, weekly, quarterly or some other reset period, and may have a floor or ceiling on interest rate changes. There is a risk that the current interest rate on such obligations may not accurately reflect existing market interest rates. A demand instrument with a demand notice exceeding seven days may be considered illiquid if there is no secondary market for such security. WARRANTS -- Warrants are 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 segregate with liquid high grade debt securities or cash in an amount at least equal to these commitments. The interest rate realized on these securities is fixed as of the purchase date and no interest accrues to the Fund before settlement. These securities are subject to market fluctuation due to changes in market interest rates and it is possible that the market value at the time of settlement could be higher or lower than the purchase price if the general level of interest rates has changed. Although a Fund generally purchases securities on a when-issued or forward commitment basis with the intention of actually acquiring securities for its portfolio, a Fund may dispose of a when-issued security or forward commitment prior to settlement if it deems appropriate. ZERO COUPON OBLIGATIONS -- Zero coupon obligations are debt securities that do not bear any interest, but instead are issued at a deep discount from par. The value of a zero coupon obligation increases over time to reflect the interest accreted. Such obligations will not result in the payment of interest until maturity, and will have greater price volatility than similar securities that are issued at par and pay interest periodically. (THIS PAGE INTENTIONALLY LEFT BLANK) A-1 APPENDIX I. BOND RATINGS CORPORATE AND MUNICIPAL BONDS The following are descriptions of Standard & Poor's Corporation ("S&P") and Moody's Investors Service, Inc. ("Moody's") corporate and municipal 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 or 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. 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. Together with bonds rated Aaa, they comprise what are generally known as high-grade bonds. 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 a 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. MUNICIPAL NOTE RATINGS Moody's highest rating for state and municipal and other short-term notes is MIG-1 and VMIG-1. Short-term municipal securities rated MIG-1 or VMIG-1 are of the best quality. They have strong protection from established cash flows of funds for their servicing or from established and broad-based access to the market for refinancing or both. Short-term municipal securities rated MIG-2 and VMIG-2 are of high quality. Margins of protection are ample although not so large as in the preceding group. An S&P note rating reflects the liquidity concerns and market access risks unique to notes. Notes due in 3 years or less will likely receive a note rating. Notes maturing beyond 3 years will most likely receive a long-term debt rating. The following criteria will be used in making that assessment. - - Amortization schedule (the larger the final maturity relative to other maturities the more likely it will be treated as a note). - - Source of Payment (the more dependent the issue is on the market for its refinancing, the more likely it will be treated as a note). Note rating symbols are as follows: SP-1. Very strong or strong capacity to pay principal and interest. Those issues determined to possess overwhelming safety characteristics will be given a plus (+) designation. SP-2. Satisfactory capacity to pay principal and interest. II. COMMERCIAL PAPER AND SHORT-TERM RATINGS The following descriptions of commercial paper ratings have been published by S&P, Moody's, Fitch Investors Service, Inc. ("Fitch"), Duff and Phelps ("Duff") and IBCA Limited ("IBCA"), respectively. Commercial paper rated A by S&P is regarded by S&P as having the greatest capacity for timely payment. Issues rated A are further refined by use of the numbers 1+ and 1. Issues rated A-1+ are those with an "overwhelming degree" of credit protection. Those rated A-1 reflect a "very strong" degree of safety regarding timely payment. Those rated A-2 reflect a safety regarding timely payment but not as high as A-1. Commercial paper issues rated Prime-1 and Prime-2 by Moody's are judged by Moody's to have superior ability and strong ability for repayment, respectively. The rating Fitch-1+ (Exceptionally Strong Credit Quality) is the highest commercial rating assigned by Fitch. Paper rated Fitch-1+ is regarded as having the strongest degree of assurance for timely payment. The rating Fitch-1 (Strong Credit Quality) is the second highest commercial paper rating assigned by Fitch which reflects an assurance of timely A-3 payment only slightly less in degree than issues rated F-1+. The rating Duff-1 is the highest commercial paper rating assigned by Duff. Paper rated Duff-1 is regarded as having very high certainty of timely payment with excellent liquidity factors which are supported by ample asset protection. Risk factors are minor. Paper rated Duff-2 is regarded as having good certainty of timely payment, good access to capital markets and sound liquidity factors and company fundamentals. Risk factors are small. The designation A1 by IBCA indicates that the obligation is supported by a very strong capacity for timely repayment. Those obligations rated A1+ are supported by the highest capacity for timely repayment. Obligations rated A2 are supported by a strong capacity for timely repayment, although such capacity may be susceptible to adverse changes in business, economic or financial conditions. (THIS PAGE INTENTIONALLY LEFT BLANK) INVESTMENT SERVICES OFFICES OF SUNTRUST BANKS, INC. AFFILIATE BANKS: FLORIDA: (STATEWIDE TOLL FREE) 1-800-526-1177 SUNTRUST SECURITIES, INC. -- FLORIDA 200 S. Orange Avenue Tower 10 Orlando, FL 32801 (407) 237-4380 1-800-432-4760, ext.4380 501 E. Las Olas Boulevard Ft. Lauderdale, FL 33301 (954) 765-7422 Boca Raton Office 800 S. Federal Highway Boca Raton, FL 33435 (561) 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 (561) 243-6750 5200 W. Atlantic Ave. Delray Beach, FL 33484 (561) 243-6743 Hollywood Office 2001 Hollywood Blvd. Hollywood, FL 33021 (954) 765-7062 Palm Beach Office 303 Royal Poinciana Plaza Palm Beach, FL 33480 (561) 835-2855 PGA Office 4500 PGA Blvd. Palm Beach Gardens, FL 33410 (561) 835-2802 8200 W. Broward Blvd. Plantation, FL 33324 (954) 765-7661 777 Brickall Avenue Miami, FL 33131 (305) 579-7450 401 E. Jackson Street Tampa, FL 33602 (813) 224-2517 700 Virginia Avenue Ft. Pierce, FL 34982 (407) 467-6459 Osceola Office 111 East Osceola Street Stuart, FL 34994 (407) 223-6012 Belnova Office 120 S. Ridgewood Avenue Daytona Beach, FL 32114 (904) 258-2390 Bill France 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 200 W. Forsyth Street Jacksonville, FL 32202 (904) 632-2534 1612 E. Cape Coral Parkway Cape Coral, FL 33904 (941) 540-6128 Pelican Bay Office 801 Laurel Oak Drive Naples, FL 33963 (941) 598-0515 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 5899 Whitfield Avenue Sarasota, FL 34243 (941) 359-7415 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 Ave South Venice, FL 34285 (941) 486-4417 210 Security Square Winter Haven, FL 33880 (941) 297-6855 One East Jefferson Street Brooksville, FL 34601 (352) 754-5798 Crystal River Office 1502 SE Highway 19 Crystal River, FL 34428 (352) 795-8214 5435 Gall Blvd. Zephyrhills, FL 33541 (813) 780-4154 6335 U.S. Highway 19 New Port Richey, FL 34652 (813) 861-4375 Seven Hills Office 1170 Mariner Blvd. Spring Hill, FL 34609 (352) 754-5779 203 E. Silver Springs Blvd. Ocala, FL 34470 (352) 368-6477 3522 Thomasville Road Tallahassee, FL 32308 (904) 298-5064 511 W. 23rd Street Panama City, FL 32405 (904) 872-6086 11 Hoffman Drive Gulf Breeze, FL 32561 (904)435-1264 GEORGIA: SUNTRUST SECURITIES, INC. -- GEORGIA 55 Park Place First Floor Atlanta, GA 30303 (404) 588-8108 1-800-600-6350 101 N. Lumpkin Street Athens, GA 30601 (704) 354-5346 Gainesville Branch 427 Oak Street Gainesville, GA 30501 (770) 503-8674 100 East Second Avenue Rome, GA 30161 (706) 236-4325 2815 Wrightsboro Road Augusta, GA 30909 (706) 821-2015 606 Cherry Street Macon, GA 31201 (912) 755-5175 1246 First Avenue Columbus, GA 31901 (706) 649-3631 33 Bull Street, Suite 208 Savannah, GA 31401 (912) 944-1165 410 W. Broad Avenue Albany, GA 31701 (912) 430-5468 Coffee County Branch 201 S. Peterson Avenue Douglas, GA 31533 (912) 383-5242 510 Gloucester Street Brunswick, GA 31520 (912) 262-5322 701 Sea Island Road St. Simons Island, GA 31522 (912) 638-3620 (912) 262-2227 TENNESSEE: SUNTRUST SECURITIES, INC. -- TENNESSEE 424 Church Street 4th Floor Nashville, TN 37219 (615) 748-4477 1-800-932-2652 736 Market Street Chattanooga, TN 37402 (423) 757-3005 TN WATS 1-800-572-7306, Ext. 3005 Bordering States WATS 1-800-874-1083, Ext. 3005 Out of State WATS 1-800-251-6266, Ext. 3005 9950 Kingston Pike Knoxville, TN 37922 (423) 544-2181 1-800-456-1177 207 Mockingbird Lane Johnson City, TN 37604 (423) 461-1005 25 Public Square Lawrenceburg, TN 38464 615-762-3511 ALABAMA: SUNTRUST SECURITIES, INC. -- ALABAMA 201 South Court Street Florence, AL 35630 (205) 767-8537 (THIS PAGE INTENTIONALLY LEFT BLANK) (THIS PAGE INTENTIONALLY LEFT BLANK) DISTRIBUTOR SEI Financial Services Company ............................................................................... 100159/10-95 PROSPECTUS STI CLASSIC FUNDS FLEX SHARES A CLASS OF NO INITIAL SALES CHARGE FUNDS INVESTMENT ADVISORS STI CAPITAL MANAGEMENT, N.A. TRUSCO CAPITAL MANAGEMENT, INC. SUNTRUST BANK, CHATTANOOGA, N.A., SUNTRUST BANK, ATLANTA OCTOBER 1, 1996 Z STI CLASSIC FUNDS INVESTMENT ADVISORS: STI CAPITAL MANAGEMENT, N.A. TRUSCO CAPITAL MANAGEMENT, INC. SUNTRUST BANK, CHATTANOOGA, N.A. SUNTRUST BANK, ATLANTA 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 prospectuses dated October 1, 1996. Prospectuses may be obtained through the Distributor, SEI Financial Services Company, 680 E. Swedesford Road, Wayne, Pennsylvania 19087-1658. TABLE OF CONTENTS PAGE THE TRUST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-2 DESCRIPTION OF PERMITTED INVESTMENTS . . . . . . . . . . . . . . . . . . . B-2 INVESTMENT LIMITATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . B-14 INVESTMENT ADVISORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-17 THE ADMINISTRATOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-19 THE DISTRIBUTOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-20 TRUSTEES AND OFFICERS OF THE TRUST . . . . . . . . . . . . . . . . . . . . B-26 COMPUTATION OF YIELD . . . . . . . . . . . . . . . . . . . . . . . . . . . B-29 CALCULATION OF TOTAL RETURN . . . . . . . . . . . . . . . . . . . . . . . . B-34 PURCHASE AND REDEMPTION OF SHARES . . . . . . . . . . . . . . . . . . . . . B-38 DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . . . . . . . . . . . B-39 TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-40 FUND TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-44 TRADING PRACTICES AND BROKERAGE . . . . . . . . . . . . . . . . . . . . . . B-44 DESCRIPTION OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . B-49 SHAREHOLDER LIABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . B-49 LIMITATION OF TRUSTEES' LIABILITY . . . . . . . . . . . . . . . . . . . . . B-49 5% AND 25% SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . B-50 EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-60 October 1, 1996 THE TRUST STI Classic Funds (the "Trust") is a diversified, open-end management investment company established under Massachusetts law as a Massachusetts business trust under a Declaration of Trust dated January 15, 1992. The Declaration of Trust permits the Trust to offer separate series ("Funds") of units of beneficial interest ("shares") and different classes of shares of each Fund. Shareholders at present may purchase shares of the Trust's money market funds through two separate classes (Trust Shares and Investor Shares) and shares of the Trust's other funds through three separate classes (Trust Shares, Investor Shares and Flex Shares), which provide for variations in sales charges, distribution costs, transfer agent fees, voting rights and dividends. Except for these differences, each Trust Share, Investor Share and Flex Share, if any, 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 and Investor Shares of the Trust's Prime Quality Money Market Fund, U.S. Government Securities Money Market Fund and Tax-Exempt Money Market Fund (the "Money Market Funds") and the Trust Shares, Investor Shares and Flex Shares of the Trust's Investment Grade Bond Fund, Short-Term U.S. Treasury Securities Fund, Short-Term Bond Fund, U.S. Government Securities Fund and Limited-Term Federal Mortgage Securities Fund (the "Bond Funds"); Investment Grade Tax-Exempt Bond Fund, Florida Tax-Exempt Bond Fund, Georgia Tax-Exempt Bond Fund and Tennessee Tax-Exempt Bond Fund (the "Tax-Exempt Bond Funds"); Capital Growth Fund, Value Income Stock Fund, Mid-Cap Equity Fund, Sunbelt Equity Fund, International Equity Index Fund and International Equity Fund (the "Equity Funds"); and the Balanced Fund. These various series are collectively referred to herein as the "Funds." DESCRIPTION OF PERMITTED INVESTMENTS VARIABLE RATE MASTER DEMAND NOTES The Tax-Exempt Money Market Fund, Balanced Fund, Tax-Exempt Bond Funds and Value Income Stock Fund may invest in variable rate master demand notes which may or may not be backed by bank letters of credit. These notes permit the investment of fluctuating amounts at varying market rates of interest pursuant to direct arrangements between a Fund, as lender, and a borrower. Such notes provide that the interest rate on the amount outstanding varies on a daily, weekly or monthly basis depending upon a stated short-term interest rate index. Both the lender and the borrower have the right to reduce the amount of outstanding indebtedness at any time. There is no secondary market for the notes and it is not generally contemplated that such instruments will be traded. The quality of the note or the underlying credit must, in the opinion of the appropriate Advisor, be equivalent to the ratings applicable to permitted investments for the particular Fund. The appropriate Advisor will monitor on an ongoing basis the earning power, cash flow and liquidity ratios of the issuers of such instruments and will similarly monitor the ability of an issuer of a demand instrument to pay principal and interest on demand. B-2 STRIPS Each Fund may invest in Separately Traded Interest and Principal Securities ("STRIPS"), which are component parts of U.S. Treasury Securities traded through the Federal Book-Entry System. An Advisor will only purchase STRIPS that it determines are liquid or, if illiquid, do not violate the affected Fund's investment policy concerning investments in illiquid securities. Consistent with Rule 2a-7 under the Investment Company Act of 1940, as amended, (the "1940 Act"), the Money Market Funds' Advisor will only purchase STRIPS for Money Market Funds that have a remaining maturity of 397 days or less; therefore, the Money Market Funds currently may only purchase interest component parts of U.S. Treasury Securities. While there is no limitation on the percentage of a Fund's assets that may be comprised of STRIPS, the Money Market Funds' Advisor will monitor the level of such holdings to avoid the risk of impairing shareholders' redemption rights and of deviations in the value of shares of the Money Market Funds. U.S. GOVERNMENT AGENCY SECURITIES Certain investments of each of the Funds except the Short-Term U.S. Treasury Securities 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. 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 securities), 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 securities). Guarantees of principal by agencies or instrumentalities of the U.S. Government may be a guarantee of payment at the maturity of the obligation so that in the event of a default prior to maturity there might not be a market and thus no means of realizing the value of the obligation prior to maturity. MORTGAGE-BACKED SECURITIES Each of the Funds except the Short-Term U.S. Treasury Securities Fund, Sunbelt Equity Fund, Aggressive Growth Fund and International Equity Index Fund may invest in mortgage-backed securities issued or guaranteed by U.S. Government agencies or instrumentalities such as GNMA, FNMA and FHLMC. Obligations of GNMA are backed by the full faith and credit of the United States Government. Obligations of FNMA and FHLMC are not backed by the full faith and credit of the United States Government but are considered to B-3 be of high quality since they are considered to be instrumentalities of the United States. The market value and interest yield of these mortgage-backed securities can vary due to market interest rate fluctuations and early prepayments of underlying mortgages. These securities represent ownership in a pool of federally insured mortgage loans with a maximum maturity of 30 years. However, due to scheduled and unscheduled principal payments on the underlying loans, these securities have a shorter average maturity and, therefore, less principal volatility than a comparable 30-year bond. Since prepayment rates vary widely, it is not possible to accurately predict the average maturity of a particular mortgage-backed security. The scheduled monthly interest and principal payments relating to mortgages in the pool will be "passed through" to investors. Government mortgage-backed securities differ from conventional bonds in that principal is paid back to the certificate holders over the life of the loan rather than at maturity. As a result, there will be monthly scheduled payments of principal and interest. In addition, there may be unscheduled principal payments representing prepayments on the underlying mortgages. Although these securities may offer yields higher than those available from other types of U.S. Government securities, mortgage-backed securities may be less effective than other types of securities as a means of "locking in" attractive long-term rates because of the prepayment feature. For instance, when interest rates decline, the value of these securities likely will not rise as much as comparable debt securities due to the prepayment feature. In addition, these prepayments can cause the price of a mortgage-backed security originally purchased at a premium to decline in price to its par value, which may result in a loss. The Bond Funds, Prime Quality Money Market Fund and the Balanced Fund may also invest in privately issued mortgage-backed securities. Two principal types of mortgage-backed securities are collateralized mortgage obligations ("CMOs") and real estate mortgage investment conduits ("REMICs"), which are rated in one of the two highest categories by Standard & Poor's Corporation ("S&P") or Moody's Investors Service, Inc. ("Moody's"). CMOs are securities collateralized by mortgages, mortgage pass-throughs, mortgage pay-through bonds (bonds representing an interest in a pool of mortgages where the cash flow generated from the mortgage collateral pool is dedicated to bond repayment), and mortgage-backed bonds (general obligations of the issuers payable out of the issuers' general funds and additionally secured by a first lien on a pool of single family detached properties). Many CMOs are issued with a number of classes or series which have different expected maturities. Investors purchasing such CMOs are credited with their portion of the scheduled payments of interest and principal on the underlying mortgages plus all unscheduled prepayments of principal based on a predetermined priority schedule. Accordingly, the CMOs in the longer maturity series are less likely than other mortgage pass-throughs to be prepaid prior to their stated maturity. Although some of the mortgages underlying CMOs may be supported by various types of insurance, and some CMOs may be backed by GNMA certificates or other mortgage pass-throughs issued or guaranteed by U.S. Government agencies or instrumentalities, the CMOs themselves are not generally guaranteed. B-4 REMICs, which were authorized under the Tax Reform Act of 1986, are private entities formed for the purpose of holding a fixed pool of mortgages secured by an interest in real property. REMICs are similar to CMOs in that they issue multiple classes of securities. DETERMINING MATURITIES OF MORTGAGE-BACKED SECURITIES Due to prepayments of the underlying mortgage instruments, mortgage-backed securities do not have a known actual maturity. In the absence of a known maturity, market participants generally refer to an estimated average life. The Advisors believe that the estimated average life is the most appropriate measure of the maturity of a mortgage-backed security. Accordingly, in order to determine whether such security is a permissible investment for a Fund, it will be deemed to have a remaining maturity equal to its average life as estimated by that Fund's Advisor. An average life estimate is a function of an assumption regarding anticipated prepayment patterns. The assumption is based upon current interest rates, current conditions in the relevant housing markets and other factors. The assumption is necessarily subjective, and thus different market participants could produce somewhat different average life estimates with regard to the same security. There can be no assurance that the average life as estimated by an Advisor will be the actual average life. STRIPPED MORTGAGE-BACKED SECURITIES The Limited-Term Federal Mortgage Securities Fund may also invest in stripped mortgage-backed securities, which are securities that are created when a U.S. Government agency or a financial institution separates the interest and principal components of a mortgage-backed security and sells them as individual securities. The holder of the "principal-only" security (PO) receives the principal payments made by the underlying mortgage-backed security, while the holder of the "interest-only" security (IO) receives interest payments from the same underlying security. The prices of stripped mortgage-backed securities may be particularly affected by changes in interest rates. As interest rates fall, prepayment rates tend to increase, which tends to reduce prices of IOs and increase prices of POs. Rising interest rates can have the opposite effect. ASSET-BACKED SECURITIES In addition to mortgage-backed securities, the Bond Funds, Prime Quality Money Market Fund, Limited-Term Federal Mortgage Securities Fund and Balanced Fund may invest in other asset-backed securities rated in one of the two highest rating categories by S&P or Moody's, including company receivables, truck and auto loans, leases and credit card receivables. The Bond Funds may invest in other asset-backed securities that may be created in the future if the Advisor determines they are suitable. These issues may be traded over-the-counter and typically have a short-intermediate maturity structure depending on the paydown B-5 characteristics of the underlying financial assets which are passed through to the security holder. REPURCHASE AGREEMENTS Each of the Funds except the Short-Term U.S. Treasury Securities 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 a Fund for purposes of its investment limitations. The repurchase agreements entered into by a Fund will provide that the underlying security at all times shall have a value at least equal to 102% of the resale price stated in the agreement (the Advisors monitor compliance with this requirement). Under all repurchase agreements entered into by a Fund, the appropriate Custodian or its agent must take possession of the underlying collateral. However, if the seller defaults, a Fund could realize a loss on the sale of the underlying security to the extent that the proceeds of the sale including accrued interest are less than the resale price provided in the agreement including interest. In addition, even though the Bankruptcy Code provides protection for most repurchase agreements, if the seller should be involved in bankruptcy or insolvency proceedings, a Fund may incur delay and costs in selling the underlying security or may suffer a loss of principal and interest if the Fund is treated as an unsecured creditor and required to return the underlying security to the seller's estate. MUNICIPAL SECURITIES MUNICIPAL NOTES in which the Short-Term Bond Fund, Tax-Exempt Money Market Fund and Tax-Exempt Bond Funds may invest, consist of general obligation notes, tax anticipation notes (notes sold to finance working capital needs of the issuer in anticipation of receiving taxes on a future date), revenue anticipation notes (notes sold to provide needed cash prior to receipt of expected non-tax revenues from a specific source), bond anticipation notes, certificates of indebtedness, demand notes and construction loan notes. A Fund's investments in any of the notes described above will be limited to those obligations (i) where both principal and interest are backed by the full faith and credit of the United States, (ii) which are rated MIG-2 or V-MIG-2 at the time of investment by Moody's, (iii) which are rated SP-2 at the time of B-6 investment by S&P, or (iv) which, if not rated by S&P or Moody's, are in the Advisor's judgement, of at least comparable quality to MIG-2, VMIG-2 or SP-2. MUNICIPAL BONDS must be rated at least BBB or better by S&P or at least Baa or better by Moody's at the time of purchase for the Tax-Exempt Bond Funds or in one of the two highest short-term rating categories by S&P or Moody's for the Tax-Exempt Money Market Fund or, if not rated by S&P or Moody's, must be deemed by the Advisor to have essentially the same characteristics and quality as bonds having the above ratings. A Fund may purchase industrial development and pollution control bonds if the interest paid is exempt from Federal income tax. These bonds are issued by or on behalf of public authorities to raise money to finance various privately-operated facilities for business and manufacturing, housing, sports and pollution control. These bonds are also used to finance public facilities such as airports, mass transit systems, ports and parking. The payment of the principal and interest on such bonds is dependent solely on the ability of the facility's user to meet its financial obligations and the pledge, if any, of real and personal property so financed as security for such payment. OTHER TYPES OF TAX-EXEMPT INSTRUMENTS which are permissible investments for the Short-Term Bond Fund, Tax-Exempt Money Market Fund and Tax-Exempt Bond Funds include floating rate notes. Investments in such floating rate instruments will normally involve industrial development or revenue bonds which provide that the rate of interest is set as a specific percentage of a designated base rate (such as the prime rate) at a major commercial bank, and that the Fund can demand payment of the obligation at all times or at stipulated dates on short notice (not to exceed 30 days) at par plus accrued interest. Such obligations are frequently secured by letters of credit or other credit support arrangements provided by banks. The quality of the underlying credit or of the bank, as the case may be, must, in the Advisor's opinion be equivalent to the long-term bond or commercial paper ratings stated above. The Advisor will monitor the earning power, cash flow and liquidity ratios of the issuers of such instruments and the ability of an issuer of a demand instrument to pay principal and interest on demand. The Funds may also purchase participation interests in municipal securities (such as industrial development bonds and municipal lease/purchase agreements). A participation interest gives a Fund an undivided interest in the underlying municipal security. If it is unrated, the participation interest will be backed by an irrevocable letter of credit or guarantee of a credit-worthy financial institution or the payment obligations otherwise will be collateralized by U.S. Government Securities. Participation interests may have fixed, variable or floating rates of interest and may include a demand feature. A participation interest without a demand feature or with a demand feature exceeding seven days may be deemed to be an illiquid security subject to the Funds' investment limitations restricting their purchases of illiquid securities. A Fund may purchase other types of tax-exempt instruments as long as they are of a quality equivalent to the bond or commercial paper ratings stated above. Opinions relating to the validity of municipal securities and to the exemption of interest thereon from federal income tax are rendered by bond counsel to the respective issuers at the time of B-7 issuance. Neither the Funds nor an Advisor will review the proceedings relating to the issuance of municipal securities or the basis for such opinions. STANDBY COMMITMENTS AND PUTS The Prime Quality Money Market Fund, Tax-Exempt Money Market Fund, Balanced Fund, Tax-Exempt Bond Funds and the Bond Funds may purchase securities at a price which would result in a yield to maturity lower than that generally offered by the seller at the time of purchase when they can simultaneously acquire the right to sell the securities back to the seller, the issuer or a third party (the "writer") at an agreed-upon price at any time during a stated period or on a certain date. Such a right is generally denoted as a "standby commitment" or a "put." The purpose of engaging in transactions involving puts is to maintain flexibility and liquidity to permit the Funds to meet redemptions and remain as fully invested as possible in municipal securities. The Funds reserve the right to engage in put transactions. The right to put the securities depends on the writer's ability to pay for the securities at the time the put is exercised. A Fund would limit its put transactions to institutions which the Advisor believes present minimal credit risks, and the Advisor would use its best efforts to initially determine and continue to monitor the financial strength of the sellers of the options by evaluating their financial statements and such other information as is available in the marketplace. It may, however be difficult to monitor the financial strength of the writers because adequate current financial information may not be available. In the event that any writer is unable to honor a put for financial reasons, a Fund would be a general creditor (I.E., on a parity with all other unsecured creditors) of the writer. Furthermore, particular provisions of the contract between the Fund and the writer may excuse the writer from repurchasing the securities; for example, a change in the published rating of the underlying securities or any similar event that has an adverse effect on the issuer's credit or a provision in the contract that the put will not be exercised except in certain special cases, for example, to maintain portfolio liquidity. The Fund could, however, at any time sell the underlying portfolio security in the open market or wait until the portfolio security matures, at which time it should realize the full par value of the security. The securities purchased subject to a put may be sold to third persons at any time, even though the put is outstanding, but the put itself, unless it is an integral part of the security as originally issued, may not be marketable or otherwise assignable. Therefore, the put would have value only to the Fund. Sale of the securities to third parties or lapse of time with the put unexercised may terminate the right to put the securities. Prior to the expiration of any put option, the Fund could seek to negotiate terms for the extension of such an option. If such a renewal cannot be negotiated on terms satisfactory to the Fund, the Fund could, of course, sell the portfolio security. The maturity of the underlying security will generally be different from that of the put. There will be no limit to the percentage of portfolio securities that the Fund may purchase subject to a standby commitment or put, but the amount paid directly or indirectly for all standby commitments or puts which are not integral parts of the security as B-8 originally issued held in the Fund will not exceed 1/2 of 1% of the value of the total assets of such Fund calculated immediately after any such put is acquired. FOREIGN SECURITIES The Prime Quality Money Market Fund, Investment Grade Bond Fund, Short-Term Bond Fund, Balanced Fund and each of the Equity Funds, except the Sunbelt Equity Fund, may invest in U.S. dollar denominated obligations or securities of foreign issuers. The International Equity Index and International Equity Funds 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. Permissible investments may consist of obligations of foreign branches of U.S. banks and of foreign banks, including European Certificates of Deposit, European Time Deposits, Canadian Time Deposits and Yankee Certificates of Deposits, Canadian Commercial Paper, and Europaper. In addition, each of the above-mentioned Funds except for the Short-Term Bond Fund may invest in American Depositary Receipts. These instruments may subject the Funds to investment risks that differ in some respects from those related to investments in obligations of U.S. domestic issuers. Such risks include future adverse political and economic developments, the possible imposition of withholding taxes on interest or other income, possible seizure, nationalization, or expropriation of foreign deposits, the possible establishment of exchange controls or taxation at the source, greater fluctuations in value due to changes in exchange rates, or the adoption of other foreign governmental restrictions which might adversely affect the payment of principal and interest on such obligations. Such investments may also entail higher custodial fees and sales commissions than domestic investments. Foreign issuers of securities or obligations are often subject to accounting treatment and engage in business practices different from those respecting domestic issuers of similar securities or obligations. Foreign branches of U.S. banks and foreign banks may be subject to less stringent reserve requirements than those applicable to domestic branches of U.S. banks. By investing in foreign securities, the International Equity Index and International Equity Funds attempt 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 each 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 International Equity Index and International Equity Funds, when included in appropriate amounts in a portfolio otherwise consisting of domestic securities, may provide a source of increased diversification. The International Equity Index and International Equity Funds seek increased diversification by combining securities from various countries and geographic areas that offer different investment opportunities and are affected by different B-9 economic trends. The international investments of the International Equity Index and International Equity Funds 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. OBLIGATIONS OF SUPRANATIONAL AGENCIES The Prime Quality Money Market Fund, U.S. Government Securities Fund, Investment Grade Bond Fund, Balanced Fund and Short-Term Bond Fund may purchase obligations of supranational agencies. Currently these Funds intend to invest only in obligations issued or guaranteed by the Asian Development Bank, Inter-American Development Bank, International Bank for Reconstruction and Development (World Bank), African Development Bank, European Coal and Steel Community, European Economic Community, European Investment Bank and the Nordic Investment Bank. WHEN-ISSUED SECURITIES AND MUNICIPAL FORWARDS The Tax-Exempt Money Market Fund, Balanced Fund, Bond Funds, Tax-Exempt Bond Funds, Value Income Stock Fund, U.S. Government Securities Fund and the Limited-Term Federal Mortgage Securities Fund may purchase when-issued securities, in which case delivery and payment normally take place within 45 days (90 days with respect to the Limited-Term Federal Mortgage Security Fund) after the date of commitment to purchase. In addition, the Tax-Exempt Bond Funds may purchase municipal forwards for which delivery of the underlying municipal security normally occurs after 45 days but before one year after the commitment date. The Funds will only make commitments to purchase when-issued securities and municipal forwards with the intention of actually acquiring the securities, but may sell them before the settlement date. When-issued securities are subject to market fluctuation, and accrue no interest to the purchaser during this pre-settlement period. The payment obligation and the interest rate that will be received on the securities are each fixed at the time the purchaser enters into the commitment. Purchasing municipal forwards and when-issued securities entails leveraging and can involve a risk that the yields available in the market when the delivery takes place may actually be higher than those obtained in the transaction itself. In that case, there could be an unrealized loss at the time of delivery. Segregated accounts will be established with the appropriate Custodian, and a Fund will maintain high quality, liquid assets in an amount at least equal in value to its commitments to purchase when-issued securities and municipal forwards. If the value of these assets declines, the Fund will place additional liquid assets in the account on a daily basis so that the value of the assets in the account is equal to the amount of such commitments. B-10 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 Balanced Fund, Bond Funds, Tax-Exempt Bond Funds and Equity Funds include restricted securities, and each such Fund may invest up to 15% of its total assets in illiquid securities, subject to each Fund's investment limitations on the purchase of illiquid securities. Restricted Securities, including securities eligible for re-sale under 1933 Act Rule 144A, that are determined to be liquid are not subject to this limitation. This determination is to be made by a Fund's Advisor pursuant to guidelines adopted by the Board of Trustees. Under these guidelines, the particular 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, each Advisor intends to purchase securities that are exempt from registration under Rule 144A under the 1933 Act. SECURITIES LENDING Each Fund may lend securities pursuant to agreements which require that the loans be continuously secured by collateral at all times equal to 100% of the market value of the loaned securities which consists of: cash, securities of the U.S. Government or its agencies, or any combination of cash and such securities. Such loans will not be made if, as a result, the aggregate amount of all outstanding securities loans for a Fund exceed one-third of the value of the Fund's total assets taken at fair market value. A Fund will continue to receive interest on the securities lent while simultaneously earning interest on the investment of the cash collateral in U.S. Government securities. However, a Fund will normally pay lending fees to such broker-dealers and related expenses from the interest earned on invested collateral. There may be risks of delay in receiving additional collateral or risks of delay in recovery of the securities or even loss of rights in the collateral should the borrower of the securities fail financially. However, loans are made only to borrowers deemed by the appropriate Advisor to be of good standing and when, in the judgment of that Advisor, the consideration which can be earned currently from such securities loans justifies the attendant risk. Any loan may be terminated by either party upon reasonable notice to the other party. The Funds may use the Distributor or a broker-dealer affiliate of an Advisor as a broker in these transactions. FUTURES CONTRACTS AND OPTIONS ON FUTURES The Balanced Fund, Bond Funds, Tax-Exempt Bond Funds, International Equity Index Fund, International Equity Fund and Value Income Stock Fund may invest in futures contracts and options on futures. Although futures contracts by their terms call for actual delivery or acceptance of the underlying securities, in most cases the contracts are closed out before the settlement date without the making or taking of delivery. Closing out an open futures position is done by taking an opposite position ("buying" a contract which has previously been "sold" or B-11 "selling" a contract which has previously been "purchased") in an identical contract to terminate the position. Brokerage commissions are incurred when a futures contract is bought or sold. Futures traders are required to make a good faith margin deposit in cash or government securities with or for the account of a broker or custodian to initiate and maintain open secondary market will exist for any particular futures contract at any specific time. Thus, it may not be possible to close a futures position. In the event of adverse price movements, a Fund would continue to be required to make daily cash payments to maintain its required margin. In such situations, if a Fund has insufficient cash, it may have to sell portfolio securities to meet daily margin requirements at a time when it may be disadvantageous to do so. In addition, the Funds may be required to make delivery of the instruments underlying the futures contracts they hold. The inability to close options and futures positions also could have an adverse impact on the ability to effectively hedge the underlying securities. The Funds will minimize the risk that they will be unable to close out a futures contract by entering into futures contracts that are traded on national futures exchanges and for which there appears to be a liquid secondary market. The risk of loss in trading futures contracts can be substantial, due both to the low margin deposits required and the extremely high degree of leverage involved in futures pricing. As a result, a relatively small price movement in a futures contract may result in immediate and substantial loss (or gain) to a Fund. For example, if at the time of purchase, 10% of the value of the futures contract is deposited as margin, a subsequent 10% decrease in the value of the futures contract would result in a total loss of the margin deposit, before any deduction for the transaction costs, if the account were then closed out. A 15% decrease would result in a loss equal to 150% of the original margin deposit if the contract were closed out. Thus, a purchase or sale of a futures contract may result in losses in excess of the amount invested in the contract. However, because the Funds will be engaged in futures transactions only for hedging purposes, the Advisors do not believe that the Funds will generally be subject to the risks of loss frequently associated with futures transactions. The Funds presumably would have sustained comparable losses if, instead of the futures contract, they had invested in the underlying financial instrument and sold it after the decline. The risk of loss from the purchase of options is less as compared with the purchase or sale of futures contracts because the maximum amount at risk is the premium paid for the option. Utilization of futures transactions by the Funds does involve the risk of imperfect or no correlation where the securities underlying futures contracts have different maturities than the fund securities being hedged. It is also possible that the Funds could both lose money on futures contracts and experience a decline in value of its fund securities. There is also the risk of loss by the Funds of margin deposits in the event of the bankruptcy of a broker with whom the Funds have an open position in a futures contract or related option. B-12 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 Balanced Fund, Bond Funds, Tax-Exempt Bond Funds, International Equity Index Fund, International Equity Fund and Value Income Stock Fund may write call options on a covered basis only, and will not engage in option writing strategies for speculative purposes. A call option gives the purchaser of such option the right to buy, and the writer, in this case the Fund, the obligation to sell the underlying security at the exercise price during the option period. The advantage to the Funds of writing covered calls is that the Funds receive a premium which is additional income. However, if the security rises in value, the Funds may not fully participate in the market appreciation. During the option period, a covered call option writer may be assigned an exercise notice by the broker-dealer through whom such call option was sold requiring the writer to deliver the underlying security against payment of the exercise price. This obligation is terminated upon the expiration of the option period or at such earlier time in which the writer effects a closing purchase transaction. A closing purchase transaction is one in which the Fund, when obligated as a writer of an option, terminates its obligation by purchasing an option of the same series as the option previously written. A closing purchase transaction cannot be effected with respect to an option once the option writer has received an exercise notice for such option. Closing purchase transactions will ordinarily be effected to realize a profit on an outstanding call option, to prevent an underlying security from being called, to permit the sale of the underlying security or to enable a Fund to write another call option on the underlying security with either a different exercise price or expiration date or both. A Fund may realize a net gain or loss from a closing purchase transaction depending upon whether the net amount of the original premium received on the call option is more or less than the cost of effecting the closing purchase transaction. Any loss incurred in a closing purchase transaction may be partially or entirely offset by the premium received from a sale of a different call option on the same underlying security. Such a loss may also be wholly or partially offset by unrealized appreciation in the market value of the underlying security. B-13 If a call option expires unexercised, a Fund will realize a short-term capital gain in the amount of the premium on the option, less the commission paid. Such a gain, however, may be offset by depreciation in the market value of the underlying security during the option period. If a call option is exercised, a Fund will realize a gain or loss from the sale of the underlying security equal to the difference between the cost of the underlying security, and the proceeds of the sale of the security plus the amount of the premium on the option, less the commission paid. The market value of a call option generally reflects the market price of an underlying security. Other principal factors affecting market value include supply and demand, interest rates, the price volatility of the underlying security and the time remaining until the expiration date. The Funds will write call options only on a covered basis, which means that a Fund will own the underlying security subject to a call option at all times during the option period. Unless a closing purchase transaction is effected, a Fund would be required to continue to hold a security which it might otherwise wish to sell, or deliver a security it would want to hold. Options written by the Funds will normally have expiration dates between one and nine months from the date written. The exercise price of a call option may be below, equal to or above the current market value of the underlying security at the time the option is written. INVESTMENT COMPANY SHARES Investment companies typically incur fees that are separate from those fees incurred directly by the Fund. A Fund's purchase of such investment company securities results in the layering of expenses, such that Shareholders would indirectly bear a proportionate share of the operating expenses of such investment companies, including advisory fees. OTHER INVESTMENTS The Trust is not prohibited from investing in obligations of banks which are clients of SEI Corporation ("SEI"), the parent company of the Administrator and the Distributor. However, the purchase of shares of the Funds by such banks or by their customers will not be a consideration in determining which bank obligations the Funds will purchase. The Funds will not purchase obligations issued by the Advisors. Investors will receive written notification at least thirty days prior to any change in a Fund's investment objective. INVESTMENT LIMITATIONS The following are fundamental policies of each Fund and cannot be changed with respect to a Fund without the consent of the holders of a majority of that Fund's outstanding shares. A Fund may not: B-14 1. Acquire more than 10% of the voting securities of any one issuer. 2. Invest in companies for the purpose of exercising control. 3. Borrow money except for temporary or emergency purposes and then only in an amount not exceeding one-third of the value of total assets. Any borrowing will be done from a bank and, to the extent that such borrowing exceeds 5% of the value of the Fund's assets, asset coverage of at least 300% is required. In the event that such asset coverage shall at any time fall below 300%, the Fund shall, within three days thereafter or such longer period as the Securities and Exchange Commission may prescribe by rules and regulations, reduce the amount of its borrowings to such an extent that the asset coverage of such borrowings shall be at least 300%. This borrowing provision is included solely to facilitate the orderly sale of portfolio securities to accommodate heavy redemption requests if they should occur and is not for investment purposes. All borrowings in excess of 5% of the value of a Fund's total assets will be repaid before making additional investments and any interest paid on such borrowings will reduce income. 4. Make loans, except that (a) a Fund may purchase or hold debt instruments in accordance with its investment objective and policies; (b) a Fund may enter into repurchase agreements, and (c) the Bond Funds, Balanced Fund, U.S. Government Securities Fund, Limited-Term Federal Mortgage Securities Fund, International Equity Index Fund, International Equity Fund and the Value Income Stock Fund may engage in securities lending as described in the Prospectuses and in this Statement of Additional Information. 5. Pledge, mortgage or hypothecate assets except to secure temporary borrowings permitted by (3) above in aggregate amounts not to exceed 10% of the Fund's total assets, taken at current value at the time of the incurrence of such loan, except as permitted with respect to securities lending. 6. Purchase or sell real estate, real estate limited partnership interests, commodities or commodities contracts (except for financial futures contracts) and interests in a pool of securities that are secured by interests in real estate (except that each Bond Fund may purchase mortgage-backed and other mortgage-related securities, including collateralized mortgage obligations and REMICs). However, subject to their permitted investment spectrum, any Fund may invest in companies which invest in real estate commodities or commodities contracts. 7. Make short sales of securities, maintain a short position or purchase securities on margin, except that the Trust may obtain short-term credits as necessary for the clearance of security transactions. B-15 8. Act as an underwriter of securities of other issuers except as it may be deemed an underwriter in selling a security. 9. Purchase securities of other investment companies except for money market funds and CMOs and REMICs deemed to be investment companies and then only as permitted by the Investment Company Act of 1940 (the "1940 Act") and the rules and regulations thereunder, except that the Mid-Cap Equity, Sunbelt Equity, Balanced, Georgia Tax-Exempt Bond, Florida Tax-Exempt Bond, Tennessee Tax-Exempt Bond, U.S. Government Securities, Limited-Term Federal Mortgage Securities, International Equity Index and International Equity Funds' purchases of investment company shares are not limited to money market funds. Under these rules and regulations, a Fund is prohibited from acquiring the securities of other investment companies if, as a result of such acquisition, the Fund owns more than 3% of the total voting stock of the company; securities issued by any one investment company represent more than 5% of the total assets of a Fund; or securities (other than treasury stock) issued by all investment companies represent more than 10% of the total assets of the Fund. 10. Issue senior securities (as defined in the 1940 Act) except in connection with permitted borrowings as described above or as permitted by rule, regulation or order of the SEC. NON-FUNDAMENTAL POLICIES No Fund may purchase or retain securities of an issuer if, to the knowledge of the Trust, an officer, trustee, partner or director of the Trust or any Advisor of the Trust owns beneficially more than 1/2 of 1% of the shares or securities of such issuer and all such officers, trustees, partners and directors owning more than 1/2 of 1% of such shares or securities together own more than 5% of such shares or securities. No Fund may invest in warrants except that the Value Income Stock, Mid-Cap Equity, Sunbelt Equity, Capital Growth, International Equity Index, International Equity and Balanced Funds may each invest in warrants in an amount not exceeding 5% of its net assets as valued at the lower of cost or market value. Included in that amount, but not to exceed 2% of the Fund's net assets, may be warrants not listed on the New York Stock Exchange or American Stock Exchange. No Fund may invest in illiquid securities in an amount exceeding, in the aggregate, 15% of a Fund's assets (10% for the Prime Quality Money Market, U.S. Government Securities Money Market and Tax-Exempt Money Market Funds). 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. B-16 No Fund may invest in interests in oil, gas or other mineral exploration or development programs and oil, gas or mineral leases. No Fund may write or purchase puts, calls, options or combinations thereof, except that the Balanced Fund, Bond Funds, Tax-Exempt Bond Funds, International Equity Index Fund, International Equity Fund and Value Income Stock Fund may write covered call options with respect to any or all parts of their Fund securities and engage in futures transactions, and the Prime, Tax-Exempt Money Market, Balanced, Short Term Bond and Tax-Exempt Bond Funds may purchase putable securities. Funds may sell options previously purchased and enter into closing transactions with respect to covered call options. No Fund may invest in securities of issuers which together with predecessors have a record of less than three years continuous operation or equity securities of issuers which are not readily marketable if such investments will exceed 5% of the Fund's total assets. With the exception of the limitations on liquidity standards, the foregoing percentages will apply at the time of the purchase of a security and shall not be considered violated unless an excess occurs or exists immediately after and as a result of a purchase of such security. The Prime Quality Money Market Fund may not invest in guaranteed investment contracts. INVESTMENT ADVISORS The Trust and STI Capital Management, N.A., Trusco Capital Management, Inc., SunTrust Bank, Atlanta and SunTrust Bank, Chattanooga, N.A. (the "Advisors") have entered into advisory agreements with the Trust (the "Advisory Agreements"). The Advisory Agreements provide that each 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. Each 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 each 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. Each 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 B-17 Funds, by a majority of the outstanding shares of the Funds, on not less than 30 days' nor more than 60 days' written notice to the Advisor, or by the Advisor on 90 days' written notice to the Trust. For the fiscal years ended May 31, 1996, 1995, and 1994, the Funds paid the following advisory fees:
- ---------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- FEES PAID FEES WAIVED OR REIMBURSED ----------------------------------------------------------------------------------- FUND 1996 1995 1994 1996 1995 1994 - ---------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- Investment Grade Bond Fund $ 3,868,222 $ 3,274,146 $ 2,855,556 $ 709,139 $ 636,033 $ 664,188 - ---------------------------------------------------------------------------------------------------------------------------------- Florida Tax-Exempt Bond Fund(1) $ 107,618 $ 10,562 $ 0 $ 72,476 $ 45,986 $ 7,414 - ---------------------------------------------------------------------------------------------------------------------------------- Georgia Tax-Exempt Bond Fund(2) $ 83,243 $ 35,579 $ 0 $ 63,991 $ 50,699 $ 12,260 - ---------------------------------------------------------------------------------------------------------------------------------- Tennessee Tax-Exempt Bond Fund(3) $ 0 $ 0 $ 0 $ 46,809 $ 14,014 $ 2,016 - ---------------------------------------------------------------------------------------------------------------------------------- Short-Term Bond Fund $ 361,936 $ 212,070 $ 114,825 $ 149,827 $ 118,030 $ 85,482 - ---------------------------------------------------------------------------------------------------------------------------------- Investment Grade Tax-Exempt Bond Fund $ 917,948 $ 627,607 $ 280,656 $ 202,552 $ 138,553 $ 69,202 - ---------------------------------------------------------------------------------------------------------------------------------- U.S. Government Securities Fund(4) $ 16,097 $ 0 * $ 53,312 $ 7,817 * - ---------------------------------------------------------------------------------------------------------------------------------- Short-Term U.S. Treasury Securities Fund $ 36,729 $ 26,399 $ 124,578 $ 72,116 $ 64,786 $ 75,823 - ---------------------------------------------------------------------------------------------------------------------------------- Limited-Term Federal Mortgage Securities Fund $ 224,595 $ 78,778 * $ 119,538 $ 74,494 * - ---------------------------------------------------------------------------------------------------------------------------------- Prime Quality Money Market Fund $ 5,346,850 $ 4,052,982 $ 3,099,410 $ 1,602,546 $ 1,215,895 $ 929,822 - ---------------------------------------------------------------------------------------------------------------------------------- U.S. Government Securities Money Market Fund $ 2,068,133 $ 1,729,860 $ 1,807,117 $ 577,384 $ 507,624 $ 474,434 - ---------------------------------------------------------------------------------------------------------------------------------- Tax-Exempt Money Market Fund $ 1,422,777 $ 910,742 $ 492,172 $ 685,205 $ 583,588 $ 464,333 - ---------------------------------------------------------------------------------------------------------------------------------- Capital Growth Fund $ 12,099,047 $ 11,023,563 $ 8,819,976 $ 1,408,275 $ 1,393,475 $ 1,255,835 - ---------------------------------------------------------------------------------------------------------------------------------- Sunbelt Equity Fund $ 3,424,453 $ 2,353,943 $ 236,512 $ 465,317 $ 407,677 $ 143,666 - ---------------------------------------------------------------------------------------------------------------------------------- Value Income Stock Fund $ 9,447,738 $ 6,976,518 $ 2,998,756 $ 318,958 $ 28,394 $ 426,576 - ---------------------------------------------------------------------------------------------------------------------------------- International Equity Fund $ 746,780 * * $ 0 * * - ---------------------------------------------------------------------------------------------------------------------------------- International Equity Index Fund $ 0 $ 340,065 * $ 0 $ 135,043 * - ---------------------------------------------------------------------------------------------------------------------------------- Mid-Cap Equity Fund $ 2,057,932 $ 940,045 $ 52,988 $ 318,958 $ 195,873 $ 68,285 - ---------------------------------------------------------------------------------------------------------------------------------- Balanced Fund $ 823,692 $ 823,692 $ 209,237 $ 166,361 $ 149,133 $ 118,661 - ---------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------
*Not in operation during the period. B-18 (1) STI Capital Management, advisor to the Florida Tax Exempt Bond Fund reimbursed expenses of $7,846 for the fiscal year ended May 31, 1994. (2) SunTrust Bank, Atlanta, advisor to the Georgia Tax-Exempt Bond Fund reimbursed expenses of $4,536 for the fiscal year ended May 31, 1994. (3) SunTrust Bank, Chattanooga, advisor to the Tennessee Tax-Exempt Bond Fund, reimbursed expenses of $10,011 for the fiscal year ended May 31, 1994, $19,803 for the fiscal year ended May 31, 1995 and $17,277 for the fiscal year ended May 31, 1996. (4) Trusco Capital Management, Inc., advisor to the U.S. Government Securities Fund, reimbursed expenses of $27,216. THE ADMINISTRATOR The Trust and SEI Fund Resources (the "Administrator") are parties to an Administrative Agreement. Formerly, SEI Financial Management Corporation ("SFM") served as administrator to the Trust. The Administration Agreement provides that the Administrator shall not be liable for any error of judgment or mistake of law or for any loss suffered by the Trust in connection with the matters to which the Administration Agreement relates, except a loss resulting from willful misfeasance, bad faith or gross negligence on the part of the Administrator in the performance of its duties or from reckless disregard by it of its duties and obligations thereunder. The Administration Agreement shall remain in effect for a period of five years after the date of the Agreement and shall continue in effect for successive periods of two years subject to review at least annually by the Trustees of the Trust unless terminated by either party on not less than ninety days' written notice to the other party. The Administrator, a Delaware business trust, has its principal business offices at 680 East Swedesford Road, Wayne, Pennsylvania 19087-1658. SFM, a wholly-owned subsidiary of SEI Corporation ("SEI"), is the owner of all beneficial interest in the Administrator, SEI, its subsidiaries and the Administrator are leading providers of funds evaluation services, trust accounting systems, and brokerage and information services to financial institutions, institutional investors and money managers. The Administrator and its affiliates also serve as administrator to the following other mutual funds: The Achievement Funds Trust; The Advisors' Inner Circle Fund; The Arbor Fund; ARK Funds; Bishop Street Funds; CoreFunds, Inc.; CrestFunds, Inc.; CUFUND; FMB Funds, Inc.; First American Funds, Inc.; First American Investment Funds, Inc.; First American Strategy Funds, Inc.; Inventor Funds, Inc; Marquis Funds-Registered Trademark-; Monitor Funds; Morgan Grenfell Investment Trust; The PBHG Funds, Inc.; The Pillar Funds; The Profit Funds Investment Trust; Rembrandt Funds-Registered Trademark-; 1784 Funds-Registered Trademark-; SEI Asset Allocation Trust; SEI Daily Income Trust; SEI Index Funds; SEI Institutional Investments Trust; SEI Institutional Managed Trust; SEI International Trust; SEI Liquid Asset Trust; SEI Tax Exempt Trust; Stepstone Funds; and Turner Funds. For the fiscal years ended May 31, 1996, 1995 and 1994, the Funds paid the following administrative fees: B-19
- --------------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------------- FEES PAID FEES WAIVED ---------------------------------------------------------------------------------- FUND 1996 1995 1994 1996 1995 1994 - --------------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------------- Investment Grade Bond Fund $ 443,569 $ 404,413 $ 379,548 $ 0 $ 0 $ 0 - --------------------------------------------------------------------------------------------------------------------------------- Georgia Tax-Exempt Bond Fund $ 16,304 $ 10,140 $ 1,473 $ 0 $ 0 $ 0 - --------------------------------------------------------------------------------------------------------------------------------- Florida Tax-Exempt Bond Fund $ 19,989 $ 6,645 $ 885 $ 0 $ 0 $ 0 - --------------------------------------------------------------------------------------------------------------------------------- Tennessee Tax-Exempt Bond Fund $ 3,148 $ 1,648 $ 241 $ 0 $ 0 $ 0 - --------------------------------------------------------------------------------------------------------------------------------- Short-Term Bond Fund $ 56,317 $ 38,813 $ 24,575 $ 0 $ 0 $ 0 - --------------------------------------------------------------------------------------------------------------------------------- Investment Grade Tax-Exempt Bond Fund $ 108,204 $ 77,499 $ (8,955) $ 0 $ 1,745 $ 46,343 - --------------------------------------------------------------------------------------------------------------------------------- U.S. Government Securities Fund $ 7,311 $ 807 * $ 0 $ 0 * - --------------------------------------------------------------------------------------------------------------------------------- Short-Term U.S. Treasury Securities Fund $ 12,012 $ 10,761 $ 24,738 $ 0 $ 0 $ 0 - --------------------------------------------------------------------------------------------------------------------------------- Limited-Term Federal Mortgage Securities Fund $ 37,854 $ 17,962 * $ 0 $ 0 * - --------------------------------------------------------------------------------------------------------------------------------- Prime Quality Money Market Fund $ 315,880 $ 155,054 $ 131,571 $ 449,492 $ 465,158 $ 363,160 - --------------------------------------------------------------------------------------------------------------------------------- U.S. Government Securities Money Market Fund $ 219,380 $ 129,165 $ 197,818 $ 72,463 $ 134,192 $ 83,382 - --------------------------------------------------------------------------------------------------------------------------------- Tax-Exempt Money Market Fund $ 274,701 $ 128,912 $ 93,437 $ 0 $ 79,032 $ 45,179 - --------------------------------------------------------------------------------------------------------------------------------- Capital Growth Fund $ 842,411 $ 826,735 $ 680,627 $ 0 $ 0 $ 17,482 - --------------------------------------------------------------------------------------------------------------------------------- Sunbelt Equity Fund $ 842,411 $ 183,657 $ 25,851 $ 0 $ 0 $ 0 - --------------------------------------------------------------------------------------------------------------------------------- Value Income Stock Fund $ 845,706 $ 669,692 $ 340,218 $ 0 $ 0 $ 0 - --------------------------------------------------------------------------------------------------------------------------------- International Equity Fund $ 50,404 * * $ 0 * * - --------------------------------------------------------------------------------------------------------------------------------- International Equity Index Fund $ 70,690 $ 40,223 * $ 0 $ 0 * - --------------------------------------------------------------------------------------------------------------------------------- Mid-Cap Equity Fund $ 147,613 $ 75,507 $ 8,225 $ 0 $ 0 $ 0 - --------------------------------------------------------------------------------------------------------------------------------- Balanced Fund $ 74,634 $ 64,645 $ 27,056 $ 0 $ 0 $ 0 - --------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------
* Not in operation during the period. THE DISTRIBUTOR SEI Financial Services Company (the "Distributor"), a wholly-owned subsidiary of SEI, and the Trust have entered into a distribution agreement (the "Distribution Agreement") dated May 29, 1992. The Distributor will receive no compensation for distribution of Trust Shares. In B-20 addition, the Investor Shares of the Funds have a distribution plan ("Investor Plan"), and the Flex Shares of the Funds 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. For the fiscal years ended May 31, 1996, 1995 and 1994, the aggregate sales charges payable to the Distributor with respect to the Investor Shares of the Funds were as follows:
- --------------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------------- AGGREGATE SALES CHARGE PAYABLE TO AMOUNT RETAINED BY FUND DISTRIBUTOR DISTRIBUTOR ---------------------------------------------------------------------------------- 1996 1995 1994 1996 1995 1994 - --------------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------------- Investment Grade Bond Fund $ 50,016 $ 61,948 $ 352,000 $ 143 $ 0 $ 0 - --------------------------------------------------------------------------------------------------------------------------------- Georgia Tax-Exempt Bond Fund $ 1,208 $ 1,495 $ 0 $ 6 $ 762 $ 0 - --------------------------------------------------------------------------------------------------------------------------------- Florida Tax-Exempt Bond Fund $ 1,386 $ 8,271 $ 1,000 $ 14 $ 0 $ 0 - --------------------------------------------------------------------------------------------------------------------------------- Tennessee Tax-Exempt Bond Fund $ 515 $ 0 $ 0 $ 0 $ 0 $ 0 - --------------------------------------------------------------------------------------------------------------------------------- Short-Term Bond Fund $ 1,204 $ 0 $ 6,000 $ 0 $ 0 $ 0 - --------------------------------------------------------------------------------------------------------------------------------- Investment Grade Tax-Exempt Bond Fund $ 12,005 $ 13,613 $ 61,000 $ 30 $ 2,133 $ 0 - --------------------------------------------------------------------------------------------------------------------------------- U.S. Government Securities Fund $ 7,279 $ 4,006 * $ 0 $ 0 * - --------------------------------------------------------------------------------------------------------------------------------- Short-Term U.S. Treasury Securities Fund $ 2,641 $ 4,241 $ 3,000 $ 9 $ 0 $ 0 - --------------------------------------------------------------------------------------------------------------------------------- Limited-Term Federal Mortgage Securities Fund $ 4,067 $ 1,541 * $ 50 $ 100 * - --------------------------------------------------------------------------------------------------------------------------------- Capital Growth Fund $ 258,267 $ 373,314 $ 974,000 $ 243 $ 2,078 $ 1,000 - --------------------------------------------------------------------------------------------------------------------------------- Sunbelt Equity Fund $ 46,854 $ 135,566 $ 159,000 $ 61 $ 1,981 $ 0 - --------------------------------------------------------------------------------------------------------------------------------- Value Income Stock Fund $ 306,061 $ 406,633 $ 583,000 $ 3,104 $ 3,774 $ 0 - --------------------------------------------------------------------------------------------------------------------------------- International Equity Fund $ 29,032 * * $ 85 * * - --------------------------------------------------------------------------------------------------------------------------------- International Equity Index Fund $ 19,058 $ 59,784 * $ 50 $ 1,620 * - --------------------------------------------------------------------------------------------------------------------------------- Mid-Cap Equity Fund $ 91,344 $ 63,337 $ 24,000 $ 197 $ 858 $ 0 - --------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------
B-21
- ---------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- AGGREGATE SALES CHARGE PAYABLE TO AMOUNT RETAINED BY FUND DISTRIBUTOR DISTRIBUTOR ----------------------------------------------------------------------------------- 1996 1995 1994 1996 1995 1994 - ---------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- Balanced Fund $ 16,540 $ 37,732 $ 31,000 $ 22 $ 0 $ 0 - ---------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------
* Not in operation during the period. For the fiscal years ended May 31, 1996 and 1995, the aggregate sales charges payable to the Distributor with respect to the Flex Shares of the Funds were as follows:
- ----------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------- AGGREGATE SALES CHARGE AMOUNT RETAINED BY FUND PAYABLE TO DISTRIBUTOR DISTRIBUTOR 1996 1996 - ----------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------- Investment Grade Bond Fund $ 4,329 $ 0 - ----------------------------------------------------------------------------------------- Georgia Tax-Exempt Bond Fund $ 2,896 $ 0 - ----------------------------------------------------------------------------------------- Florida Tax-Exempt Bond Fund $ 153 $ 0 - ----------------------------------------------------------------------------------------- Tennessee Tax-Exempt Bond Fund $ 1,008 $ 0 - ----------------------------------------------------------------------------------------- Short-Term Bond Fund $ 344 $ 0 - ----------------------------------------------------------------------------------------- Investment Grade Tax-Exempt Bond Fund $ 2,782 $ 0 - ----------------------------------------------------------------------------------------- U.S. Government Securities Fund $ 1,067 $ 0 - ----------------------------------------------------------------------------------------- Short-Term U.S. Treasury Securities Fund $ 3,687 $ 0 - ----------------------------------------------------------------------------------------- Limited-Term Federal Mortgage Securities Fund $ 1,442 $ 0 - ----------------------------------------------------------------------------------------- Capital Growth Fund $ 6,283 $ 0 - ----------------------------------------------------------------------------------------- Sunbelt Equity Fund $ 324 $ 0 - ----------------------------------------------------------------------------------------- Value Income Stock Fund $ 10,574 $ 0 - ----------------------------------------------------------------------------------------- International Equity Fund $ 60 $ 0 - ----------------------------------------------------------------------------------------- International Equity Index Fund $ 392 $ 0 - ----------------------------------------------------------------------------------------- Mid-Cap Equity Fund $ 5,222 $ 0 - ----------------------------------------------------------------------------------------- Balanced Fund $ 713 $ 0 - ----------------------------------------------------------------------------------------- - -----------------------------------------------------------------------------------------
* Not in operation during the period. B-22 INVESTOR SHARES AND FLEX SHARES DISTRIBUTION PLANS The Distribution Agreement and the Investor Plan adopted by the Trust provide that Investor Shares of the Fund will pay the Distributor fees of up to the following respective levels: .20% of the average daily net assets of the Prime Quality Money Market Fund; .17% of the average daily net assets of the U.S. Government Securities Money Market Fund; .15% of the average daily net assets of the Tax-Exempt Money Market Fund; .18% of the average daily net assets of the Short-Term U.S. Treasury Securities Fund; .23% of the average daily net assets of the Short-Term Bond Fund; .43% of the average daily net assets of the Investment Grade Bond Fund; .43% of the average daily net assets of the Investment Grade Tax-Exempt Bond Fund; .68% of the average daily net assets of the Capital Growth Fund; .33% of the average daily net assets of the Value Income Stock Fund; .43% of the average daily net assets of the Mid-Cap Equity Fund; .43% of the average daily net assets of the Sunbelt Equity Fund; .28% of the average daily net assets of the Balanced Fund; .18% of the average daily net assets of the Florida Tax-Exempt Bond Fund; .18% of the average daily net assets of the Georgia Tax-Exempt Bond Fund; .18% of the average daily net assets of the Tennessee Tax-Exempt Bond Fund; .38% of the average daily net assets of the U.S. Government Securities Fund; .38% of the average daily net assets of the International Equity Index Fund; .33% of the average daily net assets of the International Equity Fund; and .23% of the average daily net assets of the Limited-Term Federal Mortgage Securities 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 that 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 each Fund. This service fee will be used for services provided and expenses incurred in maintaining shareholder accounts, responding to shareholder inquiries and providing information on their investments. Services for which broker-dealers and service providers may be compensated include establishing and maintaining customer accounts and records; aggregating and processing purchase and redemption requests from customers; placing net purchase and redemption orders with the Distributor; automatically investing customer account cash balances; providing periodic statements to customers; arranging for wires; answering customer inquiries concerning their investments; assisting customers in changing dividend options, account designations, and addresses; performing sub-accounting functions; processing dividend payments from the Trust on behalf of customers; and forwarding Shareholder communications from the Trust (such as proxies, Shareholder reports, and dividend distribution and tax notices) to these customers with respect to investments in the Trust. Certain state securities laws may require those financial institutions providing such distribution services to register as dealers pursuant to state law. Although banking laws and regulations prohibit banks from B-23 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 Rule 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, respectively, 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 affected class of shares of the Trust. All material amendments of the Plans will require approval by a majority of the Trustees of the Trust and of the Qualified Trustees. There is no sales charge on purchases of Flex Shares, but Flex Shares are subject to a contingent deferred sales charge if they are redeemed within one year of purchase. Pursuant to the Distribution Agreement and the Flex Plan, Flex Shares are subject to an ongoing distribution and service fee calculated on each of the Bond Funds', State Tax-Exempt Bond Funds', Equity Funds' and Balanced Fund's aggregate average daily net assets attributable to its Flex Shares. For the fiscal years ended May 31, 1996, 1995, and 1994, the Funds paid the following amounts pursuant to the Investor Plan:
- --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- DISTRIBUTION FEES AMOUNT PAID ------------------------------------------------- FUND 1996 1995 1994 - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- Investment Grade Bond Fund $ 78,963 $ 54,455 $ 102,671 - --------------------------------------------------------------------------------------------------- Georgia Tax-Exempt Bond Fund $ 5,001 $ 1,548 $ 1,256 - --------------------------------------------------------------------------------------------------- Florida Tax-Exempt Bond Fund $ 6,021 $ 1,471 $ 765 - --------------------------------------------------------------------------------------------------- Tennessee Tax-Exempt Bond Fund $ 1,266 $ 1,347 $ 277 - --------------------------------------------------------------------------------------------------- B-24 - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- DISTRIBUTION FEES AMOUNT PAID ------------------------------------------------- FUND 1996 1995 1994 - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- Short-Term Bond Fund $ 5,067 $ 2,141 $ 3,297 - --------------------------------------------------------------------------------------------------- Investment Grade Tax-Exempt Bond Fund $ 113,467 $ 107,645 $ 110,695 --------------------------------------------------------------------------------------------------- U.S. Government Securities Fund $ 4,218 $ 386 * - --------------------------------------------------------------------------------------------------- Short-Term U.S. Treasury Securities Fund $ 8,499 $ 5,291 $ 9,246 - --------------------------------------------------------------------------------------------------- Limited-Term Federal Mortgage Securities Fund $ 2,360 $ 241 * - --------------------------------------------------------------------------------------------------- Prime Quality Money Market Fund $ 273,316 $ 179,128 $ 207,428 - --------------------------------------------------------------------------------------------------- U.S. Government Securities Money Market Fund $ 44,107 $ 16,661 $ 43,328 - --------------------------------------------------------------------------------------------------- Tax-Exempt Money Market Fund $ 80,845 $ 44,182 $ 56,471 - --------------------------------------------------------------------------------------------------- Capital Growth Fund $ 912,685 $ 806,373 $ 847,998 - --------------------------------------------------------------------------------------------------- Sunbelt Equity Fund $ 99,366 $ 49,826 $ 14,508 - --------------------------------------------------------------------------------------------------- Value Income Stock Fund $ 304,282 $ 217,152 $ 136,086 - --------------------------------------------------------------------------------------------------- International Equity Fund $ 0 * * - --------------------------------------------------------------------------------------------------- International Equity Index Fund $ 369 $ 1,649 * - --------------------------------------------------------------------------------------------------- Mid-Cap Equity Fund $ 51,485 $ 8,123 $ 2,150 - --------------------------------------------------------------------------------------------------- Balanced Fund $ 10,808 $ 3,233 $ 1,220 - --------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------
*Not in operation during the period. For the fiscal years ended May 31, 1996, the Funds paid the following amounts pursuant to the Flex Plan: - ----------------------------------------------------------------------------- - ----------------------------------------------------------------------------- DISTRIBUTION FEES AMOUNT PAID --------------------------- FUND 1996 - ----------------------------------------------------------------------------- - ----------------------------------------------------------------------------- Investment Grade Bond Fund $ 9,277 - ----------------------------------------------------------------------------- Georgia Tax-Exempt Bond Fund $ 7,409 - ----------------------------------------------------------------------------- Florida Tax-Exempt Bond Fund $ 2,675 - ----------------------------------------------------------------------------- B-25 - ----------------------------------------------------------------------------- - ----------------------------------------------------------------------------- DISTRIBUTION FEES AMOUNT PAID --------------------------- FUND 1996 - ----------------------------------------------------------------------------- - ----------------------------------------------------------------------------- Tennessee Tax-Exempt Bond Fund $ 7,238 - ----------------------------------------------------------------------------- Short-Term Bond Fund $ 0 - ----------------------------------------------------------------------------- Investment Grade Tax-Exempt Bond Fund $ 21,786 - ----------------------------------------------------------------------------- U.S. Government Securities Fund $ 4,460 - ----------------------------------------------------------------------------- Short-Term U.S. Treasury Securities Fund $ 321 - ----------------------------------------------------------------------------- Limited-Term Federal Mortgage Securities Fund $ 169 - ----------------------------------------------------------------------------- Capital Growth Fund $ 37,344 - ----------------------------------------------------------------------------- Sunbelt Equity Fund $ 1,560 - ----------------------------------------------------------------------------- Value Income Stock Fund $ 99,703 - ----------------------------------------------------------------------------- International Equity Fund $ 0 - ----------------------------------------------------------------------------- International Equity Index Fund $ 580 - ----------------------------------------------------------------------------- Mid-Cap Equity Fund $ 10,115 - ----------------------------------------------------------------------------- Balanced Fund $ 6,985 - ----------------------------------------------------------------------------- - ----------------------------------------------------------------------------- *Not in operation during the period. TRUSTEES AND OFFICERS OF THE TRUST The management and affairs of the Trust are supervised by the Trustees under the laws governing business trusts in the Commonwealth of Massachusetts. The Trustees and executive officers of the Trust and their dates of birth and their principal occupations for the last five years are set forth below. Unless otherwise noted, the principal business address for each officer listed below is 680 East Swedesford Road, Wayne, Pennsylvania 19087-1658. DANIEL S. GOODRUM (7/11/26) - Trustee - 48 Cayuga Road, Fort Lauderdale, Florida 33308. Chairman & CEO, SunBank/South Florida, N.A., 1985-1991; Chairman, Audit Committee and Director, Holy Cross Hospital; Executive Committee Member and Director, Honda Classic Foundation; Director, Broward Community College Foundation. WILTON LOONEY (4/18/19) - Trustee - 2999 Circle 75 Parkway, Atlanta, Georgia 30339. President of Genuine Parts Company, 1961-1964; Chairman of the Board, 1964-1990; Honorary Chairman of the Board, 1990 to present. Director, Rollins, Inc.; Director, RPC Energy Services, Inc. B-26 Honorary Chairman of the Board, 1990 to present, Director, Rollins, Inc.; Director, RPC Energy Services, Inc. CHAMPNEY A. MCNAIR (10/30/24) - Trustee - 1405 Trust Co. of Georgia Building, Atlanta, Georgia 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 (12/3/32) - Trustee - P.O. Box 190, Paoli, Indiana 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 (11/28/25) -Trustee - 17 Windy Point, Alexander City, Alabama 35010. Retired President, Chairman, and CEO of Crawford & Company; held these positions, 1973-1987. Member of the Board of Directors, 1970-1990, joined company in 1948; spent entire career at Crawford, currently serves on Boards of Norrell Corporation and Mercy Health Services, the latter being the holding company of St. Joseph's Hospitals. DR. BERNARD F. SLIGER (9/30/24) - Trustee - Florida State University, The Gus A. Stavros Center, 250 South Woodward Avenue, Tallahassee, Florida 32306-4035. 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 four years EVP and Chief Academic Officer. During educational career, taught at Florida State, Michigan State, Louisiana State and Southern University. Spent 19 years as faculty member and administrator at Louisiana State University and served as Head of Economics Department, member and Chairman of the Graduate Council, Dean of Academic Affairs and Vice Chancellor. Member of Board of Directors of Federal Reserve Bank of Atlanta, 1983-1988. JESSE HALL (9/26/29) - Trustee* - 988 Winall Down Road, NE, Atlanta, Georgia 30318. Executive Vice President, SunTrust Banks, Inc., 1985-1994; Director of Crawford & Company since 1979; Member, Atlanta Estate Planning Council, 1988-1993. DAVID G. LEE (4/16/52) - 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. B-27 STEPHEN G. MEYER (7/12/65) - Controller, Chief Financial Officer - Vice President & Controller of SEI Corporation since 1994. Director, Internal Audit and Risk Management, SEI Corporation, 1992-1994. Senior Associate, Coopers & Lybrand, 1990-1992. Internal Audit, Vanguard Group of Investment Prior to 1992. RICHARD W. GRANT (10/25/45) - Secretary - 2000 One Logan Square, Philadelphia, Pennsylvania 19103. Partner, Morgan, Lewis & Bockius LLP (law firm). Counsel to the Trust, Administrator and Distributor. SANDRA K. ORLOW (10/18/53) - Vice President, Assistant Secretary - Vice President and Assistant Secretary of the Administrator and Distributor since 1983. KEVIN P. ROBINS (4/15/61) - Vice President, Assistant Secretary - Senior Vice President & General Counsel of SEI, the Administrator and the Distributor since 1994. Vice President of SEI, the Administrator and the Distributor, 1992-1994. Associate, Morgan, Lewis & Bockius LLP (law firm) prior to 1992. KATHRYN L. STANTON (11/19/58) - Vice President, Assistant Secretary - Vice President, Assistant Secretary of SEI, the Administrator and Distributor since 1994. Associate, Morgan, Lewis & Bockius LLP (law firm), 1989-1994. JOSEPH M. LYDON (9/27/59) - Vice President - Director of Business Administration of Fund Resources, SEI Coporation since 1995. Vice President of Fund Group and Vice President of the Adviser, Dreman Value Management and President of Dremen Financial Services, Inc. prior to 1995. TODD CIPPERMAN (2/14/66) - Vice President, Assistant Secretary - Vice President and Assistant Secretary of the Administrator and the Distributor since 1995. Associate, Dewey Ballantine (law firm), 1994-1995. Associate, Winston & Strawn (law firm), 1991-1994. BARBARA NUGENT (6/18/56) - Vice President, Assistant Secretary - Vice President and Assistant Secretary of SEI Corporation, the Distributor and Administrator, Associate, Drinker Biddle & Reath (law firm), 1994-1996. Assistant Vice President/Administration, Delaware Service Company, Inc., 1981-1994. MARC H. CAHN (6/19/57) - Vice President, Assistant Secretary - Vice President and Assistant Secretary of SEI Corporation, the Distributor and Administrator, Associate General Counsel, Barclays Bank PLC., 1995-1996. Counsel for First Fidelity Bancorporation prior to 1995. B-28 JOHN H. GRADY, JR. (6/1/61) - Assistant Secretary - 1800 M Street, N.W. Washington, DC 20036. Partner, Morgan, Lewis & Bockius LLP (law firm) since 1995. Associate, Morgan, Lewis & Bockius LLP, 1993-1995. Associate, Ropes & Gray (law firm), 1988-1993. - ----------------- * Jesse S. Hall may be deemed to be an "interested person" of the Trust as defined in the Investment Company Act of 1940. The Trustees and officers of the Trust own, in the aggregate, less than 1% of the outstanding shares of the Trust. For the fiscal year end May 31, 1996, the Trust paid the following amounts to Trustees and Officers of the Trust:
- --------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------- Aggregate Pension or Total Compensation Compensation Retirement from Registrant and From Registrant Benefits Estimated Annual Fund Complex Paid to Name of Person for Fiscal Year Accrued as Part Benefits Upon Directors for Fiscal Position Ended 1996 of Fund Retirement Year Ended 1996 Expenses - --------------------------------------------------------------------------------------------------------------------------- Daniel S. Goodrum, Trustee $13,500 N/A N/A $13,500 for service on two boards - --------------------------------------------------------------------------------------------------------------------------- Wilton Looney, Trustee $16,000 N/A N/A $16,000 for service on two boards - --------------------------------------------------------------------------------------------------------------------------- Champney A. McNair, Trustee $13,500 N/A N/A $13,500 for service on two boards - --------------------------------------------------------------------------------------------------------------------------- F. Wendell Gooch, Trustee $13,500 N/A N/A $13,500 for service on two boards - --------------------------------------------------------------------------------------------------------------------------- T. Gordy Germany, Trustee $13,500 N/A N/A $13,500 for service on two boards - --------------------------------------------------------------------------------------------------------------------------- Dr. Bernard F. Sliger, Trustee $13,500 N/A N/A $13,500 for service on two boards - --------------------------------------------------------------------------------------------------------------------------- Jesse S. Hall, Trustee $13,500 N/A N/A $13,500 for service on two boards - --------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------
COMPUTATION OF YIELD The current yield of the Money Market Funds 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 B-29 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 Funds 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. For the 7-day period ended May 31, 1996, the Money Market Funds' current effective and tax-equivalent yields were as follows:
- ------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------- 7-DAY 7-DAY 7-DAY TAX-EQUIVALENT TAX- FUND CLASS 7-DAY YIELD EFFECTIVE YIELD EQUIVALENT YIELD EFFECTIVE YIELD - ------------------------------------------------------------------------------------------------------- Prime Quality Money Investor 4.63% 4.74% N/A N/A ------------------------------------------------------------------------- Money Market fund Trust 4.80% 4.92% N/A N/A - ------------------------------------------------------------------------------------------------------- U.S. Government Investor 4.45% 4.55% N/A N/A Securities Money ------------------------------------------------------------------------- Market Fund Trust 4.59% 4.70% N/A N/A - ------------------------------------------------------------------------------------------------------- Tax-Exempt Money Investor 3.03% 3.08% 5.02% 5.10% ------------------------------------------------------------------------- Market Fund Trust 3.15% 3.20% 5.22% 5.30% - ------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------
The yields of these Funds fluctuate, 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 a Fund invests in, changes in interest rates on money market instruments, changes in the expenses of the Fund and other factors. Yields are one basis upon which investors may compare the Funds with other money market funds; however, yields of other money market funds and other investment vehicles may not be comparable because of the factors set forth above and differences in the methods used in valuing portfolio instruments. The Tax-Exempt Money Market and Tax-Exempt Bond Fund's "tax equivalent yield" is calculated by determining the rate of return that would have to be achieved on a fully taxable B-30 investment to produce the after-tax equivalent of the Fund's yield, assuming certain tax brackets for a Shareholder. Tax-exempt yield is calculated according to the same formula except that a = interest exempt from federal income tax earned during the period. This tax-exempt yield is then translated into tax-equivalent yield according to the following formula: TAX-EQUIVALENT YIELD = ( E ) + t ------- 1-P E = tax-exempt yield p = stated income tax rate t = taxable yield Tax equivalent yields assume the payment of federal income taxes at a rate of 39.6% and, for the Georgia Tax-Exempt Bond Fund, Georgia income taxes at a rate of 6.0% and, for the Tennessee Tax-Exempt Bond Fund, Tennessee income taxes at a rate of 6.0%. For the 30-day period ended May 31, 1996, the Tax-Equivalent yield for the Trust Shares were as follows: for the Investment Grade Tax-Exempt Bond Fund - 6.5%, Georgia Tax-Exempt Bond Fund - 8.40%, Florida Tax-Exempt Bond Fund - 7.68% and Tennessee Tax-Exempt Bond Fund - 8.62%. For the 30-day period ended May 31, 1996, the Tax-Equivalent Yields for the Investor Shares of the Tax-Exempt Funds were as follows: for the Investment Grade Tax-Exempt Bond Fund - 5.68%, Georgia Tax-Exempt Bond Fund -7.78%, Florida Tax-Exempt Bond Fund - 7.05% and Tennessee Tax-Exempt Bond Fund - 7.92%. For the 30-day period ended May 31, 1996, the Tax-Equivalent Yields for the Flex Shares of the Tax-Exempt Funds were as follows: for the Investment Grade Tax-Exempt Bond Fund - 5.12%, Georgia Tax-Exempt Bond Fund - 7.11%, Florida Tax-Exempt Bond Fund - 6.54% and Tennessee Tax-Exempt Bond Fund - 7.32%. The Bond, Short-Term U.S. Treasury, Tax-Exempt Bond and Equity Funds may advertise a 30-day yield. In particular, yield will be calculated according to the following formula: Yield = (2 (a-b/cd + 1)6 - 1) where a = dividends and interest earned during the period; b = expenses accrued for the period (net of reimbursement); c = the current daily number of shares outstanding during the period that were entitled to receive dividends; and d = the maximum offering price per share on the last day of the period. For the 30-day period ended May 31, 1996, yields on the Funds other than the Money Market Funds were as follows: B-31 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- FUND CLASS YIELD - ------------------------------------------------------------------------------- Investment Grade Bond Fund Investor Class 5.47% --------------------------------------- Trust Class 6.09% --------------------------------------- Flex Shares 5.23% - ------------------------------------------------------------------------------- Short-Term U.S. Treasury Investor Class 5.21% --------------------------------------- Securities Fund Trust Class 5.42% --------------------------------------- Flex Shares 5.02% - ------------------------------------------------------------------------------- Short-Term Bond Fund Investor Class 5.42% --------------------------------------- Trust Class 5.73% --------------------------------------- Flex Shares 5.18% - ------------------------------------------------------------------------------- U.S. Government Securities Investor Class 5.59% --------------------------------------- Fund Trust Class 6.14% --------------------------------------- Flex Shares 5.25% - ------------------------------------------------------------------------------- Limited-Term Federal Mortgage Investor Class 5.45% --------------------------------------- Securities Fund Trust Class 5.78% --------------------------------------- Flex Shares 5.24% - ------------------------------------------------------------------------------- Florida Tax-Exempt Bond Fund Investor Class 4.26% --------------------------------------- Trust Class 4.64% --------------------------------------- Flex Shares 3.95% - ------------------------------------------------------------------------------- Georgia Tax-Exempt Bond Fund Investor Class 4.23% --------------------------------------- Trust Class 4.57% --------------------------------------- Flex Shares 3.87% - ------------------------------------------------------------------------------- Tennessee Tax-Exempt Bond Investor Class 4.31% --------------------------------------- Fund Trust Class 4.69% --------------------------------------- Flex Shares 3.98% - ------------------------------------------------------------------------------- Capital Growth Fund Investor Class 0% --------------------------------------- Trust Class .53% --------------------------------------- Flex Shares 0% - ------------------------------------------------------------------------------- Value Income Stock Fund Investor Class 1.87% --------------------------------------- Trust Class 2.28% --------------------------------------- B-32 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- FUND CLASS YIELD --------------------------------------- Flex Shares 1.25% - ------------------------------------------------------------------------------- B-33 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- FUND CLASS YIELD - ------------------------------------------------------------------------------- Mid-Cap Equity Fund Investor Class .21% --------------------------------------- Trust Class .66% --------------------------------------- Flex Shares 0% - ------------------------------------------------------------------------------- Balanced Fund Investor Class 2.43% --------------------------------------- Trust Class 2.81% --------------------------------------- Flex Shares 1.79% - ------------------------------------------------------------------------------- Sunbelt Equity Fund Investor Class 0% --------------------------------------- Trust Class 0% --------------------------------------- Flex Shares 0% - ------------------------------------------------------------------------------- International Equity Fund Investor Class N/A --------------------------------------- Trust Class N/A --------------------------------------- Flex Shares N/A - ------------------------------------------------------------------------------- International Equity Index Fund Investor Class N/A --------------------------------------- Trust Class N/A --------------------------------------- Flex Shares N/A - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- *Not in operation during the period. CALCULATION OF TOTAL RETURN From time to time, the Bond, Short-Term U.S. Treasury, Tax-Exempt Bond, Balanced and Equity Funds 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 Advisors in advertisements and/or sales literature for the Trust. The SEI Funds Evaluation database tracks the total return of numerous tax-exempt pension accounts. The range of returns in these accounts determines the percentile rankings. SunTrust Bank's investment advisory affiliates, STI Capital Management, N.A. and Trusco Capital Management, have been in the top 1% of the SEI Funds Evaluation database for equity managers over the past ten years. SEI's database includes research data on over 1,000 investment managers responsible for over $450 billion in assets. B-34 Based on the foregoing, the average annual total returns for the Funds from inception through May 31, 1996 and for the one year period ended May 31, 1996 were as follows:
- ---------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURN ---------------------------- FUND CLASS ONE YEAR SINCE INCEPTION - ---------------------------------------------------------------------------------------------------------------- Prime Quality Money Market Fund Investor(1) 5.08% 3.79% ---------------------------------------------------------- Trust(1) 5.25% 3.96% - ---------------------------------------------------------------------------------------------------------------- U.S. Government Securities Money Investor(1) 4.99% 3.70% ---------------------------------------------------------- Market Fund Trust(1) 5.14% 3.84% - ---------------------------------------------------------------------------------------------------------------- Tax-Exempt Money Market Fund Investor(1) 3.16% 2.53% ---------------------------------------------------------- Trust(1) 3.28% 2.65% - ---------------------------------------------------------------------------------------------------------------- Investment Grade Bond Fund Investor--Offering Price(2) (.38)% 4.81% ---------------------------------------------------------- Investor--Net Asset Value(2) 3.50% 5.82% ---------------------------------------------------------- Trust(3) 4.02% 6.07% ---------------------------------------------------------- Flex--Offering Price(25) N/A .51% ---------------------------------------------------------- Flex--Net Asset Value(25) N/A 2.50% - ---------------------------------------------------------------------------------------------------------------- Investment Grade Tax-Exempt Bond Investor--Offering Price(4) 1.45% 7.05% ---------------------------------------------------------- Fund Investor--Net Asset Value(4) 5.40% 8.08% ---------------------------------------------------------- Trust(5) 5.82% 5.63% ---------------------------------------------------------- Flex--Offering Price(26) N/A 2.95% ---------------------------------------------------------- Flex--Net Asset Value(26) N/A 4.91% - ---------------------------------------------------------------------------------------------------------------- Short-Term U.S. Treasury Securities Investor--Offering Price(6) 3.58% 3.70% ---------------------------------------------------------- Fund Investor--Net Asset Value(6) 4.52% 4.03% ---------------------------------------------------------- Trust(7) 4.73% 4.19% ---------------------------------------------------------- Flex--Offering Price(27) N/A 1.64% ---------------------------------------------------------- Flex--Net Asset Value(27) N/A 3.74% - ---------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------- B-35 - ---------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURN ---------------------------- FUND CLASS ONE YEAR SINCE INCEPTION - ---------------------------------------------------------------------------------------------------------------- Short-Term Bond Fund Investor--Offering Price(8) 2.19% 3.62% ---------------------------------------------------------- Investor--Net Asset Value(8) 4.23% 4.30% ---------------------------------------------------------- Trust(7) 4.45% 4.66% ---------------------------------------------------------- Flex--Offering Price(28) N/A 1.65% ---------------------------------------------------------- Flex-Net Asset Value(28) N/A 3.73% - ---------------------------------------------------------------------------------------------------------------- U.S. Government Securities Fund Investor--Offering Price(20) (1.38)% 3.52% ---------------------------------------------------------- Investor--Net Asset Value(20) 2.47% 5.54% ---------------------------------------------------------- Trust(21) 2.77% 6.21% ---------------------------------------------------------- Flex-Offering Price(25) N/A (.54)% ---------------------------------------------------------- Flex--Net Asset Value(25) N/A 1.42% - ---------------------------------------------------------------------------------------------------------------- Limited-Term Federal Mortgage Fund Investor--Offering Price(22) 1.97% 4.99% ---------------------------------------------------------- Investor--Net Asset Value(22) 4.59% 6.45% ---------------------------------------------------------- Trust(23) 4.84% 6.21% ---------------------------------------------------------- Flex--Offering Price(25) N/A 2.09% ---------------------------------------------------------- Flex--Net Asset Value(25) N/A 4.10% - ---------------------------------------------------------------------------------------------------------------- Florida Tax-Exempt Bond Fund Investor--Offering Price(9) (.16)% 3.13% ---------------------------------------------------------- Investor--Net Asset Value(9) 3.76% 4.82% ---------------------------------------------------------- Trust(10) 3.87% 5.01% ---------------------------------------------------------- Flex--Offering Price(26) N/A 1.29% ---------------------------------------------------------- Flex--Net Asset Value(26) N/A 3.27% - ---------------------------------------------------------------------------------------------------------------- Georgia Tax-Exempt Bond Fund Investor--Offering Price(11) (.24)% .81% ---------------------------------------------------------- Investor--Net Asset Value(11) 3.69% 2.46% ---------------------------------------------------------- Trust(9) 3.89% 2.57% ---------------------------------------------------------- Flex--Offering Price(31) N/A .26% ---------------------------------------------------------- Flex--Net Asset Value(31) N/A 2.26% - ---------------------------------------------------------------------------------------------------------------- B-36 - ---------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURN ---------------------------- FUND CLASS ONE YEAR SINCE INCEPTION - ---------------------------------------------------------------------------------------------------------------- Tennessee Tax-Exempt Bond Fund Investor--Offering Price(11) (.58)% .30% ---------------------------------------------------------- Investor--Net Asset Value(11) 3.28% 1.94% ---------------------------------------------------------- Trust(12) 3.43% 1.94% ---------------------------------------------------------- Flex--Offering Price(29) N/A .00% ---------------------------------------------------------- Flex--Net Asset Value(29) N/A 1.98% - ---------------------------------------------------------------------------------------------------------------- Capital Growth Fund Investor--Offering Price(4) 23.41% 12.87% ---------------------------------------------------------- Investor--Net Asset Value(4) 28.18% 13.96% ---------------------------------------------------------- Trust(13) 28.97% 13.86% ---------------------------------------------------------- Flex--Offering Price(26) N/A 25.55% ---------------------------------------------------------- Flex--Net Asset Value(26) N/A 27.56% - ---------------------------------------------------------------------------------------------------------------- Value Income Stock Fund Investor--Offering Price(14) 22.62% 17.08% ---------------------------------------------------------- Investor--Net Asset Value(14) 27.39% 18.46% ---------------------------------------------------------- Trust(15) 27.91% 17.89% ---------------------------------------------------------- Flex--Offering Price(26) N/A 24.52% ---------------------------------------------------------- Flex--Net Asset Value(26) N/A 26.60% - ---------------------------------------------------------------------------------------------------------------- Mid-Cap Equity Fund Investor--Offering Price(16) 20.23% 12.84% ---------------------------------------------------------- Investor--Net Asset Value(16) 24.93% 14.71% ---------------------------------------------------------- Trust(17) 25.54% 15.35% ---------------------------------------------------------- Flex--Offering Price(29) N/A 21.00% ---------------------------------------------------------- Flex--Net Asset Value(29) N/A 23.03% - ---------------------------------------------------------------------------------------------------------------- Balanced Fund Investor--Offering Price(18) 12.51% 7.60% ---------------------------------------------------------- Investor--Net Asset Value(18) 16.88% 9.32% ---------------------------------------------------------- Trust(19) 17.26% 9.80% ---------------------------------------------------------- Flex--Offering Price(30) N/A 13.58% ---------------------------------------------------------- Flex--Net Asset Value(30) N/A 15.67% - ---------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------- B-37 - ---------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURN ---------------------------- FUND CLASS ONE YEAR SINCE INCEPTION - ---------------------------------------------------------------------------------------------------------------- Sunbelt Equity Fund Investor--Offering Price(18) 37.21% 14.06% ---------------------------------------------------------- Investor--Net Asset Value(18) 42.58% 15.89% ---------------------------------------------------------- Trust(19) 43.19% 16.44% ---------------------------------------------------------- Flex--Offering Price(29) N/A 37.90% ---------------------------------------------------------- Flex--Net Asset Value(29) N/A 39.93% - ---------------------------------------------------------------------------------------------------------------- International Equity Fund Investor--Offering Price(32) N/A 12.31% ---------------------------------------------------------- Investor--Net Asset Value(32) N/A 23.34% ---------------------------------------------------------- Trust(33) N/A 30.05% ---------------------------------------------------------- Flex--Offering Price(32) N/A 17.65% ---------------------------------------------------------- Flex--Net Asset Value(32) N/A 23.08% - ---------------------------------------------------------------------------------------------------------------- International Equity Index Fund Investor--Offering Price(24) 4.79%3.52% ---------------------------------------------------------- Investor--Net Asset Value(24) 8.90%5.53% ---------------------------------------------------------- Trust(24) 9.29% 5.99% ---------------------------------------------------------- Flex--Offering Price(34) N/A 6.26% ---------------------------------------------------------- Flex--Net Asset Value(34) N/A 8.31% - ---------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------- (1) Commenced operations 6/8/92 (11) Commenced operations 1/19/94 (21) Commenced operations 7/31/94 (2) Commenced operations 6/11/92 (12) Commenced operations 1/27/94 (22) Commenced operations 7/17/94 (3) Commenced operations 7/16/92 (13) Commenced operations 7/1/92 (23) Commenced operations 6/7/94 (4) Commenced operations 6/9/92 (14) Commenced operations 2/17/93 (24) Commenced operations 6/6/94 (5) Commenced operations 10/21/93 (15) Commenced operations 2/12/93 (25) Commenced operations 6/2/95 (6) Commenced operations 3/18/93 (16) Commenced operations 2/1/94 (26) Commenced operations 6/2/95 (7) Commenced operations 3/15/93 (17) Commenced operations 2/2/94 (27) Commenced operations 6/23/95 (8) Commenced operations 3/22/93 (18) Commenced operations 1/4/94 (28) Commenced operations 6/21/95 (9) Commenced operations 1/18/94 (19) Commenced operations 1/3/94 (29) Commenced operations 6/6/95 (10) Commenced operations 1/25/94 (20) Commenced operations 6/9/94 (30) Commenced operations 6/15/95 (31) Commenced operations 6/7/95 (32) Commenced operations 1/2/96 (33) Commenced operations 12/1/95 (34) Commenced operations 6/8/95
*Not in operation during period. Flex Shares of the Trust commenced operations after May 31, 1995. PURCHASE AND REDEMPTION OF SHARES Purchases and redemptions of shares of the Funds may be made on any day the New York Stock Exchange ("NYSE") is open for business. Currently, the NYSE is closed on the days B-38 the following holidays are observed: New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. It is currently the Trust's policy to pay for all redemptions in cash. The Trust retains the right, however, to alter this policy to provide for redemptions in whole or in part by a distribution in-kind of readily marketable securities held by the Funds in lieu of cash. Shareholders may incur brokerage charges on the sale of any such securities so received in payment of redemptions. A Shareholder will at all times be entitled to aggregate cash redemptions from all Funds of the Trust during any 90-day period of up to the lesser of $250,000 or 1% of the Trust's net assets. The Trust reserves the right to suspend the right of redemption and/or to postpone the date of payment upon redemption for any period on which trading on the NYSE is restricted, or during the existence of an emergency (as determined by the Securities and Exchange Commission by rule or regulation) as a result of disposal or valuation of 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 a Fund for any period during which the NYSE, an Advisor, the Administrator and/or, the Custodian are not open for business. DETERMINATION OF NET ASSET VALUE The net asset value per share of the Money Market Funds is calculated daily by the Administrator by adding the value of securities and other assets, subtracting liabilities and dividing by the number of outstanding shares. Securities will be valued by the amortized cost method which involves valuing a security at its cost on the date of purchase and thereafter (absent unusual circumstances) assuming a constant amortization to maturity of any discount or premium, regardless of the impact of fluctuations in general market rates of interest on the value of the instrument. While this method provides certainty in valuation, it may result in periods during which a security's value, as determined by this method, is higher or lower than the price a Fund would receive if it sold the instrument. During periods of declining interest rates, the daily yield of a Fund may tend to be higher than a like computation made by a company with identical investments utilizing a method of valuation based upon market prices and estimates of market prices for all of its portfolio securities. Thus, if the use of amortized cost by a Fund resulted in a lower aggregate portfolio value on a particular day, a prospective investor in a Fund would be able to obtain a somewhat higher yield than would result from investment in a company utilizing solely market values, and existing investors in a Fund would experience a lower yield. The converse would apply in a period of rising interest rates. A Fund's use of amortized cost and the maintenance of a Fund's net asset value at $1.00 are permitted by regulations promulgated by Rule 2a-7 under the 1940 Act, provided that certain conditions are met. The regulations also require the Trustees to establish procedures which are reasonably designed to stabilize the net asset value per share at $1.00 for the Funds. B-39 Such procedures include the determination of the extent of deviation, if any, of the Funds current net asset value per share calculated using available market quotations from the Funds amortized cost price per share at such intervals as the Trustees deem appropriate and reasonable in light of market conditions and periodic reviews of the amount of the deviation and the methods used to calculate such deviation. In the event that such deviation exceeds 1/2 of 1%, the Trustees are required to consider promptly what action, if any, should be initiated, and, if the Trustees believe that the extent of any deviation may result in material dilution or other unfair results to Shareholders, the Trustees are required to take such corrective action as they deem appropriate to eliminate or reduce such dilution or unfair results to the extent reasonably practicable. Such actions may include the sale of portfolio instruments prior to maturity to realize capital gains or losses or to shorten average portfolio maturity; withholding dividends; redeeming shares in kind; or establishing a net asset value per share by using available market quotations. In addition, if the Funds incur a significant loss or liability, the Trustees have the authority to reduce pro rata the number of shares of the Funds in each Shareholder's account and to offset each Shareholder's pro rata portion of such loss or liability from the Shareholder's accrued but unpaid dividends or from future dividends while each other Fund must annually distribute at least 90% of its investment company taxable income. The securities of the Bond, Short-Term U.S. Treasury Securities and Equity Funds are valued by the Administrator pursuant to valuations provided by an independent pricing service. The pricing service relies primarily on prices of actual market transactions as well as trader quotations. However, the service may also use a matrix system to determine valuations of fixed income securities, which system considers such factors as security prices, yields, maturities, call features, ratings and developments relating to specific securities in arriving at valuations. The procedures of the pricing service and its valuations are reviewed by the officers of the Trust under the general supervision of the Trustees. Although the methodology and procedures are identical, the net asset value per share of Trust Shares, Flex Shares and Investor Shares of the Bond, Short-Term U.S. Treasury Securities and Equity Funds may differ because of variations in the distribution and service fees and transfer agent fees charged to Investor Shares. 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"), each 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 a Fund's gross income each taxable year must be derived from dividends, interest, payments with respect to B-40 securities loans, and gains from the sale or other disposition of stock or securities, or certain other income, (ii) a 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 a Fund's taxable year, at least 50% of the value of its total assets must be represented by cash and cash items, U.S. Government securities, securities of other 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 a 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 a Fund's taxable year, not more than 25% of the value of its assets may be invested in securities (other than U.S. Government securities or the securities of other 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 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. As noted in the Prospectus, the Tax-Exempt Money Market Fund, the Investment Grade Tax-Exempt Bond Fund, and the State Tax-Exempt Bond Funds intend to pay exempt-interest dividends. Exempt-interest dividends are excludable from a Shareholder's gross income for regular federal income tax purposes, but may nevertheless be subject to the alternative minimum tax (the "Alternative Minimum Tax") imposed by Section 55 of the Code or the environmental tax (the "Environmental Tax") imposed by Section 59A of the Code. The Alternative Minimum Tax is imposed at the rate of 26% (with a maximum rate of 28%) in the case of non-corporate taxpayers and at the rate of 20% in the case of corporate taxpayers, to the extent it exceeds the taxpayer's regular tax liability. The Environmental Tax is imposed at the rate of 0.12% and applies only to corporate taxpayers. The Alternative Minimum Tax and the Environmental Tax may be imposed in two circumstances. First, exempt-interest dividends derived from certain "private activity bonds" issued after August 7, 1986, will generally be an item of tax preference (and therefore potentially subject to the Alternative Minimum Tax and the Environmental Tax) for both corporate and non-corporate taxpayers. Second, in the case of exempt-interest dividends received by corporate Shareholders, all exempt-interest dividends, regardless of when the bonds from which they are derived were issued or whether they are derived from private activity bonds, will be included in the corporation's "adjusted current earnings," as defined in Section 56(g) of the Code, in calculating the corporation's alternative minimum taxable income for purposes of determining the Alternative Minimum Tax and the Environmental Tax. B-41 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. Any loss recognized by a Shareholder upon the sale or redemption of shares of a tax-free Fund held for six months or less, however, will be disallowed to the extent of any exempt-interest dividends received by the Shareholder with respect to such shares. 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. Interest on indebtedness incurred by Shareholders to purchase or carry shares of a tax-free Fund will not be deductible for federal income tax purposes to the extent that the Fund distributes exempt interest dividends during the taxable year. The deduction otherwise allowable to property and casualty insurance companies for "losses incurred" will be reduced by an amount equal to a portion of exempt-interest dividends received or accrued during any taxable year. Certain foreign corporations engaged in a trade or business in the United States will be subject to a "branch profits tax" on their "dividend equivalent amount" for the taxable year, which will include exempt-interest dividends. Certain Subchapter S corporations may also be subject to taxes on their "passive investment income," which could include exempt-interest dividends. Up to 85% (up to 50% for years prior to 1994) of the Social Security benefits or railroad retirement benefits received by an individual during any taxable year will be included in the gross income of such individual if the individual's "modified adjusted gross income" (which includes exempt-interest dividends) plus one-half of the Social Security benefits or railroad retirement benefits received by such individual during that taxable year exceeds the base amount described in Section 86 of the Code. A tax-free Fund may not be an appropriate investment for persons (including corporations and other business entities) who are "substantial users" (or persons related to such users) of facilities financed by industrial development or private activity bonds. A "substantial user" is defined generally to include certain persons who regularly use a facility in their trade or business. Such entities or persons should consult their tax advisors before purchasing shares of a tax-free Fund. Issuers of bonds purchased by a tax-free fund (or the beneficiary of such bonds) may have made certain representations or covenants in connection with the issuance of such bonds to satisfy certain requirements of the Code that must be satisfied subsequent to the issuance of such bonds. Investors should be aware that exempt-interest dividends derived from such bonds may become subject to federal income taxation retroactively to the date thereof if such representations are determined to have been inaccurate or if the issuer of such bonds (or the beneficiary of such bonds) fails to comply with such covenants. B-42 STATE TAXES A Fund is not liable for any income or franchise tax in Massachusetts if it qualifies as a RIC for federal income tax purposes. Distributions by the Funds to Shareholders and the ownership of shares may be subject to state and local taxes. FOREIGN TAXES Dividends and interests received by a Fund may be subject to income, withholding or other taxes imposed by foreign countries and U.S. possessions that would reduce the yield on the Fund's 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 International Equity Index and International Equity Funds meet the Distribution Requirement and if more than 50% of the value of such Funds' total assets at the close of its taxable year consists of securities of foreign corporations, the Funds 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 Funds. Pursuant to the election, each 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 International Equity Index and International Equity Funds make the election, such Fund will report annually to its Shareholders the respective amounts per share of the Fund's income from sources within, and taxes paid to, foreign countries and U.S. possessions. The International Equity Index and International Equity Funds' 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 Funds (I.E., may effect whether gains or losses are ordinary or capital), accelerate recognition of income to the fund and defer Fund losses. These rules could therefore affect the character, amount and timing of distributions to Shareholders. These provisions also may require the Funds 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 Funds 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. Each 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 B-43 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. The money market securities in which the Funds invest are traded primarily in the over-the-counter market. Bonds and debentures are usually traded over-the-counter, but may be traded on an exchange. Where possible, an Advisor will deal directly with the dealers who make a market in the securities involved except in those circumstances where better prices and execution are available elsewhere. Such dealers usually are acting as principal for their own account. On occasion, securities may be purchased directly from the issuer. Money market securities are generally traded on a net basis and do not normally involve either brokerage commissions or transfer taxes. The cost of executing portfolio securities transactions of the Trust will primarily consist of dealer spreads and underwriting commissions. TRADING PRACTICES AND BROKERAGE The Trust selects brokers or dealers to execute transactions for the purchase or sale of portfolio securities on the basis of its judgment of their professional capability to provide the service. The primary consideration is to have brokers or dealers provide transactions at best price and execution for the Trust. Best price and execution includes many factors, including the price paid or received for a security, the commission charged, the promptness and reliability of execution, the confidentiality and placement accorded the order and other factors affecting the overall benefit obtained by the account on the transaction. The Trust's determination of what are reasonably competitive rates is based upon the professional knowledge of its trading department as to rates paid and charged for similar transactions throughout the securities industry. In some instances, the Trust pays a minimal share transaction cost when the transaction presents no difficulty. Some trades are made on a net basis where the Trust either buys securities directly from the dealer or sells them to the dealer. In these instances, there is no direct commission charged but there is a spread (the difference between the buy and sell price) which is the equivalent of a commission. B-44 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 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. An 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 Fund may obtain, it is the opinion of each 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. B-45 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 an Advisor is permitted to receive and retain compensation for effecting portfolio transactions for the Trust on an exchange if a written contract is in effect between the Distributor and the Trust expressly permitting the Distributor or an affiliate of an 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. For the fiscal year ended May 31, 1996, the Funds paid the following brokerage commissions .50 with respect to portfolio transactions:
- ----------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------- TOTAL $ AMOUNT TOTAL $ OF BROKERED TOTAL $ AMOUNT OF TOTAL $ TOTAL $ AMOUNT TRANSACTIONS AMOUNT OF BROKERAGE TOTAL $ AMOUNT OF OF THROUGH BROKERAGE COMMISSIONS AMOUNT OF BROKERAGE BROKERED AFFILIATES FOR COMMISSIONS PAID TO BROKERAGE COMMISSIONS TRANSACTIONS FYE 5/3/96 PAID IN FYE AFFILIATES IN TRANSACTIONS PAID FOR PORTFOLIO FOR FYE 5/3/96 5/3/96 FYE 5/31/96 FOR RESEARCH RESEARCH - ----------------------------------------------------------------------------------------------------------------------------- Prime Quality Money Market $18,165,470,547 $8,173,145,355 $ 0 $108,992 $ 0 $ 0 Fund U.S. Government Securities Money Market Fund $ 6,938,095,040 $5,584,646,677 $ 0 $173,038 $ 0 $ 0 Tax-Exempt Money Market Fund $ 1,394,861,574 $ 0 $ 0 $ 0 $ 0 $ 0 Investment Grade Bond Fund $ 3,917,308,841 $1,597,915,449 $ 0 $ 18,536 $ 0 $ 0 - -----------------------------------------------------------------------------------------------------------------------------
B-46
- ----------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------- TOTAL $ AMOUNT TOTAL $ OF BROKERED TOTAL $ AMOUNT OF TOTAL $ TOTAL $ AMOUNT TRANSACTIONS AMOUNT OF BROKERAGE TOTAL $ AMOUNT OF OF THROUGH BROKERAGE COMMISSIONS AMOUNT OF BROKERAGE BROKERED AFFILIATES FOR COMMISSIONS PAID TO BROKERAGE COMMISSIONS TRANSACTIONS FYE 5/3/96 PAID IN FYE AFFILIATES IN TRANSACTIONS PAID FOR PORTFOLIO FOR FYE 5/3/96 5/3/96 FYE 5/31/96 FOR RESEARCH RESEARCH - ----------------------------------------------------------------------------------------------------------------------------- Investment Grade Tax- Exempt Bond Fund $2,432,012,487 $ 604,899,058 $ 0 $ 3,392 $ 0 $ 0 Capital Growth Fund $1,392,191,063 $1,426,392,445 $3,399,393 $ 34,827 $ 0 $ 0 Value Income Stock Fund $1,773,007,196 $1,662,823,629 $4,325,977 $ 37,379 $ 0 $ 0 Short-Term Bond Fund $ 394,165,379 $ 0 $ 0 $ 0 $ 0 $ 0 Short-Term U.S. Treasury Securities Fund $ 47,038,183 $ 0 $ 0 $ 0 $ 0 $ 0 Sunbelt Equity Fund $ 818,595,159 $ 436,071,109 $ 904,698 $ 5,202 $ 0 $ 0 Balanced Fund $ 379,763,192 $ 207,714,650 $ 169,222 $ 4,280 $ 0 $ 0 Mid-Cap Equity Fund $ 434,829,138 $ 283,836,941 $ 528,220 $ 18,224 $ 0 $ 0 Florida Tax- Exempt Bond Fund $ 147,449,991 $ 38,144,634 $ 0 $ 200 $ 0 $ 0 Georgia Tax- Exempt Bond Fund $ 85,645,251 $ 9,916,819 $ 0 $ 135 $ 0 $ 0 Tennessee Tax- Exempt Bond Fund $ 17,455,638 $ 5,454,080 $ 0 $ 69 $ 0 $ 0 U.S. Government Securities Fund $ 51,183,076 $ 0 $ 0 $ 0 $ 0 $ 0 Limited-Term Federal Mortgage Securities Fund $ 253,894,488 $ 97,256,140 $ 0 $ 73 $ 0 $ 0 International Equity Fund $ 456,530,733 $ 27,781,590 $1,532,834 $ 71 $ 0 $ 0 - -----------------------------------------------------------------------------------------------------------------------------
B-47
- ----------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------- TOTAL $ AMOUNT TOTAL $ OF BROKERED TOTAL $ AMOUNT OF TOTAL $ TOTAL $ AMOUNT TRANSACTIONS AMOUNT OF BROKERAGE TOTAL $ AMOUNT OF OF THROUGH BROKERAGE COMMISSIONS AMOUNT OF BROKERAGE BROKERED AFFILIATES FOR COMMISSIONS PAID TO BROKERAGE COMMISSIONS TRANSACTIONS FYE 5/3/96 PAID IN FYE AFFILIATES IN TRANSACTIONS PAID FOR PORTFOLIO FOR FYE 5/3/96 5/3/96 FYE 5/31/96 FOR RESEARCH RESEARCH - ----------------------------------------------------------------------------------------------------------------------------- International Equity Index Fund $ 59,709,286 $ 0 $ 129,411 $ 0 $ 0 $ 0 - ----------------------------------------------------------------------------------------------------------------------------- - -----------------------------------------------------------------------------------------------------------------------------
For the fiscal years ended May 31, 1995 and 1994, the Funds paid the following brokerage commissions with respect to portfolio transactions:
- --------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------- TOTAL $ AMOUNT OF TOTAL $ AMOUNT OF BROKERAGE BROKERED COMMISSIONS COMMISSIONS PAID PAID TO AFFILIATES ------------------------------ ------------------------------ FUND 1995 1994 1995 1994 - --------------------------------------------------------------------------------------------------------- Capital Growth Fund $2,641,999 $2,636,443 $ 46,411 $ 212,766 Sunbelt Equity Fund $ 654,499 $ 173,919 $ 4,802 $ 7,229 Value Income Stock Fund $3,542,773 $2,235,841 $ 17,510 $ 162,405 International Equity Index Fund $ 176,784 * $ 0 * Mid-Cap Equity Fund $ 191,298 $ 58,527 $ 11,418 $ 5,267 International Equity Fund * * * * Balanced Fund $ 140,109 $ 73,119 $ 4,063 $ 18,103 - --------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------
For the fiscal years ended May 31, 1996 and 1995, the portfolio turnover rate for each of the non-money market Funds was as follows:
- ------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------ TURNOVER RATE ------------------------ FUND 1996 1995 - ------------------------------------------------------------------------------------------ Investment Grade Bond Fund 184% 238% Investment Grade Tax-Exempt Bond Fund 514% 592% Short-Term U.S. Treasury Securities Fund 94% 88% - ------------------------------------------------------------------------------------------
B-48
- ------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------ TURNOVER RATE ------------------------ FUND 1996 1995 - ------------------------------------------------------------------------------------------ Short-Term Bond Fund 163% 201% U.S. Government Securities Fund 83% 30% Limited-Term Federal Mortgage Securities Fund 83% 68% Florida Tax-Exempt Bond Fund 63% 105% Georgia Tax-Exempt Bond Fund 60% 25% Tennessee Tax-Exempt Bond Fund 41% 28% Capital Growth Fund 156% 128% Value Income Stock Fund 134% 126% Mid-Cap Equity Fund 116% 66% Balanced Fund 155% 157% Sunbelt Equity Fund 106% 80% International Equity Fund 113% * International Equity Index Fund 30% 10% - ------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------
*Not in operation during the period. DESCRIPTION OF SHARES The Declaration of Trust authorizes the issuance of an unlimited number of shares and classes of shares of the Funds each of which represents an equal proportionate interest in that Fund with each other share. Shares are entitled upon liquidation to a PRO RATA share in the net assets of the Funds. Shareholders have no preemptive rights. The Declaration of Trust provides that the Trustees of the Trust may create additional series of shares 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 B-49 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. 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. 5% AND 25% SHAREHOLDERS As of July 5, 1996, the following persons were the only persons who were record owners (or to the knowledge of the Trust, beneficial owners) of 5% and 25% or more of the shares of the Funds. Persons who owned of record or beneficially more than 25% of a Fund's outstanding shares may be deemed to control the Fund within the meaning of the Act. The Trust believes that most of the shares of the Trust Class of the Funds were held for the record owner's fiduciary, agency or custodial customers.
TRUST SHARES - ------------ FUND NAME AND ADDRESS NUMBER OF SHARES % OF FUND ---- ---------------- ---------------- --------- Prime Obligation Money Market Fund SunTrust Bank, Atlanta 1,017,340,735.9800 96.78% P.O. Box 105504 Atlanta, GA 30348 US Government Securities Money SunTrust Bank, Atlanta 320,058,711.3200 98.23% Market Fund P.O. Box 105504 Atlanta, GA 30348 Tax Exempt Money Market Fund SunTrust Bank, Atlanta 273,617,174.8600 100.00% P.O. Box 105504 Atlanta, GA 30348 Investment Grade Bond Fund Trustman 48,083,117.4740 80.69% Mail Code 3144 P.O. Box 105870 Atlanta, GA 30348-5870
B-50
FUND NAME AND ADDRESS NUMBER OF SHARES % OF FUND ---- ---------------- ---------------- --------- Trustman 3,440,058.7660 5.77% Mail Code 3144 P.O. Box 105870 Atlanta, GA 30348-5870 Trustman 8,067,193.7390 13.54% Mail Code 3144 P.O. Box 105870 Atlanta, GA 30348-5870 Investment Grade Tax Exempt Trustman 2,854,065.5280 26.61% Bond Fund Mail Code 3144 P.O. Box 105870 Atlanta, GA 30348-5870 Trustman 2,571,660.2110 23.98% Mail Code 3144 P.O. Box 105870 Atlanta, GA 30348-5870 Trustman 5,300,111.4770 49.41% Mail Code 3144 P.O. Box 105504 Atlanta, GA 30348 Capital Growth Fund Trustman 51,607,779.7980 78.44% Mail Code 3144 P.O. Box 105870 Atlanta, GA 30348-5870 Trustman 11,363,691.9550 17.27% Mail Code 3144 P.O. Box 105870 Atlanta, GA 30348-5870 Value Income Stock Fund Trustman 70,173,646.4320 74.21% Mail Code 3144 P.O. Box 105870 Atlanta, GA 30348-5870 Trustman 18,135,163.4630 19.18% Mail Code 3144 P.O. Box 105870 Atlanta, GA 30348-5870 Short-Term U.S. Treasury Trustman 429,216.7160 43.59% Securities Fund Mail Code 3144 P.O. Box 105870 Atlanta, GA 30348-5870 Trustman 257,751.4080 26.18% Mail Code 3144 P.O. Box 105870 Atlanta, GA 30348-5870 Trustman 297,590.5360 30.23% Mail Code 3144 P.O. Box 105870 Atlanta, GA 30348-5870 Short-Term Bond Fund Trustman 5,836,666.2750 63.15% Mail Code 3144 P.O. Box 105870 Atlanta, GA 30348-5870
B-51
FUND NAME AND ADDRESS NUMBER OF SHARES % OF FUND ---- ---------------- ---------------- --------- Trustman 1,004,117.0210 10.86% Mail Code 3144 P.O. Box 105870 Atlanta, GA 30348-5870 Trustman 2,401,162.8160 25.98% Mail Code 3144 P.O. Box 105870 Atlanta, GA 30348-5870 Sunbelt Equity Fund Trustman 20,649,993.7390 70.69% Mail Code 3144 P.O. Box 105870 Atlanta, GA 30348-5870 Trustman 1,582,327.4770 5.42% Mail Code 3144 P.O. Box 105870 Atlanta, GA 30348-5870 Trustman 6,977,764.6800 23.89% Mail Code 3144 P.O. Box 105870 Atlanta, GA 30348-5870 Mid-Cap Equity Fund Trustman 12,293,386.9360 61.85% Mail Code 3144 P.O. Box 105870 Atlanta, GA 30348-5870 Trustman 6,088,060.0450 30.63% Mail Code 3144 P.O. Box 105870 Atlanta, GA 30348-5870 Trustman 1,495,048.9880 7.52% Mail Code 3144 P.O. Box 105870 Atlanta, GA 30348-5870 Balanced Fund Trustman 9,475,264.5430 98.03% Mail Code 3144 P.O. Box 105870 Atlanta, GA 30348-5870 Florida Tax-Exempt Bond Fund Trustman 403,555.6470 13.50% Mail Code 3144 P.O. Box 105870 Atlanta, GA 30348-5870 Trustman 790,165.4270 26.43% Mail Code 3144 P.O. Box 105870 Atlanta, GA 30348-5870 Trustman 1,796,356.2170 60.08% Mail Code 3144 P.O. Box 105870 Atlanta, GA 30348-5870 Georgia Tax-Exempt Bond Fund Trustman 1,187,392.0830 49.37% Mail Code 3144 P.O. Box 105870 Atlanta, GA 30348-5870
B-52
FUND NAME AND ADDRESS NUMBER OF SHARES % OF FUND ---- ---------------- ---------------- --------- Trustman 653,344.7550 27.17% Mail Code 3144 P.O. Box 105870 Atlanta, GA 30348-5870 Trustman 564,318.9730 23.46% Mail Code 3144 P.O. Box 105870 Atlanta, GA 30348-5870 Tennessee Tax-Exempt Bond Fund Trustman 90,545.0710 46.63% Mail Code 3144 P.O. Box 105870 Atlanta, GA 30348-5870 Trustman 21,867.1410 11.26% Mail Code 3144 P.O. Box 105870 Atlanta, GA 30348-5870 Trustman 81,749.3740 42.10% Mail Stop 3144 P.O. Box 105870 Atlanta, GA 30348-5870 International Equity Index Fund Trustman 5,851,225.2770 70.46% Mail Stop 3144 P.O. Box 105870 Atlanta, GA 30348-5870 Trustman 578,664.7100 6.97% Mail Stop 3144 P.O. Box 105870 Atlanta, GA 30348-5870 Trustman 1,874,150.7710 22.57% Mail Code 3144 P.O. Box 105870 Atlanta, GA 30348-5870 International Equity Fund Trustman 12,470,861.1530 66.75% Mail Code 3144 P.O. Box 105870 Atlanta, GA 30348-5870 Trustman 5,570,530.5350 29.82% Mail Code 3144 P.O. Box 105870 Atlanta, GA 30348-5870 U.S. Government Securities Fund Trustman 396,590.0730 38.16% Mail Code 3144 P.O. Box 105870 Atlanta, GA 30348-5870 Trustman 445,930.0890 42.91% Mail Code 3144 P.O. Box 105870 Atlanta, GA 30348-5870 Trustman 196,765.0530 18.93% Mail Code 3144 P.O. Box 105870 Atlanta, GA 30348-5870
B-53
FUND NAME AND ADDRESS NUMBER OF SHARES % OF FUND ---- ---------------- ---------------- --------- Limited Term Federal Mortgage Trustman 5,100,466.6770 69.67% Securities Fund Mail Code 3144 P.O. Box 105870 Atlanta, GA 30348-5870 Trustman 471,486.3110 6.44% Mail Code 3144 P.O. Box 105870 Atlanta, GA 30348-5870 Trustman 1,749,245.0220 23.89% Mail Code 3144 P.O. Box 105870 Atlanta, GA 30348-5870 INVESTOR SHARES - --------------- FUND NAME AND ADDRESS NUMBER OF SHARES % OF FUND ---- ---------------- ---------------- --------- Prime Quality Money Market Fund BHC Securities Inc 136,822,323.1200 62.23% Attn: Cash Sweeps Dept. 2005 Market Street One Commerce Square 11th Floor Philadelphia, PA 19103-7042 U.S. Government Securities BHC Securities Inc 16,793,888.1900 28.56% Money Market Fund Attn: Cash Sweeps Dept. 2005 Market Street One Commerce Square 11th Floor Philadelphia, PA 19103-7042 Tax Exempt Money Market Fund BHC Securities Inc 48,161,150.5900 50.25% Attn: Cash Sweeps Dept. 2005 Market Street One Commerce Square 11th Floor Philadelphia, PA 19103-7042 Rock-Tenn Company 8,002,157.2300 8.39% P.O. Box 4098 Chattanooga, TN 30091-4098 Investment Grade Bond Fund BHC Securities Inc. 660,890.3710 18.32% Trade House Account Attn: Mutual Funds One Commerce Square 2005 Market Street Philadelphia, PA 19103-7042 Investment Grade Tax-Exempt BHC Securities Inc. 466,047.6580 13.81% Bond Fund Trade House Account Attn: Mutual Funds One Commerce Square 2005 Market Street Philadelphia, PA 19103-7042
B-54
FUND NAME AND ADDRESS NUMBER OF SHARES % OF FUND ---- ---------------- ---------------- --------- Capital Growth Fund BHC Securities Inc. 1,703,780.4660 13.28% Trade House Account Attn: Mutual Funds One Commerce Square 2005 Market Street Philadelphia, PA 19103-7042 Value Income Stock Fund BHC Securities Inc. 2,258,542.8990 22.71% Trade House Account Attn: Mutual Funds One Commerce Square 2005 Market Street Philadelphia, PA 19103-7042 Short-Term U.S. Treasury Securities BHC Securities Inc. 71,826.3790 16.78% Attn: Mutual Funds One Commerce Square 2005 Market Street Philadelphia, PA 19103-7042 Clarence A. Rittenhouse 57,816.3280 13.51% Margaret S. Rittenhouse JT WROS 700 Golden Beach Blvd #126 Venice, FL 34285-3311 International Investment 44,811.0180 10.47% Conference Inc 9100 South Dadeland Blvd. Suite 702 Miami, FL 33156-7815 Georgia Academy for Children 39,274.4700 9.18% and Youth Prof 260 Peachtree Street Suite 800 Atlanta, GA 30303-1237 Cal Sadler & Ronda Sadler JTTEN 27,155.9580 6.35% P.O. Box 770482 Winter Garden, FL 34777-0482 Short-Term Bond Fund SunTrust Bank, Atlanta. Cust for 40,000.0000 14.59% Rollover IRA of Dewey L. Haggard 549 Hollydale Court NW Atlanta, GA 30342-3633 Atlanta Convention & Visitors 25,237.4270 9.21% Bureau 233 Peachtree Street NE Suite 2000 Atlanta, GA 30303-1508 Betty H. Anderson 13,901.6960 5.07% 207 Suburban Drive Brunswick, GA 31520-2920 BHC Securities Inc. 53,504.9300 19.52% Attn: Mutual Funds One Commerce Square 2005 Market Street Philadelphia, PA 19103-7042
B-55
FUND NAME AND ADDRESS NUMBER OF SHARES % OF FUND ---- ---------------- ---------------- --------- Rex Packaging Inc 14,230.5460 5.19% Attn: Tom Wilson P.O. Box 18247 Jacksonville, FL 32229-0247 Sunbelt Equity Fund BHC Securities Inc. 507,393.6580 24.41% Trade House Account Attn: Mutual Funds One Commerce Square 2005 Market Street Philadelphia, PA 19103-7042 Mid-Cap Equity Fund Anthony R. Gray 76,591.8150 5.44% 460 Virginia Drive Winter Park, FL 32789-5805 BHC Securities Inc. 485,406.6920 34.46% Trade House Account Attn: Mutual Funds One Commerce Square 2005 Market Street Philadelphia, PA 19103-7042 BHC Securities Inc. 86,221.8130 20.42% Trade House Account Attn: Mutual Funds One Commerce Square 2005 Market Street Philadelphia, PA 19103-7042 Florida Tax-Exempt Bond Fund Philip O. Deputy 25,597.6670 6.39% Antoinette M. Grasselli JTWROS 12534 S Lake Mary Jane Road Orlando, FL 32832-6405 Mildred Meinhart Rast 23,898.860 5.96% 1303 South 8th Street Leesburg, FL 34748-6822 BHC Securities Inc. 101,675.0800 25.37% Trad House Account Attn: Mutual Funds One Commerce Square 2005 Market Street Philadelphia, PA 19103-7042 Georgia Tax-Exempt Bond Fund Patrick J. Doran & 27,962.0110 7.81% Norma R. Doran JTTEN 2024 Fisher Trail NE Atlanta, GA 30345-3429 BHC Securities Inc. 128,066.4710 35.77% Attn: Mutual Funds One Commerce Square 2005 Market Street Philadelphia, PA 19103-7042 Tennessee Tax-Exempt Bond Fund Grace M. Bryan 18,894.1970 11.65% P.O. Box 176 St. Joseph, TN 38481-0176 Ralph Laine 13,213.5310 8.15% 2823 Lumar Lane Nashville, TN 37214-1834
B-56
FUND NAME AND ADDRESS NUMBER OF SHARES % OF FUND ---- ---------------- ---------------- --------- Claude M. Pitman & 10,742.8000 6.62% Mildred Pitman JTTEN 2730 New Lake Road Spring City, TN 37381-5478 BHC Securities, Inc. 69,526.8140 42.87% Attn: Mutual Funds One Commerce Square 2005 Market Street Philadelphia, PA 19103-7042 International Equity Index Fund BHC Securities Inc. 207,023.5460 40.22% Trade House Account Attn: Mutual Funds One Commerce Square 2005 Market Street Philadelphia, PA 19103-7042 International Equity Fund Anthony R. Gray 28,449.8200 9.39% 460 Virginia Drive Winter Park, FL 32789-5805 BHC Securities Inc. 159,855.1590 52.78% Trade House Account Attn: Mutual Funds One Commerce Square 2005 Market Street Philadelphia, PA 19103-7042 U.S. Government Securities Fund BHC Securities, Inc. 191,709.4610 78.92% Attn: Mutual Funds One Commerce Square 2005 Market Street Philadelphia, PA 19103-7042 Limited Term Federal Mortgage BHC Securities Inc. 178,232.5950 70.48% Securities Fund Trade House Account Attn: Mutual Funds One Commerce Square 2005 Market Street Philadelphia, PA 19103-7042 FLEX SHARES FUND NAME AND ADDRESS NUMBER OF SHARES % OF SHARES ---- ---------------- ---------------- ----------- Investment Grade Bond Fund Jesse Palmer TTEE 24,963.9380 5.43% The First National Bank P.O. Box 647 Waynesboro, GA 30830 Investment Grade Tax-Exempt Donald D. Lorberbaum 33,237.3700 6.65% Bond Fund 165 E. 72nd Street Apt. 10G New York, NY 10021 Short-Term U.S. Treasury Gene Lotti 20,101.7610 8.12% Securities Fund Stella Lotti Jt WROS 2648 Van Buren Street Hollywood, FL 33020-4818
B-57
FUND NAME AND ADDRESS NUMBER OF SHARES % OF SHARES ---- ---------------- ---------------- ----------- Stuart's Sales & Service Inc. 33,367.3190 13.48% 401-K Profit Sharing Plan 3810 Hollywood Boulevard Hollywood, FL 33021-6730 BHC Securities Inc. 20,952.1260 8.47% FAO 21618707 Attn: Mutual Funds One Commerce Square 2005 Market Street Philadelphia, PA 19103-7042 BHC Securities Inc. 20,566.2080 8.31% FAO 21523219 Attn: Mutual Funds One Commerce Square 2005 Market Street Philadelphia, PA 19103-7042 BHC Securities Inc. 19,478.3390 7.87% FAO 21627702 Attn: Mutual Funds One Commerce Square 2005 Market Street Philadelphia, PA 19103-7042 Short-Term Bond Fund Dorothy S. McAlpin, Trustee U/A of 5,026.5160 5.12% William J. McAlpin Dtd 09-16-89 382 Pineland Road NW Atlanta, GA 30342-4021 Rex Miller TTEE 33,590.0600 34.21% Nale Inc. 401(K) Profit Sharing Plan P.O. Box 2410 Kennesaw, GA 30144-9106 BHC Securities Inc. 6,914.7090 7.04% FAO 21305136 Attn: Mutual Funds One Commerce Square 2005 Market Street Philadelphia, PA 19103-7042 BHC Securities Inc. 6,364.0270 6.48% FAO 21707586 Attn: Mutual Funds One Commerce Square 2005 Market Street Philadelphia, PA 19103-7042 BHC Securities Inc. 5,255.5410 5.35% FAO 21421126 Attn: Mutual Funds One Commerce Square 2005 Market Street Philadelphia, PA 19103-7042 Sunbelt Equity Fund Rex Miller TTEE 19,124.8750 9.93% Nale Inc. 401(K) Profit Sharing Plan P.O. Box 2410 Kennesaw, GA 30144-9106
B-58
FUND NAME AND ADDRESS NUMBER OF SHARES % OF SHARES ---- ---------------- ---------------- ----------- Balanced Fund BHC Securities Inc. 14,406.4070 5.31% FAO 21616586 Attn: Mutual Funds One Commerce Square 2005 Market Square Philadelphia, PA 19103-7042 Braxton Greer TTEE 15,150.7640 5.59% Banner Ford Inc. Cash or Deferred Retirement Plan 1665 Scott Boulevard Decatur, GA 30033 Rex Miller TTEE 19,539.3200 7.21% Nale Inc. 401(K) Profit Sharing Plan P.O. Box 2410 Kennesaw, GA 30144 Florida Tax-Exempt Bond Fund H. Lorene Kleinlein TTE 28,183.2200 10.53% H. Lorene Kleinlein Trust 9519 Sun Point Drive Boynton Beach, FL 33437-3343 Anthony Mason 20,515.8220 7.66% 1525 Lands End Road Manalapan, FL 33462-4740 BHC Securities Inc. 15,795.8090 5.90% FAO 21815996 Attn: Mutual Funds One Commerce Square 2005 Market Street Philadelphia, PA 19103-7042 Georgia Tax-Exempt Bond Fund Yasmin N. Dharamsi 33,552.6820 7.60% 1255 Vineyard Drive Conyers, GA 30208-2467 Tennessee Tax-Exempt Bond Fund SunTrust Bank Nashville NA 17,638.4770 8.21% Collateral Account FO Leslie Cappama 3606 Hamilton Church Antioch, TN 37013-1417 Allen Zang 10,981.5600 5.11% Nancy Zang JT WROS 108 Savoy Circle Nashville, TN 37205-5013 BHC Securities Inc. 21,381.3170 9.95% FAO 21610240 Attn: Mutual Funds One Commerce Square 2005 Market Street Philadelphia, PA 19103-7042 BHC Securities Inc. 41,152.2630 19.15% FAO 21627721 Attn: Mutual Funds One Commerce Square 2005 Market Street Philadelphia, PA 19103-7042
B-59
FUND NAME AND ADDRESS NUMBER OF SHARES % OF SHARES ---- ---------------- ---------------- ----------- International Equity Index Fund Braxton Greer TTEE 6,159.4530 7.36% Banner Ford Inc. Cash or Deferred Retirement Plan 1665 Scott Boulevard Decatur, GA 30033-5604 BHC Securities Inc. 4,248.7980 5.08% FAO 21810258 Attn: Mutual Funds One Commerce Square 2005 Market Street Philadelphia, PA 19103-7042 International Equity Fund BHC Securities Inc. 9,425.0710 11.24% FAO 21525567 Attn: Mutual Funds One Commerce Square 2005 Market Street Philadelphia, PA 19103-7042 U.S. Government Securities Fund Jesse Palmer TTEE 25,220.9870 8.81% The First National Bank P.O. Box 647 Waynesboro, GA 30830-0647 Ralph L. Struever 14,519.5660 5.07% 5350 Woodland Lakes Drive Palm Beach Gardens, FL 33418 BHC Securities Inc. 19,933.7090 6.98% FAO 21531479 Attn: Mutual Funds One Commerce Square 2005 Market Street Philadelphia, PA 19103-7042 Limited-Term Federal Mortgage Viola T. High 10,319.2840 7.61% Security Fund Richard T. High TEN ENT 254 British Woods Drive Nashville, TN 37217-3339 BHC Securities Inc. 9,961.4900 7.35% FAO 21838525 Attn: Mutual Funds One Commerce Square 2005 Market Street Philadelphia, PA 19103-7042
EXPERTS The financial statements as of May 31, 1996 have been audited by Arthur Andersen LLP, Independent Public Accountants, as indicated in their report dated July 12, 1996 with respect thereto, and are included herein in reliance upon the authority of said firm as experts in giving said report. B-60 ARTHUR ANDERSEN LLP REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders and Board of Trustees of STI Classic Funds: We have audited the accompanying statements of net assets of the Value Income Stock, Mid-Cap Equity, Capital Growth, Balanced, International Equity Index, Sunbelt Equity, Tennessee Tax-Exempt Bond, Georgia Tax-Exempt Bond, Investment Grade Bond, Short-Term Bond, Short-Term U.S. Treasury Securities, Limited-Term Federal Mortgage Securities, U.S. Government Securities, Prime Quality Money Market, U.S. Government Securities Money Market and Tax-Exempt Money Market funds and the statement of assets and liabilities, including the schedule of investments, of the international Equity, Investment Grade Tax-Exempt Bond and Florida Tax-Exempt Bond funds of STI Classic Funds (the "Trust") as of May 31, 1996, and the related statements of operations, changes in net assets, and financial highlights for the periods presented. These financial statements and financial highlights are the responsibility of the Trust's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of May 31, 1996, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Value Income Stock, Mid-Cap Equity, Capital Growth, Balanced, International Equity Index, International Equity Sunbelt Equity, Investment Grade Tax-exempt Bond, Florida Tax-Exempt Bond, Tennessee Tax-Exempt bond, Georgia Tax-Exempt Bond, Investment Grade bond, short-Term Bond, Short-Term U.S. Treasury Securities, Limited-Term Federal Mortgage Securities, U.S. Government Securities, Prime Quality Money Market, U.S. Government Securities Money Market and Tax-Exempt Money Market funds of STI Classic funds as of May 31, 1996, the results of their operations, changes in their net assets, and financial highlights for the periods presented, in conformity with generally accepted accounting principles. /s/ Arthur Andersen, LLP Philadelphia, Pa. July 12, 1996 STATEMENT OF NET ASSETS ============================================================ STI CLASSIC FUNDS MAY 31, 1996 VALUE INCOME STOCK FUND - ------------------------------------------------------------ MARKET SHARES VALUE (000) - ------------------------------------------------------------ COMMON STOCKS (92.1%) BANKS (7.5%) AmSouth Bancorp 169,300 $ 6,433 Bank of Boston 162,500 8,105 Bankers Trust New York 283,000 21,260 Central Fidelity Banks 257,400 8,816 Crestar Financial 111,200 6,269 First American Bank 139,200 6,368 First American of Tennessee 160,900 7,059 First Virginia Banks 158,300 6,332 Fleet Financial Group 324,000 14,297 Great Western Financial 307,100 7,063 Magna Group 291,500 6,996 Summit Bancorp 170,554 6,204 ---------- Total Banks 105,202 ---------- CHEMICALS (6.6%) Akzo 155,400 9,421 Ethyl 1,789,300 18,564 Imperial Chemical Industries 397,200 21,101 Lawter International 520,600 5,987 Nalco Chemical 618,500 19,637 Rohm & Haas 195,100 13,218 Witco Chemical 164,800 5,253 ---------- Total Chemicals 93,181 ---------- CONCRETE & MINERAL PRODUCTS (1.5%) Tele Danmark A/S ADR 852,100 21,196 ---------- ELECTRICAL SERVICES (3.7%) Central & South West 502,000 13,868 Cinergy 563,008 16,679 General Public Utilities 203,700 6,824 Pacificorp 701,800 14,124 ---------- Total Electrical Services 51,495 ---------- FOOD, BEVERAGE, TOBACCO & HOUSEHOLD PRODUCTS (15.5%) B.A.T. Industries ADR 1,848,000 30,261 ConAgra 527,200 22,472 Dean Foods 460,200 11,217 Dial 251,100 7,219 Grand Metropolitan ADR 1,023,500 27,507 H.J. Heinz 376,200 12,509 Lance 265,800 4,419 Masco 879,200 27,475 Maytag 604,200 12,990 McCormick 934,000 21,249 Snap-On Tools 279,800 13,465 Unilever 181,100 13,673 Unilever ADR 98,300 13,258 ---------- Total Food, Beverage, Tobacco & Household 217,714 ---------- ENERGY (7.5%) Atlantic Richfield 110,500 13,219 Elf Aquitaine ADR 377,200 13,815 Occidental Petroleum 476,300 12,324 Pennzoil 336,000 14,532 Phillips Petroleum 314,800 13,064 Questar 380,700 12,468 Repsol 409,600 13,926 USX-Marathon Group 564,500 12,348 ---------- Total Energy 105,696 ---------- HEALTH CARE (6.4%) Bausch & Lomb 473,700 20,369 Bristol-Myers Squibb 334,400 28,549 Pharmacia Upjohn ADR 545,700 22,306 Warner Lambert 341,400 19,118 ---------- Total Health Care 90,342 ---------- INSURANCE (7.1%) American Financial Group 465,200 13,956 American General 448,000 15,904 ITT Hartford Group 551,400 28,535 Lincoln National 448,400 21,075 Marsh & McLennan 217,600 20,373 ---------- Total Insurance 99,843 ---------- F-1 - ------------------------------------------------------------ MARKET SHARES VALUE (000) - ------------------------------------------------------------ MACHINERY (5.6%) Cooper Industries 544,700 $ 23,218 General Signal 715,400 27,364 Goulds Pumps 310,800 7,382 Tenneco 385,600 20,726 ---------- Total Machinery 78,690 ---------- MEDIA (4.2%) American Greetings, Cl A 724,800 19,660 Houghton Mifflin 293,500 13,905 McGraw-Hill 415,600 19,481 Reader's Digest, Cl A 152,600 6,466 ---------- Total Media 59,512 ---------- METALS & MINING (2.9%) Allegheny Ludlum 671,900 13,438 Reynolds Metals 380,200 20,531 USX-U.S. Steel Group 183,100 5,676 ---------- Total Metals & Mining 39,645 ---------- MISCELLANEOUS BUSINESS SERVICES (3.9%) Deluxe 377,500 13,684 Kelly Services, Cl A 398,800 11,864 Ogden 786,900 15,246 Xerox 91,600 14,416 ---------- Total Miscellaneous Business Services 55,210 ---------- PAPER & PAPER PRODUCTS (3.8%) International Paper 342,100 13,641 James River 815,900 20,296 Tambrands 410,300 18,925 ---------- Total Paper & Paper Products 52,862 ---------- RETAIL (2.7%) Giant Food 228,900 7,897 J.C. Penney 273,000 14,162 May Department Stores 331,600 15,710 ---------- Total Retail 37,769 ---------- - ------------------------------------------------------------ SHARES/FACE MARKET AMOUNT (000) VALUE (000) - ------------------------------------------------------------ TECHNOLOGY (6.2%) AMP 417,600 $ 17,591 GTE 452,300 19,336 ITT Industries 1,041,100 28,500 Philips Electronics ADR 602,500 21,163 ---------- Total Technology 86,590 ---------- TELEPHONES & TELECOMMUNICATION (5.6%) Alltel 618,800 19,492 Frontier 702,800 22,490 Southern New England Telecommunications 467,300 20,152 Sprint 336,700 14,268 ---------- Total Telephones & Telecommunication 76,402 ---------- TRANSPORTATION (1.4%) Ryder System 686,800 20,089 ---------- Total Common Stocks (Cost $1,170,974,717) 1,291,438 ---------- REPURCHASE AGREEMENTS (8.3%) Deutsche Bank 5.33%, dated 05/31/96, matures 06/03/96, repurchase price $57,449,239 (collateralized by various FHLB discount notes, total par value $15,275,000, 07/01/96-07/29/96; various FHLMC obligations, total par value $20,759,349, 5.494%-996.969%, 11/15/05- 11/15/23; and various FNMA obligations, total par value $43,981,328, 0.00%-8.40%, 02/25/08-03/25/24: total market value $58,576,767) 57,424 57,424 F-2 STATEMENT OF NET ASSETS ============================================================ STI CLASSIC FUNDS MAY 31, 1996 VALUE INCOME STOCK FUND--CONCLUDED - ------------------------------------------------------------ FACE AMOUNT MARKET (000) VALUE (000) - ------------------------------------------------------------ REPURCHASE AGREEMENTS--CONTINUED Salomon Brothers 5.33%, dated 05/31/96, matures 06/03/96, repurchase price $38,606,723 (collateralized by various FHLMC obligations, total par value $15,729,565, 6.00%-9.50%, 07/01/99-03/01/26; and various FNMA obligations, total par value $57,245,349, 6.00%-9.50%, 10/01/01-05/01/26: total market value $39,635,606) $ 38,590 $ 38,590 Swiss Bank 5.33%, dated 05/31/96, matures 06/03/96, repurchase price $19,932,895 (collateralized by various FHLMC obligations, total par value $7,263,678, 7.50%, 11/01/25-12/01/25; and various U.S. Treasury obligations, total par value $11,207,000, 7.25%-13.25%, 02/15/05-05/15/20: total market value $20,367,151) 19,924 19,924 ---------- Total Repurchase Agreements (Cost $115,937,362) 115,938 ---------- Total Investments (100.4%) (Cost $1,286,912,079) 1,407,376 ---------- OTHER ASSETS AND LIABILITIES (-0.4%) Total Other Assets and Liabilities, Net (6,082) ---------- NET ASSETS: Fund shares of the Trust Class (unlimited authorization --no par value) based on 94,636,309 outstanding shares of benefical interest 1,004,096 Fund shares of the Investor Class (unlimited authorization--no par value) based on 9,944,754 outstanding shares of beneficial interest 106,927 Fund shares of the Flex Class (unlimited authorization--no par value) based on 2,009,853 outstanding shares of beneficial interest 24,778 Undistributed net investment income 5,610 Accumulated net realized gain on investments 139,419 Unrealized appreciation on investments 120,464 ---------- Total Net Assets (100.0%) $1,401,294 ========== Net Asset Value, Offering Price and Redemption Price Per Share-- Trust Shares $ 13.15 ========== Net Asset Value, and Redemption Price Per Share--Investor Shares $ 13.13 ========== Maximum Public Offering Price Per Share--Investor Shares ($13.13 (DIVIDED BY) 96.25%) $ 13.64 ========== Net Asset Value, Offering Price and Redemption Price Per Share-- Flex Shares (1) $ 13.08 ========== (1)The Flex Shares have a contingent sales charge. For a description of a possible sales charge, see notes to the financial statements. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. FOR DESCRIPTIONS OF ABBREVIATIONS, PLEASE SEE PAGE 101. F-3 MID-CAP EQUITY FUND (FORMERLY THE AGGRESSIVE GROWTH FUND) - ------------------------------------------------------------ MARKET SHARES VALUE (000) - ------------------------------------------------------------ COMMON STOCKS (85.3%) AEROSPACE & DEFENSE (2.2%) General Dynamics 31,100 $ 1,917 Litton Industries* 52,000 2,412 Sundstrand 49,600 1,748 ---------- Total Aerospace & Defense 6,077 ---------- AUTOMOTIVE (1.6%) Dana 37,800 1,266 Federal Signal 23,500 590 Magna International, Cl A 29,800 1,438 Sonoco Products 39,500 1,081 ---------- Total Automotive 4,375 ---------- BANKS (7.8%) Bancorp Hawaii 29,500 1,073 Bank of Boston 34,100 1,701 Cal Fed Bancorp* 82,400 1,514 Crestar Financial 20,200 1,139 First Security 59,550 1,414 Merchantile Bancorp 28,400 1,335 Northern Trust 40,000 2,190 PNC Bank 37,965 1,153 Regions Financial 21,700 1,025 Republic New York 61,900 3,915 Signet Banking 39,700 1,027 SouthTrust 59,200 1,621 Summit Bancorp 67,900 2,470 ---------- Total Banks 21,577 ---------- BUILDING (1.5%) Clayton Homes 58,200 1,120 Foster Wheeler 66,200 2,946 ---------- Total Building 4,066 ---------- CHEMICALS (1.9%) Georgia Gulf 28,000 959 IMC Fertilizer Group 39,600 1,450 Olin 13,800 1,277 Witco Chemical 49,500 1,578 ---------- Total Chemicals 5,264 ---------- ELECTRICAL SERVICES (2.7%) Aes* 42,700 1,185 Illinova 124,900 3,279 Nipsco Industries 42,700 1,590 Wisconsin Energy 48,500 1,358 ---------- Total Electrical Services 7,412 ---------- ENERGY (4.1%) Anadarko Petroleum 40,400 2,171 Apache 44,900 1,285 Kerr-McGee 36,200 2,127 Mapco 17,000 982 Lyondell Petrochemical 26,600 688 Valero Energy 47,100 1,295 Noble Affiliates 50,800 1,721 Questar 34,900 1,143 ---------- Total Energy 11,412 ---------- ENVIRONMENTAL SERVICES (0.8%) Laidlaw, Cl B 47,000 476 Molten Metal Technology* 57,300 1,748 ---------- Total Environmental Services 2,224 ---------- FINANCIAL SERVICES (2.6%) Bear Stearns 59,975 1,447 Charles Schwab 75,100 1,821 Franklin Resources 49,100 2,878 Green Tree Financial 33,000 1,081 ---------- Total Financial Services 7,227 ---------- FOOD, BEVERAGE,TOBACCO & HOUSEHOLD PRODUCTS (5.0%) Dial 67,900 1,952 First Brands 81,300 2,012 Hubbell, Cl B 30,520 2,132 IBP 57,500 1,574 McCormick 65,700 1,495 Nine West Group* 26,300 1,279 Solectron* 43,800 1,900 Tyson Foods 64,800 1,587 ---------- Total Food, Beverage,Tobacco & Household 13,931 ---------- F-4 STATEMENT OF NET ASSETS ============================================================ STI CLASSIC FUNDS MAY 31, 1996 MID-CAP EQUITY FUND (FORMERLY THE AGGRESSIVE GROWTH FUND) -- CONTINUED - ------------------------------------------------------------ MARKET SHARES VALUE (000) - ------------------------------------------------------------ HEALTH CARE (9.2%) Apria Healthcare Group* 26,800 $ 784 Biogen* 42,600 2,577 Cardinal Health 28,100 1,795 Chiron* 17,700 1,859 Elan ADR* 26,100 1,638 Healthcare & Retirement* 26,900 972 HEALTHSOUTH Rehabilitation* 82,400 2,884 Ivax 64,100 1,763 Mylan Laboratories 55,700 1,058 Nellcor* 23,300 1,270 R.P. Scherer* 22,500 945 Stryker 37,000 1,915 Sunglass Hut International * 45,800 1,259 Tenet Healthcare* 57,300 1,232 Teva Pharmaceuticals ADR 41,900 1,875 Varian Associates 31,200 1,778 ---------- Total Health Care 25,604 ---------- INSURANCE (5.5%) AFLAC 55,800 1,681 Aon 48,900 2,463 Equifax 62,500 1,547 Healthcare Compare* 33,700 1,630 Pacificare Health Systems, Cl B* 27,300 2,259 Progressive of Ohio 43,900 2,030 Sunamerica 44,600 2,498 Transatlantic Holdings 17,900 1,150 ---------- Total Insurance 15,258 ---------- LEISURE (2.8%) Circus Circus Enterprises* 59,600 2,481 HFS* 36,200 2,258 Mirage Resorts* 37,100 2,110 Wendy's International 48,000 864 ---------- Total Leisure 7,713 ---------- MACHINERY (4.0%) Agco 52,300 1,576 American Standard* 75,300 2,231 General Signal 40,600 1,553 Goulds Pumps 28,100 667 Smith International* 12,600 397 Trinity Industries 30,900 1,070 Tyco International 37,800 1,493 York International 38,300 2,025 ---------- Total Machinery 11,012 ---------- MEDIA (1.6%) Chris-Craft Industries* 18,722 765 Interpublic Group 30,400 1,410 Omnicom Group 32,200 1,405 TCA Cable Television 27,300 771 ---------- Total Media 4,351 ---------- METALS & MINING (1.3%) Alumax* 39,600 1,317 Potash of Saskatchewan 33,300 2,214 ---------- Total Metals & Mining 3,531 ---------- PAPER & PAPER PRODUCTS (1.1%) Bowater 21,800 858 Tambrands 20,200 932 Westvaco 40,800 1,306 ---------- Total Paper & Paper Products 3,096 ---------- PRINTING & PUBLISHING (1.7%) American Greetings, Cl A 100,800 2,734 Belo, Cl A 36,000 1,377 Houghton Mifflin 11,400 540 ---------- Total Printing & Publishing 4,651 ---------- RAILROADS (0.8%) Illinois Central 72,750 2,173 ---------- F-5 - ------------------------------------------------------------ MARKET SHARES VALUE (000) - ------------------------------------------------------------ RETAIL (7.9%) Cintas 13,200 $ 706 Dollar General 26,300 730 Federated Department Stores* 85,400 2,957 Fisher Scientific International 43,500 1,778 Hannaford Brothers 72,100 2,280 Kohls* 42,100 1,394 Lone Star Steakhouse & Saloon* 33,700 1,361 Office Depot* 73,400 1,881 Outback Steakhouse* 100,100 3,791 Price/Costco* 107,000 2,140 Staples* 141,800 2,836 ---------- Total Retail 21,854 ---------- TECHNOLOGY (15.3%) ADC Telecommunications* 24,200 1,113 Adobe Systems 31,500 1,169 America Online* 48,800 2,757 Analog Devices* 79,525 2,197 Atmel* 58,200 2,066 Avnet 29,900 1,540 Borland International* 48,800 656 Cabletron Systems* 10,100 735 Cadence Design Systems* 19,950 1,132 CUC International* 35,400 1,310 Dell Computer* 25,800 1,429 Diebold 45,600 1,739 Electronic Arts* 27,500 870 EMC* 68,500 1,516 Fiserv* 26,000 816 Informix* 77,300 1,758 Linear Technology 46,800 1,615 Mentor Graphics* 51,000 912 Molex 42,337 1,349 Network General * 81,400 1,933 Octel Communications * 15,000 368 Olsten 42,300 1,301 Parametric Technology* 52,400 2,397 Reynolds & Reynolds 22,200 1,107 Seagate Technology* 64,000 3,760 Stratacom* 28,600 1,555 Symantec* 43,600 687 U.S. Robotics* 28,000 2,569 ---------- Total Technology 42,356 ---------- TELEPHONES & TELECOMMUNICATION (3.4%) 360 Communications* 68,300 1,579 Century Telephone Enterprises 34,100 1,108 Frontier 84,800 2,714 Southern New England Telecom 34,400 1,484 Telephone & Data Systems 21,300 929 Worldcom* 34,100 1,667 ---------- Total Telephones & Telecommunication 9,481 ---------- TRANSPORTATION (0.5%) Atlantic Southeast Airlines 51,500 1,365 ---------- Total Common Stocks (Cost $215,086,805) 236,010 ---------- CONVERTIBLE BOND (0.7%) Broadband Tech, Convertible to 24.108 shares (B) 5.000%, 05/15/01 $2,000 2,000 ---------- Total Convertible Bond (Cost $2,000,000) 2,000 ---------- F-6 STATEMENT OF NET ASSETS ============================================================ STI CLASSIC FUNDS MAY 31, 1996 MID-CAP EQUITY FUND (FORMERLY THE AGGRESSIVE GROWTH FUND) -- CONCLUDED - ------------------------------------------------------------ FACE AMOUNT MARKET (000) VALUE (000) - ------------------------------------------------------------ REPURCHASE AGREEMENT (15.2%) Deutsche Bank 5.33%, dated 05/31/96, matures 06/03/96, repurchase price $42,138,594 (collateralized by FHLB discount note, par value $15,895,000, 0.00%, 07/01/96, various FHLMC obligations, total par value $11,493,334, 0.00%-8.2055%, 10/15/08-07/15/19, and various FNMA obligations, total par value $29,123,728, 0.00%-7.5075%, 12/25/06-10/25/23: total market value $42,962,287) 42,120 $ 42,120 ---------- Total Repurchase Agreement (Cost $42,119,885) 42,120 ---------- Total Investments (101.2%) (Cost $259,206,690) 280,130 ---------- OTHER ASSETS AND LIABILITIES (-1.2%) Total Other Assets and Liabilities, Net (3,225) ---------- NET ASSETS: Fund shares of the Trust Class (unlimited authorization --no par value) based on 19,896,278 outstanding shares of benefical interest 216,555 Fund shares of the Investor Class (unlimited authorization--no par value) based on 1,410,060 outstanding shares of beneficial interest 15,667 Fund shares of the Flex Class (unlimited authorization--no par value) based on 396,479 outstanding shares of beneficial interest 4,840 Undistributed net investment income 249 Accumulated net realized gain on investments 18,671 Unrealized appreciation on investments 20,923 ---------- Total Net Assets (100.0%) $276,905 ======== Net Asset Value, Offering Price and Redemption Price Per Share--Trust Shares $ 12.76 ======== Net Asset Value and Redemption Price Per Share--Investor Shares $ 12.74 ======== Maximum Public Offering Price Per Share-- Investor Shares ($12.74 (DIVIDED BY) 96.25%) $ 13.24 ======== Net Asset Value, Offering Price and Redemption Price Per Share--Flex Shares (1) $ 12.69 ======== (1) The Flex Shares have a contingent sales charge. For a description of a possible sales charge, see notes to the financial statements. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. FOR DESCRIPTIONS OF ABBREVIATIONS, PLEASE SEE PAGE 101. F-7 CAPITAL GROWTH FUND - ------------------------------------------------------------ MARKET SHARES VALUE (000) - ------------------------------------------------------------ COMMON STOCKS (93.0%) AEROSPACE & DEFENSE (3.9%) Allied Signal 317,500 $ 17,383 General Dynamics 54,000 3,328 Lockheed Martin 68,000 5,704 United Technologies 182,600 19,972 ---------- Total Aerospace & Defense 46,387 ---------- AUTOMOTIVE (3.5%) General Motors 222,900 12,287 General Motors, Cl E 266,700 15,035 Goodyear Tire & Rubber 137,600 6,949 Lear* 202,200 7,810 ---------- Total Automotive 42,081 ---------- BANKS (3.5%) Bank of Boston 170,700 8,514 BayBanks 1,900 205 Chase Manhattan Bank 377,900 26,453 CoreStates Financial 41,300 1,626 Cullen/Frost Bankers 65,100 3,353 Signet Banking 59,700 1,545 Wells Fargo 565 136 ---------- Total Banks 41,832 ---------- BUILDING (1.4%) American Standard* 345,300 10,230 Foster Wheeler 136,000 6,052 ---------- Total Building 16,282 ---------- CHEMICALS (2.9%) Air Products & Chemicals 103,300 6,146 Dow Chemical 36,400 3,044 E.I. du Pont de Nemours 118,400 9,442 Hercules 233,200 13,234 Morton International 74,200 2,820 ---------- Total Chemicals 34,686 ---------- ELECTRICAL EQUIPMENT (4.2%) Emerson Electric 75,000 6,422 General Electric 348,500 28,838 General Signal 393,000 15,032 ---------- Total Electrical Equipment 50,292 ---------- ENERGY (5.5%) Amoco 231,000 16,748 Atlantic Richfield 50,100 5,993 Dresser Industries 148,400 4,341 Enron 130,200 5,208 Halliburton 25,100 1,396 Kerr-McGee 96,500 5,669 Mobil 112,400 12,687 Schlumberger 60,600 5,053 Texaco 35,000 2,931 Union Texas Petroleum 261,700 4,874 ---------- Total Energy 64,900 ---------- ENVIRONMENTAL SERVICES (0.7%) Molten Metal Technology* 196,100 5,981 WMX Technologies 81,100 2,859 ---------- Total Environmental Services 8,840 ---------- FINANCIAL SERVICES (0.8%) FHLMC 118,500 9,791 ---------- FOOD, BEVERAGE, TOBACCO & HOUSEHOLD PRODUCTS (10.5%) Bush Boake Allen* 144,400 3,574 Coca Cola 162,600 7,480 Colgate-Palmolive 59,700 4,701 CPC International 207,900 14,371 Dial 50,000 1,438 Gillette 66,400 3,926 JP Foodservice* 114,700 2,695 Kellogg 36,400 2,648 Newell 230,400 6,912 PepsiCo 550,200 18,294 Philip Morris 218,950 21,758 F-8 STATEMENT OF NET ASSETS ============================================================ STI CLASSIC FUNDS MAY 31, 1996 CAPITAL GROWTH FUND--CONTINUED - ------------------------------------------------------------ MARKET SHARES VALUE (000) - ------------------------------------------------------------ FOOD, BEVERAGE, TOBACCO & HOUSEHOLD PRODUCTS--CONTINUED Procter & Gamble 232,900 $ 20,466 Ralston-Ralston Purina Group 101,500 6,217 Sara Lee 114,800 3,831 Sysco 163,700 5,586 ---------- Total Food, Beverage, Tobacco & Household 123,897 ---------- HEALTH CARE (12.1%) Abbott Laboratories 111,800 4,821 Allergan 3,200 123 American Home Products 57,800 3,092 Astra, Cl A ADR 100,100 4,555 Boston Scientific* 84,200 3,610 Bristol-Myers Squibb 98,300 8,392 Columbia/HCA Healthcare 297,564 16,031 HEALTHSOUTH Rehabilitation* 117,700 4,120 Johnson & Johnson 283,194 27,576 Medtronic 47,100 2,649 Merck 339,482 21,939 Pfizer 100,300 7,096 Pharmacia Upjohn ADR 50,800 2,076 Schering Plough 42,800 2,509 SmithKline Beecham 285,600 14,566 Tenet Healthcare* 349,100 7,506 Varian Associates 78,300 4,463 Vencor* 243,370 7,697 ---------- Total Health Care 142,821 ---------- INSURANCE (6.2%) American International Group 163,450 15,405 Chubb 120,400 5,614 General Re 55,000 8,030 ITT Hartford Group 127,400 6,593 MGIC Investment 91,000 5,346 PMI Group 145,400 6,289 Sphere Drake Holdings 306,000 2,984 Travelers 308,697 12,811 Washington National 374,600 9,927 ---------- Total Insurance 72,999 ---------- LEISURE (6.6%) ITT* 177,700 10,929 Carnival 716,800 21,325 Marriott 177,900 8,450 Mattel 207,300 5,649 McDonald's 397,100 19,110 Walt Disney 201,066 12,215 Wendy's International 55,000 990 ---------- Total Leisure 78,668 ---------- MACHINERY (0.8%) Deere 215,400 8,966 ---------- MEDIA (3.2%) Hollinger International 235,300 2,912 McGraw-Hill 34,000 1,594 Tele-Communications, Cl A* 858,200 16,199 Viacom, Cl B* 377,721 16,006 World Color Press* 41,800 982 ---------- Total Media 37,693 ---------- METALS & MINING (0.8%) Alumax* 24,700 821 Aluminum Company of America 137,800 8,492 Worthington Industries 22,100 445 ---------- Total Metals & Mining 9,758 ---------- MISCELLANEOUS (2.5%) Eastman Kodak 73,200 5,444 Tyco International 598,700 23,649 ---------- Total Miscellaneous 29,093 ---------- PAPER & PAPER PRODUCTS (0.3%) Kimberly Clark 51,100 3,724 ---------- RETAIL (6.3%) Federated Department Stores* 342,200 11,849 General Nutrition* 128,900 1,998 Home Depot 534,032 27,302 Intimate Brands 198,100 4,284 Melville 40,200 1,633 Office Depot* 279,400 7,160 F-9 - ------------------------------------------------------------ MARKET SHARES VALUE (000) - ------------------------------------------------------------ RETAIL--CONTINUED Price/Costco* 84,100 $ 1,682 Safeway* 58,300 1,968 Staples* 149,100 2,982 Wal-Mart Stores 513,700 13,292 ---------- Total Retail 74,150 ---------- TECHNOLOGY (11.6%) AMP 8,600 362 Arrow Electronics* 150,800 7,427 Automatic Data Processing 73,000 2,801 Bay Networks* 140,800 4,083 Cisco Systems* 268,600 14,706 CompuServe* 7,500 186 Ericsson Telephone ADR 254,700 5,874 First Data 41,900 3,342 Hewlett Packard 92,000 9,821 IBM 125,600 13,408 Informix* 61,700 1,404 Intel 65,500 4,945 Microsoft* 147,900 17,563 Motorola 206,100 13,757 Oracle* 300,950 9,969 Scientific-Atlanta 726,800 13,718 Xerox 92,100 14,494 ---------- Total Technology 137,860 ---------- TELEPHONES & TELECOMMUNICATION (3.5%) Airtouch Communications* 94,100 2,999 Alltel 44,800 1,411 AT&T 468,358 29,214 BellSouth 61,900 2,515 Cellular Communications, Cl A* 70,000 3,763 Pacific Telesis Group 48,100 1,605 ---------- Total Telephones & Telecommunication 41,507 ---------- TRANSPORTATION (2.1%) Burlington Northern Santa Fe 100,200 8,492 Conrail 21,800 1,531 Southwest Airlines 126,800 3,471 Union Pacific 162,700 11,409 ---------- Total Transportation 24,903 ---------- Total Common Stocks (Cost $966,088,933) 1,101,130 ---------- PREFERRED STOCKS (2.5%) AIR TRANSPORTATION (0.6%) Continental Airline Financial, 8.50% (A) 110,000 7,205 ---------- BROADCASTING, NEWSPAPERS & ADVERTISING (0.3%) SFX Broadcasting, Ser D (B) 70,000 3,614 ---------- CONTAINERS & PACKAGING (0.2%) Crown Cork & Seal 43,000 1,962 ---------- PAPER & PAPER PRODUCTS (0.4%) International Paper CV, 5.25% 100,000 4,775 ---------- PETROLEUM & FUEL PRODUCTS (0.4%) Occidental Petroleum (B) 80,000 4,890 ---------- TELEPHONES & TELECOMMUNICATION (0.2%) TCI Communications CV, $2.125 50,000 2,300 ---------- WHOLESALE (0.4%) Westinghouse Electric, Convertible to 0.885 Shares (B) 300,000 5,138 ---------- Total Preferred Stocks (Cost $27,955,615) 29,884 ---------- F-10 STATEMENT OF NET ASSETS ============================================================ STI CLASSIC FUNDS MAY 31, 1996 CAPITAL GROWTH FUND--CONCLUDED - ------------------------------------------------------------ FACE AMOUNT MARKET (000) VALUE (000) - ------------------------------------------------------------ CONVERTIBLE BONDS (2.2%) Baker Hughes Zero Coupon, 05/05/08 $ 6,500 $ 4,436 Continental Airlines Convertible to 16.5590 Shares 6.750%, 04/15/06 3,100 3,418 Mariott, LYON (A) (B) Zero Coupon, 03/25/11 5,000 2,638 Molten Metal Technology, Convertible to 25.8065 Shares (B) 5.500%, 05/01/06 2,000 1,985 Noble Affiliates 4.250%, 11/01/03 2,500 2,603 Tele Communications International, Convertible to 36.63 Shares 4.500%, 02/15/06 4,000 3,610 Tenet Healthcare 6.000%, 12/01/05 4,500 4,770 WMX Technologies 2.000%, 01/24/05 2,000 1,962 ---------- Total Convertible Bonds (Cost $25,430,492) 25,422 ---------- REPURCHASE AGREEMENTS (1.6%) Salomon Brothers 5.33%, dated 05/31/96, matures 06/03/96, repurchase price $14,986,982 (collateralized by FHLMC obligation, par value $11,200,000, 7.7291%, 06/15/23; and various FNMA obligations, total par value $123,624,662, 5.90%-9.50%, 07/01/22-02/25/23: total market value $16,138,834) 14,980 14,980 Swiss Bank 5.33%, dated 05/31/96, matures 06/03/96, repurchase price $3,513,875 (collateralized by U.S. Treasury Bond, par value $2,778,000, 9.875%, 11/15/15: market value $3,604,137) 3,512 3,512 ---------- Total Repurchase Agreements (Cost $18,492,644) 18,492 ---------- Total Investments (99.3%) (Cost $1,037,967,684) 1,174,928 ---------- OTHER ASSETS AND LIABILITIES (0.7%) Total Other Assets and Liabilities, Net 8,617 ---------- NET ASSETS: Fund shares of the Trust Class (unlimited authorization --no par value) based on 65,851,300 outstanding shares of benefical interest 740,420 Fund shares of the Investor Class (unlimited authorization--no par value) based on 12,833,227 outstanding shares of beneficial interest 146,753 Fund shares of the Flex Class (unlimited authorization--no par value) based on 739,091 outstanding shares of beneficial interest 10,094 Undistributed net investment income 3,296 Accumulated net realized gain on investments 146,022 Unrealized appreciation on investments 136,960 ---------- Total Net Assets (100.0%) $1,183,545 ========== Net Asset Value, Offering Price and Redemption Price Per Share-- Trust Shares $ 14.90 ========== Net Asset Value and Redemption Price Per Share--Investor Shares $ 14.89 ========== Maximum Public Offering Price Per Share-- Investor Shares ($14.89 (DIVIDED BY) 96.25%) $ 15.47 ========== Net Asset Value, Offering Price and Redemption Price Per Share-- Flex Shares (1) $ 14.84 ========== (1) The Flex Shares have a contingent sales charge. For a description of a possible sales charge, see notes to the financial statements. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. FOR DESCRIPTIONS OF ABBREVIATIONS, PLEASE SEE PAGE 101. F-11 BALANCED FUND - ------------------------------------------------------------ MARKET SHARES VALUE (000) - ------------------------------------------------------------ COMMON STOCKS (55.7%) AEROSPACE & DEFENSE (2.3%) Allied Signal 18,800 $ 1,029 General Dynamics 3,200 197 Lockheed Martin 4,000 336 United Technologies 10,900 1,192 -------- Total Aerospace & Defense 2,754 -------- AUTOMOTIVE (2.1%) General Motors 13,300 733 General Motors, Cl E 15,200 857 Goodyear Tire & Rubber 8,200 414 Lear* 11,800 456 -------- Total Automotive 2,460 -------- BANKS (2.4%) Bank of Boston 6,400 319 BayBanks 3,300 356 Chase Manhattan Bank 22,400 1,568 CoreStates Financial 2,500 98 Cullen/Frost Bankers 3,900 201 Signet Banking 3,900 101 Wells Fargo 900 217 -------- Total Banks 2,860 -------- BUILDING (0.9%) American Standard* 18,700 554 Foster Wheeler 12,000 534 -------- Total Building 1,088 -------- CHEMICALS (1.7%) Air Products & Chemicals 5,800 345 Dow Chemical 1,400 117 E.I. du Pont de Nemours 6,700 534 Hercules 13,400 760 Morton International 6,000 228 -------- Total Chemicals 1,984 -------- ELECTRICAL EQUIPMENT (2.5%) Emerson Electric 4,700 402 General Electric 20,500 1,696 General Signal 23,300 891 -------- Total Electrical Equipment 2,989 -------- ENERGY (3.0%) Amoco 13,700 993 Atlantic Richfield 2,800 335 Dresser Industries 8,800 257 Enron 7,700 308 Halliburton 1,500 84 Kerr-McGee 5,700 335 Mobil 6,700 756 Schlumberger 3,600 300 Union Texas Petroleum 9,400 175 -------- Total Energy 3,543 -------- ENVIRONMENTAL SERVICES (0.6%) Molten Metal Technology* 13,600 415 WMX Technologies 8,100 286 -------- Total Environmental Services 701 -------- FINANCIAL SERVICES (0.5%) FHLMC 6,900 570 -------- FOOD, BEVERAGE, TOBACCO & HOUSEHOLD PRODUCTS (6.1%) Bush Boake Allen* 5,300 131 Coca Cola 9,500 437 Colgate-Palmolive 3,500 276 CPC International 13,500 933 Gillette 4,200 248 JP Foodservice * 8,900 209 Kellogg 2,000 146 Newell 13,700 411 PepsiCo 33,300 1,107 Philip Morris 12,700 1,262 F-12 STATEMENT OF NET ASSETS ============================================================ STI CLASSIC FUNDS MAY 31, 1996 BALANCED FUND--CONTINUED - ------------------------------------------------------------ MARKET SHARES VALUE (000) - ------------------------------------------------------------ FOOD, BEVERAGE, TOBACCO & HOUSEHOLD PRODUCTS--CONTINUED Procter & Gamble 13,900 $ 1,221 Ralston-Ralston Purina Group 6,000 368 Sara Lee 5,700 190 Sysco 9,800 334 -------- Total Food, Beverage, Tobacco & Household 7,273 -------- HEALTH CARE (7.4%) Abbott Laboratories 6,600 285 American Home Products 2,600 139 Astra, Cl A ADR 3,600 164 Boston Scientific* 8,000 343 Bristol-Myers Squibb 5,600 478 Columbia/HCA Healthcare 17,040 918 Healthcare & Retirement* 6,000 217 HEALTHSOUTH Rehabilitation* 12,284 430 Johnson & Johnson 16,800 1,636 Medtronic 3,200 180 Merck 20,100 1,299 Pfizer 6,000 425 Pharmacia Upjohn ADR 3,000 123 Schering Plough 2,600 152 SmithKline Beecham 16,900 862 Tenet Healthcare* 22,000 473 Varian Associates 6,100 348 Vencor* 12,400 392 -------- Total Health Care 8,864 -------- INSURANCE (3.8%) American International Group 9,700 914 Chubb 11,800 550 General Re 3,200 467 ITT Hartford Group 7,600 393 MGIC Investment 5,900 347 PMI Group 9,700 420 Sphere Drake Holdings 21,000 205 Travelers 18,300 759 Washington National 19,500 517 -------- Total Insurance 4,572 -------- LEISURE (4.8%) Carnival 39,000 1,160 ITT* 10,500 646 Marriott 9,500 451 Mattel 11,750 320 McDonald's 29,700 1,429 Viacom, Cl B* 21,544 913 Walt Disney 11,195 680 Wendy's International 10,000 180 -------- Total Leisure 5,779 -------- MACHINERY (0.4%) Deere 12,400 516 -------- MEDIA (0.5%) Tele-Communications, Cl A* 34,000 642 -------- METALS (0.6%) Alumax* 1,400 47 Aluminum Company of America 7,900 487 Worthington Industries 12,000 242 -------- Total Metals 776 -------- MISCELLANEOUS BUSINESS SERVICES (1.5%) Eastman Kodak 5,400 402 Tyco International 35,600 1,406 -------- Total Miscellaneous Business Services 1,808 -------- PAPER & PAPER PRODUCTS (0.2%) Kimberly Clark 3,000 219 -------- RETAIL (3.7%) Federated Department Stores* 19,400 672 General Nutrition* 7,600 118 Home Depot 31,700 1,621 Intimate Brands 10,500 227 Melville 2,400 98 Office Depot* 11,100 284 Price/Costco* 12,700 254 Safeway 7,000 236 Staples* 4,700 94 Wal-Mart Stores 30,500 789 -------- Total Retail 4,393 -------- F-13 - ------------------------------------------------------------ MARKET SHARES VALUE (000) - ------------------------------------------------------------ TECHNOLOGY (7.1%) AMP 3,600 $ 152 Arrow Electronics* 10,500 517 Automatic Data Processing 4,270 164 Bay Networks* 8,300 241 Cisco Systems* 16,100 881 Ericsson Telephone ADR 15,100 348 First Data 4,400 351 Hewlett Packard 5,500 587 IBM 8,800 939 Intel 3,400 257 Microsoft* 8,800 1,045 Motorola 12,200 814 Oracle* 17,900 593 Scientific-Atlanta 38,600 729 Xerox 5,400 850 -------- Total Technology 8,468 -------- TELEPHONES & TELECOMMUNICATION (2.0%) Airtouch Communications* 8,600 274 Alltel 4,100 129 AT&T 27,800 1,734 BellSouth 3,500 142 Pacific Telesis Group 2,900 97 -------- Total Telephones & Telecommunication 2,376 -------- TRANSPORTATION (1.3%) Burlington Northern Santa Fe 6,300 534 Conrail 1,400 98 Southwest Airlines 8,300 227 Union Pacific 9,700 680 -------- Total Transportation 1,539 -------- UTILITIES (0.3%) Texas Utilities 8,200 335 -------- Total Common Stocks (Cost $58,836,551) 66,509 -------- - ------------------------------------------------------------ SHARES/FACE MARKET AMOUNT (000) VALUE (000) - ------------------------------------------------------------ PREFERRED STOCKS (1.0%) AIR TRANSPORTATION (0.3%) Continental Airline Financial, 8.50% 5,000 $ 328 -------- CONTAINERS & PACKAGING (0.4%) Crown Cork & Seal 11,800 538 -------- PETROLEUM & FUEL PRODUCTS (0.3%) Occidental Petroleum (B) 6,000 367 -------- Total Preferred Stocks (Cost $1,172,700) 1,233 -------- CORPORATE OBLIGATIONS (12.0%) Aristar Financial 7.500%, 07/01/99 $1,000 1,014 AT&T Capital 5.500%, 02/09/98 1,000 985 Capital One Bank 6.660%, 08/17/98 500 497 Capital One Bank, MTN 6.490%, 08/15/97 1,000 998 Ford Motor Credit, MTN 6.110%, 12/28/01 1,000 953 General Electric Capital 6.660%, 05/01/18 1,000 988 International Lease Finance 8.125%, 01/15/98 1,000 1,023 Merrill Lynch 7.375%, 05/15/06 1,500 1,481 Paine Webber 6.250%, 06/15/98 3,500 3,442 Salomon 6.700%, 12/01/98 1,000 994 Sears, MTN 7.360%, 08/15/97 1,000 1,013 Societe Generale - NY 7.400%, 06/01/06 1,000 990 -------- Total Corporate Obligations (Cost $14,561,130) 14,378 -------- F-14 STATEMENT OF NET ASSETS ============================================================ STI CLASSIC FUNDS MAY 31, 1996 BALANCED FUND--CONCLUDED - ------------------------------------------------------------ FACE AMOUNT MARKET (000) VALUE (000) - ------------------------------------------------------------ CONVERTIBLE BONDS (1.0%) Pennzoil, 4.75% 4.750%, 10/01/03 $ 800 $ 870 Time Warner Finance, $1.24 Zero Coupon, 06/22/13 900 372 -------- Total Convertible Bonds (Cost $1,216,874) 1,242 -------- U.S. AGENCY MORTGAGE-BACKED OBLIGATIONS (5.5%) FHLMC 8.000%, 06/01/02 730 749 FNMA 8.500%, 04/01/17 904 924 GNMA 6.500%, 12/15/23 2,458 2,275 9.000%, 11/15/17 2,500 2,653 -------- Total U.S. Agency Mortgage-Backed Obligations (Cost $6,639,387) 6,601 -------- U.S. TREASURY OBLIGATIONS (21.7%) U.S. Treasury Bonds 7.500%, 11/15/16 4,000 4,142 8.125%, 08/15/19 3,750 4,144 U.S. Treasury Notes 5.625%, 01/31/98 250 248 7.500%, 10/31/99 1,500 1,542 6.250%, 08/31/00 4,500 4,436 7.500%, 11/15/01 750 777 7.500%, 05/15/02 3,500 3,637 5.750%, 08/15/03 7,500 7,060 -------- Total U.S. Treasury Obligations (Cost $26,837,668) 25,986 -------- REPURCHASE AGREEMENT (4.0%) Merrill Lynch 5.31%, dated 05/31/96, matures 06/03/96, repurchase price $4,754,406 (collateralized by FHLMC ARM, par value $8,062,000, 7.86%, 04/01/24: total market value $4,929,158) 4,752 4,752 -------- Total Repurchase Agreement (Cost $4,752,303) 4,752 -------- Total Investments (100.9%) (Cost $114,016,613) 120,701 -------- OTHER ASSETS AND LIABILITIES (-0.9%) Total Other Assets and Liabilities, Net (1,036) -------- NET ASSETS: Fund shares of the Trust Class (unlimited authorization --no par value) based on 9,665,824 outstanding shares of benefical interest 97,978 Fund shares of the Investor Class (unlimited authorization--no par value) based on 422,202 outstanding shares of beneficial interest 4,229 Fund shares of the Flex Class (unlimited authorization--no par value) based on 271,519 outstanding shares of beneficial interest 2,980 Undistributed net investment income 527 Accumulated net realized gain on investments 7,267 Unrealized appreciation on investments 6,684 -------- Total Net Assets (100.0%) $119,665 ======== F-15 - ---------------------------------------------------------- - ---------------------------------------------------------- Net Asset Value, Offering Price and Redemption Price Per Share-- Trust Shares $ 11.55 ======== Net Asset Value and Redemption Price Per Share--Investor Shares $ 11.60 ======== Maximum Public Offering Price Per Share--Investor Shares ($11.60 (DIVIDED BY) 96.25%) $ 12.05 ======== Net Asset Value, Offering Price and Redemption Price Per Share-- Flex Shares (1) $ 11.53 ======== (1) The Flex Shares have a contingent sales charge. For a description of a possible sales charge, see notes to the financial statements. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. FOR DESCRIPTIONS OF ABBREVIATIONS, PLEASE SEE PAGE 101. F-16 STATEMENT OF NET ASSETS ============================================================ STI CLASSIC FUNDS MAY 31, 1996 INTERNATIONAL EQUITY INDEX FUND - ------------------------------------------------------------ MARKET SHARES VALUE (000) - ------------------------------------------------------------ FOREIGN COMMON STOCKS (97.6%) AUSTRALIA (2.4%) Amcor 13,361 $ 91 Broken Hill Proprietary 39,869 601 Coles Myer 40,644 149 CRA 9,418 153 CSR 27,994 102 Lend Lease 9,731 152 Mount Isa Mines Holdings 42,910 61 National Australia Bank 38,256 359 Newscorp 33,881 190 Pacific Dunlop 68,655 148 Western Mining 25,702 195 Westpac Banking 36,880 172 -------- Total Australia 2,373 -------- AUSTRIA (1.7%) Bank of Austria 5,549 517 Creditanstalt Bankverein 4,114 290 Ea - Generali 720 236 Oest El Wirtsch , Cl A 3,274 250 OMV 2,270 235 Wienerberger Baustoff 570 118 -------- Total Austria 1,646 -------- BELGIUM (1.8%) Bekaert 150 128 Delhaize Freres 2,100 107 Electrabel 1,000 215 Fortis 1,400 189 Generale Banque 470 163 Groupe Bruxelles Lambert 700 93 Kredietbank 540 157 Petrofina 600 179 Royale Belge 500 101 Solvay, Cl A 275 165 Tractabel 350 155 Union Minere* 680 51 -------- Total Belgium 1,703 -------- DENMARK (1.0%) Carlsberg, Cl B 1,540 86 D/S 1912, Cl B 6 132 D/S Svendborg, Cl B 5 163 Danisco 3,040 147 Novo Nordisk, Cl B 1,490 205 Sophus Berendsen, Cl B 410 55 Tele Danmark, Cl B 3,958 195 -------- Total Denmark 983 -------- FINLAND (0.5%) Merita* 16,000 34 Nokia, Cl K 3,700 161 Outokumpu Oy Akt, Cl A 3,500 62 UPM - Kymmene 11,900 229 -------- Total Finland 486 -------- FRANCE (10.9%) Accor 1,197 173 Air Liquide 2,497 435 Alcatel Alsthom 4,183 381 Axa 5,898 335 Banque National Paris, Cl A 4,950 186 Bouygues 1,800 196 Carrefour 669 367 Carrefour Bonus Rights* 668 184 Cie Bancaire 1,660 182 Cie de Saint Gobain 3,826 489 Cie Financiara Paribas 4,093 249 Cie Generale des Eaux 2,945 315 Compagnie de Suez 5,063 196 CSF Thomson 7,000 183 Elf Aquitaine 8,312 602 Elf Sanofi 4,123 317 Eridania Beghin - Say 1,709 268 Groupe Danone 2,414 353 Havas 3,700 317 Lafarge Coppee 2,218 146 Legrand 950 168 L'Oreal 2,213 674 Louis Vuitton - Moet Hennessy 3,837 932 Lyonnaise des Eaux Dumez 2,050 199 Michelin, Cl B 4,244 214 Pernod - Ricard 3,729 245 Peugeot 2,290 319 Pinault - Printemps Redoute 550 170 F-17 - ----------------------------------------------------------------- MARKET SHARES VALUE (000) - ----------------------------------------------------------------- FRANCE--CONTINUED Promodes 650 $ 170 Rhone - Poulenc, Cl A 13,550 338 Schneider 6,627 307 Societe Generale 2,630 280 Total Compaigne, Cl B 6,920 501 Unibail 1,850 192 -------- Total France 10,583 -------- GERMANY (16.4%) Aachener & Munchener Bete 216 136 Allianz 1,208 2,002 Asko Deutche Kaufhaus 156 106 BASF 2,755 766 Bayer 3,211 1,076 Bayerische Hypotheken und Wechselbank 9,900 250 Bayerische Vereinsbank 9,760 275 Biersdorf 167 152 Bremer Vulkan Verbund* 788 2 Colonia Konzern 156 102 Daimler - Benz* 2,123 1,166 Degussa 399 137 Deutsche Bank 26,770 1,258 Dresdner Bank Frankfurt 20,600 517 Heidelberger Zement 299 196 Hochtief 676 297 Karstadt 1,025 402 Kaufhof 821 284 Linde 341 218 Lufthansa 2,108 325 Man Muenchen 531 137 Mannesmann 1,103 384 Munchener Ruckvers 356 631 Preussag 1,261 321 RWE 15,240 600 SAP 2,800 381 Schering 4,610 347 Siemens 25,340 1,421 Strabag 90 9 Thyssen 1,351 250 Veba 19,110 1,001 Viag 1,133 440 Volkswagen 1,061 374 -------- Total Germany 15,963 -------- HONG KONG (1.0%) Cathay Pacific Airways 45,000 83 Cheung Kong Holdings 18,000 133 China Light & Power 15,000 71 Hang Seng Bank 14,900 156 Hong Kong Telecommunications 92,000 171 Hutchison Whampoa 22,000 141 Sun Hung Kai Properties 14,000 143 Swire Pacific, Cl A 9,000 80 -------- Total Hong Kong 978 -------- ITALY (9.0%) Assicurazioni Generali 67,575 1,607 Banca Commerciale Italiana 68,500 145 Banco Ambrosian 37,000 104 Benetton Group 14,500 178 Credito Italiano 245,000 305 Edison 52,000 303 Fiat 275,000 971 Fiat Non-Convertible 42,000 78 Fidis 44,000 125 Finanziaria Autogrill* 640 1 Istituto Bancario san Paolo di Torino 75,000 459 Istituto Nazionale 323,919 486 Italgas 80,000 289 Mediobanca 41,400 287 Montedison* 182,000 111 Olivetti* 252,500 158 Parmalat Finanziaria 102,800 129 Pirelli 120,000 198 RAS 34,835 369 Sirti 19,500 125 SME Meridonale di Electric 31,640 36 Telecom Italia 410,000 821 Telecom Italia di Risp 88,000 149 Telecom Italia Mobile 515,946 1,103 Telecom Italia Mobile di Risp 154,164 213 -------- Total Italy 8,750 -------- JAPAN (33.8%) Ajinomoto 16,000 193 Asahi Bank 37,000 446 Asahi Chemical Industries 46,000 334 Asahi Glass 31,000 374 F-18 STATEMENT OF NET ASSETS ============================================================ STI CLASSIC FUNDS MAY 31, 1996 INTERNATIONAL EQUITY INDEX FUND--CONTINUED - ------------------------------------------------------------ MARKET SHARES VALUE (000) - ------------------------------------------------------------ JAPAN--CONTINUED Bank of Tokyo - Mitsubushi* 24,800 $ 589 Bank of Yokohama 11,000 94 Bridgestone 21,000 366 Chiba Bank 12,000 104 Chiyoda 5,000 56 Citizen Watch 17,000 139 Cosmo Oil 48,000 313 Dai-Ichi Kangyo Bank 45,000 814 Dai Nippon Printing 25,000 464 Daiei 11,000 135 Daimaru 17,000 124 Daiwa Kosho Lease 11,000 115 Daiwa Securities 24,000 323 Ebara 11,000 167 Fanuc 4,300 168 Fuji Bank 42,000 915 Fuji Photo Film 9,000 280 Fujitsu 22,000 200 Furukawa Electric 39,000 230 Hankyu 48,000 287 Hitachi 54,000 501 Honda Motor 16,000 386 Industrial Bank of Japan 38,000 980 Ito Ham Foods 1,000 8 Ito Yokado 5,000 284 Itochu 31,000 223 Japan Air Lines* 49,000 396 Japan Energy 41,000 159 Joyo Bank 13,000 102 Jusco 5,000 148 Kansai Electric Power 13,800 319 Kao 23,000 307 Kawasaki Steel 46,000 171 Kinki Nippon Railway 26,780 198 Kirin Brewery 21,000 261 Kobe Steel* 60,000 166 Komatsu 13,000 124 Kubota 37,000 248 Kyocera 4,000 274 Marui 6,000 124 Matsushita Electric 33,000 569 Mitsubishi 21,000 288 Mitsubishi Chemical 45,000 223 Mitsubishi Electric 62,000 425 Mitsubishi Estate 35,000 490 Mitsubishi Heavy Industries 65,000 560 Mitsubishi Materials 47,000 275 Mitsubishi Steel* 13,000 71 Mitsubishi Trust & Banking 23,000 384 Mitsui 23,000 212 Mitsui Trust & Banking 28,000 309 Mitsukoshi 16,000 177 Murata Manufacturing 3,000 110 NEC 32,000 353 New Oji Paper 39,000 341 Nichido Fire & Marine Insurance 15,750 128 Nippon Express 38,000 381 Nippon Oil 36,000 239 Nippon Paper Industries 30,000 202 Nippon Sharyo 5,000 50 Nippon Steel 88,000 299 Nippon Yusen 27,000 159 Nippondenso 26,000 562 Nissan Motor 45,000 371 NKK* 24,000 70 Nomura Securities 35,000 662 Obayashi 44,000 406 Odakyu Electric Railway 24,720 165 Olympus Optical 8,000 82 Osaka Gas 44,000 172 Ricoh 20,000 202 Sakura Bank 48,000 525 Sankyo 16,000 380 Sanyo Electric 32,000 191 Sega Enterprises 1,600 75 Sekisui Chemical 16,000 190 Sekisui House 7,000 82 Seven Eleven 7,000 428 Sharp 16,000 261 Shimizu 21,000 241 Shin - Etsu Chemical 9,450 189 Shizuoka Bank 13,000 169 Skylark 3,000 61 Sony 6,000 382 Sumitomo Bank 58,000 1,145 F-19 - ------------------------------------------------------------ MARKET SHARES VALUE (000) - ------------------------------------------------------------ JAPAN--CONTINUED Sumitomo Chemical 47,000 $ 235 Sumitomo Metal 42,000 130 Taisei 61,000 461 Takeda Chemical 33,000 548 Teijin 28,000 145 Tobu Railway 23,000 149 Tohoku Electric Power 8,600 196 Tokai Bank 29,000 363 Tokio Marine & Fire Insurance 34,000 441 Tokyo Electric Power 16,600 426 Tokyo Electronics 5,000 154 Tokyo Gas 36,000 137 Tokyu 42,000 315 Toppan Printing 11,000 157 Toray 38,000 257 Tostem 5,000 146 Toto 18,000 265 Toyo Seikan Kaisha 5,000 179 Toyoda Automatic Loom 8,000 162 Toyota Motor 65,000 1,489 Yamaichi Securities 28,000 203 Yamanouchi Pharmaceutical 18,000 389 Yasuda Trust & Banking 20,000 121 -------- Total Japan 32,933 -------- NETHERLANDS (2.7%) ABN-Amro Holdings 3,850 212 Akzo Nobel 970 117 International Nederlanden 4,477 369 Koninklijke 5,370 194 Koninklijke Nederlanden Papierfabriek 2,724 68 Philips Electronics 3,742 133 Royal Dutch Petroleum 7,190 1,091 Unilever 1,850 252 Wolters Kluwer 1,761 197 -------- Total Netherlands 2,633 -------- NORWAY (1.0%) Bergesen, Cl A 5,700 111 Hafslund Nycomed, Cl B 5,900 41 Kvaerner 2,250 88 Norsk Hydro 12,200 579 Nycomed, Cl B* 5,900 119 Uni Storebrand* 16,012 77 -------- Total Norway 1,015 -------- SPAIN (3.8%) Argentaria Bancaria de Espana 4,616 193 Autopistas CESA 12,879 139 Banco Bilbao Vizcaya 7,937 300 Banco Central Hispano 5,523 111 Banco de Santander 5,066 231 Dragados Construccion 6,786 91 Empresa Nacional de Electricidad 10,736 667 Fomento de Construcciones Contratas 958 77 Gas Natural 1,322 233 Iberdola 37,946 385 Mapfre 1,018 50 Repsol 12,707 435 Telefonica de Espana 37,645 676 Union Electrica Fenosa 26,994 164 -------- Total Spain 3,752 -------- SWEDEN (1.9%) Asea, Cl A 1,950 202 Astra, Cl A 14,150 647 Electrolux, Cl B 1,300 66 Ericsson, Cl B 18,400 412 Skandinaviska Enskilda Banken 13,500 106 Skanska, Cl B 2,500 81 Stora Kopparbergs Bergslags, Cl A 5,000 67 Svenska Cellulosa, Cl B 7,000 137 Swedish Match 4,500 15 Volvo, Cl B 4,500 95 -------- Total Sweden 1,828 -------- SWITZERLAND (2.0%) Asea Brown Boveri 60 72 Ciba - Geigy 320 353 Nestle 372 420 Roche Holdings, Genusshein 34 261 Roche Holdlings, Bearer 12 146 F-20 STATEMENT OF NET ASSETS ============================================================ STI CLASSIC FUNDS MAY 31, 1996 INTERNATIONAL EQUITY INDEX FUND--CONCLUDED - ------------------------------------------------------------ MARKET SHARES VALUE (000) - ------------------------------------------------------------ SWITZERLAND--CONTINUED Sandoz Pharmaceutical, Cl R 300 $ 312 Schweizerische Bankgesellschaft 200 187 Schweizerische Bankverein 1,300 231 -------- Total Switzerland 1,982 -------- UNITED KINGDOM (7.7%) Abbey National 32,519 279 B.A.T. Industries 36,624 295 Barclays Bank 28,563 333 Bass 17,787 225 Blue Circle Industries 46,936 256 British Gas 20,778 61 British Petroleum 93,113 802 British Telecommunications 55,837 308 BTR 47,897 209 Cable & Wireless 29,090 200 General Electric 61,851 357 Glaxo Wellcome 31,899 416 Grand Metropolitan 39,465 266 Great Universal Stores 14,129 149 Guinness 42,734 308 Hanson Trust 128,670 373 HSBC Holdings HK$10 22,268 338 HSBC Holdings, Ordinary 12,295 187 Imperial Chemical 15,754 208 Marks & Spencer 48,514 348 National Power 11,877 96 Reuters Holdings 24,899 290 Rio Tinto Zinc 20,914 326 RMC Group 6,371 99 Sainsbury, J. 22,515 138 SmithKline Beecham, Cl A 24,760 252 Unilever 13,002 242 Vodafone Groupe 36,942 146 -------- Total United Kingdom 7,507 -------- Total Foreign Common Stocks (Cost $86,238,260) 95,115 -------- - ------------------------------------------------------------ SHARES/FACE MARKET AMOUNT (000) VALUE (000) - ------------------------------------------------------------ FOREIGN PREFERRED STOCKS (1.2%) AUSTRALIA (0.1%) Newscorp 22,401 $ 109 -------- AUSTRIA (0.2%) Creditanstalt Bankverein 3,876 211 -------- FINLAND (0.1%) Nokia, Cl A 2,600 113 -------- GERMANY (0.7%) RWE 8,480 262 SAP 2,130 295 Volkswagen 197 53 -------- Total Germany 610 -------- ITALY (0.1%) Fiat 42,800 80 -------- Total Foreign Preferred Stocks (Cost $1,032,723) 1,123 -------- CASH EQUIVALENT (0.2%) Highmark Diversified Money Market Fund (A) 4.670% $ 257 257 -------- Total Cash Equivalent (Cost $256,765) 257 -------- Total Investments (99.0%) (Cost $87,527,748) 96,495 -------- OTHER ASSETS AND LIABILITIES (1.0%) Total Other Assets and Liabilities, Net 999 -------- NET ASSETS: Fund shares of the Trust Shares (unlimited authorization -- no par value) based on 8,304,051 outstanding shares of beneficial interest 81,977 F-21 - ------------------------------------------------------------ MARKET VALUE (000) - ------------------------------------------------------------ Fund shares of the Investor Shares (unlimited authorization -- no par value) based on 514,693 outstanding shares of beneficial interest $ 5,175 Fund shares of the Flex Shares (unlimited authorization -- no par value) based on 84,360 outstanding shares of beneficial interest 878 Undistributed net investment income 232 Accumulated net realized gain on investments 269 Net unrealized appreciation on investments 8,967 Net unrealized depreciation on foreign currency and translation of other assets and liabilities in foreign currency (4) -------- Total Net Assets (100.0%) $ 97,494 ======== Net Asset Value, Offering Price and Redemption Price Per Share -- Trust Shares $ 10.96 ======== Net Asset Value and Redemption Price Per Share-- Investor Shares $ 10.88 ======== Maximum Public Offering Price Per Share -- Investor Shares ($10.88 (DIVIDE) 96.25%) $ 11.30 ======== Net Asset Value, Offering Price and Redemption Price Per Share -- Flex Shares (1) $ 10.87 ======== (1) The Flex Shares have a contingent sales charge. For a description of a possible sales charge, see notes to the financial statements. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. FOR DESCRIPTIONS OF ABBREVIATIONS, PLEASE SEE PAGE 101. F-22 SCHEDULE OF INVESTMENTS ============================================================ STI CLASSIC FUNDS MAY 31, 1996 INTERNATIONAL EQUITY FUND - ------------------------------------------------------------ MARKET SHARES VALUE (000) - ------------------------------------------------------------ FOREIGN COMMON STOCKS (95.7%) ARGENTINA (0.8%) Compania Inversiones Telefonica 30,000 $ 1,755 -------- AUSTRALIA (3.6%) Comalco 420,000 2,463 Leighton Holdings 560,000 1,881 Newscorp 125,779 706 QBE Insurance 88,632 506 Queensland Nickel 900,000 2,191 -------- Total Australia 7,747 -------- BRAZIL (2.2%) Telecom Brasileiras ADR 43,800 2,820 Usiminas ADR 180,000 1,947 -------- Total Brazil 4,767 -------- CANADA (3.5%) Alcan Aluminum 60,000 1,965 Bank of Montreal 85,000 2,022 CAE 224,988 1,946 Noranda 83,000 1,793 -------- Total Canada 7,726 -------- CROATIA (0.2%) Pliva GDR* 14,700 454 -------- DENMARK (1.8%) Novo Nordisk, Cl B 12,700 1,745 Sophus Berendsen, Cl B 16,000 2,130 -------- Total Denmark 3,875 -------- FINLAND (6.5%) Cultor, Ser 2 117,700 5,571 Finnair, Ser 1 220,000 1,760 Konecranes International* 50,000 1,221 Metra, Cl B 27,800 1,304 Tietotehdas, Cl B 50,000 2,271 UPM - Kymmene 110,000 2,120 -------- Total Finland 14,247 -------- FRANCE (6.0%) B.I.S.* 11,135 $ 1,445 Christian Dior 42,350 5,986 Lagardere Groupe 87,500 2,377 Michelin, Cl B 40,000 2,018 Societe Generale 11,000 1,171 -------- Total France 12,997 -------- GERMANY (3.8%) Hoechst 3,000 1,003 Mannesmann 3,500 1,217 Siemens 32,000 1,795 Veba 59,600 3,121 Wella 2,000 1,066 -------- Total Germany 8,202 -------- HONG KONG (2.7%) Cheung Kong Holdings 300,000 2,220 Esprit Asia Holdings 1,066,000 355 HSBC Holdings 142,000 2,147 Swire Pacific, Cl A 125,000 1,111 -------- Total Hong Kong 5,833 -------- INDONESIA (1.3%) Asahimas Flat Glass 800,000 926 Indorama Synthetic, F 364,500 1,016 Tambang Timah, F 500,000 986 -------- Total Indonesia 2,928 -------- IRELAND (0.2%) CRH - Dublin 36,661 346 -------- ISRAEL (0.8%) Comverse Technology* 40,700 1,196 Koor Industries ADR 30,700 553 -------- Total Israel 1,749 -------- F-23 - ------------------------------------------------------------ MARKET SHARES VALUE (000) - ------------------------------------------------------------ ITALY (2.4%) Cartiere Burgo 336,000 $ 2,084 Instituto Mobiliare Italiano 130,000 1,063 Saipem 500,000 2,051 -------- Total Italy 5,198 -------- JAPAN (15.2%) Amway Japan ADR 87,900 2,110 Canon 282,000 5,543 Dai Nippon Printing 177,000 3,282 Fuji Photo Film 108,000 3,365 Mitsubishi Heavy Industries 475,000 4,092 Nippon Television Network 11,000 3,121 Omron 119,000 2,416 Paris Miki 51,700 2,267 Sanyo Shinpan Finance 13,300 911 Sony 95,400 6,077 -------- Total Japan 33,184 -------- MEXICO (4.0%) Alfa, Cl A 270,000 4,381 Panamerican Beverages, Cl A 103,000 4,326 -------- Total Mexico 8,707 -------- NETHERLANDS (8.6%) ABN - Amro Holding 46,000 2,537 Dutch State Mines 17,500 1,797 Fortis AMEV 56,000 4,364 Hollandsche Beton Groep 11,000 2,054 IHC Caland 24,200 1,117 International Nederlanden 55,000 4,528 VNU 140,000 2,295 -------- Total Netherlands 18,692 -------- NEW ZEALAND (0.3%) Fletcher Challenge Building Division 297,500 604 -------- PANAMA (1.2%) Banco Latinamericano de Exportaciones 44,800 $ 2,570 -------- PERU (1.8%) Credicorp 102,707 1,900 Telefonica del Peru, Cl B 971,569 1,923 -------- Total Peru 3,823 -------- PHILIPPINES (2.0%) Benpres Holdings GDR* 519,961 4,290 -------- SOUTH AFRICA (0.7%) Rembrandt Group 173,000 1,540 -------- SOUTH KOREA (0.6%) Korea Chemical 10,000 1,253 -------- SPAIN (3.4%) Repsol 36,000 1,232 Telefonica de Espana 349,000 6,268 -------- Total Spain 7,500 -------- SWEDEN (8.5%) Avesta Sheffield* 170,200 1,733 Cardo 80,000 1,754 Dahl International* 45,000 616 Ericsson, Cl B 108,100 2,419 Gettinge, Cl B 213,300 3,900 Pharmacia & Upjohn 50,000 2,044 SKF, Cl B 70,000 1,571 Svedala Industrial 236,800 4,541 -------- Total Sweden 18,578 -------- F-24 SCHEDULE OF INVESTMENTS ============================================================ STI CLASSIC FUNDS MAY 31, 1996 INTERNATIONAL EQUITY FUND--CONCLUDED - ------------------------------------------------------------ MARKET SHARES VALUE (000) - ------------------------------------------------------------ SWITZERLAND (4.0%) Asea Brown Boveri 1,315 $ 1,575 Ciba - Geigy 2,100 2,314 Sandoz Pharmaceutical 1,300 1,351 SMH 13,700 2,127 Societe Generale de Surveillance 640 1,444 -------- Total Switzerland 8,811 -------- UNITED KINGDOM (9.6%) Astec 457,000 1,063 Bank of Ireland 301,055 2,128 B.A.T. Industries 520,000 4,184 British Airport Authority 200,000 1,522 CRH - Dublin 139,545 1,330 Grand Metropolitan 205,000 1,382 National Power 150,000 1,212 Orange ADR* 283,000 5,377 Rank Organisation 207,000 1,643 Unilever 55,000 1,023 -------- Total United Kingdom 20,864 -------- Total Foreign Common Stocks (Cost $194,622,776) $208,240 -------- Total Investments (95.7% of Net Assets) (Cost $194,622,776) $208,240 ======== THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. FOR DESCRIPTIONS OF ABBREVIATIONS, PLEASE SEE PAGE 101. F-25 STATEMENT OF NET ASSETS ================================================================== STI CLASSIC FUNDS MAY 31, 1996 SUNBELT EQUITY FUND - ------------------------------------------------------------------ MARKET SHARES VALUE (000) - ------------------------------------------------------------------ COMMON STOCKS (96.3%) AEROSPACE & DEFENSE (1.1%) Tech-Sym * 146,316 $ 4,993 -------- AIR TRANSPORTATION (3.9%) Atlantic Southeast Airlines 190,960 5,060 Comair 318,408 8,358 Southwest Airlines 139,901 3,830 -------- Total Air Transportation 17,248 -------- BANKS (2.8%) CCB Financial 64,475 3,353 Eagle Bancshares 78,426 1,314 First Tennessee National 125,577 4,223 Hibernia, Cl A 230,693 2,538 Texas Regional Bancshares, Cl A 43,740 1,072 -------- Total Banks 12,500 -------- BUILDING & CONSTRUCTION (1.0%) Beazer Homes USA* 89,605 1,534 Centex 89,994 2,711 -------- Total Building & Construction 4,245 -------- BUILDING & CONSTRUCTION SUPPLIES (1.4%) American Buildings* 111,881 3,440 NCI Building Systems* 78,427 2,686 -------- Total Building & Construction Supplies 6,126 -------- BUILDING-MOBILE HOMES (2.9%) Clayton Homes 167,943 3,233 Oakwood Homes 65,759 3,189 Palm Harbor Homes* 100,222 2,781 Redman Industries* 175,439 3,838 -------- Total Building-Mobile Homes 13,041 -------- COMMUNICATIONS EQUIPMENT (1.3%) Glenayre Technologies* 113,833 5,606 -------- COMPUTER SOFTWARE & SERVICES (5.1%) Harbinger* 102,328 2,456 Landmark Graphics* 148,237 2,779 National Data 115,701 4,368 Nichols Research* 129,689 4,182 Optical Data Systems* 47,458 1,092 SCB Computer Technology* 82,993 1,743 Sterling Commerce* 64,475 2,829 Sterling Software* 40,622 3,270 -------- Total Computer Software & Services 22,719 -------- ELECTRONICS (0.7%) SCI Systems* 73,747 3,319 -------- ENVIRONMENTAL SERVICES (1.0%) USA Waste Services* 147,491 4,351 -------- FINANCE-MORTGAGE (0.6%) Triad Guaranty* 80,530 2,879 -------- FINANCE-REIT (1.7%) Equity Inns 259,867 3,086 Felcor Suite Hotels 104,828 3,237 Winston Hotels 115,953 1,333 -------- Total Finance-REIT 7,656 -------- FINANCIAL SERVICES (3.2%) Capital One Financial 110,620 3,360 Medaphis* 284,812 10,752 -------- Total Financial Services 14,112 -------- FOOD, BEVERAGE & TOBACCO (1.0%) Tyson Foods 174,961 4,287 -------- HOTELS & LODGING (1.1%) Promus Hotel* 175,392 4,823 -------- INSURANCE (3.9%) Compdent* 135,960 6,594 Jefferson-Pilot 65,080 3,343 Provident* 92,296 3,311 United Finance 136,100 4,134 -------- Total Insurance 17,382 -------- F-26 STATEMENT OF NET ASSETS ================================================================ STI CLASSIC FUNDS MAY 31, 1996 SUNBELT EQUITY FUND--CONTINUED - ---------------------------------------------------------------- MARKET SHARES VALUE (000) - ---------------------------------------------------------------- LEISURE (1.1%) Play By Play Toys & Novelties* 92,182 $ 1,302 Varsity Spirit 209,341 3,506 -------- Total Leisure 4,808 -------- LUMBER & WOOD PRODUCTS (0.6%) American Homestar* 119,786 2,665 -------- MACHINERY (4.5%) Agco 92,182 2,777 Blount International 330,327 10,983 Greenfield Industries 116,591 4,401 Roper Industries 40,601 1,908 -------- Total Machinery 20,069 -------- MEASURING DEVICES (3.1%) Input/Output 344,567 13,912 -------- MEDICAL PRODUCTS & SERVICES (4.7%) Gulf South Medical Supply* 210,931 10,072 Phycor* 116,439 6,317 Quorum Health Group* 186,951 4,791 -------- Total Medical Products & Services 21,180 -------- METAL PRODUCTS & SERVICES (2.5%) Citation* 283,174 4,177 Imco Recycling 110,745 2,575 Wolverine Tube* 113,942 4,159 -------- Total Metal Products & Services 10,911 -------- MISCELLANEOUS BUSINESS SERVICES (2.8%) Norrell 106,725 4,416 PMT Services* 231,008 7,854 -------- Total Miscellaneous Business Services 12,270 -------- MISCELLANEOUS CONSUMER SERVICES (1.9%) Accustaff* 240 8 Central Parking 85,827 2,661 Service International 101,849 5,691 -------- Total Miscellaneous Consumer Services 8,360 -------- OIL & GAS-DRILLING (4.2%) Diamond Offshore Drilling* 120,600 5,774 Ensco International* 107,975 3,280 Global Marine* 383,022 4,692 Sonat Offshore Drilling 92,709 4,914 -------- Total Oil & Gas-Drilling 18,660 -------- OIL & GAS-EXPLORATION (1.9%) Nuevo Energy* 148,647 4,608 Stone Energy* 214,614 3,997 -------- Total Oil & Gas-Exploration 8,605 -------- OIL & GAS-INTEGRATED (1.6%) Louisiana Land & Exploration 73,838 3,978 Union Pacific Resources Group 119,934 3,088 -------- Total Oil & Gas-Integrated 7,066 -------- OIL & GAS-MACHINERY & EQUIPMENT (1.8%) Baker Hughes 70,386 2,208 Tidewater 135,956 5,608 -------- Total Oil & Gas-Machinery & Equipment 7,816 -------- OIL & GAS-MARKETING (0.9%) World Fuel Services 230,924 4,128 -------- OIL & GAS-SERVICES (2.6%) Global Industries* 92,183 2,858 Offshore Logistics* 92,182 1,337 Pride Petroleum Service* 255,444 4,406 Production Operators 79,513 2,902 -------- Total Oil & Gas-Services 11,503 -------- PAPER & PAPER PRODUCTS (2.5%) Inbrand* 262,435 7,643 Rock Tenn, Cl A 176,973 3,495 -------- Total Paper & Paper Products 11,138 -------- PRINTING & PUBLISHING (0.5%) Cadmus Communications 144,169 2,379 -------- F-27 =================================================================== - ------------------------------------------------------------------- MARKET SHARES VALUE (000) - ------------------------------------------------------------------- RETAIL (9.0%) Autozone* 203,852 $ 7,160 Bombay* 253,132 1,962 Books-A-Million* 367,876 4,368 Claire's Stores 222,839 5,571 Discount Auto Parts* 219,123 5,642 Dollar General 161,548 4,483 Food Lion, Cl A 11,187 86 Friedman's, Cl A* 148,271 4,189 Movie Gallery* 139,340 4,250 Sports & Recreation* 222,153 2,110 -------- Total Retail 39,821 -------- RETAIL-RESTAURANT (3.3%) Brinker International* 184,260 3,086 Cracker Barrel Old Country Stores 127,591 3,381 Longhorn Steaks* 93,233 2,401 Luby's Cafeterias 147,490 3,632 O'Charleys* 112,066 1,401 Sonic* 29,876 717 -------- Total Retail-Restaurant 14,618 -------- SEMI-CONDUCTORS/INSTRUMENTS (0.7%) AVX 92,123 2,004 Kemet* 53,241 1,185 -------- Total Semi-Conductors/Instruments 3,189 -------- STEEL & STEEL WORKS (0.6%) Maverick Tube* 204,034 2,678 -------- TELEPHONES & TELECOMMUNICATION (1.3%) Harris 52,056 3,364 Premiere Technologies* 37,418 1,768 U.S. Long Distance* 22,407 804 -------- Total Telephones & Telecommunication 5,936 -------- TRANSPORTATION SERVICES (1.3%) United Transnet* 222,334 5,642 -------- TRUCK & PARTS-HEAVY DUTY (1.8%) Miller Industries* 256,869 8,059 -------- TRUCKING (2.5%) American Freightways* 458,778 5,849 M.S. Carriers* 46,096 887 MTL* 84,290 1,465 USA Truck* 233,217 2,682 -------- Total Trucking 10,883 -------- WHOLESALE (5.9%) Barnett* 188,947 4,535 Isolyser* 317,432 4,365 Kent Electronics* 183,645 6,519 Richfood Holdings 129,056 4,323 Serologicals* 63,717 1,657 Watsco 161,176 4,855 -------- Total Wholesale 26,254 -------- Total Common Stocks (Cost $329,210,358) 427,837 -------- CONVERTIBLE BONDS (3.0%) Food Lion, Convertible to 126.582 shares (B) 5.000%, 06/01/03 $1,873 1,981 HEALTHSOUTH Rehabilitation, Convertible to 26.5781 shares 5.000%, 04/01/01 4,413 8,407 Pride Petroleum Services, Convertible to 81.6327 shares 6.250%, 02/15/06 1,872 2,979 -------- Total Convertible Bonds (Cost $11,611,272) 13,367 -------- F-28 STATEMENT OF NET ASSETS =================================================================== STI CLASSIC FUNDS MAY 31, 1996 SUNBELT EQUITY FUND--CONCLUDED - ------------------------------------------------------------------- FACE AMOUNT MARKET (000) VALUE (000) - ------------------------------------------------------------------- REPURCHASE AGREEMENT (0.1%) Swiss Bank 5.27%, dated 05/31/96, matures 06/03/96, repurchase price $432,113 (collateralized by U.S. Treasury Bond, par value $746,000, 8.75%, 05/15/20: market value $888,829) 432 $ 432 -------- Total Repurchase Agreement (Cost $431,924) 432 -------- Total Investments (99.4%) (Cost $341,253,554) 441,636 -------- OTHER ASSETS AND LIABILITIES (0.6%) Total Other Assets and Liabilities, Net 2,501 -------- NET ASSETS: Fund shares of the Trust Class (unlimited authorization --no par value) based on 29,227,841 outstanding shares of benefical interest 298,601 Fund shares of the Investor Class (unlimited authorization--no par value) based on 2,078,593 outstanding shares of beneficial interest 20,386 Fund shares of the Flex Class (unlimited authorization--no par value) based on 193,565 outstanding shares of beneficial interest 2,386 Accumulated net realized gain on investments 22,383 Unrealized appreciation on investments 100,381 -------- Total Net Assets (100.0%) $444,137 ======== Net Asset Value, Offering Price and Redemption Price Per Share--Trust Shares $ 14.11 ======== Net Asset Value and Redemption Price Per Share--Investor Shares $ 13.95 ======== Maximum Public Offering Price Per Share--Investor Shares ($13.95 (DIVIDED BY) 96.25%) $ 14.49 ======== Net Asset Value, Offering Price and Redemption Price Per Share--Flex Shares (1) $ 13.97 ======== (1) The Flex Shares have a contingent sales charge. For a description of a possible sales charge, see notes to the financial statements. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. FOR DESCRIPTIONS OF ABBREVIATIONS, PLEASE SEE PAGE 101. F-29 SCHEDULE OF INVESTMENTS =================================================================== STI CLASSIC FUNDS MAY 31, 1996 INVESTMENT GRADE TAX-EXEMPT BOND FUND - ------------------------------------------------------------------- FACE AMOUNT MARKET (000) VALUE (000) - ------------------------------------------------------------------- MUNICIPAL BONDS (89.8%) ARIZONA (2.0%) Phoenix, GO, Ser A 5.000%, 07/01/19 $1,600 $ 1,400 Phoenix, Ser B Callable 07/01/05 @ 100 5.500%, 07/01/08 2,000 2,005 -------- Total Arizona 3,405 -------- FLORIDA (12.8%) Dade County, Water & Sewer Systems, RB (FGIC) 6.250%, 10/01/10 1,000 1,064 Jacksonville, Electric Authority Revenue, RB, Callable 10/01/00 @ 101.50 6.750%, 10/01/05 1,000 1,085 Okeechobee Correctional Facility, COP (AMBAC) 5.800%, 03/01/03 1,000 1,041 Palm Beach County, Solid Waste Resource Recovery Revenue, RB Callable 12/01/04 @ 100 (MBIA) 6.000%, 12/01/06 1,500 1,575 Reedy Creek, Improvement District Utility Revenue Ser 1991-1, RB, Pre-Refunded 10/01/01 @ 101 (MBIA) 6.500%, 10/01/16 3,000 3,274 State Board of Education Capital Outlay, Ser C, Pre-Refunded 06/01/02 @ 101 6.625%, 06/01/22 3,000 3,304 State Bond Finance Department, Environmental Department, Preservation 2000 Project, Ser A (MBIA) 5.000%, 07/01/03 3,000 2,993 5.000%, 07/01/04 5,000 4,956 Volusia County, Master Lease Program, COP, Callable 08/01/01 @ 102 (FSA) 6.625%, 08/01/06 2,000 2,210 -------- Total Florida 21,502 -------- GEORGIA (0.9%) Downtown Savannah Authority, Chatham County Detention Project, Ser A, RB, Pre-Refunded 01/01/99 @ 102 6.400%, 01/01/01 1,415 1,509 -------- ILLINOIS (2.6%) Chicago, GO, Callable 07/01/07 @ 100 (AMBAC) 5.900%, 01/01/09 1,680 1,705 Chicago, Motor Fuel Tax Revenue, RB, Pre-Refunded 01/01/01 @ 102 (AMBAC) 7.100%, 01/01/11 1,500 1,665 Chicago, Wastewater Transmission Revenue, RB (FGIC) 5.375%, 01/01/13 1,100 1,046 -------- Total Illinois 4,416 -------- IOWA (0.7%) LeClaire, Electric Authority Revenue, RB, Mandatory Put 09/01/96 @ 100 4.125%, 09/01/26 1,185 1,186 -------- LOUISIANA (1.2%) State Refunding GO, Ser A (FGIC) 6.000%, 08/01/00 2,000 2,085 -------- MARYLAND (3.8%) Stadium Authority, Sports Facility, RB 5.300%, 03/01/07 1,205 1,194 5.300%, 03/01/08 1,000 983 5.400%, 03/01/10 1,125 1,098 State Industrial Development Authority, Bon Secours Health Systems Project, RB (MBIA) 5.500%, 08/15/20 1,940 1,814 Worcester County, Public Improvements Project, RB 5.400%, 08/01/11 1,315 1,262 -------- Total Maryland 6,351 -------- F-30 SCHEDULE OF INVESTMENTS =================================================================== STI CLASSIC FUNDS MAY 31, 1996 INVESTMENT GRADE TAX-EXEMPT BOND FUND--CONCLUDED - ------------------------------------------------------------------- FACE AMOUNT MARKET (000) VALUE (000) - ------------------------------------------------------------------- MICHIGAN (5.5%) Detroit, School District, Ser A, GO (AMBAC) 6.250%, 05/01/06 $1,040 $ 1,106 6.500%, 05/01/07 1,165 1,258 6.500%, 05/01/08 2,305 2,481 6.500%, 05/01/09 2,455 2,642 Underground Storage Tank Financial Assurance Authority, Ser I, RB (AMBAC) 5.000%, 05/01/01 1,750 1,757 -------- Total Michigan 9,244 -------- MINNESOTA (14.4%) Burnsville, Independent School District #191, Ser A, GO 4.875%, 02/01/13 1,450 1,269 State GO 4.750%, 05/01/00 4,710 4,734 4.750%, 05/01/01 2,430 2,436 5.000%, 08/01/01 4,000 4,055 State RB, Ser A, (AMBAC) 5.000%, 06/30/99 6,445 6,509 5.000%, 06/30/00 5,000 5,031 -------- Total Minnesota 24,034 -------- MISSISSIPPI (1.7%) State GO, Callable 12/01/04 @ 100 6.400%, 12/01/07 2,595 2,767 -------- MISSOURI (1.4%) State Environmental Improvements Energy Resource Authority, Pollution Control, RB 5.750%, 12/01/02 2,305 2,391 -------- NEW JERSEY (2.1%) State GO, Ser E 5.000%, 07/15/00 3,475 3,518 -------- NEW YORK (10.4%) Battery Park City Authority, RB, Pre-Refunded 05/01/99 @ 100 6.500%, 05/01/20 10,000 10,563 State Dorm Authority, State University Educational Facilities, RB (FGIC) 5.875%, 05/15/11 2,000 2,060 State GO, Pre-Refunded 03/01/00 @ 102 (AMBAC) 7.100%, 03/01/20 1,650 1,821 State Local Assistance Corporation, Ser A, RB, Pre-Refunded 04/01/01 @ 102 7.000%, 04/01/16 1,065 1,186 Triborough Bridge & Tunnel Authority, Ser B, RB 5.000%, 01/01/14 2,000 1,828 -------- Total New York 17,458 -------- OHIO (3.4%) Cleveland, Waterworks First Mortgage, Ser F-92 A, RB, Pre-Refunded 01/01/02 @ 102 (AMBAC) 6.500%, 01/01/21 3,250 3,567 State Building Authority, State Correctional Facilities, Ser C, RB, Callable 10/01/1996 @ 102 8.400%, 04/01/97 2,000 2,064 -------- Total Ohio 5,631 -------- OKLAHOMA (2.7%) State Industrial Authority Health Systems, Integris Baptist Medical Center, RB, (AMBAC) 6.000%, 08/15/10 1,000 1,025 Tulsa, Hospital Revenue, RB, Pre-Refunded 06/01/03 @ 102 7.200%, 06/01/17 3,000 3,439 -------- Total Oklahoma 4,464 -------- F-31 - ------------------------------------------------------------------- FACE AMOUNT MARKET (000) VALUE (000) - ------------------------------------------------------------------- PUERTO RICO (14.4%) Commonwealth Highway & Transportation Authority, Ser Z, RB (FSA) 6.000%, 07/01/18 $10,500 $ 10,920 Commonwealth Public Improvements, RB, Pre-Refunded 07/01/02 @ 101.50 6.800%, 07/01/21 7,000 7,805 Commonwealth Unlimited Tax GO (MBIA) 6.500%, 07/01/07 1,500 1,661 Electric & Power Authority, Ser K, RB, Pre-Refunded 07/01/97 @ 102 9.250%, 07/01/06 2,500 2,690 Electric Power Authority, Ser W, RB (MBIA) 6.000%, 07/01/01 1,000 1,049 -------- Total Puerto Rico 24,125 -------- SOUTH CAROLINA (0.7%) State Public Service Authority, Ser B, RB, Pre-Refunded 07/01/01 @ 102 7.100%, 07/01/21 1,000 1,120 -------- TEXAS (2.7%) Alief, Independent School District, GO (PSFG) 5.000%, 02/15/13 1,025 935 5.000%, 02/15/14 1,025 923 State Unlimited GO, College Student Loan, Callable 08/01/02 @ 100 (F) 6.200%, 08/01/04 1,420 1,491 Wylie, Independent School District, GO, Callable 08/15/11 @ 100 (PSFG) 6.900%, 08/15/13 1,100 1,213 -------- Total Texas 4,562 -------- VIRGINIA (4.6%) Southeastern Public Service Authority, Ser A (MBIA) 5.000%, 07/01/07 5,700 5,493 State Transportation Board, U.S. Route 58 Corridor Project, Ser A, RB 5.250%, 05/15/12 2,250 2,129 -------- Total Virginia 7,622 -------- WASHINGTON (1.8%) Tacoma, Department of Public Utilities, RB, Callable 07/01/96 @ 102 8.600%, 01/01/97 2,000 2,048 9.000%, 01/01/00 1,000 1,023 -------- Total Washington 3,071 -------- Total Municipal Bonds (Cost $151,156,212) 150,461 -------- CASH EQUIVALENT (4.5%) SEI Tax Exempt Trust Institutional Tax Free Portfolio 7,509 7,509 -------- Total Cash Equivalent (Cost $7,509,478) 7,509 -------- Total Investments (94.3% of Net Assets) (Cost $158,665,690) 157,970 ======== THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. FOR DESCRIPTIONS OF ABBREVIATIONS, PLEASE SEE PAGE 101. F-32 SCHEDULE OF INVESTMENTS =================================================================== STI CLASSIC FUNDS MAY 31, 1996 FLORIDA TAX-EXEMPT BOND FUND - ------------------------------------------------------------------- FACE AMOUNT MARKET (000) VALUE (000) - ------------------------------------------------------------------- MUNICIPAL BONDS (91.2%) FLORIDA (72.8%) Brevard County, Health Facilities, Wuesthoff Memorial Hospital Project, RB (MBIA) 6.250%, 04/01/06 $ 930 $ 996 Brevard County, School Board, COP, Ser A (AMBAC) 5.400%, 07/01/12 1,000 963 Dade County, Aviation Revenue, Ser A, RB, Callable 10/01/05 @ 102 (AMBAC) 6.000%, 10/01/09 500 517 Dade County, Seaport Revenue, RB (MBIA) 6.200%, 10/01/07 750 801 6.200%, 10/01/08 750 797 Dade County, Water & Sewer System, RB (FGIC) 6.250%, 10/01/07 755 815 6.250%, 10/01/09 750 803 Deerfield Beach, Water & Sewer Revenue, RB (FGIC) 6.125%, 10/01/06 250 267 Florida Keys, Aqueduct Authority Revenue, RB, Pre-Refunded 09/01/01 @ 101 (AMBAC) 6.750%, 09/01/21 170 187 Gainesville Utility Systems, Ser A, RB 5.750%, 10/01/09 500 511 Gulf Breeze, Local Government Lien, Ser B, RB, Mandatory Tender 12/01/08 (FGIC) 5.650%, 12/01/15 460 466 Gulf Breeze, Local Government Lien, Ser B, RB, Mandatory Tender 12/01/09 (FGIC) 5.750%, 12/01/15 410 416 Hillsborough County, Capital Improvement Revenue, RB (FGIC) 5.900%, 08/01/04 300 320 Hillsborough County, School Board Revenue, COP, Callable 07/01/06 @ 100 (MBIA) 5.875%, 07/01/08 1,000 1,025 Hillsborough County, Tampa Port Authority, RB, ETM, Callable 06/01/05 @ 102 (FSA) (F) 5.600%, 06/01/07 500 500 Hillsborough County, University Community Hospital, RB (MBIA) 6.500%, 08/15/19 145 156 Indian Trace Community, Water Management Split Benefit, Ser A-1, RB, Callable 05/01/05 @ 102 (MBIA) 5.500%, 05/01/07 455 458 Jacksonville, Water & Sewer Revenue, RB, Callable 10/01/06 @ 102 (MBIA) 5.125%, 10/01/15 500 454 Key West, Sewer Revenue, Ser A, RB, Pre-Refunded 10/01/96 @ 103 (FGIC) 7.125%, 10/01/26 500 520 Lakeland, Electric & Water Revenue, RB 6.650%, 10/01/98 100 105 Lakeland, Hospital Systems, Lakeland Regional Medical Center Project, RB Callable 11/15/06 @ 102 (MBIA) 5.000%, 11/15/11 1,570 1,444 Miami, Health Facilities, Mercy Hospital Project, Ser A, RB Callable 8/15/04 @ 102 (AMBAC) 5.125%, 08/15/20 1,700 1,500 North Broward, Hospital District Revenue, RB (MBIA) 5.950%, 01/01/01 1,000 1,045 F-33 =================================================================== - ------------------------------------------------------------------- FACE AMOUNT MARKET (000) VALUE (000) - ------------------------------------------------------------------- Orange County, Health Facilities Authority, Pre-Refunded Municipal Certificates, RB, ETM 5.700%, 10/01/12 $ 500 $ 504 Orange County, Public Facilities Revenue, Ser A, RB, Callable 10/01/04 @ 102 (AMBAC) 5.650%, 10/01/07 200 204 Orlando, Community Water & Electric Revenue, RB, ETM 9.625%, 10/01/03 450 578 Orlando, Community Water & Electric Revenue, Ser D, RB 6.750%, 10/01/17 500 563 Orlando, Parking Facilities Revenue, Ser A, RB Callable 10/01/04 @ 101 (FGIC) 5.000%, 10/01/12 1,000 911 Palm Beach, Health Facilities Revenue, JFK Medical Center Project, RB, Pre-Refunded 12/01/03 @ 102 (FSA) 5.750%, 12/01/14 365 389 Pinellas County, Morton Plant Health Systems Project, RB, Callable 11/15/03 @ 102 (MBIA) 5.500%, 11/15/08 1,500 1,494 Plant City, Utility System Revenue, RB, Callable 10/01/04 @ 101 (MBIA) 6.000%, 10/01/15 400 410 Reedy Creek, Utility Revenue, Ser 1991-1, RB, Pre-Refunded 10/01/01 @ 101 (MBIA) 6.250%, 10/01/11 240 259 Sarasota, Sarasota-Manatee Airport Authority, Ser B, Callable 08/01/96 @ 102 7.700%, 08/01/06 200 205 South Miami, Health Facilities Revenue, Baptist Health Systems, RB, Callable 10/01/05 @ 102 (MBIA) 5.250%, 10/01/09 1,000 963 State Board of Education Capital Outlay, RB 6.600%, 06/01/98 125 130 State Board of Education Capital Outlay, Ser B, GO, Callable 06/01/02 @ 101 5.900%, 06/01/12 450 452 State Board of Education Capital Outlay, Ser B, RB, Callable 06/01/02 @ 101 6.000%, 06/01/15 170 171 State Board of Education, Public Education Administration Cap, Ser B, GO Pre-Refunded 06/01/97 @ 102 7.750%, 06/01/16 425 450 State Board of Education, Ser C, GO, ETM, Pre-Refunded 06/01/97 @ 102 7.100%, 07/01/07 190 196 State Board of Education, Ser E, GO, Callable 06/01/05 @ 101 5.000%, 06/01/20 2,000 1,750 State Board of Finance Department, General Services Revenue, Preservation 2000 Project, Ser A, RB (AMBAC) 5.300%, 07/01/04 460 466 State Department of Natural Resources, Preservation 2000 Project, Ser A, RB, Callable 07/01/01 @ 102 (AMBAC) 6.750%, 07/01/06 80 88 State Pollution Control, Ser N, GO, Callable 07/01/96 @ 102 8.000%, 07/01/97 420 427 F-34 SCHEDULE OF INVESTMENTS =================================================================== STI CLASSIC FUNDS MAY 31, 1996 FLORIDA TAX-EXEMPT BOND FUND--CONCLUDED - ------------------------------------------------------------------- FACE AMOUNT MARKET (000) VALUE (000) - ------------------------------------------------------------------- State Transportation Authority, GO, Pre-Refunded 07/01/00 @ 102 7.375%, 07/01/11 $ 100 $ 112 State Turnpike Authority Revenue, Ser A, RB, Callable 07/01/03 @ 101 (FGIC) 5.000%, 07/01/16 500 444 State Turnpike Authority, Ser A, RB, Pre-Refunded 07/01/02 @ 101 (FGIC) 6.350%, 07/01/22 970 1,056 ------- Total Florida 27,288 ------- PUERTO RICO (18.4%) Commonwealth, GO (MBIA) 4.500%, 07/01/03 2,100 2,061 Commonwealth, GO, Pre-Refunded 07/01/98 @ 102 8.000%, 07/01/06 500 546 Commonwealth, Highway & Transportation Authority, Ser Y, RB (FSA) 5.000%, 07/01/16 750 678 Commonwealth, Highway & Transportation Authority, Ser Z, RB (MBIA) 6.250%, 07/01/14 2,000 2,140 Electric Power Authority Revenue, Ser S, RB 5.500%, 07/01/00 200 206 Public Buildings Authority Revenue, Guaranteed Government Facilities, Ser A, RB (AMBAC) 6.250%, 07/01/14 750 798 Public Buildings Authority Revenue, Public Education & Health Facilities, RB 5.300%, 07/01/03 475 479 ------- Total Puerto Rico 6,908 ------- Total Municipal Bonds (Cost $34,552,846) 34,196 ------- CASH EQUIVALENTS (3.8%) AIM Management Institutional Tax-Free Portfolio 1,352 1,352 SEI Tax-Exempt Trust Institutional Tax-Free Portfolio 102 102 ------- Total Cash Equivalents (Cost $1,454,437) 1,454 ------- Total Investments (95.0% of Net Assets) (Cost $36,007,283) 35,650 ======= THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. FOR DESCRIPTIONS OF ABBREVIATIONS, PLEASE SEE PAGE 101. F-35 STATEMENT OF NET ASSETS =================================================================== STI CLASSIC FUNDS MAY 31, 1996 TENNESSEE TAX-EXEMPT BOND FUND - ------------------------------------------------------------------- FACE AMOUNT MARKET (000) VALUE (000) - ------------------------------------------------------------------- MUNICIPAL BONDS (98.0%) TENNESSEE (74.7%) Chattanooga, Health Facilities Board, Memorial Hospital Project, Ser A, RB (MBIA) 6.300%, 09/01/05 $ 20 $ 21 Chattanooga, GO, Callable 08/01/02 @ 102 5.900%, 08/01/05 50 52 Chattanooga-Hamilton County, Erlanger Medical Center Project, RB (FSA) 5.600%, 10/01/08 50 50 Hamilton County, GO, Callable 07/01/04 @ 102 5.500%, 07/01/08 100 100 Harpeth Valley, Utility District Revenue, RB, Callable 09/01/03 @ 102 5.625%, 09/01/07 100 100 Jackson, Water & Sewer Utilities Revenue, RB, Callable 07/01/06 @ 100 (AMBAC) 5.250%, 07/01/11 200 190 Johnson City, Water & Sewer Regulation System, GO, Callable 05/01/06 @ 100 (AMBAC) 5.800%, 05/01/09 100 101 Kingsport, GO 5.500%, 09/01/02 50 52 Knox County, First Utility District Sewer Revenue, RB, ETM 7.250%, 12/01/05 55 64 Knox County, Health Facilities Board, Mercy Health Systems, Ser B, RB, Callable 09/01/05 @ 100 (AMBAC) 5.875%, 09/01/15 50 50 Knoxville, Natural Gas Revenue, Ser E, Callable 03/01/03 @ 100 5.900%, 03/01/10 100 100 Madison County, Ser A, GO, Callable 08/01/01 @ 102 6.000%, 08/01/05 40 41 Madison County, Water Revenue, RB, Callable 02/01/08 @ (MBIA) 5.500%, 02/01/09 250 244 Memphis-Shelby County, Airport Authority, RB, Callable 09/01/05 @ 100 (MBIA) 5.550%, 09/01/08 50 50 Memphis-Shelby County, Airport Authority, Ser B, RB (MBIA) (F) 6.500%, 02/15/09 85 90 Metro Government, Nashville & Davidson County, Electric System Revenue, RB 5.625%, 05/15/14 200 194 Metro Government, Nashville & Davidson County, Water & Sewer Revenue, RB, ETM 6.500%, 12/01/14 225 242 Metro Government, Nashville & Davidson County, Convention Center Project, GO, ETM 6.250%, 03/01/10 200 214 Metro Government, Nashville & Davidson County, Electric Revenue, RB, ETM 6.000%, 07/01/04 100 107 Metro Government, Nashville & Davidson County, Correctional Facility Impovements, RB, Callable 09/01/01 @ 102 7.000%, 09/01/11 100 108 Metro Government, Nashville & Davidson County, Water & Sewer, RB, Callable 01/01/04 @ 100 (AMBAC) 5.900%, 01/01/07 100 103 Metro Government, Nashville & Davidson County, Vanderbilt University Hospital, RB, ETM, Callable 07/01/06 @ 100 6.100%, 07/01/10 100 107 Metro Government, Nashville & Davidson County, Vanderbilt University, Ser A, RB 5.500%, 01/01/06 125 126 F-36 STATEMENT OF NET ASSETS =================================================================== STI CLASSIC FUNDS MAY 31, 1996 TENNESSEE TAX-EXEMPT BOND FUND--CONCLUDED - ------------------------------------------------------------------- FACE AMOUNT MARKET (000) VALUE (000) - ------------------------------------------------------------------- TENNESSEE --CONTINUED Shelby County, GO 5.100%, 03/01/13 $300 $ 281 Shelby County, School Boards, GO, Callable 03/01/02 @ 101 5.800%, 03/01/10 300 301 Shelby County, Ser A, GO 5.500%, 03/01/10 300 293 Sullivan County, Health Facilities Board, Holston Valley Health, RB, Callable 02/15/05 @ 100 (MBIA) 5.750%, 02/15/13 50 49 State GO, Ser C 5.000%, 03/01/04 100 100 State GO, Ser A, Callable 03/01/07 @ 100 5.500%, 03/01/09 50 50 State Local Development Authority, State Loan Program, Ser A, RB, Callable 03/01/04 @ 100 7.000%, 03/01/12 50 54 State Metropolitan Nashville Airport, Ser B, RB, Pre-Refunded 07/01/01 @ 102 (FGIC) 7.750%, 07/01/06 100 115 State Housing Development Agency, Ser A, RB (AMBAC) 6.550%, 01/01/08 50 52 State School Board Authority, Higher Education Facilities, Ser A, RB, Callable 05/01/02 @ 101.5 5.800%, 05/01/04 150 155 Williamson County, Rural School, GO, Callable 09/01/06 @ 100 5.400%, 09/01/07 50 49 ------ Total Tennessee 4,005 ------ PUERTO RICO (23.3%) Commonwealth, GO, Pre-Refunded 07/01/98 @ 102 8.000%, 07/01/06 500 547 Commonwealth, GO, Callable 07/01/05 @ 100 (MBIA) 5.500%, 07/01/13 175 170 Commonwealth, Highway & Transportation Authority, Ser Z, RB (MBIA) 6.250%, 07/01/15 500 533 ------ Total Puerto Rico 1,250 ------ Total Municipal Bonds (Cost $5,287,821) 5,255 ------ CASH EQUIVALENT (0.7%) SEI Tax-Exempt Trust Institutional Tax-Free Portfolio 36 36 ------ Total Cash Equivalent (Cost $36,106) 36 ------ Total Investments (98.7%) (Cost $5,323,927) 5,291 ------ OTHER ASSETS AND LIABILITIES, NET (1.3%) Total Other Assets and Liabilities, Net 72 ------ NET ASSETS: Fund shares of the Trust Class (unlimited authorization --no par value) based on 193,781 outstanding shares of benefical interest 1,813 Fund shares of the Investor Class (unlimited authorization--no par value) based on 161,737 outstanding shares of beneficial interest 1,528 Fund shares of the Flex Class (unlimited authorization--no par value) based on 214,422 outstanding shares of beneficial interest 2,056 Accumulated net realized loss on investments (1) Unrealized depreciation on investments (33) ------ Total Net Assets (100.0%) $5,363 ====== F-37 - ------------------------------------------------------------------- - ------------------------------------------------------------------- NET ASSETS--CONTINUED: Net Asset Value, Offering Price and Redemption Price Per Share--Trust Shares $ 9.40 ====== Net Asset Value Redemption Price Per Share--Investor Shares $ 9.42 ====== Maximum Public Offering Price Per Share-- Investor Shares ($9.42 (DIVIDED BY) 96.25%) $ 9.79 ====== Net Asset Value, Offering Price and Redemption Price Per Share--Flex Shares (1) $ 9.41 ====== (1) The Flex Shares have a contingent sales charge. For a description of a possible sales charge, see notes to the financial statements. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. FOR DESCRIPTIONS OF ABBREVIATIONS, PLEASE SEE PAGE 101. F-38 STATEMENT OF NET ASSETS =================================================================== STI CLASSIC FUNDS MAY 31, 1996 GEORGIA TAX-EXEMPT BOND FUND - ------------------------------------------------------------------- FACE AMOUNT MARKET (000) VALUE (000) - ------------------------------------------------------------------- MUNICIPAL BONDS (93.0%) GEORGIA (93.0%) Albany-Dougherty County, Georgia Hospital Authority, Ser B, Anticipation Cerificate, Pre-Refunded 09/01/00 @ 102 (AMBAC) 7.500%, 09/01/20 $ 255 $ 287 Athens, Water & Sewer Revenue, RB (ETM) 5.700%, 07/01/00 165 172 Atlanta, Airport Facilities Revenue, Callable Anytime @ 100 (AMBAC) 6.300%, 01/01/07 500 501 Augusta, Water & Sewer Revenue, RB, Callable 05/01/02 @ 102 6.200%, 05/01/03 130 138 Bibb County, GO 7.000%, 01/01/04 985 1,102 Cherokee County, School District, GO, Callable 06/01/02 @ 102 6.375%, 06/01/07 605 645 Clayton County, Water & Sewer Authority, RB (AMBAC) 5.350%, 05/01/09 1,500 1,463 Cobb County & Marietta, Coliseum & Exhibit Hall Authority, RB (MBIA) 5.500%, 10/01/12 940 920 Cobb County & Marietta, Water Authority, RB 5.100%, 11/01/04 1,000 1,003 Cobb County, GO 5.000%, 02/01/03 1,025 1,025 Columbus, Water & Sewer, RB (FGIC) 6.300%, 05/01/07 300 318 Dalton-Whitfield County, Hospital Authority, RB, Pre-Refunded 07/01/00 @ 102 7.000%, 07/01/03 355 391 DeKalb County, Development Authority, Emory University Project, RB 5.375%, 11/01/05 650 657 DeKalb County, Development Authority, Emory University Project, Ser A, RB 5.200%, 11/01/08 500 485 DeKalb County, RB, Pre-Refunded 01/01/02 @ 102 6.350%, 01/01/05 510 555 DeKalb County, School District, Ser A, GO 6.250%, 07/01/11 1,250 1,345 DeKalb County, Water & Sewer Authority, RB, Callable 10/01/03 @ 102 5.125%, 10/01/14 1,455 1,309 East Point Building Authority, RB (AMBAC) 4.800%, 02/01/07 535 506 Fayette County, School District, GO 6.250%, 03/01/07 450 487 Fayette County, Water Authority, RB (MBIA) (ETM) 8.550%, 10/01/01 300 352 Forsyth County, GO 6.500%, 07/01/06 1,000 1,097 Fulton County, Hospital Authority, Northside Hospital Project, Ser B, RB, Pre-Refunded 10/01/02 @ 102 (MBIA) 6.625%, 10/01/16 575 638 6.600%, 10/01/11 1,250 1,386 Gwinnett County, Recreation Authority, RB 5.875%, 02/01/07 1,390 1,442 Gwinnett County, School District, Ser B 6.400%, 02/01/07 1,000 1,087 Hall County, GO 6.300%, 12/01/05 675 728 Henry County, School District, Ser B, GO (MBIA) 5.500%, 08/01/01 350 361 Henry County, School District, Ser A, GO 6.150%, 08/01/06 150 159 F-39 =================================================================== - ------------------------------------------------------------------- FACE AMOUNT MARKET (000) VALUE (000) - ------------------------------------------------------------------- GEORGIA--CONTINUED Henry County, GO 6.300%, 08/01/08 $ 300 $ 321 Henry County, Water & Sewer Authority, GO 4.700%, 02/01/04 120 116 Housing Authority, Single Family Mortgage, Ser B, Sub-series B-1, RB 5.550%, 12/01/07 550 553 Medical Center Hospital Authority, Columbus Regional Healthcare System, RB 6.000%, 08/01/06 1,000 1,049 Metropolitan Atlanta Rapid Transit Authority, Sinking Fund 07/01/08 @ 100 7.000%, 07/01/11 875 973 Paulding County, School District, Ser A 6.625%, 02/01/08 500 553 Private Colleges & Universities Facilities Authority, Emory University Project, Ser C, RB, Callable 10/01/02 @ 102 5.900%, 10/01/04 305 320 Private Colleges & Universities Facilities Authority, Spelman College Project, RB (FGIC) 6.000%, 06/01/09 475 487 Rockdale County, School District, RB, Pre-Refunded 01/01/99 @ 102 6.400%, 01/01/05 150 160 Savannah, Water & Sewer Revenue, RB 6.450%, 12/01/04 1,000 1,099 State GO, Ser B, Pre-Refunded 07/01/99 @ 102 6.800%, 07/01/06 460 498 State GO, Ser C 6.500%, 04/01/08 1,000 1,107 Vidalia, Water & Sewer Revenue, RB (ETM) 6.000%, 07/01/07 605 642 ------- Total Georgia 28,437 ------- Total Municipal Bonds (Cost $29,017,611) 28,437 ------- CASH EQUIVALENTS (5.5%) AIM Management Institutional Tax-Free Portfolio 424 424 SEI Tax-Exempt Trust Institutional Tax-Free Portfolio 1,241 1,241 ------- Total Cash Equivalents (Cost $1,664,716) 1,665 ------- Total Investments (98.5%) (Cost $30,682,327) 30,102 ------- OTHER ASSETS AND LIABILITIES (1.5%) Total Other Assets and Liabilities, Net 473 ------- NET ASSETS: Fund shares of the Trust Class (unlimited authorization --no par value) based on 2,400,749 outstanding shares of benefical interest 23,200 Fund shares of the Investor Class (unlimited authorization--no par value) based on 356,968 outstanding shares of beneficial interest 3,478 Fund shares of the Flex Class (unlimited authorization--no par value) based on 440,098 outstanding shares of beneficial interest 4,281 F-40 STATEMENT OF NET ASSETS =================================================================== STI CLASSIC FUNDS MAY 31, 1996 GEORGIA TAX-EXEMPT BOND FUND--CONCLUDED - ------------------------------------------------------------------- MARKET VALUE (000) - ------------------------------------------------------------------- NET ASSETS--CONTINUED: Accumulated net realized gain on investments $ 196 Unrealized depreciation on investments (580) ------- Total Net Assets (100.0%) $30,575 ======= Net Asset Value, Offering Price and Redemption Price Per Share--Trust Shares $ 9.56 ======= Net Asset Value and Redemption Price Per Share--Investor Shares $ 9.58 ======= Maximum Public Offering Price Per Share-- Investor Shares ($9.58 (DIVIDED BY) 96.25%) $ 9.95 ======= Net Asset Value, Offering Price and Redemption Price Per Share--Flex Shares (1) $ 9.56 ======= (1) The Flex Shares have a contingent sales charge. For a description of a possible sales charge, see notes to the financial statements. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. FOR DESCRIPTIONS OF ABBREVIATIONS, PLEASE SEE PAGE 101. F-41 =================================================================== INVESTMENT GRADE BOND FUND - ------------------------------------------------------------------- FACE AMOUNT MARKET (000) VALUE (000) - ------------------------------------------------------------------- U.S. TREASURY OBLIGATIONS (52.0%) U.S. Treasury Bonds 7.500%, 11/15/16 $65,000 $ 67,310 8.125%, 08/15/19 37,500 41,444 U.S. Treasury Notes 5.625%, 01/31/98 16,000 15,860 7.500%, 10/31/99 27,600 28,379 6.250%, 08/31/00 56,000 55,201 7.500%, 11/15/01 11,000 11,394 7.500%, 05/15/02 50,500 52,471 5.750%, 08/15/03 64,500 60,716 -------- Total U.S. Treasury Obligations (Cost $340,493,441) 332,775 -------- CORPORATE OBLIGATIONS (29.0%) Aristar Financial 7.500%, 07/01/99 11,000 11,157 Associates of North America, MTN 8.470%, 01/12/00 6,000 6,316 AT&T Capital 5.500%, 02/09/98 14,000 13,786 Capital One Bank 6.660%, 08/17/98 7,000 6,956 Capital One Bank, MTN 6.490%, 08/15/97 19,850 19,800 Ford Motor Credit, MTN 6.110%, 12/28/01 13,000 12,383 General Electric Capital 6.660%, 05/01/18 21,000 20,737 International Lease Finance, MTN 8.125%, 01/15/98 15,000 15,346 Merrill Lynch 7.375%, 05/15/06 23,000 22,713 Paine Webber 6.250%, 06/15/98 5,500 5,409 Salomon 6.700%, 12/01/98 20,000 19,874 Sears, MTN 7.360%, 08/15/97 15,000 15,187 Societe Generale, New York 7.400%, 06/01/06 16,500 16,335 -------- Total Corporate Obligations (Cost $187,719,112) 185,999 -------- U.S. GOVERNMENT AGENCY OBLIGATIONS (15.9%) FHLMC 8.000%, 06/01/02 10,232 10,484 FNMA 8.500%, 04/01/17 18,099 18,484 GNMA 9.000%, 11/15/17 34,172 36,255 6.500%, 12/15/23 39,335 36,397 -------- Total U.S. Government Agency Obligations (Cost $102,434,144) 101,620 -------- ASSET-BACKED SECURITIES (0.1%) Merrill Lynch, Ser 1993-1, A2 5.125%, 07/15/98 394 394 -------- Total Asset-Backed Securities (Cost $394,377) 394 -------- REPURCHASE AGREEMENT (4.5%) Deutsche Bank 5.27%, dated 05/31/96, matures 06/03/96, repurchase price $28,939,456 (collateralized by various U.S. Treasury obligations, total par value $53,881,000, 0.00%-9.125%, 08/22/96- 08/15/20: total market value $29,506,244) 28,927 28,927 -------- Total Repurchase Agreement (Cost $28,926,752) 28,927 -------- Total Investments (101.5%) (Cost $659,967,826) 649,715 -------- F-42 STATEMENT OF NET ASSETS =================================================================== STI CLASSIC FUNDS MAY 31, 1996 INVESTMENT GRADE BOND FUND--CONCLUDED - ------------------------------------------------------------------- MARKET VALUE (000) - ------------------------------------------------------------------- OTHER ASSETS AND LIABILITIES (-1.5%) Total Other Assets and Liabilities, Net $ (9,425) -------- NET ASSETS: Fund shares of the Trust Class (unlimited authorization --no par value) based on 59,555,941 outstanding shares of benefical interest 615,859 Fund shares of the Investor Class (unlimited authorization--no par value) based on 3,592,421 outstanding shares of beneficial interest 37,624 Fund shares of the Flex Class (unlimited authorization--no par value) based on 458,624 outstanding shares of beneficial interest 4,759 Undistributed net investment income 157 Accumulated net realized loss on investments (7,856) Unrealized depreciation on investments (10,253) -------- Total Net Assets (100.0%) $640,290 ======== Net Asset Value, Offering Price and Redemption Price Per Share--Trust Shares $ 10.07 ======== Net Asset Value and Redemption Price Per Share--Investor Shares $ 10.06 ======== Maximum Public Offering Price Per Share--Investor Shares ($10.06 (DIVIDED BY) 96.25%) $ 10.45 ======== Net Asset Value, Offering Price and Redemption Price Per Share-- Flex Shares (1) $ 10.07 ======== (1) The Flex Shares have a contingent sales charge. For a description of a possible sales charge, see notes to the financial statements. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. FOR DESCRIPTIONS OF ABBREVIATIONS, PLEASE SEE PAGE 101. F-43 =================================================================== SHORT-TERM BOND FUND - ------------------------------------------------------------------- FACE AMOUNT MARKET (000) VALUE (000) - ------------------------------------------------------------------- U.S. TREASURY OBLIGATIONS (57.5%) U.S. Treasury Bond 6.125%, 05/15/98 $ 2,000 $ 1,996 U.S. Treasury Notes 6.000%, 08/31/97 3,750 3,749 7.250%, 02/15/98 7,500 7,622 4.750%, 09/30/98 10,000 9,668 4.750%, 10/31/98 9,000 8,684 5.500%, 02/28/99 18,000 17,588 7.500%, 11/15/01 5,000 5,179 ------- Total U.S. Treasury Obligations (Cost $55,153,402) 54,486 ------- CORPORATE OBLIGATIONS (27.5%) Associates of North America 5.790%, 01/19/01 750 714 Associates of North America, MTN 5.980%, 12/19/00 1,250 1,200 Chrysler Financial 6.440%, 06/23/99 1,000 989 Dow Capital BV 5.750%, 09/15/97 1,250 1,247 Federal Express 6.250%, 04/15/98 750 743 Ford Motor Credit 6.250%, 11/08/00 1,500 1,453 General Electric Capital Callable & Putable 4/14/98 @ 100 (C)(D) 6.650%, 04/14/08 2,000 2,005 General Motors Acceptance 8.170%, 01/02/00 1,672 1,715 Household Netherlands BV 6.125%, 03/01/03 2,035 1,915 International Lease Finance 5.625%, 03/01/98 1,000 985 6.125%, 11/01/99 1,500 1,464 Norwest 6.125%, 10/15/00 1,000 965 NYNEX Credit, MTN 6.900%, 06/15/99 2,000 2,005 Pacific 5.880%, 10/15/97 1,000 993 Philip Morris 9.000%, 05/15/98 1,500 1,564 Puget Sound Power & Light, MTN 7.875%, 10/01/97 1,250 1,275 RJR Nabisco 8.300%, 04/15/99 1,000 1,033 Sears Roebuck Acceptance, MTN 6.300%, 10/18/00 1,250 1,209 6.150%, 11/15/05 750 722 Tenneco Credit 10.000%, 08/01/98 1,750 1,864 ------- Total Corporate Obligations (Cost $26,548,543) 26,060 ------- U.S. AGENCY MORTGAGE-BACKED OBLIGATIONS (5.2%) FHLMC 6.500%, 04/01/98 1,135 1,125 8.000%, 01/01/00 1,318 1,325 FNMA 8.500%, 11/01/01 2,395 2,456 ------- Total U.S. Agency Mortgage-Backed Obligations (Cost $4,962,568) 4,906 ------- ASSET-BACKED SECURITIES (4.6%) Premier Auto Trust Series, Ser 1995-3, Cl A4 6.100%, 07/06/99 3,000 2,997 Union Pacific Equipment Trust 7.060%, 05/15/03 1,500 1,479 ------- Total Asset-Backed Securities (Cost $4,520,923) 4,476 ------- CERTIFICATE OF DEPOSIT (1.5%) Wachovia Bank 5.400%, 02/20/01 1,500 1,404 ------- Total Certificate of Deposit (Cost $1,474,542) 1,404 ------- F-44 STATEMENT OF NET ASSETS =================================================================== STI CLASSIC FUNDS MAY 31, 1996 SHORT-TERM BOND FUND--CONCLUDED - ------------------------------------------------------------------- FACE AMOUNT MARKET (000) VALUE (000) - -------------------------------------------------------------------- CASH EQUIVALENT (2.7%) SEI Daily Income Trust Prime Obligation Portfolio $2,584 $ 2,584 ------- Total Cash Equivalent (Cost $2,583,673) 2,584 ------- Total Investments (99.0%) (Cost $95,243,651) 93,916 ------- OTHER ASSETS AND LIABILITIES (1.0%) Total Other Assets and Liabilities, Net 906 ------- NET ASSETS: Fund shares of the Trust Class (unlimited authorization --no par value) based on 9,240,587 outstanding shares of benefical interest 91,971 Fund shares of the Investor Class (unlimited authorization--no par value) based on 273,195 outstanding shares of beneficial interest 2,729 Fund shares of the Flex Class (unlimited authorization--no par value) based on 97,806 outstanding shares of beneficial interest 983 Undistributed net investment income 90 Accumulated net realized gain on investments 377 Unrealized depreciation on investments (1,328) ------- Total Net Assets (100.0%) $94,822 ======= Net Asset Value, Offering Price and Redemption Price Per Share-- Trust Shares $ 9.86 ======= Net Asset Value and Redemption Price Per Share--Investor Shares $ 9.88 ======= Maximum Public Offering Price Per Share--Investor Shares ($9.88 (DIVIDED BY) 98.00%) $ 10.08 ======= Net Asset Value, Offering Price and Redemption Price Per Share-- Flex Shares (1) $ 9.88 ======= (1) The Flex Shares have a contingent sales charge. For a description of a possible sales charge, see notes to the financial statements. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. FOR DESCRIPTIONS OF ABBREVIATIONS, PLEASE SEE PAGE 101. F-45 ==================================================================== SHORT-TERM U.S. TREASURY SECURITIES FUND - -------------------------------------------------------------------- FACE AMOUNT MARKET (000) VALUE (000) - -------------------------------------------------------------------- U.S. TREASURY OBLIGATIONS (93.1%) U.S. Treasury Bond 6.125%, 05/15/98 $2,250 $ 2,245 U.S. Treasury Notes 7.500%, 01/31/97 300 303 6.375%, 06/30/97 2,000 2,010 6.000%, 08/31/97 2,650 2,649 7.250%, 02/15/98 900 915 5.125%, 06/30/98 2,250 2,201 5.875%, 08/15/98 1,400 1,388 5.500%, 11/15/98 1,600 1,569 5.000%, 01/31/99 1,900 1,836 6.375%, 05/15/99 500 499 ------- Total U.S. Treasury Obligations (Cost $15,734,275) 15,615 ------- CASH EQUIVALENT (3.0%) SEI Daily Income Trust Treasury II Portfolio 501 501 ------- Total Cash Equivalent (Cost $500,598) 501 ------- Total Investments (96.1%) (Cost $16,234,873) 16,116 ------- OTHER ASSETS AND LIABILITIES (3.9%) Total Other Assets and Liabilities, Net 648 ------- NET ASSETS: Fund shares of the Trust Class (unlimited authorization --no par value) based on 1,031,587 outstanding shares of benefical interest 10,430 Fund shares of the Investor Class (unlimited authorization--no par value) based on 426,165 outstanding shares of beneficial interest 4,283 Fund shares of the Flex Class (unlimited authorization--no par value) based on 245,766 outstanding shares of beneficial interest 2,454 Undistributed net investment income 52 Accumulated net realized loss on investments (337) Unrealized depreciation on investments (118) ------- Total Net Assets (100.0%) $16,764 ======= Net Asset Value, Offering Price and Redemption Price Per Share--Trust Shares $ 9.84 ======= Net Asset Value and Redemption Price Per Share--Investor Shares $ 9.84 ======= Maximum Public Offering Price Per Share--Investor Shares ($9.84 (DIVIDED BY) 99.00%) $ 9.94 ======= Net Asset Value, Offering Price and Redemption Price Per Share-- Flex Shares (1) $ 9.82 ======= (1) The Flex Shares have a contingent sales charge. For a description of a possible sales charge, see notes to the financial statements. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. FOR DESCRIPTIONS OF ABBREVIATIONS, PLEASE SEE PAGE 101. F-46 STATEMENT OF NET ASSETS ============================================================= STI CLASSIC FUNDS MAY 31, 1996 LIMITED-TERM FEDERAL MORTGAGE SECURITIES FUND - ------------------------------------------------------------- FACE AMOUNT MARKET (000) VALUE (000) - ------------------------------------------------------------- U.S. TREASURY OBLIGATIONS (37.6%) U.S. Treasury Notes 8.750%, 10/15/97 $ 600 $ 621 8.125%, 02/15/98 5,800 5,976 8.875%, 11/15/98 1,600 1,689 8.875%, 02/15/99 4,300 4,557 9.125%, 05/15/99 4,200 4,495 7.125%, 09/30/99 2,200 2,238 7.500%, 10/31/99 4,300 4,421 7.125%, 02/29/00 3,960 4,027 6.125%, 07/31/00 1,000 981 ------- Total U.S. Treasury Obligations (Cost $29,422,934) 29,005 ------- U.S. GOVERNMENT AGENCY OBLIGATIONS (59.1%) FHLMC 6.830%, 09/29/97 3,000 3,038 6.000%, 07/01/00 5,315 5,103 8.000%, 06/01/02 1,461 1,498 7.000%, 10/01/02 4,736 4,716 8.000%, 12/01/02 4,053 4,121 FHLMC REMIC, Ser 1637-E 5.750%, 02/15/19 2,699 2,605 FNMA 8.500%, 04/01/17 1,357 1,386 FNMA REMIC, Ser 92-68J 7.500%, 10/25/05 4,200 4,227 FNMA REMIC, Ser 93-95PC 5.500%, 12/25/05 7,000 6,861 FNMA REMIC, Ser G96-1PC 7.000%, 05/01/26 4,921 4,922 FNMA REMIC, Ser 1992-134G 6.000%, 11/25/18 5,586 5,372 GNMA 9.000%, 11/15/17 1,666 1,768 ------- Total U.S. Government Agency Obligations (Cost $45,647,939) 45,617 ------- CASH EQUIVALENT (0.7%) SEI Liquid Asset Trust Prime Obligation Portfolio 548 548 ------- Total Cash Equivalent (Cost $548,340) 548 ------- REPURCHASE AGREEMENT (7.4%) J.P. Morgan 5.24%, dated 05/31/96, matures 06/03/96, repurchase price $5,760,404 (collateralized by various FNMA obligations, total par value $6,210,000, 6.00%-7.00%, 05/01/11: total market value $5,874,449) 5,758 5,758 ------- Total Repurchase Agreement (Cost $5,757,890) 5,758 ------- Total Investments (104.8%) (Cost $81,377,103) 80,928 ------- OTHER ASSETS AND LIABILITIES, NET (-4.8%) Investment Securities Purchased Payable (4,924) Other Assets and Liabilities,Net 1,227 ------- Total Other Assets and Liabilities,Net (3,697) ------- NET ASSETS: Fund shares of the Trust Class (unlimited authorization --no par value) based on 7,347,381 outstanding shares of benefical interest 73,656 Fund shares of the Investor Class (unlimited authorization--no par value) based on 251,847 outstanding shares of beneficial interest 2,534 Fund shares of the Flex Class (unlimited authorization--no par value) based on 135,071 outstanding shares of beneficial interest 1,369 Accumulated net investment loss (2) F-47 - ------------------------------------------------------------- MARKET VALUE (000) - ------------------------------------------------------------- NET ASSETS--CONTINUED: Accumulated net realized gain on investments $ 122 Unrealized depreciation on investments (448) ------- Total Net Assets (100.0%) $77,231 ======= Net Asset Value, Offering Price and Redemption Price Per Share--Trust Shares $ 9.99 ======= Net Asset Value and Redemption Price Per Share--Investor Shares $ 9.97 ======= Maximum Public Offering Price Per Share-- Investor Shares ($9.97 (DIVIDE) 97.50%) $ 10.23 ======= Net Asset Value, Offering Price and Redemption Price Per Share--Flex Shares (1) $ 9.99 ======= (1) The Flex Shares have a contingent sales charge. For a description of a possible sales charge, see notes to the financial statements. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. FOR DESCRIPTIONS OF ABBREVIATIONS, PLEASE SEE PAGE 101. F-48 STATEMENT OF NET ASSETS ============================================================= STI CLASSIC FUNDS MAY 31, 1996 U.S. GOVERNMENT SECURITIES FUND - ------------------------------------------------------------- FACE AMOUNT MARKET (000) VALUE (000) - ------------------------------------------------------------- U.S. TREASURY OBLIGATIONS (37.5%) U.S. Treasury Bond 6.875%, 08/15/25 $1,000 $ 976 U.S. Treasury Notes 8.500%, 04/15/97 100 102 7.875%, 04/15/98 150 154 7.125%, 10/15/98 500 509 7.750%, 11/30/99 200 207 8.500%, 11/15/00 1,000 1,071 7.750%, 02/15/01 100 104 8.000%, 05/15/01 200 211 7.500%, 11/15/01 600 621 7.500%, 05/15/02 100 104 7.875%, 11/15/04 275 292 7.500%, 02/15/05 1,000 1,041 7.625%, 02/15/25 400 425 ------ Total U.S. Treasury Obligations (Cost $5,992,435) 5,817 ------ U.S. AGENCY MORTGAGE-BACKED OBLIGATIONS (54.9%) FHLMC 7.000%, 01/01/09 153 151 7.000%, 04/01/09 511 503 7.000%, 04/01/09 164 162 FHLMC CMO 7.000%, 08/01/10 1,004 986 FNMA REMIC, Ser G93-40, Cl VC 6.500%, 08/25/10 261 242 FNMA, Ser 1990-143, Cl J 8.750%, 12/25/20 140 146 GNMA 7.500%, 10/20/09 83 83 8.250%, 01/15/12 123 127 7.000%, 11/15/22 436 415 8.000%, 02/15/23 42 43 8.500%, 03/15/23 91 93 7.500%, 04/15/23 146 143 7.500%, 05/20/23 1,000 948 7.500%, 09/15/23 922 903 7.000%, 01/15/24 179 171 7.500%, 04/15/24 958 939 7.000%, 06/15/24 953 908 8.000%, 08/15/24 120 122 8.000%, 09/15/24 29 29 8.000%, 10/15/24 38 39 8.000%, 11/15/24 42 43 8.500%, 12/15/24 78 80 8.500%, 02/15/25 41 42 7.000%, 12/15/25 495 472 7.000%, 12/20/25 248 235 7.000%, 03/15/26 509 485 ------- Total U.S. Agency Mortgage-Backed Obligations (Cost $8,763,727) 8,510 ------- CASH EQUIVALENTS (7.5%) SEI Daily Income Trust Government II Portfolio 730 730 SEI Daily Income Trust Treasury II Portfolio 431 431 ------- Total Cash Equivalents (Cost $1,160,595) 1,161 ------- Total Investments (99.9%) (Cost $15,916,757) 15,488 ------- OTHER ASSETS AND LIABILITIES (0.1%) Total Other Assets and Liabilities, Net 11 ------- NET ASSETS: Fund shares of the Trust Class (unlimited authorization --no par value) based on 1,037,259 outstanding shares of benefical interest 10,588 Fund shares of the Investor Class (unlimited authorization--no par value) based on 241,893 outstanding shares of beneficial interest 2,453 F-49 - ------------------------------------------------------------- MARKET VALUE (000) - ------------------------------------------------------------- NET ASSETS--CONTINUED: Fund shares of the Flex Class (unlimited authorization--no par value) based on 285,283 outstanding shares of beneficial interest $ 2,930 Accumulated net realized loss on investments (44) Unrealized depreciation on investments (428) ------- Total Net Assets (100.0%) $15,499 ======= Net Asset Value, Offering Price and Redemption Price Per Share-- Trust Shares $ 9.91 ======= Net Asset Value and Redemption Price Per Share--Investor Shares $ 9.90 ======= Maximum Public Offering Price Per Share-- Investor Shares ($9.90 (DIVIDE) 96.25%) $ 10.29 ======= Net Asset Value, Offering Price and Redemption Price Per Share--Flex Shares (1) $ 9.91 ======= (1) The Flex Shares have a contingent sales charge. For a description of a possible sales charge, see notes to the financial statements. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. FOR DESCRIPTIONS OF ABBREVIATIONS, PLEASE SEE PAGE 101. F-50 STATEMENT OF NET ASSETS ============================================================= STI CLASSIC FUNDS MAY 31, 1996 PRIME QUALITY MONEY MARKET FUND - ------------------------------------------------------------- FACE AMOUNT VALUE (000) (000) - ------------------------------------------------------------- COMMERCIAL PAPER (55.0%) Arco Coal Australia 5.310%, 07/10/96 $20,429 $ 20,312 Associates of North America 5.300%, 06/17/96 35,000 34,918 AT&T 5.300%, 06/27/96 1,300 1,295 5.300%, 08/05/96 2,700 2,674 Banc One Funding 5.310%, 06/11/96 28,951 28,908 5.310%, 06/14/96 7,419 7,405 5.320%, 07/10/96 8,703 8,653 Bankers Trust (C) 5.550%, 02/14/97 20,000 20,000 BellSouth Telephone 5.300%, 06/13/96 10,000 9,982 Beneficial Finance 5.300%, 06/05/96 25,000 24,985 Cargill 5.290%, 07/01/96 20,000 19,912 5.350%, 06/14/96 4,500 4,491 Cargill Financial Services 5.400%, 06/03/96 16,399 16,394 Carolina Power & Light 5.300%, 09/03/96 1,782 1,757 Caterpillar Finance Australia 5.300%, 06/03/96 2,238 2,237 Colgate-Palmolive 5.280%, 06/25/96 1,200 1,196 5.320%, 07/22/96 25,400 25,209 Commoloco 5.320%, 07/10/96 20,000 19,885 Dow Chemical 5.300%, 06/06/96 2,200 2,198 5.300%, 06/18/96 1,000 998 Dresser Industries 5.300%, 06/03/96 1,486 1,486 5.320%, 06/03/96 3,300 3,299 5.290%, 06/24/96 1,271 1,267 Eaton 5.400%, 01/03/97 7,570 7,325 5.380%, 01/13/97 13,711 13,248 Exxon Imperial 5.300%, 06/12/96 12,110 12,090 5.280%, 06/18/96 1,226 1,223 First Chicago Financial 5.330%, 06/03/96 20,000 19,994 Ford Motor Credit 5.300%, 06/26/96 1,000 996 5.310%, 06/07/96 2,500 2,498 Gannett 5.300%, 06/14/96 8,775 8,758 General Electric Capital 5.290%, 06/17/96 1,410 1,407 General Re 5.320%, 06/27/96 7,100 7,073 General Telephone Northwest 5.290%, 06/12/96 2,376 2,372 Golden Peanut 5.230%, 06/10/96 2,000 1,997 GTE Northwest 5.320%, 06/14/96 16,883 16,851 H.J. Heinz 5.300%, 06/10/96 1,600 1,598 Hanson Finance 5.380%, 07/17/96 10,000 9,931 5.390%, 07/29/96 20,000 19,826 5.400%, 08/09/96 5,000 4,948 5.370%, 08/19/96 2,500 2,471 IBM Credit 5.300%, 06/03/96 6,650 6,648 5.280%, 06/03/96 2,000 2,000 5.290%, 06/13/96 3,300 3,294 International Lease Finance 5.300%, 06/12/96 1,210 1,208 John Hancock Capital 5.300%, 07/11/96 2,800 2,784 Kansas City Power & Light 5.290%, 06/11/96 1,830 1,827 5.290%, 06/12/96 1,500 1,498 Marsh & McLennan 5.320%, 07/12/96 17,000 16,897 McGraw Hill 5.230%, 07/09/96 5,000 4,972 F-51 - ------------------------------------------------------------- FACE AMOUNT VALUE (000) (000) - ------------------------------------------------------------- COMMERCIAL PAPER--CONTINUED New England Power 5.300%, 06/11/96 $ 1,796 $ 1,793 5.300%, 06/13/96 6,475 6,464 5.290%, 06/18/96 2,275 2,269 5.320%, 06/19/96 5,300 5,286 5.350%, 06/20/96 8,000 7,977 5.350%, 06/21/96 7,703 7,680 Panasonic Finance 5.350%, 06/03/96 2,000 1,999 5.350%, 06/04/96 1,268 1,268 5.310%, 06/07/96 10,000 9,991 5.300%, 07/16/96 10,000 9,934 Philip Morris 5.400%, 06/03/96 26,845 26,837 PPG Industries 5.300%, 07/11/96 18,000 17,894 Progress Capital 5.300%, 06/03/96 15,800 15,795 5.300%, 06/05/96 1,600 1,599 5.320%, 06/07/96 2,100 2,098 5.290%, 06/10/96 7,000 6,991 Sony Capital 5.280%, 06/05/96 12,147 12,140 5.320%, 06/21/96 2,892 2,884 South Carolina Electric & Gas 5.320%, 06/07/96 1,000 999 5.400%, 07/12/96 2,500 2,485 Southern California Edison 5.300%, 09/05/96 10,035 9,893 Transamerica 5.310%, 06/14/96 26,375 26,324 Unilever 5.330%, 12/12/96 4,000 3,885 Walt Disney 5.320%, 07/08/96 1,000 995 5.220%, 07/17/96 10,000 9,933 Weyerhauser 5.300%, 06/04/96 1,500 1,499 5.320%, 06/10/96 2,700 2,696 5.310%, 06/10/96 3,725 3,720 5.300%, 06/12/96 19,050 19,019 WMX Technologies 5.330%, 11/01/96 $23,050 $ 22,528 5.330%, 11/05/96 15,000 14,651 Xerox 5.300%, 06/19/96 2,021 2,016 ---------- Total Commercial Paper (Cost $696,736,514) 696,737 ---------- CORPORATE OBLIGATIONS (19.4%) American General Finance 5.800%, 04/01/97 1,000 1,000 Associates of North America 4.625%, 11/30/96 3,000 2,992 Banc One Milwaukee (C) 5.420%, 05/14/97 25,000 24,984 BankAmerica 7.500%, 03/15/97 2,850 2,889 Bankers Trust New York 8.000%, 03/15/97 5,642 5,736 Beneficial, MTN 8.700%, 08/15/96 9,000 9,057 9.375%, 02/17/97 1,500 1,544 Caterpillar Financial Services, MTN 4.640%, 09/30/96 1,000 997 Caterpillar Financial Services, MTN (C) 5.400%, 06/14/96 1,000 1,000 5.394%, 07/23/96 15,000 15,000 CoreStates Capital (C) 5.410%, 11/26/96 30,000 30,000 5.430%, 12/03/96 10,000 10,000 Dean Witter Discover, MTN (C) 5.618%, 11/22/96 15,000 15,010 Ford Motor 5.200%, 01/01/97 9,800 9,799 Ford Motor Credit 5.625%, 03/03/97 4,500 4,511 8.875%, 08/01/96 2,400 2,413 Ford Motor Credit, MTN 9.050%, 07/23/96 2,000 2,010 F-52 STATEMENT OF NET ASSETS ============================================================= STI CLASSIC FUNDS MAY 31, 1996 PRIME QUALITY MONEY MARKET FUND--CONCLUDED - ------------------------------------------------------------- FACE AMOUNT VALUE (000) (000) - ------------------------------------------------------------- CORPORATE OBLIGATIONS--CONTINUED Ford Motor Credit, MTN (C) 5.600%, 05/20/97 $ 2,000 $ 1,999 Ford Motor, Global Note 7.875%, 10/15/96 2,500 2,525 General Electric Capital Callable & Putable 12/15/96 @ 100 7.980%, 12/15/07 5,500 5,582 General Electric Capital, MTN 6.877%, 03/21/97 10,000 10,092 General Electric Capital, MTN (C)(D) 5.390%, 07/26/96 575 575 Household Finance 7.625%, 12/15/96 5,000 5,058 7.500%, 03/15/97 2,800 2,839 Household Finance, MTN 4.551%, 08/16/96 2,521 2,515 International Lease Finance 4.750%, 07/15/96 5,000 4,996 7.900%, 10/01/96 3,675 3,702 6.375%, 11/01/96 7,010 7,030 NationsBank 7.500%, 02/15/97 1,600 1,619 Pacific Gas & Electric, MTN 4.900%, 12/09/96 4,500 4,480 PHH 8.000%, 01/01/97 1,450 1,468 Philip Morris 8.750%, 12/01/96 1,300 1,323 7.500%, 03/15/97 3,255 3,297 9.750%, 05/01/97 1,500 1,550 Society Bank Cleveland 7.125%, 04/15/97 2,000 2,020 Toyota Motor Credit, MTN (C) 5.360%, 06/13/96 16,270 16,269 Virginia Electric & Power 7.250%, 03/01/97 7,000 7,081 Waste Management 7.875%, 08/15/96 3,000 3,013 Xerox Credit, MTN 5.810%, 03/17/97 $18,000 $ 18,016 ---------- Total Corporate Obligations (Cost $245,990,716) 245,991 ---------- U.S. GOVERNMENT AGENCY OBLIGATIONS (3.7%) FHLMC 5.100%, 01/13/97 1,000 1,000 FHLMC Gold Balloon, Pool #M90081 7.000%, 01/15/97 16,546 16,649 FNMA MTN 6.490%, 06/10/98 7,500 7,505 FNMA (C) 5.465%, 09/27/96 6,000 6,001 SLMA (C) 5.370%, 06/02/96 5,000 4,979 5.370%, 12/20/96 10,000 10,000 Tennessee Valley Authority 4.600%, 12/15/96 500 499 ---------- Total U.S. Government Agency Obligations (Cost $46,632,963) 46,633 ---------- U.S. TREASURY OBLIGATION (5.0%) U.S. Treasury Note 6.875%, 02/28/97 62,000 62,776 ---------- Total U.S. Treasury Obligation (Cost $62,775,537) 62,776 ---------- BANK NOTES (1.2%) Comerica Bank of Detroit (C) 5.390%, 12/31/96 10,000 9,990 Huntington National Bank (C) 5.390%, 11/13/96 5,000 5,000 ---------- Total Bank Notes (Cost $14,990,111) 14,990 ---------- F-53 - ------------------------------------------------------------- FACE AMOUNT VALUE (000) (000) - ------------------------------------------------------------- REPURCHASE AGREEMENTS (15.8%) Deutsche Bank 5.33%, dated 05/31/96, matures 06/03/96, repurchase price $131,189,359 (collateralized by FHLB obligation, par value $15,505,000, 0.00%, 07/01/96, various FHLMC obligations, total par value $90,241,632, 0.00%-928.25%, 07/15/07-03/15/24, and various FNMA obligations, par value $117,530,748, 0.00%- 11.198%, 08/25/05-03/25/24: total market value $133,756,481), $131,131 $ 131,131 Swiss Bank 5.33%, dated 05/31/96, matures 06/03/96, repurchase price $26,824,249 (collateralized by U.S. Treasury Bond, par value $21,201,000, 9.875%, 11/15/15: total market value $27,505,870) 26,812 26,812 UBS Securities 5.33%, dated 05/31/96, matures 06/03/96, repurchase price $42,342,759 (collateralized by FHLMC obligation, par value $45,105,000, 7.00%, 12/15/07: total market value $43,595,735) 42,324 42,324 ---------- Total Repurchase Agreements (Cost $200,267,414) $ 200,267 ---------- Total Investments (100.1%) (Cost $1,267,393,255) 1,267,394 ---------- OTHER ASSETS AND LIABILITIES (-0.1%) Total Other Assets and Liabilities, Net (898) ---------- NET ASSETS: Fund shares of the Trust Class (unlimited authorization--no par value) based on 1,051,048,972 outstanding shares of benefical interest 1,051,049 Fund shares of the Investor Class (unlimited authorization--no par value) based on 215,731,965 outstanding shares of beneficial interest 215,732 Accumulated net realized loss on investments (285) ---------- Total Net Assets (100.0%) $1,266,496 ========== Net Asset Value, Offering Price and Redemption Price Per Share-- Trust Shares $ 1.00 ========== Net Asset Value, Offering Price and Redemption Price Per Share-- Investor Shares $ 1.00 ========== THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. FOR DESCRIPTIONS OF ABBREVIATIONS, PLEASE SEE PAGE 101. F-54 STATEMENT OF NET ASSETS ============================================================= STI CLASSIC FUNDS MAY 31, 1996 U.S. GOVERNMENT SECURITIES MONEY MARKET FUND - ------------------------------------------------------------- FACE AMOUNT VALUE (000) (000) - ------------------------------------------------------------- U.S. TREASURY OBLIGATIONS (35.2%) U.S. Treasury Bills 5.145%, 11/29/96 $25,000 $ 24,353 5.190%, 12/12/96 10,000 9,720 5.400%, 04/03/97 5,000 4,771 U.S. Treasury Notes 6.250%, 08/31/96 10,000 10,018 7.500%, 01/31/97 50,000 50,769 6.875%, 02/28/97 25,000 25,313 6.875%, 03/31/97 10,000 10,103 -------- Total U.S. Treasury Obligations (Cost $135,046,455) 135,047 -------- REPURCHASE AGREEMENTS (64.7%) Barclay's 5.27%, dated 05/31/96, matures 06/03/96, repurchase price $17,009,913 (collateralized by various U.S. Treasury obligations, total par value $69,332,000, 0.00%- 11.25%, 02/15/15-08/15/19: total market value $17,343,717) 17,002 17,002 Deutsche Bank 5.27%, dated 05/31/96, matures 06/03/96, repurchase price $90,221,797 (collateralized by various U.S. Treasury obligations, total par value $87,539,000, 0.00%- 12.00%, 11/21/96-05/15/21: total market value $91,986,687) 90,182 90,182 Merrill Lynch 5.27%, dated 05/31/96, matures 06/03/96, repurchase price $17,012,807 (collateralized by various GNMA obligations, total par value $33,290,000, 6.50%- 9.50%, 08/15/09-05/15/26: total market value $17,349,017) 17,005 17,005 Salomon Brothers 5.27%, dated 05/31/96, matures 06/03/96, repurchase price $16,954,509 (collateralized by various U.S. Treasury obligations, total par value $83,327,000, 5.75%- 9.125%, 10/31/00-05/15/18: total market value $17,317,855) 16,947 16,947 Swiss Bank 5.27%, dated 05/31/96, matures 06/03/96, repurchase price $17,456,231 (collateralized by U.S. Treasury Note, par value $17,364,000, 6.875%, 02/28/97: market value $17,816,219) $17,449 $ 17,449 Union Bank of Switzerland 5.27%, dated 05/31/96, matures 06/03/96, repurchase price $90,158,025 (collateralized by various U.S. Treasury STRIPS, total par value $142,042,000, 02/15/00-11/15/04: total market value $91,921,160) 90,119 90,119 -------- Total Repurchase Agreements (Cost $248,704,059) 248,704 -------- Total Investments (99.9%) (Cost $383,750,514) 383,751 -------- OTHER ASSETS AND LIABILITIES (0.1%) Total Other Assets and Liabilities, Net 350 -------- NET ASSETS: Fund shares of the Trust Class (unlimited authorization --no par value) based on 325,493,550 outstanding shares of benefical interest 325,493 Fund shares of the Investor Class (unlimited authorization--no par value) based on 58,617,308 outstanding shares of beneficial interest 58,617 Accumulated net realized loss on investments (9) -------- Total Net Assets (100.0%) $384,101 ======== Net Asset Value, Offering Price and Redemption Price Per Share-- Trust Shares $ 1.00 ======== Net Asset Value, Offering Price and Redemption Price Per Share-- Investor Shares $ 1.00 ======== THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. FOR DESCRIPTIONS OF ABBREVIATIONS, PLEASE SEE PAGE 101. F-55 TAX-EXEMPT MONEY MARKET FUND - ------------------------------------------------------------- FACE AMOUNT VALUE (000) (000) - ------------------------------------------------------------- MUNICIPAL BONDS (99.7%) ALABAMA (1.4%) McIntosh, Industrial Development Board, Ciba-Geigy Project, Ser A, VRDN (C)(D)(E) 3.600%, 06/05/96 $3,500 $3,500 Special Care Facilities, Montgomery Hospital Revenue, VRDN (FGIC) (C)(D) 3.500%, 06/05/96 1,600 1,600 -------- Total Alabama 5,100 -------- ALASKA (3.1%) Anchorage, TAN 4.250%, 12/13/96 1,500 1,507 Valolez, TECP (E) 3.400%, 06/18/96 9,900 9,900 -------- Total Alaska 11,407 -------- ARIZONA (4.2%) Cochise County, Electric Power Cooperative Project, RB Putable 09/01/96 @ 100 (C)(D)(E)(F) 3.900%, 09/01/24 2,000 2,000 Maricopa County, Pollution Control Authority, Ser A, VRDN (C)(D)(E) 3.600%, 06/05/96 4,000 4,000 Pima County, Industrial Development Authority, Tucson Electric Project, VRDN (C)(D)(E)(F) 3.750%, 06/05/96 3,400 3,400 Pima County, Industrial Development Authority, Tuscon Electric Project, Ser A, VRDN (C)(D)(E) 3.500%, 06/05/96 6,000 6,000 -------- Total Arizona 15,400 -------- CALIFORNIA (1.7%) Contra Costa County, Multi-Family Mortgage, Delta Square Project, Ser A, VRDN (C)(D)(E) 3.500%, 06/06/96 $4,200 $ 4,200 Higher Education Loan Authority, VRDN (C)(D)(E) 3.600%, 06/05/96 1,900 1,900 -------- Total California 6,100 -------- COLORADO (1.1%) Highlands Ranch, Metropolitan District #2, GO, Pre-Refunded 06/15/96 @ 100 (G) 6.700%, 06/15/01 2,000 2,002 Jefferson County, COP (MBIA) 5.450%, 12/01/96 1,000 1,010 North Glen, Castle Garden Retirement Center, VRDN (C)(D)(E) 3.500%, 06/06/96 1,200 1,200 -------- Total Colorado 4,212 -------- DELAWARE (0.5%) State Educational Development Authority, VRDN (C)(D)(E) 3.875%, 06/06/96 1,875 1,875 -------- FLORIDA (8.5%) Collier County, Housing Finance Authority, VRDN (C)(D)(E) 3.600%, 06/05/96 2,400 2,400 Dade County, Power & Light Project, VRDN (C)(D)(E) 3.600%, 06/03/96 2,200 2,200 Housing Finance Agency, VRDN (C)(D)(E)(F) 3.750%, 06/05/96 8,900 8,900 Housing Finance Agency, Multi-Family Housing, VRDN (C)(D)(E) 3.600%, 06/05/96 4,400 4,400 Jacksonville, TECP (E) 3.150%, 08/09/96 3,000 3,000 F-56 STATEMENT OF NET ASSETS ============================================================= STI CLASSIC FUNDS MAY 31, 1996 TAX-EXEMPT MONEY MARKET FUND--CONTINUED - ------------------------------------------------------------- FACE AMOUNT VALUE (000) (000) - ------------------------------------------------------------- FLORIDA--CONTINUED Monroe County, Industrial Development Authority, Beverly Enterprises Project, VRDN (C)(D)(E) 3.600%, 06/05/96 $2,300 $ 2,300 Palm Beach County, Norton Gallery Project, VRDN (C)(D)(E) 3.600%, 06/05/96 3,000 3,000 Saint Lucie County, Pollution Control Board, Power & Light Project, VRDN (C)(D)(E) 3.600%, 06/03/96 5,000 5,000 -------- Total Florida 31,200 -------- GEORGIA (7.4%) Burke County, Development Authority, TECP (E) 3.250%, 06/03/96 4,000 4,000 Cobb County, Industrial Development Authority, VRDN (C)(D)(E) 3.700%, 06/05/96 1,030 1,030 Cobb County, TAN 4.000%, 12/31/96 6,000 6,014 Dekalb County, TRAN 3.750%, 12/31/96 5,000 5,014 Fulton County, Industrial Development Authority, American Red Cross Project, VRDN (C)(D)(E) 3.650%, 06/06/96 1,600 1,600 Fulton County, School District, RB, Pre-Refunded 05/01/97 @ 103 (G) 7.625%, 05/01/17 3,000 3,195 Lafayette, Industrial Development Authority, Blue-Bird Project, Ser 1991, VRDN (C)(D)(E) 3.650%, 06/06/96 1,000 1,000 Monroe County, Industrial Development Authority, Forsyth Inns Project, VRDN (C)(D)(E) 3.700%, 06/05/96 2,525 2,525 Municipal Electric Authority, VRDN (FGIC) (C)(D) 3.650%, 06/06/96 $3,000 $ 3,000 -------- Total Georgia 27,378 -------- HAWAII (0.8%) State Housing Finance & Development Authority, VRDN (C)(D)(E) 3.800%, 06/05/96 3,000 3,000 -------- IDAHO (0.8%) Nez Pierce County, Pollution Control Board, VRDN (C)(D)(E) 3.550%, 06/05/96 1,000 1,000 Nez Pierce County, Pollution Control Board, Potlatch Corporation Project, VRDN (C)(D)(E) 3.600%, 06/05/96 2,000 2,000 -------- Total Idaho 3,000 -------- ILLINOIS (4.9%) Chicago, Board of Education, COP (E) 3.700%, 12/01/96 3,000 3,000 Cook County, VRDN (C)(D) 3.650%, 06/05/96 4,900 4,900 Decatur, GO (AMBAC) 3.850%, 10/01/96 1,030 1,030 Savanna, Industrial Development Authority, Metform Project, Ser B, VRDN (C)(D)(E) 3.750%, 06/05/96 1,400 1,400 Savanna, Industrial Development Authority, Ser A, VRDN (C)(D)(E) 3.700%, 06/05/96 500 500 State Anti-Pollution Authority, GO 5.250%, 11/01/96 1,400 1,411 F-57 - ------------------------------------------------------------- FACE AMOUNT VALUE (000) (000) - ------------------------------------------------------------- ILLINOIS--CONTINUED State Health Facilities Authority, University of Chicago Hospital Project, Ser C, VRDN (MBIA) (C)(D) 3.600%, 06/05/96 $4,000 $ 4,000 State Health Facilities Authority, Streeterville Project, VRDN (C)(D)(E) 3.600%, 06/05/96 2,000 2,000 -------- Total Illinois 18,241 -------- INDIANA (2.2%) Allen County, Industrial Economic Development, Mattel Power Wheels Project, VRDN (C)(D)(E)(F) 3.900%, 06/05/96 1,500 1,500 Fort Wayne, Economic Development Authority, ND Tech Project, VRDN (C)(D)(E)(F) 3.700%, 06/05/96 1,000 1,000 Indianapolis, Industrial Economic Development Authority, VRDN (C)(D)(E) 3.750%, 06/05/96 2,000 2,000 Jasper County, Pollution Control Board, Northern Indiana Public Service Project, Ser C, VRDN (C)(D)(E) 3.700%, 06/03/96 2,200 2,200 State Bond Bank Advance Funding Notes (E) 4.250%, 07/08/96 1,250 1,251 -------- Total Indiana 7,951 -------- IOWA (0.7%) West Des Moines, Commercial Development Authority, Greyhound Lines Project, VRDN (C)(D)(E) 3.700%, 06/05/96 2,500 2,500 -------- KANSAS (0.5%) Burlington, Pollution Control Authority, Kansas City Power & Light Project, Ser B, TECP (E) 3.650%, 08/08/96 $2,000 $ 2,000 -------- KENTUCKY (1.2%) Lexington-Fayette Urban County, Government Residential Facilities, Richmond Place Project, RB Mandatory Put 04/01/97 @ 100 (E) 4.500%, 04/01/15 1,000 1,000 Pendleton County, VRDN (C)(D)(E) 3.966%, 07/01/96 1,000 1,000 State League of Cities, VRDN (C)(D)(E) 3.700%, 06/05/96 1,380 1,380 State Turnpike Authority, RB, Pre-Refunded 07/01/96 @ 102 (G) 7.400%, 01/01/97 1,025 1,048 -------- Total Kentucky 4,428 -------- LOUISIANA (2.0%) Lake Charles, Harbor & Terminal District Authority, Reynolds Metals Project, VRDN (C)(D)(E) 3.500%, 06/05/96 3,000 3,000 Port Authority, Occidental Petroleum Project, VRDN (C)(D)(E) 3.600%, 06/05/96 4,500 4,500 -------- Total Louisiana 7,500 -------- MARYLAND (3.5%) Baltimore County, Gas & Electric, TECP (E) 3.200%, 06/04/96 5,000 5,000 Baltimore County, Allied Signal Project, VRDN (C)(D)(E) 3.700%, 06/05/96 1,000 1,000 F-58 STATEMENT OF NET ASSETS ============================================================= STI CLASSIC FUNDS MAY 31, 1996 TAX-EXEMPT MONEY MARKET FUND--CONTINUED - ------------------------------------------------------------- FACE AMOUNT VALUE (000) (000) - ------------------------------------------------------------- MARYLAND--CONTINUED Health & Higher Education Authority, Pooled Loan Program, Ser B, VRDN (C)(D)(E) 3.700%, 06/05/96 $5,000 $ 5,000 Montgomery County, TECP (E) 3.250%, 06/05/96 2,000 2,000 -------- Total Maryland 13,000 -------- MICHIGAN (4.0%) State Housing Finance Authority, VRDN (C)(D)(E)(F) 3.800%, 06/05/96 1,000 1,000 State Housing Development Authority, VRDN (C)(D)(E) 3.625%, 06/06/96 3,000 3,000 State Industrial Development Authority, VRDN (C)(D)(E) 3.600%, 06/05/96 3,000 3,000 Pollution Control Board, Underground Storage Tanks Project, VRDN (C)(D)(E) 4.000%, 06/05/96 4,900 4,900 State Strategic Fund, Dow Chemical Project, TECP (E) 3.550%, 06/17/96 2,900 2,900 -------- Total Michigan 14,800 -------- MINNESOTA (0.3%) Hennepin County, Waste Treatment Authority, GO 4.400%, 10/01/96 1,000 1,003 -------- MISSISSIPPI (0.6%) State GO 4.500%, 12/01/96 2,300 2,309 -------- MISSOURI (3.8%) Environmental Improvement Authority, RB Putable 06/01/96 @ 100 (E) 4.000%, 06/01/14 1,000 1,000 Environmental Improvement Authority, Utilicorp United Project, VRDN (C)(D)(E) 3.750%, 06/05/96 $ 700 $ 700 Improvement & Energy Resource Authority, Kansas City Power & Light Project, TECP (E) 3.750%, 11/06/96 5,000 5,000 Industrial Development Authority, Bachman Machine Project, Ser A, VRDN (C)(D)(E)(F) 3.950%, 06/05/96 140 140 Industrial Development Authority, Excelsior Manufacturing Project, Ser B, VRDN (C)(D)(E)(F) 3.950%, 06/05/96 40 40 Industrial Development Authority, Milbank Systems Project, Ser B, VRDN (C)(D)(E)(F) 3.950%, 06/05/96 115 115 Industrial Development Authority, Precision Stainless Project, Ser I, VRDN (C)(D)(E)(F) 3.950%, 06/05/96 80 80 Industrial Development Authority, Plastic Enterprises Project, Ser A, VRDN (C)(D)(E)(F) 3.950%, 06/05/96 415 415 Saint Louis, Industrial Development Authority, Multi-Family Housing, Sugar Pines Apartments Project, VRDN (C)(D)(E) 3.600%, 06/06/96 1,200 1,200 State Custody Receipt, Third Street Building Project, VRDN (C)(D) 3.900%, 06/05/96 2,000 2,000 State Ecomonic Development Authority, Milbank System Project, Ser C, VRDN (C)(D)(E) 3.950%, 06/05/96 200 200 F-59 - ------------------------------------------------------------- FACE AMOUNT VALUE (000) (000) - ------------------------------------------------------------- MISSOURI--CONTINUED State Health & Educational Facilities Authority, Sisters of Mercy Health Systems Project, RB 3.600%, 12/01/96 $1,000 $ 1,000 State VRDN 3.650%, 06/06/96 2,125 2,125 -------- Total Missouri 14,015 -------- NEBRASKA (0.6%) Higher Education Authority, Student Loan Program, Ser C, VRDN (SLMA) (C)(D) 3.700%,06/05/96 2,300 2,300 -------- NEVADA (1.4%) Clark County, Nevada Power Project, Ser A, VRDN (C)(D)(E)(F) 3.700%, 06/05/96 5,000 5,000 -------- NEW HAMPSHIRE (2.8%) State Housing Finance Authority, Multi-Family Housing, Fairways Project, VRDN (C)(D)(E) 3.750%, 06/05/96 5,000 5,000 State Housing Finance Authority, Ser A, RB Putable 01/15/97 @ 100 (F) 3.650%, 07/01/26 1,500 1,500 State Pollution Control Authority, VRDN (C)(D)(E) 3.700%, 06/05/96 800 800 State Business Finance Authority, TECP (E) 3.750%, 06/12/96 3,000 3,000 -------- Total New Hampshire 10,300 -------- NEW MEXICO (2.4%) Educational Assistance Foundation, Student Loan Program, VRDN (AMBAC) 3.800%, 06/06/96 $3,950 $ 3,950 Mortgage Finance Authority, Single-Family Mortgage, Ser A, RB Mandatory Put 12/31/96 @ 100 (GNMA) 3.250%, 01/01/28 5,000 4,987 -------- Total New Mexico 8,937 -------- NEW YORK (1.4%) Suffolk County, Ser I, TAN (E) 4.000%, 08/15/96 5,000 5,007 -------- NORTH DAKOTA (1.4%) Mercer County, Solid Waste Disposal Authority, United Power Project, RB Optional Put 12/01/96 @ 100 (F) 3.650%, 12/01/18 5,000 5,000 -------- OHIO (1.6%) State Air Quality Development Authority, JMG Limited Partnership, Ser A, VRDN (C)(D)(E)(F) 3.600%, 06/05/96 3,000 3,000 State Pollution Control Authority, Duquesne Project, VRDN (C)(D)(E) 3.750%, 06/05/96 3,000 3,000 -------- Total Ohio 6,000 -------- OREGON (0.3%) State Housing & Community Services, Single-Family Mortgage Program, Ser C, RB (F) 3.850%, 05/15/97 1,000 1,000 -------- F-60 STATEMENT OF NET ASSETS ============================================================= STI CLASSIC FUNDS MAY 31, 1996 TAX-EXEMPT MONEY MARKET FUND--CONTINUED - ------------------------------------------------------------- FACE AMOUNT VALUE (000) (000) - ------------------------------------------------------------- PENNSYLVANIA (6.5%) Allegheny County Health Center Development Ser B, TECP (E) 3.700%, 06/10/96 $5,000 $ 5,000 Beaver County, Industrial Development Authority, Duquesne Light Company Project, Ser B, VRDN (C)(D)(E) 3.650%, 06/05/96 1,000 1,000 Delaware County, Industrial Development Authority, Philadelphia Electric Project, Ser C, TECP (FGIC) 3.250%, 06/05/96 6,000 6,000 Philadelphia School District, Ser 1995, TRAN 4.500%, 06/28/96 3,000 3,001 Philadelphia, Ser A, TRAN 4.500%, 06/27/96 4,000 4,002 State TAN 4.500%, 06/28/96 5,000 5,003 -------- Total Pennsylvania 24,006 -------- RHODE ISLAND (3.0%) State TAN (E) 4.500%, 06/28/96 5,000 5,003 Student Loan Authority, VRDN (C)(D)(E)(F) 3.650%, 06/05/96 6,000 6,000 -------- Total Rhode Island 11,003 -------- SOUTH CAROLINA (1.4%) State Public Service Authority, Ser C, RB 3.800%, 01/01/97 2,000 2,006 York County, Pollution Control Authority, North Carolina Electric Power Project, Ser N-5, VRDN (C)(D)(E) 3.250%, 09/15/96 3,000 3,000 -------- Total South Carolina 5,006 -------- TENNESSEE (4.0%) Covington, Industrial Development Board, Charms Project, VRDN (C)(D)(E) 3.700%, 06/05/96 $3,000 $ 3,000 Hamilton County, Industrial Development Board, Tennessee Aquarium Project, VRDN (C)(D)(E) 3.650%, 06/06/96 3,000 3,000 Memphis-Shelby County, Industrial Development Board, Ponderosa Fibres American Project, VRDN (C)(D)(E) 3.800%, 06/06/96 1,800 1,800 Nashville & Davidson County, Government Health & Education Authority, Vanderbilt University Project, Ser B, VRDN (C)(D) 3.700%, 05/01/97 1,400 1,400 Nashville & Davidson County, Industrial Development Authority, Multi-Family Mortgage, Chimneytop II Project, VRDN (C)(D)(E) 3.700%, 06/05/96 1,325 1,325 State School Board Authority, VRDN (C)(D) 3.600%, 06/05/96 750 750 State School Board Authority, Ser B, BAN, VRDN (C)(D) 3.600%, 06/05/96 1,400 1,400 State School Board Authority, VRDN (C)(D) 3.600%, 06/05/96 2,200 2,200 -------- Total Tennessee 14,875 -------- F-61 - ------------------------------------------------------------- FACE AMOUNT VALUE (000) (000) - ------------------------------------------------------------- TEXAS (7.9%) Brazos River, TECP (E)(F) 3.700%, 08/08/96 $2,790 $ 2,790 Brazos River, Dow Chemical Project, TECP (E) 3.450%, 08/23/96 2,700 2,700 Harris County, Health Facility Authority, TECP (E) 3.200%, 06/10/96 3,000 3,000 Harris County, Industrial Development Authority, Lubrizol Project, VRDN (C)(D)(E) 3.600%, 06/05/96 1,600 1,600 Harris County, Toll Roads, Ser H, VRDN (C)(D) 3.600%, 06/05/96 5,500 5,500 Harris County, Housing Finance Corporation, Ser 1985, VRDN (C)(D)(E) 3.875%, 06/06/96 1,000 1,000 Houston, TECP (E) 3.250%, 06/11/96 5,000 5,000 Lone Star, Airport Improvement, VRDN (C)(D) 3.650%, 06/03/96 1,700 1,700 State Public Finance Authority, Ser C, GO 6.400%, 10/01/96 1,000 1,009 State TAN (E) 4.750%, 08/30/96 5,000 5,008 -------- Total Texas 29,307 -------- UTAH (4.3%) Davis County, School District, TAN 4.250%, 06/28/96 6,500 6,502 Salt Lake County, Solid Waste Disposal Authority, Kennecott Copper Project, Ser A, VRDN (C)(D)(E)(F) 3.800%, 06/05/96 6,400 6,400 Tooele County, Hazardous Waste Treatment, Westinghouse Project, Ser A, TECP (E) 3.650%, 07/23/96 $3,000 $ 3,000 -------- Total Utah 15,902 -------- VERMONT (2.7%) State TECP (E) 3.400%, 06/14/96 10,000 10,000 -------- VIRGINIA (2.4%) Chesterfield County, Industrial Development Authority, Allied Signal Project, VRDN (C)(D)(E) 3.750%, 06/05/96 3,000 3,000 Commonwealth, Ser 1994, VRDN (C)(D) 3.750%, 06/06/96 3,000 3,000 Front Royal & Warren County, Industrial Development Authority, Pen Tab Industries Project, VRDN (C)(D)(E)(F) 3.900%, 06/06/96 3,000 3,000 -------- Total Virginia 9,000 -------- WASHINGTON (0.5%) Port of Seattle, VRDN (C)(D) 3.500%, 06/05/96 1,800 1,800 -------- WEST VIRGINIA (1.1%) Marshall County, Pollution Control Authority, Allied Signal Project, VRDN (C)(D)(E) 3.750%, 06/05/96 2,000 2,000 Marshall County, PPG Industries Project, VRDN (C)(D)(E) 3.800%, 06/06/96 2,000 2,000 -------- Total West Virginia 4,000 -------- F-62 STATEMENT OF NET ASSETS ============================================================= STI CLASSIC FUNDS MAY 31, 1996 TAX-EXEMPT MONEY MARKET FUND--CONCLUDED - ------------------------------------------------------------- FACE AMOUNT VALUE (000) (000) - ------------------------------------------------------------- WISCONSIN (0.8%) State VRDN (C)(D) 3.600%, 06/06/96 $3,000 $ 3,000 -------- Total Municipal Bonds (Cost $367,861,479) 367,862 -------- CASH EQUIVALENT (1.1%) SEI Tax-Exempt Trust Institutional Tax-Free Portfolio 3,966 3,966 -------- Total Cash Equivalent (Cost $3,965,853) 3,966 -------- Total Investments (100.8%) (Cost $371,827,332) 371,828 -------- OTHER ASSETS AND LIABILITIES (-0.8%) Total Other Assets and Liabilities, Net (2,992) -------- - ------------------------------------------------------------- VALUE (000) - ------------------------------------------------------------- NET ASSETS: Fund shares of the Trust Class (unlimited authorization --no par value) based on 273,619,007 outstanding shares of benefical interest $273,619 Fund shares of the Investor Class (unlimited authorization--no par value) based on 95,230,640 outstanding shares of beneficial interest 95,231 Accumulated net realized loss on investments (14) -------- Total Net Assets (100.0%) $368,836 ======== Net Asset Value, Offering Price and Redemption Price Per Share-- Trust Shares $ 1.00 ======== Net Asset Value, Offering Price and Redemption Price Per Share-- Investor Shares $ 1.00 ======== THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. FOR DESCRIPTIONS OF ABBREVIATIONS, PLEASE SEE PAGE 101. F-63 STATEMENT OF NET ASSETS ============================================================= STI CLASSIC FUNDS MAY 31, 1996 KEY TO ABBREVIATIONS USED IN THE STATEMENT OF NET ASSETS ADR American Depository Receipt AMBAC Security insured by the American Municipal Bond Assurance Company ARM Adjustable Rate Mortgage BAN Bond Anticipation Note Cl Class CMO Collateralized Mortgage Obligation COP Certificate of Participation CV Convertible Security ETM Escrowed to Maturity F Foreign Registry Shares FGIC Security insured by the Financial Guaranty Insurance Corporation FHLB Federal Home Loan Bank FHLMC Federal Home Loan Mortgage Corporation FNMA Federal National Mortgage Association FSA Security insured by Financial Security Assurance GDR Global Depository Receipt GECC General Electric Capital Corporation GMAC General Motors Acceptance Corporation GNMA Government National Mortgage Association GO General Obligation MBIA Security insured by the Municipal Bond Insurance Association MTN Medium Term Note PSFG Permanent School Fund Guarantee RB Revenue Bond REIT Real Estate Investment Trust REMIC Real Estate Mortgage Investment Conduit Ser Series SLMA Student Loan Marketing Association STRIPS Separately Traded Registered Interest and Principal Security TAN Tax Anticipation Note TECP Tax Exempt Commercial Paper TRAN Tax & Revenue Anticipation Note VRDN Variable Rate Demand Note * Non-income producing securities (A) Zero Coupon Bond (B) Private Placement Security (C) Variable rate security. The rate reported on the Statement of Net Assets is the rate in effect on May 31, 1996 (D) Put and demand features exist requiring the issuer to repurchase the instrument prior to maturity (E) Securities are held in connection with a letter of credit issued by a major bank (F) Income on security may be subject to the Alternative Minimum Tax (G) Collateralized by U.S. Government Securities F-64 [THIS PAGE INTENTIONALLY LEFT BLANK] F-65 STATEMENT OF ASSETS AND LIABILITIES (000) ================================================================================ STI CLASSIC FUNDS FOR THE YEAR ENDED MAY 31, 1996
------------- ---------- ---------- INTERNATIONAL INVESTMENT FLORIDA EQUITY GRADE TAX-EXEMPT TAX-EXEMPT FUND BOND FUND BOND FUND ------------ ---------- ---------- Assets: Investments at Market Value (Cost $194,622,776, $158,665,690, $36,007,283, respectively)................. $208,240 $157,970 $ 35,650 Cash and Foreign Currency...................................................... 12,765 -- -- Receivables for Investment Securities Sold..................................... -- 6,359 -- Receivables for Capital Shares Sold............................................ 493 5,660 1,459 Other Assets................................................................... 622 2,546 578 -------- -------- ------- Total Assets................................................................... 222,120 172,535 37,687 -------- -------- ------- Liabilities: Payables for Investment Securities Purchased................................... 3,488 3,970 -- Payables for Capital Shares Repurchased........................................ 512 285 -- Accrued Expenses............................................................... 413 177 43 Distribution Payable........................................................... -- 535 137 Other Liabilities.............................................................. -- 98 -- -------- -------- ------- Total Liabilities.............................................................. 4,413 5,065 180 -------- -------- ------- Net Assets: Fund Shares of the Trust Shares (Unlimited Authorization -- No Par Value) Based on 18,703,354, 11,214,957, 3,059,386, respectively Outstanding Shares of Beneficial Interest....................................................... 195,165 123,950 31,003 Fund Shares of the Investor Shares (Unlimited Authorization -- No Par Value) Based on 302,894, 3,367,080, 399,731, respectively Outstanding Shares of Beneficial Interest....................................................... 3,247 36,440 3,971 Fund Shares of the Flex Shares (Unlimited Authorization -- No Par Value) Based on 83,847, 498,358, 267,043, respectively Outstanding Shares of Beneficial Interest....................................................... 908 5,632 2,741 Undistributed Net Investment Income............................................ 986 2 4 Accumulated Net Realized Gain on Investments................................... 4,059 2,142 145 Accumulated Net Realized Loss on Foreign Currency Transactions................. (265) -- -- Net Unrealized Appreciation (Depreciation) on Investments...................... 13,617 (696) (357) Net Unrealized Depreciation on Foreign Currency and Translation of Other Assets and Liabilities in Foreign Currency.............. (10) -- -- -------- -------- -------- Total Net Assets............................................................... $217,707 $167,470 $ 37,507 ======== ======== ======== Net Asset Value, Offering Price and Redemption Price Per Share -- Trust Shares... $ 11.40 $ 11.10 $ 10.06 ======== ======== ======== Net Asset Value and Redemption Price Per Share -- Investor Shares................ $ 11.38 $ 11.12 $ 10.07 ======== ======== ======== Maximum Public Offering Price Per Share -- Investor Shares ($11.38 (DIVIDED BY) 96.25%), ($11.12 (DIVIDED BY) 96.25%), ($10.07 (DIVIDED BY) 96.25%).................................................... $ 11.82 $ 11.55 $ 10.46 ======== ======== ======== Net Asset Value,Offering and Redemption Price Per Share--Flex Shares (1)......... $ 11.37 $ 11.11 $ 10.08 ======== ======== ========
(1) Flex Class has a contingent deferred sales charge. For a description of a possible sales charge, see notes to the Financial Statements THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. F-66 STATEMENT OF OPERATIONS (000) ================================================================================ STI CLASSIC FUNDS FOR THE PERIOD ENDED MAY 31, 1996
MID-CAP CAPITAL INTERNATIONAL VALUE INCOME EQUITY GROWTH BALANCED EQUITY STOCK FUND FUND FUND FUND INDEX FUND ---------- --------- --------- ---------- ----------- 06/01/95- 06/01/95- 06/01/95- 06/01/95- 06/01/95- 05/31/96 05/31/96 05/31/96 05/31/96 05/31/96 --------- --------- --------- --------- --------- Income: Interest Income ........................................ $ 4,145 $ 1,718 $ 4,354 $ 3,136 $ 34 Dividend Income ........................................ 40,342 2,105 19,620 972 2,008 Less Foreign Taxes Withheld ............................ -- -- -- -- (182) -------- ------- -------- ------- ------ Total Investment Income ................................ 44,487 3,823 23,974 4,108 1,860 -------- ------- -------- ------- ------ Expenses: Investment Advisory Fees ............................... 9,448 2,377 13,507 990 885 Investment Advisory Fees Waived ........................ -- (319) (1,409) (166) (144) Contribution from Advisor .............................. -- -- -- -- -- Administrator Fees ..................................... 846 148 842 75 71 Transfer Agent Fees-- Trust Class of Shares ............ 14 15 10 15 15 Transfer Agent Fees-- Investor Class of Shares ......... 131 31 218 23 24 Transfer Agent Fees-- Flex Class of Shares ............. 26 16 19 13 13 Transfer Agent Out of Pocket Fees ...................... 74 16 95 8 10 Printing Expenses ...................................... 99 22 109 10 10 Custody Fees ........................................... 43 9 48 3 132 Professional Fees ...................................... 76 19 90 9 8 Trustee Fees ........................................... 18 3 22 2 2 Registration Fees ...................................... 144 51 132 12 4 Distribution Fees -- Investor Class of Shares .......... 363 55 1,188 12 18 Distribution Fees Waived-- Investor Class of Shares .... (60) (4) (275) (1) (18) Distribution Fees-- Flex Class of Shares ............... 116 22 49 16 6 Distribution Fees Waived-- Flex Class of Shares ........ (17) (12) (12) (9) (6) Insurance and Other Fees ............................... 52 6 53 5 22 Amortization of Deferred Organization Costs ............ 13 3 10 3 8 -------- ------- -------- ------- ------ Total Expenses ......................................... 11,386 2,458 14,696 1,020 1,060 -------- ------- -------- ------- ------ Net Investment Income (Loss) ........................... 33,101 1,365 9,278 3,088 800 -------- ------- -------- ------- ------ Net Realized and Unrealized Gain (Loss) on Investments: Net Realized Gain on Securities Sold ................... 196,134 29,513 224,050 11,091 1,134 Net Realized Loss on Foreign Currency Transactions ..... -- -- -- -- -- Net Change in Unrealized Depreciation on Foreign Currency and Translation of Other Assets and Liabilities in Foreign Currency ..................................... -- -- -- -- (7) Net Change in Unrealized Appreciation (Depreciation) on Investments ....................................... 60,796 12,518 63,301 1,891 6,362 -------- ------- -------- ------- ------ Net Increase in Net Assets from Operations ............. $290,031 $43,396 $296,629 $16,070 $8,289 ======== ======= ======== ======= ======
*Commencement of operations Amounts designated as "--" are either $0 or round to $0. F-67 ================================================================================
INTERNATIONAL SUNBELT INTERNATIONAL GRADE FLORIDA TENNESSEE EQUITY EQUITY TAX-EXEMPT TAX-EXEMPT TAX-EXEMPT FUND FUND BOND FUND BOND FUND BOND FUND ------------ --------- ------------------- ---------- ----------- 06/01/95- 06/01/95- 06/01/95- 06/01/95- 06/01/95- 05/31/96 05/31/96 05/31/96 05/31/96 05/31/96 --------- --------- --------- --------- --------- Income: Interest Income .................................... $ 192 $ 443 $7,184 $1,438 $226 Dividend Income .................................... 2,079 2,293 -- -- -- Less Foreign Taxes Withheld ........................ (235) -- -- -- -- ------- -------- ------ ------ -------- Total Investment Income ............................ 2,036 2,736 7,184 1,438 226 ------- -------- ------ ------ -------- Expenses: Investment Advisory Fees ........................... 899 3,890 1,120 182 29 Investment Advisory Fees Waived .................... (152) (465) (204) (76) (29) Contribution from Advisor .......................... -- -- -- -- (18) Administrator Fees ................................. 50 242 108 20 3 Transfer Agent Fees -- Trust Class of Shares ....... 7 15 15 16 16 Transfer Agent Fees -- Investor Class of Shares .... 9 58 45 15 14 Transfer Agent Fees -- Flex Class of Shares ........ 6 13 14 13 12 Transfer Agent Out of Pocket Fees .................. 6 26 14 3 2 Printing Expenses .................................. 9 34 15 4 -- Custody Fees ....................................... 113 14 6 1 -- Professional Fees .................................. 10 28 13 3 1 Trustee Fees ....................................... 1 5 2 1 -- Registration Fees .................................. 83 30 30 10 1 Distribution Fees -- Investor Class of Shares ...... 3 107 175 7 2 Distribution Fees Waived -- Investor Class of Shares ........................................ (3) (7) (61) (1) (1) Distribution Fees-- Flex Class of Shares ........... 2 10 39 17 14 Distribution Fees Waived-- Flex Class of Shares .... (2) (9) (17) (14) (5) Insurance and Other Fees ........................... 8 17 9 1 -- Amortization of Deferred Organization Costs ........ 1 3 10 1 -- ------- -------- ------ ------ ------ Total Expenses ..................................... 1,050 4,011 1,333 203 41 ------- -------- ------ ------ ------ Net Investment Income (Loss) ....................... 986 (1,275) 5,851 1,235 185 ------- -------- ------ ------ ------ Net Realized and Unrealized Gain (Loss) on Investments: Net Realized Gain on Securities Sold ............... 4,059 39,898 5,634 220 13 Net Realized Loss on Foreign Currency Transactions.. (265) -- -- -- -- Net Change in Unrealized Depreciation on Foreign Currencyand Translation of Other Assets and Liabilities in Foreign Currency ................................. (10) -- -- -- -- Net Change in Unrealized Appreciation (Depreciation) on Investments .................................... 13,617 84,777 (3,672) (723) (96) ------- -------- ------ ------ ------ Net Increase in Net Assets from Operations .......... $18,387 $123,400 $7,813 $ 732 $102 ======= ======== ====== ====== ======
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. F-68 STATEMENT OF OPERATIONS (000) (concluded) ================================================================================ STI CLASSIC FUNDS FOR THE PERIOD ENDED MAY 31, 1996
SHORT-TERM GEORGIA INVESTMENT U.S. TREASURY LIMITED-TERM TAX-EXEMPT GRADE BOND SHORT-TERM SECURITIES FEDERAL MORTGAGE BOND FUND FUND BOND FUND FUND BOND FUND ---------- ---------- ----------- -------------- ---------------- 06/01/95- 06/01/95- 06/01/95- 06/01/95- 06/01/95- 05/31/96 05/31/96 05/31/96 05/31/96 05/31/96 --------- --------- --------- --------- --------- Income: Interest Income .................................. $1,144 $40,504 $4,745 $1,037 $3,533 Dividend Income .................................. -- -- -- -- -- ------ ------- ------ ------ ------ Total Investment Income .......................... 1,144 40,504 4,745 1,037 3,533 ------ ------- ------ ------ ------ Expenses: Investment Advisory Fees ......................... 149 4,580 512 109 344 Investment Advisory Fees Waived .................. (65) (711) (150) (72) (119) Administrator Fees ............................... 16 444 56 12 38 Administrator Fees Waived ........................ -- -- -- -- -- Transfer Agent Fees-- Trust Class of Shares ...... 16 15 14 16 13 Transfer Agent Fees-- Investor Class of Shares ... 15 54 18 17 14 Transfer Agent Fees-- Flex Class of Shares ....... 13 14 12 12 12 Transfer Agent Out of Pocket Fees ................ 3 46 7 3 8 Printing Expenses ................................ 3 58 8 2 5 Custody Fees ..................................... 1 26 3 -- 2 Professional Fees ................................ 2 51 7 1 6 Trustee Fees ..................................... -- 9 1 -- 1 Registration Fees ................................ 7 98 16 6 13 Distribution Fees -- Investor Class of Shares .... 6 152 6 10 3 Distribution Fees Waived -- Investor Class of Shares ...................................... (1) (73) (1) (2) (1) Distribution Fees-- Flex Class of Shares ......... 24 24 6 12 7 Distribution Fees Waived -- Flex Class of Shares ...................................... (17) (15) (6) (12) (7) Insurance and Other Fees ......................... 1 28 4 -- 2 Amortization of Deferred Organization Costs ...... -- 10 8 8 11 ------ ------- ------ ------ ------- Total Expenses ................................... 173 4,810 521 122 352 ------ ------- ------ ------ ------- Net Investment Income .............................. 971 35,694 4,224 915 3,181 ------ ------- ------ ------ ------- Net Realized and Unrealized Gain (Loss) on Investments....................................... Net Realized Gain (Loss) on Securities Sold ...... 330 19,716 1,358 95 389 Net Change in Unrealized Depreciation on Investments ................................. (789) (32,383) (2,395) (294) (1,359) ------ ------- ------ ------ ------- Net Increase in Net Assets from Operations ......... $ 512 $23,027 $3,187 $ 716 $ 2,211 ====== ======= ====== ====== =======
Amounts designated as "--" are either $0 or round to $0. F-69 ================================================================================
TAX-EXEMPT U.S. PRIME QUALITY U.S. GOVERNMENT MONEY GOVERNMENT MONEY MARKET SECURITIES MONEY MARKET SECURITIES FUND FUND MARKET FUND FUND --------------- ------------- ---------------- ---------- 06/01/95- 06/01/95- 06/01/95- 06/01/95- 05/31/96 05/31/96 05/31/96 05/31/96 --------- --------- --------- -------- Income: Interest Income ................................ $698 $60,664 $22,883 $14,248 Dividend Income ................................ -- -- -- -- ---- ------- ------- ------- Total Investment Income ........................ 698 60,664 22,883 14,248 ---- ------- ------- ------- Expenses: Investment Advisory Fees ....................... 76 6,950 2,646 2,108 Investment Advisory Fees Waived ................ (60) (1,603) (578) (685) Administrator Fees ............................. 7 765 292 275 Administrator Fees Waived ...................... -- (450) (73) -- Transfer Agent Fees-- Trust Class of Shares .... 16 16 16 16 Transfer Agent Fees-- Investor Class of Shares.. 13 48 29 25 Transfer Agent Fees-- Flex Class of Shares ..... 14 -- -- -- Transfer Agent Out of Pocket Fees .............. 3 70 27 25 Printing Expenses .............................. 1 95 38 38 Custody Fees ................................... -- 43 18 17 Professional Fees .............................. 1 83 30 32 Trustee Fees ................................... -- 14 3 6 Registration Fees .............................. 6 200 63 72 Distribution Fees -- Investor Class of Shares... 5 382 97 139 Distribution Fees Waived -- Investor Class of Shares .................................... (1) (108) (53) (59) Distribution Fees -- Flex Class of Shares ...... 16 -- -- -- Distribution Fees Waived-- Flex Class of Shares .................................... (12) -- -- -- Insurance and Other Fees ....................... 1 17 7 12 Amortization of Deferred Organization Costs .... 10 10 10 10 ---- ------- ------- ------- Total Expenses ................................. 96 6,532 2,572 2,031 ---- ------- ------- ------- Net Investment Income ............................ 602 54,132 20,311 12,217 ---- ------- ------- ------- Net Realized and Unrealized Gain (Loss) on Investments.................................... Net Realized Gain (Loss) on Securities Sold .... (24) (82) 90 9 Net Change in Unrealized Depreciation on Investments .............................. (557) -- -- -- ---- ------- ------- ------- Net Increase in Net Assets from Operations ....... $ 21 $54,050 $20,401 $12,226 ==== ======= ======= =======
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. F-70 STATEMENT OF CHANGES IN NET ASSETS (000) ================================================================================ STI CLASSIC FUNDS FOR THE PERIOD ENDED MAY 31, 1996
VALUE INCOME MID-CAP EQUITY STOCK FUND FUND CAPITAL GROWTH FUND BALANCED FUND --------------------- -------------------- -------------------- --------------------- 06/01/95- 06/01/94- 06/01/95- 06/01/94- 06/01/95- 06/01/94- 06/01/95- 06/01/94- 05/31/96 05/31/95 05/31/96 05/31/95 05/31/96 05/31/95 05/31/96 05/31/95 ---------- --------- --------- --------- --------- --------- --------- -------- Operations: Net Investment Income .................. $ 33,101 $27,417 $ 1,365 $ 848 $ 9,278 $ 13,878 $3,088 $ 2,894 Net Realized Gain (Loss) on Investments .......................... 196,134 63,692 29,513 3,443 224,050 (25,085) 11,091 (2,649) Net Realized Gain (Loss) on Foreign Currency Transactions ................ -- -- -- -- -- -- -- -- Net Change in Unrealized Appreciation (Depreciation) on Foreign Currency and Translation of Other Assets and Liabilities in Foreign Currency ...... -- -- -- -- -- -- -- -- Net Change in Unrealized Appreciation (Depreciation) on Investments ........ 60,796 72,296 12,518 9,545 63,301 81,722 1,891 7,258 ---------- ---------- -------- --------- ---------- ---------- --------- -------- Increase in Net Assets from Operations 290,031 163,405 43,396 13,836 296,629 70,515 16,070 7,503 ---------- ---------- -------- --------- ---------- ---------- --------- -------- Distributions to Shareholders: Net Investment Income: Trust Shares ......................... (29,124) (23,754) (1,285) (718) (9,644) (11,234) (2,933) (2,702) Investor Shares ...................... (2,618) (1,920) (30) (14) (570) (928) (115) (97) Flex Shares .......................... (206) -- (1) -- (5) -- (31) -- Capital Gains: Trust Shares ......................... (92,363) (38,976) (13,072) -- (41,659) (30,893) (904) -- Investor Shares ...................... (9,853) (3,570) (922) -- (7,343) (5,364) (44) -- Flex Shares .......................... (1,106) -- (167) -- (227) -- (18) -- ---------- ---------- -------- --------- ---------- ---------- --------- -------- Total Distributions .................... (135,270) (68,220) (15,477) (732) (59,448) (48,419) (4,045) (2,799) ---------- ---------- -------- --------- ---------- ---------- --------- -------- Capital Transactions (1): Trust Shares: Proceeds from Shares Issued .......... 371,542 468,283 133,402 86,594 187,108 394,468 54,735 44,516 Reinvestment of Cash Distributions ... 111,671 58,468 13,361 546 48,431 40,271 3,784 2,692 Cost of Shares Repurchased ........... (369,739) (195,046) (44,487) (31,035) (439,271) (362,047) (47,301) (53,242) ---------- ---------- -------- --------- ---------- ---------- --------- -------- Increase (Decrease) in Net Assets From Trust Share Transactions ........ 113,474 331,705 102,276 56,105 (203,732) 72,692 11,218 (6,034) ---------- ---------- -------- --------- ---------- ---------- --------- -------- Investor Shares: Proceeds from Shares Issued .......... 31,177 32,292 10,027 4,519 21,971 25,080 1,315 2,054 Reinvestment of Cash Distributions ... 12,291 5,319 948 14 7,818 6,057 155 93 Cost of Shares Repurchased ........... (19,420) (13,939) (2,010) (875) (34,867) (43,510) (844) (891) ---------- ---------- -------- --------- ---------- ---------- --------- -------- Increase (Decrease) in Net Assets From Investor Share Transactions ... 24,048 23,672 8,965 3,658 (5,078) (12,373) 626 1,256 ---------- ---------- -------- --------- ---------- ---------- --------- -------- Flex Shares: Proceeds from Shares Issued .......... 24,893 -- 5,125 -- 10,505 -- 3,359 -- Reinvestment of Cash Distributions ... 1,301 -- 163 -- 230 -- 49 -- Cost of Shares Repurchased ........... (1,416) -- (450) -- (641) -- (428) -- ---------- ---------- -------- --------- ---------- ---------- --------- -------- Increase in Net Assets From Flex Share Transactions ................... 24,778 -- 4,838 -- 10,094 -- 2,980 -- ---------- ---------- -------- --------- ---------- ---------- --------- -------- Increase (Decrease) in Net Assets From Share Transactions ............ 162,300 355,377 116,079 59,763 (198,716) 60,319 14,824 (4,778) ---------- ---------- -------- --------- ---------- ---------- --------- -------- Total Increase (Decrease) in Net Assets ....................... 317,061 450,562 143,998 72,867 38,465 82,415 26,849 (74) ---------- ---------- -------- --------- ---------- ---------- --------- -------- Net Assets: Beginning of Period .................... 1,084,233 633,671 132,907 60,040 1,145,080 1,062,665 92,816 92,890 ---------- ---------- -------- --------- ---------- ---------- --------- -------- End of Period .......................... $1,401,294 $1,084,233 $276,905 $132,907 $1,183,545 $1,145,080 $119,665 $ 92,816 ========== ========== ======== ========= ========== ========== ========= ======== Shares Issued and Redeemed(1): Trust Shares: Shares Issued ........................ 9,898 43,588 10,952 8,666 13,624 33,987 4,974 4,636 Shares Issued in Lieu of Cash Distributions ...................... 9,282 5,715 1,144 54 3,617 3,668 346 283 Shares Redeemed ...................... (30,154) (18,063) (3,620) (3,090) (32,204) (31,242) (4,335) (5,520) ---------- ----------- -------- --------- ---------- ---------- --------- -------- Net Trust Share Transactions ........... 9,026 31,240 8,476 5,630 (14,963) 6,413 985 (601) ---------- ----------- -------- --------- ---------- ---------- --------- -------- Investor Shares: Shares Issued ........................ 2,522 2,985 824 448 1,605 2,153 119 212 Shares Issued in Lieu of Cash Distributions ...................... 1,023 521 82 1 585 555 14 10 Shares Redeemed ...................... (1,569) (1,297) (165) (86) (2,576) (3,751) (76) (92) ---------- ----------- -------- --------- ---------- ---------- --------- -------- Net Investor Share Transactions ........ 1,976 2,209 741 363 (386) (1,043) 57 130 ---------- ----------- -------- --------- ---------- ---------- --------- -------- Flex Shares: Shares Issued ........................ 2,014 -- 419 -- 768 -- 305 -- Shares Issued in Lieu of Cash Distributions ...................... 108 -- 14 -- 17 -- 5 -- Shares Redeemed ...................... (113) -- (37) -- (46) -- (38) -- ---------- ----------- -------- --------- ---------- ---------- --------- -------- Net Flex Share Transactions ............ 2,009 -- 396 -- 739 -- 272 -- ========== =========== ======== ========= ========== ========== ======== ========
*Commencement of operations. Amounts designated as "--" are either $0 or round to $0. F-71
INTERNATIONAL INTERNATIONAL EQUITY EQUITY INDEX FUND FUND SUNBELT EQUITY FUND ----------------------- ------------- ----------------------- 06/01/95- 06/06/94-* 12/01/95-* 06/01/95- 01/03/94-* 05/31/96 05/31/95 05/31/96 05/31/96 05/31/95 --------- ---------- -------------- --------- ---------- Operations: Net Investment Income .................. $ 800 $ 583 $ 986 $ (1,275) $ (390) Net Realized Gain (Loss) on Investments .......................... 1,134 28 4,059 39,898 (10,446) Net Realized Gain (Loss) on Foreign Currency Transactions ................ -- 42 (265) -- -- Net Change in Unrealized Appreciation (Depreciation) on Foreign Currency and Translation of Other Assets and Liabilities in Foreign Currency ...... (7) 3 (10) -- -- Net Change in Unrealized Appreciation (Depreciation) on Investments ........ 6,362 2,605 13,617 84,777 20,987 ------- ------- -------- -------- -------- Increase in Net Assets from Operations ......................... 8,289 3,261 18,387 123,400 10,151 ------- ------- -------- -------- -------- Distributions to Shareholders: Net Investment Income: Trust Shares ......................... (1,048) (143) -- -- -- Investor Shares ...................... (59) (4) -- -- -- Flex Shares .......................... (7) -- -- -- -- Capital Gains: Trust Shares ......................... (743) (31) -- (5,188) (999) Investor Shares ...................... (43) (2) -- (426) (89) Flex Shares .......................... (6) -- -- (20) -- ------- ------- -------- -------- -------- Total Distributions .................... (1,906) (180) -- (5,634) (1,088) ------- ------- -------- -------- -------- Capital Transactions (1): Trust Shares: Proceeds from Shares Issued .......... 62,965 96,472 212,805 132,237 168,189 Reinvestment of Cash Distributions ... 1,417 115 -- 4,956 948 Cost of Shares Repurchased ........... (68,891) (10,101) (17,640) (92,700) (46,896) ------- ------- -------- -------- -------- Increase (Decrease) in Net Assets From Trust Share Transactions ........ (4,509) 86,486 195,165 44,493 122,241 ------- ------- -------- -------- -------- Investor Shares: Proceeds from Shares Issued .......... 3,017 4,324 3,467 5,187 10,546 Reinvestment of Cash Distributions ... 101 5 -- 426 89 Cost of Shares Repurchased ........... (1,782) (490) (220) (7,209) (5,208) ------- ------- -------- -------- -------- Increase (Decrease) in Net Assets From Investor Share Transactions ... 1,336 3,839 3,247 (1,596) 5,427 ------- ------- -------- -------- -------- Flex Shares: Proceeds from Shares Issued .......... 992 -- 911 2,489 -- Reinvestment of Cash Distributions ... 13 -- -- 20 -- Cost of Shares Repurchased ........... (127) -- (3) (123) -- ------- ------- -------- -------- -------- Increase in Net Assets From Flex Share Transactions ................... 878 -- 908 2,386 -- ------- ------- -------- -------- -------- Increase (Decrease) in Net Assets From Share Transactions ............ (2,295) 90,325 199,320 45,283 127,668 ------- ------- -------- -------- -------- Total Increase (Decrease) in Net Assets ....................... 4,088 93,406 217,707 163,049 136,731 ------- ------- -------- -------- -------- Net Assets: Beginning of Period .................... 93,406 -- -- 281,088 144,357 ------- ------- -------- -------- -------- End of Period .......................... $97,494 $93,406 $217,707 $444,137 $281,088 ======= ======= ======== ======== ======== Shares Issued and Redeemed(1): Trust Shares: Shares Issued ........................ 5,971 9,758 20,338 10,848 17,356 Shares Issued in Lieu of Cash Distributions ...................... 134 12 -- 437 96 Shares Redeemed ...................... (6,536) (1,035) (1,635) (7,882) (4,848) ------- ------- -------- -------- -------- Net Trust Share Transactions ........... (431) 8,735 18,703 3,403 12,604 ------- ------- -------- -------- -------- Investor Shares: Shares Issued ........................ 286 438 324 428 1,095 Shares Issued in Lieu of Cash Distributions ...................... 10 1 -- 38 9 Shares Redeemed ...................... (170) (51) (21) (614) (537) ------- ------- -------- -------- -------- Net Investor Share Transactions ........ 126 388 303 (148) 567 ------- ------- -------- -------- -------- Flex Shares: Shares Issued ........................ 95 -- 84 202 -- Shares Issued in Lieu of Cash Distributions ...................... 1 -- -- 2 -- Shares Redeemed ...................... (12) -- -- (10) -- ------- ------- -------- -------- -------- Net Flex Share Transactions ............ 84 -- 84 194 -- ======= ======= ======== ======== ======== FLORIDA TENNESSEE INVESTMENT GRADE TAX-EXEMPT TAX-EXEMPT TAX EXEMPT BOND FUND BOND FUND BOND FUND ---------------------- ---------------------- -------------------- 06/01/95- 06/01/94- 06/01/95- 06/01/94- 06/01/95- 06/01/94- 05/31/96 05/31/95 05/31/96 05/31/95 05/31/96 05/31/95 --------- --------- --------- --------- --------- --------- Operations: Net Investment Income .................. $ 5,851 $ 4,295 $ 1,235 $ 395 $ 185 $ 103 Net Realized Gain (Loss) on Investments 5,634 2,511 220 85 13 (11) Net Realized Gain (Loss) on Foreign Currency Transactions ................ -- -- -- -- -- -- Net Change in Unrealized Appreciation (Depreciation) on Foreign Currency and Translation of Other Assets and Liabilities in Foreign Currency ...... -- -- -- -- -- -- Net Change in Unrealized Appreciation (Depreciation) on Investments ........ (3,672) 3,246 (723) 421 (96) 99 -------- -------- -------- -------- ------- ------- Increase in Net Assets from Operations 7,813 10,052 732 901 102 191 -------- -------- -------- -------- ------- ------- Distributions to Shareholders: Net Investment Income: Trust Shares ......................... (4,292) (2,582) (996) (264) (80) (45) Investor Shares ...................... (1,492) (1,658) (171) (130) (54) (58) Flex Shares .......................... (120) -- (65) -- (51) -- Capital Gains: Trust Shares ......................... (3,335) (17) (111) -- -- -- Investor Shares ...................... (1,295) (11) (21) -- -- -- Flex Shares .......................... (137) -- (10) -- -- -- -------- -------- -------- -------- ------- ------- Total Distributions .................... (10,671) (4,268) (1,374) (394) (185) (103) -------- -------- -------- -------- ------- ------- Capital Transactions (1): Trust Shares: Proceeds from Shares Issued .......... 87,347 51,898 30,124 8,390 414 1,263 Reinvestment of Cash Distributions ... 4,062 1,220 228 83 36 29 Cost of Shares Repurchased ........... (42,946) (23,091) (9,139) (1,914) (264) (274) -------- -------- -------- -------- ------- ------- Increase (Decrease) in Net Assets From Trust Share Transactions ........ 48,463 30,027 21,213 6,559 186 1,018 -------- -------- -------- -------- ------- ------- Investor Shares: Proceeds from Shares Issued .......... 4,535 6,818 1,865 1,793 668 398 Reinvestment of Cash Distributions ... 2,347 1,410 127 97 35 45 Cost of Shares Repurchased ........... (10,550) (14,915) (1,235) (990) (333) (436) -------- -------- -------- -------- ------- ------- Increase (Decrease) in Net Assets From Investor Share Transactions ... (3,668) (6,687) 757 900 370 7 -------- -------- -------- -------- ------- ------- Flex Shares: Proceeds from Shares Issued .......... 6,823 -- 2,844 -- 2,235 -- Reinvestment of Cash Distributions ... 222 -- 50 -- 36 -- Cost of Shares Repurchased ........... (1,413) -- (153) -- (215) -- -------- -------- -------- -------- ------- ------- Increase in Net Assets From Flex Share Transactions ................... 5,632 -- 2,741 -- 2,056 -- -------- -------- -------- -------- ------- ------- Increase (Decrease) in Net Assets From Share Transactions ............ 50,427 23,340 24,711 7,459 2,612 1,025 -------- -------- -------- -------- ------- ------- Total Increase (Decrease) in Net Assets ....................... 47,569 29,124 24,069 7,966 2,529 1,113 -------- -------- -------- -------- ------- ------- Net Assets: Beginning of Period .................... 119,901 90,777 13,438 5,472 2,834 1,721 -------- -------- -------- -------- ------- ------- End of Period .......................... $167,470 $119,901 $ 37,507 $ 13,438 $ 5,363 $ 2,834 ======== ======== ======== ======== ======= ======= Shares Issued and Redeemed(1): Trust Shares: Shares Issued ........................ 7,736 4,811 2,945 857 43 137 Shares Issued in Lieu of Cash Distributions ...................... 362 113 22 9 4 3 Shares Redeemed ...................... (3,816) (2,168) (902) (199) (28) (29) -------- -------- -------- -------- ------- ------- Net Trust Share Transactions ........... 4,282 2,756 2,065 667 19 111 -------- -------- -------- -------- ------- ------- Investor Shares: Shares Issued ........................ 401 630 182 183 70 43 Shares Issued in Lieu of Cash Distributions ...................... 208 131 12 10 4 5 Shares Redeemed ...................... (934) (1,389) (120) (101) (35) (47) -------- -------- -------- -------- ------- ------- Net Investor Share Transactions ........ (325) (628) 74 92 39 1 -------- -------- -------- -------- ------- ------- Flex Shares: Shares Issued ........................ 603 -- 277 -- 233 -- Shares Issued in Lieu of Cash Distributions ...................... 20 -- 5 -- 4 -- Shares Redeemed ...................... (125) -- (15) -- (23) -- -------- -------- -------- -------- ------- ------- Net Flex Share Transactions ............ 498 -- 267 -- 214 -- ======== ======== ======== ======== ======= =======
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. F-72 STATEMENT OF CHANGES IN NET ASSETS (000) (concluded) ================================================================================ STI CLASSIC FUNDS FOR THE YEAR ENDED MAY 31, 1996
GEORGIA TAX-EXEMPT INVESTMENT GRADE SHORT-TERM BOND BOND FUND BOND FUND FUND ---------------------- --------------------- ----------------------- 06/01/95- 06/01/94- 06/01/95- 06/01/94- 06/01/95- 06/01/94- 05/31/96 05/31/95 05/31/96 05/31/95 05/31/96 05/31/95 --------- --------- --------- --------- --------- --------- Operations: Net Investment Income ........................ $ 971 $ 598 $ 35,694 $ 32,705 $ 4,224 $ 2,786 Net Realized Gain (Loss) on Investments ...... 330 (92) 19,716 (17,663) 1,358 (854) Net Change in Unrealized Appreciation (Depreciation) on Investments (789) 488 (32,383) 38,279 (2,395) 2,073 ------- ------- -------- -------- -------- ------- Increase in Net Assets from Operations ... 512 994 23,027 53,321 3,187 4,005 ------- ------- -------- -------- -------- ------- Distributions to Shareholders: Net Investment Income: Trust Shares ............................... (747) (459) (33,703) (30,731) (4,065) (2,639) Investor Shares ............................ (139) (137) (1,908) (1,979) (133) (144) Flex Shares ................................ (88) -- (114) -- (26) -- Capital Gains: Trust Shares ............................... (26) -- -- (181) (124) -- Investor Shares ............................ (6) -- -- (12) (4) -- Flex Shares ................................ (4) -- -- -- (1) -- ------- ------- -------- -------- -------- ------- Total Distributions ...................... (1,010) (596) (35,725) (32,903) (4,353) (2,783) ------- ------- -------- -------- -------- ------- Capital Transactions (1): Trust Shares: Proceeds from Shares Issued ................ 17,893 12,139 203,235 209,252 60,843 34,765 Reinvestment of Cash Distributions ......... 215 107 26,403 28,634 2,588 1,886 Cost of Shares Redeemed .................... (7,944) (3,723) (161,583) (174,411) (32,113) (11,630) ------- ------- -------- -------- -------- ------- Increase (Decrease) in Net Assets From Trust Share Transactions 10,164 8,523 68,055 63,475 31,318 25,021 ------- ------- -------- -------- -------- ------- Investor Shares: Proceeds from Shares Issued ................ 661 1,052 8,832 6,058 642 1,244 Reinvestment of Cash Distributions ......... 109 104 1,510 1,695 90 110 Cost of Shares Redeemed .................... (596) (1,260) (7,248) (10,879) (606) (1,189) ------- ------- -------- -------- -------- ------- Increase (Decrease) in Net Assets From Investor Share Transactions ................ 174 (104) 3,094 (3,126) 126 165 ------- ------- -------- -------- -------- ------- Flex Shares: Proceeds from Shares Issued ................ 4,355 -- 5,179 -- 1,014 -- Reinvestment of Cash Distributions ......... 75 -- 88 -- 22 -- Cost of Shares Redeemed .................... (150) -- (508) -- (53) -- ------- ------- -------- -------- -------- ------- Increase in Net Assets From Flex Share Transactions ......................... 4,280 -- 4,759 -- 983 -- ------- ------- -------- -------- -------- ------- Increase (Decrease) in Net Assets From Share Transactions ....................... 14,618 8,419 75,908 60,349 32,427 25,186 ------- ------- -------- -------- -------- ------- Total Increase (Decrease) in Net Assets .. 14,120 8,817 63,210 80,767 31,261 26,408 ------- ------- -------- -------- -------- ------- Net Assets: Beginning of Period .......................... 16,455 7,638 577,080 496,313 63,561 37,153 ------- ------- -------- -------- -------- ------- End of Period ................................ $30,575 $16,455 $640,290 $577,080 $ 94,822 $63,561 ======= ======= ======== ======== ======== ======= (1) Shares Issued and Redeemed: Trust Shares: Shares Issued .............................. 1,832 1,295 19,682 21,353 6,066 3,561 Shares Issued in Lieu of Cash Distributions 22 11 2,550 2,923 258 193 Shares Redeemed ............................ (823) (398) (15,629) (17,890) (3,190) (1,201) ------- ------- -------- -------- -------- ------- Net Trust Share Transactions ............. 1,031 908 6,603 6,386 3,134 2,553 ------- ------- -------- -------- -------- ------- Investor Shares: Shares Issued .............................. 68 113 856 618 64 128 Shares Issued in Lieu of Cash Distributions 11 11 146 173 9 11 Shares Redeemed ............................ (61) (135) (701) (1,115) (60) (121) ------- ------- -------- -------- -------- ------- Net Investor Share Transactions .......... 18 (11) 301 (324) 13 18 ------- ------- -------- -------- -------- ------- Flex Shares: Shares Issued .............................. 448 -- 499 -- 101 -- Shares Issued in Lieu of Cash Distributions 8 -- 8 -- 2 -- Shares Redeemed ............................ (15) -- (49) -- (5) -- ------- ------- -------- -------- -------- ------- Net Flex Share Transactions .............. 441 -- 458 -- 98 -- ======= ======= ======== ======== ======== =======
*Commencement of operations Amounts designated as "--" are either $0 or round to $0. F-73
SHORT-TERM U.S. TREASURY LIMITED-TERM FEDERAL U.S. GOVERNMENT SECURITIES FUND MORTGAGE SECURITIES FUND SECURITIES FUND ------------------------ ------------------------ ----------------------- 06/01/95- 06/01/94- 06/01/95- 06/07/94-* 06/01/95- 06/09/94-* 05/31/96 05/31/95 05/31/96 05/31/95 05/31/96 05/31/95 --------- --------- --------- ---------- --------- ---------- Operations: Net Investment Income ........................ $ 915 $ 679 $ 3,181 $ 1,515 $ 602 $ 69 Net Realized Gain (Loss) on Investments ...... 95 (160) 389 (267) (24) 6 Net Change in Unrealized Appreciation (Depreciation) on Investments .............. (294) 375 (1,359) 910 (557) 130 ------- ------- -------- -------- ------- ------ Increase in Net Assets from Operations ... 716 894 2,211 2,158 21 205 ------- ------- -------- -------- ------- ------ Distributions to Shareholders: Net Investment Income: Trust Shares ............................... (551) (415) (3,012) (1,573) (453) (54) Investor Shares ............................ (308) (264) (68) (8) (68) (15) Flex Shares ................................ (56) -- (37) -- (81) -- Capital Gains: Trust Shares ............................... -- -- -- -- (18) -- Investor Shares ............................ -- -- -- -- (3) -- Flex Shares ................................ -- -- -- -- (5) -- ------- ------- -------- -------- ------- ------ Total Distributions ...................... (915) (679) (3,117) (1,581) (628) (69) ------- ------- -------- -------- ------- ------ Capital Transactions (1): Trust Shares: Proceeds from Shares Issued ................ 5,744 7,487 46,841 50,881 9,824 3,385 Reinvestment of Cash Distributions ......... 334 271 1,846 1,254 144 15 Cost of Shares Redeemed .................... (5,409) (11,026) (16,287) (10,879) (2,556) (224) ------- ------- -------- -------- ------- ------ Increase (Decrease) in Net Assets From Trust Share Transactions 669 (3,268) 32,400 41,256 7,412 3,176 ------- ------- -------- -------- ------- ------ Investor Shares: Proceeds from Shares Issued ................ 966 4,263 2,404 633 2,290 562 Reinvestment of Cash Distributions ......... 278 260 51 7 50 8 Cost of Shares Redeemed .................... (4,147) (2,291) (533) (27) (456) (2) ------- ------- -------- -------- ------- ------ Increase (Decrease) in Net Assets From Investor Share Transactions ................ (2,903) 2,232 1,922 613 1,884 568 ------- ------- -------- -------- ------- ------ Flex Shares: Proceeds from Shares Issued ................ 2,603 -- 1,538 -- 3,019 -- Reinvestment of Cash Distributions ......... 39 -- 27 -- 59 -- Cost of Shares Redeemed .................... (188) -- (196) -- (148) -- ------- ------- -------- -------- ------- ------ Increase in Net Assets From Flex Share Transactions ......................... 2,454 -- 1,369 -- 2,930 -- ------- ------- -------- -------- ------- ------ Increase (Decrease) in Net Assets From Share Transactions ....................... 220 (1,036) 35,691 41,869 12,226 3,744 ------- ------- -------- -------- ------- ------ Total Increase (Decrease) in Net Assets .. 21 (821) 34,785 42,446 11,619 3,880 ------- ------- -------- -------- ------- ------ Net Assets: Beginning of Period .......................... 16,743 17,564 42,446 -- 3,880 -- ------- ------- -------- -------- ------- ------ End of Period ................................ $16,764 $16,743 $ 77,231 $ 42,446 $15,499 $3,880 ======= ======= ======== ======== ======= ====== (1) Shares Issued and Redeemed: Trust Shares: Shares Issued .............................. 579 765 4,639 5,110 952 342 Shares Issued in Lieu of Cash Distributions ............................ 34 28 182 126 14 2 Shares Redeemed ............................ (547) (1,122) (1,610) (1,101) (249) (23) ------- ------- -------- -------- ------- ------ Net Trust Share Transactions ............. 66 (329) 3,211 4,135 717 321 ------- ------- -------- -------- ------- ------ Investor Shares: Shares Issued .............................. 97 433 238 64 225 56 Shares Issued in Lieu of Cash Distributions ............................ 28 27 5 1 5 1 Shares Redeemed ............................ (418) (234) (53) (3) (45) -- ------- ------- -------- -------- ------- ------ Net Investor Share Transactions .......... (293) 226 190 62 185 57 ------- ------- -------- -------- ------- ------ Flex Shares: Shares Issued .............................. 262 -- 152 -- 294 -- Shares Issued in Lieu of Cash Distributions ............................ 4 -- 2 -- 6 -- Shares Redeemed ............................ (19) -- (19) -- (15) -- ------- ------- -------- -------- ------- ------ Net Flex Share Transactions .............. 247 -- 135 -- 285 -- ======= ======= ======== ======== ======= ====== PRIME QUALITY U.S. GOVERNMENT SECURITIES TAX-EXEMPT MONEY MARKET FUND MONEY MARKET FUND MONEY MARKET FUND ---------------------- ------------------------- ------------------- - - 06/01/95- 06/01/94- 06/01/95- 06/01/94- 06/01/95- 06/01/94- 05/31/96 05/31/95 05/31/96 05/31/95 05/31/96 05/31/95 --------- --------- ---------- --------- --------- --------- Operations: Net Investment Income ........................ $54,132 $ 38,348 $ 20,311 $ 15,936 $ 12,217 $8,400 Net Realized Gain (Loss) on Investments ...... (82) 71 90 (98) 9 (14) Net Change in Unrealized Appreciation (Depreciation) on Investments .............. -- -- -- -- -- -- ---------- ---------- ---------- --------- --------- -------- Increase in Net Assets from Operations ... 54,050 38,419 20,401 15,838 12,226 8,386 ---------- ---------- ---------- --------- --------- -------- Distributions to Shareholders: Net Investment Income: Trust Shares ............................... (44,689) (32,217) (17,516) (14,171) (9,342) (6,323) Investor Shares ............................ (9,442) (6,118) (2,795) (1,765) (2,872) (2,044) Flex Shares ................................ -- -- -- -- -- -- Capital Gains: Trust Shares ............................... -- -- -- -- -- -- Investor Shares ............................ -- -- -- -- -- -- Flex Shares ................................ -- -- -- -- -- -- ---------- ---------- ---------- --------- --------- -------- Total Distributions ...................... (54,131) (38,335) (20,311) (15,936) (12,214) (8,367) ---------- ---------- ---------- --------- --------- -------- Capital Transactions (1): Trust Shares: Proceeds from Shares Issued ................ 2,131,623 2,066,213 1,156,411 1,082,598 719,678 493,579 Reinvestment of Cash Distributions ......... 1,223 538 60 14 3 1 Cost of Shares Redeemed .................... (1,881,171) (1,851,031) (1,265,169) (957,634) (661,491) (422,164) ---------- ---------- ---------- --------- --------- -------- Increase (Decrease) in Net Assets From Trust Share Transactions ................... 251,675 215,720 (108,698) 124,978 58,190 71,416 ---------- ---------- ---------- --------- --------- -------- Investor Shares: Proceeds from Shares Issued ................ 1,012,310 1,019,462 231,451 338,408 322,435 235,805 Reinvestment of Cash Distributions ......... 8,255 5,689 2,414 1,594 2,480 1,523 Cost of Shares Redeemed .................... (962,468) (996,964) (221,906) (325,755) (317,341) (211,360) ---------- ---------- ---------- --------- --------- -------- Increase (Decrease) in Net Assets From Investor Share Transactions ................ 58,097 28,187 11,959 14,247 7,574 25,968 ---------- ---------- ---------- --------- --------- -------- Flex Shares: Proceeds from Shares Issued ................ -- -- -- -- -- -- Reinvestment of Cash Distributions ......... -- -- -- -- -- -- Cost of Shares Redeemed .................... -- -- -- -- -- -- ---------- ---------- ---------- --------- --------- -------- Increase in Net Assets From Flex Share Transactions ......................... -- -- -- -- -- -- ---------- ---------- ---------- --------- --------- -------- Increase (Decrease) in Net Assets From Share Transactions ....................... 309,772 243,907 (96,739) 139,225 65,764 97,384 ---------- ---------- ---------- --------- --------- -------- Total Increase (Decrease) in Net Assets .. 309,691 243,991 (96,649) 139,127 65,776 97,403 ---------- ---------- ---------- --------- --------- -------- Net Assets: Beginning of Period .......................... 956,805 712,814 480,750 341,623 303,060 205,657 ---------- ---------- ---------- --------- --------- -------- End of Period ................................ $1,266,496 $ 956,805 $ 384,101 $ 480,750 $ 368,836 $303,060 ========== ========= ========== ========= ========= ======== (1) Shares Issued and Redeemed: Trust Shares: Shares Issued .............................. 2,131,623 2,066,213 1,156,411 1,082,598 719,678 493,579 Shares Issued in Lieu of Cash Distributions ............................ 1,223 538 60 14 3 1 Shares Redeemed ............................ (1,881,171) (1,851,031) (1,265,169) (957,634) (661,491) (422,164) ---------- ---------- ---------- --------- --------- -------- Net Trust Share Transactions ............. 251,675 215,720 (108,698) 124,978 58,190 71,416 ---------- ---------- ---------- --------- --------- -------- Investor Shares: Shares Issued .............................. 1,012,310 1,019,462 231,451 338,408 322,435 235,805 Shares Issued in Lieu of Cash Distributions ............................ 8,255 5,689 2,414 1,594 2,480 1,523 Shares Redeemed ............................ (962,468) (996,964) (221,906) (325,755) (317,341) (211,360) ---------- ---------- ---------- --------- --------- -------- Net Investor Share Transactions .......... 58,097 28,187 11,959 14,247 7,574 25,968 ---------- ---------- ---------- --------- --------- -------- Flex Shares: Shares Issued .............................. -- -- -- -- -- -- Shares Issued in Lieu of Cash Distributions -- -- -- -- -- -- Shares Redeemed ............................ -- -- -- -- -- -- ---------- ---------- ---------- --------- --------- -------- Net Flex Share Transactions .............. -- -- -- -- -- -- ========== ========== ========== ========= ========= ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. F-74 FINANCIAL HIGHLIGHTS ================================================================================ STI CLASSIC FUNDS FOR THE PERIOD FROM INCEPTION THROUGH MAY 31, 1996 FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
NET REALIZED AND NET UNREALIZED GAIN NET ASSET VALUE INVESTMENT (LOSSES) DISTRIBUTIONS FROM DISTRIBUTIONS FROM ASSET VALUE BEGINNING OF PERIOD INCOME ON INVESTMENTS NET INVESTMENT INCOME REALIZED CAPITOL GAIN END OF PERIOD ------------------- ---------- ---------------- --------------------- --------------------- ------------- VALUE INCOME STOCK FUND Trust Shares 1996 $11.59 $0.35 $ 2.71 $(0.34) $(1.16) $13.15 1995 10.54 0.32 1.56 (0.32) (0.51) 11.59 1994 10.23 0.29 0.70 (0.32) (0.36) 10.54 1993(1) 10.00 0.11 0.16 (0.04) -- 10.23 Investor Shares 1996 $11.58 $0.30 $ 2.71 $(0.30) $(1.16) $13.13 1995 10.52 0.28 1.56 (0.27) (0.51) 11.58 1994 10.23 0.26 0.67 (0.27) (0.37) 10.52 1993(2) 9.73 0.09 0.44 (0.03) -- 10.23 Flex Shares 1996(3) $11.59 $0.26 $ 2.65 $(0.26) $(1.16) $13.08 MID-CAP EQUITY FUND (A) Trust Shares 1996 $11.00 $0.08 $ 2.63 $(0.08) $(0.87) $12.76 1995 9.85 0.08 1.15 (0.08) -- 11.00 1994(4) 10.00 0.02 (0.16) (0.01) -- 9.85 Investor Shares 1996 $10.99 $0.03 $ 2.62 $(0.03) $(0.87) $12.74 1995 9.84 0.03 1.15 (0.03) -- 10.99 1994(5) 10.00 0.01 (0.17) -- -- 9.84 Flex Shares 1996(6) $11.13 -- $ 2.45 $(0.02) $(0.87) $12.69 CAPITAL GROWTH FUND Trust Shares 1996 $12.18 $0.12 $ 3.32 $(0.13) $(0.59) $14.90 1995 11.99 0.16 0.57 (0.14) (0.40) 12.18 1994 11.95 0.16 0.31 (0.17) (0.26) 11.99 1993(7) 10.36 0.12 1.57 (0.10) -- 11.95 Investor Shares 1996 $12.17 $0.03 $ 3.32 $(0.04) $(0.59) $14.89 1995 11.98 0.09 0.57 (0.07) (0.40) 12.17 1994 11.93 0.09 0.31 (0.09) (0.26) 11.98 1993(8) 10.00 0.06 1.93 (0.06) -- 11.93 Flex Shares 1996(3) $12.20 $0.02 $ 3.26 $(0.05) $(0.59) $14.84 BALANCED FUND Trust Shares 1996 $10.26 $0.33 $ 1.41 $(0.34) $(0.11) $11.55 1995 9.76 0.33 0.49 (0.32) -- 10.26 1994(9) 10.00 0.11 (0.29) (0.06) -- 9.76 Investor Shares 1996 $10.30 $0.30 $ 1.41 $(0.30) $(0.11) $11.60 1995 9.79 0.28 0.51 (0.28) -- 10.30 1994(10) 10.00 0.03 (0.24) -- -- 9.79 Flex Shares 1996(11) $10.36 $0.24 $ 1.29 $(0.25) $(0.11) $11.53 INTERNATIONAL EQUITY INDEX FUND Trust Shares 1996 $10.24 $0.10 $ 0.84 $(0.13) $(0.09) $10.96 1995(12) 10.00 0.08 0.19 (0.02) (0.01) 10.24 Investor Shares 1996 $10.20 $0.05 $ 0.85 $(0.13) $(0.09) $10.88 1995(12) 10.00 0.05 0.17 (0.01) (0.01) 10.20 Flex Shares 1996(13) $10.24 -- $ 0.82 $(0.10) $(0.09) $10.87
* Annualized. + Cumulative since inception. (1) Commenced operations on February 12, 1993. (2) Commenced operations on February 17, 1993. (3) Commenced operations on June 1, 1995. (4) Commenced operations on February 2, 1994. (5) Commenced operations on February 1, 1994. (6) Commenced operations on June 5, 1995. F-75 ================================================================================
RATIO OF RATIO OF NET INVESTMENT RATIO OF EXPENSES TO INCOME (LOSS) TO NET ASSETS RATIO OF NET INVESTMENTS AVERAGE NET ASSETS AVERAGE NET ASSETS PORTFOLIO TOTAL END OF EXPENSES TO INCOME (LOSS) TO (EXCLUDING WAIVERS EXCLUDING WAIVERS TURNOVER RETURN (B) PERIOD (000) AVERAGE NET ASSETS AVERAGE NET ASSETS AND REIMBURSEMENTS) AND REIMBURSEMENTS) RATE ----------- ------------ ------------------ ------------------- ------------------- ------------------ --------- VALUE INCOME STOCK FUND Trust Shares 1996 27.91% $1,244,399 0.92% 2.86% 0.92% 2.86% 133.99% 1995 19.06% 991,977 0.95% 3.16% 0.95% 3.16% 125.71% 1994 9.95% 573,082 0.88% 3.21% 0.97% 3.12% 149.28% 1993(1) 9.05%* 137,761 0.80%* 4.32%* 0.96%* 4.16%* 34.71% Investor Shares 1996 27.39% $ 130,597 1.30% 2.47% 1.37% 2.40% 133.99% 1995 18.71% 92,256 1.30% 2.80% 1.41% 2.69% 125.71% 1994 9.27% 60,589 1.25% 2.80% 1.44% 2.61% 149.28% 1993(2) 19.42%* 24,779 1.15%* 4.51%* 1.63%* 4.04%* 34.71% Flex Shares 1996(3) 26.52%* $ 26,298 2.00%* 1.72%* 2.15%* 1.57%* 133.99% MID-CAP EQUITY FUND (A) Trust Shares 1996 25.54% $ 253,905 1.15% 0.70% 1.29% 0.56% 115.62% 1995 12.56% 125,562 1.15% 0.88% 1.32% 0.71% 65.63% 1994(4) (1.39%)+ 57,036 1.15%* 1.20%* 1.68%* 0.67%* 7.99% Investor Shares 1996 24.93% $ 17,971 1.60% 0.25% 1.96% (0.11%) 115.62% 1995 11.96% 7,345 1.60% 0.43% 2.27% (0.24%) 65.63% 1994(5) (1.60%)+ 3,004 1.60%* 0.74%* 4.60%* (2.26%)* 7.99% Flex Shares 1996(6) 23.00%* $ 5,029 2.20%* (0.37%)* 3.04%* (1.21%)* 115.62% CAPITAL GROWTH FUND Trust Shares 1996 28.97% $ 981,498 1.15% 0.90% 1.27% 0.78% 156.46% 1995 6.63% 984,205 1.15% 1.38% 1.28% 1.25% 127.79% 1994 3.87% 891,870 1.15% 1.25% 1.29% 1.11% 123.87% 1993(7) 17.90%* 507,692 1.15%* 1.43%* 1.28%* 1.30%* 95.02% Investor Shares 1996 28.18% $ 191,078 1.80% 0.24% 2.08% (0.04%) 156.46% 1995 5.93% 160,875 1.80% 0.73% 2.10% 0.43% 127.79% 1994 3.26% 170,795 1.80% 0.64% 2.11% 0.33% 123.87% 1993(8) 20.49%* 131,858 1.80%* 0.81%* 2.06%* 0.55%* 95.02% Flex Shares 1996(3) 27.48%* $ 10,969 2.27%* (0.29%)* 2.68%* (0.70%)* 156.46% BALANCED FUND Trust Shares 1996 17.26% $ 111,638 0.95% 3.00% 1.09% 2.86% 154.63% 1995 8.72% 89,051 0.95% 3.44% 1.11% 3.28% 156.61% 1994(9) (1.78%)+ 90,579 0.95%* 2.76%* 1.25%* 2.46%* 105.65% Investor Shares 1996 16.88% $ 4,896 1.25% 2.70% 1.89% 2.06% 154.63% 1995 8.29% 3,765 1.25% 3.17% 1.80% 2.62% 156.61% 1994(10) (2.10%)+ 2,311 1.25%* 2.46%* 4.91%* (1.20%)* 105.65% Flex Shares 1996(11) 15.58%* $ 3,131 2.00%* 1.85%* 2.97%* 0.88%* 154.63% INTERNATIONAL EQUITY INDEX FUND Trust Shares 1996 9.29% $ 90,980 1.05% 0.84% 1.19% 0.70% 30.46% 1995(12) 2.69%+ 89,446 1.05%* 1.13%* 1.31%* 0.87%* 10.37% Investor Shares 1996 8.90% $ 5,597 1.45% 0.48% 2.06% (0.13%) 30.46% 1995(12) 2.18%+ 3,960 1.45%* 0.67%* 2.44%* (0.32%)* 10.37% Flex Shares 1996(13) 8.32%+ $ 917 2.10%* (0.24%)* 4.14%* (2.28%)* 30.46%
(7) Commenced operations on July 1, 1992. (8) Commenced operations on June 9, 1992. (9) Commenced operations on January 3, 1994. (10) Commenced operations on January 4, 1994. (11) Commenced operations on June 14, 1995. (12) Commenced operations on June 6, 1994. (13) Commenced operations on June 8, 1995. (A) During the fiscal year ended May 31,1996, the Aggressive Growth Fund changed its name to the Mid-Cap Equity Fund. (B) Total return figures do not reflect applicable sales loads. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. F-76 FINANCIAL HIGHLIGHTS (continued) ================================================================================ STI CLASSIC FUNDS FOR THE PERIOD FROM INCEPTION THROUGH MAY 31, 1996 FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
NET NET REALIZED AND DISTRIBUTIONS NET ASSET VALUE INVESTMENT UNREALIZED FROM DISTRIBUTIONS NET ASSET BEGINNING INCOME GAINS (LOSSES) NET INVESTMENT FROM REALIZED VALUE END OF PERIOD (LOSS) ON INVESTMENTS INCOME CAPITAL GAINS OF PERIOD --------------- ----------- ---------------- -------------- ------------- --------- INTERNATIONAL EQUITY FUND Trust Shares 1996(1) $10.00 $ 0.05 $ 1.35 -- -- $11.40 Investor Shares 1996(2) $10.44 $ 0.04 $ 0.90 -- -- $11.38 Flex Shares 1996(2) $10.44 $ 0.02 $ 0.91 -- -- $11.37 SUNBELT EQUITY FUND Trust Shares 1996 $10.03 $(0.04) $ 4.32 -- $(0.20) $14.11 1995 9.70 (0.01) 0.38 -- (0.04) 10.03 1994(3) 10.00 -- (0.30) -- -- 9.70 Investor Shares 1996 $9.96 $(0.11) $ 4.30 -- $(0.20) $13.95 1995 9.69 (0.05) 0.36 -- (0.04) 9.96 1994(4) 10.00 (0.02) (0.29) -- -- 9.69 Flex Shares 1996(5) $10.20 $(0.07) $ 4.04 -- $(0.20) $13.97 INVESTMENT GRADE TAX-EXEMPT BOND FUND Trust Shares 1996 $11.28 $ 0.45 $ 0.19 $(0.45) $(0.37) $11.10 1995 10.68 0.46 0.60 (0.46) -- 11.28 1994(6) 11.37 0.22 (0.34) (0.22) (0.35) 10.68 Investor Shares 1996 $11.30 $ 0.41 $ 0.19 $(0.41) $(0.37) $11.12 1995 10.69 0.42 0.61 (0.42) -- 11.30 1994 10.79 0.33 0.25 (0.33) (0.35) 10.69 1993(7) 10.00 0.35 0.82 (0.35) (0.03) 10.79 Flex Shares 1996(8) $11.30 $ 0.37 $ 0.18 $(0.37) $(0.37) $11.11 FLORIDA TAX-EXEMPT BOND FUND Trust Shares 1996 $10.18 $ 0.46 $(0.07) $(0.46) $(0.05) $10.06 1995 9.75 0.44 0.43 (0.44) -- 10.18 1994(9) 10.00 0.13 (0.25) (0.13) -- 9.75 Investor Shares 1996 $10.18 $ 0.44 $(0.06) $(0.44) $(0.05) $10.07 1995 9.75 0.42 0.43 (0.42) -- 10.18 1994(10) 10.00 0.13 (0.25) (0.13) -- 9.75 Flex Shares 1996(8) $10.19 $ 0.39 $(0.06) $(0.39) $(0.05) $10.08 TENNESSEE TAX-EXEMPT BOND FUND Trust Shares 1996 $9.50 $ 0.43 $(0.11) $(0.42) $ -- $ 9.40 1995 9.22 0.44 0.28 (0.44) -- 9.50 1994(11) 10.00 0.12 (0.77) (0.13) -- 9.22 Investor Shares 1996 $9.53 $ 0.41 $(0.10) $(0.42) $ -- $ 9.42 1995 9.23 0.44 0.29 (0.43) -- 9.53 1994(12) 10.00 0.13 (0.77) (0.13) -- 9.23 Flex Shares 1996(5) $9.59 $ 0.37 $(0.18) $(0.37) $ -- $ 9.41
* Annualized. + Cumulative since inception. (1) Commenced operations on December 1, 1995. (2) Commenced operations on January 2, 1996. (3) Commenced operations on January 3, 1994. (4) Commenced operations on January 4, 1994. (5) Commenced operations on June 5, 1995. F-77
RATIO OF RATIO OF NET INVESTMENT RATIO OF EXPENSES TO INCOME (LOSS) TO NET ASSETS RATIO OF NET INVESTMENTS AVERAGE NET ASSETS AVERAGE NET ASSETS PORTFOLIO TOTAL END OF EXPENSES TO INCOME (LOSS) TO (EXCLUDING WAIVERS EXCLUDING WAIVERS TURNOVER RETURN (B) PERIOD (000) AVERAGE NET ASSETS AVERAGE NET ASSETS AND REIMBURSEMENTS) AND REIMBURSEMENTS) RATE ----------- ------------ ------------------ ------------------- ------------------- ------------------ --------- INTERNATIONAL EQUITY FUND Trust Shares 1996(1) 14.00%+ $213,306 1.46%* 1.36%* 1.65%* 1.17%* 113.34% Investor Shares 1996(2) 9.00%+ $ 3,448 1.81%* 1.73%* 3.14%* 0.40%* 113.34% Flex Shares 1996(2) 8.91%+ $ 953 2.51%* 1.08%* 5.86%* (2.27)%* 113.34% SUNBELT EQUITY FUND Trust Shares 1996 43.19% $412,430 1.15% (0.34%) 1.28% (0.47%) 106.27% 1995 3.81% 258,908 1.15% (0.12%) 1.30% (0.27%) 80.03% 1994(3) (2.99%)+ 128,280 1.15%* (0.19%)* 1.58%* (0.62%)* 21.42% Investor Shares 1996 42.58% $ 29,002 1.60% (0.79%) 1.93% (1.12%) 106.27% 1995 3.20% 22,180 1.60% (0.57%) 1.98% (0.95%) 80.03% 1994(4) (3.10%)+ 16,077 1.60%* (0.63%)* 2.04%* (1.07%)* 21.42% Flex Shares 1996(5) 39.86%* $ 2,705 2.20%* (1.43%)* 3.62%* (2.85%)* 106.27% INVESTMENT GRADE TAX-EXEMPT BOND FUND Trust Shares 1996 5.82% $124,507 0.75% 4.01% 0.89% 3.87% 513.90% 1995 10.21% 78,208 0.75% 4.34% 0.91% 4.18% 591.91% 1994(6) (1.10%)+ 44,595 0.75%* 3.46%* 0.95%* 3.26%* 432.46% Investor Shares 1996 5.40% $ 37,427 1.15% 3.61% 1.42% 3.34% 513.90% 1995 9.91% 41,693 1.15% 3.88% 1.43% 3.60% 591.91% 1994 5.37% 46,182 1.14% 2.96% 1.51% 2.59% 432.46% 1993(7) 11.88%* 15,844 1.12%* 3.61%* 1.83%* 2.90%* 344.87% Flex Shares 1996(8) 4.91%* $ 5,536 1.63%* 3.12%* 2.25%* 2.50%* 513.90% FLORIDA TAX-EXEMPT BOND FUND Trust Shares 1996 3.87% $ 30,790 0.65% 4.49% 0.88% 4.26% 62.68% 1995 9.26% 10,118 0.65% 4.63% 1.13% 4.15% 105.01% 1994(9) (1.19%)+ 3,192 0.65%* 3.86%* 1.12%* 3.39%* 53.24% Investor Shares 1996 3.76% $ 4,025 0.85% 4.28% 1.36% 3.77% 62.68% 1995 9.04% 3,320 0.85% 4.36% 1.50% 3.71% 105.01% 1994(10) (1.22%)+ 2,280 0.85%* 3.67%* 3.20%* 1.32%* 53.24% Flex Shares 1996(8) 3.27%* $ 2,692 1.35%* 3.79%* 2.54%* 2.60%* 62.68% TENNESSEE TAX-EXEMPT BOND FUND Trust Shares 1996 3.43% $ 1,823 0.65% 4.49% 1.68% 3.46% 41.00% 1995 8.17% 1,664 0.65% 4.90% 2.65% 2.90% 27.73% 1994(11) (6.52%)+ 594 0.65%* 4.24%* 1.43%* 3.46%* 13.05% Investor Shares 1996 3.28% $ 1,523 0.85% 4.29% 2.08% 3.06% 41.00% 1995 8.24% 1,170 0.85% 4.70% 2.10% 3.45% 27.73% 1994(12) (6.39%)+ 1,127 0.85%* 3.74%* 6.60%* (2.01%)* 13.05% Flex Shares 1996(5) 1.98%* $ 2,017 1.34%* 3.80%* 2.74%* 2.40%* 41.00%
(6) Commenced operations on October 21, 1993. (7) Commenced operations on June 9, 1992. (8) Commenced operations on June 1, 1995. (9) Commenced operations on January 25, 1994. (10) Commenced operations on January 18, 1994. (11) Commenced operations on January 27, 1994. (12) Commenced operations on January 19, 1994. (A) Total return figures do not reflect applicable sales loads. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. F-78 FINANCIAL HIGHLIGHTS (continued) ================================================================================ STI CLASSIC FUNDS FOR THE PERIOD FROM INCEPTION THROUGH MAY 31, 1996 FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
NET NET REALIZED AND DISTRIBUTIONS NET ASSET VALUE INVESTMENT UNREALIZED FROM DISTRIBUTIONS NET ASSET BEGINNING INCOME GAINS (LOSSES) NET INVESTMENT FROM REALIZED VALUE END OF PERIOD (LOSS) ON INVESTMENTS INCOME CAPITAL GAINS OF PERIOD --------------- ----------- ---------------- -------------- ------------- --------- GEORGIA TAX-EXEMPT BOND FUND Trust Shares 1996 $ 9.63 $0.43 $(0.05) $(0.43) $(0.02) $ 9.56 1995 9.42 0.42 0.21 (0.42) -- 9.63 1994 (1) 10.00 0.14 (0.58) (0.14) -- 9.42 Investor Shares $ 9.65 $0.41 $(0.05) $(0.41) $(0.02) $ 9.58 1995 9.44 0.40 0.21 (0.40) -- 9.65 1994 (2) 10.00 0.13 (0.56) (0.13) -- 9.44 Flex Shares 1996(3) $ 9.72 $0.36 $(0.14) $(0.36) $(0.02) $ 9.56 INVESTMENT GRADE BOND FUND Trust Shares 1996 $10.26 $0.60 $(0.19) $(0.60) -- $10.07 1995 9.89 0.61 0.37 (0.61) -- 10.26 1994 10.45 0.50 (0.36) (0.50) $(0.20) 9.89 1993(4) 10.09 0.45 0.36 (0.45) -- 10.45 Investor Shares 1996 $10.26 $0.56 $(0.20) $(0.56) -- $10.06 1995 9.89 0.57 0.38 (0.58) -- 10.26 1994 10.44 0.46 (0.35) (0.46) $(0.20) 9.89 1993(5) 10.00 0.44 0.44 (0.44) -- 10.44 Flex Shares 1996(6) $10.33 $0.52 $(0.26) $(0.52) -- $10.07 SHORT-TERM BOND FUND Trust Shares 1996 $ 9.98 $0.54 $(0.10) $(0.54) $(0.02) $ 9.86 1995 9.79 0.53 0.19 (0.53) -- 9.98 1994 10.01 0.42 (0.21) (0.42) (0.01) 9.79 1993(7) 10.00 0.08 0.01 (0.08) -- 10.01 Investor Shares 1996 $10.01 $0.52 $(0.10) $(0.53) $(0.02) $ 9.88 1995 9.81 0.51 0.19 (0.50) -- 10.01 1994 10.03 0.40 (0.21) (0.40) (0.01) 9.81 1993(8) 10.06 0.06 (0.03) (0.06) -- 10.03 Flex Shares 1996(9) $10.02 $0.47 $(0.12) $(0.47) $(0.02) $ 9.88 SHORT-TERM U.S. TREASURY SECURITIES FUND Trust Shares 1996 $ 9.93 $0.55 $(0.09) $(0.55) -- $ 9.84 1995 9.82 0.47 0.11 (0.47) -- 9.93 1994 9.98 0.33 (0.11) (0.33) $(0.05) 9.82 1993(7) 10.00 0.07 (0.02) (0.07) -- 9.98 Investor Shares 1996 $ 9.94 $0.54 $(0.10) $(0.54) -- $ 9.84 1995 9.83 0.46 0.11 (0.46) -- 9.94 1994 9.99 0.32 (0.12) (0.31) $(0.05) 9.83 1993(10) 10.01 0.06 (0.02) (0.06) -- 9.99 Flex Shares 1996(11) $ 9.96 $0.48 $(0.14) $(0.48) -- $ 9.82
* Annualized. + Cumulative since inception. (1) Commenced operations on January 18, 1994. (2) Commenced operations on January 19, 1994. (3) Commenced operations on June 6, 1995. (4) Commenced operations on July 16, 1992. (5) Commenced operations on June 11, 1992. F-79 ================================================================================
RATIO OF RATIO OF NET INVESTMENT RATIO OF EXPENSES TO INCOME (LOSS) TO NET ASSETS RATIO OF NET INVESTMENTS AVERAGE NET ASSETS AVERAGE NET ASSETS PORTFOLIO TOTAL END OF EXPENSES TO INCOME (LOSS) TO (EXCLUDING WAIVERS EXCLUDING WAIVERS TURNOVER RETURN (B) PERIOD (000) AVERAGE NET ASSETS AVERAGE NET ASSETS AND REIMBURSEMENTS) AND REIMBURSEMENTS) RATE ----------- ------------ ------------------ ------------------- ------------------- ------------------ --------- GEORGIA TAX-EXEMPT BOND FUND Trust Shares 1996 3.89% $ 22,950 0.65% 4.36% 0.89% 4.12% 60.02% 1995 6.94% 13,187 0.65% 4.56% 0.98% 4.23% 24.50% 1994 (1) (4.43%)+ 4,338 0.65%* 4.12%* 1.06%* 3.71%* 25.90% Investor Shares 3.69% $ 3,418 0.85% 4.17% 1.41% 3.61% 60.02% 1995 6.70% 3,268 0.85% 4.31% 1.43% 3.73% 24.50% 1994 (2) (4.29%)+ 3,300 0.85%* 3.93%* 2.36%* 2.42%* 25.90% Flex Shares 1996(3) 2.25%* $ 4,207 1.35%* 3.66%* 2.35%* 2.66%* 60.02% INVESTMENT GRADE BOND FUND Trust Shares 1996 4.02% $599,514 0.75% 5.81% 0.87% 5.69% 184.33% 1995 10.39% 543,308 0.75% 6.22% 0.88% 6.09% 237.66% 1994 1.17% 460,538 0.75% 4.77% 0.88% 4.64% 259.19% 1993(4) 9.34%* 336,132 0.74%* 5.14%* 0.87%* 5.01%* 299.32% Investor Shares 1996 3.50% $ 36,155 1.15% 5.40% 1.44% 5.11% 184.33% 1995 10.04% 33,772 1.15% 5.79% 1.49% 5.45% 237.66% 1994 0.86% 35,775 1.14% 4.39% 1.41% 4.12% 259.19% 1993(5) 9.21% 24,375 1.14%* 4.75%* 1.46%* 4.43%* 299.32% Flex Shares 1996(6) 2.50%* $ 4,621 1.64%* 4.84%* 2.49%* 3.99%* 184.33% SHORT-TERM BOND FUND Trust Shares 1996 4.45% $ 91,156 0.65% 5.39% 0.81% 5.23% 162.62% 1995 7.60% 60,952 0.65% 5.49% 0.85% 5.29% 200.49% 1994 2.02% 34,772 0.65% 4.15% 0.85% 3.95% 74.85% 1993(7) 4.45%* 25,334 0.64%* 3.88%* 1.11%* 3.41%* 63.89% Investor Shares 1996 4.23% $ 2,700 0.85% 5.20% 1.72% 4.33% 162.62% 1995 7.44% 2,609 0.85% 5.24% 1.56% 4.53% 200.49% 1994 1.81% 2,381 0.85% 3.94% 2.52% 2.27% 74.85% 1993(8) 1.65%* 716 0.85%* 3.85%* 7.22%* (2.52%)* 63.89% Flex Shares 1996(9) 3.73%* $ 966 1.20%* 4.77%* 4.06%* 1.91%* 162.62% SHORT-TERM U.S. TREASURY SECURITIES FUND Trust Shares 1996 4.73% $ 10,149 0.65% 5.56% 1.00% 5.21% 94.00% 1995 6.11% 9,599 0.65% 4.91% 1.08% 4.48% 87.98% 1994 2.17% 12,723 0.65% 3.23% 0.81% 3.07% 116.57% 1993(7) 2.22%* 30,336 0.63%* 3.34%* 1.04%* 2.93%* 36.44% Investor Shares 1996 4.52% $ 4,192 0.80% 5.43% 1.32% 4.91% 94.00% 1995 6.03% 7,144 0.80% 4.74% 1.33% 4.21% 87.98% 1994 2.01% 4,841 0.78% 3.11% 1.41% 2.48% 116.57% 1993(10) 1.84%* 2,423 0.80%* 3.16%* 3.42%* 0.54%* 36.44% Flex Shares 1996(11) 3.72%* $ 2,423 1.05%* 5.03%* 2.97%* 3.11%* 94.00%
(6) Commenced operations on June 7, 1995. (7) Commenced operations on March 15, 1993. (8) Commenced operations on March 22, 1993. (9) Commenced operations on June 20, 1995. (10) Commenced operations on March 18, 1993. (11) Commenced operations on June 22, 1995. (A) Total return figures do not reflect applicable sales loads. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. F-80 FINANCIAL HIGHLIGHTS (concluded) ================================================================================ STI CLASSIC FUNDS FOR THE PERIOD FROM INCEPTION THROUGH MAY 31, 1996 FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
NET REALIZED AND DISTRIBUTIONS NET ASSET VALUE NET UNREALIZED FROM DISTRIBUTIONS NET ASSET BEGINNING INVESTMENT GAINS (LOSSES) NET INVESTMENT FROM REALIZED VALUE END OF PERIOD INCOME ON INVESTMENTS INCOME CAPITAL GAINS OF PERIOD --------------- ----------- ---------------- -------------- ------------- --------- LIMITED-TERM FEDERAL MORTGAGE SECURITIES FUND Trust Shares 1996 $10.11 $0.62 $(0.14) $(0.60) -- $ 9.99 1995(1) 10.00 0.58 0.13 (0.60) -- 10.11 Investor Shares 1996 $10.11 $0.60 $(0.14) $(0.60) -- $ 9.97 1995(2) 9.98 0.58 0.13 (0.58) -- 10.11 Flex Shares 1996(3) $10.14 $0.55 $(0.15) $(0.55) -- $ 9.99 U.S. GOVERNMENT SECURITIES FUND Trust Shares 1996 $10.27 $0.62 $(0.33) $(0.62) $(0.03) $ 9.91 1995(4) 9.98 0.53 0.29 (0.53) -- 10.27 Investor Shares 1996 $10.26 $0.59 $(0.33) $(0.59) $(0.03) $ 9.90 1995(5) 10.00 0.56 0.26 (0.56) -- 10.26 Flex Shares 1996(3) $10.31 $0.52 $(0.37) $(0.52) $(0.03) $ 9.91 PRIME QUALITY MONEY MARKET FUND Trust Shares 1996 $1.00 $0.05 -- $(0.05) -- $1.00 1995 1.00 0.05 -- (0.05) -- 1.00 1994 1.00 0.03 -- (0.03) -- 1.00 1993(6) 1.00 0.03 -- (0.03) -- 1.00 Investor Shares 1996 $1.00 $0.05 -- $(0.05) -- $1.00 1995 1.00 0.05 -- (0.05) -- 1.00 1994 1.00 0.03 -- (0.03) -- 1.00 1993(6) 1.00 0.03 -- (0.03) -- 1.00 U.S. GOVERNMENT SECURITIES MONEY MARKET FUND Trust Shares 1996 $1.00 $0.05 -- $(0.05) -- $1.00 1995 1.00 0.05 -- (0.05) -- 1.00 1994 1.00 0.03 -- (0.03) -- 1.00 1993(6) 1.00 0.03 -- (0.03) -- 1.00 Investor Shares 1996 $1.00 $0.05 -- $(0.05) -- $1.00 1995 1.00 0.04 -- (0.04) -- 1.00 1994 1.00 0.03 -- (0.03) -- 1.00 1993(6) 1.00 0.03 -- (0.03) -- 1.00 TAX-EXEMPT MONEY MARKET FUND Trust Shares 1996 $1.00 $0.03 -- $(0.03) -- $1.00 1995 1.00 0.03 -- (0.03) -- 1.00 1994 1.00 0.02 -- (0.02) -- 1.00 1993(6) 1.00 0.02 -- (0.02) -- 1.00 Investor Shares 1996 $1.00 $0.03 -- $(0.03) -- $1.00 1995 1.00 0.03 -- (0.03) -- 1.00 1994 1.00 0.02 -- (0.02) -- 1.00 1993(6) 1.00 0.02 -- (0.02) -- 1.00
* Annualized. + Cumulative since inception. (1) Commenced operations on June 7, 1994. (2) Commenced operations on July 17, 1994. (3) Commenced operations on June 7, 1995. (4) Commenced operations on July 31, 1994. (5) Commenced operations on June 9, 1994. (6) Commenced operations on June 8, 1992. F-81 ================================================================================
RATIO OF RATIO OF NET INVESTMENT RATIO OF EXPENSES TO INCOME (LOSS) TO NET ASSETS RATIO OF NET INVESTMENTS AVERAGE NET ASSETS AVERAGE NET ASSETS PORTFOLIO TOTAL END OF EXPENSES TO INCOME TO (EXCLUDING WAIVERS EXCLUDING WAIVERS TURNOVER RETURN PERIOD (000) AVERAGE NET ASSETS AVERAGE NET ASSETS AND REIMBURSEMENTS) AND REIMBURSEMENTS) RATE ----------- ------------ ------------------ ------------------- ------------------- ------------------ --------- LIMITED-TERM FEDERAL MORTGAGE SECURITIES FUND Trust Shares 1996 4.84% $ 73,370 0.65% 6.04% 0.84% 5.85% 83.01% 1995(1) 7.50%+ 41,823 0.65%* 6.43%* 0.93%* 6.15%* 67.63% Investor Shares 1996 4.59% $ 2,512 0.90% 5.75% 2.25% 4.40% 83.01% 1995(2) 7.45%+ 623 0.90%* 6.27%* 7.74%* (0.57%)* 67.63% Flex Shares 1996(3) 4.10%* 1,349 1.25%* 5.38%* 3.59%* 3.04%* 83.01% U.S. GOVERNMENT SECURITIES FUND Trust Shares 1996 2.77% $ 10,277 0.75% 6.05% 1.25% 5.55% 83.38% 1995(4) 8.64%+ 3,291 0.75%* 6.67%* 3.33%* 4.09%* 30.39% Investor Shares 1996 2.47% $ 2,396 1.15% 5.68% 2.50% 4.33% 83.38% 1995(5) 8.61%+ 589 1.15%* 6.08%* 6.84%* 0.39%* 30.39% Flex Shares 1996(3) 1.42%* $ 2,826 1.66%* 5.18%* 2.86%* 3.98%* 83.38% PRIME QUALITY MONEY MARKET FUND Trust Shares 1996 5.25% $1,050,800 0.58% 5.11% 0.78% 4.91% -- 1995 4.79% 799,189 0.58% 4.77% 0.79% 4.56% -- 1994 2.88% 583,399 0.58% 2.86% 0.79% 2.65% -- 1993(6) 2.92%* 410,991 0.58%* 2.85%* 0.78%* 2.65%* -- Investor Shares 1996 5.08% $ 215,696 0.75% 4.94% 1.00% 4.69% -- 1995 4.62% 157,616 0.75% 4.55% 1.01% 4.29% -- 1994 2.71% 129,415 0.75% 2.67% 0.99% 2.43% -- 1993(6) 2.75%* 61,578 0.75%* 2.68%* 1.02%* 2.41%* -- U.S. GOVERNMENT SECURITIES MONEY MARKET FUND Trust Shares 1996 5.14% $ 325,493 0.61% 5.02% 0.78% 4.85% -- 1995 4.67% 434,111 0.61% 4.64% 0.80% 4.45% -- 1994 2.77% 309,228 0.61% 2.69% 0.77% 2.53% -- 1993(6) 2.79%* 453,567 0.61%* 2.71%* 0.78%* 2.54%* -- Investor Shares 1996 4.99% $ 58,608 0.75% 4.88% 0.99% 4.64% -- 1995 4.51% 46,639 0.75% 4.51% 1.02% 4.24% -- 1994 2.63% 32,395 0.75% 2.54% 0.97% 2.32% -- 1993(6) 2.65%* 16,688 0.75%* 2.57%* 1.11%* 2.21%* -- TAX-EXEMPT MONEY MARKET FUND Trust Shares 1996 3.28% $ 273,613 0.50% 3.23% 0.68% 3.05% -- 1995 3.10% 215,413 0.45% 3.12% 0.70% 2.87% -- 1994 2.08% 143,982 0.42% 2.05% 0.71% 1.76% -- 1993(6) 2.12%* 78,416 0.41%* 2.07%* 0.70%* 1.78%* -- Investor Shares 1996 3.16% $ 95,223 0.62% 3.10% 0.85% 2.87% -- 1995 3.00% 87,647 0.55% 3.00% 0.87% 2.68% -- 1994 1.96% 61,675 0.54% 1.93% 0.88% 1.59% -- 1993(6) 2.00%* 35,209 0.53%* 1.95%* 0.95%* 1.53%* --
(A) Total return figures do not reflect applicable sales loads. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. F-82 NOTES TO FINANCIAL STATEMENTS ================================================================================ STI CLASSIC FUNDS MAY 31, 1996 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 with nineteen portfolios: the Prime Quality Money Market Fund, the U.S. Government Securities Money Market Fund, the Tax-Exempt Money Market Fund (collectively the "Money Market Funds"), 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 Fund and the International Equity Index Fund (collectively the "Non-Dollar Funds"). The assets of each portfolio are segregated, and a shareholder's interest is limited to the Fund in which shares are held. Each Fund's prospectus provides a description of the Fund's investment objectives, policies and strategies. 2. Significant Accounting Policies: The following is a summary of significant accounting policies followed by the Trust. SECURITY VALUATION -- Investment securities held by the Money Market Funds are stated at amortized cost, which approximates market value. Investment securities held by the Non-Dollar Funds which are listed on a securities exchange for which market quotations are available are valued at the last quoted sales price on each business day. If there is no such reported sale, these securities and unlisted securities for which market quotations are readily available are valued at the most recently quoted bid price. Foreign securities in the International Equity Fund and the International Equity Index Fund are valued based upon quotations from the primary market in which they are traded. Debt obligations with sixty days or less remaining until maturity may be valued at their amortized cost. FEDERAL INCOME TAXES -- It is each Fund's intention to qualify as a regulated investment company for Federal income tax purposes and distribute all of its taxable income and net capital gains. Accordingly, no provisions for Federal income taxes are required. SECURITY TRANSACTIONS AND INVESTMENT INCOME -- Security transactions are accounted for on the date the security is purchased or sold (trade date). Dividend income is recognized on the ex-dividend date and interest income is recognized on an accrual basis. Costs used in determining net realized gains and losses on the sales of investment securities are those of the specific securities sold adjusted for the accretion and amortization of purchase discounts and premiums during the respective holding period. Purchase discounts and premiums on securities held by the Money Market Funds are accreted and amortized ratably to maturity and are included in interest income. Purchase discounts and premiums on securities held by the Non-Dollar Funds are accreted and amortized to maturity using the scientific interest method, which approximates the effective interest method. REPURCHASE AGREEMENTS -- Securities pledged as collateral for repurchase agreements are held by the custodian bank until the respective agreements mature. Provisions of the repurchase agreements ensure that the market value of the collateral, including accrued interest thereon, is sufficient in F-83 ================================================================================ the event of default of the counterparty. If the counterparty defaults and the value of the collateral declines or if the counterparty enters into an insolvency proceeding, realization of the collateral by the Funds may be delayed or limited. NET ASSET VALUE PER SHARE -- The net asset value per share of each Fund is calculated on each business day, by dividing the total value of each Fund's assets, less liabilities, by the number of shares outstanding. The maximum offering price per share for Investor shares of the Investment Grade Bond, the Investment Grade Tax-Exempt Bond, the Capital Growth, the Value Income Stock, the Sunbelt Equity, the Mid-Cap Equity, the Balanced, the Florida Tax-Exempt Bond, the Georgia Tax-Exempt Bond, the Tennessee Tax-Exempt Bond, the U.S. Government Securities, the International Equity, and the International Equity Index Funds is equal to the net asset value per share plus a sales load of 3.75%. The maximum offering price per share for Investor shares of the Short-Term U.S. Treasury Securities Fund is equal to the net asset value per share plus a sales load of 1.00%. The maximum offering price per share for Investor shares of the Short-Term Bond Fund is equal to the net asset value per share plus a sales load of 2.00%. The maximum offering price per share for Investor shares of the Limited-Term Federal Mortgage Securities Fund is equal to the net asset value per share plus a sales load of 2.50% Flex Shares of the Funds 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 net asset value of the shares at the time of redemption. The CDSC will not apply to shares redeemed after such time. FOREIGN CURRENCY TRANSLATION -- The books and records of the International Equity and the International Equity Index Funds 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 International Equity and the International Equity Index Funds do 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 changes in market prices of equity securities. The International Equity and the International Equity Index Funds report certain foreign currency related transactions as components of realized and unrealized gains and losses for financial reporting purposes, whereas such components are treated as ordinary income for Federal income tax purposes. OTHER -- Expenses that are directly related to a specific Fund are charged to that Fund. Class specific expenses are borne by that class. Other operating expenses of the Trust are pro-rated to the Funds on the basis of relative net assets. Fund expenses are pro-rated to the respective classes on the basis of relative net assets. Distributions from net investment income of each of the Money Market Funds and the Investment Grade Bond, the Investment Grade Tax-Exempt Bond, the Short-Term U.S. Treasury Securities, the Short-Term Bond, the Florida Tax-Exempt Bond, the Georgia Tax-Exempt Bond, the Tennessee Tax-Exempt Bond, the U.S. Government Securities and the Limited-Term Federal Mortgage Securities Funds are declared on each business day and paid to shareholders on a monthly basis. Distributions from net investment income are declared and paid each calendar quarter by the Capital Growth, the Value Income Stock, the F-84 NOTES TO FINANCIAL STATEMENTS ================================================================================ STI CLASSIC FUNDS MAY 31, 1996 Sunbelt Equity, the Mid-Cap Equity and the Balanced Funds. Distributions from net investment income are declared and paid annually by the International Equity and the International Equity Index Funds. Any net realized capital gains on sales of securities are distributed to shareholders at least annually. RECLASSIFICATION ON COMPONENTS OF NET ASSETS -- In accordance with Statement of Position 93-2, "Determination, Disclosure, and Financial Statement Presentation of Income, Capital Gain, and Return of Capital Distribution by Investment Companies", $2,231,493, $1,362,183, $187,659, $87,216, and $52,703 relating to differences attributable to the classification of short-term capital gains and net investment income for tax distribution purposes of the Capital Growth, Sunbelt, Investment Grade Bond, Short-Term Bond, and Short-Term U.S. Treasury Securities Funds, respectively, as of May 31, 1996 have been reclassified between the Fund's accumulated net realized gains/losses and undistributed net income accounts, as appropriate. These reclassifications had no effect on net asset value. 3. Organization Costs and Transactions with Affiliates: The Trust incurred organization costs of approximately $653,100. These costs have been deferred in the accounts of the Funds and are being amortized on a straight line basis over a period of sixty months commencing with operations. These costs include legal fees of approximately $41,100 for organizational work performed by a law firm of which an officer of the Trust is a partner. On March 18, 1992, the Trust sold initial shares of beneficial interest to SEI Financial Management Corporation (the "Administrator"). In the event any of the initial shares of the Trust are redeemed by any holder thereof during the period that the Trust is amortizing its organizational costs, the redemption proceeds payable to the holder thereof by the Trust will be reduced by the unamortized organizational costs in the same ratio as the number of initial shares being redeemed bears to the number of initial shares outstanding at the time of redemption. Certain officers of the Trust are also officers of the Administrator and/or SEI Financial Services Company (the "Distributor"). Such officers are paid no fees by the Trust for serving as officers of the Trust. 4. Administration, Transfer Agency Servicing and Distribution 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 Classic 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 dated May 29, 1995. The Distributor will receive no fees for its distribution services under this agreement for the Trust Shares of any Fund. With respect to the Investor Shares and Flex Shares, the Distributor receives 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 the column titled "Distribution Fee". 5. Investment Advisory and Custodian Agreements: The Trust and STI Capital Management, N.A., ("STI Capital Management, N.A."), Trusco Capital F-85 ================================================================================ Management ("Trusco"), the SunTrust Bank, Atlanta and SunTrust Bank, Chattanooga have entered into advisory agreements dated May 29, 1992 (December 20, 1993 in the case of SunTrust Bank, Chattanooga) (the "Advisory Agreements"). On May 26, 1993, the Trust's Board of Trustees approved the termination of Trust Company Bank as investment advisor to the Trust's Tax-Exempt Money Market Fund and approved the appointment of Trusco as advisor to such Fund. The Trust and Trusco subsequently entered into an advisory agreement dated June 15, 1993 (the "Advisory Agreement") which superseded the May 29, 1992 agreement between the parties. Under terms of the respective agreements, the Funds are charged the following annual fees based upon average daily net assets:
MAXIMUM FLEX SHARE MAXIMUM DISTRI- MAXIMUM TRUST INVESTOR INVESTOR BUTION FLEX ANNUAL SHARE SHARE SHARE AND SHARE ADVISORY MAXIMUM DISTRI- MAXIMUM SERVICE MAXIMUM FEE EXPENSE BUTION FEE EXPENSE FEE EXPENSE -------- -------- ----------- --------- --------- --------- TRUSCO: International Equity Index Fund* .......... .90% 1.05% .38% 1.45% 1.00% 2.10% Sunbelt Equity Fund ........... 1.15% 1.15% .43% 1.60% 1.00% 2.20% Short-Term Bond Fund ........... .65% .65% .23% .85% 1.00% 1.20% Short-Term U.S. Treasury Securities Fund ........... .65% .65% .18% .80% 1.00% 1.05% U.S. Government Securities Fund ........... .74% .75% .38% 1.15% 1.00% 1.65% Prime Quality Money Market Fund ........... .65% .58% .20% .75% -- -- U.S. Government Securities Money Market Fund ........... .65% .61% .17% .75% -- -- Tax-Exempt Money Market Fund ........... .55% .60% .15% .72% -- -- STI CAPITAL MANAGEMENT, N.A.: Value Income Stock Fund ..... .80% .95% .33% 1.30% 1.00% 2.00% Mid-Cap Equity Fund ........... 1.15% 1.15% .43% 1.60% 1.00% 2.20% Capital Growth Fund ........... 1.15% 1.15% .68% 1.80% 1.00% 2.27% Balanced Fund ... .95% .95% .28% 1.25% 1.00% 2.00% Investment Grade Tax-Exempt Bond Fund ...... .74% .75% .43% 1.15% 1.00% 1.63% Florida Tax-Exempt Bond Fund ...... .65% .65% .18% .85% 1.00% 1.35% Investment Grade Bond Fund ........... .74% .75% .43% 1.15% 1.00% 1.64% Limited-Term Federal Mortgage Securities Fund ........... .65% .65% .23% .90% 1.00% 1.25% International Equity Fund .... 1.25% 1.46% .33% 1.81% 1.00% 2.51% SUNTRUST BANK, ATLANTA: Georgia Tax-Exempt Bond Fund ...... .65% .65% .18% .85% 1.00% 1.35% SUNTRUST BANK, CHATTANOOGA: Tennessee Tax-Exempt Bond Fund ...... .65% .65% .18% .85% 1.00% 1.35%
- ----------------- *Trusco and SunBank serve as joint advisors to the International Equity Index Fund. The Investment Advisors, 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. SunTrust Bank, Atlanta, formerly Trust Company Bank, acts as custodian for all the Funds except the International Equity and the International Equity F-86 NOTES TO FINANCIAL STATEMENTS =============================================================================== STI CLASSIC FUNDS MAY 31, 1996 Index Funds. The Bank of New York serves as custodian to the International Equity Fund and the Bank of California serves as custodian to the International Equity Index Fund. Fees of the Custodians are paid on the basis of the net assets of the Funds. The Custodians play no role in determining the investment policies of the Trust or which securities are to be purchased or sold in the Funds. 6. Investment Transactions: The cost of purchases and the proceeds from sales of securities, excluding short-term investments and U.S. Government Securities, for the period ended May 31, 1996, were as follows: PURCHASES SALES (000) (000) ---------- ---------- Value Income Stock Fund ........................ $1,493,020 $1,485,530 Mid-Cap Equity Fund ............................ 289,235 205,572 Capital Growth Fund ............................ 1,729,362 1,898,664 Balanced Fund .................................. 117,600 110,702 International Equity Index Fund ................ 29,233 31,167 International Equity Fund ...................... 361,787 171,233 Sunbelt Equity Fund ............................ 387,532 349,431 Investment Grade Tax-Exempt Bond Fund .......... 660,206 618,286 Florida Tax-Exempt Bond Fund ................... 38,105 15,798 Tennessee Tax-Exempt Bond Fund ................. 4,376 1,626 Georgia Tax-Exempt Bond Fund ................... 27,200 12,685 Investment Grade Bond Fund ..................... 416,076 456,626 Short-Term Bond Fund ........................... 67,798 50,754 Short-Term U.S. Treasury Securities Fund ....... -- -- Limited-Term Federal Mortgage Securities Fund... -- -- U.S. Government Securities Fund ................ -- -- The cost of purchases and proceeds from sales of U.S. Government Securities were: PURCHASES SALES (000) (000) ---------- ---------- Value Income Stock Fund ..................... -- -- Mid-Cap Equity Fund ......................... -- -- Capital Growth Fund ......................... -- -- Balanced Fund ............................... $ 54,234 $ 36,688 International Equity Index Fund ............. -- -- International Equity Fund ................... -- -- Sunbelt Equity Fund ......................... -- -- Investment Grade Tax-Exempt Bond Fund ....... -- -- Florida Tax-Exempt Bond Fund ................ -- -- Tennessee Tax-Exempt Bond Fund .............. -- -- Georgia Tax-Exempt Bond Fund ................ -- -- Investment Grade Bond Fund ..................... $828,696 $619,825 Short-Term Bond Fund ........................... 84,205 67,661 Short-Term U.S. Treasury Securities Fund ....... 15,534 14,800 Limited-Term Federal Mortgage Securities Fund... 76,783 42,100 U.S. Government Securities Fund ................ 19,279 8,016 The aggregate gross unrealized appreciation and depreciation for securities held by the Funds at May 31, 1996, and the total cost of securities for Federal income tax purposes were as follows: VALUE INCOME MID-CAP CAPITAL STOCK EQUITY GROWTH FUND FUND FUND (000) (000) (000) ------------ -------- ---------- Aggregate gross unrealized appreciation ................... $128,322 $ 25,315 $150,430 Aggregate gross unrealized depreciation ................... (7,858) (4,392) (13,470) ---------- -------- ---------- Net unrealized appreciation ...... $120,464 $ 20,923 $136,960 ========== ======== ========== Total cost of securities for Federal income tax purposes .... $1,287,255 $260,367 $1,042,462 ========== ======== ========== INTERNATIONAL INTERNATIONAL SUNBELT BALANCED EQUITY EQUITY EQUITY FUND INDEX FUND FUND FUND (000) (000) (000) (000) -------- ------------- ------------- -------- Aggregate gross unrealized appreciation ............... $ 8,701 $11,273 $15,901 $113,112 Aggregate gross unrealized depreciation ............... (2,017) (2,306) (2,284) (12,731) -------- ------- -------- -------- Net unrealized appreciation.. $ 6,684 $ 8,967 $13,617 $100,381 ======== ======= ======== ======== Total cost of securities for Federal income tax purposes................... $114,332 $87,565 $195,658 $341,821 ======== ======= ======== ======== INVESTMENT GRADE TAX-EXEMPT FLORIDA TENNESSEE BOND TAX-EXEMPT TAX-EXEMPT FUND BOND FUND BOND FUND (000) (000) (000) ---------- ---------- ---------- Aggregate gross unrealized appreciation .. $ 482 $ 246 $ 43 Aggregate gross unrealized depreciation .. (1,178) (603) (76) -------- ------- ------ Net unrealized depreciation .............. $ (696) $ (357) $ (33) ======== ======= ====== Total cost of securities for Federal income tax purposes ............ $158,666 $36,007 $5,325 ======== ======= ====== F-87 =============================================================================== INVESTMENT GEORGIA GRADE SHORT- TAX-EXEMPT BOND TERM BOND FUND FUND FUND (000) (000) (000) --------- ---------- --------- Aggregate gross unrealized appreciation . $ 114 $3,382 $ 14 Aggregate gross unrealized depreciation . (694) (13,635) (1,342) ------- -------- ------- Net unrealized depreciation ............. $ (580) $(10,253) $(1,328) ======= ======== ======= Total cost of securities for Federal income tax purposes ........... $30,682 $661,060 $95,244 ======= ======== ======= SHORT- LIMITED- TERM TERM U.S. FEDERAL U.S. TREASURY MORTGAGE GOVERNMENT SECURITIES SECURITIES SECURITIES FUND FUND FUND (000) (000) (000) --------- ---------- ---------- Aggregate gross unrealized appreciation . $ 19 $ 301 $ 37 Aggregate gross unrealized depreciation . (137) (749) (465) ------- -------- ------- Net unrealized depreciation ............. $ (118) $ (448) $ (428) ======= ======== ======= Total cost of securities for Federal income tax purposes ........... $16,235 $341,253 $15,964 ======= ======== ======= Subsequent to October 31, 1995, the Funds recognized net capital losses for tax purposes that have been deferred to 1996 and can be used to offset future capital gains at May 31, 1996. The Funds also had capital losses carryforward at May 31, 1996, to the extent provided in the regulations for Federal income tax as follows: CAPITAL LOSS CARRYOVER EXPIRES EXPIRES EXPIRES 5/31/96 2002 2003 2004 FUND (000) (000) (000) (000) ------------- ------- ------- ------- Investment Grade Bond Fund $6,806 -- $6,806 -- Short-Term U.S. Treasury Fund 232 -- 203 $ 29 Prime Quality Money Market Fund 176 -- 3 173 U.S. Government Securities Money Market Fund 11 -- -- 11 Tax-Exempt Money Market Fund 14 $9 1 4 CAPITAL LOSS POST OCTOBER UTILIZED DURING DEFERRED LOSSES THE CURRENT YEAR FUND (000) (000) --------------- ---------------- Capital Growth Fund -- $ 1,541 Sunbelt Equity Fund -- 3,762 Balanced Fund -- 2,002 Investment Grade Bond Fund -- 11,848 Georgia Tax-Exempt Bond Fund -- 12 Tennessee Tax-Exempt Bond Fund -- 3 Short-Term Bond Fund -- 288 Limited Term Federal Mortgage Securities Fund -- 15 U.S. Government Securities Fund $37 -- Prime Quality Money Market Fund 82 -- U.S. Govenment Securities Money Market Fund -- 59 7. Concentration of Credit Risk: The Prime Quality Money Market Fund Invests primarily in high quality money market instruments rated in the highest short-term rating category by Standard & Poor's Corporation ("S&P") or Moody's Investors Services, Inc. ("Moody's") or, if not rated, are determined by the Advisor to be of comparable quality. The U.S. Government Securities Money Market Fund invests exclusively in U.S. Treasury obligations, U.S. Government subsidiary corporation securities which are backed by the full faith and credit of the U.S. Government and repurchase agreements with approved dealers collateralized by U.S. Treasury securities and U.S. Government subsidiary corporation securities. The Tax-Exempt Money Market Fund invests in high quality, U.S. dollar denominated municipal securities rated in one of the two highest short-term rating categories or, if not rated, are determined by the Advisor to be of comparable quality. The Investment Grade Bond Fund, the Short-Term Bond Fund and the Balanced Fund invest primarily in investment grade obligations rated at least BBB or better by S&P or Baa or better by Moody's or, if not rated, are determined by the Advisor to be of comparable quality. The Investment Grade Tax-Exempt Fund invests primarily in investment grade municipal securities. Municipal F-88 NOTES TO FINANCIAL STATEMENTS (concluded) ================================================================================ STI CLASSIC FUNDS MAY 31, 1996 securities must be rated BBB or better by S&P or Baa or better by Moody's in the case of bonds; SP-1, SP-2 or MIG-1, MIG-2 in the case of notes; A-1, A-2 or P-1, P-2 in the case of commercial paper; and VMIG-1, VMIG-2 in the case of variable rate demand obligations. The Short-Term U.S. Treasury Securities Fund invests exclusively in obligations issued by the U.S. Treasury with a maximum remaining maturity of 3 years or less. The Florida Tax-Exempt Bond Fund, the Georgia Tax-Exempt Bond Fund, and the Tennessee Tax-Exempt Bond Fund invest primarily in municipal bonds concentrated in each of their respective states. Municipal securities must be rated BBB or better by S&P or Baa or better by Moody's in the case of bonds; A-1, A-2 or P-1, P-2 in the case of tax-exempt commercial paper; and VMIG-1, VMIG-2 in the case of variable rate demand obligations. The U.S. Government Securities Fund invests primarily in obligations issued or guaranteed by the U.S. Government or its agencies or instrumentalities, including mortgage backed securities. The Limited-Term Federal Mortgage Securities Fund invests in mortgage related securities issued or guaranteed by U.S. Government agencies. Up to 35% of the U.S. Government Securities Fund and the Limited-Term Federal Mortgage Securities Fund may be invested in corporate, or government bonds that carry a rating of BBB or better by S&P or Baa or better by Moody's. The ability of the issuers of the securities held by the Funds to meet their obligations may be affected by economic developments in a specific industry, state or region, or by changing business conditions. The summary of credit quality ratings for the securities held by the Funds as rated by S & P at May 31, 1996 were as follows: U.S. GOV'T. PRIME QUALITY SECURITIES TAX-EXEMPT MONEY MARKET MONEY MARKET MONEY MARKET FUND FUND FUND ------------- ------------ ------------ AAA ................... 7.5% 35.0% 5.5% AA .................... 0.2% -- 6.9% A ..................... 12.7% -- 5.4% A-1 ................... 57.2% -- 51.1% A-2 ................... 2.9% -- -- A1+ ................... -- -- 1.1% SP-1. ................. -- -- 12.5% Not Rated ............. 3.7% -- 16.5% Repurchase Agreement .. 15.8% 65.0% -- Cash Equivalents ...... -- -- 1.0% ------------- ------------ ------------ Totals .............. 100.0% 100.0% 100.0% ============= ============ ============ SHORT-TERM INVESTMENT INVESTMENT U.S. GRADE GRADE SHORT-TERM TREASURY BOND TAX-EXEMPT BOND SECURITIES FUND BOND FUND FUND FUND ---------- ---------- ---------- ---------- AAA ...................... 70.6% 57.7% 68.6% 96.9% AA ....................... 3.1% 22.7% 6.1% A ........................ 10.1% 9.4% 12.7 -- A-3 ...................... -- -- 2.1% -- BBB ...................... 11.8% 2.2% 7.7% -- Not Rated ................ -- 3.3% -- -- Repurchase Agreement ..... 4.4% -- -- -- Cash Equivalents ......... -- 4.7% 2.8% 3.1% ---------- ---------- ---------- ---------- Totals ................. 100.0% 100.0% 100.0% 100.0% ========== ========== ========== ========== LTD.-TERM FEDERAL FLORIDA TENNESSEE GEORGIA MORTGAGE U.S. GOV'T BALANCED TAX-EXEMPT TAX-EXEMPT TAX-EXEMPT SECURITIES SECURITIES FUND BOND FUND BOND FUND BOND FUND FUND FUND -------- ---------- ---------- ---------- ---------- ----------- AAA ......... 27.8% 81.2% 53.3% 35.7% 88.4% 92.5% AA .......... .8% 11.5% 32.2% 41.5% -- -- A ........... 3.7% 1.9% 4.9% 8.7% -- -- A-1 ......... -- -- -- -- -- -- A-2 ......... -- -- -- -- -- -- A-3 ......... -- -- -- -- -- -- BBB ......... 7.6% -- -- -- -- -- BB .......... -- -- -- -- -- -- S - 1 ....... -- -- -- -- -- -- Equities .... 56.2% -- -- -- -- -- Not Rated ... -- 1.3% 8.6% 8.6% 3.8% -- Repurchase Agreement.. 3.9% -- -- -- 7.1% -- Cash Equivalents -- 4.1% 0.7% 5.5% 0.7% 7.5% ------ ------ ------ ------ ------ ------ Totals .... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% ====== ====== ====== ====== ====== ====== F-89 =============================================================================== The summary of credit quality ratings for the securities held by the Funds as rated by Moody's at May 31, 1996 were as follows: U.S. GOV'T. PRIME QUALITY SECURITIES TAX-EXEMPT MONEY MARKET MONEY MARKET MONEY MARKET FUND FUND FUND ------------- ------------ ------------ Aaa .................. 9.9% 35.0% 6.4% Aa ................... 0.4% -- 10.5% A .................... -- -- 1.3% A-1 .................. 3.0% -- 2.5% A-2 .................. 8.3% -- 2.2% A-3 .................. 0.8% -- -- P-1 .................. 57.2% -- 14.2% P-2. ................. 2.9% -- -- MIG-1 ................ -- -- 12.9% VMIG-1 ............... -- -- 30.4% Not Rated ............ 1.7% -- 18.5% Repurchase Agreement . 15.8% 65.0% -- Cash Equivalents ..... -- -- 1.1% ------------- ------------ ------------ Totals ............ 100.0% 100.0% 100.0% ============= ============ ============ INVESTMENT SHORT-TERM GRADE U.S. INVESTMENT TAX-EXEMPT SHORT-TERM TREASURY GRADE BOND BOND SECURITIES BOND FUND FUND FUND FUND ---------- ---------- ---------- ---------- Aaa ................ 70.6% 61.5% 68.6% 96.9% Aa ................. 5.5% 16.0% 6.1% -- A .................. -- 5.0% 2.1% -- A-1 ................ 5.3% 4.8% 2.9% -- A-2 ................ 4.6% -- 6.3% -- A-3 ................ -- -- 6.3% -- Baa ................ 9.6% -- 4.9% -- Not Rated .......... -- 7.9% -- -- Repurchase Agreement 4.4% -- -- -- Cash Equivalents ... -- 4.8% 2.8% 3.1% ---------- ---------- ---------- ---------- Totals .......... 100.0% 100.0% 100.0% 100.0% ========== ========== ========== ========== LTD.-TERM FEDERAL FLORIDA TENNESSEE GEORGIA MORTGAGE U.S. GOV'T BALANCED TAX-EXEMPT TAX-EXEMPT TAX-EXEMPT SECURITIES SECURITIES FUND BOND BOND FUND BOND FUND FUND FUND -------- ---------- ---------- ---------- ---------- ---------- Aaa ....... 27.8% 80.4% 51.1% 41.7% 92.2% 92.5% Aa ........ 1.6% 11.5% 25.4% 32.3% -- -- A ......... -- -- 1.8% 5.1% -- -- A-1 ....... 2.0% -- 10.7% 11.1% -- -- A-2 ....... 1.7% -- -- -- -- -- Baa ....... 6.5% 3.5% 10.3% -- -- -- Ba-1 ...... 0.3% -- -- -- -- -- Not Rated . -- 0.5% -- 4.3% -- -- Equities .. 56.2% -- -- -- -- -- Repurchase Agreement 3.9% -- -- -- 7.1% -- Cash Equivalents -- 4.1% 0.7% 5.5% 0.7% 7.5% ------ ------ ------ ------ ------ ------ Totals .. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% ====== ====== ====== ====== ====== ====== F-90 -----END PRIVACY-ENHANCED MESSAGE-----